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4/24/2007
Will your cable bill rise or fall? Wanna bet?

Today the Assembly is scheduled to vote on the AT&T/Video Competition Act that supporters claim will lower cable costs by increasing competition.

Those supporters point out that current video suppliers essentially have monopolies because all new entrants in a market must first negotiate a franchising contract (and fee/tax) with each municipality it wants to serve. As Rep. Kevin Petersen (R- Waupaca) states, these agreements “no longer meet today’s technological demands.” This bill’s answer is to require all video providers to now negotiate one contract with the state.

Municipalities had all sorts of complaints about this thing, many of which were addressed last week with amendments.

Franchise Taxes
The first thing municipalities were worried about was – you guessed it – money. Imagine that. They wanted to make sure they didn’t miss out on a dime of the taxes they’re currently getting in franchise fees.

This bill sidles up to municipalities with a hefty state-imposed 5% “franchise fee” (replacing fees negotiated by each municipality that now range from 0% - 5%). In other words, the providers will tack on a 5% tax to your cable bill and the cable company will fork that money over to your municipality. It’s plain and simple, a tax. No, not just a tax. A hidden tax that officials want to keep calling a “fee,” which is a bunch of baloney. It’s just more money municipalities have to operate with. They’ll tell you if the franchise fee goes away, your property taxes will increase. How about if the franchise fee goes away, spending will decrease? (As I’ve said before, nothing in the law says a franchise fee must be levied….)

Ok, I can see a tax on your cable bill to televise government meetings. But that’s it.

And the legislature just goes right along with it. They take all kinds of pledges to hold the line on taxes. What happened here?

City Right-of-Way
Have you seen those boxes that pop up now and again – big boxes, like might store a shorter Frankenstein or a taller C-3PO? Sitting in the terrace next to the road. Switching stations, or something like that (actually, they’re called “52B Cabinets”). Of course, we can’t see all the stuff that’s underground – but be assured there’s lots of cable and pipe down there. So here’s the question - just how many video suppliers can a city's right-of-way handle? How much room is underneath and on top of the right of way – and do you want to see a bunch of boxes on every block?

“Buildout”
I’m not convinced that “buildout” requirements are adequate, that is, the requirement a city places on a utility to serve a significant percentage of households in the community. With weaker buildout requirements, will cable providers come to town and pick off a few choice blocks, then ignore the harder-to-serve areas?

Competition is Great
I am absolutely a capitalist who lives for open markets. But in this case, the jury’s still out on whether investing in all these additional assets and creating all these franchise taxes will truly result in a lower cost for cable users and property taxpayers. It’s buyers beware – and keep your eye on the bottom line.

COMMENTS

Jo, you do have other options. I switched to DirecTV back in '96 because I got sick of TWC's seemingly every other month price increases. I've never looked back.
Glad to hear you've had reliable service. Good. It will be interesting to see how your costs are affected by the AT&T cable bill. As of last week's amendments, satellite services are now included. They've not ever been regulated in the past, never had a franchise fee. May be a constitutional challenge if satellite companies stay in the bill, I understand. JE

Mike (Tue Apr 24 07:48:51 2007)

Jo - You hit it right on the head when talking about municipalities and their response to this. It seems to be the automatic reaction of government entities that if you take away a revenue stream we must raise it in another way. The thought of actually reducing spending never even enters their mind. I've seen it way too many times in my experience in local government. It's much more uncomfortable to look someone in the eye and tell them that it's their program that is going to get cut. However, if we're serious about reducing the tax burden, cut we must.
And I don't say it's easy to cut spending, as you probably don't say. It's a difficult prioritizing challenge. But sometimes it's necessary...JE

Jim Steineke (Tue Apr 24 08:36:15 2007)

A rose by any other name is still a tax. Like Mike I too favor the satellite providers for price and programming. Communications costs per households have risen rapidly; we all want to stay connected. Adding all the taxes each of these providers tack on add up and like all taxes become onerous to the bottom line for each household.

Communities believe they have a right to tax everything that walks, talks, moves or ever showed signs of life and the community tolerates it. This is just another shell game, outcome same...pay up or don't play.

Richard (Tue Apr 24 11:29:28 2007)

Jo,
I've been in favor of creating a competitive environment from the day TWC started establishing their monopoly in our communities. As a satellite subscriber I don't want to see the franchise "fee" (cough cough) imposed, but if it can provide revenue that would allow ALL citizens of the state (regardless of which video provider we have) see their municipal, county, AND state governments in action - why not? It remains to be seen whether we would actually gain that level of community service and cooperation from these companies. In my mind, however, the greater issue is whether entire communities will be served or whether AT&T will still be allowed to 'cherry-pick' their service areas.
I hear you. The original bill provided that a minimum of 50% of households must have access to a particular provider 6 years after service is first provided (if the provider has more than 500,00 access lines in the state). In some folks eyes, that could be called cherry-picking. JE

Jeff (Tue Apr 24 15:27:54 2007)

It's nice to see we're largely in agreement! I made many of the same pro-competition points as well as raised concerns about the right-of-way in my blog post on this topic on OnMilwaukee.com. A few comments: Franchise fees are supposed to cover all those costs associated with the city's management of the franchise. They're the front line on consumer complaints - they'll deal with TWC if you are having troubles. They're also expending energy to deal with digging, pipes, etc. in the right-of-way. Is it 5% worth? Probably not, but they do like those revenue streams. As you correctly point out, this "fee"/tax has been approved by our duly elected council members throughout the state. As for build-out, the raw bill let video providers comply by offering "similar" products - so it could be fulfilled by offering fiber-based HD to the rich neighborhoods but rebranded satellite dishes to the folks on the other side of the tracks. And yes, competition is great - but for decades there has been no legal obstacle that prevented video competitors from entering our markets. Out of 1,850 towns/villages/cities in Wisconsin, there are about 300 franchise agreements. Less than a dozen agreements could cover the vast majority of the market, number-wise. It wouldn't have been strenuous for AT&T to negotiate a dozen franchises under the old law. Instead, what's prevented them? The economics and profit haven't been attractive enough, and this bill can't change that basic fact. They'd be sharing a market with one or more other video providers. A smaller slice of pie - until you sweeten it by adding Internet, land line, and cellular contracts.
Good info John. Thanks for taking the time to share/communicate. Lots of info on the topic in your blog as well. JE

John Foust (Wed Apr 25 16:16:57 2007)