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from: Ars Technica

Telecoms get a break with new FCC franchise rules

By Eric Bangeman | Published: March 06, 2007

The Federal Communications Commission has published new rules governing cable franchising laws. Approved by a 3-2 vote in December, the rules should make it much easier for telecoms AT&T and Verizon to enter new markets. They are also likely to face a court challenge; more on that later.

Citing "unreasonable barriers" for the telecoms as they attempt to enter the cable television market, the FCC's rules will limit the ability of municipalities to negotiate franchises with video providers, be they "traditional" cable TV companies or telecoms looking to offer video services over fiber optic networks. The order cites "drawn-out" negotiations with no time limits and "unreasonable" build-out demands as reasons for implementing the new rules.

Indeed, both Verizon and AT&T have faced some difficulties with local franchising authorities. Verizon, for the most part, has adopted what a Verizon executive called a "good neighbor" policy, signing franchise agreements and attempting to work with local governments. AT&T, on the other hand, is flat-out refusing to enter into any franchise agreements, instead signing memorandums governing the terms and conditions under which AT&T would be able to offer its service within a town or city.

AT&T's stance has led to some difficulties in rolling out its U-Verse video, voice, and broadband service and is at least partially responsible for the company's having to scale back expectations for deployment.
Fast-tracked negotiations and cherry-picking

Contentious talks with town and city governments would become a thing of the past for AT&T, should the FCC's rules survive the expected challenge. Negotiations would be capped at 90 days, and if the telecoms and franchising authorities can't come to an agreement within that time frame, a franchise would automatically granted.

Municipalities will also have a harder time preventing telecoms from limiting their service to desirable neighborhoods and communities. The FCC's rules will preempt local level-playing-field laws, as telecoms would no longer have to agree to what the Commission describes as "unreasonable build-out requirements." Instead, video providers would have much more freedom to selectively deploy their new fiber networks.

The 90-day negotiation window and limitations on build-out requirements will have the effect of hamstringing cities and towns in their negotiations. On the other hand, AT&T and Verizon may well have very little reason to engage in good-faith negotiations, knowing that once the 90-day window has closed, they can pay a five percent franchise fee and begin deployments as they wish.
Dissention within the FCC

FCC Chairman Kevin Martin hailed the new rules, saying that he was "pleased that the steps taken by the Commission today will expressly further" competition for broadband and video services. Given the limit on build-out requirements, however, telecoms will be free to pick and choose which communities they want to serve, leaving undesirable neighborhoods missing out on exactly the kind of competition Martin espouses.

In a dissenting statement, Democratic Commissioner Michael J. Copps said that he was unsure that Commission has the legal authority to promulgate the new rules. Copps also noted that he is unconvinced that there are real problems with the way franchises are currently awarded. "I have been troubled at the lack of a granular record that would demonstrate that the present franchising system is irretrievably broken and that traditional federal-state-local relationships have to be so thoroughly upended," argued Copps. "If we are going to preempt and upend the balances inherent in long-standing federal-state-local jurisdictional authorities, we should have a record clearly demonstrating that those local authorities are not up to the task of handling this infrastructure build-out and that competition can be introduced only by preempting and upsetting these long-standing principles of federalism."

The new rules will take effect 30 days after they are published in the Federal Register. It is all but certain, however, that there will be legal challenges ahead. The cable industry will not be too happy about new competitors not having to play by the same rules they had to when entering new markets, while municipalities that have been at loggerheads with AT&T are also likely to challenge the new rules. There may be some hope of the rules being overturned—after the FCC attempted to introduce the broadcast flag back in 2003, a Federal appeals court killed it, saying that Congress needed to explicitly grant the FCC the authority to create the flag. In this case, Congress could simply pass a so-called "national franchise" for video providers, something that was included in last year's failed telecommunications reform bill.