Cable, City Lawyers Line Up Political, Policy Guns Against Bells’ Franchising Reforms

SAN FRANCISCO -- AT&T’s proposed BellSouth takeover adds to hurdles Bells face in seeking video franchising reform, a cable industry executive said at a Practising Law Institute seminar here Mon. and Tues. That AT&T can float a $67 billion purchase but says it can’t afford universal buildout of its Project Lightspeed network “will be suspect to people,” said Jeffery Sinsheimer, Cal. Cable & Telecom Assn. vp-law & public policy. The cable law program was dominated by the views of attorneys for cable companies and cities; AT&T personnel were on hand but generally said little about the criticism.

The Bells also are talking out of both sides of their mouths by trying to distinguish their video from cable after having persuaded the FCC essentially to deregulate DSL based on the Brand X decision and the argument that like services should be regulated similarly, Sinsheimer said. “This is a very, very hard position to take,” especially with local govts. and state legislators, he said. And if AT&T avoids municipal franchise responsibilities, it’s counterproductive, he said. It helps justify municipal Wi-Fi networks as needed to serve the community, Sinsheimer said. AT&T’s stance “comes back to bite you to the end of the day” by sapping the 1996 Telecom Act aim of encouraging private investment in infrastructure, he said.

AT&T stands to land in more political hot water by cherry-picking the most attractive customers for U-verse and pitching Dish Network to the rest, Sinsheimer said. DBS isn’t taxed in most states, draining govt. revenue, he said. And AT&T hopes to hold up its Dish partnership as evidence it is fulfilling buildout requirements, Sinsheimer said.

Distinguishing telco TV from cable for regulatory purposes would put Bells outside the must-carry regime, said Daniel Brenner, NCTA senior vp-law & regulatory policy. “I don’t know how they [Bells] get around that. There isn’t enough Congress in the room to tell the broadcasters their must-carry is going to be taken away from them,” he said.

Telcos build another trap in trying to stand apart in pay TV, said Joseph Van Eaton, a Washington lawyer who represents cities and nonprofits. They'll disqualify themselves for the compulsory programming license that federal law gives cable and satellite providers, he said. A participant identifying himself as from AT&T said the company is trying to change federal law to fix that.

The Bells seek to take market share or even dominate the video market in 10 years, Brenner said. That’s evident from their late entry into a mature business, he said. Having destroyed the CLECs, the Bells shouldn’t get away with posing as upstarts in need of coddling by policy-makers, Brenner said. The Bells’ goals on franchising are to give themselves an out if they want to quit the service in a few years, avoid city authority over their systems, preclude fees on bundled services exempt from such levies and tell Wall Street they are ready to bundle as the network rolls out -- plus avoid buildout requirements, Van Eaton said.

Crucial questions in franchise reform are whether telcos will come under buildout requirements cable companies face and whether cable immediately can move to the lighter regime created for new entrants -- or, as under a recent Tex. law, have to wait until current franchise agreements expire, Sinsheimer said. In Cal., it’s not clear state franchising is legal, he said. The Tex. franchising law is “particularly offensive” in creating “2 classes of providers” under a “bankrupt policy” -- new entrants qualifying for simplified authorization and cable incumbents saddled with municipal franchise agreements until they run out, Brenner said.

Setting requirements for Bells to get video franchises after they've been allowed to upgrade networks to provide TV won’t work, speakers warned. The N.Y. PSC overruled the town of Babylon, letting Verizon install its FiOS network there, under its authorization as a phone company, without having to get a video franchise until it offers TV service or puts in equipment specific to it rather than useful for voice service, Van Eaton said. That creates a problem with govt., public and educational channels, which require lines to the headend, he said. At least the commission discerned between authorization of a proprietary pay TV service and Verizon’s certificate of public convenience and necessity covering phone services, Van Eaton said.

Verizon is doing fine getting franchises, Brenner said. The FCC meeting in the FiOS TV market of Keller, Tex., was testament to that. “This is really a problem in search of a solution, and yet the Commission wants to focus attention on it.” AT&T simply is trying to appease Wall Street by avoiding the expense of a full buildout and perhaps buy time with its franchise reform efforts, since “they're having a little trouble scaling this up,” Brenner said, alluding to the advanced network technology.

The premise of the FCC notice of proposed rulemaking on cable franchises is that new technology demands new tacks, Van Eaton said. But AT&T hasn’t indicated how its U-verse video service will differ much from what cable does or is working on, he said: “What the user gets is defined by the [network] owner, not the user.” Van Eaton contrasted Google Video as differing fundamentally from current pay TV.

The deference to the FCC ordered by the Supreme Court in Brand X on classifying cable modem service as an information service -- and by extension categorizing other services such as telco TV -- raises a broader problem, Van Eaton said: The high court saw that “the rules can change as administrations change.” But the 1999 U.S. Court of Appeals, New Orleans, ruling in Dallas v. FCC means local or state franchises can be required even when federal law doesn’t mandate them, and without Title VI restrictions, he said.

Of the annual FCC video competition report, Brenner said it “is a dog that should be put to sleep, for the reason that we have video competition.” Talking about cable vs. satellite is “nice and quaint” when children have stopped watching TV as middle-aged people did when they were kids, he said.

The most recent competition report said the Commission would open a rulemaking on whether the so-called 70/70 test of cable reach has been met and whether that would trigger FCC authority to impose a la carte programming duties, Brenner said. His answer to both questions: “no.” “There’s just no large authority here to use this to launch a la carte,” he said, adding the mandate would exceed the FCC’s Title IV rate regulation authority.