Comment on Congressional Debate over Video Franchise Reform

Published March 14, 2006

(Chicago, IL – March 14, 2006) The House Energy and Commerce Committee is reported to be working on compromise legislation for national video franchise restructuring.

If news accounts of what is contained in the compromise are accurate, the proposal will be profoundly disappointing and will harm consumers, according to Steven Titch, senior fellow for IT and telecom policy at The Heartland Institute, whose statement appears below. Titch can be reached for further comment via email at [email protected] or by calling the public affairs department at The Heartland Institute at 312/377-4000.

“As it considers major telecommunications reform this year, Congress has an opportunity to advance a true competitive agenda that will bring lower prices for broadband, new and improved services, and technological innovation that will bolster the U.S. economy.

“Instead, by proposing in the House Energy and Commerce Committee a ‘compromise’ measure that includes complicated price control mechanisms, market tests, and an unlevel playing field, Congress has shown it can’t get past its historic distrust of the market.

“The reported compromise would allow telephone companies to obtain national franchises to compete directly with cable, a move that will benefit consumers. Unfortunately, the proposal doesn’t stop there. Instead, it seeks to impose new burdens and taxes on both phone and cable companies in order to ‘manage’ the market.

“The reported compromise would prevent cable companies from responding to competition by lowering prices. Clearly, such a proposal would not be in the interests of consumers, who benefit most when competing firms vie to offer the best prices for the services they offer.

“In Texas, the first state to authorize statewide franchises, Verizon has already rolled out fiber optic-based video and Internet services in the Dallas-Ft. Worth area. Charter Communications, its cable competitor, has responded with significant price cuts. The ‘reform’ measure under consideration in Congress would not allow lower prices for cable consumers.

“The proposed compromise also would bar cable companies from participating in the national franchise process until phone companies meet an arbitrary market penetration measure of 15 percent. This also would harm consumers, requiring cable to operate under a different set of rules than its competitors.

“The proposal also would institute a dubious policy of network neutrality, prohibiting carriers from creating quality-of-service tiers to handle applications that use huge amounts of bandwidth. By legislating today’s ‘best effort’ Internet, Congress will degrade the broadband experience for everyone.

“Network neutrality also creates another unlevel playing field. It would allow companies that provide content and who own servers, software, applications, and content to maximize the return on their Internet investments, yet deny that same opportunity to shareowners in companies that own the routers, switches, and fiber.

“Finally, the plan increases taxes. Local franchise agreements are limited by law to no more than 5 percent of revenues. Under the Congressional proposal, that cap will be raised to 6 percent.

“The reported proposal does get a few things right. By creating a national franchise structure, the benefits of competition will be realized much faster than if telephone companies continued to be forced to negotiate franchise agreements with every community in the country. The proposal also avoids build-out requirements that prevent telephone companies from rolling out services in the most economical fashion.

“Now that broadband has come of age, Congress has a chance to let telecommunications service providers compete aggressively without arbitrary constraints. Lawmakers had the same chance with the 1996 Telecom Act, but in that case policymakers professed support for market-based competition only to undermine it by creating artificial categories of service providers and encumbering each with different rules, price controls, and market tests. That effort failed, ultimately subsidizing failing companies with price controls and creating market conditions that discouraged broadband investment.

“In its best form, franchise reform levels the playing field by regulating cable and phone companies lightly and the same way. In Texas and Indiana, cable companies can apply for statewide franchising when their current local franchise agreements expire. So far the states have shown no interest in dictating prices, prohibiting quality-of-service tiers, or raising franchise fees.

“The House Energy and Commerce Committee should take its cue from the statehouses and revise its franchise reform proposal before moving any further with it.”

Steven Titch ([email protected]) is managing editor of IT&T News and a senior fellow for The Heartland Institute, a national nonprofit organization based in Chicago. IT&T News ( is a monthly newsletter addressing information technology and telecommunications policy issues. For more information, call Michael Van Winkle, media affairs assistant, 312/377-4000, or email him at [email protected].