Decision Frees Cable Companies to Pursue State-Issued Franchises

Texas cable companies can break any contracts they have with cities and opt for state-issued deals instead, after the U.S. Supreme Court declined to hear an appeal of a lower court’s ruling that a 2005 Texas law was unconstitutional.

The high court’s Monday decision not to hear the case affirmed a 5th U.S. Circuit Court of Appeals ruling that Senate Bill 5 — which permitted phone companies like AT&T and Verizon to negotiate larger television franchises issued by the state — was unconstitutional because it discriminated against cable companies. Cable companies had been required to negotiate franchises with individual cities.

Because of a state law passed last year, the majority of television franchises in Texas will not be affected by the change. But the decision is still a symbolic victory for cable companies, said Kirsten Voinis, a spokeswoman for the Texas Cable Association.

Although the court had rejected the law, state Rep. Phil King, R-Weatherford, the House sponsor of the measure, said the court affirmed the law’s spirit by promoting competition in the cable market. 

“It was designed to bring competition into the cable TV-cable video market,” King said of SB 5. Now, he added, all cable companies in Texas “can fully opt into the competition.”

But Voinis said the law was not necessary to foster competition, adding that it only created a “competitive disadvantage” for cable companies.

“There was no barrier to AT&T or Verizon or anybody else for coming into the market and competing with us under the same terms we were competing [under],” she said. 

Voinis also cited the unfairness of the law, saying, “All video providers should be treated the same.”

Last June, the Legislature passed Senate Bill 1087, which allowed cable companies to break their agreements in cities with populations below 215,000. Now only four city franchises — Dallas, Corpus Christi, Irving and Lubbock — were still affected by the new ruling.

All of those “legacy contracts” would have expired in a few years anyway, King said.

“I really don’t think it’s that big a deal at this point,” he said. “But what I think it really did is I think it really further affirmed SB 5 by ruling that all cable companies in all Texas cities can avail themselves fully of the competitive market.”

Voinis said that although this week's decision may only affect a few contracts, it is significant in setting a precedent of how business is conducted.

“We felt it was important even after the law was passed last session to pursue this — to get it legally declared that this way of doing business was unconstitutional, that it was discriminatory,” she said.

The law was passed when AT&T and Verizon expressed interest in entering the television market — it was the first law of its kind in the nation and challenged by TCA and Time Warner Cable the day after it was passed. 

The law was successful in making the cable TV and video market more competitive, King said, noting that it has been replicated in several other states. But, Voinis said, when other states implemented similar laws, they allowed companies with existing municipal contracts to opt out of them and negotiate state-issued ones instead.

“Other states,” she said, “have kind of learned from Texas.”