Primetime for Telecom Reform on Hill

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Washington— Cable will pay close attention to at least three issues as Congress gears up to overhaul the Telecommunications Act of 1996: universal service, network neutrality, and video franchising.

The House Subcommittee on Telecommunications and the Internet is expected to advance a bill in draft form since last fall not long after the House returns from its midterm recess Jan. 31. Many features of the draft bill are favorable to Verizon Communications Inc. and AT&T Inc. (which includes the former SBC Communications Inc.), especially in the area of providing video competition to cable without needing local franchises.

HEARINGS ON THURSDAY

The Senate, by contrast, is on a different timetable. The Senate Commerce Committee has scheduled 14 hearings over 10 days, beginning this Thursday and concluding March 14.

The ground to be covered includes cable’s three key concerns in addition to Internet pornography, municipal provision of broadband access, VoIP regulation, and TV program indecency.

Both House Energy and Commerce Committee chairman Joe Barton (R-Texas) and Senate Commerce Committee chairman Ted Stevens (R-Alaska) are eager to advance legislation, though House and Senate leaders have not identified telecommunications reform as a 2006 legislative priority.

The buzz surrounding telecommunications legislation isn’t necessarily indicative that President Bush will sign a bill into law this year. The 1996 telecom law was considered a 12-year project, dating to the effective date of the consent decree that broke up the old AT&T monopoly.

In an interview last week, National Cable & Telecommunications Association president Kyle McSlarrow pointed out that election year considerations were a factor and would tend to harm the chances of legislation still pending after June.

“It’s an election year. That’s always a tough time to get a major piece of legislation through the Congress,” he said. “I just think, realistically, by June we’ll have a pretty good sense whether or not something is going to pass this year.”

Wall Street, which has taken a dim view of cable stocks based on new competition from Verizon and AT&T, is watching the action on Capitol Hill.

Jessica Zufolo, a public-policy analyst with Medley Global Advisors, shared McSlarrow’s view that if Congress is going to act, it needs to do so sooner rather than later.

“By June, most members of the House and Senate will be preoccupied with re-election activities and will have little time or interest in delving deeply into any policy debate of significance to either side of the industry,” Zufolo said in a recent client note.

The NCTA has not endorsed the House draft telecom bill or a related bill on universal service. Nor has the trade group backed a major telecom bill offered by Sen. John Ensign (R-Nev.), of the Commerce Committee.

“There are good things and bad things about each of the bills, probably, that have been introduced,” McSlarrow said.

McSlarrow expects the first half of the year to be hectic.

“We’re preparing as if this is going to be all telecom, all the time,” he said. “I just think the first four, five or six months are going to be crucial.”

Following is a summary of the big issues facing cable, including NCTA’s position on all three and McSlarrow’s individual assessment:

• UNIVERSAL SERVICE

Cable operators pay a portion of their telephony revenue into this program, which subsidizes affordable phone service to the poor and rural Americans expensive to serve. Some in Congress want to expand the program to include high-speed Internet access and tax cable modem service to help pay for it.

NCTA Position: Congress needs to establish a clear mission for universal service, which should exclude broadband subsidization, and determine whether program’s funding is properly sized.

McSlarrow: “We have not bought into the idea that the universal service fund’s mission should be broader in terms of just taking on broadband deployment writ large nationwide. Broadband is available just about everywhere. So that really can’t be the issue.”

• NETWORK NEUTRALITY

This is the successor to the “open-access” debate, which concluded last June when the Supreme Court ruled that the FCC could exempt cable-modem service from common-carrier requirements, under which the owners of networks are compelled to allow competing Internet-service providers to purchase wholesale access.

Generally, “Net” Neutrality means that broadband distributors may not discriminate against unaffiliated Web-based service providers. Examples include blocking or degrading a VoIP provider or slowing consumer access to desired Web pages.

NCTA Position: Regulation and legislation are unnecessary because market failure has not been demonstrated. Broadband service providers and Web content providers should be allowed to experiment with business models at a time when Internet video and search capabilities are hardly mature products.

McSlarrow: “Anytime you start talking about government intervention in this space, that is a very dangerous proposition. It’s in our interest to let people do what they want.”

• FRANCHISE REFORM

Incumbent cable operators have spent decades negotiating access to public rights of way with local governments. Verizon and AT&T, eager to crash into cable markets, want local entry barriers either eroded or removed and replaced by a national franchise, preferably one without construction buildout requirements.

NCTA Position: Large cable operators agree that reform of federal cable law — largely found in Title VI of the communications statutes — is appropriate, particularly with regard to the renewals and transfers. But the trade group is opposed to changes that confer benefits on the Bells that are unavailable to cable incumbents.

McSlarrow: “It’s hard for me to imagine any telecom re-write not addressing video franchising in some way. I would expect some type of streamlining of the process. As long as we’re all able to march forward together, I think we’ll be fine.”

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