Telco Critics Hit Telecom Draft


Washington— House lawmakers will need to try a bit harder if they want to appease at least one Baby Bell.

A House telecom bill still in gestation came under attack last week by an official of Verizon Communications Inc. as an example of what not to do to promote greater competition to incumbent cable operators.

The 77-page draft began circulating two weeks ago, with instant assessments ranging from neutral to favorable.

Verizon executive Tom Tauke offered a different perspective. He complained that the draft bill was flawed because it would lower cable market-entry barriers based on the sophistication of set-top box technology.


“This notion raises red flags. Why, we wonder, is Congress trying to design the service we offer or dictate the capabilities of the customer premises equipment, specifically our set-top box?” Tauke, Verizon’s executive vice president of public affairs, policy and communications, said in a speech here last Wednesday.

The draft bill reflects a compromise that House Energy and Commerce Committee chairman Joe Barton (R-Texas) and Telecommunications and the Internet Subcommittee chairman Rep. Fred Upton (R-Mich.) struck with Democratic Reps John Dingell of Michigan and Edward Markey of Massachusetts.

Although it has a deregulatory thrust, the House draft contains various digital-age consumer and competitive safeguards, including mandates on broadband-network owners to ensure nondiscriminatory treatment of unaffiliated Web merchants, a policy called network neutrality.

A huge fight is expected before net neutrality principles are enshrined in law.

“The reality is that what’s going to emerge for consideration is going to look nothing like the draft because I can’t believe [House lawmakers] would spend a lot of time looking at the draft as it is now,” said David McClure, chairman and CEO of the U.S. Internet Industry Association. “There are too many problems. It’s just unworkable.”

Tauke, in his speech to a forum hosted by the Progress & Freedom Foundation (PFF), was not specific about the offending set-top provision in the draft.

Later, a Verizon spokesman pointed to language that defined the term “broadband video service” as something that “integrates the capability to access Internet content of the subscriber’s choosing.” Presumably, that language implies deployment of a set-top with capabilities not in Verizon’s near-term business plan.

In reviewing the House draft, PFF senior fellow Randolph May indicated that lawmakers made unsupported predictions about consumer technology preferences in linking “streamlined franchising treatment” to “certain types of not-yet-offered integrated Internet functionalities.”

In other comments, Tauke suggested that the House draft would frustrate another Verizon policy objective.

Verizon’s strategy is to deploy broadband networks capable of offering video without having to sign agreements with thousands of local communities, as currently required by federal law.

Perhaps anticipating change on Capitol Hill, Texas recently repealed local-franchise requirements, enacting a law pushed by SBC Communications Inc. that the cable industry is now trying to overturn in federal court.

Verizon has stressed that local franchising simply delays competition. But Dan Brenner, speaking on a panel following Tauke’s remarks, said while franchising was “far from perfect,” it was hardly the millstone that Verizon has described.

Brenner noted that Tauke’s remarks came just one day before Verizon began offering video programming service over its FiOS TV system in Keller, Texas, pursuant to a local franchise.

Another Verizon objective is to serve geographic areas free from requirements that mandate service to every household in a community.

According to Tauke, the House draft referenced buildout requirements with the words “to be determined” instead of clearly stating that no buildout requirements will apply.

“The good news is that nothing is there. The bad news is that somebody apparently believes that there should be something there, specifically, a buildout requirement,” Tauke said.

For cable operators, the elimination of buildout requirements would represent a serious competitive threat.


Last week, the NCTA made a Federal Communications Commission filing arguing that if phone companies were allowed to cream-skim cable markets instead of providing service to every household, they would put some cable systems at a large economic disadvantage.

“It may even be the case that, given its sunken costs and the regulatory disparity, a cable operator would be so disadvantaged that it eventually was forced to exit the entire franchise area — again, for reasons that had nothing to do with marketplace inefficiency or competitive inferiority,” the NCTA said.

In the filing, the NCTA said an economic consultant it hired concluded in a study that cable companies that have been required to offer service to every household in a community for social-policy reasons might not have a cost structure capable of withstanding competition from a deep-pocketed rival employing a strategy that ignores low-income consumers.

“Cable operators could not continue to compete effectively in the areas served by telcos while still sustaining the higher costs of serving the areas that the telco chose not to enter. As [our consultant] shows, a cable operator will not be able to upgrade service in those areas or might not be able to continue serving them at all,” NCTA said.