Washington— The cable industry is reaching out to local governments to test whether they can forge an alliance to block Verizon Communications Inc. from waltzing into the cable business under liberalized state laws designed to accommodate the phone giant’s broadband-deployment plans.
Cable’s relationship with cities and towns has never been easy and probably reached its nadir three years ago, when cable backed the Federal Communications Commission’s decision to deny local governments about $500 million in annual cable-modem fees.
Heavily suspicious about Verizon’s local lobbying, cable is making a concession to political expediency by seeking some sort of truce with local officials as part of plan to present a united front against the telco.
One source said cable’s outreach recalled the old political axiom, “The enemy of my enemy is my friend.”
Discussions began a few weeks ago at National Cable & Telecommunications Association headquarters in Washington, D.C., and included representatives from the National League of Cities (NLC), the National Association of Counties (NACO) and the U.S. Conference of Mayors.
The meeting covered a range of issues and not just a battle plan to confront Verizon, one source said.
“It was informal. I wouldn’t describe that as planning some kind of coalition,” said Cheryl Leanza, NLC’s principal legislative counsel.
Another source viewed the meeting differently, claiming that NCTA president Robert Sachs was quite specific about the industry’s goals and its reasons for wanting to work jointly with local government.
“They want to fight, but they wanted to know whether or not local government would be interested in creating an alliance to take these things on,” the source said.
NACO deputy legislative director Jeff Arnold said he attended the session at the NCTA, adding that no commitments were made.
“There was no final outcome. My gut reaction in talking to some of my elected officials is that they would feel a little uncomfortable with picking sides in this discussion at this point,” Arnold said.
Asked about the meeting, an NCTA spokesman declined to comment, noting that the trade group does not generally discuss private meetings with the media.
Cable’s feelers to local government come as both Verizon and SBC Communications Inc. push ahead with plans to invest billions of dollars to weave fiber into their networks, with the intent to raid cable’s subscriber base street by street.
MSOs already face stiff satellite competition from EchoStar Communications Corp. and DirecTV Inc., but the two Baby Bells plan to take on cable with a voice, video and data bundle that the two satellite carries are incapable of matching.
Verizon and SBC have crafted different strategies.
In Virginia, Verizon is supporting a bill that would overhaul cable-franchising statutes. Instead of hopping from town to town to gain entry, as cable MSOs have done, Verizon wants a statewide franchise. It favors a one-stop-shopping approach that removes local obstacles that can prove costly and time-consuming.
SBC WANTS RELIEF
SBC is looking for relief from the FCC. The Texas-based telco claims it intends to provide Internet-protocol video, not traditional cable service.
As a result, SBC has asked the FCC to declare that longstanding federal cable laws do not apply to IP video, including franchise requirements and franchise fees.
Because the FCC does not appear to be willing to grant SBC’s request anytime soon, cable has its eye on Verizon’s maneuverings at Virginia’s Statehouse.
At the meeting, Sachs said that Verizon’s efforts were likely the beginning of a long, hard lobbying struggle, one source said.
The cable industry, Sachs added, wanted to know whether local governments would support statewide franchising if it came with Verizon’s promise to offer wireline competition and provide cities with 5% of their revenue, the source said.
“We said in no uncertain terms, 'That is unacceptable to us. We are not in this just for the money,’ ” said a source who heard Sachs’s pitch.
One source said that cable wanted to see local governments take the lead because cable does not want to be seen as an obstructionist force.
“Cable wants to oppose [Verizon’s] legislative effort at the state level and they fear they are not in a public posture to do so, because all it appears is that they are looking to protect their monopoly,” a source said.
Local governments fear statewide franchising would put at risk various benefits they’ve extracted from cable in exchange for access to their public rights of way.
When cable companies negotiate a franchise, local governments typically demand capacity for public, education and governmental (PEG) channels and require construction of an institutional network (I-net) that links municipal offices and departments. The cable company is also usually required to commit to offer service to every household in order to serve any household within a community.
GAINS TO PROTECT
Local governments don’t want to see statewide franchising erode those hard-won gains.
“We will not cave for that,” one source said. “We need PEG. We need people to do I-nets. We need people to do universal service.”
Verizon spokesman Harry Mitchell disputed that his company was seeking a statewide franchise in Virginia. Instead, he said the goal was to eliminate the need for a local cable franchise in areas where Verizon already had permission to use rights of way as a phone provider.
“What we are seeking with this legislation is that if you’ve got previous consent from a body to provide a service in the right of way, then that’s a franchise,” Mitchell said. “Telephone companies that now want to get in and provide video, like Verizon does, shouldn’t have to get a duplicative franchise to provide that service.”
Mitchell said local governments should welcome competition from Verizon to protect consumers from rising cable rates.
“We know we’ve got a good piece of legislation that will bring choice to customers that much quicker, that will also look after the financial needs of municipalities and will allow them to retain a good portion of their oversight in the regulatory part of it,” he said.
Mitchell also argued that cable doesn’t need a local franchise to offer local phone service.
PLAYED BY RULES
Cox Enterprises Inc. senior vice president of public policy Alexander Netchvolodoff said his cable company required state approval to enter the phone business and didn’t attempt to change the rules, as Verizon seems to be doing in Virginia.
“When we went into the phone business, we had to get [state] certification to operate as a phone provider. So what’s so difficult?” Netchvolodoff said.
An alliance with cable could be awkward, local officials said.
Although cable and cities might agree that Verizon should obtain a local cable franchise, the two would part company over legislation banning or restricting municipal construction of wireless broadband networks that compete with commercial providers. In that situation, cable and Verizon would be on the same side against local government.
“It’s one of the interesting conundrums we have in this whole area,” said NACO’s Arnold.