Wednesday, July 12, 2006

Montgomery County Impedes Video Competition

At the end of June, Verizon filed a lawsuit in federal court against Montgomery County asking the court to declare that the county's cable franchise process violates the federal communications and antitrust laws, as well as its First Amendment free speech rights. Verizon is asking the court to issue a preliminary injunction invalidating the county's franchising law and directing the county to negotiate a franchise with Verizon within sixty days.

Verizon alleges that the county is acting unlawfully by seeking to assess franchise fees on its non-video services such as Internet access and Internet telephone services, in demanding that it set aside an exceessive number of channels for public access and government programming, and in demanding cash and free services as a condition of granting Verizon the franchise authority the county says it needs before Verizon can offer television services over its newly-installed (and very expensive) fiber optic lines. What's more, Verizon claims the county is even demanding, in violation of federal law, that it pay hundreds of thousands of dollars to cover the fees of the county's lawyers and consultants. (Would you believe there is a whole cottage industry of consultants advising counties around the country concerning how to extract the most "free" goodies from franchise applicants!)

I do not know whether all of Verizon's allegations against the county are true or not, although based on past practices around the country and Montogomery County's own excessively pro-regulatory history, the allegations have the ring of truth. In the past the county has tried to regulate Comcast's provision of high-speed Internet service, which it lacks the legal authority to do, and which it shouldn't do anyway as a matter of policy. In any event, whether or not all of the specific allegations are proven in court, in a larger and more fundamental sense they are beside the point. The truth is that the requirement that a local franchise be required before "cable" service be offered has outlived whatever usefulness it possibly may have had in the past. The requirement that cable television operators, such as Comcast in Montgomery County, obtain a local franchise has been used primarily as a means of economic regulation on the theory cable television service is a monopoly service. Of course, that is not true in today's technologically-dynamic environment. Although cable operators still may be the dominant multichannel video providers, consumers already have available the alternative of satellite television providers. And now Verizon wants to enter the video market in a big way in Montgomery County and, using its newly-installed high-capacity fiber network, offer consumers a TV package of several hundred digital video and music channels, with access to an on-demand video library.

Apart from the strict legalities of the County's position (more about that later in this space), it is clear that the county's foot-dragging harms the very consumers the county may try to claim it seeks to protect. Although you might think it would not take a brain surgeon to figure this out, several studies by respected scholars, and studies by the GAO and the FCC, have confirmed that when telephone companies enter a local market the prices for "cable television" service drop quickly. (I put "cable television" in quotes, because cable operators, telephone companies, and satellite operators all are scambling to offer various packages of services that include video, voice, and Internet access in competively priced bundles. And because in today's technologically dynamic environment, video, voice, and Internet services are all just bits offered over the same digital network facilities. And, of course, your kids--and maybe you too!--are already watching some of your favorite TV shows on your cellphone screens.)

Put simply, Verizon's lawsuit illustrates why, as I testified before the U.S. House of Representatives Commerce Committee in March, it is time to change the law to establish a national video franchise regime, one that treats telephone companies and incumbent cable television operators alike in all respects. In a competitive environment, there is no sound reason why either cable operators or other video providers such as Verizon should remain subject to local franchise reqirements. This regime would still protect the localities' interest in establishing reasonable regulations and cost recovery mechanisms to govern the providers' use of local rights-of-ways. But a national franchise regime would prevent localities from holding up new entry into the video marketplace while they try to extract maximum concessions from franchise applicants. A bill establishing such a national franchise regime passed the House of Representatives in June and awaits Senate action.

It is unclear whether federal legislation will pass this year removing the county's local franchising roadblock to the speedier introduction of competition. It really shouldn't have to matter. Montgomery County citizens should not have to wait any longer for additional video and communications competition. The county should quickly get on with the process of granting Verizon permission to enter the market. More competition means consumers benefit from lower prices and better quality of serivice. This simple proposition should not be that hard for the Montgomery County government to grasp.