A Win for California Consumers

Good news from California: Governor Schwarzenegger has signed legislation liberalizing cable franchise rules:

television providers of all kinds will be able to offer services throughout the state without having to negotiate individual franchise agreements with each and every municipality where they desire to provide service.

The new law represents a big victory for AT&T, which plans to spend $1 billion on a new fiber deployment by the end of 2008, and Verizon, which is already rolling out its FiOS service in the state. Both telecommunications companies plan to use the fiber networks to offer a triple play of voice, video, and broadband, putting them on equal footing with the incumbent cable companies.

Verizon West Region president Tim McCallion hailed the new law “a huge victory for California’s consumers,” going on to say that it “sets a new standard for accelerating cable-TV competition.” The new law means that “customers can expect new choices, greater value and improved service in terms of video providers,” said McCallion.

Incumbent cable companies have resisted such legislation on both the local and national levels, saying that it would give the telecoms an unfair advantage by allowing them to bypass the process of negotiating individual franchises with individual towns and cities. Under California’s new law, the cable companies are also freed from local franchise obligations, meaning that they are free to move into new markets. However, there is nothing in the law requiring companies to provide service throughout a particular municipality, meaning that Verizon, AT&T, and even the cable companies will be able to cherry pick more affluent neighborhoods while neglecting poorer ones. That said, the new law should benefit many Californians by stimulating competition in any number of local markets.

I’ve never really understood this “cherry picking” argument. With cable penetration rates pushing 80 percent, almost every household is a potential customer. Although AT&T might roll out their service first in the wealthiest neighborhoods, they have every incentive to roll it out quickly everywhere else because poor peoples’ money is just as good as rich peoples’ money.

Indeed, I seem to recall seeing research (although I can’t find it right now) that poor peoples’ rates of cable subscription don’t differ very much from rich peoples’ cable consumption. This makes some sense when you realize that cable is a comparatively cheap way to entertain a family. A night out to dinner and a movie can easily cost more than a month of cable TV. So a family struggling to make ends meet is likely to purchase cable TV, while some wealthier customers might go out enough that they don’t feel they have any need for cable service.

And in any event, the goal should be to get competition to as many consumers as possible, as quickly as possible. It’s stupid to delay the whole rollout in order to make sure that it occurs in a “fair” manner. Even consumers who don’t immediately get the new service offered to them are likely to benefit from increased competition as the cable company preemptively cuts prices to retain their customer base.

Cable franchise reform was the one part of the various telecom bills that I thought was a good idea. As more and more states liberalize their cable laws at the state level, even that justification begins to seem less urgent. So I’m rooting for gridlock at the federal level.

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