After expressing support for a new franchise agreement that would bring Minneapolis its first competitive cable market, Council Member Andrew Johnson inadvertently explained why fewer and fewer residents might care.
Johnson, it appears, is one of the consumers who have cut the cable cord — using high-speed internet to stream programming and capturing network shows and sports via HD over-the-air antennae.
“That’s the wave of the future,” Johnson said. “That’s what a lot of people are going to do.” In fact, residents of Minneapolis who use traditional cable are in the minority. Comcast, the so-called incumbent provider, reports its market penetration at 40 percent to 45 percent.
Still, Johnson and 12 of the 13 council members on Friday decided to give CenturyLink permission to begin going after Comcast’s existing cable customers — and perhaps convince some cord-cutters to come back. The service that CenturyLink calls Prism, could start becoming available in June.
The Federal Communications Commission has found that “the presence of a second cable operator in a market results in rates approximately 15 percent lower than in areas without competition.”
Limited roll out
But which residents and how many will benefit from competition was the question that left at least one council member unable to support the franchise agreement. Elizabeth Glidden said she opposed it because she was disappointed that it doesn’t require the company to serve more of the city in its initial roll out. Glidden also said the agreement doesn’t give the city enough enforcement power to require CenturyLink to meet the terms.
Under the deal, CenturyLink agrees to reach just 15 percent of the city’s households within two years. It then agrees to increase that service zone when it captures 27.5 percent of customers in that zone.
“This is a tremendous moment in time,” Glidden said. “We have had one cable franchise in the city of Minneapolis for almost 40 years. As a resident I’m not happy about that.” But because this agreement will set a precedent, not only in Minneapolis but in other cities that will soon receive applications from CenturyLink, the city needs to get it right, she said.
“I’m not confident that we have done that,” she said.
Council Ways and Means Committee Chair John Quincy said he believes the agreement is a good deal for the city and its residents. “It is a unique opportunity, I think, for the city to lead other communities on the way to achieve greater competition. To achieve greater competition we have to be ready to take the first leap.”
How fast CenturyLink reaches the entire city was the No. 1 issue between it and the city as well as between CenturyLink Comcast. State law requires cable franchises to be available to all customers in the jurisdiction within five years. But CenturyLink — with the backing of recent Congressional and Federal Communications Commission decisions — argues that such a requirement is an illegal barrier to entry. That is, both Congress and the FCC have said that local governments cannot make it too burdensome and expensive for challengers to enter a market already served by an incumbent provider like Comcast.
The findings of fact presented to the council by city staff quotes from recent FCC rulings that mandatory build-out rules are likely a violation of federal law. “Because a second provider realistically cannot count on acquiring a share of the market similar to the incumbent’s share, the second entrant cannot justify a large initial deployment,” the FCC stated in 2007. “Rather, a new entrant must begin offering service within a smaller area to determine whether it can reasonably ensure a return on its investment before expanding.”
Council Member Jacob Frey said he thinks it is fair to have somewhat different terms for CenturyLink than for Comcast. When Comcast was given the first franchise in the 1970s with a requirement that it cover the whole city it had a virtual monopoly, assuring it that it would get a return on its large investment. A second entrant like CenturyLink has no guaranteed market but must wrest customers away from Comcast, Frey said.
“After 40 or 50 years of having the exact same results, I think it’s time to try something different to increase competition,” Frey said.
CenturyLink already offers telephone and high-speed internet to all or parts of the city. It is able to begin offering cable television over fiber-optic cable quickly because it already has those other systems in place. It has told the city that its specific roll-out plans are a trade secret and excised them from its application. It did agree to offer some service to all 13 wards and serve “a significant number of households below the median income of the city.”
That is a means of responding to concerns raised by some council members at previous hearings that the lack of a full build-out requirement could lead to the company cherry picking only wealthy neighborhoods that would be more likely to subscribe to expensive add-ons and extra services. Such redlining is illegal but Comcast repeatedly accused CenturyLink of doing so during its comments on the CenturyLink application.
Council Member Blong Yang, whose ward covers parts of North Minneapolis, said he has seen some of those trade secrets and is satisfied with how the company will serve all of the city.
Quincy repeated a belief stated in previous staff reports, that whatever decision the council reached it would be sued. “Either we are creating too-great a barrier for entry or we’re creating something that is in conflict with state law,” he said. That is, had the city required CenturyLink to reach the entire city in five years as state law requires, CenturyLink would have sued by citing federal rulings. And by allowing less than that, as it does in the agreement, Comcast is expected to sue under state law.
That’s why the agreement requires CenturyLink to cover all costs the city might face to defend a suit that might be filed against it by Comcast. Comcast’s vice president for corporate affairs, Mary Beth Schubert, didn’t respond directly to questions about prospective legal challenges. She did say the company was “disappointed that CenturyLink is not being held to the same terms and conditions as our existing agreement with the city.” She made reference to the less-than-full rollout requirements by saying Comcast would continue to invest in its network and offer its services, “ to every home in our service area, not just a few select neighborhoods. “
Next up in the cable wars is St. Paul, which is considering its own franchise agreement with CenturyLink.