WPRI Report:

The Benefits of Cable Competition in Wisconsin (Cont'd)

By Christian Schneider

ANALYSIS

Price Comparison

As noted, competition has lowered prices in areas where new entrants have been allowed. In 2004, the U.S. General Accounting Office (GAO), surveyed six markets in which broadband video provided competition to local cable providers. According to the study, communities with broadband competition saw lower basic cable rates of 23 percent, on average. In one broadband market, cable rates were 41 percent lower, and in two others, rates were at least 30 percent lower than when matched up with comparable markets.²⁵

Furthermore, the FCC conducted a study in 2004 to determine savings associated with wireline broadband competition. For the twelve months ending in January 2004, the FCC found that average monthly cable bills were 15.7% lower in areas with wireline competition.²⁶

There are a myriad of factors that determine whether broadband video competition provides savings for cable customers, which is why savings levels fluctuate between markets. Population density, subscriber computer use, and the extent to which new video providers are allowed entry into a market by the local government are all factors in the savings realized by competition. In 5 of the 6 markets surveyed by the GAO, basic cable rates fell between 15% and 41%.²⁷ If Wisconsin consumers merely realized a range of savings sampled from the GAO and FCC analyses, it could mean substantial rate reductions for cable service.

According to the Time Warner Southeast Wisconsin webpage, their most basic package, the DIGIPiC 1000 digital cable plan, sells for $53.99 per month. A 23% rate reduction would drop the cost of the plan to $41.57, for a savings of $12.42 per month, or $149.01 annually. If the FCC estimate of 15.7% savings were applied, consumers would see a $101.72 annual reduction in cable bills. Again, savings could be higher or lower based on market factors.

In Madison, Charter Cable raised rates 4.1% on their expanded basic package for 2007 to $49.99 per month. Similarly, a 23% reduction in monthly cable bills would drop consumers' bills to $38.49, for savings of $11.50 monthly and $137.97 annually. The more conservative FCC estimate of  a 15.7% reduction would yield $94.18 annual savings for Madison area cable consumers.

Chart 2 shows a sampling of Wisconsin communities, the rates for expanded basic packages, and what consumers would save if the 23% average GAO estimate or the 15.7% annual FCC estimate were applied. Prospective annual savings for Wisconsin consumers range from $82.80 in La Crosse (at 15.7%) to $149.01 in Milwaukee (at 23%).

CHART 2

Actual savings will depend on a variety of factors, including state legislation that would reform local franchising agreements. For instance, if legislation requires carrying public interest channels, it could restrict the savings seen by consumers, as it would cost the new entrant more money to operate in a market. If a new statewide framework imposed burdensome network building requirements on broadband providers, the capital costs of those build-out requirements could be passed on to consumers.

The FCC eschews the argument made by the cable industry that the 10-year 93% increase in cable rates is due to the addition of new channels to cable systems, since different channels are of different values. They rebut the cable industry's reliance on "rates per channel," by saying:

The average rate per channel does not reflect the prices offered to consumers because cable operators do not permit consumers to purchase channels included in the expanded basic package on an individual basis, nor do they provide refunds to consumers who opt to have certain channels blocked. If cable operators offered consumers the option to purchase channels individually, it would be appropriate to consider the prices charged to consumers for those channels. Further, the use of the average rate per channel as a proxy implies that recently added channels are of equal value to previously existing channels. For example, the use of this data as a proxy would suggest that quality-adjusted prices would be unchanged if there were a 10 percent increase in monthly cable rates and a 10 percent increase in the number of channels; however, this does not take into account how consumers might value the additional channels. In particular, a consumer who placed no value on the additional channels would see a 10 percent increase in his or her monthly cable rates, but no increase in quality.²⁸

The FCC report also takes aim at the cable industry's claim that the rate increases were necessary because of increased programming costs. The report compares programming costs for competitive and noncompetitive communities, and shows how much of the increases are attributable to the increased programming costs.

