Monday, November 12, 2007

FCC to strangle Cable Operators. Advantage unfair to Verizon and AT&T.

The dominance of cable operators in video services market suddenly got limelight after NYTimes ran a story speculating that Federal Communication Commission may strangle the existing cable companies by opening up the market to rival video services and independent programs. Even worse, Mr. Kevin J. Martin, the chairman of Commission, hopes to complete this controversial decision before this year ends.

The commission will announce the state of video services as part of its annual report and may restrict the cable operators from growing if they fall under the so called 70/70 rule of the Cable Communications Act of 1984. The 70/70 rule means that cable television is available to at least 70 percent of American households, and at least 70 percent of those households actually subscribe to a cable service. Once the commission gets convinced that such a state has reached, the commission will open the market to promote the diversification of information sources.

As claimed by 24/7 wallst, this can very well be the death of cable operators, which are already facing strong competition by satellite TV and telecom operators. The new rule will put the independent video services such as NFL Network and Hallmark Channel to great advantage, which do not have a business affiliation with either of the three channels to reach end-user. It will also provide a great relief to Verizon and AT&T telecom operators who are trying to tap in the already saturated market. In recent past, when the mergers and acquisitions started and the idea of double and triple play got picked up, cable operators took advantage of their already established network and offered broadband and video services to the consumers much ahead of telecom operators.

The new regulations will restrict any company from holding more than 30% of the market share. Also, the regulations will prevent already established cable operators such as Comcast and Time Warner from acquiring smaller companies or increasing their market share in other ways.

The dominance of cable operators in video services market has been a matter of dispute. Most of the cable operators argue that the market is already set on a downward path and there are no proofs that such a condition has actually reached. The officials from cable industry have criticized the proposal and raised question marks on the authenticity of the results produced. On the other hand, one of the reasoning used by FCC is the high rise in price of video services in last few years compared to inflation. FCC suggests that such a price increase is a clear indication of monopolized market.

While the regulations has been welcomed by the consumers group asserting that this will reduce the prices and increase the options for consumers, the cable operators have argued that independent studies and the commission’s own analysis from last year concluded that cable television, while available to far more than 70 percent of American households, is actually used by far less than 70 percent of those households, and it cannot increase to more than 70 percent of households in less than a year when the market is not on the rise for some time.

While the new regulations will certainly nurture more competition and offer more choices and lower prices to consumers, their is also a possibility that the cable operators might get completely wiped out of the video services market in long run. Although it is certainly a great plan to open up the video services market, making the rules for only cable operators will be an overkill to cable operators and will be a huge unfair advantages to the competitors.

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