Telcos Get Calif. Dream

Telephone companies rang up a double regulatory win in California late last month.

Legislators approved a bill that will allow for the awarding of a statewide franchise to operate video systems. Utility regulators also approved reforms that will allow telcos to change prices more nimbly, in response to the rates of cable-telephony providers.

The franchising bill, AB2987, still needs the signature of Gov. Arnold Schwarzenegger. But the Republican has been a supporter of competition and greater broadband deployment.

The final bill does require new entrants to build out networks on a schedule, but that timetable does not mandate full deployment by a set date.

Large competitors that are deploying fiber infrastructure (i.e. Verizon Communications Inc.) are mandated to reach 25% of their telephone customers in two years, and 40% in five years. Internet-based video providers (such as AT&T Inc.) must reach 35% of its market in three years, and 50% in five years. One quarter of the consumers passed must be low income, defined in the bill as households with $35,000 or less in annual income.

There is an escape clause. If a telephone company achieves less than 30% penetration within three years, it can petition for hearings to determine if the lack of success is due to outside factors, such as lack of access to multiple-dwelling units. If those outside factors are verified, the telco can get relief from buildout requirements.

State executives from Verizon and AT&T noted their expansion into video is bringing new jobs to the state. Verizon West Region president Tim McCallion added that state franchising would accelerate the deployment of his company's fiber optic network.

Cable incumbents have commissioned an independent analysis of the bill to determine exactly how it will affect support for public, educational and government channels, franchise fees and other business areas, said California Cable & Telecommunicatiosn Association president Dennis Mangers.

“This [bill] does represent a major shift,” said Mangers. “Everyone recognizes the need for follow-up legislation” for issues that may arise as regulation shifts from a local to a state model.

Verizon, AT&T and bundled-services providers SureWest Communications Inc. and Frontier Communications also will benefit from the Aug. 24 Public Utility Commission decision to give landline providers more flexibility in how they price services.

The PUC froze basic telephone rates until Jan. 1, 2009, because they are tied to social programs such as “California Lifeline,” a discount program for low-income households, which are still under review.

The commission said other providers, such as cable companies, are providing competition in the market. Therefore, incumbent landline providers need more flexibility in pricing of voice products, bundling options and promotions in order to compete on equal footing.

The PUC eliminated oversight proceedings on new rates; now, the companies can give 30-day notice before changing telephone-service pricing.

PUC commissioner John Bohn said the agency retains authority and will step in should it recognize “market abuses or other anti-competitive behavior.”