^{Democracy & Technology Blog} Dingell franchise idea could be better, could be worse

A draft franchise reform proposal authored by Ranking Member John Dingell (D-MI) of the House Energy & Commerce Committee, details of which were reported in today’s Communications Daily ($), increases the likelihood that final legislation would:

• Allow new video entrants to avoid in-kind contributions to cities (currently averaging approx. 3% of gross revenues) on top of the customary 5% (of gross revenues) fee,
• Would give the new entrants 10 years to provide their service to every household, and
• Allow the incumbent cable operator to opt in to the streamlined process as soon as the new entrant has a 15% market share.

Dingell, who has traditionally defended the cities on franchise issues — and intends to do so again — reportedly would establish a default national franchise which would kick in if negotiations between a city and a new video entrant fail. The proposal would also establish a 90-day deadline for negotiations, although either side could restart the clock.
Build-out requirements, although anticompetitive, are defended as necessary to protect consumers. This proposal demonstrates how in fact they are simply a type of negotiating leverage for the cities. If a new entrant chooses to walk away from the negotiations and opt for the default national franchise, it would be stuck with a 10-year build-out requirement while the city would lose any opportunity for in-kind contributions. Clearly, the negotiations are seen as an opportunity for new entrants seeking more favorable build-out terms to contribute to the favorite charities of local officials as a quid pro quo.
Supporters of this process of give and take pretend that there are no victims, which there are. The contributions will be recovered through higher prices for competitive video services, so the in-kind contributions are properly understood as a hidden tax.