Cable Rejects Study Showing Benefit of Overbuilders

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The cable industry dismissed a new government study showing that direct-broadcast satellite competition isn’t enough to cut prices for pay TV and broadband services.

In six markets examined by the General Accounting Office, the presence of a wire-based competitor led to a significant drop in consumer costs.

The National Cable & Telecommunications Association, however, countered that the overbuilders in those markets are subsidized by parent utility companies or are losing money to capture market share. "In nearly all cases," said NCTA’s Brian Dietz, "overbuilders exist in financial distress or in the aftermath of financial distress–unless they are tied to an established utility or not-for-profit entity."

The GAO report was issued on the eve of Wednesday’s Senate Judiciary Committee hearing on cable competition. Dietz noted that GAO itself cautioned against drawing too many conclusions from a review of only six markets: Lenexa, Kans.; Waco, Texas; St. Cloud, Minn.; Yankton, S.D.; Augusta, Ga.; and Boston. Overbuilders "have had difficulties securing continued access to adequate financial resources that are needed to rapidly construct their networks and market their services," GAO said. "We did not evaluate long-term sustainability."

Nevertheless, Judiciary Committee leaders insisted the numbers proved that more competition against incumbent cable monopolies is needed. "This report confirms what common sense tells us: The presence of competition to the dominant cable providers benefits consumers and results in lower prices and higher quality of service," said Sens. Mike DeWine and Herbert Kohl. DeWine is the panel’s chairman, Kohl the ranking Democrat.

The GAO found that, in five of the cities studied, the presence of an overbuilder resulted in 15%-41% lower video prices. In five markets, prices for telephone and high-speed Internet service were lower as well.

"Satellite competition is an important part of the market, but this study shows that overbuilder competition is also important and should be encouraged," DeWine added.

On Monday, consumer advocates criticized cable rate hikes and demanded the industry give customers more say to pick the channels they want.

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