Verizon takes on cable companies as it seeks TV market
RICHMOND, Va. - In a cobblestone alley near historic homes and trendy shops, a thin black wire spins from the back of a truck, rises between two utility poles and twists around a thick phone cable.
The wire carries tiny fiber-optic strands that will support not only phone service and broadband Internet but also video. Verizon Communications Inc. is spending billions of dollars to build these networks in Virginia and other markets, entering territory dominated by cable firms.
Not surprisingly, the push by Verizon and other phone companies has ignited an all-out war between the big communications firms. In Virginia's legislature, Philadelphia-based Comcast Corp. and other cable companies are furiously lobbying against a bill providing new entrants with shortcuts around local franchise rules that now govern cable firms.
Similar feuds have cropped up at the national level and in other statehouses, including Indiana, Missouri, New Jersey and North Carolina. Last year in Texas, lawmakers passed a measure benefiting Verizon and their home-based telco, SBC Communications Inc. (which bought AT&T Inc. and adopted its name).
In Texas, the telecommunications companies spent between $5 million and $11 million on lobbying fees during the legislative session, far more than the cable industry, according to Texans for Public Justice. The nonprofit noted that the telcos' lobbyists outnumbered the 150 members of the state House of Representatives.
"The sky's the limit on what these interests will spend on this fight," said Andrew Wheat, the group's research director.
In Virginia, two billboards promoting a Verizon-funded group called Cable Choice Now popped up along interstates approaching Richmond in early January, just as the General Assembly session began. "Tired of rising cable rates?" they ask. "Let's change Virginia's law."
Last year, the Virginia bill backed by Verizon and the much smaller Cavalier Telephone LLC failed, and legislators hoped the phone and cable industries would work out their differences. Instead, the phone bill is back, and a cable industry alternative has been introduced. Legislators are trying to hammer out a compromise.
The Verizon bill, introduced by Del. Terry Kilgore, R-Scott, opens the door for competition. But it also eliminates local authority to determine how extensively and speedily new TV entrants must build their networks.
It does not eliminate franchise fees, local control over rights of way or regulatory authority over quality of service.
Verizon officials say the local franchise rules proved to be barriers to competition, allowing cable companies to dominate the paths to TV sets. They say it's unfair to ask phone companies to build their networks in the same manner, because the cable firms built at a time when consumers had very little choice.
"I make my investment ... in a very highly risky environment with no guarantee of making any return," said Robert Woltz, president of Verizon Virginia.
Woltz noted that cable companies offered telephone service - and managed to do so without dealing with cumbersome local regulations.
The cable industry's bill, introduced by House Majority Leader H. Morgan Griffith, R-Salem, says local governments that grant more favorable terms to newcomers must offer the same to the cable providers. In addition, local governments would have 120 days to negotiate a franchise with a phone company. If they miss the deadline, the new video provider would have to offer services under the old cable-franchise rules.
Ray LaMura, president of the Virginia Cable Telecommunications Association, said the group seeks a level playing field, while the Verizon bill creates a separate class of video-programming providers.
"It gives them advantages while leaving cable franchises locked into the agreements they have with local governments," LaMura said.
Local governments and consumer advocates are closely monitoring the debate.
Some governments are worried about their diminished authority under the Verizon bill and the possibility that the giant telco will snub their residents. Virginia Beach and Loudoun County are among the larger localities that oppose the Verizon bill.
Jeannine Kenney, a policy analyst with Consumers Union, said the nonprofit supports competition in the video-programming industry. The concern is whether new legislation will erode consumer protections built into the local agreements.
"There's nothing wrong with providing those protections at a higher level of government, so long as those protections remain," Kenney said. "Unfortunately, that's not what the Bells are seeking."
Kenney said the group is especially worried that low-income neighborhoods will not be served. The cable industry points out that Verizon secured its first Virginia franchises in the affluent northern Virginia suburbs of Herndon, Fairfax County and Fairfax City.
Verizon will be bundling its services to provide video programming, broadband Internet and landline phone services - and those will be marketed to high-end customers, she said.
"That's the customer they want to reach," she said. "The question is: Will they make video service available to the customer who doesn't want the bundle and just wants video? Those are your lower income communities, and they should not be left behind."
Verizon officials say it makes sense to start building in dense areas, and all expansion must start from the hundreds of "wire centers" - large switching stations - that it operates in the state.
"I build out by populous areas," Woltz said. "I don't think I have any wire centers that are income specific."
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