Cable Franchise Reform Spreads

Published February 1, 2007

As of December 2006, 11 states had approved video franchise reform legislation.

Eight of those states–California, Indiana, Kansas, Michigan, New Jersey, North Carolina, South Carolina, and Texas–created statewide video franchising processes.

Two other states, Arizona and Virginia, stopped short of creating a statewide process but established a basic framework for local franchise agreements that municipalities will use going forward.

In the 11th state, Louisiana, statewide franchising passed both houses of the state legislature by near three-to-one margins, but the measure was vetoed by Gov. Kathleen Blanco (D), who was concerned it might lead to a decrease in local franchise revenues.

In the U.S. House of Representatives, the Communications, Opportunity, Promotion, and Enhancement Act of 2006, a bill that would create a national franchising structure, passed 321-101. Franchise reform also was a provision in a telecom deregulation bill pending in the U.S. Senate, but the 2005-06 session adjourned without scheduling a vote.

In a separate but equally significant development, two states ruled that telephone companies do not need video franchises. In Connecticut, the Department of Public Utility Control ruled that existing right-of-way rules, regulations, and fees that already apply to phone company networks do not change just because video programming, as opposed to merely phone calls, is being transmitted over the network. Oklahoma’s Attorney General reached the same conclusion in that state.

Rapid Evolution

Compared to most other policy initiatives, especially in telecommunications, video franchise reform has evolved relatively rapidly. Sparked largely by the move of the nation’s largest telephone companies–Verizon Communications and AT&T–into cable TV and cable-like multichannel video services, in less than a year franchise reform initiatives have earned bipartisan support.

Republican officeholders spearheaded the first initiatives in Texas and Indiana, but, as witnessed by the overwhelming passage of bills in states like California and Louisiana, where Democrats control the legislature, franchise reform is coming to be seen less as a partisan issue and more as pro-consumer policy.

Moreover, predictions of slow rollout and phone company cherry-picking of wealthy customers have not come to pass. As described in Better Prices and Better Services for More People: Assessing the Outcomes of Video Franchise Reform, a new report from the Reason Foundation, within the past year, Verizon has launched its FiOS fiber-to-the-home service to 500,000 homes, accounting for half of the 1 million homes now served by fiber.

AT&T has rolled out its television service offerings in the form of U-Verse IP video over digital subscriber line (DSL), supported by its $4 billion Project Lightspeed fiber-to-the-node initiative in San Antonio, Texas. AT&T has not disclosed the number of customers it has captured in San Antonio, but Time Warner, its cable competitor, continues to respond aggressively. In October, the company introduced an innovative new service feature called “Start Over” that allows viewers tuning in late to watch their shows from the beginning.

AT&T introduced service in Houston in December and was on track to offer U-Verse in a total of 15 markets by early 2007.

Better for Consumers

Few franchise reform opponents challenge the overwhelming evidence that competition produces lower prices and better service.

Instead, they claim only the wealthy benefit from competition–even though there is no evidence in any other competitive market to suggest this. In fact, judging from Texas and Indiana, the two states with the longest history of franchise reform, the outcome has been quite the opposite.

In Ft. Wayne, Indiana, Verizon began deployment of FiOS service in the low-income Hanna- Creighton neighborhood. AT&T has rolled out U-Verse service across all parts of San Antonio, not just the tony neighborhoods.

Where video franchises are still negotiated locally, the phone companies are not applying for franchises in only the richest communities. When Verizon began offering FiOS service in New York’s Nassau and Suffolk counties, it launched service in Laurel Hollow, where per-capita income is $83,366, as well as in Massapequa, Mineola, Valley Stream, and Roosevelt, where per-capita incomes are $32,532, $28,840, $25,636, and $16,950 respectively.

Franchise reform is expected to pick up more steam in 2007. Lawmakers in Florida, Pennsylvania, Tennessee, and Wisconsin hope to build on momentum established in 2006. Meanwhile, the Federal Communications Commission has weighed in with franchise guidelines of its own. (See sidebar.)

Steven Titch ([email protected]) is senior fellow for IT and telecom policy for The Heartland Institute and managing editor of IT&T News.

For more information …

Two Reason Foundation reports, Better Prices and Better Services for More People: Assessing the Outcomes of Video Franchise Reform and I Want My MTV: Reforming Video Franchises for Competitive TV Services, are available through PolicyBot™. Point your Web browser to and search for documents #20451 and #20450, respectively.