Set aside for a moment everything you've read about the $45 billion bid Comcast made for Time Warner Cable last week. Blank from your mind Paul Krugman's prediction that the deal will result in a Comcast monopoly. Pretend you didn't read the New York Times piece about the acquisition presaging further consolidation in the cable market, with Charter Communications picking off Cox Communications. Thump yourself with a neuralyzer, if you can, and remove from your memory the protest against the transaction by Michael Copps, former Federal Communications Commission commissioner.
Finally, purge from your bile ducts the seething hatred you hold for Comcast and Time Warner Cable, those hurtful memories of rising bills, rotten service, and phone-tree purgatory and allow me to persuade you that we're having the wrong telecom argument when we quarrel about mergers and acquisitions. Instead of blocking mergers or beating concessions out of the telecom giants, let's give them the treatment they really fear: Policies that encourage the entry of competitors, which are the bane of every monopolist.
If you hate your cable television company -- to simplify a half-century of history -- blame it on the government. In the founding days of the industry, local municipalities mistakenly insisted that cable TV was a "natural monopoly" that must be regulated like telephone service. In nearly every case, the selection of a cable operator was a political one, with the most flattering supplicant winning the right from city councils to string wire on utility poles and cross right-of-ways to sell cable service. The municipalities collected franchise fees from the cable companies, shook them down for sweeteners like municipal channels and public access studios, regulated their rates, and required the operators to wire all if not most of their jurisdiction.
Of course, cable TV wasn't a natural monopoly but a government-made one. By the time Congress and the courts reduced the power of the municipalities to regulate cable in the 1980s and the 1990s, the die was cast. Sure, new cable operators could apply to compete, but they still had to run the regulatory maze and face well-entrenched government-made monopolists. In many cases, the new entrants have been companies that already provide the area with telephone service and know how to play the regulatory game, such as Verizon (Fios) and AT and T (U-Verse).
By legislating local cable monopolies, the municipalities inadvertently helped create national oligopolies. Comcast, Time Warner Cable, Cablevision and the other large cable firms grew to market dominance by purchasing existing franchises, market by market. Such a quick roll-up would not have been possible if regulators had pursued policies easing the way for new entrants. The unfettered growth created huge valuations. Indeed cable companies currently sell for $4,000 to $5,000 per subscriber (the Time Warner Cable deal is just under that). That's right Comcast customer, your cable TV and Internet subscription is worth at least $4,000 to them! But just as New York City taxi-cab medallions could not sell for $1 million if new cabs could freely enter the market, cable TV companies would not sell for such premiums if they were competing in a freer market. New entrants would progressively batter their power to price. In the cable industry, the regulatory scheme has been captured by the regulated, which is an old story.