[opendtv] Re: Cable vs. Telco: What Happens When Competition Outpaces Washington Rules

  • From: Tom Barry <trbarry@xxxxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Thu, 12 May 2005 08:36:40 -0400

The cable co's will sensibly do what they can to stall the 
competition for as long as possible.

I think maybe SBC's tack of fighting the war in the courts instead 
of Congress may prove the most effective, and also maybe provide 
some incentive for Congress to act.

ALL new technology entrants face this sort of opposition from the 
entrenched players, especially when the govt is already 
extensively involved.

- Tom

Craig Birkmaier wrote:

> 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 "outdated"  and "preventing consumers from making their own 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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