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Tuesday, February 21, 2006

Did Senators Hear Randy's Call for Reform?
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Two weeks ago, my colleague Randy May posted a short critique of the principles announced by Senators Burns and Inouye to guide video franchise reform. Randy called for reform. Wouldn't you know it? A half dozen senators released a new set of principles just in time for the February 15 Commerce Committee hearing on the issue. The Senate hearing came on the heels of a filing deadline at the FCC for a NPRM soliciting input on franchise authority. What will come of all this activity? I sure don't know, but read below for the briefest of scorecards on who is saying what on the issue.

As mentioned above, Senators Burns and Inouye weighed in on franchise reform by proposing reform of the system. They seek to keep local officials in charge and to maintain local control over rights of way, collect franchise fees and create obligations for providers in the form of various services. What's good? Certainly state or local government should retain its original authority over rights of way. Also, Burns and Inouye observe that similar obligations on video providers are not necessarily identical responsibilities and obligations on franchisees. What's bad? See Randy's post here. The principles simply don't account for new competitive forces and instead of asking "What task needs to be done and how should the public sector best accomplish this task?" These principles cede the basic premise of franchises - a regulatory tool designed to control market power - and suggest ways to gently improve the current system around the margins. Grade: C-.

The FCC NPRM shows promise and a field hearing in Keller, Texas certainly puts the issue squarely on the agenda for 2006. In addition to requesting empirical information on the current state of franchising, the NPRM comment on a broad range of legal questions that go to the heart of who has authority to franchise, for what purpose and under what conditions. All told, some 3,958 comments were filed. Unfortunately, a large proportion appear to be a form letter sent by poorly informed advocates of public television. Nothing in the NPRM suggests a risk for local, public broadcasting but you wouldn't know it from the flood of two page comments that all look suspiciously similar…ney, identical. If you are looking for a thorough analysis of the issue and the economic impact of the issues raised by the NPRM, peek at this filing from the Mercatus Center. Estimate for the current cost of the franchising system: $10b. Estimate of the gains available from widespread competition that would result from a better franchise process: $7b. To date, the FCC action has all been process oriented and not focused on policy changes so it is hard to get too excited. Grade: Incomplete but showing promise.

In June of last year, Chairman Martin spoke to the issue of franchise reform and highlighted its potential impact on broadband deployment. His public comments, then and since, suggest a thoughtful understanding of the widespread and negative effects that result from legacy regulations. Using the limited authority of the statutes, he is moving the issue forward and developing a record. Note an excerpt from his most recent comments on these issues here. Grade: A-.

The Senate hearing is important less for what was said and more for what it signals: Hill folks understand that this issue is white hot among local officials and warring factions of the communications sector. Similarly, when Chairman Stevens spoke to NARUC last week he made clear that franchise reform is a bridge he is willing to cross. (Note paragraphs 9 and 10 of his statement.) Grade: B.

And finally, what of the most recent statement of principles announced on Capitol Hill? Senators Smith, DeMint, Ensign, McCain, Rockefeller and Kerry offer their ideas to the committee and urge it to "move quickly...on video competition legislation." What is good? They recognize that the current system was developed in a "different period" and that while it may have once been "desirable" it now serves as a barrier to competitive entry and a disincentive to network investment. The statement sets a deadline: Reform in 2006. Like their colleagues Burns and Inouye, they defend local management of rights of way. What's bad? Reflexive, costly and unnecessary redlining provisions. While the Senators call for state and local authorities to have access to channel capacity for PEG programming and this is in of itself not bad, most likely they don't intend for local authorities to actually pay for this capacity and so PEG access would continue as a regulatory give away. Also, there is an unhealthy focus on recent cable prices without accounting for changes in the underlying value proposition i.e. number of channels, quality of programming, other features etc. Finally, the principles statement avers to the role of the state and local governments in protecting the public interest. This is fine as far as it goes, but tell me, what exactly is "the public interest"? I sure hope it is more than the collection of interests of state and local governments. It seems that everyone is for the public interest but no one can clearly explain what it is. This suggests a danger for consumers and an opportunity for well-intentioned, but ultimately costly, public action. Grade: B+

posted by @ 8:43 AM | Broadband , Cable , Capitol Hill , State Policy , The FCC , Think Tanks , Wireline

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