State Franchising Bill Proposed in Indiana

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The next stage in battle over telecommunications deregulation — including statewide franchising for video providers — will take place in Indiana.

The Indiana proposal would offer new providers similar benefits to those found in a Texas deregulation measure, SB5, which was approved last year with phone-company support and cable opposition.

But there is a major difference: In Texas, the law binds incumbent cable providers to their current local franchises until those contracts expire, but telcos can immediately file for statewide operating authority. The Indiana bill would allow incumbents to adhere to their local agreements or to choose state regulation as soon as June 2006.

State Sen. Brandt Hershmann (R-Wheatland), who introduced the bill on Jan. 4, said reform is necessary because current telecommunications policy was written in 1985.

The bill would deregulate basic phone service in a given area if the local provider’s broadband services hit a penetration level of 50%. It would also create property-tax incentives to promote broadband investment.

The Indiana Utility Regulatory Commission would gain authority over video franchising and a 5% franchise fee would become part of state law, although providers would continue to make payments directly to localities.

Video providers would be barred from signing exclusive agreements to serve multiple dwelling units. Cable operators (and developers) have used such deals as a means to lock up business before potential competitiors can finish construction.

And the bill declares that Internet-protocol services are not public utilities, a provision that should be of interest to AT&T Corp., which plans to deploy IP-delivered video and has argued that its offering is not subject to regulation.

Another telco friendly provision would bar regulators from creating buildout requirements, a rule cable operators argue will allow new providers to serve only the most profitable communities and neighborhoods.

The proposal would bar development of municipal networks unless no private sector providers are available. Even then, cities and counties would have to hold public hearings, publicly declare cost estimates and support the project through money from users, not the general tax base.

In an unrelated press conference on Jan. 5, Gov. Mitch Daniel said the telecommunications proposals “head the state in the right direction.”

The senator’s goals are noble, said Tim Oakes, the executive director and general counsel of the Indiana Cable Telecommunications Association, “but the product falls short.”

He cited a survey of members, which indicated that 77 % of the state has Internet service. That’s just from cable companies, he noted, adding he doesn’t understand how legislators could state that Indiana is No. 42 in U.S. broadband deployment.

Further, 66 % of rural communities have cable broadband service, a deployment level Oakes attributed to local franchise build-out requirements.

“That’s good public policy. Why would anybody want to change that environment?” he said. Local agreements also mean local problem resolution. Without local control, consumers may be dialing India, not Indiana, in search of answers, he added.

Operators have begun plowing through the many bill provisions, asking rhetorical questions such as how far back in time the tax incentives for infrastructure would extend.

One provision raised an early red flag: the 5% franchise fee.

Joe Poffenberger, president of the state cable association and director of Indiana operations for Mediacom Communications Corp., noted his company serves mostly smaller communities, some of which charge 3% or even no franchise fees. The telecom bill would result in an immediate rate increase for those customers, he noted.

“We have Internet service in every community we serve, and usually the best network in town because the phone companies are looking at the big cities,” he said. The cable company will launch telephone service next fall, he added.

Incumbents aren’t against competition, Poffenberger said: “Competition makes us work harder and do a better job.” But he questioned why huge companies need the “great perks” the telecommunications bill will provide in order to compete.

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