Looking to quickly leap into the business of delivering TV broadcasts, telephone companies are leading efforts to rewrite the rules that for decades have given local governments control over who provides cable television in their areas.
Under bills passed or being considered in at least 14 states and Congress, pay-TV authority would shift to state governments or even a national process. That would mean both phone and cable companies no longer would have to negotiate individual franchise deals with hundreds of communities.
Supporters are touting the bills as pro-consumer, saying competition from Verizon Communications Inc.’s and AT&T Inc.’s video services will lower prices.
But several groups and municipalities are crying foul, arguing that the bills give away too many consumer protections to two companies that are almost monopolies.
The fear is that new entrants will offer their services in more affluent neighborhoods that tend to spend more, while ignoring working-class or poor areas. That means wealthier areas mainly would see the benefits of competition — lower prices, better services, faster upgrades.
“AT&T has been very clear its business plan is to target the high-value customer. Where Verizon has sought local franchise agreements, it has sought them only in the wealthiest communities,” said Jeannine Kenney, senior policy analyst for Consumers Union. “Consumers who most need relief from monopolistic cable prices are the least likely to get it.”
Texas, Indiana, Kansas and South Carolina already have signed into law a state-approval process. Virginia passed a variation that speeds up the local approval process by setting deadlines. Similar bills are pending in Pennsylvania, California, Iowa, Michigan, Minnesota, New Jersey, Tennessee, North Carolina and Louisiana. Connecticut recently ruled that AT&T doesn’t need franchises for its service on any level.
The U.S. House passed a bill Thursday calling for a national franchise process, with a similar bill pending in the Senate. Passage nationally, however, is complicated by a number of factors, including the debate over whether all Internet traffic should be treated equally as video traffic is expected to surge.
Consumer groups are upset that the legislation lets new video providers choose which communities they want to serve. Currently, cable companies generally are required to serve all neighborhoods in any city they enter — the so-called “buildout” requirement.
“We’re afraid that either state or federal bills will allow the phone companies to redline some neighborhoods, to price gouge others, to eliminate benefits to the local community and allow the existing cable company to backslide,” said Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group.
Phone companies say they are spending billions of dollars to offer video and high-speed Internet services over fiber-optic connections to the home or the neighborhood, so it makes sense to offer them initially in areas where they’re likely to get the most business.
Ed Whitacre, AT&T’s chief executive, told the Detroit Economic Club in early May that the initial rollout of TV will reach 5.5 million low-income households in 41 markets.
Verizon said its entry into video is good for consumers because it’ll force cable to cut prices.
“It’s perfectly evident, if you think about it for three minutes, that the system that’s in place now just protects the incumbent monopoly cable provider,” said Verizon spokesman Eric Rabe.
“Cable has been the last telecom monopoly and they have taken full advantage of that by raising prices on an annual basis for years,” he said.
From 1993 to 2003, cable rates have risen by 53 percent, according to the Federal Communications Commission. Local phone rates in urban areas have risen by 23 percent from 1994 to 2004.
A March 2006 study by Thomas Hazlett, a professor at George Mason University in Virginia, said wireline video competition would save consumers $9 billion a year.
Verizon also says its upgrade of the phone network to optical fiber, which can carry TV service, is done town by town with no regard to neighborhoods or demographics.
“Our strategy is to go in and do the entire town,” said Paul Lacouture, Verizon’s vice president of engineering and technology. “That’s how you get the operational savings.”
But it’s not just the telephone companies backing the legislation in some states.
Several bills have a provision that has consumer groups outraged: Cable companies can back out of existing contracts with municipalities and get the same rights as the new video provider. If the new video provider doesn’t have to serve all communities, cable wouldn’t have to, either.
That’s one reason why the National Cable and Telecommunications Association, generally wary of state franchise legislation, now backs some state bills and the two bills in Congress.
Brian Dietz, spokesman for the national cable association, said the industry’s goal was to have a level playing field “so the marketplace decides winners and losers, not regulations.”
Cable supporters say the industry will still offer their services to all areas even if they get the right to choose communities, since they’ve already built out their systems.
However, cable won’t have an incentive to offer better prices and services if competition doesn’t enter these areas, according to the League of Kansas Municipalities, which represents 576 communities.
“Cable changed their posture to get as much as they could out of it,” said Don Moler, the league’s executive director. “They can choose to get out of existing franchises and have the new law apply to them.”