Telcos Take Their Case to the Feds

Jun 13, 2005  •  Post A Comment

Frustrated by state and local regulations that impede the rapid rollout of video services, the nation’s biggest phone companies have taken their case to Washington, where they are finding some support.

In a potential boost to telephone industry efforts to compete with cable and satellite television services, Sen. Ted Stevens, R-Alaska, said last week that he would be open to considering legislation that could allow phone companies to avoid having to negotiate individual franchise service area agreements with thousands of local communities and state governments.

“It appears to us now that we ought to think about some kind of a national solution,” Sen. Stevens said.

New Federal Communications Commission Chairman Kevin Martin also lent support to the same proposal last week. “It’s a problem,” Mr. Martin told reporters. “Local franchising obligation requirements might impede their ability to come in and provide a competitive alternative for video services. … It’s critical and important for us to try to make sure that anyone else who wants to come in and provide an alternative video service has the opportunity to do that.”

Their comments come in the wake of the defeat of legislation in Texas at the end of May that would have allowed any cable or video provider to get statewide permission to offer television services instead of having to gain approvals from every city in the state. The bill, pushed for by SBC Communications and Verizon Communications in particular, passed the Texas House of Representatives, but the state Senate was unable to reach a deal on a compromise that would have allowed it to become law. Most of the Texas cable industry opposed the bill.

Sen. Stevens, chairman of the powerful Senate Commerce Committee, made his remarks during a speech to a group of lawyers in Washington last week. “This is a problem, really, in terms of 30,000 local franchises that would be necessary for each [Regional] Bell [Operating Company] to enter the video marketplace,” Sen. Stevens said. “That could be very costly and, really, ultimately kill competition, but it’s also going to increase the price considerably to the consumer.”

Continued Sen. Stevens: “We are going to look at generally the role of states across the board and when state regulation makes sense and when it becomes an unnecessary burden not only to the industry but to consumers.”

Said Tim McKone, SBC senior VP of federal relations, “Sen. Stevens rightly identified the franchising process as a fundamental barrier to consumers getting meaningful competitive video choice.”

Cable TV industry officials have maintained that current law requires phone companies to get the same authority from local government franchising authorities that incumbent cable TV operators have-no matter what technology the phone companies use to offer their own television services. Executives at SBC have said they intend to use IPTV, or Internet protocol television, to deliver their new video service, which in most cases will be bundled to consumers along with voice and high-speed-data service. They argue that should not be regulated the same as existing cable services.

Verizon plans to offer its video services using both conventional cable technology and eventually an IPTV system. It has previously acknowledged the need to get franchise agreements in each city, though like SBC it has complained local franchise obligations are frustrating the rapid roll out of video services.

Surprisingly, the telcos also got qualified support from the cable TV industry, though there is clearly a larger agenda as well for cable. In a speech last week Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association, said his group would probably support a new approach to franchising regulations-as long as the resulting regulatory obligations applied across the board to all competitors. In other words, they would support it if the result was relief from local regulation for cable TV as well.

“The existing federal framework allocates some regulatory tasks to the FCC, some to state government and some to local governments,” Mr. McSlarrow said in a speech to the Washington Metropolitan Cable Club. “It is time to take a fresh look at that division of labor in light of the new technology.”

Under one possible reallocation of authority suggested by Mr. McSlarrow, local governments could continue regulating where cable lays its wires. “But transfers and renewals in a competitive video environment might make less sense on a hamlet-by-hamlet basis,” he said.

Mr. McSlarrow also said all players providing multichannel services-including direct broadcast satellite and telephone companies-should be subject to the same regulatory obligations. “Fair competition also requires that like services pay equivalent fees and taxes,” he said.

One big issue is over universal service. City franchise agreements with cable typically require the multiple system operator to treat all areas of the city the same in terms of wiring, installation and service. Some telcos have indicated that they only want to offer the new services in the most affluent communities, where profits would be higher.

Despite the telcos’ plans, local franchising authorities are expected to fight vigorously to protect their turf. In a June 9 letter to Sen. Stevens and other key lawmakers, Donald Borut, executive director of the National League of Cities, said nationalizing the cable TV franchising process would “cause chaos in our streets across the country.”

“Allegations that local permission is difficult to acquire are not accurate,” Mr. Borut continued. “The franchising process is open and quick for those companies that do not seek to use the process to cherry-pick who they will serve or obtain a regulatory advantage over their competitors. Cities stand by their obligation to ensure all similar services are treated the same.”

Separately, Microsoft last week acknowledged that the software that is expected to make IPTV broadcasting possible is not going to be ready as soon as expected. As a result SCM, a Swiss company, and SBC said they will have to delay the widespread rollout of IPTV services. SBC said it still plans to launch its Lightspeed service in at least one U.S. market by the end of this year.

Among the problems IPTV must still solve: a way for viewers to record off one channel while watching another and how to let multiple users in the same household watch shows on more than one TV set.

Alex Ben Block contributed to this report.