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from: Light Reading

State Video Franchise Push Grows
JUNE 11, 2007

Ah, the video franchise. Obtaining it is one of the final steps a carrier must take in order to provide television service to a community. Getting one is an arduous task that can take up to two years to complete for each community and has become a big thorn in the side of AT&T Inc. (NYSE: T - message board) and Verizon Communications Inc. (NYSE: VZ - message board) as they deploy their new TV services.

But that all could be in the process of changing as more and more states pass statewide video franchises.

Statewide video franchises simplify the legal process of offering television service since the provider needs to secure only one permit for the entire state instead of one for each individual community.

Last week during a public hearing in the Massachusetts State House, a bill was sponsored that would move video franchising from the municipal level to the state level. Verizon, which has a strong presence in New England, is naturally lobbying aggressively for its passage.

"If you look at all the local contracts we've signed, they all have the same basic standard terms and language," said a Verizon spokesman. "Why should we have to go through this one city at a time when everyone is negotiating the same deal?"

The bill in the Massachusetts State House will now be reviewed by a yet to be formed task force. Verizon says the whole process could be wrapped up by September at which time we'd see a formal vote on the bill.

In its footprint, AT&T has seen its fair share of setbacks with its U-Verse service, but regulatory hurdles for its video service are diminishing by the day.

At the end of May, Ga. became the 15th state to adopt a statewide video franchising law. Of those 15 states, 12 are part of AT&T's 22-state residential wireline footprint.

Click here to view Table 1.

"The presence of a statewide video franchise only hastens deployment. In states with less policy certainty, history demonstrates that the pace and scope are subject to unpredictable forces," says an AT&T spokesperson.

AT&T has about 30,000 U-verse subscribers so far. By comparison, Verizon's FiOS TV service, which also competes with established cable services and satellite television, has signed up 348,000 customers.

But Verizon faces a tougher regulatory environment than AT&T. While it has as many states in its footprint with state video franchises as AT&T, its most important region is the Northeast -- particularly N.Y. and Mass. -- who do not have state franchises in place.

Click here to view Table 2.

Statewide video franchise bills have naturally drawn strong opposition from cable MSOs such as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Verizon's largest cable competitor. Comcast has argued that, since it had to go through the local video franchise process, it's only fair that Verizon does the same.

"We'd be glad to do it if we were given a monopoly like they were," said a Verizon spokesman in Boston. "Keep in mind it's easy for them to enter the VOIP business which is traditionally our territory."

In the midst of all this video franchising activity, there have been attempts in the past to call for national video franchise legislation from Congress. In December 2006, the House of Representatives passed such a bill, but it was later quashed in the Senate through a filibuster.

In the meantime, AT&T for now has a more favorable regulatory environment with more of its key territories having state franchises than Verizon.

— Raymond McConville, Reporter, Light Reading