October 29, 2003, 8:37 a.m.
Competition to Cable and Satellite TV?
Congress may have a chance next week to do the right thing for consumers.

Ever wonder why it is taking so long for multichannel TV technologies to reach a large share of the American market at affordable prices? Or ever wonder why so many homes still can't get high-speed Internet hookups? The technologies have been around for at least a decade to make both products affordable to all homes. The culprit is government interventionism, which has impeded the introduction of new technologies that could dramatically reduce costs of satellite TV and bring more channels and clearer pictures to millions of Americans homes. Ironically, the government is blocking new TV technologies that could give Americans access to multiple new entertainment and news channels at the same time Congress moans about too much market concentration in the media business.

Typically, the biggest opponents of the newest generation of technological advance are those firms who pioneered the previous generation of innovation. This has been true for 100 years. Horse and buggy manufacturers weren't too thrilled with Henry Ford's Model T's. Incumbent industries, fat and happy from years of isolation from competitors, either due to economies of scale, or preferential regulation, are rocked by disruptive technologies. This is the essence of the free-market process of "creative destruction." The advent of the PC benefited consumers and businesses enormously, but brought down some of the leading technology firms of the last century including Burroughs, Wang, and Digital, and forced mighty IBM to rethink its whole product line.

Satellite firms are feeling a lot like IBM did in the late 1970s. Here's why: New multichannel TV and high-speed Internet providers now have the technologies to bolt a wireless local transmitter to a tower at a fraction of the cost of what it costs to design and pay NASA (or the Chinese) to launch your $300 million telecommunications satellites into orbit. For example, a firm called Northpoint Technology has developed a system comprised of local transmitters that would carry all local TV stations and emergency broadcasts within a market, something the satellite companies won't do. In fact, nearly 1,000 local TV stations are not carried by any satellite service. Under this technology, land-based transmitters would share the same frequencies used by the satellite-TV companies, and consumers would simply point their reception dish in a different direction to receive service.

If this technology works, multichannel TV and Internet service could be made available in homes at a fraction of the cost of the direct-broadcast satellite TV. The FCC has certified that the system would not interfere with satellite signals.

When you listen to Tom Hazlett, a former chief economist for the Federal Communications Commission now with the Manhattan Institute, you understand why the satellite firms are nervous. Hazlett estimates that the lack of competition with satellite TV providers is costing consumers about 5 percent on their monthly TV bills, or up to $230 million each month in higher prices. New competition from land-based technologies could mean even bigger savings than that. The GAO reported just last week that when there is more than one cable-TV company in a market, prices are about 15-percent lower. Those savings could bring multichannel TV into the living rooms of millions of more Americans sooner rather than later.

Satellite corporations claim that this technology requires the FCC to give away precious broadcast spectrum when other providers paid handsomely for spectrum allocation in license auctions. That argument sounds reasonable, except that most spectrum that has been assigned of late hasn't been allocated through auctions at all. Many of the satellite companies haven't paid a dime for their spectrum. That is true of well-known firms like DirecTV. Since 1997, the FCC has granted about 150 satellite licenses — not a single one through auction. When the FCC got around to processing the applications of Northpoint and six large satellite corporations who all applied on the same day in 1999 to share the exact same frequencies, the agency determined to license the satellite companies without auction, but dismissed Northpoint's application and invited the innovative company to participate in an auction.

I don't know if land-based transmission systems are the future of TV and high-speed Internet or not. But I do know that only the market can fairly and efficiently make these decisions, and by locking out new hopeful technological advances through government regulation, consumers lose and monopolies win. The shame here is that this fight isn't being fought in the jungle of the marketplace where survival goes to the fittest. It is being fought in the halls of Congress, where the most politically fit survive.

Commonsense free-market legislation brought by Senators John Sununu (R., N.H.) and Kay Bailey Hutchison (R., Tex.) would create a level playing field for all competitors in the pay TV market, space based and terrestrial. Through the resulting forces of competition, we could see the costs of multichannel TV and high-speed Internet plummeting in the next ten years the way cellular-phone costs have come down in the past decade.

— Stephen Moore is president of the Club for Growth, a contributing editor of National Review and NRO and a nationally syndicated columnist.

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