FCC Hands Bell Companies Video Franchising Victory

Despite opposition from Congress and the cable industry, the FCC on Wednesday overrode local video franchising rules, giving new competitors, mainly telcos, easier entry to providing television services in cities and municipalities nationwide.

“This is breathtaking in its disrespect of our local and state government partners,” said Democratic FCC Commissioner Jonathan Adelstein.

Supporters of the decision – the Bell companies rolling out television services – hailed the 3-2 party line vote and said the new rules will break the cable industry’s stranglehold on television competition. To be sure, the FCC handed the carriers a victory they were not able to win in Congress this year as their hopes of a telecom rewrite all but disappeared when Democrats were handed majority status in November.

“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,” said Susanne Guyer, senior vice president for federal regulatory affairs at Verizon Communications Inc.

That contention lies at the heart of the video franchising debate.

AT&T Inc. and Verizon have lobbied the FCC and Congress for months, claiming local franchise authorities (LFAs) have imposed onerous requirements on them and favored cable incumbents who oppose competition that would result in lower prices. Notably, the FCC’s approval of the franchising order came on the same day FCC Chairman Kevin Martin unveiled a study showing that, in 2004, average cable rates rose 5.2 percent. The study further found rates increased 93 percent between 1995 and 2005.

But critics of the Bell companies, including CLECs, say the Bells have not encountered undue obstacles and are just seeking quick access to revenue-generating towns and municipalities. They also say the FCC has no right to legislate, since it is a regulatory agency.

Consumer groups, on the other hand, praised the decision, saying it will create choices for citizens, although some did caution the FCC not to eradicate local rights.

“The expansion of federal authority over what historically has been a local decision should be done with great care,” said Samuel A. Simon, chairman and founder of the Telecommunications Research and Action Center (TRAC). “[L]ocal consumer protection offices should be able to continue to resolve consumer complaints on service-related issues.”

The National Governors Association, too, begged the FCC not to impede states’ rights. In a Dec. 19 letter to commissioners, the organization said states have passed reform laws, actions that prove they have residents’ best interests in mind. California, Indiana, Kansas, New Jersey, North Carolina, Michigan, South Carolina, Texas and Virginia all passed laws this year easing barriers to entry for new providers.

Commissioners admitted they expect to deal with lawsuits stemming from the adopted order; they also will have to justify the decision to members of Congress, one of whom – Rep. John Dingell, D-Mich. – warned in a Dec. 19 letter he would demand accountability on a number of items if the FCC approved the text. Dingell is slated to head the House Energy and Commerce Committee for the first time in 12 years and is known for his unwillingness to rubber-stamp initiatives backed by Bell and cable companies.

“It would be extremely inappropriate for the Federal Communications Commission to take action that would exceed the agency’s authority and usurp Congressional prerogative to reform the cable television local franchising process,” he told Martin.

For some in the industry, the order that passed was a pared down version of earlier proposals, a change that would bode well for consumers.

Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association (NCTA), said the Bells won’t be able to “to ignore the franchising process and operate under different rules” from competitors. Still, he criticized the FCC for failing to create a level playing field for all providers. Perhaps hinting at legal action to come, McSlarrow added, “We don’t believe the commission has the legal authority to establish separate regimes for incumbents and new entrants in today’s highly competitive marketplace.”

Indeed, court challenges are likely to stem from state and local authorities, who essentially were stripped of their rights to govern access to rights-of-way, although opinions vary on the extent of the impact. The FCC did put the kibosh on methods it said LFAs have used to unfairly deny competitive franchises. As examples, commissioners cited drawn-out local negotiations with no time limits; unreasonable requests for payments in addition to franchise fees, which are capped at 5 percent; and unreasonable demands with respect to public, educational and government access.

Addressing those issues, the FCC’s order requires LFAs to approve or reject an RBOC’s bid to provide television services within 90 days. If an LFA refuses the bid, the application is presumed granted, according to the document. Industry analysts said this provision will be a major source of contention and draw plenty of legal challenges. Further, entities other than telcos seeking to offer cable television services would have to wait six months, instead of three, for approval or refusal from LFAs.

Additionally, the order limits the franchise fees LFAs are allowed to charge new entrants, and applicants now will be able to put in-kind contributions toward those payments. For instance, wrote Medley Global Advisers analyst Jessica Zufolo in a research note to clients, if a city requires an RBOC to build intranet facilities to schools, police precincts and firehouses, the RBOC will be able to deduct the cost from their franchise fee owed to the city.

Another provision in the order sure to garner criticism, and even lawsuits, is the one relieving new entrants of any responsibility to build out in areas where they don’t already have facilities. However, this statute only applies to states that have not yet passed video franchising laws. The Bells have come under fire for only rolling out their TV services in affluent suburbs, overlooking rural, multitenant and urban areas. The buildout relief would not apply in the states that passed new franchising laws this year, although it is unclear if the FCC would force the Bells to install infrastructure in impoverished or hard-to-reach areas.

Republican commissioners Robert McDowell, Deborah Taylor Tate and Chairman Martin all voted to approve the order. Their Democratic colleagues, Adelstein and Michael Copps, voted against it.

AT&T Inc. www.att.com  

FCC www.fcc.gov  

NCTA www.ncta.com  

Verizon Communications Inc. www.verizon.com

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