La. Governor Blocks Video Franchise Reform

Published August 1, 2006

In July, Louisiana Gov. Kathleen Blanco (D) vetoed state legislation that would have created statewide video franchising rules, making her the first governor to block a franchise reform initiative.

Blanco’s veto, in the face of heavy lobbying by officials from cities and town, turns back H.B. 699, which passed the Louisiana Senate 27-10 after a House vote of 73-26. Whether the bill can be resuscitated is questionable as the legislature has adjourned for the summer.

Louisiana represents a setback for the video franchise reform trend. In the past four months, legislatures in Arizona, Kansas, and South Carolina have passed new laws that give new cable TV competitors authority to enter local markets in one fell swoop, without having to negotiate locality-by-locality franchises. They joined Indiana, Texas, and Virginia in instituting statewide franchising reform–a trend that is gaining increasing bipartisan support. In California, a similar franchise reform bill passed the Democrat-controlled state Assembly 70-0. It awaits action in the California Senate.

Video franchise reform also is a major element of two bills in Congress. The Communications Opportunity, Promotion and Enhancement (COPE) Act of 2006 (H.R. 5252) passed the U.S. House 321-101, with the support of 92 Democrats. On the Senate side, the Communications, Consumer Choice, and Broadband Deployment Act (S. 2686) was awaiting floor vote at press time. (See stories on page 1.)

Reform Benefits Consumers

Video franchise reform is designed to speed cable TV competition and boost broadband deployment by eliminating the need for new entrants to negotiate separate, individual agreements with every locality where they wish to offer service. Telephone companies, which are seeing declines in revenue from basic phone service, have begun major technology upgrades that allow their networks to carry multichannel video programming. A number of small independent phone companies, such as SureWest Communications in Roseville, California, have led the way. AT&T and Verizon are now moving forward with video rollout in their major markets.

Throughout the first six months of this year, data have shown cable rates drop when competition enters the market. The U.S. Government Accountability Office found rates in markets with two or more cable providers averaged 15 percent less than in markets where there was just one.

Other studies, including a sweeping study by economist Thomas Hazlett, concluded franchise reform would provide U.S. consumers more than $6 million in economic benefits.

Recent experience has borne out predictions in the academic studies. For example, cable rates have dropped in the north Texas markets where Verizon has introduced service.

Popular support for cable competition appears to be trumping arguments from local mayors and city councils that franchise reform endangers town revenues, will mean loss of public, educational, and government (PEG) channels, and, in the most controversial claim, will result in competitors “red-lining” low-income neighborhoods.

Most statewide franchise measures require franchisees to pay the towns in which they provide service the same percentage of video revenues as is paid by the incumbent cable providers, usually up to 5 percent. New laws also include PEG channel requirements.

Most statewide franchise measures, however, do not include build-out requirements, although franchisees are not permitted to discriminate against areas based on measures of income. Proponents of franchise reform contend new entrants will use lower-priced services to target consumers currently priced out of cable. In Fort Wayne, Indiana, Verizon launched its fiber-to-the-home service in low-income areas first.

As it made its way through the Louisiana Senate, H.B. 699 was revised to help level the playing field between cable companies and telephone companies. Under the measure, cable companies will be permitted to apply for a statewide franchise once a competitor moves in. The earlier House version required them to wait until current local franchises expired.

To date, wherever video franchise reform has reached a floor vote it has passed. Legislation is pending in Michigan, New Jersey, and North Carolina. Video franchise reform legislation also was introduced this year in Florida, Hawaii, Minnesota, Missouri, Nevada, and Oregon. In those states, bills failed to reach the floor before sessions adjourned.

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