AEI Study: Federal Cable Regulations Harm Consumers
December 16, 1998
Price controls on cable television service harm consumers, say economists, even when they appear to keep prices down. And consumers benefit from decontrol, although prices may rise faster.
In 1984, Congress deregulated cable rates, only to reregulate them in 1992, and then de-reregulate them in 1996.
- After price controls were totally eliminated at the end of 1986, subscribers' cable bills rose about 18 percent after adjusting for inflation.
- But during the 1993-1994 period of reregulation, prices declined -- after adjusting for inflation, cable subscriber bills in October 1994 were nearly 10 percent lower than if the pre-1992 trend had continued.
- Since the Telecommunications Act of 1996 put cable rates on a path toward total deregulation in 1999, cable rates have increased rapidly -- in the year ending July 1997, prices rose 8.5 percent.
However, consumers apparently did not receive a net benefit from price controls, measured by the share of households subscribing to cable service:
- Following decontrol, there was a statistically significant upturn in the growth rate of subscriptions in the 1987- 1988 period.
- In the two years preceding passage of the 1992 Cable Act, A. C. Nielsen estimates U.S. cable subscribership rose 7.1 percent.
- But in the two years following reregulation, the market penetration of cable television actually declined 1.4 percent.
The reason for this seeming paradox is that cable operators reduced service quality to more than offset price regulation. On the other hand, although the total bill increased after price controls were lifted in 1986, there were relative declines in the prices charged for expanded service tiers and premium channel programming. And more recent price increases have been accompanied by enhanced quality and new services, such as high- speed Internet access.
Source: Thomas W. Hazlett and Matthew L. Spitzer, "Public Policy toward Cable Television: The Economics of Rate Controls," AEI Book Summary, September 1998, American Enterprise Institute, 1150 Seventeenth Street, N.W., Washington, D.C. 20036, (202) 862-5800.
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