[opendtv] Cable vs. Telco: What Happens When Competition Outpaces Washington Rules
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: OpenDTV Mail List <opendtv@xxxxxxxxxxxxx>
- Date: Thu, 12 May 2005 07:30:29 -0400
Recently I have discussed the problems that the Telcos face in
entering the video business. And we have had extensive discussions
about the correct use of the term IPTV, as it relates to the walled
gardens that the Telcos are building versus the Internet TV model,
where anyone can deliver video to anyone via a generic broadband
connection.
As if this linguistic battle is all not tortured enough, the Telcos
are now running ads in some areas seeking changes in laws and
regulations that will lower their barriers to entry, claiming that
"Internet TV should not be regulated in the same way as cable TV,
which has spent decades enriching the coffers of local governments.
The following analysis of the situation makes for interesting
reading. And one more area to include in the NEXT re-write of the
telecommunications act.
Regards
Craig
P.S. The morning paper includes the news that Cox Cable will begin
selling telephone service in Gainesville this August.
http://www.broadcastingcable.com/article/CA600129.html?&display=Features&referral=SUPP
Cable vs. Telco: What Happens
When Competition Outpaces Washington Rules
By Bill McConnell -- Broadcasting & Cable, 5/9/2005
With a barrage of ads running on broadcast stations across Texas,
local phone company SBC informs viewers that the state's laws are
"outdated" and "preventing consumers from making their own
telecommunications decisions." Cable companies face "less
competition, and they like it that way," says another ad.
These spots and others like them are part of a massive campaign by
phone giants SBC and Verizon to persuade Texas citizens-read:
legislators-to make it easier to sell TV service in the state.
In equally strong counterattacks in newspaper and TV ads, cable
operators Time Warner, Comcast and Cox warn that phone companies have
hired "hordes of influence peddlers" to push legislation. The
accompanying spot shows a fatcat blowing smoke from a cigar.
As the cable-vs.-telco war to capture subscribers for bundled TV,
phone and Internet services begins in earnest, the battles have
spread beyond Texas. Across the country, the major phone companies
have committed more than $20 billion to launch subscription-TV
services that will eat into cable's customer base. But their biggest
obstacle isn't the money; it's Washington and thousands of local
governments hanging on to decades-old rules written when the phone
business was a government-protected monopoly.
Phone companies say that competition will sputter unless Congress and
regulators catch up with changing technology. Verizon plans to begin
offering a 100-channel package for $40 a month in late 2005 or early
2006, but it can't start building subscriber lists yet. First, it
must obtain franchises from thousands of local communities-a process
that could delay TV service for years. To dodge that roadblock,
Verizon is asking Washington to streamline the rollout by writing
Internet-TV rules that would apply nationwide.
House Commerce Committee Chairman Joe Barton (R-Texas) is preparing
to do just that. "We need a federal policy with federal rules," he
said at a recent hearing on Internet video. "We cannot expect new
entrants to succeed if they have to comply with 52 different
jurisdictions, not to mention if they have to comply with rules set
by thousands of franchising authorities." Barton has said he wants
the House to approve relief for the Bells as a component of
telecommunications-overhaul legislation to be sent to the Senate
before Aug. 1.
Leaps in technology
Because of the leaps in digital technology that only a few years ago
were unimaginable, Congress and regulators have struggled to update
the rules fast enough. Because of that, a revolution in new services
and competition is being held back, telephone-industry officials
say. "Technology has just passed by our telecommunications laws,"
says Lincoln Hoewing, chief of Internet and TV policy for Verizon.
"Nobody expected broadband Internet to grow as fast as it has."
The telephone companies are in a more precarious spot than cable
operators because the video business they are trying to enter is
highly regulated by more than 2,000 local governments. As for the
cable industry's foray into Internet-based services-phone and
data-the FCC has taken a hands-off approach, which has allowed
operators to offer high-speed Internet service with virtually no
hurdles, at least for now.
The lengthy negotiations with city councils and cable-franchise
boards that telephone companies now encounter were no threat in the
early days of slow growth and few competitors. "We're facing a very
complex and delayed process to get into video," complains Hoewing.
"We need a national policy that will encourage deployment of new
technology as rapidly as possible."
Today, the telephone companies-which have been regulated primarily
under federal and state rules-are trying to get into video almost
overnight. The business must be developed quickly to offset losses
in their core landline phone business to cable-industry and other
Internet carriers.
The phone companies face thousands of local governments determined to
write a new set of ground rules governing franchise fees,
public-access channels and construction of new plant.
Unless Washington frees the Bells from the obligation to obtain local
franchise permits the way cable companies do, the telcos say, their
rollouts could be slowed by years and tens of millions of dollars
added to the cost. The cable industry hopes the current
telecommunication laws remain intact-and in their favor .
