cABLE market power, pricing and bundling after the telecommunications act of 1996:

 

EXPLORATIONS OF ANTI-CONSUMER, ANTICOMPETITIVE PRACTICES

 

 

 

Power Point Presentation

 

 

November 2003

 

 


EXHIBIT 1:

NCTA’S CONSUMER SURPLUS ONLY ANALYSIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Source: Wildman, Steven S., Assessing Quality Adjusted Changes in the Real Price of Basic Cable Service, attached to Comments of the National Cable Telecommunications Association, in Federal Communications Commission, In Re: The Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 03-172, September 11, 2003, p. 13.

 
               


EXHIBIT 2: 

CONSUMER SURPLUS IS THE TIP OF THE MARKET POWER ICEBERG

 

 

 

 


                                                                       

                                                      Surplus Before

           

                                                      

                                         

                                                                         Inefficiency Before

                            S1                

                                                             

                              

                                                                       

 


                                                           

                                        D1

                                                      Wealth Transfer Before

                          

                         MR1

 

 

 

 

 

 

 

 

 

 


 

 


EXHIBIT 3: 

CHANGE IN CONSUMER SURPLUS ACROSS TIME WITH MARKET POWER PERSISTING AND BOTH DEMAND AND COST SHIFTING

 

                                                                       

 

                                                                       

                                                      Surplus Before                        

            Surplus After

                                                       Inefficiency After

                            S2         

                                                                         Inefficiency Before

                            S1                

                                                             

                               D2

                                                                        Wealth Transfer After

 


                                                           

                                        D1

                                                      Wealth Transfer Before

                           MR2

                         MR1

 

 

 

 

 

 


 


EXHIBIT 4: 

CHANGE IN CONSUMER SURPLUS ACROSS TIME WITH MARKET POWER PERSISTING AND BOTH DEMAND AND COST SHIFTING

                                                                       

 

                                                                       

 

           

 

                                                     Excess Producer Surplus After

                                               

                                               

                                               

 


                                                           

                                    Excess Producer Surplus Before

                                               

 

                                                           

 

 

 

 

 

 

 

 


 


EXHIBIT 5:

IMPACT OF MARKET STRUCTURE CHARACTERISTICS ON MONTHLY RATES

(Regression Coefficients, dummy variables)

 

 

 

Sources: Federal Communications Commission, Report on Cable Prices, April 4, 2002, Attachment D-1; General Accounting Office, Issues Related to Competition and Subscriber Rates in the Cable Television Industry, October 2003, Appendix IV, Table 3.

 

 


 EXHIBIT 6:  MARKET SEGMENTATION OF SERVICES BETWEEN TECHNOLOGIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Source:  Federal Communications Commission, In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, Fifth Annual Report, December 23, 1998, Table B-7; Ninth Annual Report, December 2002, Table Appendix B.  High-Speed Services for Internet Access, June 2003, Table2, 1 and 2; Local Telephone Competition: Status as of December 31, 2002, June 2003, Tables 1, 13; NCTA, Overview 2003: Mid-Year, p. 1.

 

 


 

EXHIBIT 6: 

THE PRICE OF HIGH-SPEED INTERNET SERVICE

 

Satellite

 

Source:  Calculated by author from web site visits.

 

EXHIBIT 8:

INCREASING REVENUES PER SUBSCRIBER

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Federal Communications Commission, In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, Fifth Annual Report, December 23, 1998, Table B-7; Ninth Annual Report, December 2002, Table 4.

 


EXHIBIT 9:

OPERATING CASH FLOW PER SUBSCRIBER

 

 

 

 

 

 

 

 

 

 

 

 

                                          

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Federal Communications Commission, Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Ninth Annual Report, p. 15; Seventh Annual Report, p. 102.   
EXHIBIT 10:  CHANGE IN SUBSCRIBERS, NETWORKS AND OPERATING COSTS:

1995-1998; 1998-2002

 

 

Sources: Federal Communications Commission, Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Ninth Annual Report, p. 15; Seventh Annual Report; NCTA, Cable Pricing: Value and Cost, May 2003.


