Telecommunications policy is stuck in the 20th century

Friday, December 16, 2005

By Timothy B. Lee

The video marketplace is changing so fast that it's gotten hard to keep track of it all.

In October, Apple Computer unveiled a new iPod that allows users to purchase episodes of popular television shows like "Lost" and "Desperate Housewives" and watch them on the go. By the end of the month, the company had sold a million episodes over the Internet.

In November, Yahoo! and TiVo announced an agreement to deliver Yahoo! content via the Internet to TiVo set-top boxes.

Not to be outdone, AOL and Warner Brothers announced a new service called In2TV, which will allow consumers to watch older TV shows for free over the Internet.

While every month brings new developments in the video marketplace, the telecommunications laws that govern it are stuck in the 20th century. Missouri state law gives local governments the power to decide which companies may do business in their jurisdictions, and in many cases city governments have created Soviet-style five-year plans in which only one company is permitted to offer video services.

Those franchise requirements harm consumers by raising the cost of entry for new companies wishing to offer video services, leading to fewer choices and higher prices.

Cable-television franchising was originally created on the assumption that pay-television service is a natural monopoly. Policy-makers worried that, without municipal oversight, such monopolies would gouge consumers and fail to provide responsive service.

Whatever merits that argument might have had in the early days of the cable-TV industry, it has no basis in reality today.

Virtually all Missouri households enjoy vigorous competition between cable and satellite television. And more competition is on the way.

Phone companies like AT&T (formerly SBC) and Verizon have announced plans to build new fiber-optic networks to millions of households nationwide and use them to deliver video, voice and data services.

Ironically, the franchising rules themselves have become a serious obstacle to competition. A company wishing to offer video services across Missouri is required to negotiate hundreds of local franchise agreements with cities and counties across the state.

It's a time-consuming, burdensome process that is likely to delay the deployment of new services by several years.

To see how Missouri could be doing things better, we need only look to Texas, which passed a sweeping telecommunications reform law this summer. The legislation swept away the old municipal franchising system and replaced it with a streamlined process for obtaining permission to deploy video services statewide.

Some city officials in Texas argued that the change was anti- democratic, because it deprived local communities of the right to regulate their own affairs. That's nonsense. The Texas law doesn't empower state government at the expense of local governments. Rather, it empowers consumers to decide for themselves what video services they wish to purchase.

The cable industry, on the other hand, argued that the change was unfair because, in some communities, cable companies are locked into multi-year franchise agreements that have stricter requirements than those of the state franchise. That, they claim, puts them at a disadvantage.

It's a valid point, but the industry vastly overstates its case. The differential treatment will only last until the current franchise agreements expire, after which all service providers will compete on a level playing field.

And the industry ignores the tremendous benefits it will continue to enjoy as incumbents. Cable companies control more than 70 percent of the pay-television market. If they focus on keeping those customers happy, they should have little to fear from additional competition.

Texas' telecom reform has already begun to pay dividends. On Nov. 17, SBC cited the state's telecom reform as it announced $800 million in new technology investments in Texas, bringing new services and increased competition to the state. It's not surprising that companies would focus their technology investments in states where the regulatory burdens are low.

Streamlining our own archaic telecommunication laws will help attract the new investments necessary to put Missouri at the forefront of the broadband Internet revolution.

Timothy B. Lee is editor at the Show-Me Institute in Clayton, Mo.

Respond to this story

Posting a comment requires free registration: