Cable Companies' $46+ Billion Robbery -- Subscribers Have Been Ripped off for $5 a Month Since 2000
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The Social Contract was an unstated effort by the FCC to help subsidize the deployment of what Al Gore, in 1991, proposed as the “Information Superhighway.” Under the Social Contract, cable operators would be subsidized so they could build-out their networks to meet the needs of homes, schools, hospitals, libraries, businesses and government offices with advanced optical fiber networks. Gore envisioned that by 2010 all public institutions and 100 million homes would have fast, two-way broadband communications.
Now, after a decade and a half of deregulation, what have we got? AT&T and Verizon combined have only five-plus million fiber-based subscribers and the cable operators account for only about 20 percent of the residential voice market, a much smaller amount of the business telephone service and no major presence in the wireless market. Thus, deregulation, after all is said and done, gave us slower Internet speeds, less choice over service provider and higher prices. Competition within the telecommunications industry is a myth.
Under the Social Contact, cable operators were required to upgrade their networks to a minimum data rate; technically, it was set at 750 MHz per second analog and “at least 200 MHz is expected to be dedicated to digital distribution.” The FCC required that “at least 60 percent of the capital expended to complete the required upgrades must be applied for the benefit of basic service tier and CPST subscribers.” In addition, all upgraded systems were required to offer at least 15 CPST or basic service channels and three-fifths CPST had to be offered over analog services.
Like most federal rules, the Social Contract is slippery. In 1997, Comcast applied to the FCC to “complete certain upgrades and improvements” under the Social Contract. It agreed to provide free modems and online service to 4,000 public and private elementary and high schools and up to 250 public libraries within a year after rolling out Internet-access service commercially to residential customers in the same franchise area. In return, Comcast was permitted to create “product tiers in those systems which had not been previously granted comparable tier flexibility.” Sadly, there is no apparent report as to whether Comcast met these system upgrade requirements.
In 1999, TCI (now part of Comcast) sought to swap cable systems for Time Warner’s systems in Illinois, Indiana, New Jersey, Oregon, Pennsylvania and Wyoming, and the FCC extended the benefits of the Social Contract originally awarded to Time Warner, but not the upgrade obligations. In the original agreement, Time Warner agreed to invest $4 billion for system upgrades, “this financial commitment will not apply to TCI. Instead, TCI will be required to make such capital expenditures as may be necessary for it to complete the required upgrades.” With a regulatory slight of hand, one company’s obligations turned into another’s opportunities.
In 2001, the New York PUC revealed how the Social Contract really worked, in this case for Time Warner subscribers. Time Warner sought to increase the original $1 per month per subscriber charge for basic CPST services. As it stated without subterfuge: “The charge was an annual increase of $1 per month for a total charge to CPST customers of $12 in 1996, $24 in 1997, $36 in 1998, $48 in 1999 and $60 in 2000.”
The PUC “tentatively concludes” that Time Warner should decrease its total upgrade surcharge attributed to the Social Contract. Did the hidden Social Contract on subscribers increase fivefold? Sadly, yet again, there appears to be no public report as to whether this increase or decrease went into effect. How much has Time Warner received from the Social Contract over the last decade and what system upgrades, especially to public institutions, has it provided?