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From: Bloomberg News

Verizon, AT&T Lobby States for TV Licenses, Bypassing Congress

By Molly Peterson

Dec. 18 (Bloomberg) -- Verizon Communications Inc. and AT&T Inc. haven't fared well in Washington in their bid to expand their television business. They're doing a lot better in Trenton and Topeka.

The phone companies are backing off a two-year push to get Congress to help them win a bigger chunk of the $68 billion cable-TV market. Instead, they're shifting their focus to state capitals -- nine legislatures have already approved TV-licensing laws -- as well as the Federal Communications Commission.

New Jersey is their latest victory: The Board of Public Utilities on Dec. 15 approved Verizon's application, and the company says it will begin selling TV service in about 100 communities within two weeks.

Verizon and AT&T are rushing to offer TV service to compete with cable providers such as Comcast Corp., which have lured away their customers by packaging calling services with TV and Internet access. Fitch Ratings, a New York-based research and credit-ratings company, forecasts the phone companies will lose as much as 8 percent of their residential customers this year, after a 7 percent drop in 2005.

``As traditional voice revenue declines, the phone companies have to have services to make up for that lost revenue,'' says Paul Glenchur, an analyst with Stanford Washington Research Group, an investor advisory firm. In seeking to gain ground in the TV market, ``they're de-emphasizing Capitol Hill, and they've had some success at the state level.''

Bypassing Local Authorities

The legislation the companies have been trying to get through Congress would create a national TV-licensing system. That would allow them to sell TV service without having to get permission from local officials, a process Verizon says regularly takes more than a year.

The measure stalled in the Republican-controlled Congress this year as Democrats sought to include rules the companies opposed. A so-called net-neutrality proposal would have banned them from charging Google Inc. and other content providers extra fees to deliver their Web pages and services more rapidly over the companies' Internet lines.

Lawmakers also sought ``build-out'' rules requiring phone companies to offer TV service to all households in cable markets they enter.

With Democrats taking control of Congress in January, prospects for success next year are even dimmer. ``We do not expect that we'll be pursuing legislation on the federal side next year,'' says Thomas Tauke, a former Republican congressman from Iowa who oversees lobbying for New York-based Verizon.

Dingell, Markey, Inouye

Democratic Representatives John Dingell of Michigan, who is in line to head the House Energy and Commerce Committee next year, and Edward Markey of Massachusetts, who will head the telecommunications subcommittee, both favor the net-neutrality and build-out rules. So does Senator Daniel Inouye of Hawaii, who will lead the Senate Commerce Committee.

Blair Levin, an analyst at Stifel Nicolaus & Co., a St. Louis-based research group, says AT&T probably will follow Verizon's lead and shift its focus from Congress to the states next year. Representatives of San Antonio-based AT&T say they haven't yet decided.

The company is ``finalizing its 2007 priorities,'' Tim McKone, executive vice president of federal relations, said in an e-mailed statement. AT&T plans to spend $4.6 billion through 2008 to expand its fiber-optic network to 13 states, allowing it to offer digital-TV channels, high-speed Internet access and phone service.

Better Luck

With their decades of experience lobbying state governments, the phone companies have had better luck in legislatures than in Congress. Texas, Indiana, California, Virginia, Kansas, South Carolina, North Carolina and New Jersey have already enacted laws sought by the companies; in Michigan, the legislature has passed a bill that Democratic Governor Jennifer Granholm may sign into law this month.

Most of the laws allow the companies to obtain licenses from a state regulator without having to apply in each municipality. Verizon, the second-largest U.S. phone company after AT&T, says it has obtained more than 200 municipal licenses to sell TV in eight states so far, but may need up to 3,500 to meet its goal of offering TV to 18 million homes by the end of 2010.

The local-licensing process may get a little easier if the FCC votes Dec. 20 to require municipal agencies to decide within 90 days on some phone-company applications to sell TV service. Even so, says Tauke, ``there are so many local franchising authorities that it's a difficult challenge.'' Verizon's 2008 targets for state franchise laws may include New York, Massachusetts and Pennsylvania next year, he says.

Promises in Michigan

In pushing for the recently passed Michigan measure, AT&T pledged to spend $620 million over three years and hire 2,000 people in the state, which has been hard hit by troubles in the U.S. auto industry.

Without the legislation, AT&T would have had to negotiate separate license agreements with about 1,100 Michigan municipalities, says Joe Steele, an AT&T spokesman in Lansing. ``We thought it was too onerous a process,'' Steele says.

The measure drew opposition from some local groups, including the Michigan Municipal League, which said AT&T never tried to obtain local TV licenses in the state. ``They didn't want to negotiate, but they were blaming us for being difficult, which is not accurate at all,'' says Joe Fivas, the league's assistant director of state affairs.

In most cases, the cable companies haven't opposed the state TV-licensing measures because they generally offer equal benefits to cable providers.

`Pretty Even-Handed'

The Michigan law was ``pretty even-handed,'' says Rick Cimerman, the National Cable and Telecommunications Association's vice president for state-government affairs. The Washington-based trade group represents cable-television providers including Comcast, Cablevision Systems Corp. and Time Warner Inc.

Still, Sena Fitzmaurice, a spokeswoman for Philadelphia- based Comcast, says the company doesn't ``believe that the case has been made that the local franchising process is a barrier of entry for competitors.''

So far, the highest-profile conflict between cable and telephone companies has been in Texas, which enacted the first statewide licensing law in 2005. Cable companies are seeking to overturn that measure, which Cimerman says is ``discriminatory and unconstitutional'' and gives a ``sort of sweetheart treatment to the new entrants'' such as phone companies.

New Jersey, which enacted its TV law in August, triggered another clash, this time between Comcast and Verizon, which has said it will invest $1.5 billion over three years in the state.

Verizon's Ads

As the licensing bill made its way through the legislature, Comcast, New Jersey's largest cable-TV provider, refused to broadcast Verizon commercials supporting the legislation. ``Comcast chose not to air ads by Verizon that included misleading and inaccurate information about the cable industry,'' Fitzmaurice says.

A similar battle may be brewing in Pennsylvania, where Verizon will urge state lawmakers to reintroduce a TV-license measure that didn't come to a vote this year.

Verizon, which began offering TV this month to 100 municipalities in southeastern Pennsylvania, also plans to start competing with Comcast in its hometown of Philadelphia "in the not-too-distant future," Tauke says.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net