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TRIPLE PLAY

Telephone Companies versus Cable Television Companies

INTRODUCTION:

For the first time in history, both the telephone companies and the cable television companies are legally able to offer the same three services to their residential subscribers - internet access service, home telephone service, and television - a marketing strategy called "triple play".

Reminiscing about the days when there was only one company providing home telephone service - the RBOC phone company, and remembering the years when a franchise cable company was the only entity allowed to sell television service, one cannot help wonder if "triple play" signals the end of the monopoly, and the beginning of a competitive market where consumers win?

The following essay will define the term "monopoly" for this environment, give a brief the history of it, elaborate on the "triple play" marketing strategy today, and present the expert opinions on market researches.

BODY:

A general definition of the term "monopoly" is having exclusive control of a commodity or a service in a particular market.

Being a broad economic term, monopoly means, according to Richard E Low, in The Economics of Antitrust, "big business, modern industry, thousands of employees, multi-millions in assets, and worldwide operations".

For this environment, a monopoly signifies a company which is legally the sole provider of a particular service in a well defined geographic area.
For many decades, the old phone company was the only legally recognized provider of telephone services to both residential consumers and businesses.

That monopolistic privilege was granted to the local telephone companies around the country by act of Congress and subsequent government regulations.

Also, the various cable companies that took root over the past couple of decades owe their monopolistic rights to temporary agreements with state and local officials; agreements generally called "cable franchise".

Therefore, consumers had very little choice in influencing prices and rate hikes in the single provider system.

Consequently, they suffer from decades of artificially high rates.

Starting with the Telecommunications Act of 1996, both the old telephone companies and the cable television companies are allowed by Congress to provide to consumers all services in all geographic areas they deem themselves capable of. The 1996 Telecommunications Act effectively removed the barriers that protected the telephone companies and the cable companies from mutual competition; it also guaranteed consumers a level of choice that they did not have before.

To quote Lorrie Faith Cranor and Shane Greenstein in Communications Policy, and Information Technology, the Act of 1996, particularly section 271 is "an appropriate market-opening mechanism and safeguard against discrimination".

A provider, however, still must negotiate a franchise agreement with local or state officials in order to provide cable television services.

Are consumers benefiting from this new era of competition?

A closer look at "triple play" marketing will shed some light on it.
"Triple play" marketing is a fairly new concept in which prospective and current consumers are encouraged to buy all the three services mentioned above from the same provider.

Triple play is a bundled package by which all three services - internet access, home telephone, and television - are delivered on the same medium, on coaxial cables from the cable companies and on fiber cables from the telephone companies.

The proponents of "triple play" claim that in the long run consumers will enjoy lower rates and price savings.

In reality, "triple play" marketing strategy locks subscribers into a lengthy contract with either provider; contract that the subscriber cannot get out of without paying a stiff penalty.

The contract, in fact, has the same effect as that of the monopoly granted by the government in the years prior to the promulgation of the Telecommunications Act of 1996; although consumers technically speaking now have the choice to switch provider, the choice is so costly for the average consumer that it feels there is no choice at all. The contract is designed to discourage "churning" consumers changing provider whimsically without paying their final bills.

Prospective customers are lured to subscribe to "triple play" with promises of lower monthly bills.

For instance, according to an article that appeared in the St. Petersburg Times in Florida on January 27, 2007 "Verizon's basic fiber cable package costs $42.99 a month.

Service is cheaper if the customer wants to pay more to bundle Internet and telephone services." The cable companies also use the same tactics in marketing their "triple play" service.

For example, in the Brooklyn New York market, a consumer pays an average of $65 a month for their cable television service.

If the same consumer subscribes to Verizon home telephone and internet access services, the average monthly bill from the phone company is $60 for a monthly total of $125. However, if a consumer signs up for all three services - television, home telephone, and internet access - from Cablevision, one of the Brooklyn New York providers, the consumer can expect to spend no more than $99 a month, a savings of over $25.
The price discount offered by "triple play" marketing is only temporary though.

According to an article published in the Philadelphia Inquirer on August 16th 2006, the monthly price will eventually shoot up to $130: "This year, Comcast introduced a 'triple-play' package phone services, digital cable, and high-speed Internet for an introductory price of $99 a month.

For a customer in Center City, the price could scale up to $130 after the 12-month introductory rate, according to a Comcast customer-service agent."

CONCLUSION:

Since this new era of open competition between the cable and the telephone companies is at his early stage, it is difficult conclude that consumers will win or loose.

Only the future holds the answer.

However, careful observations reveal that this new era of competition has its own share of monopolistic traits.

Indeed, although the consumers now have the choice between providers, they certainly have little choice in opting for separate services from the different providers.

In reality, the monopoly has metamorphosed from government sponsored into provider's "triple-play" marketing strategy sponsored.

If the consumers aim at some cost savings in the short term, they must choose a triple-play package from either provider.

This is indeed a new form of monopoly: a consumer choice restriction based on price discrimination.

The irony is that this new form of monopoly does not emanate from government regulations; instead it is a consequence of government fostering competition.

Rubens F. Titus, April 30 2008, 8:49 PM

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