GAO Finds ‘Overbuild’ Discount

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The General Accounting Office has completed a seven-month audit of six markets with wireline competitive cable operations, concluding that rates are generally lower in markets with overbuilders than in comparable markets without competition.

The report, released Tuesday, said rates for bundled services in the competitive markets were 15%-41% lower than nearby markets with comparable demographics.

The GAO came to this conclusion by tracking the pricing activity in pairs of cities, such as taking Augusta, Ga., where Knology Inc. competes with Comcast Corp. and BellSouth Corp., and comparing it with nearby Savannah, also a Comcast/BellSouth market.

The differential between prices in markets where wired competition for cable exists and other markets has been noted before, including by the Federal Communications Commission.

The National Cable & Telecommunications Association criticized the report before it was even finished, submitting comments that the study was too small to justify any conclusions about pricing.

The trade association also questioned whether the pricing differences could have been influenced by factors other than overbuilders, or whether the prices the GAO analyzed are actually sustainable over a long term.

The NCTA reiterated its criticism upon the release of the report, noting that most overbuilders -- unless they are linked to established utilities or not-for-profit companies -- are in financial distress.

"Whether or not they ever develop sustainable businesses, it is inappropriate to look to the prices offered by a handful of unprofitable overbuild systems as a benchmark for evaluating competitive cable prices in 33,000 communities," the NCTA said in a prepared statement.

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