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Policy

Going After Texas-Sized Franchises

10/07/2005 8:00 PM Eastern

Two telephone companies and one cable-television company have knocked on the door of the Texas Public Utility Commission, seeking statewide licenses to provide bundles of communications services that include video programming.

The cable-television company is Grande Communications Networks Inc., based in San Marcos. Grande serves more than 85,000 television subscribers in between San Antonio and Austin, Texas, but is the secondary player in the markets in which it operates. The dominant carrier: Time Warner Cable.

Since it considers itself a competing cable provider, Grande is moving to take advantage of an exception in the state’s new telecommunications-reform bill, which allows some companies — but not dominant cable franchises — to seek single licenses that grant their holders the right to provide video programming throughout the state.

Deep in the Heart
Populations of Texas communities where Verizon plans to provide video services by 2006:
Source: U.S. Census Bureau 2000 statistics. In Keller, Sachse, Wylie and Westlake, Texas, Verizon negotiated local agreements before seeking a statewide franchise.
Allen 42,075
Carrollton 103,311
Colleyville 20,747
Coppell 30,620
Denton 79,208
Denton 79,208
Double Oak 2,351
Flower Mound 49,164
Fort Worth 502,369
Garland 193,272
Grapevine 42,106
Hebron 201
Highland Village 12,951
Irving 179,520
Lewisville 77,355
Lucas 3,068
Murphy 2,675
Parker 1,588
Plano 232,904
Rowlett 40,223
Southlake 17,977
St. Paul 572

The bill, passed Sept. 7, specifically allows “non-incumbent” cable television operators to shed their local franchise agreements in favor of statewide authority, granted by the utility commission.

Grande, according to its application to the utility commission, has notified those cities of its intent to rescind the local agreements in lieu of state operating authority.

The first telephone company to file for — and receive — a statewide license was a small Texas-based carrier, Guadalupe Valley Communications Systems LP. The 54-year-old phone company provides telephone and Internet access service to approximately 30,000 customers in the New Braunfels area. It filed for its state license on Sept. 19; it was granted on Oct. 3.

The second phone company to file was the nation’s largest telecommunications provider, Verizon Communications Inc. The $71.2 billion-per-year company filed for its statewide license on Sept. 30. Unless the commission finds a flaw, Verizon will receive on Oct. 25 the authority to operate in any town or city where its telephone lines are found.

In its application for the state license, Grande said, it has notified the cities in which it operates that it intends to rescind its local agreements in favor of state operating authority. But Martha Smiley, Grande’s executive vice president for corporate policy and services, said the company will keep focusing on the markets in which it already operates.

A statewide license will make it easier to expand when the time comes, Smiley said.

The move could also save Grande money in its existing markets. Smiley said the company still intends to pay 5% in franchise fees to local governments, as well as some in-kind fees for items such as local production support, but the operator will set those payments based on its own records of how many households subscribe to services in any given market. It won’t pay fees based on the number of households its network passes or that exist in a market.

BURDENS LIFTED

Smiley also said local requirements — such as large performance bonds and letters of credit, as well as in-kind payment demands — have been a burden on the company. That’s because some of the financial amounts were based on those paid by larger, better-funded rivals, she said.

Based in San Marcos, Grande launched in 2000 and has been awarded, or gained through acquisition, 49 local cable franchises. Among the communities it serves: Austin, Corpus Christi, Denton, Midland, Odessa, San Antonio and Waco. It now has 131,538 customers, of which 85,440 are cable subscribers, according to the company.

Even with its girth, Verizon’s application was unlike the typical cable-television franchise application. There were no copious reports or piles of supporting documents. Instead, the phone giant only submitted 30 pages of information, 21 of which were maps.

The new state franchising process demands only that new video competitors attest they have filed or will file all required forms to the Federal Communications Commission and will comply with state and local laws, such as rights-of-way policy. Applicants must identify their principal place of business and local executives, and provide a description of their service footprint.

The Verizon application names 21 markets, in addition to the Texas cities where it negotiated local franchises, where the phone company will roll out its video programming services, which it calls FiOS TV.

