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from: Ars Technica

FCC votes on cable franchise reform this Wednesday

12/18/2006 1:45:24 PM, by Nate Anderson

The rules for local video franchising could be changing this Wednesday. At the agency's open meeting this week, Commissioners will "consider a Report and Order and Further Notice of Proposed Rulemaking regarding Section 621(a)(1)'s directive that local franchising authorities not unreasonably refused to award competitive franchises." If that's the sort of language that makes your eyes glaze over, then it's time to hit the coffee pot, because this could be big news for AT&T, Verizon, and other telecom firms that want to enter the television market.

Our recent investigative report on AT&T's IPTV rollout laid out the issues in more detail, but let me summarize them briefly. Phone companies want to get into the television business—Verizon has its FiOS TV and AT&T has U-verse—but local municipalities have tried to require that the companies secure a video franchise in each town.

This is unbelievably time-consuming, of course, but the phone companies don't like it for another reason: video franchises often come with "build-out" provisions. These generally require new entrants in the video market to offer service to everyone in town currently served by traditional cable. This is expensive, and the telecom firms don't want to do it. In an effort to avoid such requirements, AT&T has flatly refused to agree to such requirements.

Earlier this year, it looked like help was on the way. Despite fierce opposition from the cable industry, a Congressional rewrite of the 1996 Telecommunications Act included a provision for a "national franchise." Companies would only have to agree to one contract and one set of rules, not thousands of them. But Congress left town this year without passing any such legislation.

The FCC to the rescue!
Now the FCC is poised to make some changes of its own to the franchising process. The agency started the process late last fall when they sought comments on "whether build-out requirements are creating unreasonable barriers to entry" and other such questions. Companies have been complaining about the process to the FCC for years; Verizon, for instance, claims that getting a franchise 1) tips off competitors, 2) takes too long, 3) triggers "level playing field" laws (which require new franchisees to follow all the same restrictions as the cable companies), and 4) sometimes involves "outrageous demands" from cities for unrelated items.

The public comment period has generated a predictable amount of heat and light from those on both sides of the issue. The National Cable & Telecommunications Association questions whether the FCC even has the right to adopt new franchising rules, while the US Telecom Association gushes that "the Commission is the unquestionable authority to adopt rules governing the application of Section 621, despite the protestations of cable operators."

Now that Congress has failed to act, the FCC has scheduled a vote on its proposed new rules. Cable operators are nervous, because FCC Chairman Kevin Martin has been making recent speeches about how video competition and the need for franchise reform.

The implications the new rules will become clear only after they are passed (the draft order has not yet been made public). The rules are likely to require that cities take no more than 90 days to approve new franchises, among other changes designed to speed up the process. The USTA has been lobbying for far more sweeping rules that would prevent build-out requirements and limit franchise fees.

Despite the fact that no one knows for sure what's in the draft, organizations representing the cities are already opposing it. In a December 12 letter to the FCC that was seen by Ars Technica, the National League of Cities and the National Association of Counties argued that a 90-day limit on negotiating franchises was unworkable. "A fixed deadline would provide no incentive for new providers to work toward a local franchise agreement," said the letter, "because they would have access to the public right of way without local oversight if they simply wait out the timeframes." The groups also claim that the reported new rules will lower the amount of money that companies pay to the municipalities, and repeat their claim that build-out requirements are best left in the hands of local residents.

While new rules would certainly affect the industry, it's not clear that they would affect AT&T. The company has long insisted that its U-verse IPTV service is not a "cable service" and that AT&T does not need to secure any sort of local video franchise for it. The FCC has still made no decision on the matter.