Franchise Reform Moves Ahead

Published April 1, 2007

Four states introduced bills to create statewide video franchise rules in February, picking up on a trend that thus far has seen eight states revise rules so cable TV competitors can enter local markets faster.

Legislatures in Georgia, Massachusetts, and Tennessee are considering measures that would give the state authority to grant a new entrant permission to launch service anywhere in the state. Legislation also was introduced in Colorado, but the state’s House Transportation and Energy Committee later voted 8-4 to postpone action.

The move toward statewide franchise reform comes as incumbent telephone companies invest millions of dollars in network upgrades to accommodate video and broadband Internet. Under current procedures, prospective competitors must negotiate individually with cities and towns, which can delay rollout and add costs to an operation.

Verizon is in the midst of a three-year, $28 billion network buildout that will extend fiber-optic links to homes. AT&T is investing $6 billion in a hybrid fiber-DSL architecture. In 2006, both companies were introducing new facilities-based video service, with Verizon in the lead. The company’s FiOS network serves 600,000 customers.

Removing Barriers

“We’re removing a barrier to entry,” Jeff Lewis (R-White), chairman of the Public Utilities and Telecommunication Committee in the Georgia House of Representatives, told the Atlanta Business Chronicle. “We can’t let antiquated regulations hold back progress.”

“You’re not going to get competition unless you streamline the process,” Massachusetts state Sen. Steven Panagiotakos (D-Lowell) told the Boston Globe. “Companies aren’t going to spend more money on infrastructure if they won’t see a return for two or three years.”

Opposition to franchise reform tends to come from municipalities that fear loss of revenue and control of right-of-way.

Statewide franchise reform bills generally standardize the terms for franchise fee formulas; public, educational, and government (PEG) channels; and any build-out requirements.

Bill Specifics

The Georgia bill calls for a 5 percent franchise fee on gross revenues for cable and video service, allows existing PEG channels to continue through 2012, and has no build-out requirement. Incumbent cable companies will be permitted to apply for statewide franchising once the bill is passed, although they will remain bound by certain terms of the original local franchise agreement, including PEG channel agreements.

The Massachusetts bill sets a franchise fee of 5 percent on gross video revenues, plus an additional 1 percent for PEG channel support. It calls for competitors to provide an equivalent number of PEG channels and programming as the incumbent, and contains no specific build-out requirements. Incumbent cable companies may not apply for statewide franchises until their current local franchise agreements expire.

The Tennessee bill limits franchise fees to 5 percent or the equivalent percentage the local municipality was charging the incumbent cable provider, whichever is lower. There are no additional provisions for funding PEG channels and no build-out requirement. Incumbent cable companies may not apply for statewide franchises until their current local franchise agreements expire.

In 2005, Texas became the first state to pass statewide video franchise reform. California, Indiana, Kansas, Michigan, New Jersey, North Carolina, and South Carolina passed similar reforms in 2006. In addition, Arizona and Virginia took steps to streamline local franchise processes, but stopped short of statewide franchising. The Louisiana legislature also passed statewide franchise reform, but the bill was vetoed by Gov. Kathleen Blanco (D).

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