State Groups Confront Heavy Lobbying

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Telco TV. If that phrase weren't echoing off the marble halls of state capitals around the country, it might be a quiet year for state cable associations.

As it is, cable's lobbyists find themselves scrambling, out-manned and out-funded by telephone company lobbyists. The objective: Establish how a level playing field is best defined in legislative language.

The scramble isn't easy. In Texas, there were more than 160 registered lobbyists pressing for passage of that state's landmark telecommunications reform bill. This is the home state of AT&T Inc., formerly known as SBC Communications Inc., and before that, Southwestern Bell Corp.

That meant there were more lobbyists on that issue than there were legislators in each house. In the Texas legislature, there are 150 House members, and 31 state senators.

Most cable associations have one to five paid association lobbyists, plus executives lobbying on behalf of the three or four largest cable operators in their state, according to state association directors.

“We've never seen resources from phone companies of this magnitude,” said Dennis Mangers, president of the California Cable & Telecommunications Association, of the large amount of lobbyists he's facing.

In addition to in-house lobbyists, AT&T and Verizon Communications Inc. have hired top-gun firms in the Sacramento, Calif., including the well-connected former chief of staff to former Gov. Pete Wilson. The California association is fighting an attempt by telephone companies to revise existing law requiring new competitors to match the service territory of existing cable franchisees.

The associations are left scrambling, financially, as well. The legislative debates have usurped big portions of their operating budgets. Executives declined to state exact numbers. Compounding the distress: Regional trade shows, which were fundraisers for many associations, such as the Western Show, held by the CCTA and the Arizona Cable Telecommunications Association, have been shuttered.

The state groups say they are trying to work “smarter, not harder,” within their existing budgets. They also are attempting to work with groups, such as lobbyists for cities and counties that will add breadth to their side of the reform debate. Cities share many of the concerns about the loss of local control that cable espouses.

NO LUCK IN LOUISIANA

But in states like Louisiana, still reeling from the devastation of Hurricane Katrina, an expensive fight comes at a bad time. The state's major operators, including Cox Communications Inc., Charter Communications Inc. and Cable One Inc., are rebuilding infrastructure, but thousands of homes, and therefore cable customers, are still lost.

Louisiana Cable & Telecommunications Association CEO Cheryl McCormick believes the association is “healthy enough financially” to weather this year, but next year may be questionable.

Several Cox properties in the state are among the 900,000 cable homes sold last year to Cebridge Connections, the cable firm headed by former Charter CEO Jerry Kent. But Cebridge is not a member of the state cable association and unless the it joins, the group's budget will take another hit. The size of the hit will depend on how much the association charges for dues next year multiplied by the number of homes served by Cebridge.

Though the transaction is expected to close in April or May, Cox has paid its Louisiana association dues through the end of the year, McCormick said.

Katrina will cause the association legislative problems, too. Because the state's communications infrastructure was decimated by the storm, eight bills have been filed to ease municipalities' attempts to construct wireless data networks.

This would be a step back from current policy, McCormick noted, as the legislature had previously passed a bill preventing cities from creating communications networks in a retail environment. In Louisiana, municipalities can now construct wireless networks if they offer the service to citizens for free.

Cable is closely monitoring the government's analysis of the post-storm telecommunications meltdown. Cox New Orleans vice president and general manager Greg Bicket is on a Federal Communications Commission panel mulling what states and cities should do differently in the future to keep phone and Internet service operating.

10-DAY CLOCK

But as the Louisiana group prepares for those negotiations, telco TV proposals are on the horizon. One bill pre-filed in the state house that would turn franchising over to the Louisiana Public Service Commission. That body would be required to issue a permit to a competitor within 10 days.

The competitive filing would require a statement by a new provider that it will abide by all appropriate laws, list a local business address and detail communities to be served. Once issued, the certificate would be good for 25 years.