EXHIBIT 11:

CUMULATIVE INCREASES IN CASH FLOW PER SUBSCRIBER

FROM TRADITIONAL AND ADVANCED CABLE SERVICES

 

[Assuming 100% of operating cost increases are attributable to traditional video prior to 1999; 40% after 1999]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Federal Communications Commission, In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, Fifth Annual Report, December 23, 1998, Table B-7; Ninth Annual Report, December 2002, Table 4; Seventh Annual Report, p. 102.   


EXHIBIT 12: 

CUMULATIVE INCREASES IN CASH FLOW PER SUBSCRIBER

FROM TRADITIONAL AND ADVANCED CABLE SERVICES

 

[Assuming 100% of operating cost increases is attributable to traditional video prior to 1999; then historic growth rate plus $1 per subscriber increase each year after 1999]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Federal Communications Commission, In the Matter of Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, Fifth Annual Report, December 23, 1998, Table B-7; Ninth Annual Report, December 2002, Table 4; Seventh Annual Report, p. 102.   
EXHIBIT 13: GROWTH IN VIEWING VS. GROWTH IN SWITCHING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Source:  For cable hours of viewing, Cable TV Advertising, Weekly Viewing of Ad-Supported Cable per Cable Household, and Source: NCTA, Steven S., Assessing Quality Adjusted Changes in the Real Price of Basic Cable Service, attached to Comments of the National Cable Telecommunications Association, in Federal Communications Commission, In Re: The Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 03-172, September 11, 2003, p. 12.  For viewing hours Levy, Jonathan, Marcelino Ford-Levine and Anne Levine, Broadcast Television: Survivor in a Sea of Competition (Federal Communications Commission, OPP Working Paper, September 2002), p. 62; Albararan, Alan and Angel Arrese, “Time and Media Markets: An Introduction,” in Albararan and Arrese (Eds.), Time and Media Markets (Mahwah: Lawrence Earlbaum Associates, 2003), p. 2.
EXHIBIT 14:

COST OF VIEWING, 1996 & 2003, WITH AND WITHOUT COMPETITION AND CONCENTRATION

 

 

 

 

Market Condition                     Viewing            Monthly            Cost/                Cost/

                                                Hours               Cost                 Viewing            Viewing

                                                                                                Hour                Hour

                                                                                                Nominal           Real

 

1/1/96 Noncompetitive 23.4                 $22.60               $.966             $.966

1/1/03 Noncompetitive 34.7                   41.60               1.198             1.019

            switching has

            full value

 

 

1/1/03 with competition            34.7                   35.32               1.0178             .865

1/1/03 with competition  &       34.7                   33.54               0.967               .822

   without concentration

 

 

1/1/96 Noncompetitive 23.4                 $22.60               $.966

                                                                                                            }  48.2

1/1/03 Noncompetitive 29.05                 41.60               1.432            

            switching valued

            ˝ at the margin

 

BLS INCREASE (1/1/96 to 1/1/03)                                                         48.5

 

 

Source: For hours of viewing, Cable TV Advertising, Weekly Viewing of Ad-Supported Cable per Cable Household, and Source: NCTA, Steven S., Assessing Quality Adjusted Changes in the Real Price of Basic Cable Service, attached to Comments of the National Cable Telecommunications Association, in Federal Communications Commission, In Re: The Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 03-172, September 11, 2003, p. 12.  Cable prices for noncompetitive systems from Federal Communications Commission, Report on Cable Prices, January 2, 1997, p. 12, May 7, 1999, p. 9; June 15, 2000, p. 9; Feb 14, 2001; 9; April 4, 2002, p. 8; July 8, 2003, p. 10; General Price increases from Bureau of Labor Statistics, Consumer Price Index.


EXHIBIT 15:  LONG TERM PRICE TRENDS

EXCESS OF PRICE OVER COST HAS GROWN

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Source: Bureau of Labor Statistics, CPI. Deregulated trend is a linear projections of January 1983- April 1993, Competitive, unconcentrated from Exhibit 15.
EXHIBIT 16: 

IMPLICIT DEMAND CURVE FOR ESPN

 

 

 

 

 

Source: Deutsche Bank, Walt Disney Company, October 27, 2003, p. 16.


EXHIBIT 17: WEALTH TRANSFER EQUALS CONSUMER SURPLUS FOR ESPN

 

 

Dead Weight Loss

 

Unbundled Demand

 

Consumer Surplus

 

Wealth Transfer