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Reason Foundation

Local Franchising Inhibits Competition

Steven Titch
April 12, 2007, 12:14pm

Whatever was intended originally, the current local cable franchising process is much more a barrier to competition than a facilitator. While municipalities talk about the their desire to offer consumers more competition for cable TV services, in less than two years, statewide franchising has done much more toward achieving that goal than thousands of towns and cities have managed in the 15 years since the FCC ordered local franchising authorities to open the process to competitors. James Speta, John Skorborg and I discuss the impediments the local franchising process puts in the way of competition in The Consumer Benefits of Video Franchise Reform in Illinois, a report recently published by The Heartland Institute. A tip of the hat, nonetheless, goes to Tom Hazlett, who quantified the problem in Cable TV Franchises as Barriers to Video Competition, published last June. While cable companies indeed face a degree of competition from satellite providers such as DirecTV and Dish Network, market studies show that satellite market share has long since flattened at about 29 percent and shows no sign of future growth. And satellite service is still hampered by its lack of a phone and high-speed Internet bundle. Meanwhile, telephone companies have the capability to upgrade their existing networks with fiber optics in order to package multichannel video services around their own voice and data services, yet are running head-on into franchise regulations at the local level that do nothing but impede rollout. The local franchise process is no longer workable when diverse service providers can deliver video via cable, satellite, telephone and wireless. Cable franchise agreements were originally set up as purely bilateral revenue-sharing arrangements between the cable company and the local community. The community guaranteed a monopoly. Safe from competition, the cable company was willing to bear the various extra costs that the franchising process imposed, such as franchise fees, rights-of-way fees, public, educational and government (PEG) channel overcapacity, and the costs of such "non-cash concessions" as the construction of parking lots and public swimming pools. These costs were simply passed along to consumers. For any would-be competitor, who, on top of all these demands, often would be given just three to five years to build a network that extended to the same number of households that it took an incumbent 10 to 20 years to reach, local franchise rules represented an insurmountable barrier to entry, even after the 1992 FCC ruling that called on local authorities consider competitive franchisees. Statewide franchising ends this nonsense. Cities and towns will continue to receive franchise revenues, right-of-way compensation and PEG channels, but franchises will be granted quickly and terms will be consistent across the state. Cable–and more pointedly–badly needed broadband services, will no longer be and easy cash machine for local government that residents have to refill through higher bills.


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