Wisconsin should be careful when it comes to limiting new technology
For decades, video service has been static in the way it delivered television programming to homes. Either a household watched local channels via antenna, or the cable company provided service to their home through a dedicated wire. The very nature of cable programming created a “natural monopoly,” in that it was costly and duplicative for competing cable companies to run their own second cable into a home. This gave cable companies a great deal of power in setting rates and dictating programming to subscribers.
Due to the monopolistic nature of cable service, local governments sought to regulate the activities of cable providers. Thus, the “municipal cable franchise” was born. A cable franchise is an agreement between a municipality and a cable provider that grants exclusivity within a municipality to the cable company in exchange for a fee and requirements to serve certain areas. In 1984, the federal government granted the Federal Communications Commission authority over cable and authorized municipalities to administer franchises.
New technologies in video service have rendered the justification for municipal cable franchises obsolete. Telecommunications companies have developed networks that provide cable-quality video over broadband networks. These networks use phone lines existing in nearly every home to deliver video service, rather than the traditional coaxial cable. These phone companies now seek to provide meaningful competition to cable companies, which currently have government-mandated protection for their market.
Wisconsin has now become the battleground for a fight between companies seeking to provide the new broadband video service and the traditional cable companies looking to preserve their franchising agreements. Telecommunications companies argue that competition is good for consumers, leading to the potential for cable rates dropping, customer service improving, and programming choices increasing when a new video provider enters a market. Municipalities and cable companies argue that the existing cable franchising structure should be applied to these new video providers to maintain municipal revenues and provide a “level playing field” for competition.
This study concludes that competition will be beneficial for Wisconsin consumers in a number of areas. First, prices for cable service will likely drop as they are forced to compete with less expensive broadband video services, while a standardized franchise would hold the line on fees and other giveaways, the cost of which are passed on to consumers. According to a 2004 study by the U.S. General Accounting Office (GAO), cable consumers in markets with wire-based competition saw an average cable bill rate drop of 23% when competition was introduced. Furthermore, the Federal Communications Commission (FCC) found 15.7% savings for communities with wireline competition. If similar savings are realized when broadband video offers competition in Wisconsin, expanded basic cable customers could see annual savings of between $82.80 and $149.01, depending on their cable market and rate of savings.
Secondly, consumers will see increased choices in programming when more video services are allowed to compete. In 2006, millions of Green Bay Packer fans were unable to watch the team’s final home game against the Minnesota Vikings, as few local cable companies carried the NFL Network. In most cases, consumers didn’t have the opportunity to watch the game, since cable was the only option they have. Once more competition is allowed in the video service industry, there will be more opportunities for customers to receive the programming they want.
Finally, competition would improve customer service as their video provider would have to fight for customers against a very real competitor. Additionally, consumers will be afforded better technology in video and data service as new video providers compete to deploy service to their marketplace.
Whether real competition can occur in the video market depends on the extent to which the state can facilitate entry into markets for new video companies. While competition is universally recognized as a good thing, municipalities and cable companies have a number of tools at their disposal to deter new video providers from offering service in their markets. The only way meaningful competition for video services can take place is if new providers face as few obstacles as possible in setting up their service.
This report will discuss the history of cable franchises in Wisconsin and the current status of state law regulating franchise agreements. Additionally, this study will investigate some of the franchise reform efforts taking place in states around America, how those efforts could be beneficial in Wisconsin, and discuss some of the issues pertinent to whether increased competition can help Wisconsin consumers. Finally, this study discusses the effects that wireless technological developments could have on networks that are currently being built.