This month, AT&T announced its entry into San Diego’s cable market. Local residents should welcome this development with open arms, as it ushers in a new era free from the failures of the broken public policy known as “video franchising.”
Video franchising is the regulatory system that empowers local governments across the country to set the terms and conditions for service providers to enter the video marketplace. For decades, city officials used their franchise authority to extort millions of dollars in franchise fees and an assortment of “goodies” from cable providers, while in turn offering them lucrative monopoly agreements. As a result, incumbents settled in, local government got more revenue and consumers felt the pocketbook pinch. Indeed, according to a December 2006 report from the Federal Communications Commission (FCC), cable prices have risen more than 90% in just the last ten years.
San Diegans have seen their share of cable-based calamities. Through flawed franchise agreements, City Hall partitioned San Diego’s consumer market into two separate territories, each served exclusively by a single cable provider, Cox Communications and Time Warner. By upholding rules that makes cross-competition cost-prohibitive, local lawmakers have allowed cable rates to soar – all while raking in more than $15 million in franchise fees annually from the two cable incumbents which flowed to the City’s general fund.
Though some in the policy arena point to satellite video providers as effective competition for franchised wireline cable incumbents like Cox and Time Warner, the same FCC report noted that they do nothing to encourage lower prices or other competitive benefits to consumers, as satellite technology is costly and service packages are more expensive than the land-based franchisees. Absent functioning market forces, incumbents have had little incentive to upgrade facilities or improve customer service.
Facing rising frustrations from consumers, policymakers in California and eight other states have acted quickly to pass urgent legislation in recent years to broaden the video marketplace and end franchising abuse. In California, laws passed last year allow companies to apply for a single state-wide franchise, eliminating the need to secure thousands of different local agreements. Predictably, these reforms have encouraged new competitors like AT&T to enter the marketplace. Federal data suggests that as these wireline cable service providers are allowed to begin to compete, local consumers will see lower cable rates, more channels, and have a better price-per-channel ratio than consumers in non-competitive cities. Revamping the regulatory conditions to enter the cable market has also spurred, studies show, the deployment of new innovative technologies that can deliver video services to households in extraordinary ways.
One of these is Internet Protocol Television (IPTV), a cutting-edge service in the video sector, which delivers crystal clear digital images from a hybrid network of fiber optic and copper-based broadband connections using the language of Internet Protocol. By building out powerful IPTV facilities, AT&T, which was historically prohibited from entering the cable market, will now be equipped to offer consumers a cost-saving “triple play” service package for Internet, phone, and video products. With billions of dollars now invested in IPTV and similar fiber-based solutions, new consumer choice will bring competitive benefits to millions of Californians, especially in San Diego.
Already we see signs that San Diego’s regulatory backwater is drying up. AT&T is utilizing its new statewide franchise to introduce real head-to-head cable competition in the city. In neighborhoods like 4S Ranch both Cox and Time Warner are fiercely competing against one another for customers. Cox has begun using the law to enter into Time Warner’s traditional San Diego territory, a positive sign that raises the hope that every city resident may one day have three wireline cable companies fighting for their consumer dollars.
The evidence is clear –freeing Californians from local cable agreements is going to be an astounding victory for local consumers. But the fight for cable choice shouldn’t end at our county’s or state’s borders. When lawmakers in all fifty states unite under common sense proposals to foster new growth and opportunity, and companies are allowed to compete, Americans everywhere will finally experience the next generation of video programming.
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