Consumer Watch | Trying to right cable loophole (1 Viewer)


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Stand against retrans!!!
Supporting Founder
Apr 18, 2005
DeKalb County, AL
Like it or not, your past can come back to haunt you. But you can also learn from your mistakes. Just ask Susan Eid why she sees rays of hope for Philadelphia sports fans who, like me, are captive customers of Comcast.

In the early '90s, Eid was a lawyer for Boston's Continental Cablevision. One of her jobs was to fight congressional efforts to rein in a cable industry that many considered out of control after its 1984 deregulation.

By 1991, cable companies were billing their average customers nearly $19 a month for their most popular tier of service. That may not seem like much - in today's dollars, it's about $27. But it had jumped 61 percent in five years, triple the rate of inflation.

The industry argued, then as now, that its product was rising in value as well as price. Though it failed to block a new round of price regulation, Eid helped win a concession on rules requiring cable companies to share channels they owned with competitors.

It was one thing, Eid argued, to insist that a media giant such as Time Warner share big-name channels like Home Box Office or Cinemax. Otherwise, how could anyone compete?

But Continental was about to launch a regional channel, New England Cable News Network. "We said, 'There's no way we're going to make this investment if the next day we have to offer it to our competitors,' " Eid recalls.

Congress listened, and a loophole was born - the rule that allows Comcast to refuse to share its Philadelphia SportsNet, and that Eid now fights as an executive at DirecTV.

A long-lived loophole

The "terrestrial loophole" was named for the line it drew. If a channel was delivered via satellite, a cable company had to offer it to competitors at a fair price. If it was sent terrestrially - say, by fiber-optic cable - the company that owned it didn't have to share.

The loophole has long outlived 1992's reregulation of cable prices. In '96, Congress again put its faith in deregulation.

If you're a cable customer, you know what comes next. In most places, competition has not materialized, and price increases routinely eclipse inflation.

Why? One clear reason is that innovation and open markets alone aren't enough to foster competition against companies with a 30-year head start - especially not in an industry conceived as a natural monopoly and nurtured with exclusive local franchises.

Nor were the established companies lollygagging. The '96 law set off a wave of mergers, and the survivors were aggressive and innovative. Comcast rose to the top in part by pushing innovations such as broadband, phone service, and video-on-demand.

Eid rode that same wave, then went to work for former Federal Communications Commission Chairman Michael Powell before joining DirecTV. She shares Powell's faith in free markets, and his belief that government should promote competition, not squash it.

Damage to the market

Which brings us back to the terrestrial loophole - and to Eid's hope that the FCC can undo damage she believes Congress never intended to cause.

The FCC has leverage over Comcast and its No. 2 counterpart, Time Warner Cable, because they need something: FCC approval of their plan to divvy up the assets of the bankrupt Adelphia Communications, then swap cable systems to further enlarge their footprints in various markets.

Competitors such as DirecTV and consumer advocates have been urging the FCC to set conditions to keep either company from abusing its market dominance. A key proposal would bar use of the 1992 loophole for withholding regional sports networks.

Congress has joined the fray. In a letter to FCC Chairman Kevin Martin, Sens. Ted Stevens and Byron Dorgan, the chair and a top Democrat on the Commerce Committee, called local sports critical to TV competition because they "cannot be duplicated."

That's the point. Anyone can create a news or entertainment channel. No one can reinvent your home team.

Comcast owns the Flyers and Sixers, and TV rights to the Phillies. But that shouldn't give it the right to turn hometown fans into choice-less customers.

Go ahead and say Eid is a hired gun who has simply switched sides. I give her credit for owning up to her past.

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