The U.S. Conference of Mayors has some bad ideas regarding the regulation of local cable.

On January 25, the U.S. Conference of Mayors sent an open letter to members of the U.S. House and Senate committees currently debating changes to the Telecommunications Act of 1996. The letter suggests many of the country’s mayors aren’t ready for reform.

Build-Out Requirements

The mayors’ letter called for “reasonable ‘build out’ requirements for providers” so cable companies and their new competitors do not “bypass less profitable neighborhoods.” Build-out requirements force cable companies to build networks that serve every neighborhood before they are allowed to serve one. The mayors want to impose this requirement on new entrants in the video marketplace such as telephone and wireless providers.

This is misplaced egalitarianism and will slow, rather than accelerate, the deployment of new communications systems. More than 96 percent of all households are already connected to a cable network. New entrants are most likely to invest in communities if they are allowed to serve market niches based on their content, price, technology, or other unique selling propositions.

Build-out requirements may once have made sense, when franchise agreements delivered exclusive access to customers, so cable companies could pass along the cost of building citywide networks to their captive consumers. But because franchises no longer create such monopolies, build-out requirements are a major barrier to entry for companies both large and small seeking to serve communities. They ought to be repealed.

Franchise Authority

The mayors claimed “preserving local franchise authority ensures that key services for our citizens and businesses are tailored to meet local needs, including public, education and government access channels, local emergency alerts and institutional networks.”

There are approximately 33,000 local video franchise agreements in place today, costing each household an average of about $37 a year. Some of these dollars go toward public access television studios, but much is spent on perks for local elected officials or public services unrelated to telecommunications.

There is nothing keeping mayors from using locally generated tax revenues to pay for these things, or financing them out of the 5 percent franchise fee that franchise reform proposals typically promise. What mayors actually fear is having to go to voters to defend the many perks and projects that are now quietly funded by cable subscribers through their franchise fees.

Like build-out requirements, local franchises pose a major barrier to investment in new communications systems. Telephone companies want to roll out their new video services nationwide, but fear it will take years or even decades to negotiate 33,000 separate agreements with municipalities.

Smart public officials, like those in Texas, are replacing local franchising authority with streamlined state franchises. A strong case can be made for going even further and adopting a federal franchising process, or abolishing the franchising process altogether.

Municipal Broadband

Finally, the mayors asked Congress to “allow local governments … to develop municipal broadband networks either through public-private partnerships or systems wholly owned by the municipality.” In other words, let local governments run their own cable, telephone, or broadband systems in competition with private companies.

In past cases where municipalities have launched their own municipal communications systems, the pattern has been cost overruns, loans from other units of government, and annual losses paid for by taxpayers. There has been a disturbing lack of transparency as local officials conceal the size of these losses from their own taxpayers and voters.

It is certainly within the power of state governments to tell local units of government not to put taxpayers at risk by “playing entrepreneur” in this risky and competitive line of business. Whether Congress should ban municipal communications networks is less clear.

If the nation’s mayors want to retain their freedom in this arena, they should begin by using it more responsibly. Money-losing utilities should be closed or sold, not subsidized, and financial records ought to be accurate and made available to the public and outside researchers. Until these things happen, Congress is wise to consider a ban on new municipal communications systems.

Much at Stake

Although the issues may seem arcane, consumers and taxpayers have much at stake in the debate over national communications policy. Technological change makes it possible for competitive markets to replace government-created monopolies, promising to expand choices, improve service, and lower prices. Obsolete laws, many of them imposed at the local level, need to be revised or repealed in order to allow this new competition to take place.

The nation’s mayors should put their residents’ long-term interests ahead of their own short-term and parochial interests. The U.S. Conference of Mayors’ letter suggests a reluctance to do this, meaning Congress or state legislatures may have to do it for them.

Intellectual Conservative