In the non-competitive markets (which would include nearly all of Wisconsin), the FCC found that the increase in programming costs made up 51% of the overall increase in cable rates. In areas where there was effective competition, that percentage was much higher. For instance, in communities where direct broadcast satellite (DBS) is competitive, increased programming costs made up 70% of rate increases, while in areas with a second cable provider, programming costs ate up 74% of rate increases.²⁹

This can be explained primarily by the fact that rate increases were smaller in competitive locations. Thus, an equal increase in programming costs will show up as a larger percentage of costs in areas with smaller rate increases. Companies in competitive markets have less leeway to increase rates. Yet these companies are still able to provide service in an efficient and cost-effective manner to serve their customers. The fact that programming costs only constituted 51% of rate increases for noncompetitive areas leads one to wonder what the other 49% of the increase is for.

In their 2004 testimony before the U.S. Senate Committee on Commerce, Science, and Transportation, the GAO offered some explanations of why cable rates may be increasing at such a high rate. They note that programming costs are increasing at a quick rate, especially sports networks. However, they also point out that cable company advertising revenue has been increasing, which has offset some of the cost to consumers. Of the cable companies they surveyed, the GAO estimated that advertising revenue was able to offset nearly 31 percent of their total programming costs.³⁰ They also point out that many cable companies are seeing increased revenues from broadband and phone services, which should further offset increased programming costs.

According to the FCC report, cable rates are lower in communities where a statutory definition of "effective competition" is met.³¹ These are communities where a second cable company is permitted to operate, where a sufficient number of homes have DBS service, where the incumbent cable operator has low penetration, or where a wireless operator provides service.

While rates weren't significantly lower in communities where satellite was the primary competitor, prices were dramatically lower in areas where a second cable operator was able to function. In noncompetitive communities, prices were 20.9% higher than in communities where a second cable company operated.

Chart 3 details the growing difference between the average monthly cable price in competitive markets versus noncompetitive markets. In 1997, competition saved consumers $1 per month. By 2005, that savings had tripled to over $3 per month. Clearly, cable costs in noncompetitive markets are growing at a faster rate that in markets where there is competition, as the spread between the two increases.

CHART 3

Source: FCC

The fact that DBS broadcasting has yet to provide effective competition to cable does not prove that broadband video service cannot, as the cable industry claims. DBS service is a completely different type of service, with unique challenges and barriers to attracting customers. For instance, customers must purchase a satellite dish system and have it installed on their home. For customers who don't own their own homes or live in condominiums, whether they can even set up a dish is at the discretion of their landlords or condo boards. It was only a few years ago that home satellite systems were so expensive as to be out of reach for most consumers, yet viewership is now growing with the drop in system costs.

The FCC report points out that in 2005, average equipment and installation charges are higher for DBS than cable.³² Furthermore, fewer consumers subscribe to the DBS expanded basic package than cable's (88% to 84%). If DBS providers continue to make strides in reducing the overhead cost of equipment, they will be able to pass those savings on to consumers and provide more competition in the future.

Other Benefits of Competition

Competition also has benefits to consumers beyond simply price. When companies are forced to compete for customers, service also improves. As noted by Diane S. Katz of the Mackinac Center for Public Policy in Michigan, cable companies garnered lower customer satisfaction scores than the Internal Revenue Service in a recent nationwide survey. While survey respondents thought prices were too high, they also complained about service quality.³³

According to the GAO broadband report, some local cable providers responded to competition by improving their customer service effort. One cable company initiated door-to-door visits with customers to discuss picture reception quality and answer questions about their service.³⁴

Competition also gives consumers more choice in terms of programming options. When a single cable operator is allowed in a community, consumers are limited to whatever programming package their cable company offers.

This problem came to a head in Wisconsin in December of 2006, when the Green Bay Packers were scheduled to play an NFL Network-televised Thursday night game against their NFC North rivals, the Minnesota Vikings. Not only were the Packers still alive for a potential playoff spot, but it was entirely possible at the time that it could have been the last home game of the revered Brett Favre's career.³⁵

Most major cable companies in Wisconsin didn't carry the NFL Network due to contractual disagreements with the network. Thus, the only way a Packer fan could see the game was to either buy a scalped ticket, go to a bar with satellite, or have DirecTV come to their house and set up a satellite so they could watch this one game.

