Tennessee Cable TV Monopolies Raise Prices, But Competition Could Save Consumers $460 Million

Cable TV rates continue to rise in Tennessee.  However, overwhelming evidence shows that cable TV competition would give consumers lower prices, better service and increased choice.  While many states have enacted cable TV reform legislation in order to achieve these consumer benefits, Tennessee policymakers have yet step up for consumers.    

Monopoly 101: Consumers Lose 

There is lack of cable TV competition in the state of Tennessee, and that has permitted cable monopolies throughout the state to increase prices and provide poor service quality without the fear of losing customers.  A 2006 study by the American Consumer Institute found that consumers annually lose $32 billion nationwide and $460 million in Tennessee due to overpriced cable services.  While many states have begun to enact legislation to encourage competition, Tennessee has not; and this has meant that consumers have continued to pay too much for their cable TV services.  Although high cable prices harm all consumers, they severely affect lower-income consumers and dampen the demand for broadband services as well, particularly in rural areas.  In fact, studies show that broadband markets in monopoly-only cable TV areas have a significantly lower broadband penetration rate than in competitive cable TV areas. 

The lack of cable TV competition is particularly bad news for seniors, who – according to U.S. Congressional testimony of the AARP – use the service, on average, 5.5 hours per day.  With cable service prices increasing faster than the prices of other key items, including prescription drugs, nonprescription drugs and medical care services, seniors are adversely harmed by excessively high cable prices.  In fact, the American Consumer Institute study found that a senior citizen household will pay $1,200 too much for cable TV services over the next five years in monopoly cable TV markets. As the chart below shows, the increases have been recent, widespread and faster than the rate of inflation. 

Examples of Recent Cable TV Price Increases

Studies Show Consumers Win with Competition

Numerous studies have found that increasing wireline competition – competition from new cable providers like Knology, OneSource, RCN, AT&T and Verizon – would lead to lower cable TV prices and significant consumer benefits.  Here are the facts:

• The latest Federal Communications Commission study concluded that wireline competition would produce the biggest savings for consumers, lowering cable TV prices by 25% per channel. 
• The U.S. General Accounting Office (GAO, Feb. 2004) found cable TV prices to be 28% lower in competitive markets.
• A Bank of America report (2006) showed that incumbent prices have declined 43%, 39%, and 29% in three newly competitive markets, for an average price reduction of 37%.
• Based on a survey of consumers (American Consumer Institute, 2006), cable customers living in competitive markets reported saving (on average) $22.30 per month.  The same survey uncovered the fact that customers who attempted to switch, but were enticed to stay with the existing cable TV provider, reported saving (on average) $26.83 per month.
• Newspapers articles have cited sizable price reductions when cable services are bundled with other communication services, with some reporting 50% price decreases.
• Senior Fellows for the Brookings Institute, Dr. Crandall and Dr. Litan (Criterion Economics, 2006), estimated that competition would result in price reductions of 14%.
• Similarly, Ford and Koutsky (Phoenix Center, 2006) estimated that competition would result in 15% lower cable TV prices, and they estimated that legislative delay would cost consumers at least $8.2 billion each year.
• Former FCC Chief Economist and Professor Tom Hazlett (George Mason University School of Law, 2006) estimated that the lack of competition amounts to an annual $9 billion consumer welfare loss.
• Professors Ellig and Brito (Mercatus Center, 2006) estimated that cable monopolies create $10.4 billion in losses for consumers, due to high prices and forgone benefits.

The message of these and many other convincing studies is that cable competition leads to lower consumer prices.  Obviously, when prices fall, consumers benefit, but there are many other benefits as well.  By adding competitive discipline to the market, consumers get choice, better service quality and improved customer service.    

Additional Benefits of Cable TV and Video Competition

Beyond direct consumer benefits from lower prices (cited above) and better quality of service, communities benefit from cable TV and video competition in one important way – competition grows the economy.  For example, studies by the FCC and GAO estimated that, for every 1% decrease in price, demand for cable TV services would increase by 2.2% and 3.2%, respectively.  This means that price competition grows the cable TV and video market, adds investment, creates jobs (101,000 jobs by one study’s estimate), facilitates economic development, and increases the tax base for local communities.  In addition, an American Consumer Institute survey (2006) found that competition led to increased broadband service use.  There is simply no downside to competition.

Positive Change Could Be Coming to Tennessee Consumers: $460 million in Savings

A mood for change is sweeping across the country.  So far, over 50% of the U.S. population now lives in states where cable TV reforms are in effect – including South Carolina, Virginia, Indiana and Florida – and evidence is that consumers are saving millions of dollars from lower price cable TV service and billions more have already been pledged for investment in these states.  Considering the overwhelming evidence of the benefits of competition, this is good news for consumers.  However, for those citizens living in states where cable TV reforms have been delayed, unfortunately, these benefits will not materialize any time soon.  Based on studies by the American Consumer Institute, Tennessee consumers are losing $460 million of potential savings per year, because of the lack of cable TV competition in the state.

It is time for the General Assembly to protect consumers, not cable monopolies.  Tennessee consumers deserve better and should see the same benefits realized in neighboring states.