Conclusion and Recommendations

By all measures, the market for Internet access is a dynamic, competitive market. Consumers wishing to access the Internet can, in many localities, purchase this service from a wide range of suppliers, where each supplier offers a different technology with distinct advantages and disadvantages. In addition, the profit opportunities created by this competitive market are attracting new, upstart firms to compete and spurring established firms to improve their service. The end result is that consumers benefit from the expanded set of choices and competitive prices—all without any government direction or interference. Accordingly, implementing the following recommendations will serve to maintain and even increase competition in the market to ensure that consumers continue to enjoy a wide range of affordable Internet access services.


Recommendation #1: Reject Forced-Access Policies and Allow the Free Internet Access Market to Work for Consumers

Petitioning the government to mandate by law or by a regulatory order broadband access that independent ISPs can already obtain through voluntary arrangements is a classic example of what economists call rent-seeking behavior.32 As often is the case, if a competitor is unable to make it in the marketplace, that competitor will attempt to make it in the political marketplace. Politicians and regulators should reject these specious claims to "level the playing field," since the effect will certainly reduce the economic benefits that broadband technology promises to provide to its users.

In any market, there are likely to be winners and losers. Here, a group of potential losers has sounded the clarion call for government assistance because they fear that cable firms will monopolize the market for Internet access. However, market trends and economic analysis underscore that it is unlikely cable firms will dominate the market for Internet access service.

The appropriate response to OpenNet and other forced-access advocates' plea for corporate assistance is to maintain the status quo: In other words, the best way for legislators to promote competition is to refrain from passing legislation that interferes with the free working of the already-competitive Internet access market. Market competition is the best policy for serving the consumers' best interests, and the government should avoid the temptation to pick the winners and losers for Internet users.


Recommendation #2: End the System of Local Cable Franchise Agreements to Promote Greater Competition, Improve Services, and Lower Costs

Local governments have been selling cable firms exclusive franchises within specified geographic areas since the early 1960s. Today nearly all cable firms have exclusive franchises in their respective service areas. Nationwide, only 3 percent of 67 million cable subscribers can select from competing cable companies, and they pay higher prices for the cable monopoly.

Why have local governments sold monopoly rights? A plausible answer is that this is an easy way for public officials to make a few easy bucks without directly taxing their constituents. The temptation is hard to resist: Give a firm a monopoly and then require the monopoly to share its monopoly profits. From 1980 to 1990, the cable industry paid local governments $3.3 billion in franchise fees. Nine years ago, the figure topped $715 million.

Local governments may also mandate nonmonetary, or "politically correct" concessions from operators for franchise rights. In Sacramento, California, a cable operator had to plant 20,000 trees to secure his franchise. Another in Miami had to provide $200,000 in annual funds to the local police department for an anti-drug abuse campaign.

Is the exclusive franchise system in the consumers' best interest? The answer is clearly no. According to the National Telecommunications and Information Administration, "[t]he franchising process eliminates or seriously impedes entry by competitors, imposes substantial costs and delays on franchisees, cable subscribers and the public, which are not offset by countervailing benefits. The public would be better served by municipal efforts to provide a choice of cable service providers rather than extracting costly concessions from a sole cable franchisee."33

Michigan policy makers should lead the way for better service and lower costs by advocating that it is no longer necessary for cable firms to negotiate franchise agreements with local governments.34 This would eliminate municipal franchise authorities' incentive to use their legal power to require forced access as a quid pro quo for granting franchise agreements, renewals, or transfers to particular firms and would also remove a significant barrier to entry in local markets for video programming and Internet access service. Other cable firms may then enter the market with this barrier gone, benefiting consumers of those services with better service and lower costs due to the additional competition.