The phone companies are so desperate for relief that they're begging
local broadcasters to take up their cause. At the National
Association of Broadcasters convention in Las Vegas last month,
Verizon Chairman Ivan Seidenberg offered to carry digital multicast
channels that TV stations can offer. His overture came only weeks
after the cable industry persuaded the FCC to reject mandatory cable
carriage for multicasting.
No quick remedy
Leaders in Congress and the FCC are sympathetic to the Bells' dilemma
and are considering measures to give them relief. But cable operators
are likely to make deep inroads into the local-telephone business
before the Bells' video-franchising obligations are spelled out.
Cable operators plan to press for the status quo. "We want everybody
to follow rules that are already on the books," says Kyle McSlarrow,
president of the National Cable and Telecommunications Association.
More pressure is expected from local governments and consumer
groups, which would prefer not to weaken municipalities' rights to
grant pay-TV franchises.
Despite Washington's desire to bring new competitors to TV and
telephone services, the regulatory morass isn't about to be cleared
up quickly. Last week, the FCC turned down SBC's request for blanket
exemption from "common-carrier," or telephone-style, rules that
govern a wide range of broadband services, including video. SBC
plans to spend $7 billion over the next three years to upgrade its
network called Project Lightspeed.
Congress isn't likely to act on such a controversial issue this year.
The Supreme Court, however, is expected to rule as soon as next month
on how much flexibility the FCC has in setting rules for Internet
service. With direction from the court, the commission would
probably need another year to decide whether to exempt
Internet-delivered communications from most local regulation.
"The timing is just bad for the phone companies," says Laura
Phillips, a telecom lawyer with Washington firm Drinker Biddle &
Reath. "I don't see any momentum this year."
SBC and Verizon are taking different approaches to local regulation.
Resigned to the possibility that it may never be relieved of heavy
local oversight, Verizon has negotiations under way with more than
100 franchise authorities on launching TV service in their markets.
It has also asked the California, Virginia and Texas legislatures to
grant statewide franchises.
Verizon, which recently cleared the way to buy rival MCI Inc., isn't
waiting for franchise approvals to begin constructing the $15 billion
fiber-optic network necessary for TV. The company argues that,
because the network can also be used for standard Internet service
phone companies can already offer, additional franchise authority is
unnecessary until TV packages are actually being sold.
In the meantime, Verizon is lining up programming. Last week, the
company proudly trumpeted a deal to carry the NFL Network. The
company has also signed up NBC Universal Cable, Starz, Showtime, A&E
and Discovery, and more deals are in the works. Verizon's buildout
has angered the cable industry. The state cable association in New
York managed to win a temporary work stoppage against the phone
company, but work continued once local regulators verified that the
proper construction permits had been obtained.
In Texas, the issue-advertising war has been raging over the state
legislature's consideration of a bill to set up a statewide franchise
plan that would eliminate the need to haggle with hundreds of local
governments for local franchises. SBC and cable operator Time Warner
have charged each other with harming consumers' interests. The phone
company also has complained that cable operators won't run TV ads
giving the Bells' point of view.
Cities demand oversight
SBC argues that current law already gives telephone companies the
right to deliver Internet-based TV, and it has no plans to apply for
new franchise rights. Instead, the company is waiting for the FCC to
formally declare a video franchise unnecessary before moving forward.
"We don't think franchise rules apply to Internet video," says SBC
spokesman Michael Balmoris. "Policymakers are in the business of
promoting competition. We need clarification from regulators."
The companies claim they aren't trying to escape obligations to serve
poor neighborhoods or other local obligations, as critics allege.
Says Verizon's Hoewing, "We're willing to pay franchise fees; we've
got capacity to carry public-access channels. We're just trying to
move the process forward while still serving concerns local
governments have. Local franchising is an outmoded process that cable
regulators developed over decades when companies had time to build
out without worrying about competition."
Not surprisingly, industry analysts have generally endorsed the phone
companies' view that they must be freed from oversight by thousands
of local governments. "Competitive entry into the video market will
be delayed if the Bells do not get relief," says UBS Investment
Research's John Hodulik in a new report.
But local officials say obtaining franchise rights is relatively
simple as long as the phone companies sign on to roughly the same
terms as local cable incumbents. Verizon's and SBC's real aim is to
enter the market with lower franchise fees and diminished
obligations, says Ken Fellman, mayor of Arvada, Colo., and chairman
of the National League of Cities' telecommunications committee,
which lobbies for city governments in Washington.
"I have a hard time buying that corporations the size of Verizon or
SBC don't have the wherewithal to get the job done," he says. "They
would just prefer not to incur the expense."
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