February 15, 2006: Public Knowledge President Gigi B. Sohn testified
before the U.S. Senate Committee on Commerce, Science &
Transportation hearing on the subject of “Video Franchising”

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Testimony of Gigi B. Sohn
President, Public Knowledge

Before the
U.S. Senate Committee on Commerce, Science & Transportation

Oversight Hearing On:
“Video Franchising”

Washington, DC
February 15, 2006

Chairman Stevens, Co-Chairman Inouye and other members of the
Committee, my name is Gigi B. Sohn. I am President of Public
Knowledge, a nonprofit public interest organization that addresses
the public’s stake in the convergence of communications policy
and intellectual property law. Public Knowledge promotes fundamental
democratic principles and cultural values — openness, access,
and the capacity to create and compete — that must be given
new embodiment in the digital age. I thank the Committee for
inviting me to testify on video franchising issues.¹

Introduction and Summary

Public Knowledge believes that competition provides consumers with
the widest choice of video services at the lowest prices. While the
local franchising model produced many important benefits over the
past 40 years, it also created disadvantages both for incumbent and
competitive video service providers.

Today, new market conditions require another approach. If consumers
are to reap the benefits of competition, then Congress should create
a national franchise for video service providers. We believe that,
subject to certain conditions that preserve the best features of
local franchises, permitting broadband video providers to avoid
negotiating thousands of individual franchise agreements will bring
more competition to market faster, resulting in greater consumer
choice and lower prices.

A national franchise also provides huge benefits to new broadband
video service providers. These benefits include enormous cost
savings and greater speed bringing services to market. The one step
process of a national franchise would be a dramatic change from the
way we have regulated video services for the past four decades.

As we undertake this discussion of video franchises, we must
recognize that we are not only talking about a service — we
are talking about a technology and transport mechanism with
capabilities far beyond ordinary video programming services. The
decisions Congress makes regarding video regulation will impact the
rollout of new, sophisticated broadband conduits that will carry not
only video, but also data and telephone services. Rather than
splitting hairs, or hair-thin fiber, Congress should recognize that
it is opening the way not only for video into the home, but for
advanced broadband offerings.

While considering the franchise issue, we suggest Congress balance
the tremendous benefits that a national franchise would give to
broadband video service providers with a requirement that those
companies make their networks available to all applications, content
and service providers on a non-discriminatory basis. This “net
neutrality” requirement will ensure, in light of recent legal
and policy changes, that the broadband Internet remains the most
powerful engine of economic growth, education and communication on
the planet.

A National Franchise Would Benefit Consumers

It is no mystery that more competition leads to lower prices and
greater choice in the multichannel video market. According to a
recent FCC report, average cable rates for basic and expanded basic
service were 15.7% lower than in communities with a competing
wireline overbuilder compared to those communities without a
wireline overbuilder.² Similarly, in
communities with a competing wireline overbuilder, the number of
channels on basic and expanded basic increased by 4% in 2003 and by
5.5% for the period of July 1998-2004.³

Somewhat more surprising, however, is the severe lack of robust
video competition, or at least what the FCC considers
“effective” competition.⁴ According to
the most recent video competition order, only 3.7% of areas served
by cable meet the standard for effective competition based on the
Commission’s four-part test.⁵

A national franchise regime would quickly bring the benefits of
competition to consumers, because competitive video providers would
avoid thousands of individual negotiations with localities. We
already see the consumer benefits, in price and choice, in the brief
rollout of Verizon’s FiOS service. For example, a recent Bank
of America analysis showed that in each of the three markets where
Verizon has rolled out its service, incumbent cable operators have
offered consumers prices far lower than their previously advertised
prices. If, as discussed below, Congress maintains the best features
of local franchising while implementing a national franchise regime,
there is no good policy reason to keep this competitive benefit away
from consumers nationwide. Nor is there any good policy reason not
to prohibit incumbent video service providers from benefiting from
this streamlined process after their current agreements have
expired.

The Best Features of Local Franchising Should Be Retained

Should Congress choose to adopt a national franchise, it should
retain some of the important and best features of local franchises.
First, it should ensure that localities remain empowered to protect
their streets and their citizens, and that they receive compensation
for the grant of the franchise. Localities should have control over
their rights of way for public safety or zoning purposes, and they
should retain the ability to enforce consumer protection standards.
However, these powers should not be used to recreate the
local franchise agreement by permitting localities to make demands
of broadband video service providers that go beyond those narrow
purposes.⁶

Second, Congress should require that broadband video service
providers make adequate capacity available for public, educational
and governmental uses, including institutional networks for local
public safety. This capacity should, at a minimum, be no less than
what the incumbent cable operator already provides.

Third, Congress should use the national franchise process to promote
the goal of universal access to broadband. As discussed below, new
broadband video service is interrelated to broadband Internet
service. Thus, any mechanism that speeds access to broadband video
service would also help speed access to broadband Internet service.
This is a vital goal in a country which is ranked 16^th in
broadband adoption worldwide.

