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The Telcos are coming….

(from Maine Townsman, March 2006)
By Lee Burnett, Freelance Writer

These may be the good old days of public access TV.

The funding mechanism for public access TV – local franchising – is under attack in Congress. The big telephone companies Verizon, AT&T and SBC want to enter the lucrative home video market without having to negotiate local franchise agreements with every community, as cable TV companies have been required to do. The telcos are pressuring Congress for a national franchising system or, at the very least, a state franchising system.

“This is the Darth Vader that people in [public] access have been fretting about for as long as I’ve been involved,” said Richard Rhames, a former Biddeford city councilor who was instrumental in creating Biddeford’s public access system. “The fear has been . . . the telcos are coming, the telcos are coming.”

There is more at stake than whether cable television viewers will be able to watch high school football games, city council meetings, school functions and all manner of quirky programs. There’s big money involved as well as control issues.

The Cable Television Act of 1984 requires cable providers to negotiate the terms of their service before being granted a local monopoly. A franchise agreement spells out service guarantees and provides a modicum of consumer protection. It outlines the conditions under which streets may be torn up to bury cable. It stipulates the timetable for the cable company “built out” plan to get service to remote areas. It also provides the tools for citizens to make their own community television programs – channel space, equipment and support for public access TV.

Significant money changes hands. The law allows communities to take “rental fees” of up to five percent of the gross revenues from cable customers in that community. That provision has poured tens of millions of dollars into Maine’s municipal treasuries in the past two decades. South Portland, for example, now receives $293,000 a year in rental fees from Time Warner, all of which goes into its public access programming. “The more enlightened communities set aside some of the money collected from subscribers and (it) goes back in the form of better communications,” said Tony Vigue, manager of South Portland’s Community Television Station.

The struggle over local franchising is part of a bigger battle over high-speed access to the Internet. The scale and fluidity of the battle reflects the many access points to the Internet: through telephone wires, television cables, wireless technology, satellites or even power lines.

Change is coming fast. Perhaps the most significant change is the sense of urgency. Not so long ago, being able to channel surf to HBO or ESPN on your home TV was a status symbol and quality of life issue. Today, being able to open your laptap while on vacation and check your e-mail is a matter of economic life and death.

“The world has changed,” said Tony Buxton, a utilities lawyer who is chairman of a diverse group of telephone, cable, and Internet service providers appointed by Gov. John Baldacci to find a way to extend broadband coverage to all of Maine. “Being fully interconnected is essential to economic development. It’s where the jobs are going.”

The coming changes present obvious pitfalls and possible opportunities for municipalities.

While all municipalities with cable service would lose financially if local franchising is abandoned, there could be "increased competition" and "build out" requirements through a state or federal regulatory system. The "increased competition" resulting in lower cable rates is something that telecommunication companies have been putting forth as a reason to change the regulatory system. The "build out" argument -- getting service into the less populated areas -- is something that the telcos are reluctant to commit to or state publicly. Conceivably, a state or federal regulatory system might be able to trade "profitable" telecommunications services for the extension of those services into the so-called "unprofitable", or more rural, areas. Japan has implemented this type of "quid pro quo" national regulatory system for telecommunications companies and their services.

“ Maine’s problem [in the past] has always been a matter of distance. The distance thing is almost not an issue anymore,” said Buxton, a fan of Thomas L. Friedman’s 2005 book The World is Flat, which argues that the growth of the Internet has leveled the economic playing field. “We have a chance to close the difference between the boondocks of Maine and the rest of the world. The speed of light doesn’t distinguish between New York City and New Vineyard.”

Before we get to the future, consider what might be lost. Public access TV used to be kind of a joke, little more than a municipal C-Span with a running bulletin board of community events. But as more members of the public have gotten involved, it has evolved into a refreshing and distinctly democratic medium. Scroll through the program guide for Portland’s Channel 4 to get a taste of what serious public access programming is all about. With 86 communities in Maine now providing some public access programming, it’s become a bona fide municipal institution.

If local franchising is eliminated, it raises the specter of “digital redlining.” Currently, local franchising empowers municipal officials to negotiate a “build out” plan, under which a cable company spells out a timetable for serving not just the affluent, densely settled areas of a community, but also the sparsely populated and poor areas of a community. Preservation of a “build out” requirement is essential to getting high-speed Internet access to poor and rural areas, says MMA’s Jeff Austin.

