You wouldn’t know it from all the focus on neutrality regulation, but core of the telecom legislation now moving through Congress would liberalize cable franchising–stripping local authorities of much of their ability to block the entry of new video competitors. There has been quite a bit of evidence already that such a move would substantially reduce rates for consumers. But, it’s widely believed, this would come at the cost of lost income to local governments, who receive revenue from cable franchise fees. Only last week, Mayor Ken Fellman of Arvada, Colorado, testified to the Senate on behalf of several local government associations that legislation would threaten local revenues. Nationwide, most local officials remain skeptical of cable competition. (Mayor Curt Pringle of Anaheim, Ca. remains a notable exception. His talk at Heritage on the topic can be seen here.)
But there’s a new study out that tells a different story In a report for Criterion Economics released last month, Bob Crandall and Bob Litan, both of the Brookings Institution, calculate that the take for local governments from cable franchise fees would actually increase more than $400 million due to competition. The reason: although cable rates, Crandall and Litan predict, would drop 13.5 percent, subscribership would increase from by between 29.7 and 39.1 percent.
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The LA Times ran a good story today on how the House telecom bill–thanks to a last-minute amendment–may raise the price of Internet phone calls. The provision reaffirms state authority to require voice-over-Internet providers to pay into universal service funds and to pay access fees to wireline carriers. In so doing, the bill apparently overturns an FCC decision two years ago preempting the states from such matters.
The cost could be significant. According to the article, the additional subsidy payments could increase VoIP bills some 7 percent. Summarizing the reaction of the VoIP community, Jeff Pulver said of the move: “It got me to the point of absolute depression.”
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After writing this morning’s post about VoIP and CALEA, it occurs to me that this sort of regulatory issue is probably one of the motivations behind Skype’s decision to make SkypeOut free in the United States. Skype and the FCC are heading for a collision course. Sometime in the middle of 2007, the FCC is probably going to try to force Skype to comply with CALEA. Skype will probably try to wash their hands of the matter, the way they did with E911. The FCC is unlikely to buy that, sparking a showdown.
Skype is likely to react by turning SkypeOut off (or threatening to) and blaming the FCC for the decision in hopes of creating a consumer backlash. The effectiveness of that tactic will depend on how many SkypeOut users they have. If there are enough of them, the FCC will be in the awkward situation of telling millions of Skype users that they’re no longer allowed to call their land line friends as they’d been doing for free for the previous year.
This reminds me of an excellent article in Reason back in 1999 about the fight over satellite transmission of local broadcast TV stations. Basically, satellite companies simply started transmitting the content consumers wanted in violation of the law. By the time the FCC got around to considering the issue, they had gotten so many customers that the FCC didn’t dare force them to stop.
Even if Skype isn’t able to make the FCC blink, the next year will be a fleeting opportunity to convert current landline users to IP-based telephony before going back to being a pure IP service.
Those of you in the DC area (or who will be next week) may want to stop by Heritage for what should be an interesting panel discussion on video competition. Our featured speaker is Anaheim, CA mayor Curt Pringle, who is one of the (too) few local officials who have actually welcomed video competition to their cities. He will be followed by the irrepressible Tom Hazlett of George Mason University and by Mike Sullivan, chief technology advisor to Sen. John Ensign, a leading voice for competiton in the Senate.
Festiviites will begin at 11 am, with food to follow. You can RSVP here. And those of you who can’t make it can always tune in via Internet from here.
I’m lucky enough to live in an area where broadband competition is rapidly intensifying–Fairfax County in Northern Virginia (McLean, VA to be exact). In recent years, the incumbent cable operator Cox Communications has beefed-up its network to offer phone service and high-speed broadband in addition to its growing video programming lineup (which how includes plenty of HDTV and VOD offerings). I’ve been a Cox cable subscriber for many years now and have been very happy with them. In fact, after 7 years with DirecTV prior to that, I’ve never thought about going back to satellite after switching to cable. (Of course, the superior high-speed broadband option that Cox offers had something to do with that.)
