NATOA's Mallard: Access Fight's Not Done
Linda Haugsted and Joe Estrella -- Multichannel News, 9/9/2001 6:00:00 PM MT
As the end of his term as president of the National Association of Telecommunications Officers and Advisors approaches on Sept. 9, Ron Mallard has seen three local jurisdictions lose major open-access cases against cable operators. In the latest, the U.S. Court of Appeals for the Fourth Circuit struck down an open-access ordinance in Henrico County, Va., sending the matter to the Federal Communications Commission. It will be up to the FCC, rather than local governments, to decide whether Internet-service providers can piggyback onto cable's high-speed platform. Undeterred, Mallard — who doubles as director of telecommunication and consumer services in Fairfax County, Va. — believes the fight is not over. Nor does he believe that open access will be the dominant municipal issue going forward. His concerns include rights-of-way management, compensation for access to public property, the impact of industry consolidation on customer service and the threat that MSOs may pass along to consumers a more-than-a ppropriate share of the fees they pay to local franchising authorities. Mallard spoke recently with Multichannel News West Coast senior editor Linda Haugsted and former senior editor Joe Estrella on these and other topics. An edited transcript follows:
MCN: Let's start with the obvious question: Now that the Fourth Circuit has joined with the Ninth Circuit in ruling in favor of cable operators on open access, is this now officially a dead issue?
Ron Mallard: The Fourth Circuit and the Ninth Circuit obviously arrived at two different conclusions in terms of how to define Internet access via cable modems. So the issue is still alive, and it still needs resolution. The good point we find in the Henrico decision is that the judges did not argue the classification of Internet access via a cable platform, and instead said its the proper domain and jurisdiction of the FCC. Recognizing that the agency had filed an amicus brief in the case — and had begun a proceeding on whether Internet access is a cable, telecommunications or information service — they deferred to the FCC to make that decision. The Ninth Circuit, by contrast, went so far as to define Internet access over cable as a telecommunications service.
So we have the Ninth Circuit, which says it's a telecom service, and the Fourth Circuit saying it's a cable service. It's clearly the responsibility of the FCC to step forward and make the determination. While the proceedings are slow moving, I would hope that these two [court] decisions will pressure the FCC to move faster and bring that notice of inquiry into the final stages of rule making.
MCN: For almost three years, the FCC has refused to step in and require open access. Is there any reason to believe that the agency won't simply find a way to avoid requiring operators to unbundle their networks?
Mallard: The FCC has taken the position over the last several years that the issue of open access is going to resolve itself through market forces. I can remember hearing [former FCC] chairman [William] Kennard mention on numerous occasions that this was an issue that the market would take care of in due course. Will the FCC step forward and say that local governments can mandate open access as part of local franchising? I'd say you can slice and dice the answer to that in different ways. There's the question of whether a cable company has to provide two ISPs — or three ISPs — upon demand by customers. Or does it have to act as a common carrier for any ISP that requests an opportunity to provide service?
The FCC has an opportunity to say that this is not a standard common-carrier service, and that everything doesn't have to fit into the square and round holes fashioned in the 1996 Telecommunications Act or FCC regulations. I would hope they would look at this issue with an eye toward finding a reasonable compromise, meaning that open access could be satisfied by requiring that a cable provider offer two or three ISPs, rather than an infinite number.
On the other hand, it may be true that the attitude of chairman [Michael] Powell and the other new Republican commissioners is to minimize regulation. They could take the same position that the FCC has taken in recent years by just not acting on whether local jurisdictions can demand open access. And what if they call it an information service? Do common-carrier rules apply, or do cable rules apply? If it's an information service, it may require something different from the standard common-carrier rules that apply to phone companies, and maybe something different from the closed platforms preferred by cable companies. So they have an opportunity to find an answer that doesn't fit into one of those neat categories.
MCN: With several MSOs conducting open-access trials, does any court or FCC decision really matter? Hasn't the train left the station?
