In A Rare Sunday Session, ILECs Win IPTV Dispensation

Telecom Policy Report, July 18, 2005

The Texas State House of Representatives late yesterday followed the State Senate by resurrecting and passing a hotly contested bill that eliminates local franchise requirements for telcos to enter video markets in favor of statewide jurisdiction. Although the two legislative bodies must work out what are considered to be minor differences in their bills, the easing of franchise conditions for telco IPTV services gives the likes of SBC Communications and Verizon Communications a major victory against state cable operators attempting to delay an ILEC onslaught.

During its Sunday session, the Texas House voted 135-6 for the measure, which supporters claim will help create jobs and investment (economist projections suggested 12,000 jobs and $1.8 billion in annual investment spending) by letting SBC and Verizon each negotiate a single franchise with the state to offer video.

Under the bill, companies wanting to offer cable services in Texas would be required to pay an access fee of 6 percent of their gross revenue from cable services. Cities would maintain their existing franchises with cable operators, with phone companies operating under the same franchise-fee structure until the local cable franchises expire; ultimately, however, cities would yield control over cable service to state regulators.

The measure also allows SBC and other dominant telcos to increase prices for add-on phone service in large markets as well as in smaller ones where they can show state regulators that adequate competition for phone service exists. Basic phone rates would remain frozen until the 2007 legislative session. In addition, it allows electric utilities to deliver broadband Internet service over power lines.

"We're going to see competition increase year after year," says Rep. Phil King (R-Weatherford), who championed the measure. "It will be kind of like what happened with local service and long distance. Consumers should have another choice if they're unhappy with their existing providers. This bill allows more companies to provide more service to more consumers; it will further competition, will bring new products and better service; it will create thousands and thousands of new jobs - good jobs." Rep. Charlie Geren, a Republican who voted against the bill, said the measure would "get rid of a lot of customer-service protections." Adds Democratic Rep. Harold Dutton, "This bill is such a hand-over-fist giveaway," saying the legislation gives SBC "special- interest rules."

The bill also included a handful of amendments: increasing the number of low-income Texans who can get basic phone service free of charge, prohibiting phone companies from using misleading terms on home bills to assess so-called "phantom charges" and allowing the Texas Public Utility Commission to examine any problems that may emerge with new technology.

Winners And Losers?

The telcos had been lobbying heavily for the measure in both legislative bodies while cable interests and municipal governments were mustering the opposition. SBC Texas President Jan Newton said yesterday that the House passage "demonstrates that this issue continues to center around Texas consumers and the need to provide them with more choices and competitive prices in TV and entertainment." But Tom Kinney, chairman of the Texas Cable & Telecommunications Association (TCTA) and President of Time Warner Cable-Austin, comments, "Sound public policy, regulatory parity and service protections for Texas consumers went out the door. This legislation gives every economic and regulatory advantage to big phone companies. SBC and other big phone companies achieved unprecedented competitive advantages. Consumers benefit when there is a level playing field. This legislation gives every economic and regulatory advantage to big phone companies."

The ILECs claim they need such state-level victories because, without legislative relief, telcos would have to negotiate with every city and town in the state, one at a time, to get franchise rights to deliver IPTV. The regulatory environment is regarded as a holdup for video plans at SBC; Verizon already has done deals with a small number of Texas municipalities in order to launch IPTV services over its highly touted "Fios" fiber-to-the-home network.

As reported earlier (TPR, June 13), the incumbent local exchange carriers (ILECs) have been pushing the idea of local franchises being replaced by federally authorized statewide franchising in the U.S. Congress and in other Washington, D.C., circles. Some legislators and regulators appear sympathetic that the telcos collectively face 30,000 or more local franchises in order to offer IPTV services, but bill proposals have not yet surfaced.

[Copyright 2005 Access Intelligence, LLC. All rights reserved.]