These include Allen, Carrolton, Colleyville, Coppell, Denton, Double Oak, Flower Mound, Ft. Worth, Garland, Grapevine, Hebron, Highland Village, Irving, Lewisville, Lucas, Murphy, Parker, Plano, Rowlett, Southlake and St. Paul.

These communities include 400,000 homes, with 1 million potential viewers, according to Verizon estimates. These homes will see video services launched by the end of 2006.

The company, which has a large center of operations near Dallas, could swing into action quickly. The state law requires the commission to act on the application in 17 business days, meaning Verizon should gain its state operating authority by month’s end.

The Texas Cable & Telecommunications Association could slow Verizon down. (For TCTA chairman Tom Kinney’s view, see Opinion, page 19.)

The TCTA has filed a federal lawsuit in Austin to challenge the new law, arguing it creates special terms for competitors. TCTA vice president Kathy Grant said there are no current plans to seek a restraining order to prevent completion of the Verizon application.

The lawsuit is directed at Gov. Rick Perry and utility commissioners, though. Verizon is not a party to it.

State PUC spokesman Terry Hadley said the agency will keep an eye on any court activity, but added the commission will begin processing Verizon’s application.

In fact, two locally franchised communities, Wylie and Sachse, will see the FiOS TV service launched by the end of this year, added Verizon spokesman Bill Kula.

Kula said response to FiOS products has been “great” but declined to specify sales levels. The response has been sufficient for the telco to plan to hire another 100 installers in Texas, on top of the 700 union and management employees and 800 contractors already in the field supporting FiOS.

CONSUMERS REACT

Reached by telephone by Multichannel News, consumers had varying reaction to Verizon’s plans. Local librarians noted they’d seen the ads for FiOS’s high-speed Internet service. But they said they did not even know enough about it to answer questions.

“I need to talk to someone who has it, since I keep getting callers from other states asking about it,” quipped librarian Carolyn Booker.

Those who’ve signed on for Verizon broadband lauded the data component of the service, but did not indicate they’d be signing up for video soon.

Real-estate agent Keith Grier was one of the test homes for the high-speed data service. He’d only experienced dial-up service before and compared Verizon’s product to going to an “Indy car from a 1925 Model T.” He’d never felt the need for a faster home connection, such as DSL or cable modem service, because he lived near his office and its faster connection, he said.

During testing, he lost service only twice for very short periods, he said. He’s had to call Verizon technical support twice and was happy with the quick resolutions he got.

Commercial real-estate broker Dave Phillips upgraded from digital subscriber line to FiOS broadband in order to enjoy faster data rates, he said.

“I’m extremely satisfied,” he said.

Services from local cable provider Charter Communications Inc. would be a “reluctant consideration,” for either video or data, he said. The cable operator provides packaging that includes a “lot of channels we don’t want to watch.”

He’s also priced DBS service and said that’s not a good alternative, either. (The broker’s community ties may be of note: He’s the chairman of the board of directors of the Greater Keller Chamber of Commerce, according to its Web site. The vice chairman is a local Verizon executive.)

Grier’s not going to add video to his bundle, either. He’s been a happy DirecTV Inc. customer, he said, and is disinclined to switch from direct-broadcast satellite unless he hears good reports from a friend in town who’s testing FiOS TV.

Local Masonic Lodge member Clair Billington is another consumer who’s happy for a choice of telecommunications vendors. He severed relations with Charter after the last recurrence of a service outage related to water leakage.

When Charter told him a repairman would come in six weeks, he disconnected, Billington said.

That doesn’t mean he’ll be adding FiOS video to his home. He’s only moderately satisfied with its Internet performance. (“It’s awfully slow sometimes,” he said.) He signed on with DirecTV after disconnecting from Charter, he added.

Billington also reported that his son, who wants FiOS for his business, has not been able to get a connection, even though others in his building have it.

Verizon’s Kula said he knows of no connection problems with the FiOS product, adding there is no connection backlog that might explain such a situation.

 

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