Internet service franchises offer local governments potential work around to incumbent-sponsored state video franchises

Mediacom questions Iowa City deal with ImOn | The Gazette: Jeff Janssen, vice president of sales and marketing with ImOn Communications, said Tuesday he had not seen the Mediacom letter, but said ImOn has lease agreements similar those with Iowa City in other communities like Hiawatha and Marion.

Janssen also noted a franchise agreement only becomes required when cable TV is added to the list of service offerings. ImOn’s current plans for Iowa City are strictly for telephone and Internet services, he said.

“Franchise agreements are all around cable TV,” he said. “Once we decide, or if we decided to offer cable TV in Iowa City, we would get that franchise agreement, we are required to.”

This issue was bound to emerge sooner or later. In the early 2000s, legacy incumbent telephone and cable companies realized that with the emergence of the Internet and its capability to deliver TV programming, local governments would come under intense pressure from their constituents to require ISPs offering video services to provide Internet connections to all premises under municipal franchise agreements. That would have required substantial capital investment incompatible with the incumbents' business models based on milking their existing wireline "footprints" -- and not modernizing and expanding them to reach every doorstep.

To head off this prospect, the legacy incumbent cable and telephone company lobbies went into high gear to get state laws enacted putting states in charge of so-called "video franchises" and usurping local government authority over video services.

But that left a potential loophole for local governments to franchise Internet services other than video -- what's at issue in this Iowa case. Watch for this gambit to take off elsewhere, especially in states where there are also laws barring local governments from building and/or operating their own Internet services. Local governments could get around both restrictions by creating Internet service franchises and partnering with private ISPs as their franchisees. (Also referred to as "telecommunications franchises" in this item on a recent Brookings Institution panel discussion). They could also pressure the legacy incumbent telephone and cable companies by requiring them to obtain an Internet service franchise serving all premises if they wish to offer Internet services other than video within their jurisdictions.

With interest in wireline-delivered video declining among "cord cutting" consumers and incumbents relying more on Internet service for revenue, that pressure could be quite intense. It would also give localities a powerful tool to bring service to all of their residents and businesses given the U.S. Federal Communications Commission's lack of interest in enforcing its recently adopted rulemaking reclassifying Internet as a common carrier telecommunications service subject to the universal service and anti-redlining provisions of Title II of the Communications Act.