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Policy

Breaking Into Big Apple

8/25/2006 8:00 PM Eastern

With Verizon Communications Inc. eyeing entry for its FiOS TV multichannel-television offering, efforts to reshape the New York City cable-franchise landscape have begun.

At a hearing in City Hall on Aug. 14, the Department of Information Technology and Telecommunications asked the city for the power to renew, grant or deny cable franchises.

“The authorizing resolution pending before you will allow for multiple entrants in the cable market,” Radhika Karmarkar, senior counsel for regulatory and legislative affairs with the city agency, said at the meeting, according to a transcript. “And the administration looks forward to greater competition in this regard.”

GOES TO COUNCIL

The next step: The City Council will reconvene in early September to hear public comment and consider the resolution.

Currently, the five boroughs are covered by nine cable franchises. Time Warner Cable controls seven, providing service to about 1.2 million subscribers in Manhattan, Staten Island, Queens and a portion of Brooklyn. The remaining two franchises are in East Brooklyn and the Bronx, where Cablevision Systems Corp. counts roughly 600,000 subscribers.

All nine franchise agreements are up for renewal in fall 2008.

That’s a long way off from where Verizon sits with its fiber-to-home FiOS TV service that is now in seven states, following its launch in Keller, Texas last September.

“Verizon has a three-part strategy,” company spokeswoman Heather Wilner said. “We are pursuing local video franchises, per existing law, and simultaneously supporting statewide and federal reforms to speed market entry and consumer choice.”

While streamlined national or statewide video-franchise laws would benefit consumers by accelerating the rollout of the new service, she added, Verizon was not waiting on such reforms. “We want to enter the video market today.”

In New York alone, FiOS is now available on Long Island in Massapequa Park, the Town of Hempstead and the Town of Oyster Bay, plus the Rockland County municipalities of Nyack, South Nyack and Upper Nyack. Franchises are also either secure or pending in five other communities.

In those areas, Verizon is going head-to-head with Cablevision, at times resulting in lawsuits and negative ad campaigns. Verizon claims that in areas where its service has been offered for three months it has a 7% penetration, a ratio that has grown to 10% after six months.

The New York City incumbents didn’t express any competitive concern.

“Competition is good,” said Time Warner vice president of public affairs Harriet Novet. “We welcome it because it makes all companies stronger.” But she added that franchises should be given to new entrants and existing operators on “a level playing field.”

Cablevision director of media relations Bill Powers agreed: “We support competition on a level playing field, which means a company succeeds or fails based on the value and quality of their products and services.”

Regarding buildout requirements, Bruce Regal, senior counsel in the New York City law department, said: “The administration’s position is that we’re looking for the broadest possible buildout of competitor services.”

RCN ON SIDELINE

Another interested Big Apple franchise observer is RCN Corp., which provides service to about 100,000 subscribers in Manhattan and Queens. RCN has not obtained a franchise, operating instead as an “open video system,” in keeping with a 1996 federal law that allows a video provider to operate without a franchise as long as it makes two-thirds of its channel capacity available to anyone wishing to lease it.

Basically, the 1996 agreement pre-empted local government authority, Regal said. But a subsequent federal circuit court decision in Texas has called into question what will happen when RCN Corp’s OVS agreement expires in December 2007.

“RCN going forward — we would anticipate that they would have to obtain a franchise agreement,” Regal said.

Responded RCN vice president and regulatory counsel Thomas Steele: “We’re happy to negotiate with the city for a franchise.” But as a small company with limited capital, the overbuilder’s major concern would be buildout requirements, he added.

With respect to Verizon, Steele said: “We’re already in competition with Verizon in some communities in Massachusetts, and we’re holding our own. We’re certainly not against competition.”

September