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ECONOMIC ANALYSIS: Enlightened law ended monopoly in cable TV business

June 9, 2008

A couple of weeks ago, I returned home one evening to find our old cable TV box sitting on the kitchen table. My wife had grown tired of the high price for our bundled cable TV and broadband Internet and called a rival company.

When she was quoted the new price, it was out with the old and in with the new at record speed. It turns out that there was a nice, new service available on our street that allowed her to choose cable TV, telephone and broadband from a phone company. Now, as a rule I don't like to give ad hoc economics lessons to my wife. But seeing as how she'd found a bargain, I thought I would try it. Here's what I told her:

Isn't it great to live in Indiana, the first state to allow true competition in telecommunications with the passage of House Enrolled Act 1279 in 2006? The legislation (often called video franchising) has been adopted by more than 20 states in the past two years and is the national model for promoting competition in telecommunications services (like broadband in rural areas).

The big news for most consumers isn't just the access to broadband, but that prices are dropping. We were able to bundle our home phone, cable TV and broadband for less money than we paid our local cable company for two services. Things worked just as economic theory tells us: Competition lowers prices-about 40 percent in our case.

What I didn't tell her was that there was strong opposition to HEA 1279 from a lot of vested interests. Obviously, the local cable TV companies fought this law tooth and nail. Life as a monopolist is too easy to give up without a fight. Indiana's Citizens Action Coalition also argued against the legislation. I guess it doesn't want the state to surrender any regulatory power, no matter how obsolete it might be today.

I also didn't tell her that a recent study by the Digital Policy Institute at Ball State University had found significant economic impact of deregulation. This included 2,200 telecommunications workers and more than $500 million in new investment in Indiana.

Sadly, there seems to be one last holdout in the Indiana General Assembly who wants to reverse the law (but then he used to work for a regulator). This representative, Matt Pierce of Bloomington, recently released a statement chastising the legislation and calling into question the work of the Digital Policy Institute. The one thing in his press release that bothered me is that he claims to know nothing about the expected price cuts the law was expected to deliver. He wrote that the only thing he has seen was his cable TV bill go up 7 percent.

This lawmaker needs my wife advising him on his home telecommunications policy. Here's a hint: If you don't like your current cable provider's price, just call the competition (and thank Indiana's leaders while you are at it).



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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