Statewide video franchises promise lower prices, but won't likely deliver

by Jeff Richgels, Capital Times (Madison, WI)

A new report from a conservative think tank that backs proposed statewide cable franchising is based on false assumptions, a critic said today.

The Wisconsin Policy Research Institute's report, prepared for release today, asserts that consumers on cable's basic and expanded basic tiers could save up to $149.01 yearly on their bills if cable competition were allowed.

But competition already is allowed, said Barry Orton, a UW-Madison professor of telecommunications who advises many communities in their dealings with cable companies.

Orton said the second paragraph of the report's executive summary states that "A cable franchise is an agreement between a municipality and a cable provider that grants exclusivity within a municipality to the cable company in exchange for a fee and requirement to serve certain areas."

But that assertion is false and franchises have been prohibited from being exclusive since a Supreme Court decision (the Boulder case) and a 1984 federal law, Orton said.

"Anyone can compete now they just have to get a local franchise," he said.

But AT&T spokesman Jeff Bentoff said when cable companies initially started serving communities they were given monopolies.

"That was a huge economic incentive," Bentoff said. "It's ridiculous to suggest that new providers should go to 1,850 cities, towns and villages in Wisconsin and negotiate separate agreements. A single franchise at the state level brings benefits to consumers quicker."

Orton also derided the report's claims that cable rates will decline when phone companies such as AT&T and Verizon begin competing with cable firms such as Charter and Time Warner. AT&T has begun marketing its U-verse Internet TV service in parts of Milwaukee and Racine and is expected to offer it in the Madison area later this year.

Orton noted that AT&T Chairman and CEO Ed Whitacre has told Wall Street analysts that AT&T would not be competing on price in TV services and that the company expected its prices to be in the same range as traditional cable companies.

And, he added, "The reality is where Verizon has been in business more than a year they've raised rates just like the cable companies. And while cable companies may have cut prices at first they've also risen since."

"This is a sock-puppet report repeating every one of AT&T's talking points over and over," Orton said. "It's based on false assumptions, wrong facts and biased research done by former telephone company 'economists.'"

Bentoff didn't want to comment on the report's figures but said all studies have shown savings from competition. And, he added, in markets where AT&T is competing with cable companies, its stand-alone video and cable packages were lower in price. He noted that AT&T has been selling high-speed Internet for less than cable Internet for years.

"We're going to be competitive," he said. "We want to win customers. Providers compete on service, on programming and price and we're going to compete on all three."

Christian Schneider, the report's author, said forecasting savings "is tricky business. What we tried to do is say consumers in these studies received this amount of savings. If similar savings were realized in Wisconsin, this is what it would look like."

According to the report, bills from Milwaukee's carrier, Time Warner, could be as much as $149.01 less with competition, while Charter subscriber bills would be anywhere from $121.30 less in La Crosse to $137.97 in Eau Claire and Madison.

But cable industry advocates said the report relies on data released three years ago that is no longer accurate and doesn't take into account bundling discounts that cable companies offer consumers.

"It's a classic 'apples and oranges' comparison," said Tom Moore, executive director of the Wisconsin Cable Communications Association, who cited two federal reports released in 2004 that the newest study used extensively in formulating its results.

"We're driven by programming cost primarily ... I don't think you can, with a straight face, say you would save a $150 a year or $12.50 a month if you're basing it on (the federal reports)," Moore said.

He said the earlier reports failed to take into account bundling deals, or that the basic expanded lineup increased 70 percent over the time period of the studies.

A bill providing for statewide franchising for cable companies has been introduced in the Wisconsin Legislature. Currently, cable companies must negotiate franchise agreements with individual municipalities.

Proponents say the bipartisan bill, which is modeled after laws in 11 states, would speed competition to state consumers without losing consumer protections, while still protecting municipalities and preventing "redlining" serving only affluent customers in an area.

But critics say the bill is full of loopholes that would eliminate the minimal consumer protections under current law, cut fees to municipalities and endanger local access channels, and enable redlining.

Moore said the cable companies have never been against competition, and there now are 25 different cities in Wisconsin with two competing cable companies.

Cable companies are not opposed to a bill that provides parity for all providers, Moore said. The proposed bill does provide that parity and both Charter and Time Warner have said they are not opposed to it.

Thad Nation, executive director of TV4US Wisconsin, a group seeking to change the law, said cable companies can raise prices whenever they want and customers can't do much about it because of their limited options.

"We want the Legislature to take action on this and take action on it quickly," he said. "Every day that goes by, Wisconsin consumers are losing out."

article originally published at http://www.madison.com/tct/business/index.php?ntid=125437&ntpid=0.

The media's job is to interest the public in the public interest. -John Dewey