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from: Red Herring

Verizon’s TV Dilemma

Despite scoring easy wins on Capitol Hill, phone company may not get national TV franchise this year.

June 30, 2006

Faced with a growing impasse on Capitol Hill engineered by supporters of Net neutrality, Verizon Communications is increasing its lobbying and legal efforts at the state and local levels to hasten its entry into the pay-TV business.

The second-largest phone company in the United States got some good news on that score late Thursday when California, one of the most populous markets in the country, voted in committee to allow video competitors statewide entrée into the pay-TV business.

The vote, which now moves to the full state Senate, could allow Verizon and AT&T to offer TV service in their areas of coverage in the state without requiring the phone companies to apply for permission from perhaps hundreds of municipalities.

In all, Verizon made four announcements Thursday related to franchise wins in Pennsylvania and Massachusetts, and a franchise lawsuit in Maryland.

Verizon shares fell $0.09 to $33.21 in recent trading.

Senate Hold
The California vote came one day after Senator Ron Wyden (D-Oregon) put a hold on a telecommunications bill passed by the U.S. Senate Commerce Committee. Senator Wyden, a proponent of an outright ban on Internet tolls, threatened to derail the bill if specific Net neutrality language is not added.

A hold could be undone by 60 votes in the full Senate, but Senate Republicans are not confident that they have those votes. That could potentially postpone the passage of a comprehensive telecommunications bill into next year, after a highly charged election year.

But David Fish, a Verizon spokesperson, believes that the Net neutrality supporters do not have the necessary momentum to truly cause an impasse in the Senate.

“The Senate is not likely to trade the consumer benefits of this bill for extreme Internet regulations,” he said. “There is a lot in this bill even beyond video choice that senators really want. It’s not going to be easy, but I believe we will see legislation this year.”

No Additional Urgency
Verizon representatives deny that the company is increasing its efforts at the state level in response to the roadblocks in Washington.

“We have been operating on the national, state, and local levels from the start,” said Harry Mitchell, a spokesperson for Verizon. “You have to backdate the effort about 18 months from the announcement date, because that is about how long it takes to settle these franchise applications.”

New York City-based Verizon has more than 4 million customers in California, primarily in Los Angeles and Orange Counties. The phone company is currently offering pay-TV service in two California communities, Beaumont and Murietta.

Busy on the Franchise Front
Nevertheless, Verizon has been very busy on the state and local fronts applying for the right to compete with cable operators in the TV business. Where the process gets bogged down, the company has turned its case over to the courts.

Verizon said Thursday it filed a federal lawsuit against Montgomery County, Maryland, for that municipality’s alleged unreasonable and illegal cable-franchising process and demands.

Verizon asked the U.S. District Court for the District of Maryland in Greenbelt to declare that Montgomery County’s cable franchise process and requirements violate federal communications and antitrust laws, as well as the First Amendment.

Verizon also introduced FiOS TV, its pay-TV service, in three communities in Massachusetts—Burlington, North Reading, and Winchester. The company also announced that it was awarded video franchises in West Goshen and Hatfield, Pennsylvania.

Contact the writer: CMedford@RedHerring.com