Policy

Sachs: Watch Out for SBC Redlining

12/14/2004 9:14 AM Eastern

SBC Communications Inc. is planning to deploy high-speed fiber lines in wealthy communities and to ignore less-affluent enclaves -- a strategy called redlining, which federal law prohibits cable companies from pursuing -- National Cable & Telecommunications Association president Robert Sachs said Tuesday.

“Serving only high- and middle-income neighborhoods in a community is both discriminatory and anticompetitive,” Sachs told the Washington Metropolitan Cable Club -- an audience that included congressional aides and Federal Communications Commission staff.

SBC has announced plans to spend up to $4 billion to roll out fiber to 18 million homes by 2007, hoping to provide advanced voice, video and data services free from burdensome regulations, such as local franchising agreements, that were crafted when cable was a monopoly.

“It is not surprising that the NCTA, whose members must face this potent competition, would argue that the new entrants must be saddled with legacy franchise regulations,” an SBC spokesman said in response to Sachs.

Sachs’ redlining charge was based on an SBC bar graph presented to unnamed institutional investors showing that the Baby Bell planned to serve 5% of so-called low-value customers. Redlining is considered an action that denies service to low-income and minority consumers.

“Cable operators must be vigilant about plans by phone companies to circumvent the local franchising process to gain unfair competitive advantage by redlining or any other means,” Sachs said.

An SBC spokesman said telco officials, including senior executive vice president and chief financial officer Rick Linder, presented the chart with the 5% projection in a Nov. 11 call with investors about SBC’s fiber-buildout program, which is called Project Lightspeed.

SBC spokesmen have said that the company plans to offer Internet-protocol video -- a service that is unlike cable’s video technology, as it broadcasts hundreds of channels to consumers in a largely one-way format.

As a result, SBC has asked the FCC to declare that traditional cable-franchising rules and regulations do not apply to IP video, just at traditional phone rules do not apply to e-mail and instant messaging.

But the cable industry thinks that SBC is trying to avoid the local franchising process in order to execute a business strategy that centers on consumers willing to pay $110 per month for bundled services. If SBC can skirt the franchise process, it could cherry-pick communities without running afoul of cable’s anti-redlining restrictions.

“No wonder SBC wants to evade the Communications Act’s cable-regulatory requirements,” Sachs said.

In the past, the cable industry itself has faced redlining allegations. In 2002, AT&T Broadband (since acquired by Comcast Corp.) was sued in federal district court in southern Florida for failing to serve African-American households with high-speed Internet access to the same extent as white households, according to the Denver Business Journal.

An AT&T Broadband spokesman denied the allegations in the class-action suit.

SBC, Verizon Communications and BellSouth Corp. are formidable competitors with multibillion-dollar fiber-rollout plans, and they should be taken seriously, Sachs said. But he added that the economic assumptions underpinning these investments could be way off base.

Moreover, Sachs said, the Baby Bells’ track record on providing cable service is littered with failure, including SBC’s decision to dump Ameritech Corp.’s cable systems after the company acquired that Chicago-based Baby Bell.

“My point is that people need to look hard at the assumptions underlying the regional Bells’ fiber-deployment plan and determine for themselves whether these plans are realistic,” Sachs said.

In other comments, Sachs repeated that efforts to overhaul bedrock communications law next year should be limited to a few discrete issues, such as funding nationwide affordable phone service; reforming access charges paid by long-distance companies to local carriers; and establishing a deadline to end the broadcasters’ transition to digital-only transmission.

“Opening all titles of the Communications Act could create a lengthy period of regulatory uncertainty and chill investment. So a careful balance between stability and change needs to be struck,” Sachs said.

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