Weapons of Mass Illusion

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Courtesy of the cable-television industry, fliers have blanketed one Hudson Valley town near New York’s Tappan Zee Bridge warning that “ugly” above-ground vaults are about to be placed in local yards by a telephone company that wants to get into the TV business.

In the midst of another skirmish in a town on Long Island, N.Y., Verizon Communications Inc. sent out Subway gift cards to bring attention to the “baloney” the cable industry was promoting. Meanwhile, incumbent cable-systems operator Cablevision Systems Corp. filed suit against that village and its trustees, for purportedly reaching a “special deal” with Verizon.

In New Jersey, mayors have been sent faxes — which haven’t always come from voters in their towns — asking them to support franchising reform. One mayor found himself accused of slowing the pace of competition by failing to approve a franchise for Verizon, when the telco, in fact, hadn’t even applied in his town.

Such are the creative, often low-tech methods of persuasion being used by telephone and cable companies in their efforts to win the hearts of local citizenry and public officials, as competition in creating multichannel video systems that employ municipal rights-of-way begin to pop up in small towns across America.

These guerilla-marketing gambits are prompted by a high-stakes game for dominance in the video-delivery business. Cable operators and telcos are both trying to protect infrastructure investments. The cable industry has invested $95 billion since 1996 to upgrade its systems to provide broadband services; Verizon has spent $73 billion since 2000; and AT&T Inc. will spend $4 billion to $6 billion just this year on plant improvements.

To speed these innovations to market, AT&T and Verizon are lobbying for state and federal policy changes that will save them from the lengthy, town-by-town franchising process for video services that cable companies have slogged through. Cable incumbents argue they welcome the competition, but want new entrants to provide the same buildout demands and community requirements they have provided for years.

Here is a snapshot of how the competition is playing out in two states on the Eastern seaboard, New York and New Jersey.

MASSAPEQUA MAULING

As mayor of Massapequa Park, N.Y., for the last five years, James Altadonna Jr. has gotten used to attacks from political opponents. But that still didn’t prepare him for the onslaught he endured last year when the village granted Verizon its first video franchise in New York.

The incumbent video company, Cablevision, waged an aggressive campaign against Altadonna and other village officials to stop the town from giving Verizon what the cable company considered a sweetheart deal.

Over several months, a series of fliers criticizing Verizon and the mayor were sent to residents. Anti-telco ads also appeared in local newspapers.

In the heat of the battle, Cablevision also sued Verizon and the village over the raucous Sept. 26 meeting, attended by 200 people, when the municipality approved the telco’s franchise. Cablevision alleged that village trustees violated open-meetings laws when they took a 15-minute break, to privately scarf down some sandwiches and collect their thoughts, before voting on the franchise. A judge ultimately threw out the suit.

As part of last year’s melee, Verizon countered by sending two $5 gift cards each to 100 news reporters around the country. The cards, which they could use to buy sandwiches at the Subway restaurant chain, carried the message, “Don’t Eat Cable’s Baloney … because baloney belongs on your sandwich, not in the marketplace.” The intensity of the skirmish took the mayor by surprise.

“When we first started the process, we were interested in competition,” Altadonna said. “The ferocity of both companies against each other to get this through was something that I did not expect.”

Altadonna, president of a printing company in Long Island City, N.Y., has a framed copy of a Business Week story about his village’s franchise battle at his business. The magazine described the fight as “a digital-age equivalent of the Hatfields and the McCoys.”

The object of the battle: Whether Verizon’s Massapequa Park agreement included the same economic and regulatory burdens that Cablevision’s agreement with the village did.

For example, Cablevision argued that Verizon should be required to indemnify the village for any damage to public or private property, not just damage due to “negligent” conduct. Cablevision also complained that the franchise agreement exempted Verizon from any obligation to provide any studios or equipment, training or support for public, educational and government-access programming.

“Our issue is not Verizon,” said Charles Schueler, Cablevision’s senior vice president of media and community relations. “Our issue is not competition. Our issue is a level playing field.’’

Both before and after Verizon got its franchise in Massapequa Park, residents received fliers critical of the telco’s efforts

One mailer was headlined “Let’s Keep Local Control,” contending that “the phone company is pressuring Massapequa Park into a bad deal.”

The brochures said they were “paid for by CTANY,” but never explained what the group is or spelled out what the acronym stood for: The Cable Telecommunications Association of New York.

“We certainly didn’t try to use any subterfuge’’ in Massapequa Park, CTANY president Richard Alteri said. And it kept up its attempts to affect public opinion, by postal service.

Even after Verizon was granted its franchise, CTANY mailed out a brochure criticizing the mayor because one of the telco’s fiber-control boxes had been temporarily placed two feet above ground level — not 14 feet above the street, as the mayor had mandated. The brochure inferred that the mayor had been caught in a lie, by failing to hold Verizon to its stated rules.

“At that point, even my own children said, 'Dad, is this true?’ ” Altadonna said.

Cablevision was playing “hardball” and was trying to embarrass him, the mayor claimed.

He felt bound to respond, and shot off a letter to residents.

“The recent mailing distributed 'anonymously’ by Cablevision is especially derogatory and hurtful and, as with all these flyers, misleading and deceptive,” Altadonna wrote. “This Administration, this Office, this Mayor will not be intimidated or compromised.”

Cablevision and the New York cable lobbyist defended the tactics, citing the disparities between the terms in the cable company’s franchise and those that Verizon had.

“The mayor wasn’t happy that CTANY exposed the special deal he was cooking up with Verizon, and we’re not surprised that the mayor wasn’t happy,” Schueler said.

