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Consumer Group Says FCC Move on Video Competition Risky

December 20, 2006

Consumer Group Says FCC Move on Video Competition Risky
Without Assurances that Cable Rates Will Fall, Decision Does More Harm Than Good

Washington, D.C. — Consumers Union called the Federal Communications Commission’s decision today to let phone companies begin offering video services without adhering to basic consumer protection requirements a risky move based on only flimsy evidence that consumers will actually benefit from the move.
“Consumers are ill-served by the Commission’s decision to let phone companies pick and choose which neighborhoods will get more choice for cable service and which will be left with only their monopoly cable provider, facing both rate hikes and no hope of any alternative,” said Jeannine Kenney, senior policy analyst with Consumers Union. “Unless consumers receive assurances from both the FCC and the Bells that cable rates will actually decline for all customers in a market after phone companies begin offering service, FCC’s decision may do more harm than good.”
The Commission today approved new rules that allow a phone company to begin offering video services within 90 days of submitting an application to a local government. Unless the application is approved or denied within that time frame, the phone company can begin offering video services even if they refuse to agree to the locality’s requirements for where and when they must provide their services. Such “build-out” requirements help prevent phone companies from refusing to offer video services to less affluent areas.
Kenney said the inability of local government to require specific build-out obligations puts consumers who aren’t offered the new service at risk of higher prices from their existing cable provider. Under federal law, once a phone company begins offering video services in a community, regardless of how many customers they serve, local governments can no longer constrain rates for the basic cable service ? the only service still regulated ? and the cable monopoly is no longer required to offer all consumers the same prices for the same services.
“That leaves those left in the cold by the phone companies facing higher, not lower, cable rates,” she added. “While the FCC data appear to show that communities with two cable companies enjoy lower prices, this decision does nothing to ensure that phone companies competing with cable will actually offer lower rates or that cable companies will respond by lowering their own prices.”
Kenney noted that although cable rates have soared since Congress deregulated most rates in 1996, jumping by 70 percent (according to Bureau of Labor Statistics data), evidence is lacking that rates will actually decline when phone companies compete with cable.
Despite the threat of competition from phone companies, cable providers have continued to hike rates, with cable prices rising, on average, more than 3% from January to November 2006. Some areas saw increases as high as 9%. Cable companies are still announcing their rate hikes for 2007. In most metro areas, consumers can expect a 5% increase. Verizon has already increased rates for its FiOS video package in markets it entered only this year. And in mid-2006, AT&T chief Ed Whitacre discounted notions that video competition from phone companies will produce a price-war. “It is hard to believe that by waving its regulatory wand, the federal government has done anything to help consumers see the end of spiraling cable rates,” Kenney concluded.
Contact: Jennifer Fuson, 202-462-6262, fusoje@consumer.org