Policy

Telecom Fires Blaze in States

3/27/2005 7:00 PM Eastern

This could shape up to be the busiest year in recent memory on the legislative front.

Not since the days of the debate over open access — which would have legally compelled cable to open its high-speed Internet platform to all providers — have telecommunications companies been so busy drafting bills and gauging their competitors’ moves.

Though the perennial topics — such as universal buildouts, statewide customer-service standards and taxation — are surfacing in the usual places in state legislatures, two topics seem to dominate the attention of lobbyists this year: revising franchising rules, fighting off new or increased taxes and tightly regulating the migration of municipal utilities into the content delivery business.

On the former topic, many eyes are on California, where Verizon Communications Inc. has proffered a bill that would delete a section in the state code — written in the late 1980s by the cable industry — which demands that subsequent providers match their buildouts to the current patchwork of cable systems.

Verizon isn’t the only phone company to offer up such a bill. Rules will change in South Dakota now that the Legislature approves a similar bill backed by incumbent local-exchange carrier (and current triple-play provider) PrairieWave Communications.

In Minnesota, a telephone trade group called the Minnesota Telecom Alliance has resurrected a bill from last session that will change the state’s “level playing field” standard, which currently sets a franchise’s minimum area served; public, educational and government-access support requirements; and length of term.

The Minnesota Cable Communications Association was able to defeat the bill last year, but the Alliance amended the proposal and brought it back.

“There’s no way it could be amended so that we could support it,” said Mike Martin, the association’s executive director. He said cable companies have already shouldered the burden of timely build-outs and upgrades, and of building and supplying PEG studios.

New Jersey cable officials also hear hallway buzz that Verizon will submit a bill to seek a statewide franchise.

“It’s not needed,” said New Jersey Cable Telecommunications Association director Karen Alexander. “The rules of engagement are fairly clear. It’s a bifurcated process, where they get municipal consent then apply for a certificate of approval from the state. But apparently Verizon sees things differently.”

TELCOS PITCH 'CHOICE’

In supporting the franchise-reform bills, telephone companies note their products will provide consumer choice and competition is likely to lower prices.

But the potential competitors, especially smaller ones like PrairieWave, can’t get the bank financing they need without traditional franchises, rather than untried open video system (OVS) franchise.

They argue that a full community buildout is a huge expense and a barrier to entry, adding that cable’s system boundaries don’t make any more sense than those of existing telco systems.

Neither necessarily exactly matches the outlines of the local franchisers, including cities and counties.

Matching existing PEG facilities creates unnecessary redundancy, they argue, but cable operators insist upon such matches to protect their perceived turf.

So far, the franchisors have taken different stances, loudly opposing a bill to eliminate level playing-field language in a Virginia bill (since tabled), but speaking up against retention of California’s franchising code.

Cities want to continue the franchise-fee revenue stream — and to retain PEGs as a communications platform for their constituents — but they recognize the need for some franchise reform in order to foster competition.

In addition to specific bills to change franchises, cable lobbyists anticipate video-operations policies may find their way into telephone deregulation proposals proffered by SBC Communications Inc. in several states, or in periodic telecom policy reviews. One such review is underway in Texas, a second is due in June in Illinois.

ILLINOIS POLS HOSTED

To set the table, the Cable Television & Communications Association of Illinois will host 19 legislators the National Show in San Francisco to familiarize the lawmakers with all of cable’s products, said executive director Joan Etten.

The lawmakers are members of the Senate Energy and Environment Committee and the House Telecommunications Committee, which will oversee Illinois’ telecom overhaul.

Not all cable associations are taking a reactive approach approach to the coming telco competition.

In Pennsylvania, operators teamed last year successfully with Verizon to back a bill restricting municipalities from establishing new broadband ventures without first approaching their local telecommunications provider to propose a partnership.

Even before the franchise-rules revision surfaced in Virginia, the president of the Broadband Cable Association of Pennsylvania went to his peers at the telco and asked them not to launch any franchise-reform bill unilaterally.

“We’d like to capitalize on the opportunities to partner rather than fight,” Tunnell said. He added he’s been assured that Verizon officials will talk to the cable association if they determine to float a bill in the state.

Where level-playing-field language doesn’t exist, operators are moving to establish those rules. The Indiana Cable Telecommunications Association is promoting such a bill, but has already seen it killed in committee, in the face of opposition from the Indiana Association of Cities and Towns and SBC Communications Inc.

The ICTA still has hope for the bill, though. They want to see it as an amendment to “live” legislation before the April 2 deadline for second readings on active bills. But their effort will face a flood of traffic. Earlier this session, a protest walkout by House Democrats killed at least 65 pending bills, and the sponsors of those measures are also scrambling to revive them.

