Anaheim vs. the Sacred Cow of Franchise Fees

As video franchise reform is debated in Congress and in state houses around the country, legislators seem keen on reaching compromises that retain a franchise “tax,” generally five percent, on video revenues. Even proponents of franchise reform seem to be resigned to accept the levy, despite that it is discriminatory, creates an unnecessary additional cost to broadband adoption, and stands to be more and more difficult to justify as alternate forms of video distribution using the Internet takes hold. That’s why it was so refreshing to hear a city administrator call for outright abolition of franchise fees. In reply comments that received way too little coverage, Anaheim Mayor Curt Pringle outlined a several compelling reasons to do away with video franchise fees as part of an FCC inquiry into the restructuring of the video franchising scheme.

City leaders do not believe that government should determine whether residents receive video content through established cable providers, growing competition from satellite television, or new concepts coming on line like internet protocol television (IPTV), or technologies on the horizon like Wi-Fi delivery of video content. Anaheim is supportive of maintaining open market competition in which any franchise fee is eliminated for consumers and a variety of service providers have an opportunity to earn customer support. The current franchise system inhibits additional companies who might be subject to it from entering the marketplace and investing in infrastructure when they are challenged by the expense and difficulty of attaining enough market share to recoup costs. At the same time, companies that are clearly exempt from franchising, like satellite providers, flourish. Franchise fees and many elements within franchise agreements, therefore, are merely an artificial intrusion by government into the consumer marketplace. Attempts to apply franchise fees and agreements to some providers, while exempting others, effectively eschews the market. Therefore, eliminating these fees and impediments, Anaheim contends, will allow equitable competition amongst the variety of video service providers. In this way, and without local government interference, the various systems compete in price, quality and quantity and consumers decide which service provider they prefer.

Pringle then goes on to demolish the bromides about the importance local control and franchise revenue that local governments continue to put forth. The market has changed, Pringle asserts. And imposing arbitrary taxes on one group of competitors hurts consumers and limits choice. The full text of Pringle’s comments can be found here.