Public Policy Toward Cable Television: The Economics of Rate Controls.

• Author: Miles, Jr., Patrick A.
• Position: Review

Public Policy Toward Cable Television: The Economics of Rate Controls , by Thomas W. Hazlett and Matthew L. Spitzer, The MIT Press and The AEI Press, 1997, 253 pages.

To paraphrase William Shakespeare: to regulate or not to regulate, that is the question. Legislators, regulators, economists, and policy analysts have struggled with that question in connection with cable television rates for some time. The struggle is demonstrated by the pendulum swings from no regulation, to local regulation, to deregulation, to reregulation, and--as of March 31, 1999(1)--back toward deregulation. Why the regulatory indecision? At least two factors contribute to a possible answer. First, the cable television industry affects several important constituents--all with disparate interests. Consumers, broadcasters, programmers, local governments, and cable operators have strong voices and opinions that are heard and followed at different times by policymakers. Second, cable is a unique growth industry with an ever-changing product. Some view cable television operators as monopolists that provide an essential utility service.(2) Others view cable television as a luxury item in competition with movie theaters or video rental stores for entertainment spending. Regardless of which viewpoint is taken, the history of cable television rate regulation, deregulation, and reregulation shows that political winds can shift dramatically in a relatively short period of time.

Rather than asking the Shakespearean question of whether to regulate, Public Policy Toward Cable Television: The Economics of Rate Controls(3) asks and attempts to answer what its authors consider to be the two most relevant questions: (1) "What can regulators regulate?" and (2) "What is the effect of price controls on consumer welfare?"(4) In doing so, the book uses the empirical results of rate regulation to conclude that an unregulated cable monopoly is better than a regulated monopoly.(5)

This assiduously written book by economics professor Thomas W. Hazlett and law professor Matthew L. Spitzer gives a fairly sound, but mostly esoteric, economic analysis of the deregulatory effect of the Cable Communications Policy Act of 1984 (1984 Cable Act). The book provides a similarly detailed economic and financial analysis of the immediate effect of cable television rate regulation implemented by the Federal Communications Commission (FCC) under the Cable Television Consumer Protection and Competition Act of 1992 (1992 Cable Act). The book then comes down from the Ivory Tower of economic analysis and examines some of the ground-level political forces and policy decisions that led to the 1992 Cable Act as well as the subsequent calls for legislative action, which resulted in the Telecommunications Act of 1996. The book also contains a succinct glossary of relevant terms for those uninitiated to cable television industry jargon. The authors state their purpose as follows: "We have tried to write a book that will be accessible to the wide range of individuals who have an interest in the subject matter."(6) In this regard, they succeeded. The book, by its own admission in the preface, was written for "policymakers, journalists, telecommunications industry analysts, and academic economists."(7) Given the lack of insight into specific cable television laws and FCC regulations, however, experienced practitioners of cable television law most likely will not find the book of much practical use other than as an interesting and general background reference. The book seems aptly suited as a complementary textbook or industry case study in an administrative law, cable television law, or undergraduate economics class.

The information and data presented by the authors are impressive and provide a useful resource for members of the intended audience. Yet, one drawback is that most of the compiled information was garnered from cable industry-friendly publications. Results of government studies are also utilized occasionally.(8) The authors appear to have not undertaken the task of developing their own independent empirical research studies; and, for whatever reason, there is a dearth of information generated by proconsumer groups or associations. Nevertheless, economists will find sufficient graphs, tables, and charts supporting and analyzing the authors' data to suppress any allegation that this book is merely an anecdotal, qualitative position paper. But the lack of diverse and independent research is disappointing, especially since the book's research effort appears sincere and diligent.

The book begins by reviewing the recent debate over cable rate regulation, including reciting arguments and positions from applicable economic literature and studies.(9) It notes with some dismay that the critical question of "What can regulators regulate?" was never posed or answered in any of the legislative debate over cable television regulation.(10) The authors take some umbrage that the answer to that question was simply assumed:

Indeed, the burden of proof is not upon those who seek regulation to lower prices, but upon those who would assert competition as an alternative short- or long-term policy. As we shall see, where head-to-head rivalry does exist in cable, rates are substantially lower in quality(11) adjusted terms.(11) Next, the book examines cable operator market power in multichannel video markets.(12) The authors go to some length to prove quantitatively that cable is a profitable business. They note, "The evidence strongly...