Verizon Gets Qualified Approval to Offer Cable TV in New York City

Published August 1, 2008

New Yorkers are looking forward to more choice in television as New York City’s Franchise and Concession Review Committee (FCRC) has voted to allow Verizon to offer cable television services throughout the city.

As a result of the vote, Verizon will be permitted to provide its fiber-optic cable television service, FiOS, to millions of New Yorkers. New Yorkers will thus be able to choose among cable providers, effectively ending the prior cable duopoly.

The FCRC vote came with several conditions. Verizon agreed to offer FiOS service to all New York City residents by June 30, 2014, and the company must contribute $10 million toward the operations of the city’s proprietary television station, NYCTV. Finally, Verizon must turn over 5 percent of its annual gross revenue within the city to the city government.

Interest Groups Object

Shortly after FCRC’s unanimous vote on May 27, special interest groups Common Cause/NY and People’s Production House (PPH) released a statement criticizing the approval. The groups claim the process was pushed forward too quickly and does not incorporate enough consumer protections.

“The $70 billion deal with Verizon should not have been rushed through without more public debate. The received wisdom is that more competition will always benefit consumers, but unfortunately things are not so simple,” said Matt Vidal, a postdoctoral fellow at the University of California at Los Angeles’s Institute for Research on Labor and Employment.

“Some competitive pressure on prices may be beneficial, but there are two concerns,” said Vidal.

“On the one hand, businesses generally prefer monopoly over competition; thus, for instance, mergers and acquisitions led to sharp rises in consumer prices after cable deregulation in 1996,” Vidal said. “On the other hand, where competition becomes too intense it can be ruinous. Witness the effects on customer service in the airline industry. While Verizon is clearly a winner in the FCRC decision, it is unclear whether consumers will benefit in the long term.”

Policy Analysts Praise Decision

Gennady Stolyarov II, editor-in-chief of the Rational Argumentator, says the Verizon deal was a good idea.

“In an ideal, free-market economy, Verizon would not need government approval to enter this market in the first place. But since we do not live in such an economy, speedy government approval is the next best outcome,” said Stolyarov. “Rather than being concerned about the quick approval process for the franchise, I am thrilled that a government entity has done something efficiently and almost as fast as the free market would have accomplished it.”

Cord Blomquist, technology policy analyst and online editor for the Competitive Enterprise Institute, agreed.

“The FCRC was absolutely correct in allowing Verizon to compete for broadband customers in New York City. Some complained of this deal going on behind closed doors, but the deal should not have been necessary in the first place,” said Blomquist.

Barriers Promote Monopolies

According to Blomquist, a major reason monopolies remain in these markets is because of the difficulty and cost of entering into deals with state and local governments. It is those costs, he argues, and not broadband contracts that are quickly passed, that ultimately lead to poor consumer protection.

“Broadband companies get fleeced by local and state government when trying to break into protected broadband rackets,” said Blomquist. “In this case, Verizon got away with only a light fleecing by the city. New York is getting 5 percent of gross revenues of the FiOS network, Verizon is forced to maintain its antiquated copper network for customers who prefer cheap service, and they face hefty fees for not meeting benchmarks in their buildout–a buildout that must be complete by 2014.

“Instead of extorting cash and prizes from broadband companies–costs that are ultimately passed on to consumers–local and state government should open their borders to increase competition and stop protecting entrenched providers who hope to keep their prices high,” Blomquist continued.

Stolyarov believes FCRC approval will benefit New York City consumers. “This grant of franchise will finally end the quasi-monopoly power exerted by Time Warner and Cablevision in New York,” he said. “Verizon’s entry into the cable market will put pressure on incumbents to become more competitive and more responsive to consumer demand.

“As an advocate of laissez-faire capitalism,” said Stolyarov, “I think that any firm that wishes should be able to provide cable services to willing customers and to try to establish its reputation as a quality service provider in a free market.”

Aleks Karnick ([email protected]) writes from Indianapolis, Indiana.