The FCC finally approved a long-overdue reform of anticompetitive video franchise rules by a vote of 3-2 after nearly a year of study. An Order will be issued sometime within six months. Grasping local officials won’t be able to drag out negotiations over franchise agreements with video service providers until the exhausted applicants capitulate to legal blackmail, a process which sometimes takes a year or two. Now, the negotiations will have to be completed within 90 days.
The deregulatory milestone is a victory for consumers, who will benefit from more rapid investment in competitive video offerings by AT&T and Verizon. It will also further reduce the possibility that broader telecom reform legislation will move through the next Congress, meaning fewer options to enact net neutrality regulation or pump up the current unsustainable universal service regime (which could lead to further taxation of Internet traffic).
Under today’s FCC decision, local officials also won’t be able to impose “unreasonable build-out requirements,” which mandate that every member of the community get service if he or she wants it. The definition of what is unreasonable is not clear. Martin suggested the following convoluted requirement:
: beginning five years after the effective date of a new entrant’s franchise and every 3 years thereafter, if in the portion of the franchise area where the new entrant has chosen to offer cable service at least 15 percent of the households subscribe to such service, the new entrant increase by 20 percent the households in the franchise area to which the new entrant offers cable service by the beginning of the next 3-year interval, until the new entrant is capable of providing cable service to all households in the franchise area.
I thought Martin was a Republican. He ought to recognize that build-out requirements should be eliminated. Incumbent providers and competitive entrants alike already have an incentive to expand their networks. They want to make money. And they benefit from a favorable cost curve when they expand their networks due to high up-front costs and low incremental costs from adding users. The cost of adding users declines as their networks grow.
Also, the FCC will define certain specified costs, fees, and other compensation required by local officials that will henceforth have to be counted toward the statutory five percent cap on franchise fees. This will protect video service providers, and the customers they serve, from shouldering the cost to build stadiums and parking lots, wire traffic lights, furnish local officials with home entertainment centers or contribute to their favorite charities, etc., etc. Unfortunately, they will still have to provide channels at no charge to local government for the broadcast of various proceedings where the beneficiaries of public services advocate for more.
The FCC’s two Democrats opposed the changes, which, after all, will limit the role of government in the marketplace. Commissioner Michael J. Copps would have studied the proposals further. He bemoaned the “lack of a granular record that would demonstrate that the present franchising system is irretrievably broken and that traditional federal-state-local relationships have to be so thoroughly upended.” Noting that the U.S. is ranked “number twenty-one in the International Telecommunications Union’s Digital Opportunity Index,” he made another pitch for a broadband industrial strategy:
The kind of broadband strategy I am talking about demands a level of consensus and national buy-in by the many diverse interests and entities that would be responsible for implementing it. While I have never equated franchise reform as anything remotely equivalent to a national broadband strategy, I do believe a properly-crafted and legally-certain franchising reform could facilitate some level of broadband build-out.
Copps’ reference to the term “legally certain” is a nod to the cable industry’s assertion that the FCC lacks authority to regulate video franchising. He apparently believes that if reducing regulation could lead to litigation and uncertainty, that’s a good reason not to do it. The legal argument is that sec. 621 of the Communications Act allows applicants to appeal the denial of a video franchise application to a federal court, but nowhere does the section mention any role for the FCC. The counter-argument is that sec. 151 of the same Act gives the FCC authority to “execute and enforce” any provision of the Communications Act. The Supreme Court, this argument goes, in AT&T Corp. v. Iowa Utilities Board 525 U.S. 366 (1999), upheld the FCC’s determination to provide guidance for the states, who were responsible for setting prices for unbundled network elements pursuant to sec. 252 of the Act. Like sec. 621, sec. 252 nowehere mentions a role for the FCC. There are other sections of the Communications Act, as well, which confer general authority for the FCC to add or delete rules.