Local Franchising Isn’t Only Video Barrier Telcos Face, NARUC Speakers Say

The local franchising process hurts phone companies’ ability to scale up video delivery systems enough to start producing revenues investors require, said Fred McCallum, BellSouth regulatory affairs vp. Investors want solid projections of scalability, but BellSouth can’t always give investors what they want because it’s uncertain when and where it will get local franchises, he said. Kathryn Brown, Verizon vp-public policy development, agreed local franchising impairs network development plans, but reform can eliminate that, she said: “We've gotten franchises in 51 communities in 7 states over the past 18 months, with 29 of them in Texas” in the 6 months since Tex. enacted state-level video franchising. Her firm has gotten just 4 local franchises in N.Y. since mid-2004, Brown said.

State franchising isn’t the answer, said Wendy Moser, Qwest video services vp. She said Qwest isn’t pursuing state video franchises and instead favors a national right of entry under FCC jurisdiction with no local negotiations until new entrants reach a specified market share. Once an entrant’s share is large enough, Qwest would want a “shot clock” that limits the local negotiation period, she said. Network connectivity is affected by “franchising inefficiencies,” Moser said. Dorothy Attwood, AT&T senior regional planning vp, said the franchise issue shouldn’t be about state or federal preemption of municipalities, but about which level of govt. is most appropriate for regulation. She said management of rights of way is an appropriate local issue but entry control should be handled more broadly.

Jeff Arnold, deputy legislative affairs dir. with the National Assn. of Counties, said “it’s time to change the [franchising] process, or we may see ourselves preempted and cut out of the game entirely. We want to see competition but not the ruin of the incumbents.” He said if a new entrant wanted to opt into an incumbent’s franchise agreement, “most communities would agree at once.” He said municipal “bad actors” have tried to extort ruinous concessions from new telco entrants, but also entrants that tried to evade social responsibility. Joe Waz, Comcast public policy counsel, said video entrants’ social obligations, such as build-out, are the single most divisive area in video franchising. Franchising can be improved, but phone companies can be more aggressive in pursuing multiple local franchises at the same time, he said. Telecom company panelists said build-out requirements aren’t necessary for competitive telecom video entrants, since market pressures will drive them to expand availability as fast as they can. Verizon’s Brown said the core policy issues are parity and speed of competitive entry.

Investment analyst Anna Maria Kovacks of Regulatory Source Assoc. said local franchising isn’t the only reason investors hesitate about phone company video ventures. Telco entry into video “will alter the relationships between content producers, distributors and consumers. Telephone companies’ video entry will change the economics of video distribution, even the whole chain of video value in unpredictable ways,” she said. Competition among cable, telephone and satellite video providers will affect content packaging, advertising, audience measurement, and digital rights management, she said. These matters eventually can be resolved “but resolution will depend on there being rationality of competition to sustain the economic foundation of the video business,” Kovacks said.

Analyst Paul Gallant of the Stanford Washington Group said multiple delivery channels may boost leverage among producers of popular content. Incumbent cable providers may have an edge over telcos in negotiating for program content because they've established a customer base, he said. Programming acquisition accounts for roughly 40% of cable and satellite operating costs, he said, speculating it might be a larger share of phone companies’ costs. He suggested phone companies “get as familiar with the video production process as they are with the distribution business.” Kovacs agreed investors “are concerned about whether the phone companies know how to deal for content.” Consumers have spent roughly the same amount of time watching video for a decade, Gallant said: “The size of the pie hasn’t changed, just the sizes of the slices. Ultimately, a consumer only has 24 hours in a day for video and all the other things in his life.” -- Herb Kirchhoff

NARUC Notebook

The NARUC board Wed. unanimously adopted all 4 telecom policy resolutions passed by the Telecom & Consumer Affairs Committee (CD Feb 14 p3). The adopted resolutions: (1) Urged the FCC to adopt a national policy for assigning phone numbers to VoIP services, and to expand number portability and number pooling to all U.S. markets, not just the top 100 markets. (2) Asked the FCC for a 2-year extension of the current jurisdictional cost separations freeze, to allow the Separations Joint Board time to build on recent progress in addressing the separations effects of new technologies and regulatory policy changes. (3) Urging all federal policymakers to promote customer choice in broadband by discouraging mandatory tie-ins between purchase of conventional voice services and broadband purchases. (4) Committing NARUC to working with Congress, the FCC and industry on a comprehensive approach to protecting privacy of customer telephone records and prevent them from being stolen. All the resolutions were adopted without change and with little discussion.

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Speakers at a NARUC panel on VoIP E-911 Tues. said state commissions need to monitor VoIP providers’ E-911 deployment to ensure successful implementation, and be ready to assist with any problems. Panelists said communication and cooperation among regulators, companies and localities are essential to a smooth deployment. Steve Seitz, Vonage vp-911 affairs, said Vonage has managed “the fastest VoIP E-911 implementation in the country” because it paid close attention to accountability and cooperation with all involved parties. He stressed that every party to the implementation process -- E-911 systems provider, VoIP provider, public safety agency -- must be accountable for doing their part. Mary Boyd of E-911 database management firm Intrado said states, as policy officials, “are in a very critical role. We need your understanding and support for what we are trying to do.” Tom Navin, FCC Wireline Bureau chief, said the FCC will continue to address VoIP providers’ E-911 implementation problems but this is an essential public safety issue and the FCC is reluctant to waive any deadlines: “We understand there are challenges to deployment, but consumers expect that when they pick up any phone and dial 911 they will reach a person trained to help.” Seitz said state regulators can keep the process moving by “keeping everyone at the table and ensuring they remain in constant communication.”