from: On Milwaukee [1]

Video and cable debate heats up in Madison

By jfoust
Community Blogger

April 2, 2007

On March 27, 2007, a joint hearing took place at the Capitol to discuss a proposed "Video Competition" bill AB-207/SB-107. The hearing room overflowed with citizens deeply concerned about the threats posed by this bill. Most were associated with small-town "public access-governmental-educational" (PEG) channels. The proponents of the bill were associated with AT&T, their lobbyists, large business organizations like WMC, or the unions of workers who'd get the jobs associated with new video build-outs.

I parked myself in the hearing from 9:30 until 4:30. It dragged on for about ten hours. It's frightening to watch the sausage being made. It was horrifying to hear bill sponsor Rep. Phil Montgomery (R-Ashwaubenon) describe how they'd written the bill over the course of many months of meetings with AT&T, and how he deliberately excluded others from that process. Not good government in my book.

This video debate has been largely absent from the Wisconsin blogosphere. I guess they’re too busy with their blue-versus-red Rock’em-Sock’em Robots. There’s been a few guest posts about it on "Waxing America," Paul Soglin’s blog, the former Madison mayor. The posts are by Prof. Barry Orton, a UW-Madison professor with nationally-known expertise in telecom law.

There's plenty of spin in this debate. Another blogger aptly described it as a "full employment act for lobbyists." The money flood started last summer, from AT&T and the cable companies, and some of the most well-connected I’ll-do-anything-for-money PR flacks lined up with their hands outstretched. Slick web sites and TV commercials were born.

Take "TV4US" for example, funded by AT&T. Over and over in press releases and news bites, they call themselves a "non-profit, grassroots organization." How stupid do these Astroturf groups think "US" are? It was hilarious to watch them at the hearing trying the old "Miracle on 34th St." trick of hauling in the dolly with 30,000 postcards from "people who want choice". They declined to pour them on the table, which greatly reduces the dramatic effect. Who paid to print and mail those pre-paid reply cards? Or the millions for all those commercials?

AT&T and its sock puppets spin this as "video competition." I think that’s bull. Look at the facts. Since 1984, the FCC has prohibited cities from granting exclusive franchise agreements. If you have Time-Warner Cable, there’s nothing to prevent Charter or AT&T from entering your neighborhood. All they need to do is work with your city to create a franchise agreement. FCC rulings already require cities to give every provider the same terms.

Spinmeisters quickly contradict themselves, too. In one sentence they’ll cry about monopolies, in the next they’ll remind us that 30% of us are using satellite. Spin, statistics and lies. That counts all the satellite customers in our rural areas who don’t have a choice of a wired provider and who probably never will.

No monopolies are possible, yet the sock puppets and sponsors of the bill use that word all the time. The very definition of "monopoly" implies a sole supplier of a good without reasonable substitutes, and in which there's some barrier to entry into that market. If there are alternatives and no barriers to entry, there's no monopoly. Cities often have one provider because the other providers apparently didn’t like the idea of actually competing nor with the prospect of capturing only half or a third of the market. Go for it, AT&T, we’re not stopping you. Give me a choice.

Take a look at your cable bill, down in the section with all the taxes. We tend to ignore the fine print on our utility bills, don’t we? You’ll find a "Franchise fee" that’s roughly five percent of the your non-Internet-related services.

Your municipality worked out a contract, the franchise agreement, with your cable provider. Think of it as a building permit that lasts about a decade. The FCC allows cities to grab up to 5% of the cable provider’s gross revenues as an administrative fee to oversee the contract and the duties connected to allowing the cable provider to use city right-of-way for its wires and boxes. City Hall handles the first line of complaints about outages and poor service, too. They’ll deal with the cable provider for you, particularly if everyone in your neighborhood as the same problem.

The definition of "gross revenues" is spelled out in the franchise agreement. Cities might calculate it in different ways. It always includes what you paid for cable but it probably also counts the money the provider made in selling commercials. The bill includes a new definition that’s less inclusive than what most cities use, so most cities can expect 15-25% less franchise fee revenue.

