Mo. Should Open Cable TV Market

Published April 1, 2007

Cable franchise requirements probably sounded like a good idea back in the days when cable TV was a new, expensive luxury.

Once a cable company had built out a network in any particular area, it seemed unlikely another company would try to operate there. That would require a huge initial investment just for the chance to pull away a few dissatisfied customers.

Since only one cable provider was likely to serve any given location, requiring that provider to negotiate a franchise agreement with the local government was a way to hold down the monopolist’s prices. Besides, some kind of restriction was needed on laying new cable through public rights-of-way.

Missouri’s cable franchise laws date from a time when it was thought cable service would be viable only as a regulated monopoly. But new technologies have sprung up that make it economically feasible to build competitive video networks … and those outdated laws keep potential competitors out of the market.

Missouri should pass cable franchise reform so consumers can enjoy lower prices and better service.

Soaring Demand

The demand for cable TV has soared. Today 67 million U.S. households subscribe to cable. New technologies were developed in response. Satellite TV now competes with cable in providing multichannel video programming services.

Some studies have found that competition from satellite TV forced cable rates down, resulting in a $3 billion annual savings for U.S. consumers. Other economists disagree, saying satellite competition did not decrease rates but merely spurred an increase in the number of cable TV channels offered.

When Missouri’s cable franchise law was passed, no one imagined cable TV would face competition from the phone companies. Today, technology allows phone companies to compete with cable over wide areas. After Texas enacted telecom reform in 2005, AT&T invested $800 million in order to provide video services to customers throughout the state.

Cable companies are no longer the only video service provider available to local markets. Neither are cable franchise laws needed to protect public rights-of-way–phone companies use the rights-of-way already. Installing fiber-optic lines could impose new demands on public infrastructure, but these costs can be recovered under existing franchises.

Protect Customers, Not Companies

Missouri’s cable franchise law doesn’t protect consumers. States, like Texas, that issue statewide franchises will see new investment and better deals for consumers right away. Missourians, on the other hand, will have to wait while potential competitors to the cable companies wade through the cable franchise bureaucracy. Negotiating franchises with every municipality in the state takes a long time.

In place of the current cable franchise law, Missouri should allow companies that want to compete with cable to apply for a statewide franchise. Any necessary regulation could be handled once at the state level, rather than replicated wastefully in every municipality.

Consumers in California, Kansas, Texas, Virginia, and the other states that have passed cable franchise reform will benefit from competition. Missouri should open its cable market to competition too.

Sarah Brodsky ([email protected]) is a research assistant at the Show-Me Institute.