Telecoms, cable firms take franchise fight to D.C.

On Wednesday, executives on both sides of the debate testified in front of the Senate Commerce Committee to explain their positions on changing the current rules, which require video service providers to negotiate franchise agreements with local communities.

The hearing was part of a larger effort in Congress to look into the possibility of reforming the 1996 Telecommunications Act.

Verizon Communications Chief Executive Ivan Seidenberg and AT&T CEO Ed Whitacre tried to encourage lawmakers to pass legislation that would allow phone companies to bypass local communities so they can roll out service more quickly. Meanwhile, Cablevision CEO Tom Rutledge tried to convince lawmakers that taking control away from local authorities to grant franchise agreements would be a mistake.

The stakes in this debate are high, as cable operators and phone companies increasingly compete in each other's businesses. Several cable operators have already added phone service to their service bundles, including Time Warner Cable, which recently reported it has signed up more than a million customers so far.

Meanwhile, Verizon and AT&T are spending billions of dollars to upgrade their networks to deliver superfast Internet access and television service. But rolling out TV service has been slow, in large part owing to the long process of negotiating franchise agreements, said Verizon's Seidenberg.

"We have been working diligently, town by town, to play by the existing rules and obtain franchises on the local level," he said. "However, as we multiply these efforts across the country, this process, quite simply, takes too long, is too expensive and--ultimately--is too big an impediment to investment and competition."

Verizon has already reached more than 3 million homes with its fiber network in 18 states, but it has only begun offering TV service, in just a few communities in six states: Texas, New York, California, Massachusetts, Florida and Virginia.

Where Verizon's service, called Fios TV, is offered, many customers have signed up, abandoning their cable providers, Seidenberg said. But even those who don't choose Fios TV are still benefiting, because cable operators have cut prices between 28 percent and 42 percent, he claimed.

Cable companies argue that changing the laws to grant blanket franchises gives telephone companies an unfair advantage, because cable companies have spent years negotiating contracts with each individual town or city. Cablevision's Rutledge told the committee that Verizon and AT&T are simply trying to skirt the process. He said they have had plenty of time to negotiate contracts but have instead chosen to drag their feet and try to change the laws in their favor.

"Verizon has been building these networks and planning them for over three years, and yet didn't ask for the franchises," he said. "Now they have 3 million passings built and didn't get, or hardly got, any franchises in that period of time. In the same period of time we, a much smaller company, were able to get 100 of them. So I think the problem is that you have people who are not participating in the franchise process."

Two members of the Senate Commerce Committee, Conrad Burns (R-Mont.) and Co-Chairman Daniel Inouye (D-Hawaii), have already indicated their support to streamline the video franchising process. But the senators have said the laws can be changed only if cable is put on the same footing as new entrants, such as the phone companies. They also have said that state and local governments should not be stripped of their authority.

Most likely the battle over video franchising will be decided in statehouses as opposed to on Capitol Hill. Last year, Texas became the first state to pass a law granting statewide video franchises. Momentum for similar legislation is building in other states such as Virginia, Indiana, Kansas, Missouri, South Carolina and New Jersey.