According to AT&T, the NFL Network is available in Milwaukee on their "U-200" package, which includes 190 channels and high speed internet for a base price of $74 per month.³⁶ According to Time Warner Cable's website for Southeast Wisconsin, the NFL Network isn't available on any of their packages.³⁷ Verizon offers the NFL Network on their FiOS "Premier" base package, which costs $42.99 per month.³⁸

This lack of choice, of course, made Wisconsin citizens furious. U.S. Congressman Ron Kind even sent a letter to the NFL urging them to make the game more widely available, calling the NFL's decision "ill-considered and financially-motivated."³⁹
Ironically, the day after Kind wrote his letter to the NFL Network urging them to make the game more widely available, U.S. Senator Russ Feingold wrote his own letter to FCC Chairman Kevin Martin protesting an FCC decision to promote more competition for cable. In his letter, co-signed with Representative Tammy Baldwin, Feingold says FCC support for easier video provider entrance into marketplaces would "threaten the public interest by limiting support for local public, educational and governmental (PEG) channels and institutional networks (INET), and allowing companies to exclude parts of a community from receiving service."⁴⁰

Feingold's letter supports the antiquated notion that government should be in the business of deciding what people should watch. Mandating that video providers carry PEG channels supposes that a small group of individuals knows what the public should be watching, whether viewers actually tune in or not. Video service subscribers pay for the delivery of these channels through higher monthly bills.

Since the content on some local public access channels can generously be described as questionable, local governments must mandate their inclusion on video systems to keep them alive. A Madison public access channel carries fringe programming such as "The LaRouche Connection," "Astrology, the Universe, and You," "Vegan Vixens," and "Disc Golf - LIVE!"⁴¹ However, satellite providers aren't bound by franchising requirements, and generally don't carry PEG channels as a result - which gives them a competitive advantage.

Finally, another benefit to Wisconsin in expanding the video marketplace is the increased availability of new technologies to areas that may currently be underserved. For years, Wisconsin has been attempting to legislate incentives for broadband companies to provide service to rural areas. Sparse rural populations often make it less feasible economically to build high-speed internet service to homes in low-density areas. In 2003, Wisconsin enacted a law that provided a tax credit to businesses that provide service to previously underserved areas. Later that year, a bill was signed into law that limited the ability of municipalities to provide broadband service, in an attempt to spur on private investment in new networks.

Allowing companies that offer broadband video into previously underserved markets will encourage deployment of new technologies to that area. These services provide phone, video, and high-speed internet service that may or may not be offered by the local cable provider.

Franchise Fees

Any discussion of increasing video competition in Wisconsin must deal with the issue of franchise fees, which constitute a "hidden tax" on cable consumers. As noted, franchise fees are paid by cable operators to local governments for the right to operate within that municipality's limits. Generally, franchise fees are set at 5 percent of a cable company's gross receipts. According to the National Cable and Telecommunications Association, cable companies paid $2.8 billion to local governments in franchise fees nationwide in 2006.⁴²

Cable companies pay $45 million per year in franchise fees to local Wisconsin governments.⁴³ In actuality, the $45 million paid to local governments is borne by Wisconsin consumers. This amounts to a tax on their cable service. And until now, consumers didn't have the opportunity to avoid paying the fee. Pursuant to Wisconsin law, municipalities are free to spend the $45 million in any way they see fit.

The justification for franchise fees has long passed. Initially, franchise fees were charged to cable companies for the use of rights-of-way, and they pay for that access. However, phone companies such as AT&T and Verizon already have access to the rights-of-ways through their phone service. Furthermore, cable companies can expand their service to include broadband and phone service without being assessed additional franchise fees, even though those services require expanded use of municipal rights-of ways. Requiring fees from phone companies looking to provide cable merely serves to protect the incumbent cable provider and thwart competition.

Franchise fees stand out as an anomaly in the telecommunications industry, as no other services have to form such an agreement on a municipal level. In a perfect world, franchise fees wouldn't be necessary. They discourage competition and create artificially high prices for video service. However, if competition caused a reduction in franchise fees, it is likely that local governments in Wisconsin would raise property taxes to make up for the lost revenue. For local governments, the most germane issue with competition is the potential loss of franchise fee revenue. According to the Wisconsin Taxpayers Alliance, total municipal property taxes in 2006 were expected to be 2.02 billion. If property taxes had to be raised to make up a $45 million loss in franchise fees, it would require a 2.2% property tax increase statewide.

