Washington eyes telecom reform

Dec. 1, 2005

The Telecommunications Act of 1996 primarily focused on competition in local and long-distance voice with only one mention of “advanced” broadband service. The industry has moved beyond the act’s definition of broadband, however, with several providers now deploying triple play services. Moreover, the cable multiple systems operators (MSOs) have begun offering voice services, while the ILECs are preparing to deploy video. With many pundits calling for changes in the Telecom Act-or even its replacement-significant jockeying should occur in Washington next year.

Several key telecom-related issues must be resolved, not the least of which are video franchising requirements, a hotly contested topic at October’s Telecom ’05 Conference in Las Vegas. At the heart of this issue are the ILECs’ plans to offer IP-based video services, known as IPTV. Some argue that because IPTV is carried via the Internet, it is technically a data service and should be treated as such under the law. Others argue that a video service is a video service, regardless of transport medium, and IPTV providers should be subject to the same regulations as the cable MSOs.

FCC chairman Kevin Martin sides with the latter camp. “What is the key to ensuring a bright future for these integrated service offerings?” he mused via live satellite feed to Telecom ’05 attendees. “From a regulatory perspective, I believe that it is technological and competitive neutrality. All providers of the same service must be treated in a similar manner regardless of the technology they employ.”

While he believes that new video entrants should be encouraged to enter the market, Martin admitted that impediments exist. “Many of you have been trying to roll out new video services to your customers,” he told Telecom ’05 attendees. “And we are beginning to hear complaints from incumbent LECs that some local authorities may be making the process of getting franchises unreasonably difficult.”

The current cable franchising provisions are outlined by the Cable Act of 1992, which provided an amendment to Title VI of the Communications Act of 1934. According to the Cable Act, the local community owns franchising rights and is therefore allowed to impose franchising fees of up to 5% of a cable provider’s gross revenues for cable services. The act also enables the community to require the cable provider to make available capacity for public, education, and government (PEG) programming. That said, the act also prohibits local authorities from granting exclusive franchises and unreasonably refusing to award a second franchise-and that’s the rub.

At press time, the FCC was planning a hearing to review whether delays were occurring in the franchising process and determine what the commission could do to minimize barriers to entry for new entrants in the video services market. As they wait for official word from Capitol Hill, the ILECs are taking matters into their own hands. Verizon and SBC, in particular, are actively rolling out next generation networks to support video-service delivery, but each has chosen to interpret existing laws in a radically divergent manner.

SBC has decided not to seek franchising licenses, arguing that its IP-based video service is not the same as a broadcast or cable TV service. It is an Internet-based service and therefore should not be subject to the same regulations. “This is a speed-to-market issue,” explained Dorothy Atwood, SBC’s senior vice president for regulatory planning and policy, during a Telecom ’05 session on regulatory reform. SBC is planning to pass 18 million homes over the next two-and-a-half years, she said, and it cannot wait for franchising licenses. However, Atwood noted that even though SBC is not seeking local licenses, the carrier is talking with local officials and willing to carry local content as required by the Cable Act.

Verizon, meanwhile, is aggressively rolling out an FTTH network that employs a two-pronged video delivery strategy. The first is a traditional TV lineup, delivered over fiber via RF overlay in a manner very similar to the cable MSOs. The carrier also has plans to launch an IPTV service. “On the one hand, we look like cable,” acknowledged Michael McKeehan, Verizon’s director of Internet & Technology Policy. “On the other hand, we look like SBC. We did a coin toss and decided to get franchises.”

The RBOCs received a huge boost in August when the Texas legislature voted 144-1 to approve legislation that requires new entrants into the video market to obtain just one state-level franchise. The new entrants must pay the same local fee as the incumbent MSOs, but they no longer have to negotiate contracts with individual markets.

In October, the Public Utility Commission of Texas approved Verizon’s state-issued franchise application, enabling the carrier to offer its FiOS TV service in 21 communities in the Dallas/Fort Worth area. By the end of 2006, Verizon expects to make its video service available to more than one million potential viewers in 400,000 households in north Texas. According to Verizon representatives, this milestone would not have been possible had the carrier been forced to negotiate local franchise licenses in all 21 communities, since each license would have taken from six to 18 months to obtain.

For the ILECs, then, there is a lot at stake, and they will no doubt be watching the proceedings on Capitol Hill very closely in the coming months. During the first session of the 109th Congress, lawmakers proposed several telecom-related bills that should be hotly debated in the second session.

The Broadband Investment and Consumer Choice Act has received a significant amount of attention. Introduced last July by Senator John Ensign (R-NV), the bill is designed “to establish a market-driven telecommunications marketplace, to eliminate managed competition of existing communications service, and to provide parity between functionally equivalent services.”

Under the Ensign bill, local franchise requirements would be eliminated, although local governments may continue to collect franchising fees only as compensation for the costs they incur to manage the public rights of way used by the video provider. The Ensign bill also deregulates cable-modem, DSL, cable TV, and any broadband communications service that transmits at a capacity >64 kbits/sec.

The Video Choice Act of 2005, proposed by Senators John D. “Jay” Rockefeller (D-WV) and Gordon Smith (R-OR), is designed to promote competition in the video services arena by enabling new video entrants with rights of way (i.e., the ILECs) to obtain franchise licenses. In an effort to preserve local governments’ revenues, new video entrants must still pay the franchising fee required of cable MSOs. Under this legislation, new entrants must also provide capacity for PEG use and adhere to the same social policy obligations regarding consumer privacy, protection, and service requirements as the cable MSOs.

In addition, House Energy and Commerce chairman Joe Barton (R-TX) and Telecommunications and Internet Subcommittee chairman Fred Upton (R-MI) have completed several drafts of a telecom overhaul bill. At press time, they had held four hearings on the subject and are expected to move ahead with legislation in 2006.

Senator Ted Stevens (R-AL), chairman of the Senate Commerce Committee, is also drafting a comprehensive telecom reform bill. Though the content and exact timing of the bill were unclear at press time, the allocation of Universal Service Funds is an important issue for the senator’s constituents and will likely be addressed in his legislation.

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