The Truth Behind The Baby Bells and 'Franchise Reform'

Posted 2007-03-23 11:11:53 by Karl

While phone company lobbyists couldn't sell "franchise reform" on the federal level [2] via Ted Stevens, they've had great success convincing state legislators (and the press and public) that stripping towns and cities of their regulatory authority will result in faster deployment of broadband and lower TV prices. While their lobbyists promise lawmakers cheap cable, the baby bells' primary goal is the elimination of build-out requirements, allowing them to maximize ROI by deploying services only to the most profitable neighborhoods. Phone companies get the added perk of avoiding locally mandated community improvements.

Here's perhaps a shocking newsflash: both phone and cable companies have absolutely no interest in lowering prices. In early markets now seeing both cable and telco competition, we've actually seen TV prices rise [3]. And not just cable. U-Verse prices have risen twice since launch, and Verizon has raised FiOS TV prices by 7.6% since launch. AT&T execs have publicly stated they are interested in non-price competition [4]. We'll also note that many of these bills being passed strip localities of rate regulation and all other consumer protection authority. Price reduction through less accountability? It's just not likely.

That brings us to the other promise by telco lobbyists: faster and broader deployment with the elimination of local authority. Faster? Verizon execs in moments of unscripted candor have publicly stated that the existing franchise system has not hindered deployment [5] of FiOS. They've been happily signing franchises and getting FiOSTV deployed at an astounding rate. AT&T? They've simply decided to ignore local franchises and sue anyone who challenges them. The only thing slowing down AT&T IPTV deployment is AT&T (and perhaps muddy Microsoft code [6]).

So does franchise reform mean increased deployment? Actually it means just the opposite, since most of the bills we've read eliminate build out requirements. If our country's goal really is universal coverage [7], does the elimination of build-out requirements really make sense? It certainly makes sense to phone company accountants and industry investors -- but does it make sense for consumers? For rural Americans? How about Americans in low-income neighborhoods? These lawmakers serve them as well, correct?

Missouri is the latest [8] state to pass such laws, making it the twelfth state to institute telco-desired reform. A similar push is underway in several other states, including Iowa [9] (Qwest) and Illinois (AT&T). Geneva, Illinois city IT director Peter Collins (who we recently interviewed [10] concerning his fight against AT&T) offers us a link to his testimony [11] (pdf) before the state. Collins takes issue with the telco suggestion (quickly becoming conventional wisdom in all the giggly press coverage we've seen) that local communities are greed-driven roadblocks on the road to broadband nirvana.

What's perhaps most disturbing in the phone companies campaign to convince the public that local franchises are the devil, is their use of supposedly pro-consumer groups to support their push. In a press release [12] last week avidly supporting telco franchise reform, a number of seemingly "pro-consumer groups" praised the phone company vision. The National Association for the Deaf proclaimed "It matters a lot that broadband networks and their new interactive applications are widely available everywhere in America."

Curious about this enthusiasm, we contacted NAD to inform them that their support for telco "franchise reform" could potentially harm their constituents by limiting deployment, not increasing it. Frank Bowe, NAD's Governmental Affairs Consultant stuck by the company's position, and we're still waiting for a response from the organization's CEO. Page 34 of their 2004 annual report [13] (the most recent available) lists Verizon & SBC (AT&T) as significant donors, and a telecom primer [14] on their website was co-written by Verizon.

The demonization of the local franchise system has been a multi-year, sophisticated public relations effort aimed at passing laws that will kill build-out requirements, eliminate local accountability, and create a one-stop-shopping lobbying point for the nation's largest phone companies. The push is aimed at saving these companies money, and nothing else. The bills we've read offer no benefits to consumers. Don't drink the phone company lobbyist Kool-Aid that suggests killing local authority will result in broadband utopia, increased deployment, and lower prices -- because you are going to be disappointed.