Pacific Research Institute

Cable Reform: From California to Congress

Hold on to your hats -- California lawmakers have finally done something even the most jaded critic will appreciate. It's called cable franchise reform, and it will have a positive impact on California and the entire nation.

TechNewsWorld, Sept. 8, 2006


Hold on to your hats -- California lawmakers have finally done something even the most jaded critic will appreciate. It's called cable franchise reform, and it will have a positive impact on California and the entire nation.

"California has led the way in the evolution of new technology, and with this bill, our state's policy towards contemporary TV and entertainment technology is catching up to the times," said Assembly Speaker Fabian Nunez, D-Los Angeles.

Removing the Monopoly
Indeed, it was past time for lawmakers to remove the monopoly that local governments had created for cable services. Not only have cable television rates shot up almost 86 percent over the last 10 years, without significant improvement in service, but competitors to this dysfunctional system have been clamoring to get in. The situation was so dire that both parties overwhelmingly supported the new bill, with even leftist Democrats such as Sen. Marta Escutia coming on board.

The bill, AB 2987, will create a statewide video franchise system run by the Public Utilities Commission. Franchises, which are essentially permission from the government for companies to enter the market, will be awarded 44 days after receipt of a complete application and will remain valid for ten years.

These clear rules replace the old system of cable providers having to negotiate with each of the thousands of municipalities that would often drag their feet and demand unrelated favors such as building parking lots and planting trees.

The California Labor Federation, AFL-CIO, the National Council on Aging, and the Rainbow/PUSH coalition joined 250 other groups along with AT&T (NYSE: T) and Verizon (NYSE: VZ) in rallying for change. One seldom sees that combination, so the governor's signature will be a no-brainer. The benefits are huge, of course, starting with the biggie of jobs.

New Competition
AT&T has already said that it will invest an additional US$1 billion in California, and Steven Pociask of TeleNomic Research has estimated that franchise reform will create 10,400 new California jobs. The jobs will be good ones, paying 77 percent above the national average wage. Consumers will also be huge winners.

The mere introduction of competition into a system where almost none existed will cause radical change. University of California, Berkeley professor Yale Braunstein estimates a windfall of $1 billion, with a savings of $162 million to $237 million in the San Francisco area and $320 million to $469 million in the Los Angeles area. Such price savings have happened before, albeit on a smaller scale.

The Federal Communications Commission notes that in the limited areas where "overbuild" cable competition existed, cable prices dropped 15 to 27 percent. When real competition comes into play, the drop in prices and accompanying increase in quality should be even better. But the effects of California's cable reform measure will carry far beyond the state.

Congress is currently considering cable franchise reform at the national level and, as one might imagine, there are a number of political "compromises" on the table. One of the current stumbling blocks is that legislators from rural areas have indicated that in order to get their votes, cable franchise reformers need to add universal service pork to the bill. That's tough to swallow, as universal service taxes have nearly doubled in the last eight years and the program is rife with corruption.

States Pass Reforms
Fortunately, the passage of California's bill greatly decreases the incentive for such bad compromises, as it increases the number of customers that can already be reached without national legislation. For instance, now that California has reformed, AT&T can enter the video market for more than half their customers. That's because Texas, Indiana, Kansas, and Connecticut also passed statewide franchising rules. Verizon's market is looking good too, with reforms in Virginia, New Jersey, Rhode Island and Vermont.

There was talk a while ago about Governor Schwarzenegger wanting to enter national politics. That remains to be seen, but by signing this bill he will certainly have made a difference for the nation.


Sonia Arrison is Director of Technology Studies at the Pacific Research Institute. She can be reached at sarrison@pacificresearch.org.

Reproduced with permission of TechNewsWorld and ECT News Network. Copyright © 2006 all rights reserved.