That scenario would only be necessary if franchise fees were eliminated altogether, which is unlikely. Another scenario involves broadband providers providing video service without paying a fee and slowly eating away at cable companies' market share, in the manner that satellite TV currently does. If this were the case, local governments would see a slow erosion in the amount of revenue collected via the franchise fee, as BSP providers gained more and more of the market within a municipality.

A statewide scenario would occur if BSP providers agreed to pay a fee, as has been done in other states that have enacted franchise reform. This could be done in the form of an agreement between the BSP and the municipality, or it could be dealt by setting up a new framework in state law. BSP providers have not opposed paying franchise fees in other states where franchise reform has been enacted.

Wisconsin municipalities have made it clear that if such a framework is constructed, the revenue from the new fee should go back to the franchising body. Since such legislation would also likely set up a statewide franchising framework, municipalities are worried that the fees could conceivably be sent to the state, rather than the local authorizing government. As noted before, nearly every bill passed nationwide to date assesses a fee to BSP providers and returns that fee to the local franchising entity.

By protecting the current franchising system, Wisconsin municipalities might actually be limiting their revenue. Numerous studies have shown that when competition is made available in video markets, the total number of subscribers to video services increases.⁴⁴ In some cases, it is the lower prices that lure people to become subscribers where they weren't before. In other cases, the new network infrastructure reaches individuals more quickly than it had when there was only cable provider. If BSP providers agree to pay franchise fees, it is conceivable that revenues to local governments would increase.

However, even if municipalities realize new revenue through expanded viewership, it still begs the question of whether fees should be assessed. The theoretical determination that franchise fees are unnecessary clashes with the practical consequences if the fees are not charged. If these fees are not assessed, municipalities will likely fight any new entrant with endless litigation, which would delay implementation of the new service. Some municipalities have indicated that if they don't sue prospective new entrants to keep their service out, they risk being sued by the incumbent cable provider for violating the current franchising agreement.

As the previously cited studies show, consumers benefit greatly from increased competition in the video service market. In some cases, cable bills drop by at least 20 to 25 percent when competition is introduced - which would more than make up for any fee assessed to a new provider. If the offer of new revenue to a municipality is enough to encourage them to let a provider operate more quickly, then that deal is worth it to consumers. Competition delayed is competition denied - which is bad news for video subscribers. Even if a fee is assessed to BSP providers (and therefore consumers), the effect of instant competition is likely more than enough to offset the fee, leaving customers well ahead on total savings.

Build-Out Provisions

One of the most contentious issues with regard to cable franchise reform is the extent to which new entrants to a market are required to provide their service within that market. These so-called "build-out provisions" make a substantial difference in whether it is economically feasible for a new entrant to provide video service in a given market. In order to build their networks, broadband providers currently have to install large boxes in the rights of way to transfer the high speed signal via digital phone line. Often times, build-out provisions can be the tools used by municipalities to deter competition, thereby preserving existing exclusive franchise agreements.

A build-out provision in a franchise agreement generally requires a provider to build their network out to a certain percentage of the market. This is intended to prevent new video companies from "cherry picking" customers, or providing service to only a select few. Cable build-out agreements mandate that nearly all consumers in certain areas be provided the opportunity to purchase service.

In application, build-out provisions have become the means by which municipalities deter competition. In a free market system, a new competitor would be able to provide a service in whatever geographical area they want. However, the antiquated regulatory system that oversees cable television is not a free-market system.

The United States Department of Justice has recommended that no build-out provisions be a part of agreements with new entrants, due to the deterrent effect they have on competition. In an ex parte memo to the FCC, the DOJ says:

A number of factors inform a potential entrant's decision whether to serve a particular geographic area, such as population density, local construction costs, the characteristics of the technology to be used, the ability to use existing facilities, and potential revenues. And, of course, earnings are affected by the existence of other providers and, for new entrants, the costs of competing to attract customers away from incumbent providers. Build-out requirements that impose on an entrant the obligation to serve a geographic area that the entrant had concluded would be uneconomical to reach can lead to the entrant abandoning its plans for the entire area or, if the entrant agrees to the condition, result in competition being less vibrant or efficient. When the entrant agrees to such a build-out requirement, prices may be higher than they would be otherwise, due in part to the entrant's increased construction costs or inability to make optimal technology choices, or because the area cannot economically support another competitor.⁴⁵

Municipalities often force new entrants to sign extensive build-out clauses that require a substantial initial capital investment. Build out clauses require broadband video companies to finance for a network that they don't even know will be successful, to communities where they don't know if their product will sell. Drawing service areas through the municipal governmental process, rather than allowing a company to follow through on its business plan, deters new entrants from entering a market.

