Save Access

from: Milwaukee Journal Sentinal 3/16/07

Deal on Web TV reached
AT&T would pay city 5% in franchise-like agreement

By GREG J. BOROWSKI and DORIS HAJEWSKI

Milwaukee officials have reached a franchise-like agreement with AT&T that would allow the company to launch its Internet Protocol video service, billed as a competitor to cable television.

Elements of Milwaukee's agreement could become a model for area communities, where AT&T is also moving to offer its U-Verse service.

Pieces could also be incorporated in the state legislation, which aims to put all video services - including cable - on equal statewide footing.

The temporary, three-year agreement, which goes to a Common Council committee next week, calls for AT&T to pay the city a license fee that amounts to 5% of its gross revenue related to the service.

That's comparable to what Time Warner Cable pays the city in its franchise agreement. Because the AT&T service is just beginning, it's unclear how much the city would be paid.

The agreement also includes a payment of 2% from gross revenue to help pay for public, educational and government programming, such as the channel that televises council meetings. That is more than the 1% for that purpose in the existing Time Warner deal.

In a letter to Mayor Tom Barrett and aldermen, City Attorney Grant Langley - who led city negotiations - recommends that the agreement be adopted.

Langley was unavailable for comment Friday.

The agreement provides unprecedented benefits to consumers and the city and it makes Milwaukee a leader in encouraging video competition for the benefit of consumers, and brings these benefits to Milwaukee now, said AT&T Wisconsin President Scott T. VanderSanden in a statement.

"The agreement matches the concerns the council has expressed," said Ald. Michael Murphy, chairman of the council's Finance and Personnel Committee.

He said those concerns included assuring that the deal was on par with the Time Warner one, so if customers switch to the new service, the city does not lose out on revenue it now receives.

Also, Murphy said, aldermen wanted to assure that ultimately the service - which many believe will cost less than cable - is offered everywhere, not just in more higher-income neighborhoods.

The three-year agreement is viewed as a temporary measure as the legal and political landscape on the developing product takes shape.

In December, the city filed a federal lawsuit that seeks to have the service declared a cable system, which requires a franchise agreement with the city, such as the one Time Warner Cable has.

AT&T argues the service is not a cable system, so no franchise is needed.

The lawsuit would settle that question.

The proposed state franchise system measure would apply to cable companies as well as AT&T and other new entities. It would replace current law that requires cable operators to obtain franchises from each municipality where they provide service.

It would cap at 5% the payment based on gross revenue a video provider would have to pay to a municipality.

A co-sponsor of that bill suggested Friday the Milwaukee deal would leave customers paying too much.

State Rep. Phil Montgomery (R-Ashwaubenon) questioned the 2% that would go toward government and educational programming. He said that seems like a tax.

He said he'd ask city officials to justify the payment at a March 27 hearing on the bill. That bill would not pre-empt the city's agreement, Montgomery said.

Local government officials have criticized the bill, saying municipalities could receive as much as 20% less than they are now getting from cable operators.

That's because the definition of revenue in the bill excludes items that are now included in the formula used to calculate payments.

Bob Chernow, chairman of the Regional Telecommunications Commission, said he couldn't comment on the Milwaukee agreement until he has a chance to read it.

The details of the agreement are what's important, Chernow said. Chernow also suggested that AT&T might tell Montgomery and co-sponsor state Sen. Jeff Plale (D-South Milwaukee) to drop the pending video legislation.

"My guess is they won't need the legislation" if the Milwaukee agreement is approved and ultimately copied, Chernow said.

The agreement with the city calls for AT&T to build out at least 25% of the households within the three-year term of the agreement.

A summary of the deal says that at least 25% of those households are expected to be low-income households.

Some critics have worried that the company would target the service on higher-income areas. Cable companies, such as Time Warner, are required to serve an entire community.

Murphy said aldermen wanted to be sure any deal with AT&T protects the revenue the city gets from the Time Warner franchise. That 17-year agreement took effect in 1999.

When it was signed, the annual franchise fee to the city was projected at $4.7 million. Before the deal, it was about $3 million.

Murphy noted that if customers move to the AT&T product - or other, future systems - the city would see its revenue erode.