A Net Neutrality Requirement Should be Part of Any Effort to Codify
National Franchising

While this hearing is intended to be limited to the relatively
narrow issue of franchising for new broadband video services, I
would urge this Committee to view broadband video not as a wholly
separate entity, but as just one piece of telephone and cable
companies’ larger broadband network offerings.
AT&T’s Project Lightspeed service is delivered over its
broadband network, and Verizon’s FiOS video service is
delivered through the same pipe as its broadband Internet service
(albeit via a different laser). Indeed, both companies are making no
distinction between their video, voice and data services, and
instead are marketing their services as broadband services that are
wholly different from traditional cable. Here is how Verizon CEO
Ivan Seidenberg described his company’s broadband offerings to
the National Association of Broadcasters last year:

We also are the first communications company to make a major
commitment to taking fiber all the way to homes and businesses.
This network, which we call FiOS, delivers super-fast data and
Internet access at speeds of up to 30 megabits downstream and 5
megabits upstream. Our system will deliver 100 megabits downstream
and up to 15 megabits upstream… making FiOS the fastest,
most interactive network being deployed in America today. …

Both of these next-generation networks [FiOS and Verizon’s
wireless broadband network] are setting a new standard for
broadband services in America. They provide a common protocol and
a common infrastructure for voice, data and video services. They
link to all kinds of interactive devices — anywhere,
anytime. They are built for multi-tasking, and they enable a whole
new generation of innovative services — from voice-over-IP
to video messaging to multi-player games, shopping, interactive
learning and lots of others.

Similarly, AT&T Executive Vice President Lea Ann Champion told
the House Commerce Committee:

In short, we are not building a cable network, nor do we have any
interest in being a cable company offering traditional cable
service. Instead, we intend to offer customers a new total
communications experience, one that they can customize to suit
their families’ needs and tastes.

Skeptics may say that we have been talking about media
“convergence” for the past 20 years, but as Mr.
Seidenberg’s speech suggests, that convergence is happening,
and it is happening now. Anyone who attended the International
Consumer Electronics show saw currently available technologies, that
blur the lines between broadcast, cable, and Internet video. The day
when a consumer will not be able to distinguish whether her video
service came from traditional cable or the Internet is fast
approaching — and many would say it is already here.

Therefore, should Congress grant video providers the extraordinary
regulatory relief represented by national broadband video franchises
— turning nearly 40 years of local control of video services
on its head — Congress must also ensure “net
neutrality.” Net neutrality requires the broadband Internet
pipe to remain open to all applications and services, including
video, on a non-discriminatory basis.⁷ The Internet
has become an extraordinarily popular engine of innovation, social
networking and commerce because of, not in spite of, an enforceable
obligation. That obligation required network providers to keep their
networks open to all consumers, applications, content and service
providers. Recent Supreme Court and FCC rulings defining broadband
networks as unregulated “information services” removed
that obligation. As a result, broadband network operators now have
the same authority as traditional cable systems to control the
content, services and equipment consumers receive or use, and to
favor content and services in which they have a financial interest.
And because the telephone and cable operators who own nearly all
broadband networks in this country are what Consumer Federation of
America Research Director Mark Cooper calls a “dynamic
duopoly,” they have the ability and the incentive to abuse
that authority to the detriment of competitors and consumers.

Opponents of net neutrality claim that it is a “solution in
search of a problem.” But the search for a problem is brief
when Executives of two of the largest broadband network providers
announces publicly that his company intends to discriminate.
AT&T CEO Ed Whitacre’s statement to Business Week that
“for Google or Yahoo! or Vonage or anybody to expect to use
[AT&T’s broadband] pipes for free is nuts,” is now
legend. Similarly, Verizon Executive Vice President John
Thorne’s statement last week that Google’s “free
lunch”, i.e., free transport over broadband networks,
is about to end,⁸ demonstrates a very real intent to
discriminate.

Moreover, in a white paper that Public Knowledge released last week,
we document not only instances of blocking and degradation of
certain applications and content by network providers, but also show
that technologies are being marketed to network providers for such
purposes. The white paper, entitled
“Good Fences Make Bad Broadband: Preserving an Open Internet
Through Net Neutrality” is appended to this testimony.

Opponents also claim that codification of “net
neutrality” will lead to burdensome regulation that will
stifle investment in broadband. But reserving the openness of the
Internet and preventing it from become a closed system can be
accomplished with a light regulatory touch. Public Knowledge
believes that such a requirement should be very straightforward
— preventing blocking or other degradation of content,
application or services — while allowing network providers to
handle legitimate legal, security and traffic issues. The FCC could
enforce this requirement through a complaint process started by an
aggrieved consumer, application, content or service
provider.⁹ Under Public Knowledge’s plan,
the network provider would bear the burden of showing that it either
did not discriminate or that it discriminated for the legitimate
reasons set out above. And any application, content or service that
is the subject of the complaint would remain unimpaired until the
matter is resolved.

