Video Franchising and the Costly Lesson of Branch Banking

By Kelly McCutchen

Tired of slow downloads, limited access to broadband, high prices or poor service? You should be concerned. Georgia could easily lose out on billions of dollars of vital investment in telecommunications infrastructure if this state fails to act quickly.

Investors seek a return on their investment.  In telecommunications, the best return is generated by offering the “triple play” – voice, video and data. But current Georgia law mandates that a company negotiate a franchise agreement separately with each city before it can offer video services.

Eleven states, including our neighbors in South and North Carolina, have already eliminated the outdated and cumbersome process of local video franchises to encourage competition and investment.

This scenario is eerily similar to the branch banking debate several years ago. Just as Georgia is the telecommunications capital of the Southeast, the state was once the banking capital of the Southeast. Georgia dawdled in liberalizing its branch banking laws, however, and was overtaken as other states moved forward. It didn’t take long for the center of the banking industry to shift from Georgia to North Carolina, where it is today.

Georgia cannot afford to repeat this mistake. Keeping the burdensome local franchise laws in place would make it easy for a company to justify shifting its investment to another state.

As data, voice and video converge, the old lines separating services and industries are blurring and disappearing. So should the regulations. No segment of the telecommunications market should be at a regulatory disadvantage. The playing field needs to be level, and it needs to be leveled down, not up, to ensure that this effort results in deregulation for all parties.

Cable television providers should be freed from existing franchise agreements, as they have been in other states, in recognition that they are no longer monopoly providers. For example, in a competitive environment, no private company should be compelled to provide public access television channels without compensation. This is especially true now that technology allows government meetings and educational programming to be inexpensively produced and provided over the Internet, with no limit on the amount of content.

Modernizing Georgia’s video regulations would have numerous benefits. Evidence shows deregulation and additional competition in video services will lower prices, improve quality, create jobs, increase local franchise fee revenues and spur much-needed investment in rural communities. In 2004, a Government Accountability Office (GAO) study found that communities with competition between broadband providers and cable companies experi­enced lower rates (23 percent lower for basic cable, on average) and higher service quality.

Concerns that new entrants will “cherry pick” only high-income customers to the detriment of low-income communities are unfounded, according to Robert J. Shapiro of the American Enterprise Institute-Brookings Joint Center.

“Low-income households subscribe to current video services at about the same rates today as high-income households, providing the same basis for deploying fiber for video in low-income and high-income areas,” Shapiro reports. “Moreover, African-American and Hispanic households subscribe to the premium channels of current video services at higher rates than other groups. “There is also evidence that minorities are ‘early adopters’ of new video technologies, purchasing digital televisions at higher rates than other groups, for example. In the case of advanced video services, lower-income households and minority neighborhoods appear to be very high-value customers that businesses will seek.”

Competition puts the consumer in charge instead of relying on a government bureaucracy to address pricing and service complaints. If Mrs. Smith is unhappy, she doesn’t need to figure out which government official or agency to call and complain. She knows she can call her provider and, with her best Donald Trump voice, tell them “You’re Fired!”

Lower prices, better quality and more choices are all positives for Georgia consumers. More access is a positive for rural Georgia. For all of these reasons, modernizing this state’s video regulations should be a top priority.

Kelly McCutchen is executive vice president of the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (February 23, 2007). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.

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