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Barton Bill to Boost Telco Video

Light Reading
News Analysis
Light Reading
3/28/2006

The House Commerce Committee Monday evening released a scaled-back version of its telecommunications bill, which, among other things, creates a national video franchise. This would replace the current franchise system, which requires phone companies to ask individual cities and states for permission to offer television services.

Committee staffers say the new bill will soon be formally introduced, then will likely be fast-tracked by the Committee. The Committee has already scheduled a Thursday morning hearing on the bill.

The scope of the bill has narrowed dramatically since its first drafts appeared last fall. Once a sweeping revamp of the 1996 Telecom Act, it now is limited to four main issues. It creates a national video franchise, sets some rules for E911 service, provides some vague language on network neutrality, and touches on municipal broadband networks. (See New Telecom Bill Draws Raves.)

The legislation has undergone a name change, too. During its draft phases, it was known as BITS (Broadband Internet Transmission Services) but has now been dubbed the Communications Opportunity, Promotion, and Enhancement Act of 2006, or the COPE Act. (See BITS Bill Bites on Video Franchise.)

The national video franchise is clearly the bill’s centerpiece. "The notion behind America's cable laws is that competition doesn't exist, but with new competitors preparing to enter the ongoing race between cable and satellite, the law needs to change," said Commerce Committee Chairman Joe Barton (R-Texas) in a statement Monday night. (See Senate Commerce Committee Holds Hearing on Video Franchising.)

In general, the bill states that a video provider can operate under a national franchise in a given market if there is at least one competing provider there. Video providers will continue to pay a local franchising fee of 5 percent of their gross video revenues.

Video providers would also be required to provide capacity for public, educational, and governmental use, and pay an additional 1 percent of gross revenues to fund that use. The term of the national franchise would be ten years.

The passage of a law creating a national franchise would be a huge break for telcos, which are just beginning their push into the video business. Such a provision would relieve telcos of the hassle and cost of obtaining local video franchises in most of the markets they want to enter.

“The bill strikes the right note of accelerating video choice for consumers,” said AT&T Inc. (NYSE: T) spokesman Tim McKone. “We look forward to working with the full Committee to see this bill enacted into law.” AT&T and Verizon Communications Inc. (NYSE: VZ) have spent millions in Washington lobbying for a national video franchise.

Verizon spokespeople weren’t immediately available for comment Monday evening.

The cable lobby can also declare victory over the Barton bill’s contents. Until very recently, the bill contained special pricing rules for telcos entering the video space. For example, a recent draft prescribed that until the telcos reached a 15 percent market share in video, they could target attractive neighborhoods with low prices. Meanwhile, the cable operators would be required to adhere to a standard price point across the community.

Under intense pressure from Democrats, the cable lobby, and other advocacy groups, the Commerce committee excised the "15 percent" rule from the bill at some point during the past week.

"Earlier drafts of the House bill focused on picking winners and losers on the basis of technology, and we are pleased that focus has now changed," National Cable & Telecommunications Association (NCTA) CEO Kyle McSlarrow said in a statement Monday.

As expected, the Barton bill doesn’t dig too deeply into the issue of network neutrality. It simply restates the principles adopted by the Federal Communications Commission (FCC) in a ruling last August, which in itself is a victory for the phone companies. Under these principles, broadband carriers are forbidden from blocking or impairing any legal Internet traffic, but are not expressly precluded from charging content providers QOS fees to guarantee the fast delivery of content.

Senator Ron Wyden (D-Oregon) said in a statement Monday that the Barton bill doesn’t go nearly far enough to preserve network neutrality. "This legislation begins the construction of a multi-layered, toll-strewn information superhighway that is out of sync with what has made the Internet work -– access for all."

Wyden’s own piece of network neutrality legislation, the Internet Non-Discrimination Act, forbids broadband operators from giving preferential treatment to content from a given provider in exchange for a fee. (See Net Neutrality Debate Wydens.)

In one of its most detailed sections, the Barton bill lays out the responsibilities of VOIP providers and traditional telcos in the provision of VOIP E911. The bill would write into law that "Internet voice providers" must deliver full E911 access to consumers, but would also place requirements on the operators that act as gatekeepers to the E911 infrastructure: "Each entity with ownership or control of the necessary E–911 infrastructure shall provide any requesting VOIP service provider with nondiscriminatory access to such infrastructure."

On the municipal broadband issue, the bill states that cities can’t be prevented from owning and operating communication services. However, local governments would be prohibited from giving preferential treatment to their own services at the expense of others operating in the market. (See Municipal Broadband Networks.)

— Mark Sullivan, Reporter, Light Reading

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Mark Sebastyn
Mark Sebastyn
12/5/2012 | 3:59:51 AM
re: Barton Bill to Boost Telco Video
What is unclear is the impact this legislation will have on the balance sheets of the cablecos.

According Comcast, for example, has 1/2 of it's assets as intangible assets tied to their local video franchises. Now that national legislation will make it easier to penetrate those markets shouldn't those assets be depreciated?

http://www.nyquistcapital.com/...
Mark Sebastyn
Mark Sebastyn
12/5/2012 | 3:59:48 AM
re: Barton Bill to Boost Telco Video
"But even with the right to provide programming, the Bells are not necessarily going to take more TV share away from the MSOs than the telephone share being taken away by the MSOs."

That sounds like a wager I'll take. Timeframe?
fgoldstein
fgoldstein
12/5/2012 | 3:59:48 AM
re: Barton Bill to Boost Telco Video
I don't think the franchises per se are the bulk of the assets. Rather, it's the enterprise value of being the dominant cable provider, the one with the franchise. Cable franchises have been generally non-exclusive since the Cable Act of 1992. But the legal right to overbuild doesn't mean that it's economcally practical, or that the business is worth much less.

The ILECs have been talking about video since the mid-1980s. For a time, they were allowed to provide "video dial tone" via OVS rules, without a local franchise, though for some odd reason a federal court discovered a franchise requirement anyway. Now the Bells want a "national franchise" that's a better deal than OVS ever was. But even with the right to provide programming, the Bells are not necessarily going to take more TV share away from the MSOs than the telephone share being taken away by the MSOs.
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