Mallard: What would concern NATOA and local jurisdictions across the country is whether a community will benefit if it doesn't have one of those companies that is inclined to provide access to multiple ISPs. So the answer is one that must still be provided by the FCC because it may well remain a problem for a number of jurisdictions. Where there is a high demand for multiple ISPs, and the incumbent operator chooses not to provide it, then there is a requirement for regulatory action to decide whether local jurisdictions have any authority to impose a requirement for multiple ISPs.
MCN: With the issue squarely in the FCC's hands, what role do you see NATOA playing in the agency's deliberations?
Mallard: We've already begun by filing initial and reply comments. It's our intent to continue in these proceedings as long as the door remains open to further argument. But clearly, NATOA has a very big interest in this subject. We'll be there, and we'll be represented, hopefully along with sister organizations like the National League of Cities, the U.S. Conference of Mayors and perhaps some new coalitions that have yet to be struck.
MCN: Throughout these proceedings, have you felt like federal regulators have given short shrift to the authority of local franchising authorities?
Mallard: I would characterize the decisions coming out of the FCC in recent years as being a mixed bag in terms of benefits to cities. Weighing it on a scale, the balance may be slightly in favor of the industry on a number of decisions. But we've had our opportunities, made our best cases, and we've won some and lost some.
It does concern me more that the new chairman and new Republican majority on the commission, who favor deregulation, have shown a tendency to advocate a more industry-sensitive position, as well as some of the leadership in the House and Senate. The good news is that the Senate has reverted back to the Democrats, and Sen. [Ernest] Hollings will hopefully have a perspective that is more supportive of local government issues.
MCN: There's a sense that a lot of cities have been overly passive on open access, that they've sat back and allowed Portland [Ore.], Broward County [Fla.] and Henrico to carry the ball, while waiting to see if local franchising authorities had jurisdiction. Do you believe that's true?
Mallard: A lot of local franchising authorities are strongly supportive, but limited in their ability to provide expertise on some of these telecom issues, which can be very complex. The membership of NATOA, NLC and other national associations that represent cities are made up of large cities and small cities. The large cities have more of a capacity to intervene and be more active in the fight. For a lot of small cities, the technical expertise is not there. And a lot of those cities know they're being represented by the National Association of Telecommunications Officers and Advisors, or one of the other associations they belong to. I think it's appropriate function of their national association to carry the banner.
MCN: If the FCC takes a pass on open access, do you think cities will lobby their state legislators for a law similar to the one enacted in Illinois, which requires the telcos to speed the deployment of digital subscriber line service, thereby giving consumers additional choices?
Mallard: I'm not familiar with the legislation you're referring to, but I applaud it. It does have the option of providing choice to cable subscribers. I would think it will be a state-by-state thing. Obviously, the proof is in the pudding as to whether the telcos respond and roll out DSL more quickly, but I think other states will be watching to determine if it's an appropriate course of action in their respective states.
The other thing that goes hand in hand with that is a recognition by the telephone companies that they have an incredible opportunity to deploy DSL more quickly, and [to] compete effectively with cable-modem service. That's especially true in this phase that we're in where competition from overbuilders has hit a lull. Put those to pieces together — legislation that requires DSL deployment and market forces that make it a wise decision — and it would be foolish not take advantage of market conditions that make it possible to compete more favorably on Internet-access services.
MCN: As to the role cable-system overbuilders can play in bringing competition to a community, should cities look at doing everything possible to bring in a competitor, including easing franchise requirements?
Mallard: Let me give you a qualified answer. Should we do everything we can? I think there's a lot of concern about the overbuild community right now. Whether it's the WINs [Western Integrated Networks], the WOWs [WideOpenWest LLC] or RCN [Corp.], and probably a number of others, there are pluses and minus in dealing with the overbuild industry. How local governments go about encouraging and providing an environment that is favorable for these overbuilders to operate in is a tough question.
One of our concerns is that many cities have struck franchise agreements with overbuilders to come in and build out their cities in full competition with the incumbents. But with the venture-capital markets drying up, a lot of those overbuilders are having to either to withdraw from their ambitious plans, or in some cases are folding. The dilemma that creates for local governments is an overbuild system that might be a third build and serving only a high-density area.
