Last Spring, those in my home state of Missouri were immersed in advertisements promoting the need for “choice” in premium television services. Those ads presented a bill for state-wide franchising of pay TV as just short of a logical continuation of “life, liberty and the pursuit of happiness” – who isn’t for more choice? The push to overturn the local franchising system that has regulated cable for the last several decades has spread across the country, but contrary to what its proponents assert, the choice promoted introduces a skewed system that could actually reduce choice in time.
The bills supported by the new AT&T (formerly SBC Communications), such as the one that failed to pass in Missouri, are blatantly unfair and a bad idea unless the main goal is to tar-and-feather cable providers. While cable providers are left to muddle through the profuse number of local “franchises” that exist – each with separate demands – AT&T’s upcoming U-verse TV and any other so-called “competitive video services” would be given the much easier task of negotiating directly with the state governments.
In addition to fights in state capitols, AT&T and fellow baby bell Verizon Communications have taken the battle to Washington, attempting to change regulations on perhaps even a national level. This makes cable companies rightly nervous. In February of this year, Cablevision Systems’ COO Tom Rutledge claimed in a testimony to the Senate Commerce Committee that “Cable has invested more than $100 billion to bring customers competitive video, high-speed Internet and voice services.” Not surprisingly, Rutledge asserted given the amount of money these companies have invested, they rightly want to compete with other providers on a “level playing field.”
It is incredible that the cable industry should even need to ask the government not to unfairly favor their competitors. If the government must regulate at all, it should only do so in a non-discriminatory fashion. To provide the Baby Bells with regulations that lean heavily in their favor threatens not to open up the market to competition but to allow the Bells the opportunity to slaughter the cable companies and then enjoy the otherwise decimated market on their own terms.
Here in St. Louis, in the Internet and telephone markets, where the market is already competitive, Charter Communications has proven very competitive in pricing; in response, AT&T has become more aggressive in marketing low-cost phone service bundles. Charter entered these markets as an upstart just as AT&T is now preparing to do in the video market, and it did so with even keeled regulations. AT&T, and other telecos, ought to be able to do the same.
To be fair, some statewide franchise initiatives are equal opportunity arrangements. For example, Multichannel News reports that Comcast, Time Warner Cable and Charter Communications have all applied for statewide franchises in Indiana under that state’s new program. Nevertheless, other problems arise in such a situation, such as a weakened ability to demand public access channels, and, more importantly, the inability for local citizens to have a say in what media is distributed by the utilities that run lines in their area. Even if the telecos are able to compete with cable companies, the resulting competitive market is still limited enough that consumers will not be able to voice their approval and disapproval without the ability to speak through franchise negotiations — an ability severely weakened when the franchise is no longer tied to local in nature.
Still, the Bells have a point about the daunting amount of franchises that must be dealt with all at once as a newcomer. Rutledge points to New York’s system as a model solution for that. It allows new competitors to get a license application processed in just one month so long as they are willing to work within the same franchise agreement as the cable company. This is an eminently sensible system: while the Bells may wish to push for better terms (just as the cable companies do) in future negotiations, working within the context of already functional arrangements seems like a good starting point if AT&T and its siblings are sincere in their claims that these regulatory changes are sought in pursuit of a faster release of services.
In the end, we as consumers want lower prices. While it might feel good in the short run to kick the cable company off the island by providing preferential treatment to the new contestant that is trying to curry favor with consumers, in the long run, lower prices will be achieved and maintained by focusing on creating a level, competitive market. A free, fair market benefits everyone.
Timothy R. Butler is Editor-in-Chief of Open for Business. You can reach him at tbutler@ofb.biz.