IPTV Challenges Regulatory Models

WASHINGTON — Two old foes and an implacable critic of both squared off in a
Senate hearing Wednesday on the Baby Bells’ $10 billion IPTV bet.

Verizon and SBC want to run
fiber-optic cable into homes delivering an IP network offering bundled
television, telephone and high-speed Internet to consumers without having to meet the same regulatory obligations that cable companies do.

The incumbent phone companies are losing chunks of customers daily to
cable’s IP-based phone service and are anxious to grab a share of cable’s
pay TV market.

Cable companies, such as Comcast and Time Warner, currently must negotiate
local franchise contracts in every market where they deliver content.

In addition to franchise fees to the municipalities, the cable companies
typically must agree to build out systems throughout each community. Most
cable franchise agreements also contain anti-redlining provisions.

Video delivery policy in an IP-based world, they say, should involve paying
a single state franchise fee, regardless of the platform. It should not have to contend with build-out obligations.

“The current franchising process imposes substantial delay and transaction
costs,” Walter McCormick, the president and CEO of the U.S. Telecom
Association, told a Senate Judiciary subcommittee.

McCormick cited Texas, where SBC is launching an IPTV
service, as an example of enlightened telecom policy in the 21st century.

Last month, by a vote of 144-1, Texas lawmakers updated their telecom
regulations to allow for a single statewide franchise fee for companies
entering the cable television business.

The state-issued video franchise does not require mandatory build outs or
mandatory anti-redlining obligations. Existing agreements between cable
companies and municipalities, however, remain in place until they expire.

U.S. Senator John Ensign (R-Nev.) has much the same thing in mind with his
Broadband Consumer Choice Act of 2005 introduced in July, which would
eliminate cable franchise agreements for video service providers.

According to Kyle McSlarrow, McCormick’s counterpart at the National Cable
and Telecommunications Association, that’s bad policy, unless cable gets the
same break.

“To arbitrarily subject some competitors to obligations and burdens not
imposed on others would serve to distort the competitive marketplace,” he
told lawmakers. “If the telephone companies were allowed to serve only the
most lucrative areas of communities that cable operators were required to
serve in their entirety, competition would not be enhanced but would

Such “cream skimming,” he added, would allow the Bells to cut prices while
the cable companies would be unable to respond because of their franchise

McCormick contended that the cable industry is using the franchising process
as a “barrier to entry that it will use to insulate itself from competition
for as long as possible.”

This led Mark Cooper, director of research at the Consumer
Federation of America, to again put the needle to his longtime antagonists
in both the telephone and cable industries, noting that if Congress is
really interested in lowering monthly bills, it should force the cable
companies to sell a la carte channels.

As for IPTV, Cooper was unimpressed.

“I applaud new competition, but somehow it never gets here,” Cooper said.
“This is the umpteenth time since deregulation in 1984 that we have the claims
that a new technology is about to break the stranglehold of the cable

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