Time Warner Rate Increase a Troubling Sign

Cable and broadband video markets are in a period of transition. Until recently, video services were franchised by local municipalities. Some rates, such as basic cable rates, have been regulated, and the municipality had to review and approve increases.

Three years ago, the Texas legislature took franchise authority away from local municipalities, grandfathering existing franchise contracts until the end of their term.

At the same time, many of the incumbent cable video providers have been petitioning the FCC to determine there is "effective competition" in their service areas. That determination would release a locally franchised video provider from rate regulation.

Last March, the FCC returned a determination that there is "effective competition" in the Austin video market. This means that Time Warner Austin, even though it still has to operate under its franchise agreement with the City, was now released of the regulation of its rates.

Time Warner responded by imposing a massive rate increase. The cost of basic cable service was nearly doubled, from $10.50 to $19.95 a month.

They also announced that existing customers would receive a discounted rate increase, paying $14.95 a month for the first year, then increasing to the full $19.95.

Two things concern me here.

First, the FCC determined there is effective competition, but reality indicates otherwise. In a competitive technology service market, costs should be going down, not up. But rates didn't merely go up—they doubled. That's evidence not of a competitive market, but a dysfunctional one.

I'm also concerned that the announced two tier rate signals an end to universal service which has been a critical policy objective. Universal and uniform access to basic cable is important for two reasons. It provides access to civic services such as PEG (public-educational-governmental) content. Also, it builds out the infrastructure required to deliver advanced broadband services to the home, and universal broadband availability should be a national policy goal.

The recent Time Warner Austin rate increase is a disturbing warning sign. It is evidence of possible market and policy failures. Policy makers should take note.