“Municipalities, in general, are not going to go along if it means bringing competition to only a few select places,” says Austin.

Elimination of local franchising also raises a question about whether local officials have any authority to manage when city streets can be dug up to lay cable, Austin said.

The telcos argue that local franchising requirements are a vestige of an earlier era when cable companies needed a check on their monopoly power. Today, local franchising serves as a bureaucratic hindrance and a barrier to new competitors in the home video market, says Verizon Communications Chief Executive Officer Ivan Seigenberg. “The major obstacle in our path, and the biggest limiting factor to how fast we can offer video over our fiber network, is the existing local franchise process,” Seidenberg told the National Journal in an article published in February.

He said dominant cable companies “work the process to derail or delay the entry of a competitor” and that it takes Verizon 18 to 24 months to get franchises.

Defenders of the status quo say attacking local franchising is a convenient scapegoat.

“That municipalities are putting up roadblocks is just so at odds with what I see. It’s total nonsense,” said Patrick Scully, a lawyer at Bernstein Shur who negotiates franchise agreements on behalf of municipalities. “They [municipalities] would love to have competition for local cable companies. I don’t think the problem is resistence from municipalities. The reality is they (the telecos) just aren’t used to working this way, and they don’t like doing the work.”

Scully and others point out that telcos are already negotiating local franchising in lucrative markets such as affluent suburbs. The telcos could also skip negotiations altogether and just agree to the terms of existing agreements if they really wanted to get a franchise, they say.

“They [telecos] could do the whole state in 45 minutes with a bottle of white out: just take out the cable company name in eery franchise and put their name in,” says Austin. “Municipalities are the convenient excuse to get rid of the build out requirement.”

Municipalities – represented by the National League of Cities – seem to have a real fight on their hands in Washington, DC. The bill emerging from the U.S. House of Representatives Energy and Commerce Committee in early March would allow telcos to offer pay video services through a nationwide franchise – bypassing the need to obtain franchises municipality by municipality. It has the support of chairman Joe Barton, R-Texas, and key committee Democrats.

“I think the regulatory role [of municipalities] more than likely will be reduced, it’s just a question of how quickly it goes,” said Scully.

With or without local franchising, Maine had already concluded it could not count on the telcos and big cable companies to get high-speed Internet access to all of Maine. The only place in Maine that Verizon has laid fiber optic cable to homes is in Kittery, which is an extension of its Portsmouth, N.H. service area. The only other place fiber to the home exists is in Lewiston and Auburn, thanks to an $8 million investment by Oxford Networks, originally a local telephone company. (When asked where he stands on local franchising, Brian Paul of Oxford Networks said he found the process valuable, but doesn’t blame big telcos for wanting to skip it. “We favor competition whether it’s local or state, but we want it to be fair,” Paul said.)

Governor Baldacci’s “Connect Maine” initiative is an acknowledgment that public investment is needed. Baldacci has set two goals: eliminate all dead zones in cell phone coverage by 2008 and provide high-speed Internet access to 90 percent of the homes by 2010. Such a plan could cost $100 million, according to Buxton, chairman of Baldacci’s Telecommunications Infrastructure Steering Committee. The steering committee by “virtual unanimous” consent recommends a one percent service fee on cable, telephone and call phone bills to create a revenue stream to support the issuance of bonds, according to Buxton. Grant proposals from all manner of providers would be solicited, he said.

Baldacci’s plan sounds ambitious. But Maine and the nation have a long way to go. Once the world leader, the U.S. fell to 16th place in broadband penetration last year, according to statistics kept by International Telecommunication Union. Maine – by virtue of its thinly settled geography – is probably worse than most states, although it’s not easy to tell how we’re doing.