CTANY brochures have also been sent out in other New York towns, like Nyack and South Nyack, alleging “The phone company is putting these ugly boxes up all over Nyack and South Nyack. If you don’t act, they could put one up in front of your house.” The flier featured a photo of one of Verizon’s refrigerator-sized fiber-control cabinets.

The neighborhood warfare even raised eyebrows on Wall Street: those of Shing Yin, an analyst at Sanford C. Bernstein & Co.

“We wondered who the helpful, environmentally concerned neighbor behind this mailing might be,” Yin wrote in a sarcastic note, adding the sponsor was actually the state’s cable trade group.

“The RBOC [regional Bell operating company] vs. cable broadband war has been getting increasingly intense,” Yin wrote. “But recently, the tactics appear to have reached a new low.”

Verizon charged that Cablevision — with its lawsuit, CTANY fliers and other ads — was simply trying to stifle video competition.

“They say that they welcome competition, but through some of these tactics that they’re using, they’re actually trying to thwart it,” said John Bonomo, director of media relations for Verizon Northeast.

The New York State Public Service Commission last December approved Verizon’s franchise in Massapequa Park, subject to several conditions. Among them: Provide access for public, educational and government programming; and indemnify the village against damage to public and private property.

Cablevision views the new requirements as a triumph, while the mayor stresses the Massapequa Park’s Verizon franchise stood intact.

According to Schueler, “It was left to the New York PSC to take a special deal that Verizon negotiated with the local mayor and dismantle that special deal in order to create a level playing field.”

Altadonna disputed Cablevision’s interpretation of the commission’s actions.

“It’s amazing that they say that the PSC dismantled the franchise agreement when we got it back from the PSC with no changes, just addendums,” the mayor said. “If it was such a special deal, then the PSC would not have allowed it to go through.”

In January, New York Supreme Court Judge Anthony Parga dismissed Cablevision’s attempt to get the Massapequa Park franchise for Verizon overturned.

JUMPING IN NEW JERSEY

Mayors Ed McKenna Jr. of Red Bank and John Rooney of Northvale, both modestly sized towns in New Jersey, realized early this year they had moved into the eye of a storm when their office fax machines whirred to life, spitting out pro-telco letters.

“They were all the same: 'I am a Red Bank resident and I’m registered to vote,’ ” recalled McKenna. The unsigned letters urged McKenna to support more competition in cable television. At the time, in January, Verizon was attempting to collect pro-reform resolutions in as many New Jersey cities as possible.

After the first 20 faxes came in, McKenna began to realize some of the addresses weren’t even in Red Bank, even though they had Red Bank ZIP codes. McKenna said he called other residents named on the letters, and the purported senders said they didn’t know anything about them.

McKenna said he received 200 letters by fax. Verizon pegs the number at 27. Either way, the misdirected faxes were caused by a computer glitch, said Rich Young, a media-relations manager for Verizon New Jersey. And the incident made the front page of Garden State newspapers.

The New Jersey Legislature is mulling two different versions of video franchising reform. Current policy allows cities to select their provider, but the actual deal is worked out by the New Jersey Board of Public Utilities. The Assembly and Senate reform bills would limit the state negotiating period to 30 days.

The major difference between the bills: An early Senate draft would have required buildout to New Jersey’s 60 largest towns. The latest Senate version will be revealed in committee today (March 13).

The New Jersey Cable Telecommunications Association has crossed the state, collecting municipal resolutions in support of continued local input on franchises. Verizon pleads for mayors and councils to speak up in favor of change and has staged local rallies to spur citizen support. Both sides have launched Web sites promoting their point of view and paid lobbyists have poured into the state.

Special interest groups, too, got involved. Members of an organization called Consumers for Cable Choice have been haunting commuter stations, passing out “ballots” to allow consumers to vote whether they support “cable choice, competition and lower prices. The other choice is, “I vote no, please maintain the cable-company monopoly in my community.”

“People are literally jumping over each other” to get the “ballots,” said Rachel Holland, executive director of the group’s New Jersey chapter. Commuters even complete the ballot at work and return them at day’s end, she said.

She said pollsters have collected more than 25,000 pro-competition ballots, to be provided to legislators.

The cable industry has branded Consumers for Cable Choice an “Astroturf” organization, because it accepted seed money from telephone companies and is, in its eyes, an artificial grass-roots group.

Members of telco-supported special interest groups have also testified in legislative hearings on behalf of the Verizon-backed reform bill.

Cable-system operators are countering these efforts, with TV ads in the state that, for instance, show consumers dumping giant sacks of money into a telephone company waste bin. The narrator asks, “Do you want to pay more money in taxes?”

Why? Verizon has proposed a 5% franchise fee, which will raise the current rate by 2% in many communities. So cable operators brand Verizon’s reform proposal as the “Verizon cable tax.”

The infighting can go too far. The faxes, for instance, may even have backfired. McKenna said, “I completely discounted [the message] after 20 and started throwing them out.”

Rooney, too, was flooded with faxes, and he questioned the telco’s strategy — quipping that the decision to bypass cities in favor of state franchising is a “Bone-headed move,” a jab at Dennis Bone, president of Verizon New Jersey.

“We want competition,” he said, adding that if Verizon had actually applied for a franchise in Northvale, it well could have had one by now. The process, including state regulatory approval, would have taken less than five months.

“Instead, they wasted more than a year” trying instead to change state law, he said, adding that and the fax blitz “pissed off a lot of mayors.”

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