LOST ALLIES LAMENTED

As cable associations are monitoring telephone deregulation bills for language that effects video operations, they note the loss of strong allies in the fights over telephony.

Often the most effective check against the activities of the local service provider were long-distance companies AT&T Corp. and MCI Inc. But with each of those corporations planning to merge with their former local-service rivals — SBC has set a merger with AT&T, while MCI is mulling offers from Verizon and Qwest Communications International Inc. — cable stands to carry the competitive flag into some legislative battles on its own.

Other video newcomers, developed by municipalities seeking to gain profit from their utilities’ investments in fiber optics, are the targets of legislation either to ensure their growth or to tightly control the terms of their launch.

For instance, the Florida Municipal Electric Association, comprised of 32 public utilities, has launched a publicity campaign to promote their ability to deliver competitive broadband services, according to Steve Wilkerson of the Florida Telecommunications Association.

Not many utilities have signaled their intent to move into video services, but with the success of alternative delivery methods, such as broadband over power line (BPL), commercial providers are concerned that vendors that promote such products are creating a lot of positive buzz, Wilkerson said.

Florida Gov. Jeb Bush has publicly objected to the development of commercial services in areas where private providers already exist, Wilkerson said. A bill in the state House would prevent competition with private-sector providers.

MUNIS IN COLORADO

Municipal-utility regulations are also proceeding in Colorado. A bill in that state would allow municipal utilities to sell bundled services, but only after a referendum — and only if the venture adheres to state and federal cable rules — according to Colorado Cable Association deputy executive director Jeff Weist.

Industry representatives are still talking to municipal lobbyists about a version that would satisfy all parties.

Municipal broadband regulations were passed last year in Louisiana, but the Louisana Cable Telecommunications Association is already mulling whether to push for an amendment to that law.

Operators believe a local utility, Lafayette Utilities Systems, tried to exploit an ambiguity in the current law regarding bonding requirements to fund a planned cable operation in that city.

A state court judge recently ruled that repeated public hearings must be held on the project, according to state bonding laws. It could also be subject to a referendum, should opponents submit a timely qualified petition, the judge ruled. An amendment would make clear which bonding rules must be applied to municipal broadband funding.

Pennsylvania operators also believe their new municipal regulations could be toughened to guarantee equal competitive footing.

The basic business issue of taxation continues to vex operators. The prime initiative of the Arizona Cable Telecommunications Association is the passage of a bill that would limit the total franchise and other tax paid by operators, and therefore their customers, to a combined total of 5%. Municipal groups oppose the bill, both because it limits potential sources of revenue but also because it caps the number of public, educational and government channels a franchiser may demand.

The bill has passed the state house but is still working its way through the legislative process.

CABLE VICTORY IN KY.

Kentucky operators have already scored a victory in their state legislature, with acted on a suggestion from Gov. Ernie Fletcher to revise telecommunications taxes.

A recently approved budget bill will replace franchise fees with a 3% excise tax plus a 2.4% gross receipts tax. The new tax will corral revenue from the state’s satellite dish users, as well — equalizing the tax burden on video subscribers, in the eyes of cable operators.

A new 5% gross receipts tax could hit New Jersey cable subscribers following this legislative session. Garden State lawmakers need to cope with an estimated $4.5 billion budget deficit.

“Our customers don’t deserve to be asked to pay yet another new tax,” the New Jersey Cable & Telecommunications Association’s Karen Alexander said.

Tax breaks are being scrutinized in Arkansas and Louisiana. In the latter state, the association hopes to convince lawmakers that small operators deserve a tax credit on equipment purchased to achieve a digital transition that is equal to the break given to broadcasters two years ago for the same types of purchases. In Arkansas, major companies — including Cox Communications Inc. and Comcast Corp. — are questioning a proposal that would give technology providers in the least-populated service areas a 15% state income tax credit. The large cable operators said will give cost breaks to companies for work that operators like Cox and Comcast did without the benefit of the credit.

NORTH CAROLINA TAXES

Two tax issues are on the radar screen in North Carolina. Operators there get a tax break of 1% of the purchase price, or $80, per equipment purchase, In a drive to simply state taxes, that break might disappear, said association counsel Kathy Thornton.

Meanwhile, Gov. Michael Easley has proposed a 7% sales tax on cable service. Operators would get a credit against the tax equal to the amount paid in local franchise fees. The method of calculating such as tax on a state basis has not been addressed, she said, and legislators haven’t indicated whether the local credit would include PEG-support fees.

September