In addition to deterring entry into a new market, build-out provisions also keep prices artificially high. Requiring new entrants to overextend their network building plans forces the costs of that network on to the new subscribers. This prevents prospective competitors to cable companies from initially offering rates as low as they'd like, since they have to pay for a network that may not be used for years.

Cable companies argue that they were subject to build-out provisions when originally granted their franchises. Municipalities believe that build-out agreements are necessary to guarantee access to low-income and low-density populations. Under the 1984 Cable Act, it is permissible for municipalities, through the franchising process, to "assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides."⁴⁶ Municipalities argue that without mandating service in lower income areas, only wealthy, high-density areas will be able to receive the video services.

Ironically, the supposed concern for whether certain groups of people will receive service actually hurts the chances of those individuals being provided service. Unrealistic build-out provisions serve as a barrier to entry for potential competitors, who may decide that it's just not worth the initial investment to provide service in a given area. Thus, low-income and rural consumers who are supposed to be guaranteed competition end up getting no competition at all. Without build-out provisions, those consumers would likely get service, but only after a new entrant can set a solid financial foundation and branch out to those areas.

Some municipalities have been able to compromise with new entrants by offering what are known as "success-based" build-out provisions. Under such an agreement, a new entrant would be required to build their network out on the condition that their product is selling. If their product isn't selling, the build-out provision would be cancelled.

Municipalities and incumbent cable providers often make the argument that franchises and build-out requirements should be necessary for phone providers to achieve "symmetry" between the two systems. Cable companies argue that they were subject to build-out provisions when they signed their franchise agreements, and to truly be competitive, phone companies getting into the video business should be subject to the same regulations. Others may argue that build-out provisions promote competition, since more consumers would have the network available to them than if the phone companies started small and expanded into a market.

Some states actually have "Level Playing Field" statutes, which mandate that local governments may not issue new franchises that are less burdensome than the franchise owned by the incumbent provider. These states include Alabama, California, Connecticut, Florida, Illinois, Kentucky, Minnesota, New Hampshire, Oklahoma, Tennessee, and Virginia. While Level Playing Field laws prohibit less burdensome franchise requirements for new entrants, they generally do not outlaw more burdensome requirements for new providers. This means municipalities are welcome to impose tougher restrictions on prospective competitors if they intend to protect the incumbent.

George Mason University economist Thomas Hazlett addresses the issue of "symmetry" with regard to build-out provisions in his paper "Cable Franchises as Barriers to Video Competition." Hazlett points out that the basic justification for franchise agreements has shifted. He says:

It is crucial to note, at the outset, that the "symmetry" argument now serves to justify franchise obligations for entrants even as the original rationales - natural monopoly and rate regulation - have disappeared. The premise of regulation has flipped from consumer protection to incumbent protection. Incumbents would be harmed financially under rules resulting in greater competitive system build-out; that they ardently support such obligations for entrants is compelling evidence that the mandates are expected to reduce the scope of head-to-head competition altogether.⁴⁷

With regard to the cable industry's desire for "fairness," Hazlett points out that existing cable systems took decades to construct. Often times, existing cable networks were built before any franchise was created (federal law made franchises mandatory in 1984). Even when cable companies are supposed to abide by build-out provisions, it is unclear how many actually do so. According to an analysis conducted by Hazlett, two-thirds of California cable companies had failed to live up to their build-out requirements during their five-year agreement terms.⁴⁸ Thus, if the goal is to enact "equal burdens" relating to build-out on new entrants, how will that be measured if the incumbent isn't living up to their deal? Ironically, incumbent cable companies would assuredly litigate to make sure a new entrant was meeting their build-out obligation, while the incumbent likely had a great deal of leeway in actually living up to their own build-out requirement.

Hazlett also points out that supposedly "symmetrical" franchising provisions are actually asymmetrical when applied to new entrants. Specifically, build-out requirements are financially more onerous on new entrants who are not first into a market. Building a network is much more financially feasible when there is no competition, since a monopoly is likely to have a built-in consumer base. When cable companies initially built their infrastructure, they were the only way customers could get cable-type programming. Customers were easy to come by, since they were the only game in town - so building a network was likely a profitable endeavor.

