Cable television is also a franchise monopoly in most cities because of the theory of natural monopoly. But the monopoly in this industry is anything but "natural." Like electricity, there are dozens of cities in the United States where there are competing cable firms. "Direct competition … currently occurs in at least three dozen jurisdictions nationally."
47
The existence of longstanding competition in the cable industry gives the lie to the notion that that industry is a "natural monopoly" and is therefore in need of franchise monopoly regulation. The cause of monopoly in cable TV is government regulation, not economies of scale. Although cable operators complain of "duplication," it is important to keep in mind that "while over-building an existing cable system can lower the profitability of the incumbent operator, it unambiguously improves the position of consumers who face prices determined not by historical costs, but by the interplay of supply and demand."
48
Also like the case of electric power, researchers have found that in those cities where there are competing cable companies prices are about 23 percent below those of monopolistic cable operators.
49 Cablevision of Central Florida, for example, reduced its basic prices from $12.95 to $6.50 per month in "duopoly" areas in order to compete. When Telestat entered Riviera Beach, Florida, it offered 26 channels of basic service for $5.75, compared to Comcast's 12channel offering for $8.40 per month. Comcast responded by upgrading its service and dropping its prices.
50 In Presque Isle, Maine, when the city government invited competition, the incumbent firm quickly upgraded its service from only 12 to 54 channels.
51
In 1987 the Pacific West Cable Company sued the city of Sacramento, California on First Amendment grounds for blocking its entry into the cable market. A jury found that "the Sacramento cable market was not a natural monopoly and that the claim of natural monopoly was a sham used by defendants as a pretext for granting a single cable television franchise … to promote the making of cash payments and provision of 'in-kind' services … and to obtain increased campaign contribution."
52 The city was forced to adopt a competitive cable policy, the result of which was that the incumbent cable operator, Scripps Howard, dropped its monthly price from $14.50 to $10 to meet a competitor's price. The company also offered free installation and three months free service in every area where it had competition.
Still, the big majority of cable systems in the U.S. are franchise monopolies for precisely the reasons stated by the Sacramento jury:
they are mercantilistic schemes whereby a monopoly is created to the benefit of cable companies, who share the loot with the politicians through campaign contributions, free air time on "community service programming," contributions to local foundations favored by the politicians, stock equity and consulting contracts to the politically well connected, and various gifts to the franchise authorities.
In some cities, politicians collect these indirect bribes for five to ten years or longer from multiple companies before finally granting a franchise. They then benefit from part of the monopoly rents earned by the monopoly franchisee. As former FCC chief economist Thomas Hazlett, who is perhaps the nation's foremost authority on the economics of the cable TV industry, has concluded, "we may characterize the franchising process as nakedly inefficient from a welfare perspective, although it does produce benefits for municipal franchiser."
53 The barrier to entry in the cable TV industry is not economies of scale, but the political price-fixing conspiracy that exists between local politicians and cable operators.