News

Overbuilders: We Need Our Own Group

11/26/2000 7:00 PM Eastern

An industry trade group that would represent the fledgling broadband-service provider category may be in the offing.

As envisioned, the group would give so-called overbuilders a unified voice on legal, regulatory and legislative issues, just as the National Cable Television Association watches over the interests of the incumbent cable operator.

Sources say such an organization-still in the conceptual stage-would lack the resources of an National Cable Television Association, but could still fight for the attention of legislative and regulatory policy makers at the local, state and federal levels.

That's important because, unlike traditional cable operators slowly rolling out additional services, the typical overbuilder plans to come out of the blocks offering cable, high-speed Internet and local and long- distance telephone service.

"There's a need to develop a broader industry voice for players not really represented by another group, and who are not just cable companies," said John T. Nakahata, an attorney with Harris, Wiltshire & Grannis, a Washington, D.C.-based firm that represents several tele-communications providers. "It's going to be easier for these companies to present their views to policy makers if they have a presence. The cable guys aren't going to do it for them."

Executives in the traditional cable political heirarchy agreed they saw few issues-other than pole-attachment rates-in which incumbent cable operators and overbuilders share a common enemy.

Franchising standards are a big barrier to comity between the parties. Incumbent operators point to situations like Louisville, Ky., where Knology Inc. has been franchised at terms that incumbent Insight Communications Co. Inc. believe are more liberal than those applied to the original provider. Lawsuits by both parties will determine the outcome there.

Nakahata has sketched out a preliminary framework detailing the benefits of such an organization. His 15-page presentation emphasizes how overbuilders can't let cable operators set the agenda on such issues as program-access rules (set to expire in 2002) or allow the same regulations to be imposed on their Internet protocol-based networks as on cable's hybrid-fiber coaxial systems.

Other issues that will need attention include retransmission consent; interconnections; pole attachments; access to cable's high-speed pipe; taxes; fees; regulatory delays and duplication.

Overbuilders lack a "coordinated, focused voice or strategy for influencing public policy choices," while cable is "highly organized, well financed and geographically dispersed, with political connections to local, state and federal officials," according to Nakahata's presentation.

Apart from dealing with Washington policy makers, the new group would participate in National Association of Telecommunications Officers and Advisors (NATOA) activities and deal with state officials in the National Association of Regulatory Utility Commissioners (NARUC).

"Those are all public-policy officials that will be making decisions that can effect a company's business opportunities," Nakahata said.

ANALOG RULES
CHANGING

One executive with a well-known overbuilder said industry newcomers would benefit most by having a presence at the Federal Communications Commission, which oversees cable rules and regulation written for an analog world.

"But sooner or later all of the overbuilders are going to all-digital networks, simply because of the capacity," said the executive.

Once that happens, digital converter boxes will become an issue. Currently, FCC rules require cable operators to offer a no-frills basic service that does not require a converter box. "That won't work in an all-digital world," said one industry official. "With an all-digital network, you need a box to get anything.

"There are a lot of technology-specific issues that we're going to need to be heard on. And we're going to need a voice separate from NCTA."

Reaction in the overbuild community to the possibility of having their own trade group was mixed, with most insisting they would need more details before agreeing to join.

RCN Corp., the largest competitive overbuilder, left the NCTA about two years ago, after the trade group made filings with the FCC that ran counter to the company's views on open-video systems.

"RCN is establishing a class of our own," said spokeswoman Nancy Bavac. She said it was up to individual regional executives to determine industrial affiliations, so they have the freedom to determine the value of state association membership.

For instance, RCN (formerly part of MSO C-TEC Corp.) belonged to the New Jersey

Cable Telecommunications Association, but left once it was certified as an open-video provider.

Some other competitors have already joined non-cable lobbying associations. Texas-based Grande Communications Inc. is a member of CompTel, the nation's largest trade association for competitive local-exchange carriers.

"With cable associations, there are more differences than there are similarities. We're a large part of their agenda," said Bill Morrow, CEO of Grande. He said he's interested in an overbuilders' association, but predicts the segment is about a year short of the maturity necessary to make a trade group work.

