from: Desmoines Register [1]

Improve Iowa State Franchsing Bill: Address Predatory Pricing

April 12, 2007
By Bob Haug

The Iowa Legislature is poised to pass statewide cable-franchise legislation. On its face, the bill promises lower prices through vigorous competition, but consumers should beware.

Let’s face it: Most Iowa communities are not prime turf over which large cable and phone companies will compete. Without an objective standard for predatory pricing, the benefits of this kind of competition will be short-lived.

Senate File 554 will allow Qwest and other large players to offer competing cable TV service. But they will be allowed to target key accounts in a community — high-volume, low-risk, easy-to-serve customers. They will have no obligation to serve everyone.

In the short run, these select customers will benefit from competition. Others may see their rates climb as the incumbent tries to meet the competition for high-value customers. If the incumbent service provider is small — say one of the 150 independently owned telephone utilities in Iowa or the 28 municipal broadband systems — it may not be able to compete against predatory prices that are subsidized by ratepayers in the non-competitive areas where the big company operates.

Not to worry, we are told; business failure is just part of how the market works to benefit consumers. As soon as one competitor is driven from the market and the survivor raises its prices, a new competitor will swoop in, buy the assets of the failed company at a bargain-basement price and begin competing at even lower rates.

Let’s get real. Who will rush in to compete with a national or regional giant who has just demonstrated the will and capacity to conduct a price war to the finish?

The proposed legislation can be improved a lot by doing two things. First, an objective standard against which to measure predatory pricing must be established. For example, the bill could prohibit the sale of a telecommunications service in Iowa at more than two times the lowest rate charged by the provider for the equivalent service elsewhere in the state. That would ensure that all Iowans receive some benefit from competition by limiting rates charged in non-competitive areas.

Second, the legislation should recognize that telecommunications services are bundled, and the predatory pricing provisions should be applied to all telecommunications services — whether sold separately or combined in bundles of cable, phone, Internet access and data services.

It’s not too late to for the Legislature to act in the long-term interest of consumers. Addressing predatory pricing is essential to that end.

Bob Haug is executive director of the Iowa Association of Municipal Utilities.