Policy

Bells, Cable Spar on Franchises

4/24/2005 8:00 PM Eastern

Las Vegas— Verizon Communications Inc. chairman and CEO Ivan Seidenberg last week jetted to the country’s casino capital not to play poker, but to play a little politics.

Seidenberg, looking for a powerful ally in the bruising fight ahead with the cable industry, offered a deal to broadcasters: We’ll carry your programming if you help us eliminate franchising requirements to provide video in competition with cable.

Addressing the National Association of Broadcasters convention here last Monday, Seidenberg called local franchising an unnecessary entry barrier that slowed his investment in a fiber-to-the-home network with lighting-fast download speeds and vast capacity for video-programming services.

BE 'PERSUASIVE’

“We ask you to lend your persuasive voice in support of clearing away this barrier to video competition and speeding the day when America’s communications companies can use our fantastic resources to offer your content and provide a true and compelling competitive alternative to cable,” Seidenberg said.

Verizon’s quest to eliminate the franchise requirement was nothing new, but offering an olive branch to broadcasters certainly was. An NAB spokesman said the industry wanted to work with Verizon on mutual concerns. “Local broadcasters are very encouraged about Mr. Seidenberg’s remarks. Stations want our programming on as many platforms as possible,” NAB spokesman Dennis Wharton said.

Seidenberg’s pitch to broadcasters was tempting because TV stations are having a tough time getting cable to carry their multiple digital-programming streams. In February, the Federal Communications Commission refused to force cable to do so.

Seidenberg said content supplied by local TV stations was vital to Verizon’s success. Because the telco’s network would have so much capacity to deliver the services provided by local TV stations, the carriage fights that marred broadcasters’ relations with cable operators would not become an issue with his company, he said.

“This is where our fiber-based system really changes the dialogue from a conversation about scarcity to one about abundance,” he added. “We believe we can effectively address all of these issues in a way that expands the market for both of us.”

CABLE’S OUTRAGED

Verizon and SBC Communications Inc.’s attempt to enter the video market without local approval has outraged the cable industry, which fears being placed at a regulatory disadvantage that would permit the Bells to target affluent communities while ignoring low-income consumers.

Federal law requires community-wide cable buildouts, to prevent economic discrimination, also called redlining.

Cable companies need local franchises. A big cable company like Comcast Corp. has 5,000 franchises and about 10% come up for renewal each year, requiring the company to hire hundreds of lawyers to satisfy the concerns of local politicians.

Verizon has agreed to obtain franchises while current law applies.

SBC has staked out a more aggressive position: Because it is deploying an Internet-protocol network, the San Antonio, Texas-based Baby Bell insists that it is not building a cable system subject to the franchising requirement.

Comcast executive vice president David Cohen, testifying last Wednesday on Capitol Hill, said SBC should not be allowed to escape the franchising requirement simply because the company has asserted that IP technology affords an exemption.

“As the phone companies have described their IP-video ideas to date, they clearly seem to be just like cable services,” Cohen said. “They should be treated like the cable companies. Whatever rules apply to us should apply to them, too.”

Cohen did not rule out that Congress might consider removing the franchise requirement on cable and phone companies. “Looking at burdens around franchising, by way of example, is a certainly productive exercise,” he said.

IP IS NO EXCUSE

Cohen insisted that the introduction of IP technology did not provide a franchise exemption, whether the provider is a cable or phone company. Cohen noted that Comcast today has IP technology in its network backbone and would eventually extend it to video links reaching into cable homes.

“The law should not treat them differently based on whether they use a lot of IP, a little IP or no IP at all. Like services should be treated alike, and everybody should play by the same rules,” Cohen said.

Cohen appeared before the House Subcommittee on Telecommunications and the Internet, a panel that plans to overhaul the Telecommunications Act of 1996 by removing regulatory distinctions between cable and phone companies that provide voice, video and data services over the same platform. A new law could take years to emerge, especially if a cable-telco battle fuels division rather than consensus on Capitol Hill.

SBC: WE’RE NOT CABLE

SBC senior VP Lea Ann Champion told the subcommittee that cable regulation was inappropriate because SBC’s IP network, dubbed Project Lightspeed, was interactive and offered a consumer experience vastly different from the one currently provided by Comcast and other incumbent cable operators. “In short, we are not building a cable network. Nor do we have any interest in being a cable company offering traditional cable services,” Champion said. “New entrants should not be saddled with the legacy regulations applicable to incumbent providers.”

Verizon’s markets-group president Robert E. Ingalls added that his company is seeking a “streamlined national franchise” designed to eliminate uncertainty and delay caused by negotiations with thousands of local communities.

“Regulatory issues … are affecting how soon we will enter the video market on a wide scale,” Ingalls said. “We need a national broadband policy that does not shoehorn new technologies into old categories.”

SHOTS FROM MARKEY

Rep. Edward Markey (D-Mass.) was critical of SBC’s IP-video-deployment plans, claiming that the company’s rollout would bypass low-income families.

“You have Lightspeed for the well off and 'Snailspeed’ for everybody else,” Markey said in a testy exchange with Champion. “I want your commercial interests and the public interest aligned. That is your challenge in the years ahead. Otherwise, I think you’re not going to have the reception you want in this committee.”

Champion replied that SBC’s program — a $4-billion investment over four years to reach 18 million households — was a rational business plan. She indicated that a mandate that a company must offer service to everyone before it can provide service to anyone did not make economic sense.

“We have announced the most aggressive buildout of any company,” she said. “We want to bring consumers choice.”

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