Local governments would retain authority only over the placement of vaults and other infrastructure in rights-of-way, pole attachment terms and access to buildings. Incumbents would be bound by their current agreements.

At the March 17 filing deadline, two more-detailed bills, backed by BellSouth Corp., were filed in the state House and Senate. Those bills would provide statewide authorization within 10 days for a 25-year franchise. They also would create a state cable board to collect and disburse franchise fees, among other duties. Customer service complaints would be assigned to the secretary of state.

McCormick said she doesn't believe, given the ongoing storm recovery, that telecommunications reform is high on anyone's agenda, but added, “Anything can happen.”

The cable association in Mississippi, also hard hit by hurricanes last year, is in a little better shape, according to LeeAnn Evans, executive director of the Mississippi Cable Telecommunications Association. Mississippi lost only 21,000 cable subscribers, and many of them have relocated within the state.

“It may set us back, but it's not devastating,” she said. “We're a lot better off than I thought we'd be.”

Better still, the legislature shuttered late in March with no cable-focused bills, she said.

Louisiana is not the only association worrying about operating finances, though. Several groups will meet this month to determine whether a dues hike is needed to fund the lobbying fight.

Alabama was spared a telco TV debate this year, said the state association's executive director Mark Fowler, because legislators were focused on re-election. But the group anticipates a telco-backed bill next year.

“We're going to raise more money than we have now,” said Fowler, noting a meeting with members was scheduled for early April to discuss all funding options.

LOBBYING TAX

Operators in Missouri have already agreed to a dues increase: one-cent per subscriber. That will raise $100,000 to help fend off a Senate bill, promoted by the telephone companies, which will make the state Public Service Commission the sole issuer of cable franchises. The current iteration does not specify how quickly the commission is to act on a certification request, or the term of the franchise.

The bill creates a “video providers service fee,” which functions similarly to a 5% franchise fee, to be paid to local jurisdictions. This prevents the local application of other fees or taxes.

The telephone companies are pushing their agenda hard to the voters, said Greg Harrison, president of the Missouri Cable Telecommunications Association. Advertisements stress that if the legislation passes, Missouri will be the state where competition can come in and lower prices.

Harrison said he hopes legislators, who like the idea of competition, won't like the idea that cable companies have to service entire areas while the telephone companies do not.

In Florida, the secretary of state would become the franchise czar under a bill much like the reform package that was approved in Texas last year. The Texas bill included phone-rate deregulation, approval for utility companies to get into video service and statewide licensing of video competitors.

Competitors could get operating authority within 30 days of their application and incumbent operators could apply for state franchising, but only after a competitor claims a 45% penetration rate, according to the initial draft.

The Florida Cable Telecommunications Association is beefing up its lobbying muscle by partnering with the Florida League of Cities, the Association of Counties and the Florida chapter of the National Association of Telecommunications Officers and Advisors. Cable incumbents hope those groups will oppose the lack of local control and limited customer service oversight established by the bill. If approved, customer complaints will be handled by the state Department of Agriculture and Customer Service.

THE 'VIRGINIA SOLUTION'

Though Verizon and AT&T have been the drivers of most franchising reform bills, Qwest Communications International Inc. and small independent telephone companies are wielding their legislative market power, too.

According to Tom Graves, executive director of the Iowa Cable & Telecommunications Association, Qwest is behind an “almost mean-spirited” bill currently making its way through the Iowa state house.

Not only would House File 2647 turn franchising authority over to the office of the secretary of state, but certificated local exchange utility carriers wouldn't even have to go through the motions of filing for state video authority. Their telephone operating certificates would give them the authority to move into cable.

Competitors that already have municipal franchises, but have achieved less than 40% penetration, would be allowed to walk away from those deals, as long as they notify the secretary of state's office in writing before Jan. 7, 2007, that the company wishes statewide operating authority.

The bill, if passed, would take effect July 1, and cable incumbents remain bound to their current franchises until their contractual expiration dates.