For a population of 1.2 million, Maine counts 585,000 cell phone users, 700,000 land line telephones, and 260,000 cable television subscribers, according to Maine’s PUC. With those connections, it is estimated that 86 percent of Maine’s population has access to a high-speed Internet connection – just 4 percentage points shy of Baldacci’s goal. But as Phil Lindley, an analyst at the PUC points out, four percent amounts to 48,000 people and that “is still a substantial number.” Furthermore, having “access” is not the same as actually having a connection. The “take rate” or percentage of actual high-speed Internet subscribers varies between less than 10 percent and 20 percent depending on the system, according to Lindley. It really takes “saturation coverage” to achieve the “exponential increases in productivity” that Buxton talks about. The blank spots in coverage are not all in northern and eastern Maine. “It’s just scattered all over the place,” observes Fletcher Kittredge, owner of Great Works Internet in Biddeford. “There are bits of almost every single community without access.”

The biggest player in Maine – Verizon – is also the most inscrutable. The Baby Bell telephone company serves 80 percent of the 700,000 telephone customers in Maine. It also possesses the most extensive fiber optic trunk lines, a legacy of investments made largely by its predecessor NYNEX.

But Verizon’s intentions are not easy to discern. When asked if Verizon’s limited investment in fiber-to-the-home in Maine (just Kittery) was evidence of disinterest in Maine, spokesman Peter Reilly denied it. “We are very committed,” Reilly said. “But we can’t bring everyone on at once. It’s very capital and labor intensive.”

Outside Maine, Verizon is moving on two tracks: both pushing to streamline franchising requirements, and also negotiating for franchises to extend fiber to individual homes in densely settled affluent communities. When asked about whether Verizon favored state franchising in Maine, Reilly said “In Maine, we have a number of higher public policy issues.”

Verizon’s clout in Maine is the subject of widespread speculation. The recent withdrawal of a bill calling for a state franchising system might suggest Verizon’s clout is less than some people believe. The bill contained no "build out" requirement and would have been a gift to Verizon. As such, the bill was questioned by Maine Municipal Association and others. It was withdrawn by its sponsor Senate President Beth Edmonds, D-Freeport.

There have been some other blows struck against the big boys.

Maine Attorney General Steve Rowe is petitioning the Federal Communications Commision to block Time Warner’s pending takeover of bankrupt Adelphia cable systems in Maine. The consolidation would give Time Warner 85 percent of the cable customers in Maine, which Rowe said is too big of a market share and would lead to reduced service and anti-competitive pricing. Rowe would limit the market share to 54 percent, which is Adelphia’s current share.

Elsewhere, on November 30, 2005, U.S. District Court Judge Gene Carter struck a blow against the prevailing winds and ordered Verizon to continue allowing smaller competitors to use its lines and switches. Line sharing was a requirement imposed on the telcos by the Telecommunications Act of 1996 in exchange for allowing them into the long distance telephone business. The line sharing policy spurred an expansion of small telephone companies and Internet service providers called “competitive local exchange carriers” or CLECs.

In Maine, there have been scores of CLECs, though only about a dozen active ones. “We’ve had a fairly good level of competition,” said Public Advocate Ward. But the FCC abandoned the line-sharing policy in 2005, claiming it was ineffective in spreading access to high-speed connections. In essence, the FCC abandoned competition between the small guys in favor of competition between big guys. “Competition between platforms is fine if your Westchester New York or Orange County [ California] ... but it’s not a good model for a rural state,” said Ward. The policy reversal led directly to the bankruptcy of Scowhegan Online and United Systems Access Telecom and the curtailment of expansion plans by a number of other Internet service providers, according to Ward.

With support from Maine’s Public Advocate and several small Internet service providers, Maine’s Public Utilities Commission moved to continue the line-sharing requirement and was sued by Verizon, setting the stage for Carter’s decision upholding line sharing. Carter’s decision was expected to be appealed by Verizon.

Buxton expresses confidence in Maine’s prospects and ticks off a list of Maine’s advantages: a fiber optic backbone built largely by NYNEX, Maine’s laptop program launched by former Gov. Angus King, Maine’s School and Library Network, homeland security investments of $50 million in “interoperable” communications system, and “virtual unanimous” agreement on the need for a service fee tax to generate capital among members of Telecommunications Infrastructure Steering Committee. Still, Buxton expects “partisan” opposition among conservative lawmakers who will claim that high-speed access will come without public investments.

“If we don’t do this, it will be extraordinarily short-sighted and a failure of the political process,” said Buxton.