Passage of Cal. Video Bill Expands Franchise Reform to 1/3 of U.S. Population
The Cal. legislature passed a video franchise reform bill to spur competition in the state’s $5.3 billion cable market by shifting video franchising from municipalities to the PUC. If Gov. Arnold Schwarzenegger (R) signs the bill as expected, Cal. will be the 8th state fundamentally reforming video franchising to facilitate competitive video entry. Those 8 states -- Cal., Ind., Kan., N.J., N.C., S.C., Tex. and Va. -- have 1/3 of the nation’s population.
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AB-2987 achieved final passage late Thurs. in a 64-4 Assembly vote accepting Senate amendments. Under it, AT&T, Verizon and other new entrants can get a state franchise from the Cal. PUC once the PUC writes franchise application rules. At the same time, incumbent cable operators will be able to get state franchises to enter new markets. And as of Jan. 2008, incumbent cable operators will be able to opt out of existing municipal franchises when a video competitor enters a given market. But until there’s competitive video entry, existing local franchises will remain in force.
State franchise holders will have to pay municipalities franchise fees of up to 5%, and comply with state antibias and buildout standards requiring big outfits like AT&T and Verizon to achieve a 25% market buildout within 3 years -- 40% within 5 years -- with at least 1/4 of the buildout in low-income areas. New entrants also must provide public access channels. The bill preserves municipal authority over access to public rights of way and facility siting within them, but will require municipalities to rule on right of way permit and siting applications within 60 days.
AT&T and Verizon fought hard to pass the bill. Cal. is AT&T’s single biggest market, its 15 million Cal. access lines comprising about 1/3 of its national total. Verizon has 4.2 million access lines in Cal., about 9% of its national total. AT&T alone spent about $18 million of $24 million in lobbying expenses reported by all major parties interested in the bill. Cable companies initially fought the bill, but when resistance became futile, they shifted focus to getting amendments such as the existing-franchise opt-out provision, making the bill palatable. Municipal and consumer groups lobbied against the bill. Despite amendments like partial buildout requirements and preservation of local right of way authority, municipal and consumer interests mostly opposed to the bitter end.
Bills to shift video franchising from municipalities to the state are pending in legislative committees in 3 other states, whose legislatures meet all year. In Mich., SB- 1157/HB-2595 would shift franchising to the Secy. of State. In N.Y., AB-11549 would vest video franchising authority with the PSC. And in Pa., SB-1247 would make the state Corporation Bureau the exclusive video franchising agency. These 3 pending states contain 14% of the U.S. population. Franchise reform bills failed to pass this year in Fla., Ia., Mo. and Tenn. A franchising bill passed in La. but was vetoed.
Three states, covering about 5% of the U.S. population, this year saw franchise reform initiatives outside the state house. Conn. regulators ruled IP-based video exempt from franchising requirements, since it doesn’t fit the state definition of cable service. That ruling is under court appeal. Mass. regulators are weighing a Verizon proposal to streamline municipal franchising by requiring local decisions within 90 days, but municipal and incumbent opposition is strong. In Okla. the state attorney gen., in response to phone company requests for ruling, held last spring that existing phone franchises cover related services so phone companies need not get separate video franchises in their phone service areas. That opinion hasn’t been challenged.
Analysts at Stifel Nicolaus said the success of the Cal. legislation may cut phone companies’ need for federal video franchise reform, making them less open to compromises. They said getting Cal. in the reform camp means franchise relief now covers 60% of AT&T’s lines and 33% of Verizon’s, and if pending state bills and other state reform efforts succeed, franchise relief would cover 51% of the U.S. population.
Meanwhile, the Ind. Utility Regulatory Commission (IURC) approved AT&T’s statewide video franchise application. AT&T was the first video provider to get a state franchise under Ind.’s 2006 franchise relief law. AT&T in Case 43094-VSP-01 told the IURC it plans to use existing fiber and copper facilities where possible, but will use only fiber when extending service to new areas. AT&T last month announced plans to invest $250 million in Ind. AT&T didn’t say publicly where or when it will offer its first service, except to say initial forays will be within its phone service area. AT&T gave the IURC material on its service plans under confidential seal. AT&T said IURC approval was “an important step toward bringing consumers greater choice.”
State franchising reform has had unanticipated effects. Passage of state video franchising relief in N.J. led Verizon last month to cease efforts in N.H. to get local franchises. Verizon was in talks with 5 N.H. towns and had preliminary feelers out with others. But Verizon in Aug. broke off all N.H. video efforts, and said it was transferring the resources earmarked for N.H. to N.J. so it could use them to meet firm service dates there. Verizon hasn’t sought state franchising in N.H. Verizon said it would review its N.H. video plans next year at the start of its next corporate budget cycle.