Meanwhile, regional telephone giant Verizon Communications has been aggressively deploying new fiber optic lines throughout many Northern Virginia neighborhoods and other Washington, D.C. metro communities in the hope of competing against Cox and Comcast in the race to deliver the complete “triple play” package (voice, video, data) to consumers. Last year, Verizon sent a team of contractors out to my neighborhood to dig up my front yard, lay new fiber lines and install a new box. And then, for reasons I still can’t quite understand, another team came back and dug up my yard again to install more lines and a different box! My wife wasn’t real happy about the mess this created (and all the grass that died as a result), but I just kept telling her that one day it would all be worth it.
And that day has arrived.
Earlier this year, Verizon began dispatching door-to-door salespeople to my neighborhood in an attempt to sign up new subscribers for their new “FIOS” (fiber optic-based) service. I felt sorry for the salespeople who knocked on my door because they had no idea I was going to shower them with a litany of technical questions based on my knowledge of communications markets. But they were always very informative and helpful. And they REALLY wanted my business. Unfortunately, however, they had no control over the pesky city and county regulators who were holding up deployment of FIOS service in the area. In particular, Verzion had to fight for the right to offer consumers video programming services in competition with cable.
Luckily for me, they finally got permission in Fairfax County. (Of course, Verizon and other telcos are still fighting for permission to offer video services in countless other communities across America. And federal legislation is pending that would expedite that process through the use of national franchises). After I received confirmation that Verizon would at least be able to offer me everything I already had in my Cox “triple play” bundle, I finally decided to pull the trigger and sign up for a one-month trial of Verizon’s FIOS service in my home.
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In thinking about how much the communications and computing world has changed in just the last few decades, I’m always wondering how my kids will react when I tell them about how Dad used technology in the past. Case in point: “long-distance service.” My kids won’t even know what the heck that term means. And they will certainly laugh when I tell them how their grandmother used to impose a strict, time-limited plan on my calling activities to keep our phone bill down. (I used to have a girlfriend in high school who lived across an “inter-LATA” boundary which made my calls to her absurdly expensive even thought she was less than 30 minutes away. Once the monthly phone bill went over $100 bucks, my call privileges were severely curtailed by Mom!)
Anyway, what got me thinking about all this was this announcement yesterday by Skype that all US and Canadian-based Skype customers can now make free SkypeOut calls to traditional landline and mobile phones in the US and Canada. Sure, Skype isn’t a perfect substitute for traditional telephony. But it’s good enough for many. And its move will force other telecom providers to reconsider their current pricing plans and cut rates even further. One wonders how Vonage and other VoIP providers can survive in world of cut-throat competition.
Meanwhile, back in the surreal world of Washington, we continue to impose extensive regulations on various phone companies due to fears of consumer harm. Hmmm… let’s see, someone is providing free phone service to the world and regulators are still worried about consumer harm. Seems silly to me.
There was a time in my life when I was actually quite optimistic about the prospects for getting the heavy hand of government regulation out of telecommunications and media markets. This was around 15 or so years ago when I first started covering policy developments in this area. I’d go to work each day thinking that some day soon our lawmakers would come to appreciate the amazing technological and marketplace changes happening around us and then take steps to liberalize these markets, just as they had for other over-regulated sectors before (like airlines, railroads, banking, and so on).
That illusion was shattered one day long ago when a copy of the Federal Communications Bar Association (FCBA) directory first landed on my desk. The FCBA is the organization that was originally made up of the lawyers who practice telecom and media law. Since the early 1990s, however, many others (economists, consultants, lobbyists, engineers, etc.) have also been allowed to join. I don’t remember how many people were included in that first FCBA directory I saw years ago, but I just got the 2006 edition and it contains over 2,700 names. (And there’s also a huge directory of all the companies and organizations that cover these issues–including my own–included in the book).
Now don’t get me wrong; the FCBA is not some sinister group with nefarious intentions. Indeed, quite the opposite is the case. As I flip through the pages of the annual FCBA directory, I see the names of countless friends and even current and former work colleagues. I go to the annual FCBA dinner each year and hang out with these folks on a regular basis (even in my free time). They’re all good people. They have noble intentions.
But the problem is that they all have different interests and the combination of those interests typically leads to the expansion of government control over the communications and media sectors.
