Cable Competition Offers More for Less

California legislature should end monopolistic alliance of cities, cable TV companies

Rising cable television bills have been straining household budgets and driving consumers crazy. But cable customers might finally catch a break as California pushes forward on legislation to reform our antiquated system of video franchising – the revenue-sharing agreements that cable companies sign with local governments in return for the right to offer video services to taxpayers on an exclusive basis.

Remember rotary phones and television sets with tuning knobs? Remember when personal computers did not exist? That’s the era in which the current franchising system was created. Local governments wrote exclusive agreements with cable and phone companies for the purpose of “protecting consumers,” i.e., regulating what was then a monopoly service. At the time, there was no competition with, or between, phone and cable service providers.

But today competition is booming among a variety of rapidly evolving technologies including cable TV, cell phones, satellite TV, Internet telephone, Internet TV and others.

So now, instead of protecting consumers, the old laws are actually shielding large companies from emerging competition and are preventing consumers from taking advantage of better services and lower prices.

It’s a lucrative racket: The franchisee gets a guaranteed, captive customer base, and the local government extracts revenue in return for delivering protection. Meanwhile, consumers foot the bill.

A reform bill that unanimously passed the State Assembly and is now being heard in the Senate Energy, Utilities and Communications Committee would allow telephone companies into the cable TV market and let them compete for franchise agreements issued by the state, rather than cities and counties. Berkeley researcher Yale M. Braunstein predicts cable competition franchise reform will save California consumers $690 million to $1 billion.

Texas became the first state to pass video franchising reform last August, and customers saw quick results. In January, Verizon rolled out its fiber-optic video service in three communities near Dallas. The local cable provider, Charter Communications, immediately dropped its prices to compete. Verizon priced its service at $43.95 a month for 180 video and music channels. Charter then began offering a bundle of 240 channels and high-speed Internet service for $50 a month, compared with the $68.99 it had previously charged for the TV package alone – no Internet – when it was an exclusive franchisee.

In two Florida counties, Comcast is not raising cable rates for the first time in a decade. Why? Verizon has entered those markets, and now Comcast has to battle for customers.

At first blush, bypassing local control – as the video franchising reform proposals would do – may sound like a bad thing for residents. However, families would not tolerate their local governments deciding what types of cars they can buy, from whom they buy their groceries, or where they do their banking. Why should they tolerate local control over video services?

Most local jurisdictions oppose video franchise reform, contending it will deprive them of revenue they are entitled to, prevent them from being compensated for the private use of public rights of way, and threaten the availability of public access channels.

But as Anaheim Mayor Curt Pringle has demonstrated, these objections are misguided. “Many cities have used [franchise] fees to fund essential municipal services unrelated to cable, although the fees simply are not a long-term stable source of revenue for cities,” Pringle told the Federal Communications Commission in March. “[C]ities are denying their consumers choice, unnecessarily raising the costs of services, and stifling innovation.”

Anaheim has shown that, even without franchise fees, municipalities maintain the authority and ability to negotiate with service providers to get paid for use of any rights of way, and to offer local programming.

Californians want smaller cable bills and more Internet, phone, and television choices. Franchise reform can help make that happen.

Steven Titch is a policy analyst at Reason Foundation. An archive of his work is available here and Reason’s telecom policy research and commentary is here.