In Franchise Fight, Telcos Tough to Beat

Mar 13, 2006  •  Post A Comment

A demonstration last week of strong House support for a proposal that would let phone companies bypass local regulation as they roll out TV services has put the cable TV industry on the defensive-with some key analysts predicting that the telephone industry campaign will be impossible to beat.

“I don’t believe [cable] can stop the telco train,” said Jeff Chester, executive director of the watchdog Center for Digital Democracy.

Added Blair Levin, an analyst for investment adviser Stifel Nicolaus, “The cable guys by themselves can’t kill it.”

Their argument is that the phone industry’s basic pitch-that easing the way for them to launch video operations will mean lower prices for consumers-has riveted the attention of lawmakers.

“The beauty of their case is it sounds like lower cable rates,” Mr. Levin said.

The cable TV industry will be hard pressed to argue against competition and deregulation, twin goals it has embraced for years, Mr. Chester said. “They can’t say, ‘Free markets for us but not for them,'” he said.

Added Mr. Levin: “[Phone companies] argue that [the local franchising obligation] might not be a brick wall, but it’s a big enough speed bump that it ought to be eliminated.”

The Cable Response

During a teleconference with reporters last week, National Cable & Telecommunications Association President and CEO Kyle McSlarrow said he was confident that cable’s call for revised legislation to ensure that the phone and cable companies compete on a level playing field will ultimately prevail.

“We obviously have our work cut out for us,” said Mr. McSlarrow, who blasted the proposal-a video franchise reform plan being spearheaded by Rep. Joe Barton, R-Texas-calling it a “sweetheart deal” for phone companies.

Under the proposal, cable companies would continue to be bound by existing franchise rules, which force them to negotiate with regulators in all the markets where they do business, Mr. McSlarrow said. Once phone companies or other competitors gain 15 percent of the TV subscribers in a market, cable operators also could bypass local authorities and be governed by national franchise regulations, he said.

Winning passage of a bill with those provisions would help companies like Verizon Communications catch up in the subscriber TV business, where companies including Comcast Corp. and Time Warner Cable currently dominate. The proposed legislation is expected to receive a committee vote as early as this week, Mr. McSlarrow said.

Another provision of the bill would require cable TV operators to offer customers the same prices throughout their territories, Mr. McSlarrow said. That provision would bar cable companies from raising prices in neighborhoods that aren’t subject to competition-making up for price cuts in neighborhoods where phone companies are rolling out video.

Mike Balmoris, a spokesman for AT&T, which has been promoting legislation to institute national franchising, said, “We’re not commenting on something we haven’t seen.” Spokesmen for Rep. Barton and Verizon declined comment.

Mr. McSlarrow said lawmakers familiar with Barton’s plan told him that under a nationally regulated franchise plan, telephone companies’ fees would be capped at 6 percent of revenue. The cap on local franchise fees is currently 5 percent of a cable operator’s revenue.

Mr. McSlarrow said the legislation as he understood it also would include a network neutrality provision barring cable TV operators and phone companies from using their power over broadband networks to discriminate against Internet content providers.