Franchise Reform Bills Snowball in the States

Published May 1, 2007

The Missouri General Assembly has overwhelmingly passed legislation that would allow statewide franchising for cable TV competitors. On March 14, the Missouri House of Representatives voted 143-4 in favor of the measure, known as the 2007 Video Services Providers Act (S.B. 284), a revised version of a bill that passed the state Senate 32-2 earlier in the month. The legislation must now return to the Senate for final approval.

At least 11 other states–Colorado, Florida, Georgia, Illinois, Iowa, Massachusetts, New York, Tennessee, Utah, Washington, and Wisconsin–have introduced statewide video franchising legislation already this year. None of those measures had become law by press time. The measures are designed to accelerate competition for cable TV and similar services.

Under current franchising rules, new entrants must negotiate individually with each local franchising authority–there are 700 of them in Missouri, according to the American Legislative Exchange Council (ALEC).

Statehouse Groundswell

“Federal, state, and local regulations have not kept pace with the rapid change in technology,” said Missouri House Majority Leader Rep. Tom Dempsey (R-St. Charles) in a statement. “Older monopolistic industries, like telephone and cable, who traditionally provided one brand of service, have combined with newer technologies, like wireless and satellite providers, to bring multiple or bundled services to customers. S.B. 284 will update our state laws to adapt to what has occurred in the marketplace.”

Opposition to video franchise legislation tends to come from municipalities, which fear they will lose franchise revenues and that new entrants will not serve all parts of the community.

‘Power of Competition’

But Wisconsin state Rep. Phil Montgomery (R-Green Bay), cosponsor of his state’s video franchise reform initiative, said statewide franchising will introduce the benefits of the market not only to video but to broadband services as well. Bipartisan support is reflected in the wide margins by which franchise reform bills are passing, Montgomery said.

“Never, ever underestimate the power of competition,” Montgomery said. “No matter what the product, people want the opportunity to shop around. That’s the argument everybody’s getting.”

Since much of the new competition is also built around bundling TV with high-speed Internet, franchise reform will lead to greater broadband build-out and availability, according to Montgomery and other supporters of reform.

Differing Definitions

All the bills introduced to date create statewide video franchising authority, but there are some differences among the measures.

Most states cap the franchise fees percentage formula at 5 percent of gross video revenues, although some bills, including the one in Illinois, designate an additional 1 percent to fund public, educational, and government (PEG) channels.

The definition of gross video revenues can also differ.

All bills consider income from service provision–billings for set-top box rental, monthly service, premium channels, and pay-per-view–as video revenue. More controversial has been the inclusion of cable-related income that does not come from consumers, including revenues from local advertising, commissions paid by programmers such as the Home Shopping Network and QVC on sales of merchandise to franchisee customers, and promotional fees paid to franchisees by cable programmers for including their channels on the system.

Bills in Colorado and Tennessee use the broader definition. The Illinois bill does not.

Additional Rules

Regarding build-out of new services, the bills currently under consideration vary in the deadlines they impose on new entrants regarding coverage of the entire area.

The Tennessee bill imposes no build-out requirement, allowing new entrants to deploy service in response to market conditions and economies of scale. Illinois and Missouri require that within five years at least 30 percent of households where service is available must qualify as low-income.

Some bills, including those in Colorado and Illinois, require the incumbent cable company to remain bound by its existing local franchise agreement until it expires. Others, such as in Florida, Missouri, and Tennessee, permit incumbents to apply for a statewide franchise upon the entry of a competitor. The Wisconsin bill would permit an incumbent to apply for a statewide franchise with or without competition.

All legislation calls for statewide franchisees to provide PEG channels, usually a minimum of three, often more based on population. Franchisees must provide a means of connection from PEG studio facilities to the head-end.

All the pending legislation prohibits cities from discriminating against individual service providers by denying access to rights-of-way or charging higher prices to some providers than to others.

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