IPTV Challenges Regulatory Models

New technology, old foes cross swords and insults in a familiar scene.

 By Roy Mark
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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 suffer."

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 obligations.

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 operators."

This article was originally published on Oct 20, 2005
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