Congressional Testimony
of the
NATIONAL ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS,
NATIONAL LEAGUE OF CITIES,
UNITED STATES CONFERENCE OF MAYORS,
NATIONAL ASSOCIATION OF COUNTIES,
AND TELECOMMUNITY

Media Ownership in Video Markets:
The Case for Competition and Effective Rate Regulation

Before the Committee on Commerce, Science and Transportation
United States Senate

May 6, 2003 | Washington, D.C.

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I. LOCAL GOVERNMENT CABLE FRANCHISING RESULTS IN MORE COMPETITION, GREATER BROADBAND DEPLOYMENT, AND BETTER CONSUMER PROTECTION FOR SUBSCRIBERS.

A. Local Franchising Benefits Cable Operators and Protects Local Communities and Subscribers.
Local governments grant cable franchises as a means of:

• Promoting deployment and competition;
• Protecting the public rights-of-way and the vital facilities located therein;
• Promoting localism and viewpoint diversity in video programming and ensuring that the future cable-related needs of the community will be met;
• Protecting subscriber privacy rights, enforcing consumer protection statutes, and ensuring compliance with customer service standards; and
• Maximizing the benefits and power of rate regulation to keep cable rates reasonable.
  

Through the franchising process, cable operators have obtained the special privilege to semi-permanently use and occupy the public rights-of-way with over one million miles of cable plant as a means to annually deliver almost $50 billion worth of cable and other services to almost 69 million subscribers. In return, cable operators agree to comply with local government right-of-way regulations, construction standards, and customer service regulations; to provide rental compensation, both monetary and in-kind services and facilities; and agree to provide access channels and support for local public, educational and governmental (“PEG”) programming, as well as municipal institutional network facilities and support services.

B. Local Franchising Promotes Broadband Competition and Deployment.
Local governments grant incumbent cable operators and competitive broadband providers non-exclusive franchises to use public property to provide cable service and non-cable services. Build-out schedules, system upgrade requirements, and anti-redlining provisions have long been among the core franchise conditions negotiated by local governments.

A local government cable franchise regime – i.e., operators and local governments negotiate franchise requirements, operators pay five percent franchise fees and provide PEG channel capacity and support, local governments enforce customer service standards and regulate rates – has been in place for more than seventeen years and it has been highly successful industry model. For example, as of June 2002:

• Cable plant reaches 97% of all households.
• 80% of all cable plant has been rebuilt since 1996 to be capable of providing digital services.
• There are approximately 16 million cable modem lines deployed, reaching 50 million homes, and serving between 6.9 and 7.4 million subscribers.

In contrast, as of June 2002, ADSL and other forms of broadband which have not generally been subject to local franchise fees, franchise build-out or anti-red-lining requirements have deployed only 6.3 million high-speed and advanced service lines to residences and small businesses, and serve between 3 and 3.3 million residential subscribers.

C. Local Franchising and Regulation Protects All Right-of-Way Users.
Cable operators are not the only users of the public rights-of-way. The public rights-of-way also contain millions of miles of telecommunications fiber, copper telephone wiring, electrical lines, and millions more miles of gas, water and sewer pipes and mains. Automobiles and mass transit, as well as pedestrians and bicyclists, rely on use of the public rights-of-way as well, often necessitating installation and maintenance of thousands of traffic control signals, cameras, and real time traffic camera links to web sites, cable systems, and public safety facilities. All told, the combined value of the public rights-of-way owned (or held-in-trust for public use) by local governments is over $7.1 trillion. And in most cases, it falls to local governments to exercise both proprietary and police powers to coordinate and manage these diverse and competing uses, protect all users from damages by other users, and to prevent waste or premature exhaustion of this valuable public asset.

D. Local Franchising Promotes Local Programming, Viewpoint Diversity,
and the Community’s Cable-Related Needs and Interests.
Local governments negotiate with cable operators to obtain channel capacity on cable systems for the purpose of presenting primarily local, public, educational, and government access programming. Cable is the primary means of communicating with over 76% of all television households and access channels are the primary means of ensuring that programming content is not exclusively controlled by the owners of these powerful communications systems. Access channels are used by a wide range of community groups to carry local community programming, educational K-12 programming and distance learning courses for students of all ages, federal and local government programming, emergency information alerts. Local governments have also used the franchising process to bring Internet access to schools and to create municipal institutional networks (“I-Nets”) to support e-government initiatives. These institutional networks provide vital redundant telecommunications infrastructure. For example, some of the New York City communications infrastructure was destroyed in the September 11, 2001 World Trade Center attack, but the New York I-Net system rerouted signals as it was designed to do and continued to provide vital communications during the emergency crisis.

E. Local Governments Enforce Customer Service Standards and Privacy Protections.
Local governments have broad authority under federal and state law to protect subscriber privacy and to enforce customer service standards against cable operators. Local governments use this authority to ensure that subscribers receive what they paid for at the level and quality of service advertised; as incentive to persuade cable operators to resolve service and billing complaints in a timely manner; and to make certain that subscriber privacy is protected to the fullest extent permitted under law. The need to protect subscriber privacy becomes even more important as more broadband services are offered over cable systems.

• Cable Modem. Congress empowered local governments to enforce “customer service requirements of the cable operator,” not merely requirements related to “cable service.” Thus, regardless of whether cable modem service is classified as a cable, information or telecommunications service, local governments have authority to continue to require cable operators to comply with local customer service standards and consumer and privacy protections, regardless of the type of service offered.
  

F. Local Government Rate Regulation Authority Is Limited.
Real competition creates downward pressure on rates. Local rate regulation has been used as a substitute rate restraint where there is no real competition to protect consumers from unreasonable rates. Unfortunately, as explained below, local government actions to ensure reasonable rates for subscribers have been stymied by illogical FCC rules, interpretations, and unreasonable rate-setting formulas.

In addition, the effectiveness of basic rate regulation is hampered by the lack of regulation of other service tiers. For example, if a local government determines that an operator’s basic rate is more than what would be charged if a competitive market existed, the operator can simply charge more for the unregulated tiers, thereby ensuring that subscribers will continue to pay the unreasonable rate selected by the operator. As one operator bluntly stated:

If, during the appeal process and prior to a final decision by the FCC, Time Warner Cable is required to implement the Rate Order, it is our intention to provide the ordered customer refund during 1 billing period. It is also our intention to adjust our CPST Service tier price by a like amount during that 1 billing period. . . If the Rate Order is implemented, the only customers who will realize a net refund and/or reduction in total service price are those 2,930 customer subscribing only to basic service.

 

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