Another executive also said his company would readily back an overbuilders trade group.

"The cable industry sees us as bad news, and uninvited guests at the party," said Mark Haverkate, president and chief executive officer for WideOpenWest, and a former member of the RCN management team that launched an overbuild in Boston.

"And at least in the beginning, [overbuilders] are going to have a lot of common interests involving technology, regulation and legal matters that may pit us against the incumbent."


NO 'UNWELCOME MAT'

Not wanting to appear obstructionist, most state cable associations said they would welcome the alternative service providers into their ranks, provided they qualify under the group's bylaws. In Michigan, you qualify if you're not owned by a telco; the Minnesota association will take any company with a legal franchise.

When Connecticut-based telco Southern New England Communications Corp. entered the video realm, it applied for membership in the New England Cable Telecommunications Association. But because SNET also set pole-attachment rates for cable operators, the association rejected its application. (SNET has found cable unprofitable and is currently seeking relief from its video commitments from state regulators).

Many associations look to the 1996 Cable Act to define a cable provider when determining membership eligibility. An operator is a company that is franchised to deliver service over cable plant or that owns significant interest in a cable plant. The definition excludes operations such as open-video systems and utility-exclusive closed systems.

Not many associations have wrestled with such issues as an application from a company that is part franchised hard-wire cable operator and part open-video system, or with utility hybrids.

Groups acknowledge they need to refine their bylaws if some "green-field" or utility overbuilders want to become members. Some privately concede they have dealt with sticky competitive membership applications so far by repeatedly tabling requests.

In Texas, WideOpenWest LLC, Western Integrated Networks LLC and Grande Communications are staking out vast portions of the state. But so far, none has moved to join the Texas Cable Telecommunications Association, which requires that potential members simply have a franchise to use public rights-of-way.

"I would say that if they thought they might not be well received by the 'old guard, 'there might be a question about whether they would even want to join," said TCTA president Bill Arnold.

But some cable groups would encourage overbuilders to join.

"There has to be a recognition that there are common issues where we can all work together," said Ohio Cable Telecommunications Association executive vice president Ed Kozelek. "And besides, why should they get a free ride and benefit from all of the association's work on local government issues, signal theft and taxes?"

Indiana Cable Telecommunications Association executive vice president Dottie Hancock agreed. "What the association does is helping them [the overbuilder] as much as it's helping us."


THE EXCEPTIONS

Some state associations already have overbuilders and head-to-head competitors. But they are exceptions to the rule.

In Arkansas, both Cablevision Systems Corp. and its overbuilder, the city of Paragould, were members of the Arkansas Cable Telecommunications Association for about four years. When Cablevision decided to sell out there, the city exercised its right of first refusal and bought the Cablevision system. Paragould remains in the association.

In Anne Arundel County, Md., Millennium Digital Media and Comcast Corp. compete, and both are members of the Cable Telecommunications Association of Maryland, Delaware and Washington, D.C.

CableAmerica in Arizona has overbuilt Cox Communications Inc. and both are members of the state association.

At the upcoming Western Show, California operators will discuss the role of overbuilders in their group. RCN, WIN and Altrio Communications Inc. are just a few of the operators who have targeted that state.

In Oregon, one of two top-priority bills will be the regulation of utility-related overbuilders. The bill would require the formation of a totally separate business unit, and demand that the utility affiliate be subjected to the same pole-attachment levies and other access fees as incumbents.

Cable will be joined in lobbying that bill by incumbent telephone companies, said Mike Dewey, executive director of the Oregon Cable Telecommunications Association.


LIKE VISITING IN-LAWS

Overbuilders explain they generally refuse to join the local cable association because the competitor's ranks usually consist of cable executives that have "gone over to the other side."

The attitude of most overbuilders was summed up best by a former cable executive who was once a member of one of the nation's largest cable trade groups, but now is part of the management team for an overbuilder that plans to take on the industry's biggest players.

"If I want to go someplace where I am not welcome," he said, "I'll go visit my in-laws."

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