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Statewide Franchising Questions & Answers

1. What is “statewide video franchising”?

Statewide video franchising creates quick, one-stop-shopping for companies that want to build new broadband networks in Indiana. It simplifies a currently fragmented and inefficient system by moving video licensing authority from hundreds of Indiana cities, towns, and counties to the state. 

In the 1960s, 70s, and early 80s, cities and towns granted franchises to companies who wanted to serve the area with “community antenna” television (CATV), effectively establishing local monopolies for cable TV. The theory was that one company could provide communitywide cable service more efficiently by negotiating the terms, contract, and rates with local governments. These franchise agreements imposed requirements and fees on video providers. As a result, cable companies had to negotiate separate agreements with each local government, creating hundreds of separate contracts across the state of Indiana. 

In a new era of competition, this process designed for monopolies no longer makes sense. In fact, this fragemnted system of city-by-city negotiation is preventing cheap access to new technologies that are essential to Indiana’s competitiveness.

2. What’s the problem?

Companies hoping to invest billions of dollars in new broadband fiber optic networks have been trying for several years to win local franchises the conventional way. But there are tens of thousands of local franchising jurisdictions across the nation. There are several hundred in Indiana. One company, Verizon, has had a team of 100 lawyers working on local franchises for the last few years but, by the end of 2005, had won approval to serve only 40 out of its 10,000 service areas. At this rate, it will take decades just to get approval to enter existing markets let alone tap into new ones. The current process is full of unnecessary delay that is likely to hurt rural and low-income communities most of all.

3. Why does it matter?

Streamlining this outdated system will accelerate investment in new fiber-optic networks and new video and broadband Internet services by several years (see Question 6) Indiana could capture much of the scarce capital that major international companies are hoping to invest in these networks. States without the streamlined process could be left behind as service providers focus their investments where they are welcome.

4. What are the economic benefits?

Combined with other telecom reforms now being considered, statewide franchising could boost Indiana’s total economic output between $7 billion and $10 billion by increasing economic growth by more than a half a percentage point per year for the next five years. Thousands of jobs would be created to build and maintain these networks. 

In the long term, Indiana’s economy would benefit from the most advanced links to the world economy. Our universities and schools would enjoy the fruits of this advanced infrastructure. We would be able to retain and recruit the types of highly paid knowledge workers who so depend on cutting-edge communications tools. Our older industries would enjoy the best possible tools to reinvigorate their businesses for the information age, giving them a competitive edge.

5. What are the costs?

There are no costs. In fact, streamlining the process would cut waste and delay out of the system, making it far cheaper for both local governments and service providers. At a time when the state is considering other important, but sometimes expensive, economic development initiatives, statewide franchising and telecom reform offer by far the biggest bang-for-the-buck of any reform being considered. Simple regulatory changes, which are free, would yield major economic benefits.

6. Has anyone else tried this?

Yes. Texas passed statewide video franchising in 2005 and is already reaping the rewards. AT&T announced an $800 million investment in new networks and services. Smaller companies are deploying new technologies, too. New services are already in the marketplace, network speeds are increasing, and prices are dropping. 

In other places where telecom companies have won local franchises, competitors are improving their services and lowering their prices. In the New York metro area, for instance, where Verizon has already deployed its new fiber optic network, the local cable TV company Cablevision has upgraded its network to deliver basic Internet service of 15 megabits per second (Mbps) and premium services of up to 50 Mbps.

7. Would statewide franchising mean only “wealthy” neighborhoods get new services? Will some Hoosiers be “left behind”?

No. In fact, just the opposite is true. Statewide franchising would help bring new networks and new broadband services to more small towns and low-income areas faster than the current process. The current system delays the introduction of faster broadband speeds and new video services. 

According to the FCC, build-out requirements contained in the current process are a substantial disincentive to invest in new networks. Under the existing system, it took the cable companies some five decades to cover 85 percent of the nation, even though they have the advantage of a monopoly in each city or town. Building new networks today, when there are a number of competitors, is far more risky. 

Moreover, because telecom companies like Verizon and AT&T only have so many lawyers working to gain franchises across the nation, the current system would force them to target the most attractive markets first, leaving the middle and lower tier markets for later. A statewide system in Indiana would open up the entire state for new investment—immediately.

Cable companies already serve some 85 percent of Hoosiers, and two national satellite networks — DishTV and DirecTV — cover 99 percent of Indiana. No Hoosier will go wanting for video services or be worse off than today. But hundreds of thousands and soon millions will be better off.

8. Is statewide franchising a “tax increase”?

No. Not even close. The cable industry and the mayors demand that new entrants pay the franchise fee. Fair enough. At the same time, the cable industry condemns fees for new entrants as a “tax increase.” Which is it? You can’t have it both ways. In fact, an amendment offered in the Indiana House of Representatives to the current telecommunications reform bill makes the fees that new entrants pay equal to those that incumbents pay in each local jurisdiction. Thus, no consumers will pay more in franchise fees than they do currently. Therefore, there is absolutely no “tax increase.”

9. Some are circulating a story that a happy compromise has been reached in Virginia. Is this true? Does the “Virginia compromise” solve the problem?

No. It is not a compromise at all, and it doesn’t solve the problem. A peculiarity of the Virginia Constitution prevented the type of statewide video franchise that makes sense in Indiana and across the nation. Verizon, therefore, “agreed” to the “compromise” in Virginia because it was their only option, not because it was good (let alone the best) policy. An Indiana law similar to the Virginia law would not be an improvement over the status quo. It would retain most of the worst features of the existing process and would not accelerate the deployment of real broadband networks. It would be a waste of time. Those pretending this is a useful, happy compromise are wrong.

References and Resources

“Sending the Right Signals: Promoting Competition through Telecommunications Reform.” Rutledge, John, Thomas W. Hazlett, Coleman Bazelon, Deborah Allen Hewitt. September 24, 2004.  

“Cablevision boosts broadband speeds to record levels.” Cable Digital News. January 1, 2006. 

Special Issue on Indiana Telecommunications Policy and Reform, Indiana Policy Review, Fall 2005.

Web Sites

Indiana Policy Review Foundation
Discovery Institute
Disco-Tech
Institute for Policy Innovation
Progress and Freedom Foundation

Other Sources

Haney, Hance. Comments on the FCC’s Proposal to Reform Cable Franchising, Discovery Institute, February 13, 2006.

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.