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Federal agencies say competition often lowers costs to the consumer by up to 40 percent

Bay City to Consider New Franchise to Get Cable TV Service from AT&T

Lawrence Tech Study Projects Huge Savings to Consumer Through Video Reform

May 25, 2008       Leave a Comment
By: Dave Rogers

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AT&T is planning to file a franchise application to provide cable television service in Bay City in competition with Charter Communications, according to City Manager Robert V. Belleman.

"I am excited that AT&T will offer competitive services to our residents and provide cable customers another choice," said Mr. Belleman in his general information memo dated May 23.

Mr. Belleman noted he had met with Gavin Goetz, local manager of AT&T, regarding the firm's plans for Bay City. The City Commission has amended its ordinance to regulate placement of cable TV boxes and other equipment, noted Mr. Belleman.

A study in 2006 by Lawrence Technological University, Southfield, showed that competitive cable TV could save Michigan consumers up to $673 million a year. And, federal agencies said competition often lowers costs by up to 40 percent.

A key provision in a new state law allowing the AT&T and other competitive franchises is for a 2 percent fee to be paid to the franchising municipality. It is not known how that provision will work in Bay City and how much revenue would be generated.

The city no longer receives revenue from Charter under revised state legislation while in previous years it received substantial amounts annually.

Questions remain about the city's education-governmental cable service provided through Bay3TV. The service is operated by the Bay City Public Schools and provides educational and governmental programming on Charter Cable Channel 3. The service is supported by annual grants from the city, Bay County and the Bay City School District.

Bay City is talking with AT&T about a franchise for its U-Verse technology and services, that promises video services and remote access to a digital video recorder (DVR) via the web and other unique features.

The competitive thrust by AT&T is not without controversy as the firm seeks to make installations in some of the 1,100 Michigan communities.

A host of disputes have arisen in the past year and a half since AT&T announced a plan to invest $620 million in technology and hire about 2,000 employees to run the new system.

The expansion by AT&T and other phone companies was approved in House Bill 6456 that was passed by the Michigan Legislature in November, 2006.

Cascade Township, near Grand Rapids, has adopted a new Video Service Right-of-Way ordinance aimed at controlling installation of video service equipment.

Township officials were concerned that residents would object to the large equipment boxes that AT&T uses for the service. The boxes are often placed in the public right-of-way in homeowners' front yards.

A study by the Professional Development Center (PDC) at Lawrence Technological University, Southfield, concludes that more competition for broadband service would improve the business climate in Michigan and result in up to $673 million in annual savings for consumers.

The study, entitled "The Economic Impact of Comprehensive Video Franchising Reform: 2006," looked at the possible effect of state legislation that would enable companies to offer broadband services across the state without the delays and costs created by local franchising restrictions.

Better broadband access would give Michigan a more attractive business climate, increase consumer spending, and strengthen the state's existing role as a technology hub for the automotive industry, according to the Lawrence Tech study funded in part by a grant from Ball State University in Indiana.

Currently local government units grant cable providers virtual monopolies. As a result, in each municipality the cable provider avoids market competition when offering voice, data and video broadband services. Satellite companies compete to some degree on television service, and telephone companies can offer DSL service, but currently only cable companies can provide a complete broadband package, according to PDC Director Benjamin Benson, a professor at Lawrence Tech's College of Management.

"Cable providers do not battle in an open, unrestricted market to attract customers for voice, data and video broadband services," Benson said. "Statewide franchising would be an important step to smooth the peaks and valleys of that landscape by providing a fair and uniform framework for all Michigan communities."

Nationally only 3-4 percent of communities have a choice of cable providers, but about a dozen states have enacted or are considering statewide broadband franchising. In Texas, the adoption of statewide franchising in Texas resulted in an immediate 25 percent reduction in cable rates in some markets. One study predicted the Texas reforms will increase local franchise fee revenues by 20 percent.

Benson and the Lawrence Tech study's co-authors Eugene Epshteyn and Timothy Meloche argued, while legislation was being considered, that Michigan has the opportunity to get a jump on a regulatory trend that will eventually be adopted nationwide. Conversely, Michigan would fall behind other states in developing its technology infrastructure if the current regulatory process remains in place much longer.

According to the Lawrence Tech study, statewide franchising could save Michigan consumers between $269 million and $673 million a year. Increased availability and lower prices would encourage between 112,000 and 561,000 Michigan households "to become full members of the information age."

The U.S. General Accounting Office (GAO) found that cable rates decline, sometimes by as much as 40 percent, in markets with "wire line" competition. A Federal Communications Commission (FCC) survey found cable systems with monopolies charge 35 percent more per channel.

Michigan Public Service Commission members previously expressed the hope that greater competition would develop through 2008.

"While many parts of the state still do not have a choice when it comes to a video service provider, some communities now have a choice when it comes to a video service provider, some communities now have choices available to them, and that's a good start," said PSC Chair Orjiakor Isiogu.

The PSC report said that under the first year under PA 480, 2006, there were 39 companies offering video services in the state, with the largest being Comcast Cable Communications, Charter Communications and Wideopenwest Michigan. Last year there were more than 2.72 million cable customers in Michigan, not including satellite customers.

The PSC also called on the Legislature to expand the window during which a community has to approve a cable franchise agreement and to change the deadline for annual reports to be submitted from February 1 to April 1.

A Detroit law firm, Howard & Howard, that practices in the area of cable television, said that fewer than 110 of the nearly 2,000 communities in the state had cable competition, providing only one out of every 20 customers access to competitive companies. ###

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Dave Rogers

Dave Rogers is a former editorial writer for the Bay City Times and a widely read,
respected journalist/writer in and around Bay City.
(Contact Dave Via Email at carraroe@aol.com)

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