Third Time’s A Charm? Verizon Hopes So.
Verizon’s third attempt to undercut local authority over cable and broadband operations in Massachusetts has ignited a spirited defense of franchising procedures that have served the state for nearly thirty years. Senate bill 1687, known to opponents as the Verizon bill, was introduced on Verizon’s behalf earlier this year by state senator Michael Rodrigues of Westport.
Named “An Act Promoting Consumer Choice and Competition for Cable Service,” the bill would radically curtail the ability of local governments to negotiate with cable and telecom giants to ensure that community priorities—including those of local businesses—are met.
The bill would give local towns and cities 90 days to conclude franchise negotiations with cable providers, and allow companies to appeal delays to the state cable division. It would also cap cash funding for community access television stations at one percent of each cable provider’s revenues, derived from its subscriber base.
The legal move comes on the heels of the telecom industry’s success in inducing over 20 state legislatures to implement statewide franchising since 2005, something Verizon tried and failed to do here in 2007. A similar bill to amend the Massachusetts Cable Act was unsuccessfully introduced in 2009.
The bill’s supporters argue that local licensing procedures, which take anywhere from three months to a year, prevent new competitors (like Verizon) from entering local cable markets. They complain that making companies negotiate with each of Massachusetts’ 400-plus cities and towns is inefficient and costly, depriving business of Verizon’s advanced technology. They say that shortening the negotiation process and standardizing the way public access television is funded will allow Verizon to overcome what it calls “insurmountable barriers” to competition in the state.
Public access television advocates, city and town officials, and state reps traveled from communities across the state last month to voice their opposition to the proposed law at a packed public hearing before the Joint Committee on Telecommunications, Utilities and Energy. They came from as far south as East Bridgewater and as far west as North Adams to defend the current system.
Public access television advocates rightly fear that the proposed funding scheme will deprive their stations of critical funding. Tying capital support to subscriber revenues may work fine for larger towns and cities—many of them already do this. But for public access stations in less populated communities, the change could threaten their survival. In some rural communities, public access television is the only source of local news. In North Adams, near the New York border, it’s one of the only sources of Massachusetts news.
Local government officials say the proposed 90-day “shot clock” is simply too short to undertake the intricate negotiations needed to protect community interests. The City of Boston, for example, estimates that it typically negotiates 30 or more issues with a cable provider, including cable system capacity, maintenance and performance criteria, and customer service standards. Local governments also negotiate funding for public access television, as well as “build-out” requirements that require cable providers to extend service to all neighborhoods without discrimination. Given these realities, the 90-day shot clock rule will likely result in franchise denials. “You can’t even schedule a meeting with Verizon in 90 days,” quipped one observer.
Massachusetts city and town officials say they want cable competition in their communities. They place responsibility for licensing delays squarely on Verizon. The City of Boston says it has been trying to get Verizon to pursue a cable franchise in Boston for six years. Somerville officials have been trying for four years. Michael Meehan, Director of Communications for the Somerville mayor’s office, believes that Verizon hasn’t offered its services in Greater Boston communities because their diverse populations, income levels, and housing stock make them less attractive investments. “We expect them to serve the entire city,” he says. We’re fairly certain that if Verizon got its way it would focus on single family residences. They want customers who will give them a higher margin of profit—that’s fine from a business standpoint, but not from a consumer standpoint.”
Opponents of Senate bill 1687 invariably characterize the bill as self-serving legislation designed to give Verizon a leg-up over established cable competitors like Comcast and RCN, which have already engaged in painstaking franchise negotiations with individual cities and towns. Many believe the bill’s real intent is to eliminate local involvement in franchising. They point out that Verizon has never been denied a license in Massachusetts, and has managed to negotiate agreements with 110 cities and towns here. In their view, the system works fine as it is. They ask, instead of trying for four years to move the state to a one-size-fits-all franchising process, why hasn’t Verizon used that time to negotiate with cities and towns?
The real reason Verizon hasn’t expanded in Massachusetts is that money earmarked for the state is going to states that have switched over to statewide franchising, a process that began in Texas in 2005. The chief proponents of these reforms are big telecom companies, including Verizon, who seek to enter a video market dominated by established cable companies. The telecom industry has taken its battle for market share—and its money—to state legislatures, with enormous success. The industry has invested billions of dollars in advanced fiber optic technology, and naturally seeks to recoup costs. Verizon doesn’t want to repeat the work that Comcast has already done in Massachusetts, negotiating town by town. It doesn’t want to be bound by community build-out requirements. It’s cheaper and more efficient to invest in the twenty-odd states with statewide franchising and weak build-out rules, or to push through similar reforms here.
The bill’s supporters market its reforms as good for consumers. They claim that streamlined procedures will lower barriers to entry for new competitors and result in lower cable rates. But several studies conclude that while streamlined procedures do increase the number of competitors in the cable market, the competition that results has little effect on basic cable rates, which continue to rise.
A 14-state survey undertaken by the National Association of Telecommunications Officers and Advisors in 2008 found no evidence of cable prices falling where Verizon and AT&T entered the market, except those for expanded tiers of service. Separate studies conducted in 2009 by the University of Minnesota and the Wisconsin legislature found that two years into franchising reform, basic cable rates in surveyed states rose anywhere from 21.2 percent (Wisconsin) to 68 percent (California). The same year, the Florida legislature concluded that competition had little or no effect on basic cable rates in Florida.
One study found that the largest rate increases occurred in cities having more than one cable provider, as competitors spent enormous sums trying to out-vie each other with better, and more costly, programming. The University of Minnesota found that “bundling . . . and expensive infrastructure build-outs by telecommunications companies (particularly Verizon) can lead to higher prices even where there is increased rivalry. In this environment, the incumbent (cable) providers do not have an incentive to lower their prices, since their rivals are raising theirs.” The writers call this situation “oligopolistic competition.” The entry of one or two telecommunications behemoths into the cable market, it seems, will not change much for consumers beset by high cable rates.
The Florida legislature observed that in Florida, “no reliable information exists in the public arena that would allow a comprehensive analysis of changes in competition and rates for service.” No published nationwide studies exist either, it says, because the reforms are new, because the companies consider subscriber data proprietary information, and because service “bundles” are difficult to disaggregate for comparison. But this means that Verizon’s claims are not supported by evidence, which is the least that should be required before Massachusetts changes its laws.
No one debates the need for meaningful competition in the media market. But people who think Verizon cares about “consumer choice and competition” should take a look at North Carolina, where telecommunications and cable giants are doing their best to snuff out competition from municipalities who have the audacity to build faster, cheaper broadband services on their own.
***
The Joint Committee is still reviewing Senate Bill 1687 and seeks the feedback of Massachusetts citizens. You can call or email House Chair John D. Keenan at 617-722-2263 orjohn.keenan@mahouse.gov, or write members of the Joint Committee on Telecommunications, Utilities, and Energy at State House, Boston, 02113. A full list of committee members is available athttp://www.malegislature.gov/Committees/Joint/J37.
