FCC Opens Broad Video Franchise Inquiry; Examines Buildouts

In a win for Bells and FCC Chmn. Martin, the Commission opened what officials called a “broad” inquiry into its power to ensure municipalities fairly award broadband franchises. Unveiling a proposed rulemaking on local franchise authority (LFA) obligations, FCC staff said they “tentatively” found the Communications Act allows Commission oversight in this area.

NCTA and municipal groups joined Bells in welcoming the inquiry, but NATOA and others suggested the FCC may be out of bounds. At the Thurs. agenda meeting, Comrs. Adelstein and Copps urged the FCC not to overstep its authority in the notice of proposed rulemaking (NPRM). Adelstein said a key reason he backed the item was because it examines buildout requirements. “Having this would not be unreasonable under the statute,” he told us after the meeting.

The FCC has power to interpret federal LFA provisions “broadly,” said Media Bureau lawyer Andrew Long, citing a preliminary review. The unreleased NPRM asks 6 questions, such as whether there should be a maximum timeframe for considering franchise applications, he said.

“Assuming there is both the need and the authority for Commission intervention, the notice asks how the Commission should interpret the mandate” of Communication Act Section 621(a), said an FCC statement. The provision is widely interpreted as saying LFAs can’t refuse unfairly to grant franchises to cable rivals including Bells, now gearing up to expand video service as a way to stanch declines in landline subscribers. “The establishment of procedures and other requirements that unreasonably interfere with the ability of would-be entrants to introduce quickly their competitive offerings” may be prohibited by the section, the FCC said.

The NPRM was adopted after considerable controversy at the Commission. Some analysts expected at least a temporary punt on the rulemaking due to sympathy for municipalities (CD Oct 31 p2). The finding supported by Adelstein said LFAs can allow a full build-out of a “cable system [over] a reasonable period of time.” Such provisions have generally been fought by Bells and backed by cable, which came under those controls when given monopoly franchises. Bells say full build outs may be technically impractical because they often provide only part of an LFA with phone service. “Some may be attempting to use the franchise process to delay competition,” a Verizon spokesman said. The firm is expanding its FiOS fiber TV service at a cost that could near $20 billion (CD Oct 26 p7).

“We are hearing from some of these new providers that there are some local authorities that may be making it more difficult,” Martin said at the meeting, the 2nd this week. The notice “is a critical first step in addressing that issue,” he said. As they gear up to sell video, Bells have complaining vociferously about what they called the onerous provisions municipalities impose on firms that want to sell video. “Obviously, we have lots of concerns with the current local franchising process,” said Will Johnson, a Verizon regulatory counsel. “Anything the FCC could do to make it more efficient would be welcome to Verizon.” Like other telecom officials, he noted that some technical limitations may preclude a full buildout of Verizon’s FTTP fiber to the home product throughout an LFA. “When we convert a particular wire center to FTTP, that wire center may not cover an entire franchising area, or it may touch several franchising areas,” Johnson told us. “Obviously if we were required immediately to cover the entire franchising areas our burdens and costs would be enormous.”

‘Inflicting Abuse Upon Ourselves’

Qwest, with about 50,000 video customers in the Denver and Phoenix areas, seconded that sentiment. “In the past, LFAs have required full buildout from second entrants, and no second entrant has survived that requirement,” said Steve Davis, Qwest senior vp-public policy. “A new entrant honestly does not know even generally where and when it will be able to meet that type of requirement… The ability to provide that service everywhere is certainly not something a company can commit to today based on the technology.” Qwest, which sends video using VDSL, may emulate SBC and use IPTV, Davis told us.

The initial FCC conclusions on buildouts mark one of the few negatives for Bells, said an analyst. “It demonstrates that this is not the silver bullet that the Bells would like, to avoid having to go through a lot of the local processes,” said Legg Mason’s Blair Levin, a former FCC 8th-floor staffer. Still, “everyone at the FCC wants the Bells in the video business - also every city and state official wants them in the business, so the debate is about the process.” Indeed, several groups voiced concern that the current franchise process could be changed. “Because Congress has granted the FCC only minimal authority to influence local franchises, we view with concern any future FCC action to limit local involvement beyond its statutory authority,” NLC Chmn. Ken Fellman said in a statement. The FCC’s assertion of jurisdiction over LFAs “is unprecedented,” said NATOA Exec. Dir. Libby Beaty. “Until I have seen the item itself, I cannot imagine the legal precedent under which the Commission asserts legal jurisdiction,” she told us. “Only Congress can change what local governments are permitted to do.”

Adelstein agreed. “What remains far from clear to me is whether Congress anticipated a role for the Commission” on LFAs, he said. Referring to last-minute talks that ended Mon. to approve 2 telecom mergers, Copps said: “I thought we had been there and done that this week, but it seems we never get enough of inflicting abuse upon ourselves.” The LFA process “appears to be working in numerous communities for new entrants,” he said. The FCC’s inquiry “does show that they want to tread lightly both for legal and political reasons, particularly seeking comment on the scope of their authority,” said PFF’s Kyle Dixon, a former FCC 8th-floor staffer. “The purpose of getting the comment is to make sure they understand the scope of their authority so they don’t broaden it beyond what Congress would have intended.” The inquiry demonstrates “the Commission recognized that there was a problem,” said another former FCC staffer, Phoenix Center Pres. Lawrence Spiwak. “At the end of the day, I think the cable companies would prefer to get out of their franchise contracts.” - Jonathan Make