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Summary of Findings
Advances in technology now make it possible for both cable and telecommunications firms to provide voice, data and video services to most homes and businesses. This constitutes a dramatic change from the days of cable dominance in the video market, and that of the “Baby Bells” in telephone service. What hasn’t changed, however, is the franchise* regime that has long limited access to the local market and thus inhibited competition. In this paper, we examine the effects of this obsolete regulation on consumers and the economy, as well as the myriad benefits of reform.
Until recently, it was widely assumed that cable service constituted a “natural monopoly.” Since the 1940s, many municipalities have required cable service providers to obtain a franchise in order to operate. These regulatory instruments typically delineate the fees, terms and conditions of service, including the use of public rights-of-way in the deployment and maintenance of network infrastructure.
Local officials imposed franchise obligations on cable firms to protect consumer welfare
and public rights-of-way. In so doing, however, they fostered the very market power that franchising was intended to tame. Unfortunately, municipal franchising has evolved from a means to protect consumers to a regulatory advantage that protects the incumbent cable operator from competition.
Indeed, cable rate increases in many Ohio communities have dwarfed inflation for a decade and more. For example:
Much of the local franchise regulation in force today was fashioned in the 1960s and
1970s — the Cyberspace equivalent of the Stone Age. But the emergence of alternative video technologies has prompted franchise reforms in California, Indiana, Kansas, Michigan, North Carolina, South Carolina, Texas and Virginia over the past two years.
Legislation now pending in the Ohio General Assembly would replace municipal franchising with a uniform statewide franchise. If enacted, the reform promises to ease market entry for newcomers and, therefore, promote competition in video services.
In the following pages, we briefly examine the history of cable TV and the regulatory whipsawing that has plagued the industry since its very early years. This section is followed by an overview of market conditions for video services. We then turn to the particulars of municipal franchising, including its underlying assumptions, market effects and economic pitfalls. We conclude with recommendations for reform.
Given the time we spend viewing television — more than eight hours per day per household, on average — franchise reform would have a significant impact on millions of Ohio residents. If successful, consumers stand to gain far greater power over the cost and quality of video services. Otherwise, we will continue to experience ever-higher cable rates and miss out on remarkable new video functionality made possible by technological progress.
* A regulatory instrument established by a local unit of government to delineate the terms and conditions under which a cable television company is authorized to provide service.