May 27, 2005 1:34 PM PDT

Telcos, cable companies face off over TV franchises

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A conflict in Texas between cable companies and phone companies will come to a showdown this weekend over a new bill that would allow phone companies to offer television services without negotiating contracts with local governments.

The controversial bill, which is being considered by the Texas Senate and has stirred up lobbyists on both sides of the debate, is now in a Senate conference committee. The measure's fate will be determined this weekend, as lawmakers try to bring it to a vote before the legislative session ends, on May 30.

Earlier this month, the provision, which would grant statewide franchises, was tacked onto a bill at the last moment in the Texas House of Representatives. The legislation, which along with the franchise provision is intended to renew the Texas Public Utility Commission, passed in the House and is now being considered by the Senate.

"A franchise can take anywhere between six to 18 months to negotiate. The network itself only takes about 18 months to build."
--Bill Kula, Verizon spokesman

If the bill is passed with the contested provision intact, it will have sweeping implications for the television market in Texas and could be held up as a model for other states, such as California and New Jersey, which are considering similar changes to their public utilities laws.

The battle over whether phone companies should be required to get local franchises to offer TV is critical for SBC Communications and Verizon Communications as they move forward with their plans to deliver television service to consumers later this year.

The proposed law is especially important to SBC and Verizon because it would streamline the franchise process and drastically reduce the time it would take to roll out service in a particular community.

"We will be able to offer competitive video service to consumers much faster if we can get a statewide franchise instead of knocking on every city's door," said Bill Kula, a spokesman for Verizon. "A franchise can take anywhere between six to 18 months to negotiate. The network itself only takes about 18 months to build."

Specifically, the bill in Texas would allow Verizon and SBC to apply to the Public Utility Commission for statewide approval to deliver television services to cities throughout Texas. The current law requires companies to negotiate franchise contracts with individual cities.

The cable companies, such as Time Warner, Comcast and Cox Communications, oppose this approach because, they say, it unfairly favors telephone companies. For example, under this law cable companies would still be subject to the old rules for securing local franchises. The cable companies would also still be required to provide free access channels to communities and free access to municipal buildings, while the phone companies would not be required to make either accommodation.

Cable companies also accuse the telephone companies of pursuing statewide franchises because they don't want to provide access to poorer residents. They say that Verizon and SBC will build out their networks only in affluent neighborhoods, a contention the phone companies dispute.

"They are pushing for statewide franchises to get special advantages," said Morris Wilkes, a spokesman for Cox. "Under this law they would be able to bypass communities and only build in neighborhoods they want to build in. They wouldn't be required to provide full service to residents, like we're required to do."

"I have no particular fondness for the cable companies. I'd like to see good competition as much as anyone, but not at the expense of our cities."
--Frank Sturzl, executive director, Texas Municipal League

But the cable companies aren't the only ones in Texas opposed to the bill. Several cities in Texas believe the new law, if passed, would strip their authority to regulate and tax new services, costing them much-needed revenue.

"I'm not opposed to the concept of statewide franchises," said Frank Sturzl, executive director of the Texas Municipal League, a nonprofit that provides legislative, legal and educational services to cities in the state. "I have no particular fondness for the cable companies. I'd like to see good competition as much as anyone, but not at the expense of our cities."

The sentiment is echoed in New Jersey, where similar legislation has not yet been drafted. The New Jersey State League of Municipalities says it is working closely

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new regulation is the answer
What compelling public interest is being served by government regulation of this television? In the past cable companies had a natural monopoly and therefore regulation was justified by anti-trust considerations. Today, with a multiplicity of entertainment options (your local cable company, Disk Network, Direct TV, Net-Flicks, ect) it only makes sense to teardown barriers to entry, not to establish new ones.

The cable company makes a valid argument concerning not having two set of rules. Eliminate both sets and let free-market principals prevail. This is what is best of the consumer.
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