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FCC Rolls Out New Rules On Video Franchising

Telephone Companies Get Favored Treatment to Play on Cable's Turf

By Martin H. Bosworth
ConsumerAffairs.com

March 6, 2007

Broadband Access • Few Are Neutral in Net Neutrality Battles • Google Petitions FCC Over Verizon's Use of Wireless Spectrum • House Committee Grills FCC Over Wireless Auction • FCC's Martin: No Opening Of Wireless Networks • FCC Releases Broadband Report, Admits Data is Faulty • Verizon Wins Wireless Spectrum Auction • Bush Declares Broadband 'Connection Accomplished' • Google Will Bid In Wireless Spectrum Auction • Verizon Agrees to Stop 'Unlimited' Claims • Google Challenges Verizon Over Lobbying Of FCC • Sen. Kerry Wants New Broadband Policy • Verizon Wireless Challenges Spectrum Auction Rules • FCC Passes Compromise Rules For Wireless Spectrum Auction • Google, AT&T Square Off Over Wireless Broadband • Senate Wants Better Data On Broadband Deployment • FCC Takes a Closer Look at Broadband Deployment • Groups Urge FCC To Create Wireless Broadband Competition • FCC Chair Grilled By Congress Over Favorable Treatment of AT&T, Verizon • FCC Rolls Out New Rules On Video Franchising • FCC Approves AT&T-BellSouth Merger • AT&T Offers Net Neutrality Concessions To Win Merger Approval • FCC Plays Santa for AT&T, Verizon • Consumers Sidelined as Broadband Battles Rage • Wireless Broadband Still Expensive, Service Still Spotty • High-Speed Internet Overtakes Dial-Up in Market Share • U.S. Still Lags In Broadband Access • Municipal Wi-Fi: The Internet's Next Step? • Verizon Limits Its "Unlimited" Wireless Broadband Service • California Bill Seeks to Jumpstart Cable Competition • GAO: Broadband Access Difficult To Measure • Congress Wrestles with Net Neutrality --- More ...

Making good on its promises to the major telecom companies, the Federal Communications Commission (FCC) has published its official new rules for deploying video services to communities, clearing the way for AT&T and Verizon to roll right over "unreasonable regulatory obstacles."

The new supposedly intended to help the big telephone companies compete with existing cable providers by exempting them from meeting the franchise requirements set by local governments.

Although telecom and business interests were quick to hail the move as a success, consumer advocates were displeased with what they saw as an example of federal power trumping states' rights and leaving local consumers with little recourse to resolve complaints and disputes.

Amina Fazullah, staff attorney for the U.S. Public Interest Research Group (PIRG), said that "The FCC's arrogant order ... shows both an obvious ignorance of the limits Congress placed on its authority and a failure to comprehend that the best place to make decisions that affect local viewers is at the local level."

The 109-page FCC document focuses on local municipalities, stating that they must adhere to a timeline of six months to approve new entrants in a market, and 90 days for businesses that already have existing services in a market, and for limiting "franchise fees" telecom companies would have to pay to start building new services in a community.

In addition, the FCC prohibited local authorities from requiring "build-outs" of service to all areas of a particular municipality, saying they imposed an unreasonable burden on new entrants by forcing them to compete with existing markets.

Supporters of build-out requirements say that the FCC's new rule will free the telcos to "cherry-pick" only the most affluent neighborhoods for service, leaving low-income consumers without the benefits of competition.

As the FCC viewed it, "If a cable competitor initially serves only one neighborhood in a community, and a few consumers in this neighborhood benefit from the competition, total welfare in the community improves because no consumer was made worse and some consumers (those who can subscribe to the competitive service) were made better. In comparison, requirements that deter competitive entry may make some consumers (those who would have been able to subscribe to the competitive service) worse off."

The new rules follow a December 2006 vote that broke 3-2 along partisan lines. Supporting the measure were Chairman Kevin Martin, Robert McDowell, and Deborah Tate, all Republicans. Opposing it were Jonathan Adelstein and Michael Copps, both Democrats.

In a statement accompanying the new rules, Martin hailed the decision as another stepping-stone in his announced goal of increasing broadband deployment to all Americans, and the value of "triple play" services such as integrated phone, video, and Internet access offered by both telco and cable companies.

"High-speed connections to the Internet have grown over 400% since I became Commissioner in July 2004," Martin said. "By enhancing the ability of new entrants to provide video services then we are advancing our goal of universal affordable broadband access for Americans, as well as our goal of increased video competition."

The FCC has frequently been criticized for utilizing spotty data in justifying evidence of broadband rollout, such as relying on subscriber ZIP codes instead of business infrastructure development. And while fully half of the U.S. can claim some form of access to broadband Internet, the country as a whole does not even rank among the top ten of developed nations in overall broadband penetration.

Copps, in his own statement, noted the troublesome legal aspects of the FCC's rulemaking, saying that "I believe it is the better course of wisdom in so far-reaching a proceeding, in light of the concern being expressed by those with oversight responsibilities of this Commission, to thoroughly answer those questions, to lay out the basis of our claimed legal authority, and to explain what legal risks this action entails before taking action."

Fellow commissioner Adelstein agreed.

"The sum total here is an arrogant case of federal power riding roughshod over local governments," said Adelstein in his own statement. "This item blatantly and unnecessarily tempts the federal courts to overturn this clearly excessive exercise of the limited role afforded to us by the law."

Adelstein and Copps had previously stonewalled the merger of AT&T and BellSouth due to McDowell having to recuse himself from the vote. The merger was cleared on Dec. 29, 2006, after AT&T agreed to several concessions, including a promise to maintain "net neutrality" on its Internet services for two years, and to offer standalone DSL to BellSouth customers in its territory.

The telecoms' push for video franchise rights mirrors the efforts of Comcast and other cable providers to get into telephone and Internet access service. Both face huge capital costs in rolling out new networks and are hoping to recover those costs more quickly by offering services previously offered only by their competitors.

Martin spoke only of the telephone companies' investments, though, ignoring the similar investments being made by cable companies, who remain subject to local franchise requirements.

"[T]he ability to offer video offers the promise of an additional revenue stream from which deployment costs can be recovered," Martin said.

Ironically, the effort by cable companies to get into the telephone business and the telephone companies to get into the cable business doesn't seem to be resonating with consumers.

In hotly contested areas such as Maryland's Montgomery County, the result has been continual increases in price for even the most basic packages, and an increasing number of dissatisfied customers.

Andrew Jay Schwartzman, president of the Media Access Project, criticized the FCC decision for leaving local governments' hands tied against preventing provider price increases.

"We need competition in video, but this decision will not produce it," he said. "What it surely will do, however, is to destroy local control over cable TV services."

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