Panel: Video Changes the Telecom Act

LAS VEGAS -- Telecom '05 -- The Telecom Act of 1996 is long overdue for a rewrite, according to a panel of Washington insiders that spoke here on Monday. And, like a church choir, they began a familiar refrain that without clear enough rules, investment in the telecom space will suffer.

Rewriting the Act would "take out some of the insecurity that we have right now, says Legg Mason Inc. analyst Blair Levin, referring to the investment community take on the telecom space.

"We still have issues from the '96 Act that we are trying in the courts now -- but comprehensive deregulatory legislation would largely cut that stuff out," says Levin, the former chief of staff to Federal Communications Commission (FCC) commissioner Reed Hundt.

Levin was joined on the panel by senior technology adviser to Sen. John Ensign (R-Nevada), Michael Sullivan, and telco industry consultant Anna-Maria Kovacs of Regulatory Source Associates LLC.

The panelists identified video franchising as a key driver in Washington for overhauling the '96 Act. (See Martin: FCC to Classify IP Video.) The telcos are concerned about the time and expense needed to acquire the franchises city by city, as the law seems to suggest now.

But panelists here say significant momentum now exists in Washington to do away with local video franchises. Such a reassuring regulatory posture, the telcos say, would speed investment in new video networks. (See In-Stat Predicts Growth .)

Verizon Communications Inc. (NYSE: VZ) says it has 30,000 municipalities in its footprint from which, under current rules, it would be required to obtain individual franchises -- a job the carrier says would take about four years.

Verizon has already obtained a local franchise and rolled out service in Keller, Texas, causing the local cable MSOs to cut prices by 50 percent, sources here say. (See Telcos Close In on TX Video Win.) In addition, Verizon was recently granted a state-issued franchise to offer its TV service in 21 communities in and around Dallas and Fort Worth.

Among the bills introduced in Washington this year addressing video franchising is the "Broadband Consumer Choice Act of 2005," introduced by Senator John Ensign (R-Nevada). The bill states simply: "A video service provider may not be required to obtain a state or local franchise or to build out its video distribution system in any particular manner."

As testament to the bill's import, the markets immediately reacted in a very positive way at its release. (See New Bill Boosts Telecom .) "We'd never seen anything like it; the market cap in the telecom equipment sector immediately increased by $22 million," Ensign advisor Sullivan says.

Most telecom industry analysts and stakeholders agree that so much convergence in the industry is now underway, the Telecom Act of '96 is woefully out of date. Observers note the Act was not written for a time when telcos deliver video service, cable companies sell voice, and insurgent Internet players like Google (Nasdaq: GOOG) prepare to enter the space.

The panel also touched on the "net neutrality" issue, which Sullivan says is on the minds of many in Washington these days.

Some worry that providers of triple-play services, including IPTV, might discriminate against certain kinds of competing video content delivered via broadband from the Internet. Port-blocking of a VOIP service is also considered a breach of the net neutrality principle. (See Vonage Hits ISP Resistance and Vonage Victorious in Blocking Case.)

In general terms, net neutrality language would prohibit network operators from blocking or limiting access to online content for competitive reasons.

Senator Ensign's bill addresses the issue, but both Sullivan and Levin believe concerns over net neutrality are at present mostly conjecture. "We have to be careful not to draft legislation that goes out and searches for problems," Sullivan says.

— Mark Sullivan, Reporter, Light Reading