SBC Sees IPTV Interference

Legal battles over cable franchising may add a hurdle to SBC Communications Inc.'s (NYSE: SBC) planned rollout of IPTV service later this year (see SBC: 'Let Us Entertain You!').

Attorneys and industry advocates from SBC, the cable industry, and municipalities are already jousting over whether TV channels piped through the Internet are bound by franchise law, and the courts seem to be where the debate is heading.

The battle is worth watching because SBC and other phone companies could wind up forfeiting 5 percent of their return on investment to local authorities if the franchising rules are shown to apply.

The franchising agreements formed between TV providers and municipalities typically include standard provisions for reliability, customer service, billing cycles, public access channels, and the payment of a franchise fee.

National Cable & Telecommunications Association (NCTA) president Robert Sachs fired the first salvo in the IPTV debate in a speech to the Washington Cable Club on December 14. Sachs said there is no distinction between the technology used to deliver cable television in the Telecommunications Act of 1996, the law which set forth the franchising rules.

The business plan for SBC's Project Lightspeed, Sachs said, aims to target what it calls “medium-“ and “high-value” customers -- those willing to pay $110 per month for services -- with its IPTV offering. “To protect against ‘cherry picking’ certain neighborhoods based on income, the Communications Act requires local franchising authorities to ‘assure that access to cable services is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides’,” Sachs says.

SBC says the NCTA’s motives are not really rooted in serving the public. “It’s not surprising that the head of the cable association would speak out against what we’re doing, because he’s afraid of the competition,” says SBC spokesperson Mike Balmoris (see MSOs Yawn at Lightspeed).

SBC argues that its TV service isn't the same as a broadcast or cable-provided service. To make that point, SBC’s lawyers are relying on a November ruling by the Federal Communications Commission (FCC) exempting the VOIP carrier Vonage Holdings Corp. from the jurisdiction of state utilities regulation and placing it under federal jurisdiction. The FCC’s central reasoning behind the decision was that Vonage’s VOIP service was not affected by state borders in any way and should not be regulated as such (see FCC Shields VOIP From States and Vetting SBC's VOIP).

“This is an IP platform,” Balmoris says. “It’s the same as when the cable companies provide telephone service over IP; there is no regulation at the local level.” Balmoris says SBC last year filed a forbearance petition with the FCC which states its view that IPTV should be exempt from the franchising agreements. The agency recently extended its deadline to respond, and is now expected to give its view by May 2.

But SBC isn't waiting that long to start digging up neighborhoods. Construction is set to begin this quarter to deploy SBC fiber close to customer locations to provide new, feature-rich, IP-based services, including IP television, VOIP, and fast Internet access. Project Lightspeed is expected to reach 18 million households by year-end 2007.

Balmoris said SBC’s response to any legal challenge from municipalities -- those potentially losing out on franchise revenues -- depends on the circumstances and timing. “We’ll cross that bridge when we come to it,” he says.

For the cable industry, the connection between the Vonage decision and an SBC exemption from local TV franchise rules is too big a stretch. “That decision was specific to voice,” says NCTA spokesman Brian Dietz.

The cable industry, and some localities, are citing language in the Telecommunications Act to support their argument that TV is TV, whether IP or not, and the franchising rules apply to phone companies. “The Act is really very clear on franchising; there is really no need for further interpretations on that.”

“City officials have said they will file injunctions [against SBC] if they don’t abide by the franchising rules,” Dietz says. “At federal level, the Congress could draft new language specifying that phone companies must enter franchise agreements."

Balmoris says some cities welcome the phone companies entrance in the local TV market because of the downward pressure they may place on rising cable TV prices. The NCTA’s Dietz, on the other hand, points out that many cities are more interested in collecting the franchising fees the phone companies might bring to city coffers.

“If SBC continues with their plan to roll out cable television service without entering into the franchising agreement, the law is very clear under Title 6 of the 1996 Telecommunications Act,” says Marilyn Morhrman-Gillis, director of federal relations at the National League of Cities.

Morhrman-Gillis says the situation could play out in a number of ways, depending on SBC’s rollout. “How cities choose to respond would depend on what they announced and in what locations and when,” she says. “But I wouldn’t be at all surprised if cities filed injunctions against SBC.”

One of SBC’s competitors, Verizon, has chosen to form traditional cable franchising agreements with cities and has already entered agreements with Beaumont, Calif. and the Dallas suburb of Sachse.

— Mark Sullivan, Reporter, Light Reading

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OldPOTS 12/5/2012 | 3:31:08 AM
re: SBC Sees IPTV Interference I found this interesting as I have been following the whole franchising activity, including Sachse, with my city council (in the Dallas Area). Things are heating up leagally;

Not mentioned was that Comcast cable is now claiming that the satellite business has 15% of the TV business in the Dallas area and therefore is operating in a competitive area according to the Cable Act. As a result it is asking to be free of Cable Act and the franchise restrictions of all cities in the Dallas area!

Who has to Franchise???
jim_smith 12/5/2012 | 3:31:07 AM
re: SBC Sees IPTV Interference I think this legal battle is different from the VoIP one. Here's why:

The RBOCs collected the "toll". So the VoIP folks simply had to fight it out with essentially one entity (RBOCs) in front of the FCC.