Yes, franchise fees are in effect a local tax, allowed by the FCC and approved by city councils across the state. Yes, the franchise fee smells like pork when you cook it. Cable companies pass them along to us. The FCC did not restrict how they can be used. Some cities use it all for PEG, some use a little, and some keep it all as "general revenue." When they collect money and don't tag it for a purpose and use it for general spending, cities often refer to this as "tax relief" - and I do see the contradiction in that. Yes, cities are still reeling from the limits and reductions in shared revenue from the state, so they're eager to take any allowed revenue source up to the maximum - in this case, 5% of gross revenues of franchise holders.

Five percent of everyone’s cable bill ends up being quite a chunk of change in most cities. I live in Jefferson, pop. 7,800, in the space between Madison and Milwaukee. They harvested about $72,000 last year in franchise fees from about 2,000 subscribers, or roughly 1% of the city’s annual budget. Add zeroes as appropriate in your larger city.

Mind you, those state legislators knew better than to slaughter the golden calf. The new bill preserves franchise fees as-is. If Rep. Montgomery really wants to shave the bottom line consumer cable bills by 5%, he should convince city governments to reduce their franchise fee to zero percent. If he'd proposed to eliminate them, cities would have screamed even louder than they did. There's always the possibility that AT&T has written themselves a loophole or plans a larger court case that ultimately exempts themselves. Again, more disappearing revenues for cities. It’s a zero-sum game. Pick one: higher taxes or fewer services.

Depending on your city’s franchise agreement, you might also find a "PEG Fee" item on your bill. This is a separate percentage they’ve negotiated to explicitly support your public access channels in some way. In Jefferson, it’s 15 cents a month per subscriber. It slowly pays back a $30,000 loan from Charter that was used to purchase equipment to start the PEG channels. Again, you pay it, not the cable provider. This specifically disappears under the bill.

The bill has a half-dozen loopholes and exclusions that in effect would not require any video provider to broadcast our existing PEG channels. For example, the bill says video providers can drop PEG channels if they’re "underutilized," defined as less than 12 hours a day of new, non-repeating programming, 80% locally produced. This loophole alone eliminates all PEG channels. No consideration for program sharing between communities or the community announcement slideshow channels. No definition of "locally produced". By the same definition, every ABC/NBC/CBS/Fox channel in the state is "underutilitized."

Coupled with the reductions in franchise fee revenue that supports them, and the elimination of separate PEG fees, it could mean the death knell for PEG. Without local franchises, growing communities can’t negotiate new PEG channels, either. That’s why the hearing was packed with PEG supporters.

I am fully aware that PEG channels are considered comic relief. As a public forum open to all, they can attract the homegrown nutcases. On the other hand, I think of them like local volunteer fire departments. They run on a shoestring and they provide a valuable public service. An informed citizenry makes better decisions about government, no matter where you stand on the political spectrum. Where else can you watch local government in action? Or your kid’s band concert? Or church services? Where else can the Kiwanis advertise their next fundraising dinner for free? Yes, some PEG programs are cheesy, or heaven forbid boring, but I don’t hear people praising the intellectual qualities of "Fear Factor."

Chances are, your PEG channel is a cooperative effort with your school district, so kids learn video production there, learning life-long communication skills and perhaps even growing up to make the next "Chad Vader" or Mystery Science Theater 3000. Rep. Montgomery rolled his eyes at yet another PEG producer giving testimony about the "wonderful" high school programs they produce, but he also said his 17-year-old son made shows at his local PEG station. Sorry, son, they’re gone.

PEG is the raw feed of your community, goofy or not. Or would you prefer to read the pre-chewed version in your local newspaper or watch the 30 second summary from a talking head who wasn’t there, if you’re in a city big enough to have that?

