Telcos, cable companies face off over TV franchises

The heat is on this weekend in Texas, where lawmakers will debate legislation that could help phone companies entering the TV market.

Marguerite Reardon
Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
5 min read
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

with Verizon and state legislators to come up with a bill for statewide franchises that fits cities' needs. The league's priorities include collecting taxes and access fees for whatever TV services are delivered, and free access to community broadcasts.

"If Verizon agrees to giving us everything we ask for, I don't see what the disadvantage could be to a statewide agreement," said Michael Darcy, assistant executive director for the New Jersey State League of Municipalities. "Nobody thinks the negotiation process is a pleasurable experience. It's time-consuming, and it costs a lot in lawyer fees. I think if the terms are right, everyone can benefit from a shortened time frame."

"If Verizon agrees to giving us everything we ask for, I don't see what the disadvantage could be to a statewide agreement."
--Michael Darcy, assistant executive director, New Jersey State League of Municipalities

While SBC and Verizon are both looking to enter the television market as quickly as they can, their fundamental strategies for dealing with franchises are different. Verizon is trying to change state law, while at the same time seeking local franchises throughout the country. Already it has six agreements--four in Texas, one in California and one in Florida.

Verizon also is building a new fiber network, which extends directly into homes. Its initial television offering will use traditional broadcast technology to offer service.

SBC is not seeking any local franchises. Instead, it is taking the legal stance that it should not be subject to any franchise laws because the television service it plans to offer is transmitted over its existing copper telephone lines using Internet protocol technology.

But opponents say SBC's legal footing is questionable. They argue that the means of delivery has little to do with how a service should be regulated. Rather, SBC's TV service should be subject to the same rules that apply to similar services offered by cable providers. SBC so far seems undaunted.

"Our view is that a more streamlined process is preferred and favors consumers," said Kevin Belgrade, a spokesman for SBC. "The TV market today is void of any real competition. Big cable companies have a lock on consumers, which has resulted in double-digit price increases."

For Verizon, the battle in Texas is especially critical, since if it loses there it will have to wait two more years before it can introduce a similar bill to the reconvened state legislature. What's more, Texas is one of the states where Verizon is furthest along in its deployment of the Fios fiber-optic network.

It has already completed building the network in eight Texas cities and expects to start offering television service to residents in Keller, Tex., by the end of the year. It also has construction under way in about two dozen other cities, which it expects to complete next year.

While it has already managed to get four franchise agreements in Texas, Verizon still has many more to get. And because of the many months it takes to secure franchise agreements, Verizon says current franchise rules could seriously delay the rollout of new services.

"We're already lobbying in Washington to take a federal approach to franchising to replace the labor-intensive city-by-city approach," said Verizon's Kula. "And we will continue pursuing franchises."