FCC Gives Telcos Big Video Victory

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Video franchise reform went from being stuck in neutral in Congress to being thrown into overdrive at the FCC.

The FCC Wednesday granted telcos a big victory and what amounts to an FCC version of the sweeping video franchise reform legislation that failed to pass Congress over the issue of network neutrality.

In a 3-2 vote accompanied by long and sometimes heated statements, the commission's Republican majority approved an order that would put a shot clock on local franchise negotiations, limit build-out requirements and franchise conditions, and cap public and government access channel investments, changes telegraphed by FCC Chairman Kevin Martin over the past several weeks.

Cable does not necessarily get the same break. The FCC said it would look into applying the same regime to incumbents, and suggested it would favor it. But it also said cable incumbents shouldn't get that same deal until their current franchise deals expire, which in some cases is years. That did not sit well with the cable industry, which could take the decision to court.

The Democratic commissioners who opposed the changes said they agreed with the majority that some video franchise reform could be helpful to spurring competition to cable, but they called the majority proposal an overreaching that would get smacked down by the courts. Even Republican Robert McDowell conceded lawyers were probably already on their way to the courthouse.

The Republicans argued that it was within their authority to make the changes to prevent local franchising authorities from unreasonably delaying franchise grants and the rollout of price and service competition to cable.

McDowell said he had had some concerns about whether or not the FCC had the authority after questions had been raise by the some fellow commissioners and legislators, but that those concerns, for the most part, had been allayed.

While the Democrats talked of regulatory arrogance and overreaching, McDowell instead framed it as creating a regulatory environment where competition can flourish. midwifing a "virtuous cycle of hope and investment, growth and opportunity," in the FCC's "bold quest" to foster competition.

The Commission teed up that decision with its annual cable price survey in the same meeting, which found rates had gone up by 5.2% in 2006, and 93% since the deregulatory 1996 Telecommunications Act. The Democrats and Republicans seemed in agreement that rates had gone up dramatically, though Commissioner Robert McDowell in particular suggested that the study was flawed for not looking at the increase in cable channels and service or other impacts on price, like programming costs.

Martin has pointed to "staggering" cable prices--that the study found were not lowered by satellite competition--in arguing for helping the telephone companies more easily compete in video and broadband.

The National Cable & Telecommunications Association countered that the price report was incomplete, looked at old data, and in some cases bad data.

Commission Democrats responded immediately and angrily to the franchise reform item. Commissioner Jonathan Adelstein called it federalizing the local franchise process, said it was legislation disguised as regulation, and said that to find the authority, the majority had to do legal gymnastics that would only impress an Olympic judge whose vote had already been bought.

Commissioner Michael Copps, who along with Adelstein voted--loudly--against the item, said he was troubled by the lack of evidence that the local franchising system was irretrievably broken that would warrant "completely upending" the process.

Adelstein also asked the staffer presenting the item what specific examples there were of localities that had unreasonably delayed franchises, pointed to her lack of immediate citations as evidence there weren't any. Martin, before making his statement, pointed out that she had not had the item in front of her, and pointedly ticked off several examples from footnotes in the order, including one in which an applicant was required to videotape the arrival of Santa to the town as a franchise condition.

According to the order, local franchise authorities: 1) have 90 days to either accept or reject a franchise proposal (6 months if the applicant has not secured rights of way); 2 cannot impose unreasonable build-out requirements, which would include requiring and incumbent to serve an entire franchise before serving any or requiring local phone companies to initially build out beyond their telephone footprint. Reasonable requirements would include some time-frame benchmarks or market success; 3) limiting franchise conditions by making more of them subject to the 5% franchise fee cap; and 4) defining as an unreasonable refusal to negotiate excessive public, educational or government channel expenses (the FCC suggested some cost-sharing might be a good approach); and 5) limiting local franchise authority jurisdiction to cable service over cable systems, rather than ancillary services.

Verizon was quick to praise the decision, saying the move would spur investment and the rollout of video service: "Today’s action will fast-forward the delivery of new choices, lower prices and better services to consumers.  The FCC is standing up for consumers who are tired of skyrocketing cable bills and want greater choice in service providers and programming. Verizon has an aggressive schedule to deploy FiOS TV.  This order will enable us to reach agreements with local franchise authorities more quickly so we can deliver the benefits of competition to consumers faster."

AT&T was almost as quick: “The FCC has wisely determined that the pace of video competition and broadband deployment should not be held hostage to the administration of a franchising process created for monopoly cable providers," said Bob Quinn, senior VP, federal relations.. 

“We are heartened that the FCC, just as 9 states, has recognized that the existing local franchising process limits consumer choice and investments in broadband infrastructure.  The FCC has taken steps towards streamlining the franchising process by establishing reasonable timeframes within which local franchising authorities administer their responsibilities. "

The FCC order does not preempt state video franchise reforms that phone companies have been working to secure, succeeding in a dozen or so states, including most recently Michigan.

Mark Cooper, Director of Research for the Consumer Federation of America, said the FCC decision was a windfall for telcos that would adversely impact the poor and basic services.

"Today, the Republican majority at the FCC voted to fatten the pockets of the telephone companies while restricting the ability of local governments to provide basic services like police, fire or access to government and opened the door to redlining of low-income and rural areas," said Cooper. "It was one thing to try to shorten the franchising process, but quite another to load the dice in favor of the companies and against local governments."

He also anticipated the cable company's push for equal treatment. "The cable companies will soon be demanding concessions, too," he said, "setting up a race to the bottom. By tipping the scales in favor of the companies, the FCC has guaranteed that local governments and their citizens will suffer."

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