Telcos Refine their Case Against TV Franchises

Two senior SBC and Verizon executives appearing at SUPERCOMM this week offered new twists on their arguments against cable franchise oversight of their video services in the wake of a set-back to their strategies in Texas.

Speaking on a panel devoted to IPTV regulatory issues, Dorothy Attwood, SBC’s senior vice president for regulatory planning and policy, and Marijo Howe, Verizon’s vice president of alliances, locked horns with Chicago franchise official Norma Reyes over the importance of local oversight and whether city rules amount to “barriers to entry.” While all parties voiced support for dialogue and compromise, it was clear that the light state- or federal-level regulatory solutions envisioned by the telephone giants were nowhere close to the position on the issue represented by Reyes.

The backdrop to the discussion was a decision in late May by the Texas legislature to table a bill that would have established a statewide franchise process in place of local franchises. Cable operators lodged an intensive lobbying and advertising campaign against the measure on grounds that telcos were seeking to target “high-value” customers to the detriment of lower income households.

But Attwood described this “red-lining” argument as a “red herring” that ignores the fact that SBC has committed to serving all its broadband footprint with video services provided over either the Project Lightspeed IPTV network or through its affiliation with EchoStar’s Dish Network. Clearly sensitive to the red-lining accusation, which stemmed from SBC’s acknowledgement months ago that it would target higher-end communities with initial deployments of Project Lightspeed, Attwood said she completely agreed with Reyes that the “public interest goal has to be to provide service as far as possible to the entire community.”

By bringing the EchoStar deal into the picture, she was able to argue that this is what SBC would do without any regulatory requirements. “Is the application of the franchise process the best way to achieve this goal, or is it better to remove the barriers to entry and allow the competitive case to be made for entering and serving aggressively?” Attwood asked.

Reyes took issue with the idea of local franchising as a barrier to entry. Instead, she said, it’s a licensing process that protects the interests of the local community, just like any other business regulation. “We have minority participation and participation of women as requirements that are very local and important to us,” she said. “Decisions are made in Washington every day that don’t necessarily take these concerns into consideration.”

Howe argued that, in Verizon’s case, the issue isn’t about video service; it’s about building an all-new network that carries all services with the intention of eventually reaching all customers. “This isn’t just a new revenue creation strategy, it’s also a cost-saving strategy,” she said. “Video is just one piece.”

Along with the argument that SBC will be providing video service of one kind or another virtually everywhere, Attwood added other new wrinkles to the carrier’s case against local franchise oversight. She noted, for example, that ILECs have an incumbent obligation as providers of last resort to make voice service available to everyone. “It’s equally important for the incumbent provider of video to have an obligation to be the carrier of last resort,” she said, noting that, like the telcos, cable operators faced little competition when building their businesses and therefore rightfully were responsible for providing service everywhere.

Howe argued that, in cable’s case, the local franchise was the “last franchise cable had to get” as it moved on to offer data and voice services. In contrast, she noted, telcos had to obtain the voice “franchise” under the state and federal regulatory processes, but that isn’t enough to support expansion into video. Moreover, she added, cable obtained its franchises over long periods of time, resulting in a staggered approach to franchise renewal. Telcos, on the other hand, must pursue franchises everywhere at once, resulting in a more onerous burden.

“In New Jersey alone we’re faced with having to obtain 526 local franchises,” Howe said. “Counting all our territories there would be many thousands of places we’d have to go to obtain local franchises.”

Attwood said SBC isn’t seeking to do away with franchise regulations altogether but rather to streamline the process to eliminate barriers to entry while protecting areas of public interest that are important. Just as dialog and negotiation led to the lifting of unnecessary restrictions on VoIP without losing things like universal service that everyone deemed vital, those things that are seen as essential to the public interest with regard to video regulation can be retained under new rules that are applied at the state or federal level, she said.

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