I’m willing to weigh the burdens of negotiating a franchise agreement. The proponents of this bill suggest that the franchise process is an unfair obstacle to entry. TV4US repeats that a new video provider would need to negotiate with 1,850 towns, villages and cities in Wisconsin. Again with the spin. They damn well know perhaps only 300 have any franchise now.

In reality, AT&T could offer their product to the greatest number of customers by negotiating franchise agreements with less than one-one-hundredth of the 1,850. Hit Milwaukee, Madison and the Fox Valley, and that’s most ‘Sconsinites, aina? And that’s what AT&T plans to do - cherry-pick the most profitable spots. Jefferson won’t see it for a long time. I’d be happier if AT&T could figure out a way to deliver DSL to more than half the town. It doesn’t now.

From the perspective of a video provider like AT&T, they will be spending millions of dollars to enter a new market, hiring subcontractors, launching marketing campaigns. They’re complaining about the cost of sending one more middle manager to a city to hammer out a franchise contract that’s probably 99.8% the same as the last one. Sure, their lawyer will review it. It’s not rocket science. It is a tiny, relatively inexpensive task in a much bigger process. The bill wants to eliminate local control of franchises. It wants to simplify the process so much that the state Department of Financial Institutions (DFI) can’t even reject an state-wide franchise application or even make a rule to change the process.

From the perspective of a city, they’re accustomed to retaining local control over decisions over who gets to dig up their streets and fasten boxes and wires to their poles. AT&T’s U-verse / Project Lightspeed brings high-capacity fiber optic connections to your neighborhood in the form of a fridge-sized box for every 200-300 homes. They pose questions of safety and visibility, not to mention the digging. If there was one in front of your house or at the street corner where your kids cross, I bet you'd like your City Hall to have a say about it. With the bill as-is, they don't. No one would, except AT&T. Who’s in charge when the AT&T backhoe hits a sewer pipe? Madison or City Hall?

Competition? Lower prices? Doesn't everyone welcome that? I still haven't met a single person who says they're opposed to competition and choices. Level the playing field? Sure, why not. Except for those closet-sized AT&T boxes at first base and third base that we can't control.

To me, satellite is an apples-and-oranges comparison. They don’t pay a franchise fee because they aren’t using our public right-of-way. They don’t carry PEG channels. For years, the cable companies have actively supported PEG channels because it gives them an edge in selling their product. They’re local content with broad appeal. If you want to watch your kid’s band concert or the city council meeting, you need cable. What’s not to like? On the other hand, cable companies have also complained about franchise and PEG fees, because a smart consumer might realize that $30-a-month satellite doesn’t include the franchise and PEG taxes they’d get with $30-a-month cable.

City reps spoke at the hearing to complain about the loss of local control in the bill. The Dept. of Consumer Protection reps were there to tell the lawmakers that the bill erases existing consumer rights and protections, like getting a refund if your service goes out for four days. This bill - as-is - throws out several babies with the bathwater. Let’s hope it’s heavily amended to protect important local controls, not kill PEG, and preserve consumer rights.

Rep. Montgomery said there were lots of "gets and puts" with AT&T but given the language and loopholes in the bill, it's hard to imagine how that was done. When AT&T asked for the clause that said that DFI couldn't reject any application for any reason, or to ever make a rule to control a franchise, what exactly was Montgomery's response? Did he think it would be a good idea to eliminate existing consumer protections? When AT&T asked for a half-dozen excuses to never carry an existing PEG channel, what exactly was the give and take? Over and over I imagined an AT&T lobbyist slipping a pre-written bill into Montgomery's coat pocket along with a campaign contribution.

It was scary to hear Rep. Montgomery laugh about how he'd first learned what YouTube was just a few weeks ago. We can't expect every lawmaker to be smart about technology, but I think we should expect them to seek experienced advice. I don't know how any guy from Ashwabenon can be expected to understand a century of telecom law, but he does seem confident that he's smart enough to write a law that'll undo decades of complicated and subtle court precedents, hundreds of contracts made between cable providers and cities, eliminate existing consumer protections, and decimate PEG channels all around the state.