House Clears National-Franchise Bill

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Washington— The U.S. House of Representatives passed a bill last Thursday designed to speed phone-company entry into video markets after rejecting language that would have barred broadband-access providers from discriminating among suppliers of voice, video and content services delivered over the Internet.

The bill (H.R. 5252), sponsored by Energy and Commerce Committee chairman Joe Barton (R-Texas), passed by a vote of 321-101. Lawmakers hopeful that phone-company competition spurred on by the measure would drive down cable rates across the country.

The debate on overhauling major telecommunications law shifts to the Senate, where the Senate Commerce Committee is scheduled to vote on parallel legislation June 20 if a consensus can be achieved.

“Consumers won a major victory with tonight’s passage of the video-choice bill. The size of the bipartisan vote increases the momentum for a similar Senate bill,” said Peter Davidson, senior vice president of federal government relations for Verizon Communications Inc.

But Blair Levin, a media and telecommunications analyst at Stifel Nicolaus Associates, told clients that Senate passage would be hard because lawmakers have not reached agreement on key issues, including Internet nondiscrimination.

“The next leg of the journey promises to be tougher, as senators struggle to agree on a basic approach, and there’s not much time left this session for typical Senate wrangling,” Levin said.

WHITE HOUSE STAND

For the first time, the White House took a stand as the Office of Management Budget issued a statement “strongly” endorsing the Barton bill’s national cable-franchising provisions.

“The administration believes that legislation enabling video-service providers to gain a national franchise in order to speed rollout of their infrastructure not only will benefit consumers by increasing competition in the video-TV market, but also will improve high-speed broadband penetration,” the OMB statement said.

Rep. Edward Markey (D-Mass.) offered an amendment that would have banned discriminatory conduct by cable, phone and other broadband-access providers against companies such as Google Inc., Yahoo! Inc. and eBay Inc. Markey’s amendment would have prohibited network owners from blocking of unaffiliated Web-based services and from demanding fees in exchange for priority treatment of Internet-based services.

NEUTRALITY NIXED

Markey’s “net neutrality” bid was defeated, 269-152. The amendment lost twice in the Energy and Commerce Committee. Only the House Judiciary Committee approved a network-neutrality bill, but House leaders wouldn’t let chairman James Sensenbrenner (R-Wis.) offer it on the House floor.

“With the defeat of the Markey amendment, the House bill will have no meaningful protections for consumers or service providers against the discriminatory practices that the telephone and cable companies will employ to favor their own content and services,” said network-neutrality proponent Gigi Sohn, president of Public Knowledge.

The demise of the Markey amendment was a victory for cable and phone companies, but both industries remain concerned that the Barton bill would grant the Federal Communications Commission too much power to police their commercial agreements with Internet content, search, and applications providers.

In the OMB statement, the White House suggested it did not support any net-neutrality legislation, including provisions in Barton’s bill.

“The administration believes the FCC currently has sufficient authority to address potential abuses in the marketplace. Creating a new legislative framework for regulation in this area is premature,” the OMB statement said.

Barton’s bill — backed by Verizon and AT&T Inc., as the two prepare to invade cable markets on a broad scale — would allow new cable companies to obtain a 10-year cable franchise from the FCC in any market in the country, bypassing state and local regulators that have been exercising that power for decades.

Local governments would continue to control access to their rights of way and share 5% of a national video franchisee’s gross revenue as compensation for use of public property.

The FCC would have 30 days to grant a national franchise. Cable incumbents would be immediately eligible for a national franchise to reach into new markets. If a franchise area includes a competitive cable provider with a local or national franchise, the cable incumbent may seek a national franchise immediately.

The bill was amended to raise from $500,000 to $750,000 the maximum per-day FCC fine on a national franchisee that denied video service based on the income of a particular group.

In an exchange with Rep. Marsha Blackburn (R-Tenn.), Barton agreed that if a phone company refused to provide video service beyond its existing telephone network, it could not be held liable for video redlining a group located outside the voice network’s footprint.

Blackburn’s intent was to ensure that rural phone companies with voice facilities scattered among many cable franchise areas could provide video service to consumers only within reach of their voice facilities.

WEALTHY TARGETS

House Democrats complained that the Barton bill would allow phone companies to target wealthy communities because the bill did not include specific community-wide buildout requirements. Barton countered that market forces would impel phone companies to engage in a door-to-door struggle with cable incumbents.

The sharpest division came over Markey’s network-neutrality amendment. Markey’s supporters argued that without the net-neutrality mandates, cable and phone companies, which control more than 90% of the broadband access market, would turn the Internet into a toll road solely to benefit their bottom lines.

“Innovation on the Internet is now at risk,” said Rep. Rick Boucher (D-Va). “Broadband providers are planning a two-lane Internet with a fast lane for their content and for the content of those who pay, and a slow lane for everyone else. Startups cannot afford the fast-lane fees, and in the slow lane they cannot succeed.”

Markey’s opponents, claiming that network neutrality has not been clearly defined, argued that the Barton bill contained sufficient safeguards that allowed the FCC to police bad conduct by broadband-access providers on a case-by-case basis, with large fines meted out as punishment.

“I live by an adage — If it ain’t broke, don’t fix it,” said Rep. Fred Upton (R-Mich.). “There is no evidence of any problem.”

The House vote could have signalled to the Senate that stringent network-neutrality provisions would not be acceptable. Senate Commerce Committee chairman Ted Stevens (R-Alaska) supports allowing the FCC to monitor the market, but the panel’s top Democrat, Sen. Daniel Inouye of Hawaii, has endorsed Markey’s language.

“The strong vote against regulation of the Internet suggests that Congress won’t go down the road of legislating solutions to problems that don’t exist,” Verizon’s Davidson predicted.

Barton’s bill would permit the FCC, after receiving a complaint, to impose a $500,000 fine on broadband providers for violating the agency’s network-neutrality principles, enunciated last August.

Among other things, those principles entitle consumers to access “any lawful Internet content of their choice,” and to “competition among network providers, application and service providers and content providers.”

The National Cable & Telecommunications Association has not endorsed the Barton bill, concerned that phone companies will target wealthy communities as they offer video and that the FCC could stir mischief with its net neutrality enforcement authority.

In a statement, NCTA president Kyle McSlarrow applauded House defeat of the Markey amendment.

“By rejecting network-neutrality regulation, the House has clearly stated a preference for telecom reform that allows the marketplace, and not the government, to pick winners and losers. And consumers will reap the benefits,” McSlarrow said.

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