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February 8, 2007

Testimony Before Georgia Legislature Regarding Video Franchise Regulations


Witness: Tom Giovanetti
Testimony Date 02/08/2007
Body of Congress: Georgia State Legislature
At the Request of:

Testimony Subject:
Video Franchise Regulations


Mr. Chairman, and members of the committee, thank you for this opportunity to speak to the bill before you today.

My name is Tom Giovanetti, and I am the president of the Institute for Policy Innovation (IPI), a 20 year-old nonprofit public policy think tank located in Dallas, Texas.

We do not lobby, and we do not represent either companies or trade associations. We provide unbiased, nonpartisan analysis and recommendations on policy issues, including technology issues.

I’d like to share with you some reasons why we think this kind of modernization of Georgia’s regulations will be good for Georgia and good for Georgia consumers. I’d like to tell you a little bit about our experience in Texas.

Some are concerned that, without build-out requirements, rural areas, small towns, and historically underserved markets will be neglected by the new video providers. I’ll tell you a personal story that should allay your fears regarding a lack of build-out requirements.

I live in a small town of 350 people in rural Texas called Copper Canyon. In my town, cable TV has never been offered by the cable companies, and DSL has never been offered by the phone companies. In other words, we are in a historically underserved market for communications services.

But about 3 months ago, I got a phone call from Verizon saying that their new fiber optic broadband network, FiOS, was available in Copper Canyon.

Now this was not a great surprise, as I had been watching Verizon trenching, laying cable, and installing switches for about 9 months, and had been eagerly waiting for the day when I would get this call. We signed up immediately.

The benefits of true broadband are terrific. We homeschool my 9 year-old son, and he is now watching streaming science videos over the Internet. I am able to work at home more, because the connection I can get to my office server is just as fast from home as it is sitting in my office. We get amazing bandwidth, webbrowsing speed, and very fast file transfers. It’s terrific.

Verizon was out just 2 days after we signed up to begin installation. Because I live in a rural area, Verizon had to trench almost 900 feet to get the fiber optic cable to my house. I’m guessing that Verizon spent at least $3,000 in man-hours, equipment time, etc. doing the installation, yet there was no install fee, and I even got a discount for the first three months of service.

Within 5 days of signing up, we had service. Within 15 days of signing up, Verizon had sent a crew out to put down new sod where they had trenched.
My neighbors have had a similar experience.

Now, this is not the behavior we are accustomed to from our stereotypical monopolistic phone companies.

No, instead we have a company identifying a new, underserved market, jumping in and making a sizeable investment in order to serve that market, and delivering good customer service.

That is the kind of behavior you would expect from a competitive company in a competitive market. That’s not the kind of behavior you would expect from a stereotypical monopoly.

There’s a reason for that. These companies aren’t monopolies anymore. Technology has made possible competition in area that was once thought to be a natural monopoly. And the companies are embracing competition.

Today, phone companies and cable companies are aggressive, competitive organizations that are jumping through hoops to attract customers. They are investing in new networks, new products and services. They are not just in the rate case business anymore.

But while the communications marketplace has changed, communications regulation is still largely based on the bad old days of monopoly.

The rationale for regulation was monopoly. If government was going to hand a monopoly to someone, it makes sense to subject them to intense oversight and regulation.

But competition is and always has been the best regulator. In the old days, we didn’t have competition in video services, but today we do.

You can, of course, get television from a cable company. In addition, you can get it from not just one, but two different satellite companies. Additionally, XM and Sirius both are going to be moving into the video market soon, which will give consumers several more choices for video. And now the telecom companies like Verizon, AT&T and Qwest can also offer video.

It’s clear that video is no longer a monopoly marketplace. In an age where the market has transitioned from monopoly to competition, it’s time for state regulations to be modernized and to reflect the new competitive environment, rather than being stuck in the past.

If we don’t have local video monopolies anymore, there is no longer a reason for the kind of local monopoly control and regulation that too many of our laws still reflect.

Today there are too many barriers to entry for companies that want to being offering video services to Georgia consumers. The same was true in Texas.

That’s why Texas streamlined its video franchise system in 2005, and the results have been significant. A recent study by RVA Render & Associates estimates that there may be as much as $1 billion in new investment in Texas. Virginia has seen many hundreds of new jobs created. Indiana, New Jersey, California, Connecticut, Kansas and Michigan have all seen similar results.

And all those numbers are just for direct investment. They do not include all of the new business that will fall to the other industries that provide inputs and receive outputs from these companies.

Everywhere I have spoken or testified about the merits of streamlining the video franchise process, consumer groups and local municipalities have opposed the reform, and have predicted all sorts of problems. Well, it’s been done in a number of states, and this fear-mongering has simply proven false.

In fact, what has happened has been of tremendous benefit to states.

As legislators, you are already familiar with the idea that you are in competition with other states. When a company is looking to build a new manufacturing plant, or is looking to move their headquarters, you compete with other states. You try to sweeten the deal, because you want those jobs for Georgia. You want that investment.

Well, you are just as much in competition for investment capital as you are for new manufacturing. There is a limited pool of communications investment capital, and it is going to go to those states where the environment is most hospitable.

If Georgia wants to be competitive with other states like Texas, Indiana, California, Virginia, and North and South Carolina, which have already streamlined their video franchise laws, Georgia needs to do the same.

I’ve studied this piece of legislation, and I think it gets it just about right. It’s only right and fair, for instance, to allow incumbent cable providers to be able to immediately opt-in to the new statewide franchise system, to ensure a fair playing field. It’s also good that you have limited the demand for PEG channels.

One concern I have, and that I think you should have, has to do with the franchise fee. In the latest draft of the legislation that I have seen, the bill calls for franchise fees statewide to be raised to 5%. Since many of your munipalities currently have franchise fees that are below 5%, this is in effect a tax increase on Georgia taxpayers. There is no need for this stealth tax increase. I would hope that someone among you would propose a slight change in the language of the bill that could cap franchise fees at 5%, but that would not mandate that franchise fees be raised statewide.

Finally, I would ask you to act soon. Last year Florida considered a similar proposal, but as their legislative session neared an end, the bill got tied up and lost in the midst of some kind of leadership politics.

As a result, Florida lost hundreds of millions of dollars in new investment, and lost the creation of hundreds of new jobs.

It’s important for Georgia to bring its communications laws in sync with the changes that have occurred in the communications market, and to do so as soon as possible, so that Georgia begins to experience the benefits that are being seen by eleven other states.

Thank you.


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