House Passes Sweeping Telecom Reform

Published August 1, 2006

On June 8 the U.S. House of Representatives passed a bill reforming the nation’s video programming and telecommunications markets. The Communications Opportunity, Promotion and Enhancement Act (COPE) has ignited furious debate that has overshadowed the important transformation of video programming markets in the bill.

COPE co-sponsor Rep. Bobby Rush (D-IL) said passage of the bill “opens the door for much-needed competition in the video market, which will spur advances in technology, diverse programming and ownership opportunities, as well as provide critical relief of steep cable costs for consumers.”

The law eases entry into the video programming market by allowing companies to acquire just one “franchise,” or license, to offer video programming across the country. To offer service nationwide a company currently must negotiate with each of more than 33,000 local franchise areas. Obtaining a local franchise often takes more than three months, whereas the COPE Act promises a franchise decision within 30 days of filing a completed certification.

Windfall for Consumers

A 2005 study by the Phoenix Center for Advanced Legal and Economic Policy Studies found areas with head-to-head wireline competition saw significant rate cuts from 2001 to 2004. The study suggests a deregulated video programming market with successful competition could result in rate cuts of 16 percent for video programming in the coming years.

The Federal Communications Commission (FCC) estimates the video programming market generated $66.5 billion in revenues in 2005. Had the market been deregulated, the Phoenix Center report suggests consumers would have saved $10.6 billion. Economist Jerry Ellig estimates the total burden of FCC regulations on telecommunications is currently $105 billion a year in foregone services and higher prices.

A more open and competitive video programming market would result in significant benefits, according to experts. A 2006 study by the Digital Policy Institute at Ball State University found national telecommunications deregulation could lead to an additional $58 billion in capital investment in the next five years, adding $167 billion in gross domestic product and creating 212,000 jobs nationwide.

Build-Out Requirements

Municipalities consistently oppose deregulation that does not include mandated build-out requirements monitored by local franchise areas. COPE contains no such requirements, sparking the League of California Cities to claim the bill will not guarantee local communities are served. Kyle McSlarrow of the National Cable Television Association warns of “cherry-picking” and “red-lining” by telephone companies.

But Gregg Morton, vice president and chief of staff at BellSouth, argues that denying service to customers makes no business sense. The consumers that a build-out provision seeks to protect “are certainly among our very best customers,” he said. “We would be foolish to refuse to provide service.” Morton observes BellSouth “did not discriminate in our broadband rollout, and the IPTV rollout will be following where our broadband connections are.”

State Opposition

State officials generally oppose national cable franchising, fearing it will reduce the authority of state regulators. A May 30 letter from the National Governor’s Association complains, “The COPE Act, as currently drafted, eviscerates” efforts to preserve state authority, replacing it “with a federal framework that does not reflect the priorities and prerogatives of states.”

The measure’s supporters counter that a national franchise guarantees that a company will be able to quickly roll out its services nationwide without asking states first, which will encourage investment and competition. Julia Johnson of the Video Access Alliance noted in testimony before the Senate Committee on Commerce, Science, and Transportation, “the video market is national in scope (i.e., national companies making national investments to deliver video across state borders), and the need to avoid patchwork policies argues strongly for national regulation.”

Further Debate

At press time telecommunications deregulation was being debated in the Senate and a bill had yet to be passed. Experts say a bill from the Senate may look very different from the one that passed in the House.

Paul Burks ([email protected]) is a researcher at FreedomWorks, a grassroots organization with more than 800,000 members nationwide.