Over objections from the two Democratic commissioners, regulators voted 3-2 to adopt the order that will set time limits for local communities to consider franchise agreements and establish FCC oversight to make sure communities don't require "unreasonable" conditions as part of their franchise agreements.
"I think it is critical that we make sure we're doing all we can to make sure we have greater competition in the market for the delivery of multichannel programming," said FCC Chairman Kevin Martin. He has argued that the surest way to do that--and to lower prices--is to ease the entry of telephone companies into the market.
As described at Wednesday's public meeting here, the FCC's order would require local governments to approve new franchise agreements within six months for new entrants and within 90 days for companies with existing access to city facilities; limit franchise fees; and prohibit so-called "build-out" requirements if they obligate new market entrants to serve all of a particular area within an "unreasonable" time frame or on a scale not expected of existing companies serving the area. A copy of the order's text was not immediately available.
The provisions are a direct response to ongoing lobbying by the nation's major phone companies, which have complained that the process by which companies must negotiate local franchise agreements with individual cities and municipalities before rolling out TV offerings is cumbersome and overly sluggish.
Phone companies were quick to applaud the FCC's decision. In a statement, Susanne Guyer, a Verizon senior vice president for federal regulatory affairs, said the agency "is standing up for consumers who are tired of skyrocketing cable bills and want greater choice in service providers and programming." The decision will help Verizon meet an "aggressive" schedule for rollout of itsLobby has asked for more widespread relief , Guyer added.
The FCC rules attempt to establish national guidance but do not trump state laws that have already been enacted to address the phone companies' concerns, agency representatives said. Fourteen states, including Texas and California, have introduced some type of franchise reform. But the telecommunications lobby has been on Capitol Hill and now from the FCC.
Democratic Commissioners Michael Copps and Jonathan Adelstein railed against the new rules, saying there was not sufficient evidence that localities have been standing in the way of telephone companies' rolling out new TV services.
"We should have a record clearly demonstrating those local authorities are not up to the task of handling this infrastructure build-out," Copps said. Adelstein grilled members of the FCC's Media Bureau, which helped draft the rules, on names of specific communities that had reported problems, but they were unable to give him immediate answers.
When his turn to speak arrived, Martin ticked off a handful of instances in which it took BellSouth more than two years to receive video franchises in local communities in Florida and Georgia, though he did not explain the reasons for the delays. He also drew attention to an instance in which a New York town declined to grant Verizon a franchise unless it agreed "to film the holiday visit from Santa this year."
The Democratic commissioners also said the order runs afoul of a framework for granting local franchises established by federal law. Congress also drew up its own newin the last session as part of a broader rewrite of communications laws, but that contentious bill failed to make it to a full vote in the U.S. Senate before politicians went home this month.
"This order is certain to offend many in Congress who worked long and hard on this important issue only to have a commission decision rushed through with little consultation," Adelstein said, adding that he predicted the rules would quickly be challenged in court.
Similar misgivings about the FCC's authority have been voiced by congressional Democrats in recent days. Rep. John Dingell, a veteran Michigan Democrat slated to take over as chairman of the influential House Energy and Commerce Committee next year, lobbed a number of questions at Martin aimed at gleaning what legal authority underlies the FCC's proposed actions.
"It would be extremely inappropriate for the Federal Communications Commission to take action that would exceed the agency's authority and usurp congressional prerogative to reform the cable television local franchising process," Dingell wrote in a letter dated December 19 (PDF).
Some have argued that relaxing regulations for telephone companies does not guarantee lower prices for subscribers. In the broadband market, when cable and DSL services are offered in the same area, "the other guy just gradually raises his price...rather than having the higher price come down to the competitor's level," said Harold Feld, a senior vice president with the advocacy group Media Access Project.Consumer advocates wary of changes
Consumer groups have also been wary of changes to the franchise system because they believe it will allow telephone companies to escape certain responsibilities imposed on them by some municipalities. One major sticking point has been "build-out" requirements. Consumer groups argue that eliminating or limiting such requirements could prevent residents of low-income and low-density areas from receiving service.
Mark Cooper, research director for the Consumer Federation of America, blasted the FCC's ruling, saying it affects more than just TV service. By curbing the fees that municipalities are allowed to charge phone companies for access, the FCC could be hamstringing an important source of funding for core municipal services like police, fire, trash collection and libraries, he said.
"They really did put their finger on the scales on the side of the Bells against the local government," Cooper said. He later added: "The opportunity to sell these services is really a privilege to (the companies), so these social obligations are perfectly reasonable things to ask for."
The FCC is also seeking comment on whether it should extend the new franchise rules to existing video service providers, such as the major cable companies.
"It is critical that as we advance pro-competitive policies, we ensure that our policies do not unreasonably create asymmetry in the marketplace," said Republican Commissioner Deborah Taylor Tate.
Even if the commission decides to apply the same policies to incumbent cable providers, the FCC would only apply the new rules to existing TV providers when their franchises expire. Kyle McSlarrow, president and CEO of the National Cable and Telecommunications Association, said during a conference call with reporters that this would be unfair to cable operators, especially those that have several more years left on their franchise agreements. He emphasized that the new rules would ultimately hurt the incumbent providers while giving the phone companies an unfair advantage.
"Whatever deregulation measures are adopted should apply to all providers," he said. "These new entrants aren't start-ups who are under-capitalized. They are large phone companies, one of which is larger than the entire cable industry. We think it is absurd to have different rules for us and the phone companies."
CNET News.com's Marguerite Reardon contributed to this report.