Verizon Wins Franchise Mediation in Montgomery, Md.
BALTIMORE -- Verizon won a round in a legal battle against Montgomery County, Md., with an order subjecting the video franchise dispute (CD July 3 p3) to mediation. U.S. Dist. Judge Marvin Garbis, Baltimore, said he'll appoint a magistrate to coax the parties to hammer out deals on a variety of disputes on the telco’s quest to sell the FiOS TV product and avoid a 5% tax on broadband and phone revenue. Garbis told a hearing here he'll consider later the merits of Verizon’s claim the county broke FCC rules in trying to impose the fees.
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The goal of such intervention is to prompt the parties to narrow the range of subjects in the spat, Garbis said Tues. His order came 4 days after N.J. Gov. Jon Corzine (D) signed a franchising bill that gives Verizon the right to sell video throughout N.J. (CD Aug 7 p9). The bill offers a model for franchise reform in other states, an NCTA official told us in separate comments.
The court-appointed mediator will seek to quickly resolve as many disagreements as possible, said Garbis. He'll review agreements and may hold hearings on subjects the 2 sides can’t settle. The parties weren’t in sync on the legality of a broadband and phone tax and the extent the county can recoup costs from the franchise process from Verizon. The company’s wary of being overcharged, said Henry Weissmann, representing Verizon. “Actual county out-of- pocket costs” can be legally sought, said attorney Joe Van Eaton, representing the D.C. suburb. “It’s totally open ended, what that cost is,” replied Weissmann.
Verizon would pay a 5% franchise fee only on video revenue, Weissmann said. Agreeing with Garbis, Weissmann said the “key issue” in the case is “whether the city, when it gives a cable franchise, by that act, also gets to become our telecom regulator.” Van Eaton, asked by Garbis if the county wants to tax broadband and phone use, answered “no.” Montgomery County wants 5% of “gross system revenue,” Van Eaton said: “It doesn’t include phone service. It doesn’t include broadband service.”
The judge denied Verizon’s request for an injunction against the county’s cable law without prejudice. Garbis ordered Verizon to file a franchise application with the county. The firm can’t expect to get a request to sell video approved until it formally requests a franchise, Van Eaton told Garbis: “They may be right and they may be wrong… but they must first get a cable franchise.”
Verizon countered they've held on and off franchise talks for more than a year. The county told the company to wait on filing an application, Weissmann told the judge. “They wanted to work out everything in advance of us filing,” Weissmann said: “It’s a bit ironic.” Garbis said he didn’t see how Verizon would be harmed by requesting a video franchise and that such negotiations wouldn’t preclude judicial relief. “If you're in negotiations, it doesn’t matter if it’s ripe or not” for a legal challenge, said Garbis.
The 2 attorneys squabbled on whether a mediator should reside in Montgomery County. Garbis granted Verizon’s request that the magistrate live outside the county, preferably in Baltimore. Van Eaton wanted a county resident involved and said someone living in Baltimore might not be impartial because Verizon’s Md. hq is there. “That’s kind of silly,” said Garbis. The judge said he'll participate in frequent conference calls to discuss the status of the talks.
Garbis pointed out similarities in county and Verizon arguments, but conceded they're far apart on several topics. “There may be very little that’s left after a meeting of the minds, and I can decide it,” Garbis said: “We end up with a process with which you're all involved and I'll be standing outside the door.” The alleged broadband tax “would be presented as a discrete issue to me” to consider, he added. “There is no way to solve this case other than to take it item by item… Let me try to bridge the gap here,” said the judge, likening the number of disputes to “a hell of a laundry list.”
Attorneys for both sides proffered praise for the decision. The ruling is “everything we asked for,” said another Verizon lawyer. Asked for further reaction, a company spokesman said: “What we were looking to do was break the logjam,” which was accomplished: “We're happy with the way this is headed.”
Montgomery County agrees with the judge that the sides aren’t very far apart, cable officer Jane Lawton said in an interview. “I don’t have a problem with mediation at all, and I'm glad [Garbis] denied the injunction motion,” she said: “They [Verizon] have built out our city. We are eager for competition.”
Streamlining State Franchises
Another Verizon official said the company is continuing to push for franchise reform along the lines of laws already passed in 7 states. Bells aren’t likely to get a federal law this year letting them get a national franchise, said analysts including Stifel Nicolaus’ Blair Levin. The Senate may balk at passing a broad telecom bill due to several Republicans’ fears that net neutrality could hurt their reelection prospects, wrote Stanford Group’s Paul Gallant and Paul Glenchur.
States remain a hotbed for franchise relief, said Verizon and NCTA officials. “We are hopeful that more states will pass consumer choice reforms,” a Verizon spokesman told us Mon.: “There still is a chance it will be done by Congress this year.” Legislators in Cal., Pa. and other states are debating franchise tweaks, said the official. Pa. lawmakers held a hearing on the subject yesterday (Tues.), said another company official.
Among large states eyeing reform, Cal. is “the furthest along,” Jadz Janucik, NCTA senior vp-assn. affairs, said: “I think we're going to see some legislation before the end of August… Everybody is in the process of negotiating.” NCTA continues to believe Bells don’t need franchise relief, but wants to ensure that if they get such reform it doesn’t favor telcos over other companies, said Janucik.
Cable is happy with N.J.’s new mandate that Verizon build out its systems to serve big areas of the state, Janucik said: “In Virginia and now in New Jersey, the state legislatures in those cases have agreed that you can’t build just select neighborhoods."