Opportunities for Reform: House Bill 6456

As a matter of policy, there is little rationale for maintaining a franchise regime of any sort. The development of competitive video alternatives to cable undercuts the primary justification for municipal franchising. Moreover, state law would still empower communities to manage public rights-of-way in the absence of municipal franchising. Unfortunately, resistance to reform runs strong among those with a vested interest in the status quo — that is, municipalities and the cable industry. But enhancing consumer benefits and technological innovation matters far more than preserving regulators’ powers or special-interest advantages.

Franchise reform has been the subject of five hearings before the House Committee on Energy and Technology this session. On Sept. 12, Chairman Mike Nofs, R-Battle Creek, introduced legislation to replace municipal franchising with a uniform statewide franchise. Coming in at 22 pages, House Bill 6456 is hardly a model of deregulation. Excessive franchise fees, service giveaways and build-out requirements would persist, including:

  • Payment of a "video service fee" to each municipality in which video service is provided. The annual payment must equal either the lowest percentage of gross revenue currently paid by the incumbent cable operator or up to 5 percent of gross revenue, whichever is less. The line items that constitute "gross revenue" are extensive.

  • Providing free network capacity for the same number of public, educational and governmental access channels as are provided by the incumbent cable operator. Service providers will be assessed a fee to support these channels that is equal to either one percent of gross revenues, the percentage of gross revenues required of an incumbent cable operator, or the amount paid on a cash basis per subscriber, whichever is less.

  • Build-out requirements that mandate (a) service to at least 25 percent of low-income households within three years of launching service; (b) service to at least 30 percent of low-income households within five years of launching service; (c) service access to at least 35 percent of all households in the provider’s service area within three years of launching service; (d) service access to not less than 50 percent of households in the provider’s service area within five years of launching service.

However, the bill would, if enacted, end the power of municipalities to dictate the rates, terms and conditions of video services. Instead, the Michigan Public Service Commission would establish uniform franchise provisions for use statewide. This is well and good for newcomers, who would avoid time-consuming and costly negotiations with dozens of local franchise authorities. But an incumbent firm would have to wait for an existing municipal franchise to expire before becoming eligible to operate under a state franchise in that community. As consolation to incumbents, the bill would penalize municipalities that refuse to abrogate the local franchise by diverting fees to the state.

Those aspects of the bill are troublesome. Some legislators are apparently under the impression that franchise "agreements" constitute contracts deserving of all legal protections. But franchise agreements, unlike contracts, do not involve a willing buyer and a willing seller. In reality, they are instruments of regulation. Therefore, it would be perfectly appropriate for the Legislature — indeed incumbent upon lawmakers — to free the market from them.

Supporters of reform evidently are willing to settle for incremental progress, and thus are pressing for passage of HB 6456. In principle, the bill does not go nearly far enough in easing barriers to competition. But the reality is that most lawmakers probably do not have the political will to enact broader reforms in the face of fierce opposition from municipalities and the cable industry.