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FCC chairman says cities are blocking cable competition

Monday, December 18, 2006

WASHINGTON -- Cable television rates keep going up while prices for other communications services are going down, says the nation's chief communications regulator, and he blames local governments for blocking competition.

On Wednesday, the Federal Communications Commission is scheduled to vote on whether to make it easier for competitors to obtain cable franchises.

FCC chairman Kevin Martin, in speeches over the past few weeks, has said local franchise authorities at times "obstruct and in some cases completely derail" new attempts to bring video competition to an area.

His proposal is backed by Verizon Communications Inc. and AT&T Inc., which have poured billions of dollars into rewiring their old telecommunications networks so they can deliver television programming and other services.

The measure, which will not be made public by the agency until after the vote, has alarmed local franchising authorities that have heard Martin's remarks. They contend his "barrier to entry" argument is bogus and action by the agency may wind up hurting consumers.

There also is some question about whether Martin's proposal is within the limits of the agency's authority.

At stake is the battle for America's television watchers. And people in the United States watch a lot of television.

The FCC reports that the average U.S. household tuned in for eight hours and 11 minutes each day in the 2004 and 2005 fall television seasons.

The latest statistics indicate there are 109.6 million television households and 94.2 million of them subscribe to a pay television service such as cable or satellite. Cable accounts for 69.4 percent while direct broadcast satellite companies such as DirecTV and Dish Network are responsible for 27.7 percent.

Meanwhile, the phone companies are spending billions of dollars to get into the video market.

"The investment has been huge," said Tom Tauke, a former Iowa congressman and current executive vice president of public affairs and communications for Verizon. "This is key to the transformation of the company."

Martin is using public resentment over rising cable prices to sell his proposal. He is expected to release a report at Wednesday's meeting that says cable rates have risen 93 percent from 1995 to 2005.

Martin has also been quoting numbers compiled by the investment research firm Sanford C. Bernstein & Co. that predict a 5.4 percent increase in prices for cable subscribers in 2007 in a dozen markets, including Seattle, San Francisco and Philadelphia.

The last cable pricing report from the FCC was released in early February 2005, about 22 months ago.

Not surprisingly, the cable industry rejects Martin's pricing argument. Kyle McSlarrow, president and chief executive of the National Cable & Telecommunications Association, said looking strictly at video prices misses the big picture.

He said Martin's argument is "disappointing" and displays a "complete lack of understanding" of today's market. McSlarrow said customers who subscribe to "triple play" bundles of video, high-speed Internet and telephone service are paying less for their services than a decade ago.

"The selective use of two-year-old data that has not yet been released to the public is a poor justification for granting the largest telecommunications companies in the country special favors they don't need," he added.

The commission began its latest review of cable franchising rules in November 2005 after hearing complaints from companies that said they were hindered from getting into the business.

Federal law says that a franchising authority, usually a city or county government, "may not unreasonably refuse to award an additional competitive franchise."

For a cable company to do business, it must negotiate a franchising agreement with the local government.

Companies such as Verizon and AT&T have lobbied successfully in state legislatures for laws to make it easier for them to get into the television delivery business. But a push for a federal franchising law stalled this year.

Tauke said the company has no plans to resume that effort in Congress. Instead, it will focus on state and local governments.

"There are places where we've been working at it for over 18 months and still don't have a franchise," he said.

Tauke has a sympathetic ear in Martin.

In one speech, Martin claimed a community asked a new cable competitor for a new recreation center and swimming pool as part of the deal for a cable franchise. He provided no specifics, but it appears the example was pulled from a filing submitted by AT&T. The example involved Ameritech New Media, which was seeking a franchise in Parma, Ohio, in 1999.

Parma spokesman Powell W. Caesar III disputed the claim. "The only thing Parma asked of Ameritech was that they follow our franchise rules," he said. "Pure and simple."

In his public comments, Martin has disclosed some details of his proposed plan. He wants local governments to act on new cable franchise applications within 90 days for phone companies. He also wants limits on franchise fees and "build-out requirements."

Each of these issues concerns Nick Miller, a lawyer who represents cities in franchise negotiations. Miller calls the push for franchising overhaul "a truly a false issue."

He said the franchising process is good for cities because it "imposes both regulation and community benefits on the franchisee."

Miller said the FCC is pushing what may amount to a federal franchising rule that will remove local oversight. He is concerned that any changes may do away with public, educational and government access channels that cable providers offer as a public service.

The greatest concern is that without local franchises, new competitors will "cherry pick" the most affluent customers, those who are most likely to buy high-speed Internet access, on-demand video services and other expensive products, while lower income and rural customers are ignored.

"The digital divide is real," Miller said. "Any big city mayor will tell you that."

Verizon's Tauke disagrees with that reasoning, saying such an approach is not a smart business strategy. "The value of the customer does not depend on the income of the customer," he said.

Some of the best customers are "relatively low income" he said. They may make a lot of international calls or use a lot of video services, he said.

"We have good customers all across the demographic landscape. Therefore when we look at the market -- the best strategy is to serve as many of the customers as you can."

Regardless of the outcome of the television wars, nearly everyone agrees that more players in both the cable television market and in the telephone business is a good thing.

But even consumer advocates, who have been tough on the cable industry in the past, are being cautious.

Jeannine Kenney, senior policy analyst with Consumers Union, says "it's clear cable would like to keep them (competitors) out of the marketplace. It's equally clear consumers want competition."

But whether the FCC is the proper authority to solve this conundrum is an open question.

"We want them (competitors) in," she said, "but not at the cost of fundamental consumer protections."


On the Net:

Federal Communications Commission: http://www.fcc.gov

National Cable & Telecommunications Association: http://www.ncta.com/


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