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Policy

Verizon Opposed to Cable Franchises

8/02/2004 10:22 AM Eastern

Taking the video war to cable should not require Verizon Communications to travel from town to town seeking local franchises, the company’s top Washington lobbyist said Monday at a press conference about regulatory hurdles facing its broadband deployment.

Tom Tauke, Verizon’s executive vice president of public affairs and communications, claimed that seeking franchises was unnecessary because Verizon’s phone wires already occupy public rights of way, and the process would serve to delay the rollout of high-capacity fiber lines over which video programming would flow.

“Frankly, we don’t believe that we should be having to seek franchises in order to offer video services to consumers,” Tauke said.

Verizon has already begun franchise discussions with a few local governments, but he wouldn’t name them.

“You know I am not going to answer the question,” he told reporters. “But you probably have a fairly clear idea that where we are deploying fiber, that would be an area in which we would be most likely to offer video services.”

Tauke's company is the largest local and wireless-phone provider in the United States and the second-largest long-distance company, behind AT&T Corp. Last year’s revenue was $68 billion.

But Verizon is looking at the video market to counter cable’s planned assault on its local phone business using voice-over-Internet-protocol technology, a less costly alternative to circuit-switched networks.

Cable companies and competitive local carriers that use parts of Verizon’s network are providing competition to Verizon in way that’s beginning to hurt. Last year, the company’s local phone revenue fell 3% to $28.3 billion.

Verizon has fiber deployments under way in communities in Texas, Florida and California, upgrading phone lines acquired in its merger with GTE Corp.

The company has announced plans to spend $1 billion this year to pass 1 million homes with fiber-to-the-premises technology. It plans to add another 2 million in 2005.

However, Verizon is holding back fiber deployment in its Atlantic coast states until the Federal Communications Commission confirms that it would not have to share fiber facilities with phone-service competitors. Verizon's old Bell Atlantic Corp. and Nynex Corp. exchanges are covered by FCC long-distance entry rules that did not apply to GTE.

Tauke indicated that the company would take a conservative approach and offer video in local communities with governmental consent.

“As we have looked at the law, we don’t think we have a lot of options under the law but to proceed forward to get video franchises,” Tauke said.

Tauke argued that a franchise requirement should not be placed on a new entrant in a market dominated by cable and satellite companies. Local franchises, he added, were also impractical because Verizon’s network was not designed to trace the boundary lines of each local community.

“Our network isn’t configured on the basis of local jurisdictions. I mean, one central office may be serving four or five different municipalities,” he said.

Cable companies offer service pursuant to a local franchise and provide cities with 5% of their revenue derived from cable services. Cable-modem revenue is exempt.

If Verizon were able to provide video programming comparable to cable without a franchise, the company might not be required to pay franchise fees, giving it a regulatory advantage over cable. Satellite carriers don't pay franchise fees.

However, Tauke said, Verizon might be willing to compensate local government in some fashion.

“Providing some kind of compensation to the communities is not beyond the realm of the possible. But that could be done without having to get a franchise,” he added.

In the Telecommunications Act of 1996, Congress created a category of video-programming provider called an open-video system, with no franchise requirement. But a federal court subsequent to that interpreted the law to mean that cities may require providers to obtain OVS franchises.

Tauke did not address whether Verizon was weighing OVS possibilities.

“The bottom line is that we want to offer a video business. I am not in the business today of announcing what kind of video package we will offer,” Tauke said.

Verizon is a reseller of DirecTV Inc., the direct-broadcast satellite company with more than 12 million customers. The company has not released the number of DirecTV customers it has signed up.

September