(Note: The following is an edited version of remarks
delivered by Diane S. Katz last week as testimony to the technology committees
of both the National Conference of State Legislatures and the American
Legislative Exchange Council. The two organizations are preparing
recommendations for reforming the cable franchise regime.)
Good morning. I am Diane Katz, director of science,
environment and technology policy, at the Mackinac Center for Public Policy. The
Mackinac Center is a Michigan-based, nonpartisan
research and educational institute focused on state policy. It is the largest
think tank of its kind in the country.
I am grateful for the opportunity to be here today, and I
appreciate your interest in improving telecommunications policy.
The fundamental questions before you are:
Should cable franchise requirements be imposed on Internet-based
video services? The answer is a resounding "No."
Are current franchise requirements a barrier to entry and
competition? The answer is a resounding "Yes."
Should states regulate franchise authority? The answer is "No."
Finally, should Congress establish federal franchise requirements
for video services? The principled answer is, "Congress ought to eliminate
franchise authority altogether." But the realpolitik answer is, "Better a
federal franchise regime than a state or local one."
But I ask you, "Why is a franchise regime of any sort even
Municipalities say they must franchise both to manage
rights-of-way and to control the supposed market dominance of the cable monopoly
they’ve long sanctioned. That’s what they say. What I believe they are thinking
is, "We sure as heck don’t want to lose the $3 billion we collect in franchise
fees every year, not to mention all the in-kind services, including free TV time
for local office holders."
Cable firms say we must franchise because most of them are
trapped in long-term costly franchise agreements that would put them at a
competitive disadvantage if newcomers aren’t also forced to pay off the locals.
In other words, they want a so-called level playing field, as if such a thing
actually exists in a competitive market. However, these same cable firms balk at
any suggestion that their new Internet-based phone service should fall under the
legacy regulations in telephone service. Not that I blame them.
So we have what economists call
"a battle over rents." This is always a headache for legislators, because at the
end of the day, someone always loses. Well, I’m here to suggest that the
only interests that you must protect are the best interests of consumers. Under
that rubric, there’s simply no justification for continuing the franchise
regime, let alone expanding it to broadband service providers.
To apply franchise regulation to Internet-based video would
suffocate this nascent technology. It would be positively inane to require
broadband service providers to negotiate franchise agreements with 35,000
municipalities, or even 50 states, as if we want to erect barriers to entry. To
do so would rob consumers of choice, as well as the lower prices and service
improvements that long have eluded cable customers. Where barriers to entry
exist in the form of franchise extortion, new entrants would be precluded from
investing in new or expanded networks.
And don’t worry about right-of-way payments. Most of the
facilities-based broadband service providers already pay municipalities for the
use of local rights of way. Adding new digital packets of video to the existing
broadband pipelines won’t impinge on public rights of way.
Besides, federal law does not allow the imposition of
franchise requirements on Internet protocol services.
I understand completely why the cable industry is antsy
about Internet service providers getting a pass on franchise fees. But the
solution is not to impose unnecessary and obsolete franchise regulations on
everyone else as well. The answer is to eliminate franchising if we’re truly
serious about promoting broadband deployment. As you know, if you want less of
something, tax it. And if you want more of something, don’t. In reality,
franchise obligations are nothing but a hidden tax, which allows municipal
officials to avoid accountability. If they want the bucks, force them to get
taxpayer approval, I say.
Allow me also to address the issue of build-outs. You will
hear from the cable lobby and their municipal buddies that franchises are
necessary to ensure that all citizens will have equal access to broadband
services. But this is the United States, not Cuba or China or South Korea. Why
is equal access to broadband more of a right than, say, access to cheap
groceries or gasoline or medical care? We are a country of free enterprise. And
you can bet that where there are paying customers, there will be video service.
Indeed, low-income households constitute the fastest growing segment of the
broadband market. That’s because competition — not franchising — has so lowered
Technologically, we are way beyond the franchise regime.
The convergence of technologies and applications has rendered service
distinctions wholly obsolete.
We would do well to remember, as my friend Kent Lassman of
the Progress and Freedom Foundation has pointed out, that franchising originated
in Europe as grants of a sovereign. But we need not maintain a costly regulatory
regime in which we are but serfs to the feudal lords of franchise.
Diane S. Katz is director of
science, environment, and technology policy with the Mackinac Center for
Public Policy, a research and educational institute headquartered in Midland,
Mich. Permission to reprint in whole or in part is hereby granted, provided that
the author and the Center are properly cited.