Sachs Warns of Telco Invasion

Dec 20, 2004  •  Post A Comment

Firing the opening salvo in what is expected to escalate into a full-blown regulatory war next year, Robert Sachs, president and CEO of the National Cable & Telecommunications Association, last week urged cable operators to fight the efforts of major phone companies to sidestep the local franchising obligations that apply to cable and get into the TV business.

“Cable operators must be vigilant about plans by phone companies to circumvent the local franchising process to gain unfair competitive advantage,” Mr. Sachs said in a speech to the Washington Metropolitan Cable Club.

The primary target on Mr. Sachs’ radar screen is SBC Communications. The mammoth Regional Bell Operating Co. recently announced that it is investing up to $6 billion to install a new fiber-optic network that will clear the way for the company to offer a bundled package of high-speed Internet access services, telephone services and cable TV programming to up to 18 million households within the next three years.

At the same time, Verizon, another huge regional Bell company that offers phone service in 29 states and the District of Columbia, recently announced plans to invest hundreds of millions of dollars to bring a cable-TV-compatible fiber network to 3 million homes in its service areas by the end of next year.

Earlier this month, BellSouth, another phone industry giant, announced its own plans to invest $2 billion within the next three years to bring fiber-optic networks within striking distance of 80 percent of the 13.8 million homes in its service territories. The company is already within striking distance for 46 percent of its homes.

“The cable and satellite industries need to take these announcements seriously,” Mr. Sachs said.

According to Mr. Sachs, the cable TV industry should be particularly concerned that SBC is arguing that it is free to offer cable TV services without a cable TV franchise. With no cable franchise, SBC would be free to “cherry-pick” and target only the most affluent customers in its service areas, Mr. Sachs said.

“Serving only high- and middle-income neighborhoods in a community is both discriminatory and anti-competitive,” he added.

But Mike Balmoris, an SBC spokesman, said the phone company plans to offer its TV service as an integrated Internet protocol-based service package of voice, video and data. IPTV, according to Mr. Balmoris, should be sheltered from regulation, as are the IP telephone services offered by cable systems-even though the IPTV service is said to be largely indistinguishable from traditional cable service to the consumer.

“When the cable folks argued that their IP phone services should be sheltered from traditional phone rules, we agreed,” Mr. Balmoris said. “It’s not surprising that the NCTA, whose members must face this potent competition, would argue that the new entrants must be saddled with legacy franchise regulations.”

Despite Mr. Sachs’ call to arms, the phone industry appeared to have at least one major ally in the cable industry. Brian Roberts, chairman of Comcast, recently said he believes all Internet protocol-based services should be subject to “an absolutely bare minimum of regulation.”

“Any unexplainable disparity in regulatory requirements is better resolved by eliminating the regulation in question for everyone,” Mr. Roberts said in a speech to the U.S. Telecom Association. “I ask you to join me in helping to unleash the power of competition … to use our energies not to pit government against each other, but toward building a rational, deregulatory telecommunications policy that benefits all of us.”

On the other hand, Verizon has announced it is seeking franchises for the more traditional form of cable TV service that it expects to start offering over its fiber networks next year.

“Given the service we want to provide out of the gate, we need to get franchise agreements,” said Sharon Cohen-Hagar, a Verizon spokesperson.

Still, the dispute over the new ground rules for the delivery of cable TV programming is expected to blow up on Capitol Hill next year, when Congress is slated to launch a major review of the nation’s telecommunications law.

“We’re now at the beginning of a huge battle between phone companies and cable as they prepare to invade each other’s markets,” said Chris Stern, an analyst for Medley Global Advisors. “This will be a focus of any rewrite of the Telecom Act.”

Industry sources said the phone industry’s new rush to video is being spurred in part by the fact that phone companies now have much of the fiber-optic network technology in place to clear the way for delivering the service economically.

In addition, consumers are increasingly demanding packages of services from their telecommunications providers that include cable TV, high-speed Internet access and telephone services, in part because a package offers the convenience of a single bill.

“We want to be able to offer the grand slam of services, and that includes local and long-distance phone service, high-speed Internet, Cingular wireless and a video component,” said Brent Fowler, a spokesman for BellSouth.

On a related note, Verizon last week announced an agreement clearing the way for it to distribute Discovery Communications’ 14 U.S.-based cable TV networks over Verizon’s new fiber-to-the-premises network-the first programming deal the phone company has announced.

As part of its own rollout plan, Verizon has negotiated cable franchises in Beaumont, Calif., and the Dallas suburb of Sachse, Texas.