Cable TV vs Telephone Companies

The questions

5. In the coming years Cable TV will face very real competition from the telephone companies for customers. Give the competitive advantages of each industry and the efforts both have made in Congress and at the FCC to deal with perceived inequities in the competitive landscape.

Comprehensive Examination Question #5
Andrea P. Fuller

I. Cable Industry

A. Competitive Advantages

1. Due to the competition from satellite companies and more recent the telephone companies (mainly AT&T and Verizon Communications), cable companies (Comcast and Time Warner Cable-the two dominant companies) have to increase their services offered to their customers.
a. According to statistics, 90% of US cable systems currently offer HD video services as of January 2008 (Anonymous, In-Stat: Increased Competition Pushes US Cable Operators to Continue Investing, Business Wire, Jan 2, 2008)

2. Cable companies have limited competitive advantages due to their competing companies offering the same services. As a result, many cable companies are exploring offering improved services to keep customers.
a. Conversion of analog to digital (If customers have cable, on analog television, they don’t have to worry about the conversion from analog to digital on February 2009).
b. Increasing spectrum that increases the capacity of the networks
c. Capacity sharing through switched digital video
d. Node splitting, which improves
e. MPEG-4 provides capacity sharing (Anonymous, US Cable-New Strategies for a Competitive World, Business Wire, April 10, 2008)

3. Cable companies are now offering bundles to customers which includes cable, internet, and land-line phones

4. Cable is targeting small and medium business in offering commercial phone services (voice and data services)
a. Comcast is investing $3 billion over the next five years
b. Time Warner Cable is investing $6-7.5 billion for commercial phone

5. Time Warner plans to cut prices of telephone services 10-15% (Jon Hemingway, New Front in Cable-Teleco War: B2B, Broadcasting and Cable, October 1, 2007)

B. FCC/Congress vs. Cable Companies.

1. 70/70 rule
a. Under the Communications Act of 1984-which gives the FCC power to regulate cable companies when they feel they are too big.
b. FCC must use the 70/70 Test: cable must pass through 70% of households, and 70% of those households must be subscribed to a cable services.
c. State Representatives including Marsh Blackburn (R-Tenn.), Edolphus Towns (D-NY) and Joe Barton (R-Texas) a bill to challenge the 70/70 Test.
a. Bill call for stripping FCC powers to reregulate the cable industry
b. Bill getting support from NCTA, Rainbow/PUSH Coalition ad America for Tax Reform (John Eggerton, Blackburn’s 70/70 Bill a Reality, Broadcasting and Cable, December 6, 2007).

2. November 2007: FCC Chairman Kevin Martin introduced a 30% percent cap on cable companies prevent large companies such as Comcast and Time Warner from growing or making acquisitions after its conclusion that cable
a. States that no company can own no more than 30% in a market
b. FCC goal of rule is to promote “diversity of information sources”
c. Cap opens cable market to independent programmers and telephone companies (Stephen Labaton, FCC Planning Rules to Open Cable Market, New York Times, November 10, 2007)
d. In 2001, the FCC tried to establish a cap for cable companies, but it was struck down by the US Court of Appeal on First Amendment grounds. (John Eggerton, FCC Releases 30% Cable-Subscriber Cap Order, Broadcasting and Cable, February 11, 2008).
e. In March 2008, Comcast sued the FCC over the 30% cap
i. Company is at 27% of 30% cap
ii. Claims that the FCC has no evidence for a horizontal cap especially with numerous competitions among other cable companies, independent programmers, phone and satellite companies.
iii. Comcast also accuses the FCC of playing favorites with telephone companies (John Eggerton, Comcast Sues FCC over 30% Cap, Broadcasting and Cable, March 13, 2008).

3. FCC End Cable Deals for Apartments
a. October 2008: FCC ban cable deals/contracts giving cable companies the right to provide services to apartments
b. AT&T and Verizon benefit the most after lobbying for the new rules.
c. Can lower cable prices
a. Keven Martin, chair of FCC: cable prices risen 93% within the last decade.
b. New competition = lower prices (Stephen Labaton, FCC Set to End Sole Cable Deals for Apartments, The New York Times, October 29, 2007).

4. States creating laws creating franchises for telephone companies
a. Cable companies filing lawsuits claiming that cable will lose revenue, damage of reputation, and unfair competition (John Eggerton, Telecos Celebrate Franchise Wins, Broadcasting and Cable, September 29, 2006).

II. Telephone Companies

A. Competitive Advantages
1. 2006: FCC passed a reform video franchised legislative reform that made it easier for telephone companies to get into video through national franchising (John Eggerton, House Passes Video Franchise Reform, Broadcasting and Cable, June 8, 2006).

2. AT&T and Verizon offer new technology that has advantage over cable
a. Both companies have IPTV services
a. Unlimited number of channels
b. 2-way interactive services (Anonymous, US Cable-New Strategies for a Competitive World, Business Wire, April 10, 2008)
c. AT&T offers U-Verse in limited areas
i. Features includes 300+ channels, high-speed internet, phone services, DVR specialties, streaming live video from cell phone to tv, and games
ii. Criticism: U-Verse only targets affluent and avoid minority, low-income (Rick Barrett, AT&T U-Verse access debated: City’s low-income areas often lack cable alternative, McClatchy-Tribune Business News, December 11, 2007).
d. Verizon offers FiOS TV

3. Incentives
a. Verizon conducts Retention-Marketing
a. Provide incentives for their current customers for not switching to another cable company.
i. FCC refuse to intervene after cable companies pressured them to stop stating Verizon is violating law (John Eggerton, FCC Won’t Stop Verizon Communications’ Retention-Marketing Effort, Broadcasting and Cable, April 1, 2008 )
ii. Also offer incentives for new customers
1. Offered 19-inch HD TVs, camcorders and camcorders in December 2007
a. Cable companies only relied, promotional prices and good services (Toni Whitt, Cable war could be proving ground; Analysts watch Verizon’s use of incentives in effort to entice local consumers, Sarasota Herald Tribune, December 20, 2007)
b. Offering bundles (phone, cable, internet)

4. States are recognizing phone companies as video providers, and granting them licenses to compete with cable companies

B. FCC/Congress vs. Telephone Companies
1. One problem that telephone companies may endure is still being recognized by states as video service providers such as in November 2007 it was reported that AT&T spent $11.2 million lobbying for a franchise bill in TN.
a. Most money spent on public persuasion, and advertising between October 1, 2006 to September 2007.
b. Cable companies are claiming AT&T is trying to get an unfair advantage and cable will continue to fight (Andy Sher, AT&T, cable fight nears $11 million, McClatchy-Tribune Business News, November 20, 2008).

2. FCC bans phone deals for apartments
a. Unfair competitive advantage
b. Hurts consumers
a. Prevents residents from purchasing bundled services

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