The obsolescence of Level Playing Field build-out requirements is demonstrated by the cable companies' own successes. The Telecommunications Act of 1996 paved the way for cable companies to branch out into providing both voice and broadband services. As a result, cable companies now enjoy the ability to provide phone and data service to whomever they want without having to obtain onerous franchise agreements. This means cable companies providing phone service aren't subject to any sort of "universal service" agreements, to which they insist phone companies that provide video must adhere.

When cable companies began offering telephone service, they did so only in selected markets, in order to build a profit base before expanding service. Rural areas and business customers were often avoided, as the profit margin didn't make if feasible for cable companies to provide service. As Hazlett points out, the practice of offering selective service based on economic factors is called "red-lining," which is exactly what cable companies accuse prospective video competitors of likely doing.

Some may argue that allowing companies to provide video service to certain sub-markets at their own pace will disadvantage consumers in areas they choose not to serve. Studies have shown that providing competition in one sub-market doesn't raise rates in nearby sub-markets.⁴⁹ Furthermore, if competition is forced through build-out provisions in markets where it isn't economically viable, there may be no competition, as the new provider may not be able to afford to provide any service within the market.

So while limited competition in a market may not impact consumers equally, it will provide price relief to those consumers that are able to get service initially. As a new entrant gains customers and branches out, other areas will get service and see the benefits of competition. However, inflexible build-out provisions will make sure nobody receives the benefits of competition, as they could likely deter a new company from providing service.

Build-out provisions impose an undue burden on new entrants to a video market, and serve as the means to prevent competition in markets that choose to impose them. The quickest way for a municipality to ensure new service to underserved areas is to allow companies to grow their product at their own pace. Forcing them to build an infrastructure without customers only guarantees that those individuals will never get service, as new entrants will likely decide the cost of providing new service isn't worth the potential economic benefits. The only way to provide competition is to allow competitors the easiest path of entry into a market - which build-out provisions prevent.

Statewide Franchising

Existing law that requires new entrants to negotiate franchise agreements at the municipal level serves as a barrier to competition. Any new entrant into the video market would have to negotiate over 1,850 separate franchising agreements just in Wisconsin if they had to do so on a municipality-by-municipality basis.⁵⁰

As noted before, delaying competition clearly hurts consumers. The sooner new entrants are allowed in local markets, the sooner consumers will see the benefits of lower prices, better technology, and improved customer service. Forcing BSP companies to negotiate thousands of agreements constructs a barrier to consumer relief.

Statewide franchising agreements also standardize the franchise fee framework. While federal law caps franchise fees to 5 percent of gross video revenues, municipalities have leeway in determining what constitutes "gross revenues" for a provider. Some municipalities include local advertising revenue, commissions from home shopping networks, and fees paid by cable network programmers to local providers in the definition of "revenues."⁵¹ Creating a statewide franchising framework would set a uniform statewide definition of revenues, which will give new entrants more certainty in what their costs are likely to be.

A statewide franchising system could also serve to benefit incumbent cable providers. Some states have included provisions in their franchise reform laws that allow an incumbent cable operator to obtain a statewide franchise upon entrance of a competitor in their service area. Others merely require cable operators to obtain a statewide franchise when their current franchise agreements expire.

Such an arrangement removes the ability of municipalities to deny new cable companies the ability to provide competition within their market. However, the natural barriers to entry for a new cable company would still exist, as the incumbent cable company would continue to own the existing infrastructure. The only way true competition between traditional cable companies can exist is if there is a line-sharing agreement is mandated, similar to the wire-sharing that occurred with phone companies in the 1996 Telecommunications Act.

As previously noted, all state franchise reform legislation to this point has set up a statewide franchise fee to be paid by the new entrant, and directs those funds to the local franchising authority. Thus, while the franchise is granted statewide, local governments continue to collect the revenue that they currently realize from existing cable franchise agreements. This has likely been a key point in municipalities' acceptance of statewide franchising arrangements.

Finally, the idea that municipalities need to regulate video services on the local level has become outdated. Satellite video providers have proven that franchising is not necessary to ensure quality service, as they are not required to obtain franchises.