Most legislators want to be fair, Graves said, but momentum has certainly swung the way of the telcos, which argue that statewide franchising is the most expeditious way to create competition.

Incumbent operators are lobbying for a “Virginia solution.” Operators in that state successfully convinced legislators that a quick, city-by-city franchise process would be fair to all players.

Graves knows his association, and lobbyists from major state players such as Mediacom Communications Inc., are outnumbered by the paid telco advocates.

“We can't outnumber them, so we're working hard,” he said. Cable executives are trying to build coalitions with municipal authorities who recognize the damage this bill could do to local control. Cities would lose the ability to regulate basic rates, collect fees and attempt to oversee local customer service standards.

“The problem is, our friends and Qwest's friends, they're the same people,” Graves said.

The Minnesota Cable Communications Association is attempting to fend off a proposal by the state's 87 independent telephone operators and cooperatives that would delete build-out requirements currently in state law. State law does not allow franchise authority to be assigned to a state-level department.

“They have a very effective organization. They're small businesses in small communities,” said Mike Martin, executive director of the cable association, of the small telco lobby.

The small telephone companies have proffered reform bills for the last three years. Martin doesn't believe the initiative will be successful this year, either, but “we still have many weeks to go” in the legislative session.

Election schedules, state rules and biennial legislatures are protecting some states from the telco debate this year.

In Colorado, Qwest is in talks with the cooperative of governments representing Denver and its suburbs, to create a local franchise template the telco can take elsewhere, said Colorado Cable Television Assocation deputy executive director Jeff Weist. If the negotiations slow, cable lobbyists expect a state bill to be filed next January.

“We don't believe they'd put all their efforts into (the model) franchise and not have a Plan B,” Weist said.

Arkansas operators anticipate the resurrection of a broadband deployment bill they fended off in 2005. Legislators are intent on policy that will ensure infrastructure deployment into the most rural areas of the state.

The past version allowed “late bloomers to come in, build on existing infrastructure and get tax breaks, while we invested millions without those tax breaks” said Len Pitcock, executive director of the Arkansas Cable Telecommunications Association.

Fortunately for the industry, the legislature was grappling with school funding issues, so any proposal that cut tax payments faced an uphill battled.

Cable lobbyists are in discussions with other stakeholders such as AT&T and electric companies in hopes a 2007 version would more evenly address the needs of all stakeholders.

Other than Virginia, there have been few outcomes branded by cable as victories on the issue of franchise reform. In Maine, senate president Beth Edmunds circulated a draft of a Texas-like reform bill. The draft was filed at the request of the International Brotherhood of Electrical Workers, a dominant union within Verizon's workforce.

The New England Cable Telecommunications Associations anticipated the bill, and built partnerships with municipal associations to oppose the bill, which would have allowed Verizon to serve every Maine town without build-out regulations. In the face of opposition from both chambers, the senator withdrew the bill.

Most associations say they are monitoring other cable-related bills, but most political capital is spent on the franchising reform issue.

Arizona is a rare exception. The Arizona-New Mexico Cable Telecommunications Association had a reform-free legislative docket and was able to proactively pursue an old issue: excessive taxation.

For three consecutive years, the association attempted to convince Arizona legislators that local fees and taxes resulted in a tax burden in excess of the federally mandated 5% cap on franchise fees. The average tax rate, passed through to the state's cable consumers, is 5.4%, taxes that aren't paid by direct-broadcast satellite customers.

Past versions attempted to limit the statewide tax burden at 4%, therefore drawing the opposition of the municipal lobby. This session, operators set the top tax rate at 5%, and agreed the cap would be staged in as existing franchises expire. That will protect city revenues while municipalities figure out how to replace those funds.

With the changes, the municipal lobby remained neutral on the bill, and the cable industry was able to muster the votes to pass it in February. Gov. Janet Napolitano signed it into law on March 3.

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