PORTLAND — Mergers can provide an opportunity to reconsider public policy issues related to cable. The trouble with cable is that cable operators are not common carriers or public utilities and they are not effectively regulated.

Common carriers have to serve all comers. A typical common carrier (e.g., a railroad) transports goods that it does not itself own. Cable operators, on the other hand, are private carriers that provide cable TV service over their own wires.

In telecommunications, common carriers are required to deliver the information content of others. A common carrier typically has to provide reasonable service to all comers at a reasonable price. Many common carriers, such as the telecommunications companies mandated to provide basic local telephone service (or incumbent local exchange carriers), are regulated as public utilities. Cable operators are rarely treated as public utilities.

Cable operators are not effectively regulated as a practical matter. Franchise regulation by a municipality is the governance mechanism that is typically used to oversee cable operators in a locality, but most economists (following the work of Nobel Prize winner Oliver E. Williamson) are skeptical of the effectiveness of that regulation.

Cable operators have programming control, which means that they can choose the programming that is available to their customers. Cable operators are not obligated to transmit programming on their systems, which leads to carriage disputes, e.g., Time Warner Cable’s dispute with the NFL’s cable channel. Cable operators may be able to extend their market power in cable carriage into programming.

Cable carriers can use their network to provide cable TV service, broadband Internet service and voice telephone service. This cable “triple play” is tough to beat. Part of this is the inherent technological advantage of cable broadband service relative to DSL or wireless Internet services, but the “bundling” of these services may enhance cable carriers’ ability to leverage their market power in cable delivery into broadband Internet and landline telephone services.

The broadband Internet service provided by cable operators has become perhaps more important as a policy matter than their cable service. Internet service providers, including cable operators, are not common carriers and are not regulated as public utilities. Broadband service can be slow and costly in the U.S. Cable operators’ broadband service is typically the fastest alternative available, and many cable operators now compete based on service rather than price.

One viable alternative to cable broadband service is municipally provided broadband service, but about 20 states have passed laws that prevent municipalities from providing this service. This is a bad idea, as it may serve to enhance and protect cable’s market power in providing broadband Internet service.

Another economic problem is that with the apparent demise of “net neutrality,” cable operators may be able to leverage their market power in broadband Internet service into Internet content. ISPs are considered to provide information services, not voice telephone service, and are not regulated as common carriers.

The proposed merger of Comcast and Time Warner Cable may provide an opportunity to promote robust competition in telecommunications by imposing conditions on the merger, e.g., by preventing cable operators from leveraging their market power in delivering cable and broadband services. It is unlikely that U.S. cable carriers and ISPs will ever become common carriers – public utilities – or be effectively regulated.

Cable has numerous competitive advantages in telecommunications, and the deregulation of the basic local phone service providers may be needed in order to level the playing field and promote robust competition. An inability to regulate cable operators may mean that the continued retail regulation of the basic local phone service providers would be counterproductive in terms of promoting competition and choice for consumers.

The Telecommunications Act of 1996 opened up all aspects of telecommunications to competition. Competition in telecommunications is now platform-based, with customers choosing among competing platforms and then deciding on a carrier and the services that the customer will take from that carrier.

With platform competition between wireless carriers, competitive local exchange carriers (including cable carriers) and basic landline local phone service providers, local telephone service is no longer a simple example of a “natural” monopoly.

Indeed, it may now make sense, as a number of states have already done, to deregulate basic local phone service providers at the retail level (while retaining regulation at the wholesale level that accommodates competition), in order to enable basic phone service providers to compete more effectively against cable operators.

— Special to the Press Herald

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