Setting the Record Straight on Statewide Video Franchising

On February 9, 2006, Tim Oakes of the Indiana Cable and Telecommunications Association wrote an Indy Star opinion column. In addition to resorting to ugly racial and ethnic arguments in a debate over telecommunications, Oakes’ column is simply wrong on many counts.

Oakes states:

We are particularly distressed by The Star’s support of state-issued franchising of video services and the contention that more competition would be encouraged. That is not true for the following reasons….Competition for video service providers is rampant….Our state also enjoys two satellite providers in every city.

Satellite providers are indeed important competitors in the video market. But why is it “not true” that yet another provider in the video market, namely the telecom companies, would provide even “more competition”? Using sophisticated mathematical techniques, we can see that 4 competitors is “more” than 3 competitors.

Oakes states:

New entrants would be free to discriminate on any basis they choose — race, ethnic group, neighborhood or otherwise. Without build-out or deployment requirements, the digital divide is certain to widen.

In fact, federal communications law prohibits video providers from discriminating on the basis of income. Other federal laws prohibit against racial and ethnic discrimination. Presumably, telecom companies are as eager as anyone to earn the business of paying customers, regardless of their skin color. Does Oakes have any evidence for his ugly and silly insinuation that some communications providers might refuse to serve people of a certain race or ethnicity? Oakes should retract this inflammatory statement.

On the questions of a supposed “digital divide,” the much larger gap is between the U.S. and our more advanced international challengers, like Korea. Compared to Asia, all Americans are on the wrong side of the divide. A streamlined statewide franchising process would help close the gap, not widen it.

Oakes states:

[U]nder current local franchising, cable providers are held accountable to customer service standards by local authorities. Under the state-issued franchise system, customers all around the state are directed to contact a remote office in Indianapolis or to seek resolution through the courts to resolve their complaints. No redress of consumer concerns is in either of these two bills.

The cable companies themselves have complained for years about these service requirements. Intense competition among at least four video providers is a far more efficient method of enforcing quality customer service than regulation. If customers don’t like their service, they can switch providers. The cable, satellite, and telecom companies will all be forced to offer the best possible services at the lowest possible prices.

Oakes states:

[C]able operators are required under current federal law and local contracts (i.e. local franchises) not only to make public access channels available, but also to often help fund such programming. While continued carriage of public access channels is required in each of these two telecom bills, future funding and expansion of those channels are eliminated, which would be a significant loss to local communities.

PEG channels, as they are known, are not an issue. With the Internet, local communities can have as many PEG channels as they wish. Tens, hundreds, thousands, if they want. Video over the Internet makes the scarce channel slots of the old cable TV architecture largely irrelevant.

Oakes states:

[R]egulation of video services would become a state matter, completely bypassing local government. This power grab by state government denies mayors and county commissioners the ability to do what is best for their residents and may well cost them numerous customer service jobs and franchise revenues.

In fact, the Indiana Association of Cities and Towns has endorsed the legislation in question, both the telecom reforms and statewide video franchising. 

Oakes states:

Finally, let’s be clear: The editorial’s statement that phone companies would have to invest further in local communities before they could raise (their phone) rates is incorrect. Neither of these two bills requires phone companies to offer broadband services to 50 percent of the households in a local exchange as the editorial stated.

This is flat wrong. There absolutely is a requirement that telecom companies offer broadband services to 50 percent of an exchange before they get basic service pricing flexibility in that exchange.

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.