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from: Nashville City Paper

Statewide franchise would entice BellSouth into cable market

By Blake Farmer, News Correspondent
November 27, 2006

As cable companies like Comcast Corp. enter the burgeoning broadband phone market, offering bundled services with cable television and high-speed Internet, Atlanta-based BellSouth Telecommunications is hunting for a slice of Tennessee’s video pie.

Both BellSouth and AT&T, which are set to merge, are proposing the Internet Protocol Television (IPTV) service, which would compete in the traditional cable market though there would be some technical aspects that separate it from traditional cable. IPTV’s entrance into the state, however, hinges on the General Assembly’s approval of legislation that moves the power of franchise negotiation from local governments to the state level.

“If we have to do that with all of the locales in the state, it will take us a long time to ever get to the point to ever being able to provide [IPTV] to the consumers,” BellSouth Tennessee President Marty Dickens said.

BellSouth research shows each local deal takes 12-18 months from beginning to end.

“We have the network out there,” Dickens said of BellSouth’s Southeastern network valued at $6.5 billion. “What we’re proposing is that the state create a statewide franchise agreement that still protects the local governments.”

Insiders have predicted the Competitive Cable Services Act could become the most heavily lobbied bill in the upcoming General Assembly. Southern states Texas, Virginia, North Carolina and South Carolina, along with five other states, have recently adopted state franchising. To date, BellSouth has not initiated service in the two (of the nine) states in which it has a presence.

More than 27 state legislatures throughout the U.S. are expected to decide on franchising legislation next year. Lawmakers in Nashville got a sneak peak at a bill written by BellSouth earlier this year that was eventually referred to a summer study committee and will return with significant revisions in 2007.

If approved in Tennessee, IPTV could become available in urban markets as soon as 2008, said Jim Spears, BellSouth vice president of governmental affairs.

Cable companies won’t flatly object to the streamlined franchising, but they argue that it seems unfair to give BellSouth an industry “pass” after cable providers have taken the time to build individual relationships.

Comcast declined to comment directly for this story.

“One thing the local communities do is they fight for the local consumer in their marketplace, and that’s why you see the level of deployment by Charter (Charter Communications Inc. provides cable service to many rural areas in Tennessee) and Comcast being in the 99 percent coverage for Internet,” Steve White, regional senior vice president of Comcast Mid-South, told a state broadband taskforce this month. “[We provide] not because we have to, but because we have a unique relationship with each one of our communities.”

With cable executives leery of the proposed legislation, Spears points out that the tables have turned. In 1995, cable companies pushed to win state franchising rights for voice service, which they eventually won despite BellSouth’s objections.

“It’s all about market share,” Spears said. “Why would you want a competitor in your market that you have a virtual monopoly over?”

The Tennessee Municipal League has also vocally opposed the legislation, saying that bypassing the local government franchising process could keep BellSouth from providing fair compensation for the use of public rights of way. TML officials complain that the state comptroller would redistribute franchise fees, possibly disproportionately, instead of going directly to municipalities and county governments.

TML members say the cost reduction isn’t worth losing a place at the negotiating table. In addition, opponents contend the bill, as currently written, would prevent cable companies that are under contracts with local governments from entering the statewide game and that companies receiving statewide franchises could pick and choose areas of town to provide service instead of being held by local contracts that require service be available according to population density.

“We like to say the competition will come to Belle Meade but not Bordeaux,” said Stacey Briggs, director of the Tennessee Cable Telecommunications Association. “Cable operators have been regulated since their inception,” adding that while BellSouth claims cable prices will go down by as much as 22 percent, actually realizing those savings could be far off, after the initial infrastructure investment is recouped.

Spears said BellSouth’s investment would likely be targeted in states that play by the telecom mainstay’s new rules. He said he will work to calm the fears of Tennessee’s city leaders and show them that they only stand to gain from more than the millions in capital investments from BellSouth.

“You’ve got a company that wants to spend hundreds of millions,” he said flatly. “Why are you fighting?”