Spirited compromise

Story by Chris Graham

Legislation opening up the Virginia cable-television market to competition among service providers isn’t exactly being welcomed with open arms by, well, pretty much anybody who was involved in the discussions that led to the compromise measure that was signed into law by Gov. Tim Kaine last week.

“From our perspective, any kind of service commitment that is put on a new entrant into any kind of market really represents a barrier to entry – because you’re entering a market that is dominated by one player, and the cable incumbent has had years and years to build its network, put it into place, and it’s there with the entire market share. Whereas you start as a new entrant with zero market share, zero customers, and you’ve got to fight hard to get everybody that you can get,” said Harry Mitchell, a spokesman for Verizon, which has been working to expand its cable-TV offerings in Northern Virginia, the Richmond area and Hampton Roads in recent years.

“Any kind of thing that says that you have to mirror the network that the incumbent has in place is a tremendous barrier to entry – and that’s why you haven’t seen much cable competition over the years,” Mitchell told The Augusta Free Press.

The service commitment that Mitchell referenced will have new cable carriers on the hook for providing service to 100 percent of an initially identified local subsector within three years of the date of the grant of the franchise – and 65 percent of the total residential dwelling units localitywide within seven years, and 80 percent buildout within 10 years.

That doesn’t go nearly far enough – not in the eyes of Ray LaMura, the president of the Richmond-based Virginia Cable Telecommunications Association.

“Currently under our existing franchise contracts, a cable operator was required by governments to provide their service to 100 percent of the community based upon density requirements. We heard from Verizon that they want to provide choice. We said, That’s fine. And you provide your service to 100 percent of the community. And everyone has a choice,” LaMura told the AFP.

“But what was crafted will require up to 80 percent buildout based upon density requirements – and puts in some additional reporting requirements to ensure that they’re not simply going to communities based upon income,” LaMura said.

Those provisions were appealing to the VCTA – as were line items in the bill that allow incumbent carriers to modify their existing franchise agreements in the event that a new cable provider were to receive more favorable terms in its entry into the local market.

Local governments, for their part, are not happy with that aspect of the legislation – which they feel will weaken their ability to provide for the needs of their communities.

“When a competitor comes into the market, either coming to negotiate a franchise or coming to have a new ordinance franchise – which I think is what everybody is going to want to do – that triggers the ability of the existing franchise holder to say, hey, I want the same terms that they got. I don’t want anything more burdensome than you’re giving the new provider,” said Phyllis Errico, the general counsel for the Virginia Association of Counties.

“What that essentially does is it allows the existing cable operator to basically get out of provisions of its contract that were negotiated previously,” Errico told the AFP.

Another issue raised by Errico is that the measure sets out a process by which operators can request something called an ordinance cable franchise that essentially gives them the upper hand in their dealings with local governments.

“This legislation will affect counties, cities and towns across the Commonwealth who previously were able to negotiate pretty much all the terms of their cable-franchise agreements with the cable provider. This legislation really sets out the provisions and parameters of what localities will get – so there isn’t the ability to really negotiate the terms the way localities formerly could negotiate when this becomes law,” Errico said.

“It sets out things that were previously negotiated – like franchise fees and customer-service provisions and what the buildout requirements will be. That’s always been basically dictated by the new laws. Localities are going to have very little leeway in terms of negotiating. It’s really all set out,” Errico said.

A concern brought up by Mark Flynn, the director of legal services at the Virginia Municipal League, has to do with local-government channels.

“Generally the incumbent cable providers offer studio services for local-government channels. But when this law takes effect, no longer will the incumbent have to pay to operate that studio. Both the new entrant and the existing company will have to pay toward the operation of the studio – but the operation of the studio becomes the obligation of the locality,” Flynn told the AFP.

“Our concern is that there won’t be enough money coming in under that fund to pay for the operation of the studio. In the past, that was not a cost borne by the locality, and in the future, to some extent, it probably will be,” Flynn said.

The focus of Russell Newman, the research director at the Washington, D.C.,-based Free Press, is more on the philosophical.

“In and of itself, having new entrants into the field of video competition and broadband employment is not a bad thing. We’re not against the large telecommunications companies getting access to more markets. The only thing that actually does drive down your cable bills will be the entrance of competition. The question involves the manner in which it is being rolled out right now,” Newman told the AFP.

“Instead of taking a good look at the process, and taking the best aspects of the old local franchising model and applying those principles, starting from what your end goals are and working backwards from there so that new communications providers serve communities – the approach that is being taken right now is that we’re trying to fashion communities and what kinds of controls and what kinds of protections they have when new entrants come in. We’re trying to refashion communities so that they suit the needs of the communications providers instead. We’re taking a backwards approach – instead of working from principled ends and working backwards from there,” Newman said.

This is the essence of compromise, to hear Mitchell tell it.

“On balance, this will work for Virginia – and also for the municipalities, they retain control over customer service, they retain control over the public educational and governmental channels,” Mitchell said.

LaMura was more direct in his view of the nature of the compromise.

“It’s a compromise – and when you have a compromise, not everyone is going to be very excited about it. That probably means that it’s the best deal that could have been crafted. All of the parties are holding their nose – and that’s probably the best that you could do,” LaMura said.

 

(Published 03-13-06)