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Earlier today the Senate Commerce Committee released its eagerly awaited “staff working draft” aimed at reforming the Communications Act of 1934 and the Telecommunications Act of 1996. It’s tough to know where to begin evaluating this new 135-page monster, which is entitled the “Communications, Consumer’s Choice, and Broadband Deployment Act of 2006.” In true “everything-and-the-kitchen-sink” fashion, the measure tries to say a little bit about just about every aspect of modern communications and media law, and a whole heck of lot more about other issues not even found in the ’34 and ’96 Acts.
For example, you’ll experience your first “this-is-not-your-father’s-telecom-bill” moment when you open to page 4 and find that Title I is labeled “War on Terrorism.” There’s also a big subtitle dealing with copyright controversies and the so-called “video and audio flags.” There’s also a beefy section on “Sports Freedom” pertaining to local TV sports agreements. (Thank God our leaders are doing something to guarantee us our inalienable right to sports on TV!)
Again, that’s just SOME of the new stuff the bill takes on. There’s plenty more new rule-making authority found in the measure that would empower the Federal Communications Commission to deal with both new and old policy issues alike.
But instead of nitpicking about the trees here–I’m sure we’ll be doing plenty of that at PFF over the next few weeks–I want to instead step back and look at the forest for a moment. It seems to me that the fundamental problem with efforts like this Senate draft is that our lawmakers often get obsessed with working out the smallest details of complicated communications / broadband / media marketplace developments. When pondering reform, a lot of very smart lawmakers and their staffers get together and wring their hands agonizing over hundreds of “What If?” scenarios about future market developments and then concoct a legislative response to each of them. This is how we end up dozens of pages of new rules on universal service policy (Title II of the bill), video service regulation (Titles III and IV) and digital television transition rules (Title VII) in addition to the new things mentioned above.
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I’ve got a new op-ed in the Springfrield News-Leader on cable franchise reform. It’s mostly Missouri specific, but I do survey a couple of important recent studies on the issue:
Several new studies find that reform would bring substantial benefits for consumers. Jerry Brito and Jerry Ellig of the Mercatus Center at George Mason University calculate that cable franchise reform could increase competition and save consumers nationwide $5.5 billion per year. Kent Lassman of the Progress and Freedom Foundation published a study last month that focused specifically on the Missouri cable market. He estimated that franchise reform could save Missouri consumers more than $100 million per year.
These predictions are borne out by experience. A survey released last month by the American Consumer Institute shows the dramatic results of the Texas franchise reform: in three of the first communities where Verizon Communications began offering video service in competition with the incumbent cable companies, more than 20 percent of consumers switched to the new service. Customers who switched since Verizon entered the markets have saved an average of $20 per month on their cable bills.
But the benefits of competition go beyond saving money. Many of the “switchers” indicated they did so because they preferred the package of channels offered by the new company. Others cited dissatisfaction with the quality or customer service of their previous company. Competition drives down prices, but it also spurs companies to offer higher-quality, more responsive service. Consumers in Texas are reaping those benefits.
On Tuesday I had the pleasure of helping to show Dr. John Rutledge around Missouri. Rutledge was an architect of President Reagan’s economic policy in 1981, and today he’s actively involved in helping bring together American capital with Chinese businesses in the interests of promoting economic growth in both countries. Here’s his take on Missouri’s cable franchise reform debate:
Alice, who drives a cab for Best Taxi, told me “My cable bill is too high.” The Missouri Senate is sitting on a bill that would make it easier for new entrants in providing video services across the state. Similar laws, already passed in Texas, and Indiana have triggered price wars between new entrants and incumbent cable companies that have pushed prices for consumers down by about 50%. The legislators could give everyone in the state a $50/month tax cut and make Missouri more attractive for businesses at the same time. Wonder why they aren’t getting it done? The state Senator who is holding up the bill with the threat of filibuster is a former owner of cable stations. Now there is a coincidence. When I told this story to a receptionist she said, “I thought they were supposed to work for us.”
At a press conference with the Missouri Chamber of Commerce, Rutledge talked about the fact that in many cases, the lack of telecommunications infrastructure in the United States makes it easier to outsource service jobs to India and China than to a small town in America. He argued that franchise reform would be an important spur for increased infrastructure investment, which will have a positive economic impact that will extend far beyond the cable TV industry.
Of course, this is an issue that’s relevant beyond Missouri. We hear a lot about how the broadband market isn’t competitive enough. Well, this is one sure-fire way to increase broadband competition.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.