Utilities and Technology and Media & Marketing

Bills clash over video regulation: Phone giants, cable firms fight about franchising rules

February 6, 2006

In fact, some say the franchising clash has overshadowed the real implications of deregulation: Cable operators will get their first real competition since satellite TV mushroomed in the mid-1990s.

Municipalities, which grant franchise agreements to cable TV companies and collect millions in fees in return, hyperventilated when Sen. Brandt Hershman, R-Wheatfield, introduced Senate Bill 245 last month.

It would give the Indiana Utility Regulatory Commission the job of doling out statewide video franchises. Cities would lose that authority, but would still be allotted their cut of franchising fees. In Indianapolis, Comcast alone paid the city upwards of $4 million in fees last year.

Lobbying hard for a statewide franchise

is AT&T, formerly SBC, which argued that seeking franchises with multiple municipalities is too onerous.

But late last month, the House passed an amendment by Rep. Luke Messer, R-Shelbyville, that would preserve local franchising authority. Cities would have no more than 15 days to provide telecom companies a franchise.

Hershman won't budge.

"I oppose the Messer amendment because it defeats the basic intent ... which is streamlined entry."

Hershman also said municipal franchise agreements typically require that newcomers follow the same geographical footprint where cable companies have had decades to hang wire.

"So it could completely price small companies out of the market," Hershman said.

He noted that cable companies that offer telephone service don't face similar build-out requirements when competing with state-regulated telephone companies.

Who benefits from regulation?

City and cable officials say AT&T wants to dump municipal franchise regulations precisely because it wants an unfair advantage.

They point to a USA Today report last May that said then-SBC was telling analysts it planned to serve mostly affluent neighborhoods with its technology to provide video service over fiber-optic phone lines.

AT&T intends to deploy video service in Indiana this fall.

"Opponents are arguing it has to be in an affluent area. That's not the case. It's broadbased where it is rolled out," said AT&T spokesman Mike Marker.

That giant AT&T is even trying to change the current rules seems preposterous to the cable industry and to some municipal officials.

"So why are we helping [telephone firms] who could buy our industry three-times over?" asked Tim Oakes, executive director of the Indiana Cable Telecommunications Association, a cable operator trade group.

At least for AT&T, the statewide franchise concept "is a brilliant strategy," said Tom Dakich, an Indianapolis telecommunications attorney.

Under the Senate bill, AT&T wouldn't have to expend the time and capital "slugging it out city by city, town by town," as did the cable companies over the years. What AT&T is effectively doing through the legislation is saying, "Now, let's make certain the cable company has to operate under a different set of rules," Dakich added.

Not only that, but the Senate bill allows the state to levy franchise fees against video operators of 5 percent-more than what cable operators now pay some cities. Thus, some cable firms might have to boost rates to cover higher franchise fees.

AT&T could say, "Wow, your cable bill went up. Why don't you come over to us?" Dakich said.

Opponents of AT&T note that the phone giant cuddled up to Hershman during his most-recent re-election.

According to state campaign records, Hershman received $3,500 from SBC in 2004. That was the bulk of the $5,150 in total contributions he received from phone and cable companies that year.

Hershman dismisses the influence allegation, noting he's received contributions from the cable industry as well. Hershman's defenders also say he was working on telecom issues before that as district operations director for 4th District U.S. Rep. Steve Buyer.

City cries to feds

The Indiana city most benefiting from cable franchise agreements, Indianapolis, is taking the battle to the Federal Communications Commission.

Last month, the city's Cable Communications Agency filed an inch-thick comment with the FCC, saying AT&T would be in violation of city code in using public rightsof-way to deliver multichannel video without obtaining a city franchise agreement first. That's why it wants to provide video under a state franchise agreement.

The agency also said AT&T would violate a section of federal code that requires a franchise agreement if a municipality requires one.

"And while SBC believes that an [Internet protocol] platform holds them harmless from obtaining a franchise agreement to provide multi-channel video, their confidence in that belief seems to belie their aggressive legislative attempts to change the franchising rules on the federal and state level," wrote Rick Maultra, director of the city's cable communications agency.

He challenged the FCC to consider whether cities and towns are indeed providing barriers to entry "when telecommunication companies such as [AT&T] are not only deploying facilities without franchise agreements but are doing so in violation of federal and local laws."

In Indiana, AT&T for years has been gradually deploying

fiber optic and other technology that will make possible its video service launch this fall.

AT&T isn't the only voice saying that multiple municipal agreements are an impediment to bringing more competition to cable TV.

"Anything that helps eliminate barriers of entry for them to get into video makes it better for my business," said Kelly Dyer, president of Indiana Fiber Network, referring to his 19 mostly rural telephone company members. The network operates for those telcos a 1,300-mile fiber-optic ring around the state providing voice, broadband and video service.

A number of the member telephone companies are planning to offer video via phone lines to compete with cable.

"Having one set rate would make the barrier to entry a lot easier for them," he said of state franchising.

Franchises not always 'barrier'

But municipalities haven't been a barrier for CinergyMetroNet, a company that's planning to provide video, voice and broadband in 11 Indiana towns, including Bedford, Huntington, New Castle and Seymour.

"We don't expect any different terms than the incumbent" providers, said Mike Farmer, executive vice president of CinergyMetroNet.

"For the communities, it's a competitive choice. That's why they've been eager to get us in there. To us, [a municipal franchise

agreement] has not been a barrier to entry."

Also up for debate is whether a statewide franchise agreement through the Indiana Utility Regulatory Commission would be in the best interest of consumers.

Currently, cities attempt to mediate customer complaints about cable. Indianapolis received a total 896 complaints against Comcast and Bright House Networks in 2005.

John Koppin, president of the Indiana Telecommunications Association, argues that the Indiana Utility Regulatory Commission and the Office of Utility Consumer Counselor are able to offer "much stronger consumer protection at that level."

Critics of state control say it already can take months for the IURC and the OUCC to resolve issues involving utilities, a problem that would be magnified with additional responsibilities.

Indianapolis City-County Council last month passed by a 26-1 margin a resolution affirming the city's and county's authority to strike up video franchise agreements.
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