1/26/00
'96 TELECOMMUNICATIONS ACT MIXED BAG FOR CONSUMERS: AU EXPERTS
AUBURN -- The 1996 Telecommunications Act was supposed to lower cable television rates, diversify the ownership of radio and TV stations and improve the quality of local and long-distance telephone service -- all through deregulation.
The federal act "promised the moon in terms of benefits to consumers," says Robert Ekelund Jr., the Lowder Eminent Scholar in Economics at Auburn University.
But Ekelund and his colleague, John Jackson, also an economics professor at AU, agree that benefits for consumers, thus far, has been a mixed bag.
"I'm all in favor of the vision of the Telecommunications Act, but it hasn't given people instant results," says Ekelund There is "short-term evidence," says Ekelund, that consumers are not getting what they were promised, but he says improvements may be just around the corner as technology continues to evolve
"They are getting the shaft in pay phones, for example," he says. "Local service for telephone users will rise for some, fall for others. Cable TV rates have gone up. The question is do we want to go back or do we want to wait for a few years and see if technology will come to the rescue."
Ekelund and Jackson say there's not enough evidence yet to determine whether the Telecommunications Act is a failure.
"I think mergers are a sign that somebody -- stockholders, managers -- see efficiencies somewhere," Ekelund says. "Our evidence seems to show that these mergers are not creating monopoly power, and the reason is that you have this incredible rapid technological advances."
Ekelund concedes that interim economic studies "are not terribly promising in telephone," but he adds, "There's a lot activity in radio and TV that looks pretty efficient. It look like consumers will ultimately benefit."
One area that has admittedly been slow to change in favor of consumers is cable TV.
"Cable television is where I find monopolies to be quite entrenched," Ekelund says. "Cable TV has been a regional or local monopoly since it was brought under the umbrella back in the 70s."
One of the reasons that cable TV retains its monopoly is because of the franchise tax that cities collect.
"Communities look upon the franchising of cable and the receipt of that 5 percent (franchise tax revenues) as a cash cow," says Ekelund
"Communities have been reluctant to admit multiple (cable) suppliers because it (tax) is confusing to collect and because the collections may go down if the price of cable goes down with competition."
Even though cable rates would drop with competition, Ekelund says cities prefer dealing with one cable company.
"We have evidence that competition in cable markets -- where it exists -- has lowered prices," he says. "We have significant evidence that's the case. But with lower prices, the income they (cities) take in is less."
Under the 1996 act, cable TV rates were deregulated as of March 1999.
"We've all seen (cable) prices go up, and in general prices across America have gone up," says Ekelund.
The tight regulation of cable TV in the 1970s hampered cable operators in terms of expansion of channel offerings and the development of new technology, said Ekelund.
"Given that, it's probably not terribly wise to re-regulate, but we ought to watch it," he says of the cable TV industry, which will face increasing competition from satellite TV companies and the Internet.
"I think the incredible advances of the Internet is a sign that competition is becoming valuable in these markets.I think we should know something more in three or four years. Cable prices will fall drastically in price after competition becomes viable."
The picture for telephone service under the Telecommunications Act is not as clear-cut as cable TV, says Ekelund
"It (act) provided conditions under which (market) entry could take place at the local level by other companies, and local companies could get into lucrative long distance markets," he said. "This has been constant legal fisticuffs over who has regulatory jurisdiction. That's sort of in a mess, it seems to me."
The act also directed the Federal Communications Commission to monitor competition in the radio-TV markets and cable TV markets.
"What they're trying to do is deregulate the restrictions on ownership requirements on both television markets, radio markets and cross markets," says Ekelund. "They have actually begun to deregulate the multimedia ownerships.
"Conceivably a company could own cable, TV, radio and newspapers in the same market as long as they didn't own too many. There's still some restriction, but the tendency has been to dilute these restrictions over time."
One of the things that Ekelund and Jackson looked at is the effect of concentration of ownership of media outlets on advertisers, consumers and diversity.
"We have found contrasting effects," says Ekelund, adding that "there should be some antitrust concerns respecting radio."
"That does not mean there are concerns in any particular market -- like the Atlanta area market, the Houston area mat, the Miami area market. You would have to analyze those separately and individually".
The radio mergers that occurred in 1997 in the wake of the Telecommunications Act overwhelmingly benefitted consumers, said Jackson.
But the act has been used by government regulators at every level to slow mergers in the industry, says Ekelund.
"We're not arguing that mergers shouldn't be looked at -- mergers like AT&T and TCI," he said. "It is the case, however, that the Telecommunications Act envisioned these kinds of mergers because of technological changes in communications. It looks to me like most mergers do, in fact, benefit consumers.
jan00:AU-telecom
CONTACT: Ekelund, 844-2929; Jackson, 844-1926