April 2000
Cable, Internet Access and the Commonwealth: Evaluating The Ballot Initiative's Impact on Government and Consumers
By Stuart N. Brotman

B. Government Costs of Commercial Dispute Resolution

At its core, the ballot initiative will involve every local municipality in the Commonwealth where cable television service is offered -- a total of 353 cities and towns. Local government, as well as the Massachusetts Department of Telecommunications and Energy, will have their powers expanded to oversee a compulsory commercial restructuring of the cable industry.

The ballot initiative is not self-enforcing; to the contrary, it will increase the role of Commonwealth cities and towns in regulating commercial operations of cable television systems. Such regulation will cover the full life cycle of a cable system. Any time a new cable franchise is granted or an existing franchise renewed, extended modified or transferred, individual municipalities will be compelled by law to conduct official proceedings to ensure that the ballot initiative's requirements are met.

What might this mean in practical terms? First, because there are hundreds of Massachusetts communities involved in local cable regulation, it means that every municipality will have to make decisions based on the merits of the individual franchise situations they confront. By its nature, the ballot initiative cannot produce anything but "crazy quilt" results because regulatory decisions are bound to vary from community to community, as they do in other areas of local control such as education and property taxation.

From a business standpoint, no Internet Service Provider (ISP) would be able to operate in a commercially stable manner unless and until it had a final ruling from a city or town regarding the terms and conditions for its doing business on a cable system. Moreover, ISPs would continuously monitor the "open access" process to make sure that government prevented any other ISP from a negotiating a different deal with the cable system operator. In effect, cities and towns would involuntarily become enforcement agencies for commercial disputes. Although the specific costs of such enforcement will differ by community, there is no escaping the fact that someone will have to pay for these enforcement activities.

Under the ballot initiative, there is no natural limit regarding how many proceedings an individual community might face in order to resolve commercial disputes among ISPs. Currently, within Massachusetts, there are hundreds of companies offering Internet access to residential customers. In Boston, Worcester, Brookline, Newton, Springfield, Pittsfield and scores of other communities, it is easy to project that at least ten ISPs might become parties to any "open access" proceeding.

Each of these parties would be supported by substantial internal and external resources, such as legal and accounting services, to ensure that they received a fair hearing at the municipal level. And for any that were not satisfied with the outcome there, due process would allow them to appeal any adverse decision through the courts.²

Cities and towns inevitably will need to spend money to support these proceedings. Although some may expand the workload of their staffs, the technical nature of the proceedings, coupled by the likely volume of them, makes it more likely that communities will have to hire outside resources, such as legal counsel, to handle an expanded regulatory caseload. Given this reality, hard dollar choices will have to be made regarding how much money will be needed to support vigorous enforcement of commercial rights that, in other areas of business, typically are litigated by private parties.

Virtually every local community in Massachusetts will have to increase the budgets of their cable franchising authorities through direct taxation of residents, including the nearly one-third of each community's population that, on average, refuses to connect their households to cable television service of any kind. Alternatively, instead of passing on the regulatory costs to taxpayers, cities and towns could choose to reallocate their budgets internally to account for any shortfalls that might arise. In other words, budgets for other city services would be used to subsidize regulation of cable ISPs, a public policy choice that few voters might opt for if they were confronted with the price tag for implementing the ballot initiative. To date, no proponent of the initiative has addressed the real nature of financial risks that individual Commonwealth communities would need to bear.

As Professor Thomas D. Hopkins of the Rochester Institute of Technology has noted, "Ultimately, all regulatory burdens are borne by individuals in their varied roles as consumers, taxpayers, workers and investors. . . . Regulation is a powerful but poorly measured shifter of resources. It causes consumers and businesses to spend a good deal of their money in ways they do not freely choose, and the consequences of this coerced spending are a mixed blessing."³

"Open access" thus would involve opening our collective wallets and checkbooks. The nature and magnitude of this risk has been understated or ignored by ballot initiative proponents, but in the end, the bill to cover the costs of new and frequent regulatory enforcement will be presented for payment by taxpayers in one form or another.

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