What the Pennsylvania Liquor Control Board and Comcast Have in Common

             Pennsylvania ties with Utah for having the most restrictive access to wine and spirits.  Predictably the Pa. State Stores offer high prices and many employees manage to channel the attitude you might find at any Department of Motor Vehicles.  I particularly loath the “intruder alert” that announces entry by each individual customer.  Each store uses the same device leading me to suspect someone really connected got a sole source contract to supply all stores.

            So what does the Pa. State Stores have in common with Comcast: exclusivity and the ability to set price above market value.  Channeling the old Bell System, Comcast prevents subscriber access to a new and used (resale) market for set top boxes and even simple and inexpensive Digital Transport Adapters (“DTAs”) needed by analog television sets to display digital signals.  Subscribers must lease equipment from Comcast at unregulated rates.  Never mind the Carterfone policy that would support a competitive market.  Incumbents like Comcast have has cowed the FCC into thinking the set top box marketplace is competitive in light of the CableCard option that allows subscribers to use a Tivo box with a cable company supplied security card. And just how many digital video recorder options are out there in addition to the cable company’s set to box/DVR combo and Tivo?

            Recently I reported that Comcast now charges for DTAs, having previously offered them freely, presumably as a consumer interest bone to the FCC for agreeing to waive the requirement that consumers have access to the basic tier of content without a set top box or other device.  Comcast pulled the old bait and switch, but I tried self help: I acquired a DTA today at a church rummage sale.  Because the device has flash memory and addressability I assumed Comcast gladly would activate the DTA just like the company allowed me to use my own cable modem.

            What was I thinking?  The several Comcast representatives with whom I chatted made it clear the DTA would not get activated even if technologically the company could register the device just as it does for cable modems.  I must infer that management at Comcast did not think they could get away with forcing sole source leasing or sale of cable modems, but that is exactly what they now mandate for a far less complex and cheaper device.  There may be as many as 23 million DTAs in use, most now earning a nifty return for exclusive lessors like Comcast.

            I am sure Comcast could fine any number of scholars and experts to explain how the DTA market is either robustly competitive, or so complex that cable operators need to control their installation and monitoring.  Yeah right; just like the Bell System whose managers insisted that subscribers would harm the network and employee safety if they used their own phones.

            It took years for the FCC to reject the harm to the network gambit and the freedom to Bring Your Own Device to some wireless service results more from T-Mobile’s recent pricing strategy than the FCC’s Carterfone policy which should apply to wireless handsets no differently than wired sets.  Oh but of course there are sponsored researchers who would swear on a stack of bibles that the use of spectrum or some such reason prevents Carterfone from applying to wireless.

            Yet again consumers’ lack of digital literacy and a cowed FCC make it possible for cable operators to sole source DTAs.  At least the Pennsylvania Liquor Control Board  can invoke consumer protection and the demon in rum. 

            Anyone want a DTA cheap?

             

The Lack of Competition in Cable Television Set Top Boxes

            Recently Comcast migrated from offering 2 free digital to analog converters to offering a rental at $1.99 per month.  It got me thinking why cable operators persist in this line of business when other ancillary markets, such as wireless routers and even cable modems have competitive options.  The authors of Wobbling Back to the Fire: Economic Efficiency and the Creation of a Retail Market for Set-Top Boxes offer plenty of answers and economic theories; see http://www.phoenix-center.org/papers/CommLawConspectusSection629.pdf.

            According to T. Randolph Beard, George S. Ford, Lawrence J. Spiwak, and Michael Stern there does not seem to be any financial upside for cable operators, or marketplace harm in sole sourcing and rentals.  So are cable operators simply providing a service that no one else wants to provide?  The authors correctly note that cable operators do not manufacture such devices, but instead contract for the manufacture by unaffiliated companies.  So what’s in it for the cable operators?

            I have a few empirical observations, again generated by personal experience.  First the possibility exists that the rentals of set top boxes, converters and modems represent a unrecognized profit center.  I suspect that the Pace converter that allows cable subscribers to continue using older analog televisions costs less than the devices used to convert off air digital signals into analog.  These more sophisticated devices retail for about $40—50.  So if Comcast can rent the simpler and cheaper mini-converters for $2 a month, the company breaks even in a matter of months even though subscribers might use the device for many years. 

            As to those more expensive set top boxes the time to break even will take longer, but again the length of rental without replacement may span many years.  How many generations of set top boxes have you run through in your years of cable television subscriptions?  Bear in mind that cable operators typically offer one set top box free and then charge $5 or more per month for additional units.

            Second the possibility exists that cable operators believe that their proprietary, non-compatible set top boxes provide greater opportunities to lock in consumers and limit them only to features the cable companies and content providers are willing to offer.  Once upon a time these stakeholders did not want companies like Tivo offering digital video recording opportunities, so interconnection and technical compatibility issues provided a means to thwart and stall competitive options.

             Third, cable operators, their trade associations and their sponsored researchers have expressed opposition to extending the Carterfone policy to television.  Carterfone supports the right of consumers to attach any device that does not cause technical harm.  If applied to cable television, it would enhance consumer freedom by preventing strategies to block or limit access by devices cable operators don’t control.  From my vantage point the lack of progress in cable efforts to promote “true two-way” access by televisions without a converter box means that cable operators see upsides in mandating access only via their soul sourced devices.  Additionally with digital transmissions, subscribers must have a set top box or converter for each and every television set thereby eliminating the previous free option of using a “cable ready” set.

            Also the fact that consumers have not embraced CableCards may reflect their lack of knowing that such an option exists, possibly the product of a strategy by cable operators not to promote such an option.

            My bottom line: the lack of a competitive market for set top boxes probably reflects market failure artificially induced by cable operators.

Telephone Pedestals and the Second Amendment

            Once upon a time when telephone companies provided service via wires these companies secured free rights of way to install equipment and lines.  In many locations the companies replaced telephone poles with underground conduits.  When telephone companies needed to splice a service line to a home or business they installed a pedestal above ground.  These metal or plastic pedestals do not have a pleasing appearance even with the use of forest green coloration.  They were necessary splice points where telephone company technicians connected and disconnected service.

            Now that telephone companies want to provide anything but wireline telephone service it strikes me that they should lose the rights of way granted to them by state public utility commissions.  If a company does not provide common carrier telecommunications services, then surely it has no public utility right to take a portion of my property for their use free of charge.  Right?

            I mean if a telephone company no longer wants to serve as the carrier of last resort—or first resort for that matter—then they in effect should be deemed to have abandoned their right to secure a property interest in my land.  As information service providers, like VoIP service providers, former telephone companies no longer should have the right of eminent domain granted by states to bona fide public utilities.   It seems straightforward to me: if a common carrier opts to abandon its common carrier duties, then it should lose its rights of way over private property for lines that no longer provide common carrier services, and possibly won’t provide anything at  all.

            So when my telephone company terminates PSTN service access on my property, they can pull out their copper and by the way be sure to pull out the pedestal while you’re at it.  Oh and by the way, I don’t want to ever see you again on my property.  Going forward you would become a trespasser and I reserve all my Second Amendment rights to brandish a weapon to encourage one of your few information service contractors or employees to leave.

             Gee . . maybe the Tea Party, the National Rifle Association and I have something in common.