From California to Congress

Published November 1, 2006

Hold on to your hats! California lawmakers have finally done something even the most jaded critic will appreciate. It’s called cable franchise reform, and it will have a positive impact on California and the entire nation.

“California has led the way in the evolution of new technology, and with this bill, our state’s policy towards contemporary TV and entertainment technology is catching up to the times,” said Assembly Speaker Fabian Núñez (D-Los Angeles).

California Digital Infrastructure and Video Competition Act of 2006


  • Passed House 70-0
  • Passed Senate 33-4
  • Signed by Gov. Arnold Schwartzenegger September 29, 2006
  • Effective January 1, 2007


  • Creates a statewide franchising process
  • Calls for franchisees to pay 5 percent of gross video revenues
  • Allows incumbent cable company to seek a statewide franchise upon entry of a competitor
  • Contains no build-out requirement

Indeed, it was past time for lawmakers to remove the monopoly local governments had created for cable services. Not only have cable television rates shot up almost 86 percent over the past 10 years, without significant improvement in service, but competitors to this dysfunctional system have been clamoring to get in. The situation was so dire that both parties overwhelmingly supported the new bill, with even liberal Democrats such as Sen. Marta Escutia (D-Whittier) coming on board.

The bill, A.B. 2987, will create a statewide video franchise system run by the California Public Utilities Commission (CPUC). Franchises are essentially permission from the government for companies to enter the market. State franchising replaces the old system that forced cable providers to negotiate with each of thousands of municipalities, which would often drag their feet and demand unrelated favors such as building parking lots and planting trees.

Under the new law, the CPUC must act on a franchise application within 44 days of receipt. When granted, the statewide franchise will remain valid for 10 years.

The California Labor Federation, AFL-CIO, National Council on Aging, and Rainbow/PUSH Coalition joined 250 other groups, along with AT&T and Verizon, in rallying for change. One seldom sees that combination.

New Competition

The benefits are huge, of course, starting with jobs. AT&T has already said it will invest an additional $1 billion in California, and Steven Pociask of TeleNomic Research has estimated franchise reform will create 10,400 new California jobs. The jobs will be good ones, paying 77 percent above the national average wage.

Consumers will also be huge winners. The mere introduction of competition into a system where almost none existed will cause radical change. University of California, Berkeley professor Yale Braunstein estimates a windfall of $1 billion, with a savings of $162 million to $237 million in the San Francisco area and $320 million to $469 million in the Los Angeles area.

Such price savings have happened before, albeit on a smaller scale. The Federal Communications Commission notes in the limited areas where “overbuild” cable competition existed, cable prices dropped 15 to 27 percent. When real competition comes into play, the drop in prices and accompanying increase in quality should be even better.

But the effects of California’s cable reform measure will carry far beyond the state. Congress is currently considering cable franchise reform at the national level and, as one might imagine, there are a number of political “compromises” on the table. One of the current stumbling blocks is that legislators from rural areas have indicated that in order to get their votes, cable franchise reformers need to add universal service pork to the bill. That’s tough to swallow, as universal service taxes have nearly doubled in the past eight years and the program is rife with corruption.

States Pass Reforms

Fortunately, the passage of California’s bill greatly decreases the incentive for such bad compromises, as it increases the number of customers who can already be reached without national legislation. For example, now that California has reformed, AT&T can enter the video market for more than half its customers. That’s because Connecticut, Indiana, Kansas, and Texas also passed statewide franchising rules. Verizon’s market is looking good too, with reforms in New Jersey, Rhode Island, Vermont, and Virginia.

There was talk a while ago about Gov. Arnold Schwarzenegger wanting to enter national politics. That remains to be seen, but by signing this bill he will certainly have made a difference for the nation.

Sonia Arrison ([email protected]) is director of technology studies at the Pacific Research Institute. This article is reproduced with permission of TechNewsWorld and ECT News Network.