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My Turn

Don’t Weep for Verizon

12/15/2006 5:34 AM

I think it’s safe to say now that Verizon is serious about being a multichannel-video provider.

I could be late to this conclusion. Maybe because I started at this magazine writing about TeleTV and Americast and other grand telco video invasions that sputtered. If the names don’t sound familiar, well, there you go.

But Verizon has gone out and signed franchise agreements with, by its own last count, 248 municipalities in nine states. Indiana, Texas, California and New Jersey have conceptually approved statewide video franchises. Last week, Verizon announced plans to take on Comcast and others head-to-head in the Philadelphia market and in Delaware. Sharon Cohen-Hagar, a Verizon corporate communicator, said that some weeks it seems like new franchises are being announced daily.

USA Today, in reporting Dec. 1 on plans by Federal Communications Commission chairman Kevin Martin to streamline video-franchising rules, put Verizon’s franchise figure at about 300. And he deemed that slow progress for two years’ work.

My reaction: That’s impressively fast work, with momentum building.

I won’t dispute the story’s point that some communities try to extort new video entrants. Who can blame them? How often do they get the chance for new perks like fiber networks or even a swimming pool on a multibillion-dollar company’s tab?

Local citizens will applaud such efforts, up to a point. But eventually, voters will press elected officials to lower demands and bring in competition.

Verizon had an ugly go of it in Montgomery County, Md., but now has reached a settlement there.

Cablevision has done all it could, via local lobbying, to see that Verizon didn’t get speedy franchise approvals in New York markets. Verizon went to the FCC to complain that Cablevision was also refusing to provide its Rainbow regional sports channels to Verizon’s FiOS TV service. The outcome? Verizon is getting local franchise deals and even cut a deal to get those Rainbow sports channels, as it has secured sports nets affiliated with multichannel-TV rivals Comcast and Time Warner.

All of that spells progress.

The USA Today piece referred to the “cozy duopoly” of local cable providers and nationwide satellite-TV purveyors DirecTV and Dish Network. (Should that be “triopoly?”)

That’s fine. But if price competition is the determining factor of competitive success, Verizon probably isn’t the answer. FiOS TV has loaded up on programming, at high market rates, and Verizon wants the same high-spending, multiservice, long-lasting customers the cable guys want.

Getting back to those 236 franchises, here’s a point of comparison.

One-time regional provider Ameritech (now part of AT&T) was one of the telcos that worked hard to get video franchises in the 1990s. Its strategy was flawed: It was overbuilding its own phone network with hybrid fiber and coaxial cable, instead of building an integrated network. SBC bought Ameritech and sold the cable systems for a song.

The next buyer, WideOpenWest, had no problem selling cable-modem service competing with SBC’s digital-subscriber-line product, and sold the systems a year ago for $800 million-plus, a huge profit.

How many franchises did Ameritech rack up, over about three years, to lay the foundation for that $800 million asset?

About 110.

I’m a big believer in competitive wireline providers. Living in New York City, in an apartment building that bans satellite dishes, I was able to get digital cable, from RCN, months before Time Warner’s system rebuild reached my neighborhood. Recently, I switched to getting video, phone and data from Time Warner.

I didn’t switch to save money. I had some problems with RCN, but basically, I wanted some of the programming Time Warner had that RCN didn’t.

If private capital is willing to make the investment, then everyone in the country should benefit from such wireline competition, whether it’s between cable provider and “overbuilder” or cable and telco. Bring in wireless players, too.

But from my observation, the hurdle of thousands of local franchise authorities (rapidly diminishing by statewide legislation) isn’t slowing the process.

Verizon, playing under current rules and getting the rules changed fairly on a state-by-state basis, is getting the government approvals it needs to build out its network and then market it against cable and satellite.

The marketing hurdle is what’ll really be the test of being in the multichannel-video game for keeps.

September