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from: Citizen Times

Cable TV PEG channels deserve lawmakers’ aid
published August 14, 2007 12:15 am

Competition usually results in lower prices and better service and products. Who can argue with that? The question is, better service and lower prices for whom?

In the case of cable television franchises, a 2006 North Carolina law passed in an effort to encourage competition could eventually mean better service and lower prices for densely populated affluent areas. It could mean poor or no service for poor or rural areas.

Cable windfall

That’s not all the Video Service Competition Act accomplished. It provided a windfall for cable companies, which will no longer have to negotiate contracts with local governments. Local governments demanded capital and operating revenue for public, education and government (PEG) channels and other benefits as a condition of granting franchises. They also required service to all areas meeting basic density requirements.
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To make matters worse, the hoped for competition hasn’t materialized.

Dalton’s bill

An effort to mitigate the impact on PEG channels, sponsored by Sen. Walter Dalton, D-Rutherford, passed the Senate during the 2007 session but stalled in a House committee after significant provisions were removed from it. Despite great demand and potential economic significance, PEG channels are barely scraping by. Lawmakers should restore the provisions that were removed and pass the bill into law during the short session.

The Video Service Competition Act of 2006 made the Secretary of State the exclusive franchising authority for cable companies in North Carolina, removing the ability of local governments to negotiate their own cable franchise agreements.

The state doesn’t negotiate for PEG channel support or for installing and maintaining broadband connectivity to the Internet for schools, a benefit Buncombe County negotiated in its 2002 contract with Charter Communications.

Money to the state

Cable companies continue to pay state sales tax, which amounts to 6.75 percent of revenue. But while the companies paid 5 percent to local governments and the remainder to the state before the new law went into effect, they now pay the entire amount to the state.

The law was designed to be revenue neutral for local governments using a complicated formula that was intended to pass the 5 percent back to them.

But the money for the first quarter, distributed to local governments on June 15, was considerably less than the amount they had been collecting. That was apparently because of start-up difficulties. The second quarter funds, due in September, should be closer to the amount local governments were receiving from the cable companies.

Contracts continue

As long as no other company seeks a contract to provide cable to a given city or county, contracts that have already been negotiated continue in force. That means Charter will continue to pay about $80,000 annually in ongoing support for the county’s PEG channels until its contract expires in 2012, or AT&T, the only likely competitor, goes after a contract to serve the county.

If a competitor seeks to serve the county, Charter can terminate its contract and pursue a state contract, which basically means filing out the proper paperwork. Under a state contract, neither Charter nor any competitor, if there is one, is obligated to provide service to an area that is not economically attractive.

Bad legislation

It was a bad piece of legislation pushed by the phone companies, which didn’t want to negotiate with local governments. Yet, they have so far failed to take advantage of the opportunity the new law, which took effect Jan. 1, affords them.

In fairness, the law attempted to compensate for PEG money by setting up a $2 million fund to which they could apply for grants. But there were more PEG channels than anticipated, and the fund is wholly inadequate.

Dalton’s bill, which is co-sponsored by Sen. Martin Nesbitt, D-Buncombe, would have increased the fund to $7 million and created two additional funds of up to $5 million each, depending on revenue growth in franchise taxes. One would have provided additional funding for PEG channels and one would have provided broadband connectivity grants.

The two additional funds were stripped out of the bill in the House.

Dalton’s bill recognizes the importance of PEG channels and of extending broadband service to every part of North Carolina. It would help to compensate for a very bad law that, in the long run, appears likely to do far more harm that good.