Myths and Realities of Video Franchise Reform

Published July 1, 2006

As video franchise reform gains momentum at the federal level and in state houses across the country, opponents continue to stoke fears that new competitors will run roughshod over local community interests if cable TV franchising authority is elevated to the state or the Federal Communications Commission (FCC).

Statewide franchising means faster cable competition for more consumers, as new video entrants do not have to go through the franchise negotiation process in town after town. This has been shown in Texas and Indiana, the two states that took the lead on video franchise reform.

In an effort to steer attention away from this obvious benefit, opponents endlessly repeat myths. Let’s debunk a few.

Myth: Franchise reform is a David vs. Goliath battle.

Reality: The opponents of statewide or national video franchising contend reform is being bankrolled by telephone companies such as AT&T or Verizon. They cast the issue of franchise reform as one where the telecom giants try to squelch consumers, a veritable David vs. Goliath struggle.

Nothing could be further from the truth. Incumbent cable television companies, like Comcast, TimeWarner, and Cox, are themselves huge … and they are investing heavily in campaigns to oppose statewide or national franchising. Keeping franchising at the local level makes it more difficult for new video service providers, like telephone and power companies, to enter the market and compete against the cable companies–who, after all, were required to negotiate all of their franchises locality by locality.

But it is irrelevant to the franchise debate which industry supports what policy. Franchise reform should be judged on its merits–its record of driving down costs, the ease with which consumers can access new technology, its potential to spur innovation, etc.

Myth: Once telephone companies are able to compete with cable television companies, telephone rates will increase.

Reality: In the states that have enacted video franchise reform, there has been no evidence that phone rates have risen. Indeed, the evidence shows rates have declined. This myth arises because some franchise proposals give telephone companies the freedom to raise their rates … and thus opponents speculate they will raise rates. But the market provides a strong check against rate increases.

Myth: Without build-out requirements, video programmers will serve only the rich.

Reality: This is another speculative charge for which the opponents of franchise reform have no evidence. Build-out requirements are mandates requiring telecom companies to build their networks over the entire service area. Cable companies and “public interest” groups predict that without build-out requirements, broadband companies would choose to serve only the rich and ignore the poor, the rural, and the elderly.

But no business will ignore a sizable share of the market when demand for its services exists. Indiana’s franchise reform did not include build-out requirements. Yet shortly after the bill’s passage, AT&T announced it would expand service to 33 rural Indiana communities. Verizon began fiber optic network upgrades in the low-income areas of Ft. Wayne, not in the country club communities.

Myth: Franchise reform unfairly favors the phone companies.

Reality: A deregulated video service industry, where competitors can easily enter the market without significant barriers to entry, favors all industries. True, some cable companies, currently bound to local franchise contracts, may face higher regulatory burdens than those operating under statewide franchises. But they enter their competitive era with 100 percent market share, so a bit of rough justice prevails.

Most local franchises will expire in a few years, at which point cable companies are free to opt into the statewide franchise.

Myth: Without local franchise laws, a locality would lose authority to manage its rights-of-way.

Reality: Public rights-of-way do not depend on local franchise laws. While it is true that some local franchise laws codify rights-of-way management, there is nothing to prevent municipalities from managing rights-of-way in the absence of local franchise laws. Local governments have always had that authority, with or without local franchise laws.

Communities currently regulate, without a local franchise regime, how and where power, water, and telephone companies lay their pipes on public property. Why should it be any different for cable television?

Arpan Sura ([email protected]) is a researcher at FreedomWorks.