In this case, the "toll" is collected by each municipality. As such, SBC may have to fight it out with every municipality in the local courts and fight it out with the cable cos. in front of the FCC. That sounds like a much, much bigger legal battle.

Makes sense?
materialgirl 12/5/2012 | 3:31:06 AM
re: SBC Sees IPTV Interference Perhaps this is all an arguement for municipal fiber. Let them lay it and charge for transit. It has to be new and different anyway. Now is their chance. Then, the archaic arguements over who has what transit goes away. Munis just get their cut of the action from any bits crossing their tollway.
nowhereman 12/5/2012 | 3:31:05 AM
re: SBC Sees IPTV Interference http://www.usatoday.com/money/...
rjmcmahon 12/5/2012 | 3:31:05 AM
re: SBC Sees IPTV Interference Perhaps this is all an arguement for municipal fiber. Let them lay it and charge for transit. It has to be new and different anyway. Now is their chance. Then, the archaic arguements over who has what transit goes away. Munis just get their cut of the action from any bits crossing their tollway.

It does seem like the only way the last mile will ever get properly upgraded will require municipal action.

The question I have is what conditions must be in place before the municipalities will act? You say, "Now is their chance." But yet in the US only a rare few have acted and, of those few, many remain in a trial status. What are the pieces to this puzzle that remain missing?

(Note: many believe the muni's should stop at leasing ROW access to private industry. Why hasn't that model proven itself?)
flyingsausage 12/5/2012 | 3:31:04 AM
re: SBC Sees IPTV Interference I think it's not so different from the VoIP story if you look from a market & competition point of view.

Voice providers like SBC are subject to some regulations/restrinctions on voice services (things like serving everyone, ...).

Cable operator jumped into the voice market with VoIP (VoIP is different from traditional PSTN Voice switching from technical perspective, but from a market and end-user perspective it's the same, just a phone line), and started an aggressive priving strategy to gain marketshare.
But, they are not subject to the same regulations/restrictions as traditional voice providers.
It's a kind of "unfair" competition.

Looking at TV, Voice providers (like SBC) are now entering the cable companies homemarket with IPTV, so to be fair they should not be subject to the same regulations.

I mean, either voice & TV regulations applies to everyone, either to no-one. Otherwise cable companies get an unfair competitive advantage.

On top of that, while VoIP & PSTN Voice are very similar from a end-user experience, IPTV is very different from traditional Broadcast TV. It offers interactivity thanks to the 2 way communication nature of an IP network, in term of services it's things like : programs "a la carte", video on demand, network VCR, news/show replay, interactive EPG (can memorize genre, channels, ...), a customizable interface for each family member, online gaming on TV, email/web on TV, and much more. And still the good old broadcast TV.

Looking at all that, it's definitly a big move ahead from traditional TV, and a "premium" kind of service. Should such a premium service be subject to the same restrictions/regulations as the basic BTV service ?
Voice providers are making huge investments (look at the SBC numbers) to deploy this new technology, far ahead from traditional cable & satellite offers.
So, if some companies are making such huge investments (means it creates jobs somewhere), they should get in exchange fair competitive conditions.
jim_smith 12/5/2012 | 3:31:03 AM
re: SBC Sees IPTV Interference What are the pieces to this puzzle that remain missing?

I'll take a guess: the missing piece is the "drive". Something that can drive the humans who are in charge to get stuff done. It's got to be something basic. Like Sex. Or Money. Or Power. Or Fear. Or a combination of one or more of the above.

Please surrender your lofty egalitarian ideals to the immigration official.

Welcome to America.
dwdm2 12/5/2012 | 3:31:02 AM
re: SBC Sees IPTV Interference "Please surrender your lofty egalitarian ideals to the immigration official."

I thought I already did it years ago... but they may think I didn't ;-). Just because one wishes to see an equitable and a better way of information transmission, one that is not bullied by the status quo (RBOCs et al.), doesn't mean one is dogmatic (I know you didn't say that). It is the essence of American way to try better approach in an equitable way. When that spirit is hurt by a narrow interest like the story in the USA TODAY, that only shows what's puzzling is that the status quo will try to stop competition by whatever means they can.
wuvicija 12/5/2012 | 3:31:00 AM
re: SBC Sees IPTV Interference The real issue is that the regulations that govern both cableco's and telco's are a totally antiquated hodge-podge of local, state and federal rulings and bodies.

With convergence (yes, the most over-used word in this industry) the entire regime is inadequate. The regulatory bodies see only declines in power (and revenue), while the service providers find themselves trying to compete head-to-head while each of them are playing under different rules.

I'm not a big fan of either the RBOC's or the cableco's but at the end of the day they should be playing under the same rules. Maybe the new Congress will get around to trying to revamp the Telecom Act and bring it into this century.
rjmcmahon 12/5/2012 | 3:30:59 AM
re: SBC Sees IPTV Interference The real issue is that the regulations that govern both cableco's and telco's are a totally antiquated hodge-podge of local, state and federal rulings and bodies.

I believe fiber overbuilders could bypass many (most?) of these regulations. The question then becomes why aren't fiber overbuilds happening at a much greater rate? The fact that they aren't suggests antiquated regulations are only part of the problem.
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