Cable Television and Local Telephone Providers

Cable television and local telephone service are the most obvious markets where more competition is necessary. Both are currently monopolized by existing providers, prompting government regulation to protect consumers from excessive rates.

Yet even though the it is possible for competition to erode these monopolies and thus end or relax current regulation, government regulations still inhibit this competition. In particular, existing law, at varying levels of government, frustrates providers of cable and local telephone services from offering both services, in full competition with each other, in the same service territories.

Second, while several competitors certainly have made significant inroads in long distance telephone markets, there is room for more competition. AT&T still has about 60 percent of long-distance traffic.

Third, while telephone equipment is now probably the most competitive of the markets affected by the MFJ, even this market could use additional competition.

Here, too, AT&T continues to have a leading share of the market, although it faces stiff competition from numerous other providers, domestic and foreign. Given their expertise in the industry, some or all of the RBOCs may be natural entrants into developing and manufacturing telecommunications equipment, especially for network switching, but are precluded from entry by the MFJ.

Under the right terms and conditions, entry by the RBOCs into these activities could help spur innovation and bring down prices for telecommunications equipment. In the process, the RBOCs could help make American firms even more competitive in the international telecommunications equipment market.

Ultimately, effective competition in local telephone markets will provide the best protection against cross-subsidization and discrimination by the RBOCs, since without market power RBOCs will be unable to leverage their local telephone monopolies into other markets.

However, until local telephone markets are competitive, entry tests and structural safeguards, such as separate subsidiaries that allow for objective analyses by regulators of pricing, cross-subsidization, and discrimination are important means available to ensure that local telephone customers are not charged with the costs of long-distance service and manufacturing, and that markets are not distorted by unfair and cross-subsidized pricing.

In addition, policymakers should encourage competition to cable television from other firms and technologies, which will reduce the market power that existing cable operators maintain in their markets throughout the country.