If the local government allows that condition to stand, then it's really allowing a [non-level] playing field, and a disadvantage to an incumbent that has invested mega-millions in building the initial [plant], and then [the] upgraded fiber-optic system. You can't ignore the major investment that the incumbents have made in a community.
But if we all recognize that in the long run, competition is beneficial for consumers and the industry, then we have to find a way to encourage the continued development of the overbuilders, but under conditions that recognize the tough economic times they're facing right now.
MCN: What's your take on Comcast Corp.'s bid for AT&T Broadband? What's the upside and downside for local franchising authorities? Do you think it's going to trigger a new round of industry consolidation?
Mallard: First of all, I recognize that the buildout of these new hybrid fiber-optic systems is a very expensive proposition. And a lot of the companies that were doing it very aggressively when capital was much more readily available are finding it much more difficult to continue without some kind of restructuring or merger. The price tag is absolutely staggering. So on the one hand, it's understandable why these mergers are happening.
The Comcast proposal for AT&T Broadband is probably going to be followed by a number of others. But it does not bode well for customers, because if the industry is in a position where it has to engage in these mergers and acquisitions, then we've obviously eliminated the one thing that was envisioned by the 1996 Telecommunications Act: a more competitive environment for voice, video and data services. Cities are concerned that it will lead to higher rates, that customer-service standards will be employed by the merged companies that may not be consistent with what's envisioned by the community, or what was originally negotiated.
While these deals provide the ability to develop the infrastructure to offer high-speed Internet access, digital services and a host of other things, it also puts these large combined Comcast/AT&T-type companies in the position of dominating the market and not having to immediately provide these services that are expected by citizens. They're only going to do that if it's beneficial for the company. That's one of the things that's so frustrating for citizens. They don't like being part of a captive audience belonging to one particular provider.
I would hope the FCC and Congress will find way to refine the Telecommunications Act and the agency's rules and regulations to encourage increased competition again.
MCN: If completed, the Comcast-AT&T deal will mean another massive round of transfer requests. Are cities starting to complain about the cost involved with the constant flipping of these cable systems?
Mallard: Candidly, the cost of the transfers has not been as much of a burden as have the processes that government has to go through. I think the major consideration is that a transfer brings in a company that presumably has the financial capability to operate the system, under the conditions of the previous franchise. A transfer is pretty much a simple decision as to whether or not the new company is willing and able to live up to the obligations of the previous franchise holder.
MCN: Now that open access isn't dominating the agenda anymore, what are some of the hot-button issues on which NATOA will focus in the future?
Mallard: Rights-of-way management is right there at the top. Compensation for use of the rights of way is another. To manage the rights of way, we have to have reasonable compensation. It's a trust that government holds in terms of management of public property, and private users have to pay the cost. Our sense is that given a choice, cities will make reasonable decisions on what are appropriate fees for use of public rights of way.
Also, customer-service problems are pretty rampant throughout the industry. A lot of it has to do with consolidation, the overbuilds, and a host of other transitions the industry is going through right now. But clearly customer service is near the top of the list. NATOA is about to launch a study to determine how severe this problem is. The FCC provides minimum standards, but that doesn't take care of everything.
And forever a problem are rate increases in a noncompetitive environment. It's going to continue to be the norm. We've seen legislative initiatives to reinstitute rate regulation. I'm not terribly enamored with the idea, but I would say if the competitive environment Congress envisioned doesn't evolve soon, we're going to have to take a look at some kind of rate regulation in the interim.
Another big issue for a number of franchising authorities is going to be overbuilders who don't have the financial capability to build their systems out any more, so either they're going to need an extension of time or some special consideration, or they're going to fail.
And certainly the responsibility of local franchising authorities is to guard against the increasing gap that we call the digital divide. A lot of it stems from the lesser competition we're seeing in the market, and which will continue if there's no competitive overbuilders to force the incumbents to build their systems to underserved or unserved areas of the community.
