Video Franchise Reform, Net Neutrality, and a Dear Larry Letter

Michigan’s Governor Jennifer Granholm is poised to sign a new video franchise reform law just passed by the legislature. By establishing uniform requirements for local franchises, the new regime presumably will speed up the ability of telephone companies like AT&T and Verizon to obtain the authorization they need to begin offering video services in competition with cable and satellite operators. More competition is good for consumers. And the bill apparently allows incumbent cable providers to opt into the new, less burdensome regime. That makes sense as well. In today’s ever-more competitive broadband environment, as a matter of equity, cable operators should not be subjected to disparate regulatory burdens.

It is encouraging that Michigan is now the 11th state to enact a statewide video franchise reform law designed in one way or another to speed up the franchise process so that local authorities are not roadblocks to competition. Michigan joins Texas, Virginia, Indiana, Kansas, Oklahoma, Connecticut, South Carolina, North Carolina, New Jersey, and California. While I have advocated in congressional testimony adoption of federal legislation to amend the Communications Act to establish a national franchising regime as a means of reforming the franchising process, the prospects for such legislation now seem dim. So it is welcome news that the states have become leaders in this reform effort. As more states pass video reform legislation, the pressure will grow on still others to follow suit, so as not to be left behind. The laggards will be leery of losing out on the telcos’ investment—and the jobs that accompany the investment—in new networks in states where the opportunities for quick, less burdensome marketplace entry are most promising.

Now to the Dear Larry letter. Google and its allies attempted to use Michigan’s video franchise reform bill as a vehicle for adding net neutrality mandates to Michigan’s statue books. In a “Dear Larry” letter dated December 11, Governor Granholm thanks Larry Page, Google’s co-founder and president, for “all the expertise Google has brought to Michigan on the issue of net neutrality.” If only she had stopped with the thanks. Instead, there’s this: “I believe it may be more desirable to pursue stand-alone legislation to further extend consumer protections by enacting net neutrality next year, rather than as an amendment to this year’s legislation.”

So it is almost certain that Michigan will be a net neutrality battleground in 2007. Other states likely will be NN battlegrounds as well if Google comes paging. This is too bad, because even if these efforts to impose Internet regulation are repelled, as they should be, there will be a significant expenditure of time and resources dedicated to fights around the country. The time and resources could be put to more productive use by broadband ISPs—like building out new networks and developing innovative new services and applications.

If states do adopt net neutrality mandates that purport to regulate the rates, terms or conditions on which Internet access is offered by broadband Internet service providers, the FCC should be ready with an order specifically preempting such state actions. Such an order would follow along the lines of the Pulver Declaratory Ruling preempting state regulation of VoIP services, but would more broadly extend to all IP-enabled services. The FCC already has compiled a record to support such action in its long-pending IP-Enabled Services rulemaking proceeding. Without rehearsing here all of the preemption jurisprudence (which, by the way, will be done at a later date), there is a clearly-expressed national policy against regulation of Internet services by the federal government and the states as well. Section 230 of the 1996 Telecom Act states this plainly: “It is the policy of the United States…to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or state regulation.” This deregulatory national policy for Internet access service now has been embodied in the FCC’s broadband proceedings and affirmed by the Supreme Court in the landmark Brand X case. If exercised properly, the FCC possesses authority to preempt state net neutrality laws or regulations. In essence, imposing non-discrimination obligations, and the rate regulation that inevitably accompanies non-discrimination regulation, contravene clearly expressed national policy.

A final thought: From all of the above, and from my congressional testimony earlier this year, it ought to be clear that I am sympathetic to FCC Chairman Kevin Martin’s decision to explore whether the Communications Act, as it presently stands, authorizes the agency to promulgate federal rules that would ease telco entry into the video marketplace by imposing some form of national franchising standards. In light of the explicit role Title VI of the Communications Act gives the state and local franchising authorities in awarding cable franchises, along with the act’s provision of a judicial remedy for resolving claims that a franchising authority has denied an additional competitive franchise, the Commission’s authority to adopt national franchising rules is not as clear as the agency’s authority to preempt state-imposed Internet regulation. In any event, if the FCC does go forward and adopt national franchising rules, it is likely that the question of the extent of the agency’s authority under Section 621 will end up being resolved by the Supreme Court several years from now.

That’s why it is important, in the meantime, for more states to join Michigan and the other ten that have already enacted video franchise reform laws --for them to do so without adopting net neutrality mandates that regulate the Internet.