Vying to Guard the Superhighway’s Gate

Nov 14, 2005  •  Post A Comment

This past June in Walnut Creek, Calif., an affluent community south of San Francisco, a city employee driving to a job site observed workers on a truck with a cherry picker blocking a bike path. That was a violation of city law unless the crew had an “encroachment” permit. So he stopped and inquired.

The linemen, employees of SBC Communications, were stringing cable for Project Lightspeed, the telephone giant’s multibillion-dollar initiative to offer upgraded voice, data and video services in 13 states by next year. The crew did not have the necessary local permit.

Walnut Creek officials told SBC work had to stop until the company was in compliance. Paul Valle-Riestra, Walnut Creek’s senior assistant city attorney, said that when SBC applied for the permit, the city told the company it would issue the permit only if SBC agreed that video services offered under Project Lightspeed would be subject to local franchising regulations, as cable TV was.

SBC declined and appealed to the city council, saying it was not required to seek local regulatory approval. The Texas-based phone giant explained that it planned to use Internet protocol television technology-like voice service a two-way medium-to deliver video, so as with voice service, it was not obligated to meet franchise requirements. SBC also took the position that telephone companies historically have not had to pay for right of way to put in poles, lines and other equipment for voice service, and that leeway now should extend to video services as well. The telco also complained that cable voice services have not had to deal with the same regulations that telcos face.

Despite intense lobbying, Walnut Creek’s city council denied SBC’s appeal Oct. 18. SBC is said to now be considering either a lawsuit or just building around Walnut Creek.

Another option for SBC is to hope one of several bills before Congress becomes law. These bills, pushed hard and in some cases written by telco lobbyists, would shift regulation of broadband service providers from local municipalities to state and federal government-which public-interest groups say is a formula for disaster. Such a move would likely mean an end to public access channels and other services in many areas. The Federal Communications Commission, under whose purview a federal system would likely fall, is already swamped. Imagine where a local customer’s problem would fall in that pile.

The telcos’ entrance into video should be welcomed because additional competition will result in lower prices for consumers, said Michael Balmoris, executive director of public affairs at SBC Services in Washington. He cites a study by the Government Accountability Office showing that existing cable operators lower prices by an average of 15 percent once a telco enters the market. “Our position on franchising,” Mr. Balmoris said, “is that the rules which were formulated for the cable monopoly period no longer make policy sense.”

The telcos are spending unprecedented amounts on lobbying at every level of government to ensure they can move quickly into video. If you don’t believe the telcos can muscle their way in, consider Texas. Despite a huge lobbying effort earlier this year in which the 150 legislators in Austin were outnumbered by telco lobbyists, the first effort at deregulation was defeated. It took a special session called just for that purpose by the governor to approve a bill that allows for statewide franchising. During the 2004 election cycle, Texas Gov. Rick Perry received $126,200 from the SBC political action committee, according to watchdog organization Texans for Public Justice. The group said SBC was the biggest-spending lobbyist in Texas last year, with 123 lobbyists working for fees totaling $6.8 million. Second place went to Verizon, which paid 38 lobbyists $1.8 million. By comparison, the opposing Texas Cable and Telecommunications Association paid 11 lobbyists $685,000, and opponent Time Warner paid 14 lobbyists $505,000.

“Their position seems to be, ‘We don’t play by the existing rules,'” said Ron Cooper of the public-interest group Access Sacramento, based in the California capital. “Instead they say, ‘We want new rules. We want it the way we want it.'”

The telco-backed bill given the best chance of passage is called BITS (broadband Internet transmission services), and it is now before the House telecommunications subcommittee, which held a hearing last week. One key aspect of the bill is that it would basically deregulate new broadband services delivered over the Internet while keeping controls on cable TV, at least as long as current franchises are in effect.

The bill is opposed by broadcasters, cable and various consumer activists. However, that doesn’t mean it won’t pass.

Thanks in part to consolidation, the remaining wired telcos-mainly Verizon, SBC and BellSouth-are huge business enterprises. With the encroachment of cable into the voice business, the telcos have recognized they are now in a life-and-death struggle for survival. To win in today’s marketplace, media competitors must deliver the “quadruple play”: voice, data, video and wireless services.

A top cable executive testified before the House subcommittee that the bill as written would give telcos an unfair advantage over cable, even though they would deliver similar content and services. “There are two dangers with having the government picking technology winners and losers, particularly in a field as dynamic as communications: The initial technology choice may be wrong, and government cannot anticipate what’s around the corner,” said Michael Willner, president and CEO of Insight Communications.

At stake is who will be the toll-gatekeeper and captain of content as we travel down the electronic superhighway of the future. The stakes are huge for the players, investors and consumers, and the issue of censorship could play a central role. This handful of privately owned companies have new power over who gets access to their networks in the wake of the Brand X case, in which the Supreme Court affirmed the right of a cable operator to control what goes over its pipeline.

The 1996 deregulation brought lower prices and spurred investment, but then led to consolidation that brought higher prices. With each wave, a handful of companies get bigger and some investors get richer. But when community control of media is taken away, the local consumer is the real loser. And ultimately, we are all local consumers.