The Future

Just as previous video industry regulation grew outdated as technology developed, so will any law changes currently being considered. While broadband television service is a new and exciting technology now, it may only be a few years down the road that technology exists to bundle television, phone, and data service wirelessly. In fact, in March of 2007, Verizon announced plans to stream television programming from eight major networks directly to cell phones.⁵²

Some would say that satellite television already represents a wireless network at work. While there is no wire running to a consumer's home, there are still barriers to obtaining satellite service. First, a consumer must have a home where they can put a large satellite dish. Secondly, they must have a south-facing view of open sky. Finally, there are costs associated with purchasing the equipment necessary to receive satellite service.

Furthermore, satellite companies currently do not offer data and phone service. Bundling of services will be important when wireless networks are developed, as consumers will likely see reductions in rates when products are bundled. Also, satellite service is fixed to a consumer's home. It's not too distant in the future when consumers will be able to receive premium television service on their laptop computers and in their cars. Communications companies are already offering phone and data service wirelessly - how far behind can television service really be?

Clearly, phone companies are betting that hard-wired networks will remain viable in the near-term future. AT&T reports capital investments of $4.6 billion to construct its new wire-based video network nationwide. Certainly, they have done cost/benefit analyses and have determined that the expensive new network is worth it for them.

But what if wireless technologies develop quickly? New broadband video services could merely be a stepping stone to a wireless system that would render the wire-based service obsolete. Current new systems could merely be a transitional phase - much like the advent of the cordless phone era was a brief period between hard-wired phones and completely wireless cell phones.

When society goes completely wireless, it will render the current franchising regime obsolete. Consequently, it will render the laws currently being considered around the country obsolete, as they generally retain franchising agreements, just in different forms. Companies will be able to compete for customers no matter where the consumers reside, much like digital phone service today. As a result of that increased competition for consumers, rates will likely drop, service will improve, and consumers will be offered more programming options.

When current lawmakers look at current deregulating legislation, they should also pay attention to issues that will arise in the future. For instance, a wireless society will eliminate all the revenue for local governments through franchise fees. It is imperative that both local and state governments have a plan in place to address this funding shortfall when it happens (it could already be happening gradually with the growth in satellite service).

Any legislation should be wary of the effect it will have on competition from multiple companies in the future. Competition among several companies is good for consumers, not just when a single company has an interest in breaking into a market. Lawmakers should keep this in mind when drafting specific legislation designed to help a single provider.

SUMMARY

In the fast-moving world of technology, governmental policies have become antiquated and cumbersome. Laws requiring monopolistic cable franchises have become relics of a bygone era, and have served to retard investment and innovation in video services.

Wisconsin can reverse this trend by encouraging statewide video franchising reform. Providing consumers with a choice in video services will improve prices, encourage better customer service, and trigger more investment in innovative new technologies. Such a change will make new technology available to customers who previously could not access cable or high-speed internet services, and could provide municipalities with extra revenue, depending on how the framework is structured.

Furthermore, the extent to which competition is effective depends largely on how much competition is allowed. Build-out provisions, forcing new entrants to carry PEG channels and other mandates obstruct many of the benefits true competition can provide. Erecting barriers to new competition does not guarantee more consumers will see the benefits, as some suggest. Instead, making competition more burdensome only makes it less likely that any consumers within a market will be able to benefit from the cost savings associated with franchise reform.

Franchise fees pose a unique challenge for proponents of more competition within the video industry. The fees represent a tax on consumers, keep rates artificially high, and thwart effective competition. Conversely, new video entrants have calculated that paying the fee is in their best interest, as it allows them the ability to provide competition more quickly within a market. When the fees are paid, municipalities are less likely to obstruct their entry into a market, which allows for speedier competition. As previously noted, the benefits of competition to consumers often far exceed the extra fee they must pay on their bill as the franchise fee is passed on to them. Therefore, consumers are better off the sooner they are allowed a choice in video service.

Future technological advances will likely render the current franchising system obsolete within years. Even bills that are passing state legislatures today are likely to be outdated when wires cease to be the data delivery method of choice. While new laws providing video competition to cable are beneficial to consumers now, they should consider what new technological advances could mean in the future, and what effect that will have on consumers.

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