New GAO Report Raises Questions about Cable Re-Regulation

On Friday, October 24th, the General Accounting Office (GAO) released a study, “Telecommunications: Issues Related to Competition and Subscriber Rates in the Cable Television Industry” (GAO 03-1033) that should give pause to those seeking to re-regulate the industry. “The GAO warns of the unintended consequences of government policies to force prices lower, and notes that promoting competition in an open market may be the best course for the future,” said Paul Beckner, president of Citizens for a Sound Economy.

While many critics are calling for the re-regulation of cable television in the wake of rising prices, the GAO report found that prices increases can be attributed to costs and investments made by cable companies to better serve consumers. These include programming costs, which have increased significantly in recent years, as well as investments in infrastructure that allows cable companies to provide consumers additional services, such as broadband Internet access and digital channels.

Some critics have targeted the way cable companies bundle channels into tiers of service rather than letting consumers make à la carte selections of the channels they prefer. However, the GAO study found could increase costs for both cable operators as well as cable consumers. Additional equipment and higher administrative costs would drive prices higher.

“The cable industry provides an important example of how markets evolve and adapt new technologies to serve consumers better,” said Beckner. “Efforts to re-regulate this dynamic sector of the marketplace are misguided and harmful to consumers.

“Competition, from other cable networks or from digital broadcast satellite companies, keeps downward pressure on prices and forces producers to continually improve the quality of service. The economics are simple. This is a textbook case of how markets and competition work to benefit consumers.”