Preferential treatment

Memory Lane

The short-story writer Dorothy Parker once famously labeled Los Angeles “72 suburbs in search of a city,” and she was right. The city’s legendary lack of center holds true today, and was certainly the case in 1982, when Los Angeles was in the early phases of a complicated plan to wire the city for cable television service.

In homage to the sprawl of a city whose population was larger than that of most states, Los Angeles city officials had divided the city’s terrain into a patchwork of cable franchises areas. In the same way that early American explorers once used the pathways of rivers to establish natural boundaries between territories, Los Angeles used freeways and streets to establish the geography of its cable franchises. A narrow east-west strip roughly tracking Wilshire Blvd. made up the presumably lucrative franchise that encompassed West Los Angeles and Hollywood. To the north, over the Santa Monica Mountains, the city’s San Fernando Valley was divided into two roughly equal chunks, East and West, with U.S. Interstate 405 representing a dividing line.

Owing partly to the magnitude of the project and the city’s unusual sense of geography, Los Angeles was later to the cable franchising game than many large U.S. cities. It was grinding away steadily at the task when, in October of 1982, the city published an advertisement soliciting bids for a north-south stretch of the city encompassing some of the most economically blighted neighborhoods in Los Angeles. The so-called South Central franchise ran through communities like Compton and Watts that were worlds away from the glamour of the mid-Wilshire corridor. Getting investment backing and attracting enough subscribers to make the franchise pay off could be daunting, the city realized. Even so, city officials tacked on an additional demand: Local investors had to be part of any application.

Two local entrepreneurs thought enough of the South Central franchise to prepare to file. They were brothers with the last name of Galloway, and the company they founded to apply for the South Central franchise, Preferred Communications Inc., has long disappeared. But unbeknownst to them, the pair would end up redrawing some long-held assumptions about the industry and its supposed legal protection from competitive challenges.

The Galloway brothers almost immediately ran into the murky underbelly of cable franchising. Quickly, they learned an unspoken reality: Getting the South Central franchise would require getting cozy with the right people who had the right connections with powerful city officials, including Los Angeles Mayor Tom Bradley. “Our guys were told by the Mayor that if they wanted to be in the cable business, they had to get in bed with these other guys and give them a piece of the action,” said the attorney Harold Farrow in a 1990 interview conducted by The Cable Center. The Galloway brothers refused to play ball. The result: “They didn’t get the franchise,” Farrow said.

That might have been that, except for the fact that Farrow stumbled on to the story of the two brothers. A cantankerous, stubborn son of a Dallas cop, Farrow’s practice both represented cable companies and occasionally challenged them. Farrow, who died in 2001, was a First Amendment purist who believed that in the Preferred case, he had the perfect vehicle to argue for something he’d long believed: that the common practice of granting a single cable franchise to a single provider represented the worst sort of government-coddled, anti-competitive monopoly. Representing the Galloways, Farrow lost badly in District Court, which dismissed the duo’s complaints on antitrust and First Amendment grounds. But on appeal to the U.S. Circuit Court for the Ninth District, Farrow won a key ruling: the court found Preferred’s First Amendment rights were violated by the city’s refusal to grant a second cable franchise “when there was sufficient excess physical and economic capacity to accommodate more than one.” That ruling set the stage for Farrow’s appearance before the U.S. Supreme Court, which had (surprisingly to Farrow) accept the city’s appeal. On June 2, 1986, the Supreme Court ruled unanimously to uphold the circuit court’s reversal.

The Preferred case certainly didn’t usher in a new era of cable competition overnight. But 20 years later, it seems oddly prescient. Statewide and market-by-market cable franchise victories won by the likes of Verizon and AT&T have turned a vision of competitive wireline video services into a reality. AT&T, in fact, has begun to introduce its U-verse IPTV video service in Los Angeles. That’s exactly the competitive result Harold Farrow wanted. And always preferred.

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