MCN: Do cities feel like they're losing control of their rights of way?
Mallard: Absolutely. It's because of the repeated construction by telecom providers. That can be an overbuilder, or incumbent operators upgrading or CLECs building connections for the business community. In Fairfax County, at last count, there were 22 companies that had existing permits to work in the rights of way. But it creates a blight on the community, and therein lies a problem for local officials because citizens are complaining [that] the streets are being torn up, communities are being disturbed and there's traffic congestion.
In some cities, including Washington, D.C., for a while, some streets were virtually impassable because so much construction was going on. And there's safety problems with that. It can be open trenches that are not marked properly, loose cable that's not properly stored, electronic pedestals that should be secured but aren't, and sites not properly marked causing traffic disruptions or accidents. It's an issue that hits home, and prompts people to call local officials, who have to find a way to manage these rights of way.
It appears we have sufficient statutory authority to manage rights of way. But we also have a prohibition against presenting obstacles that are barriers to the buildout of these telecom systems. Fairfax County is using a novel approach to better management: We have the industry involved in the identification of some of the solution. Ultimately, we're trying to structure an agreement with telecom companies and utilities to oversee and coordinate their operations so that you open a trench one time, provide enough conduit for other companies to come in later, then close that trench and you don't open it for two, three or four years.
Lastly, it's an expensive proposition to maintain an inspection service that makes sure that this activity is being done with reasonable standards. The other piece is that with those inspection services comes a cost to local governments, and telecom providers should be the ones to pay for it, since they're the ones using public property for private purposes.
MCN: Some believe the next big issue to watch is the Pasadena, Calif., complaint to the FCC about Charter Communications Inc.'s business practices in that city. It's an issue that's also come up with respect to Comcast in Montgomery County, Md. Some believe it could have a major affect on consumers if Comcast acquires AT&T Broadband. Do you agree?
Mallard: The greatest impact of the case is the potential impact to consumers. Pasadena complained [to the FCC] that its cable company, Charter, was passing along the franchise fee on non-subscriber revenues to customers. In essence, they were making customers pay the franchise fee on revenues the company was receiving from advertisers. That makes no sense.
If there is a franchise fee on services, it should be paid by users of the service. Fees on non-subscriber revenues should not be the responsibility of customers. When the FCC finally gets around to answering the Pasadena petition, we would hope that the agency will be sensitive to the fact that Charter subscribers are paying an unreasonable franchise fee on revenues the operator receives from advertisers. This has been put off too long by the FCC.
From NATOA's point of view, it's not a very complicated issue.
MCN: As NATOA comes out of what's been described as its teenage years, how do you see its future relationship with other national organizations like the League of Cities or the U.S. Conference of Mayors?
Mallard: Interesting analogy that we're exiting our teenage years. We have hopefully ventured into adulthood, and I hope we're taking leadership responsibility. I think NATOA feels that we're taking the lead on telecommunications issues, and [we're] representing local governments with all the necessary technical expertise required in that complex arena. We would hope to continue to hone our relationship with the National League of Cities, National Association of Counties, the U.S. Conference of Mayors and some other organizations to better coordinate our energies better. And in cases where we can take a strong leadership or coordinating role, we think that's appropriate. In the area of telecommunications, and the regulations that are so important to franchising authorities around the country, we're hoping that other national associations recognize our 20-year history of being the technical experts in this area.
MCN: How do you envision NATOA's future membership structure?
Mallard: We haven't peaked in terms of the number of jurisdictions that can belong to NATOA. Hopefully, we just have to continue to do a good job in recruiting cities. We have encouraged areas of the country that don't have NATOA chapters to create them.
Two years ago, I led the charge to develop the Virginia Association of Telecommunications Officers and Advisors, and get it chartered as a chapter under NATOA's umbrella. We need to do that so we can have stronger representation in all areas of the country. We're going to slowly but surely increase our membership, thereby increasing our ability to be a more effective influence before the FCC and in Congress.
