Capitol Expenses

Telcos, cable in fierce legislative fight for new franchise rules

Turn on the TV or radio in Washington and, from the barrage of advertising, you’ll know what the telephone companies’ legislative/regulatory priority is: video-franchise reform, video-franchise reform, video-franchise reform. The pitched battle between telcos and cable over streamlining the video-franchising process, and between telcos and companies like Google and Yahoo! over access to the Internet side of that franchising equation, has shaped up to be the battle in Washington over the past couple of months.

By at least one estimate, the phone companies—or “Phoneys” as a new cable attack-ad campaign dubs them—are ponying up the majority of the $1 million being spent per week in Washington on advertising to influence the debate.

The telephone companies, prominently Verizon for its FiOS video service and AT&T for its Lightspeed service, are lobbying for a national video-franchising scheme to short-circuit local-franchise negotiations. They say those local squabbles can stop competing telco franchises from getting a greenlight—and time is money.

At a Capitol Hill hearing earlier this month, top Verizon lobbyist and former congressman Tom Tauke tried to deliver the money shot with the statistic that, where FiOS competes head-to-head with cable, “bills go down, sometimes as much as 40%.” Verizon says that each year that goes by without franchise reform to foster video competition will cost consumers $8 billion.

The cable industry is also for video-franchise reform, but it argues that the playing field should be leveled, not tilted toward telcos. The National Cable & Telecommunications Association argues that the existing franchise process, which its operators had to go through, is not a barrier to entry and that the big phone companies shouldn’t be treated like little startups in need of government favors.

The other key issue in the battle for video-franchise relief is that telcos are being asked to embrace “network neutrality”—or “Internet freedom,” as its backers have dubbed it—which is essentially nondiscrimination in the provision of Internet service. The issue has spun off several stand-alone bills from legislators arguing that the new telco services will become gatekeepers for an Internet toll road where the price of admission—that is, security and more of the broadband pipe—will discourage the next Google or

At least for the next two years, the major telco players have already committed to following open- Internet policies spelled out by the FCC.

Verizon and AT&T made that pledge to the commission last fall as one of the conditions for securing approval of their mergers with MCI and SBC, respectively. But anti-consolidation activists have been pushing for regulations defining and mandating open access to be added to the two telecom bills.

Anything more targeted than a general pledge not to discriminate in access is excessive regulation of the Internet and will put them at a major competitive disadvantage, say the telcos. “If enacted,” Tauke told Congress, “net-neutrality regulation will potentially prohibit us from offering customers the unique and secure platform required for these next-generation services. It will potentially prohibit us from offering a competing video service to consumers. Put another way, radical net-neutrality proposals would chill the investment climate for broadband networks, deter and delay broadband rollout, and lock in today’s Internet architecture and levels of performance. That isn’t good for consumers, and it isn’t good for the nation.”

Telcos have also been working on the state level, with some success, to push bills streamlining or bypassing the local-franchising process so they can more easily offer video service. Verizon helped push through a state franchising scheme in Texas that allowed it to quickly expand into 25 markets there.

By Verizon’s accounting, so far Texas, Virginia and New Jersey have passed some type of statewide franchise reform, although the New Jersey bill is awaiting the governor’s signature. The California legislature was expected late last week to vote on a franchise-reform bill that had passed out of committee the week before. A bill was also introduced in Florida last session but was not voted on before the session ended.

AT&T and Verizon both want a law that wouldn’t force them to build their systems in all neighborhoods equally. The cable industry says that’s not fair: When cable was building its systems, it had to adhere to local build-out requirements rather than cherry-pick areas where the return was greatest.

The jury is still out on whether the telcos will get their franchise relief, however. Legislators atop both the House and Senate Commerce Committees continue to pledge that a bill will pass either before the election recess or perhaps even in a lame-duck session. But the House and Senate versions remain radically different, and, privately, even some franchise-reform backers aren’t betting on any bills for the old Bells this session.