Telephone and cable companies will derive enormous benefits from a
national franchise for video services. Companies will realize
significant cost savings by avoiding expensive individual franchise
agreement negotiations. Equally significant will be cost savings
such as flat franchise fees and freedom from other financial
obligations often provided for in franchise agreements. This one
step process is a radical change from the way we have regulated
video services over the past forty years. Congress should balance
this benefit with a requirement that these very same companies make
their broadband pipes available to all applications, content and
service providers without discrimination or degradation.

Conclusion

In our increasingly broadband communications world, a national
franchise for video services will expedite competition to the
benefit of consumers. But a national franchise without a concurrent
“net neutrality” obligation will give consumers far less
than what they have come to expect in this new world. Thus, we urge
this Committee and this Congress to balance any national franchise
relief with a requirement that ensures that broadband networks are
not subject to discriminatory gatekeepers. I thank you for inviting
me to testify today, and I look forward to any questions you might
have.

Appendix

Public Knowledge Whitepaper:
“Good Fences Make Bad Broadband: Preserving an Open Internet
Through Net Neutrality.”

1 I would like to thank Public Knowledge
interns Neil Chilson and Mike Larmoyeux for their assistance in
researching and drafting this testimony.

2 See Report on Cable Industry
Prices, 20 FCC Rcd 2718, 2721, at ¶12 (2005).

3 Id at ¶11.

4 “Effective competition exists where
the Commission has found that a multi-channel video programming
distributor (“MVPD”) meets one of the four tests
within its franchise area: (1) fewer than 30% of households
subscribe to service of the cable system (the “low
penetration test”); (2) at least two MVPDs serve 50% or more
of households and at least 15% of those households takes service
other than from the largest MVPD (the “overbuild
test”); (3) a municipal MVPD offers service to at least 50%
of households (the “municipal test”); (4) a local
exchange carrier or its affiliate (or any MVPD using the
facilities of the LEC or its affiliate) offers video programming
service other than DBS comparable to the service of an
unaffiliated MVPD (the “LEC test”). In re
Implementation of Section 3 of the Cable Television Consumer
Protection and Competition Act of 1992, 20 FCC Rcd 3485 at n.
3 (2005).

5 Since a cable operator must affirmatively
seek certification from the FCC of the existence of effective
competition, these numbers do not reflect the actual number of
communities that might meet the test. However, even if the
FCC’s numbers were multiplied by a factor of ten, nearly two
thirds of the nation’s areas served by cable would still
lack effective competition. In any event, we would ask the
Committee to rectify this lack of data by requiring that the FCC
undertake a study to determine how many cable service areas are
subject to effective competition. Two of the current FCC
Commissioners have noted this lack of data. Report on Cable
Industry Prices, 20 FCC Rcd at 2753-4 (Joint Statement of
Commissioners Michael J. Copps and Jonathan Adelstein, concurring)
(“the Commission gathers less than adequate data and
conducts less analysis than it did even a few years ago.”).

6 Public Knowledge believes that such local
authority should mirror the narrowly tailored character of section
253 of the Communications Act. Section 253 preempts local
regulation of telecommunication franchises, but provides specific
exceptions including permission to “manage the public
rights-of-way.” 47 U.S.C. § 253. Various local
franchise authorities have interpreted these exceptions as broad
grants of authority, but the courts have consistently denied such
interpretations. See generally TCG New York, Inc. v. White
Plains, 305 F.3d 67 (2d Cir. 2002) (holding that a city
ordinance permitting local authorities to reject an application
based on any “public interest factors” was preempted
by § 253). Instead, courts have generally required all
regulations to be substantially related to the management of
rights-of-way. Id. at 81-82. Additionally, local
authorities may only levy fines, penalties and other sanctions to
preserve the public welfare. Auburn v. Qwest Corp., 260
F.3d 1160 (9th Cir. 2001). Similarly specific and narrow local
authority for video franchises will preserve the purposes of a
national franchise yet enable appropriate local participation.

7 Public Knowledge is not advocating
“net neutrality” for video services regulated solely
under Title VI of the Communications Act.

8 Arshad Mohammed, “Verizon Executive
Calls for End to Google’s ‘Free Lunch’,
Washington Post, February 7, 2005 at D1.

9 “What we need instead of
‘anticipatory’ regulation is a market-driven approach.
This does not mean that there is no role for government.
It’s simply an updated role. Instead of attempting to
anticipate how the market will develop and then write the rules
governing that market, government empowers consumers to shape the
market and thereby set the rules of the game. Government is not on
the field calling the plays, or is it writing the rules. Instead,
it fills a referee-like role, observing the field of play,
responding to complaints from any of the players, and addressing
cases of market failure.”