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Statewide Franchise Law Can Bring Benefits

Along With GO Zone, It Could Spur Bandwidth Investment in Mississippi

Original Article
Mississippians can be excused for some trepidation regarding AT&T’s planned takeover of BellSouth. The last telecom mega-merger involving Mississippi was the WorldCom buyout of Sprint in 1999. The regulatory denial of that deal was a prelude to the 2000-2002 bear market.

Hardest bit by that ravenous bear was the telecom sector, which suffered the double whammy of flaky CEOs and overzealous regulators trying to micro manage complex market structures at the very time that radical new technologies were disrupting every aspect of a century-old industry.

In the end, the U.S. telecom industry saw its combined market capitalization drop from $2.7 trillion to just $700 billion.

The aftershock of that $2 trillion calamity turned even the most brazen regulators into born-again industrialists, willing to approve mega-mergers like the 2005 deal by SBC to take over AT&T, which then dropped SBC for the more familiar brand name.

The realities of communications in 2006: “Natural monopolies” are no more, landline’s share of voice traffic is in irreversible decline, wireless rules, demand for broadband is exploding, and finally and most importantly the tech savvy consumer armed with a plethora of gadgets and gizmos is boss.

Another reality not lost on regulators is the dramatic decline of America’s dominance in telecommunications. Access to broadband communications is widely viewed as a crucial tool in the transition to a knowledge-based economy. Having invented the Internet and all its enabling technologies, the U.S. has now fallen to 16th place in the world and 2nd in North America with an 11.4 percent per-capita broadband penetration rate.

The Korean model: South Korea, unfettered by local franchise laws, now leads the world in broadband access with a 25 percent penetration rate. Over the past six years while the U.S. stock market fizzled (-6 percent), South Korea’s sizzled (+160 percent). Seoul-based Samsung, once a second-tier name, is now the world’s largest and most profitable consumer electronics company.

A choke point on the road to our broadband future is the tradition of local video franchising – a throwback to the mindset of “natural monopolies” in cable TV.

A new entrant like AT&T is faced with the prospect of sending out platoons, if not battalions, of lawyers to negotiate with every mayor and city council across the state. Two states, Texas and Indiana, have taken the early lead and passed statewide franchise laws.

Announcements by Verizon and AT&T of new billion-dollar fiber optic build-outs are already happening in Texas. Once launched, the service areas often see competing cable rates drop.

Will AT&T go for the GO Zone? The Gulf Opportunity Zone Act passed by Congress in late 2005 offers special tax incentives for new capital investment in 49 of the Mississippi counties impacted by Katrina.

Companies like BellSouth and AT&T, always conscious of after-tax returns on invested capital, could not ask for a better rationale to put south Mississippi at the top of the list for accelerated build-outs of wireless and broadband infrastructure.

The AT&T and BellSouth deal could pay off big for Mississippi. AT&T and its management team from SBC are highly regarded as aggressive leaders in pursuing new market opportunities and the GO Zone is a very big one.

A statewide franchise law would make it even sweeter. It is serendipitous that Gov. Haley Barbour’s choice to head the Coast’s initial Renaissance planning efforts was Jim Barksdale who. as CEO of FedEx, McCaw Cellular and Netscape, learned a lot about networks and the role they play in economic growth.

Passing a statewide franchise law will be tough politically, but with the GO Zone window open, it would be a bold move that could unleash a torrent of bandwidth investment and put south Mississippi on the cutting edge for decades to come.

Ashby M. Foote III is president of Vector Money Management in Jackson. His e-mail address is: