PK's testimony on "Video Franchising"

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”

This testimony is also available in PDF Format

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.”