A few decades ago, cable TV looked like a monopoly that was here to stay. Missouri passed cable franchise laws, which require cable companies to go through a time-consuming process to obtain permission to operate from local governments. One rationale was that franchise laws would protect consumers, but now that new technologies have sprung up that offer alternatives to cable, those outdated laws actually keep potential competitors out of the market. Missouri should pass cable franchise reform so consumers can enjoy lower prices and better service.
Cable franchise requirements probably sounded like a good idea back in the days when cable TV was a new, expensive luxury. Once a cable company had built out a network in any particular area, so the argument went, it was unlikely that another company would try to operate there too. That would require a huge initial investment just for the chance to pull away a few dissatisfied customers. Since only one cable provider would be available in a given location, requiring it to negotiate a franchise agreement with the local government was a way to hold down the monopolist’s prices. Besides, some kind of restriction was needed on laying new cable through public rights-of-way.
Missouri’s current cable franchise law is based on this argument. But the description of cable companies forming natural monopolies no longer holds true. The demand for cable TV has soared; today 67 million U.S. households subscribe to cable. New technologies were developed in response. Satellite TV now competes with cable in providing multichannel video programming services. Economists have found that competition from satellite TV forced cable rates down, so that consumers pay $4 less each month than they would if cable companies were still calling the shots. That adds up to over $3 billion in savings a year for U.S. consumers. The competition has even spurred cable companies to improve the quality of their services and to offer more channels.
When Missouri’s cable franchise law was passed, no one imagined cable TV would face competition from the phone companies. Today, technology allows phone companies to compete with cable over wide areas. After Texas enacted telecom reform in 2005, AT&T invested $800 million in order to provide video services to customers throughout the state. These technological advances mean that cable companies can’t monopolize local markets. And they show that the current cable franchise law isn’t needed to protect public rights-of-way either—phone companies use the rights-of-way already. Permitting them to provide video services wouldn’t impose any new demands on public areas.
Missouri’s cable franchise law doesn’t protect consumers, but it does protect cable companies. Negotiating franchises with every municipality in the state takes a long time. States like Texas that issue statewide franchises will see new investment and better deals for consumers right away. Missourians, on the other hand, will have to wait while potential competitors to the cable companies wade through the cable franchise bureaucracy.
In place of the current cable franchise law, Missouri should allow companies that want to compete with cable to apply for a statewide franchise. Any necessary regulation could be handled once at the state level, rather than replicated wastefully in every municipality. Consumers in California, Kansas, Texas, Virginia, and the other states that have passed cable franchise reform will benefit from competition. Missouri should open its cable market to competition too.
Sarah Brodsky is a research assistant at the Show-Me Institute.