California Passes Statewide Video Franchising Legislation

California has relaxed its video franchising rules to allow new entrants to seek statewide permissions, rather than city-by-city approvals.

Gov. Arnold Schwarzenegger is expected to sign the Digital Infrastructure and Video Choice Act, which was passed by the California Assembly late Thursday night. Assembly members voted 64-5 in favor of the bill on Aug. 31, following a 33-4 vote from the Senate on Aug. 30.

California joins Indiana, Kansas, New Jersey, North Carolina, South Carolina, Texas and Virginia in enacting statewide franchise laws.

The legislation is particularly beneficial to telcos such as AT&T Inc. and Verizon Communications Inc. The Bells have complained that municipal franchise laws are so onerous, the companies have been barred from offering video services as easily as cable providers because different laws governed the same technologies.

AT&T serves approximately 15 million switched phone lines in California, noted Stifel Nicolaus & Co. Inc. analysts Blair Levin, Rebecca Arbogast and David Kaut, in a research note to clients. Meanwhile, Verizon would be freed from local franchise demands on about 9 percent of its lines. Still, the bill requires the Bells to pay local franchise fees and adhere to rights-of-way requirements.

“This progressive legislation will be a catalyst for producing more video competition and broadband innovation in California,” said Verizon west region President Tim McCallion. “The legislation will enable Verizon to offer its new TV service more quickly to more communities by removing outdated barriers that slowed down video competition.”

Existing cable providers such as Comcast Corp. and Time Warner would be able to opt in to the state franchise system starting in January 2008.

California’s legislature passed its law as federal-level efforts to reform telecom rules seemed to stall. Congress was just about to resume its work after a month-long break and Sen. Ted Stevens, R-Alaska, had yet to get 60 votes in favor of his sweeping legislation.

AT&T Inc. www.att.com
Stifel Nicolaus & Co. Inc. www.stifel.com
Verizon Communications Inc. www.verizon.com

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