"Consumer" Groups Mislead on Cable Reform
Monday, March 26th, 2007 By Marc KilmerThe Dayton Daily News ran an article yesterday about Senate Bill 117, which would reform Ohio’s video service laws and make it easier for companies to offer competitive video services. Unfortunately, the article was heavily slanted towards the views of so-called “consumer” groups which, somehow, think that giving consumers more choices is a bad thing.
As the article’s lead paragraph puts it, “Consumer groups call it ‘cherry-picking’ or ‘redlining’ — allowing cable and phone companies to target affluent, densely populated areas for the latest in computer and video services while ignoring minorities, the poor and rural areas.”
It goes on to quote these self-appointed advocates for consumers on how consumers need government regulation to protect them. Of course, what the article fails to point out is how groundless these charges are. This so-called “redlining” is really a red herring, used by the opponents of consumer choice to derail the debate on this issue. Where these bills have been enacted, however, the feared “redlining” simply have not materialized.
As Steve Titch put it in a Reason Foundation study published in January:
Unfortunately, opponents of franchise reform assume that giving companies the freedom to formulate sound deployment timetables means that low-income populations will be ignored, even though there is no evidence in any other competitive market to suggest this. In fact, judging from Texas and Indiana, the two states with the longest history of franchise reform, the outcome has been quite the opposite.
In fact, those who think that cable and phone companies do not want the business of low-income consumers show their ignorance of both the cable television market and the buying habits of these consumers. The Reason Foundation Report quotes Robert Shapiro of the American Enterprise Institute-Brookings Joint Center:
To begin, businesses go where their customers are, and lower-income households should be a highly attractive market for advanced video services. Low-income households subscribe to current video services at about the same rates today as high-income households, providing the same basis for deploying fiber for video in low-income and high-income areas. Moreover, African-American and Hispanic households subscribe to the premium channels of current video services at higher rates than other groups. There is also evidence that minorities are “early adopters” of new video technologies, purchasing digital televisions at higher rates than other groups, for example. In the case of advanced video services, lower-income households and minority neighborhoods appear to be very high-value customers that businesses will seek.
Titch also goes on to say:
In addition, low income households also offer the greatest promise of future revenue growth. This is another trap critics of market economics fall into—equating low income with chronic poverty. Many low-income households include immigrants and young wage earners at the start of their careers. The general upward economic mobility that prevails in the United States means that within a few years, many low-income households have higher levels of disposable income they can in turn spend on upgraded service. For a service provider, the long-run value of loyal customers makes the initial investment in customer acquisition, costing between $250 and $300 per customer, so important. It is also why incumbents work hard to keep customers they have.
In opposing this bill, so-called “consumer advocates” are hurting the very consumers they claim to represent. Consumers benefit from more choices in video services. In states that have enacted such reform, prices for cable television go down. Consumers do not benefit from the current system, where local governments effectively put up barriers to prevent consumers from having an alternative cable provider.
The Dayton Daily News missed a golden opportunity to provide useful information about this important debate. Ohio consumers stand to benefit tremendously if they can achieve real cable choice. Unfortunately, “consumer advocates” are spreading misinformation about efforts to achieve this. The Daily News should have actually checked into the baseless claims of these charlatans instead of simply reporting them as if they were a true description of what happens when franchise reform is enacted.
