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Cable: deregulation good for consumers; Ars: like heck it is

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Created 06/19/2008 - 7:06am

from: Ars Technica [1]

Cable: deregulation good for consumers; Ars: like heck it is

By Nate Anderson | Published: June 10, 2008 - 12:50PM CT

If the last 10 years have taught us anything, it's that the cable industry in the US is focused on openness, innovation, and customer satisfaction; but if we can't keep the government's knuckleheaded regulators out of our cable lines and off our Internet, cable's nearly absurd level of innovation will be throttled down more effectively than BitTorrent uploads on Comcast's network. Well, so says the cable industry, at least.

Cable: pro-consumer and innovative

Kyle McSlarrow heads the National Cable & Telecommunications Association (NCTA), the trade group that represents cable. Any job that involves getting up on a regular basis and defending cable's insane rate hikes as consumer-focused measures that spur innovation can't be a real laughfest, but McSlarrow soldiers on. Yesterday, he gave a major speech to the National Press Club in Washington, DC that made the above points (though with fewer digs at Comcast) and claimed that cable was "a great American success story."

In the speech, McSlarrow described cable's basic approach as one characterized by "embracing innovation and open markets and platforms" and "focusing on the customer." (I know, right?) The point of the speech wasn't just to talk up cable, though, and it opened with a call for a "public policy approach that relies on 'self-regulatory' actions that facilitate collaborative private-sector solutions to complicated technology and business disputes" like network management and net neutrality.

It closed the same way, with the statement that "the evidence is overwhelming that marketplace collaboration and self-regulation is a pro-consumer approach that deserves our support."

So let's do as McSlarrow suggests and take a look at the evidence.
What hath deregulation wrought?

Business don't always dislike regulation; if regulation throws up such stiff barriers to entry that new competitors rarely emerge, that's great for incumbents. And if you can "capture" your regulator in such a way that you have a cozy industry/government connection that doesn't rely on market forces or respond to customer pressure, that can work out pretty well, too. But in most other cases, businesses would prefer deregulation, the more the better.

It's an idea that flourished in the last few decades, but regulatory enthusiasm is making a comeback. In the just-released new issue of The Atlantic, editors count down the "11½ Biggest Ideas of the Year," and number seven is "the return of regulation." Clive Crook notes that "this empowerment of the market was usually advantageous, sometimes bungled, and nearly always controversial—but for years the trend was mostly one-way. Now a major rethink is underway."

Certainly deregulation has been good to cable. Consumers Union, the nonprofit that puts out Consumer Reports magazine, took a look at the results. Their conclusion? It led to much, MUCH higher prices.

"Until 1984, local governments kept cable prices in check," says CU. "Then deregulation resulted in a torrent of price hikes, interrupted only by a brief period, 1993-1996, when rates were regulated. The Telecommunications Act of 1996 opened the flood gates to deregulation and more price hikes. Since passage of the 1996 Act, cable rates have increased by 59 percent—almost three times the rate of inflation—according to the Bureau of Labor Statistics."
The lost art of customer service

So maybe the prices are high and the competition is low, but customer service is just phenomenal. Unfortunately, it's not. Even McSlarrow admits, "You might expect me to avoid the subject of customer service." When the spinmeister-in-chief for the industry admits there are serious issues, the situation is probably dire.

For a quantitative look at just how dire it is, we can turn to the widely-watched American Customer Satisfaction Index from the University of Michigan. McSlarrow admitted that "we don't find the kind of customer feedback you see reflected in some surveys acceptable," and this was certainly one of those surveys he had in mind. In 2007, the ACSI found that cable satisfaction scores were, if not actually in the toilet, at least perched on the edge of bowl.

In 2008, despite McSlarrow's newfound customer commitment, cable scores lagged below the satellite TV operators as Charter and Comcast lost even more ground (Time Warner did gain a single point, though). Smaller operators improved their satisfaction scores, but Comcast set "an all-time low for the largest cable provider in the country," according to Dr. Claes Fornell, who heads the study. Fornell also noted last year that "there seems to be an element of monopoly-like pricing in the cable industry."

Given these results, it's unclear how McSlarrow arrived at his statement that "on a fundamental level, consumers love our services and they intuitively understand the great value they receive." No one I have ever spoken with about cable service has made such claims, but perhaps I simply know the wrong sort of people.
Net neutrality: a "private sector dispute"

So, given how well Congress' "wise decision in 1996 to deregulate our industry" has worked when it comes to traditional cable television service, it's at least fair to be skeptical about cable's continued calls for government to stay completely away from network management and net neutrality issues.

To its credit, the cable industry and America has at least provided a real alternative to DSL (one not seen in much of Europe, where line-sharing is used to create competition instead), and cable companies have put some much-needed pressure on incumbent telcos with VoIP home phone services. Finally, cable has built a broadband infrastructure that, even if it's not cheap or particularly fast compared to other leading countries, reaches most Americans and is generally capable of faster speeds than DSL. With DOCSIS 3.0 upgrades currently beginning, cable should get significantly faster than DSL over the next few years.

And all of this without much in the way of government regulation!

But one has only to look at the recent FCC oversight hearing on network management that has focused on practices at Comcast to see how important it is to have a public-interest regulator looking over the shoulders of these companies. With the Internet now a key resource that has quickly come to rival water, heat, and power as a utility, such issues are surely a bit more than some mere "private sector dispute" (as McSlarrow put it). Even he admits that cable has had "helpful public-policy nudges" along the way, and one thinks about Comcast's recent decision to investigate fairer, user-focused throttling that doesn't target particular protocols or applications.

While new laws and increased regulation may not prove necessary to keep the Internet healthy in America, it would still be a shame if Congress and regulators like the FCC were so much of McSlarrow's mindset that oversight proved a mere formality and enforcement became toothless. This isn't a "reflexive desire by some to involve government in every private sector dispute," but a recognition that Internet access in a less-than-fully-competitive marketplace is too important for total self-regulation.

"Foxes" and "henhouses" come to mind, but when the henhouse is actually the most innovative henhouse in the world, a place of almost magical scope and variety where eggs of every shape and color are laid by all the chickens of the world, any prudent farmer would at least pay someone to sit at the door with a shotgun.

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