To win cable game, Verizon seeks rule change
Verizon hopes its aspirations to compete with cable companies will be boosted if Virginia becomes the second state nationwide to make it easier to sell television service.
The telecom giant is building a fiber optic system capable of bringing blazing Internet speeds and television service to consumers. But Verizon can't sell television without getting a franchise in each locality - a grinding process that takes six to 18 months. The General Assembly tabled a bill this year similar to the one that will now reappear in 2006.
Verizon got legislation passed recently in Texas to make the process easier, and is now looking for changes in Virginia. The changes potentially could attract Verizon to start selling television service faster and more aggressively in Virginia.
"Virginia has a fantastic opportunity here to be right in front on this," said Harry Mitchell, spokesman for Verizon.
But the phone company is facing stiff resistance from cable competitors that fear Verizon will not be subject to similar franchise agreements and local governments that fear a loss of control. The debate largely boils down to whether Verizon should be forced to serve entire localities, as cable companies have.
Verizon says that requirement is a barrier to competition - an obstruction not faced by Cox Communications and other cable companies that have taken Verizon's phone customers since telecom markets were deregulated in 1996.
In Hampton Roads, Verizon has begun building its fiber network in Virginia Beach but is not revealing its schedule for future additions. Verizon has laid fiber in wealthy areas of Northern Virginia and has gotten a few franchises for eventually selling television service there.
Verizon said that even though it has secured the cable franchise agreements, the company has been haggling for over 15 months in other localities in the region. In Virginia, Verizon is seeking a variation of the solution it got in Texas - moving franchising authority to state regulators.
But that would violate Virginia's constitution to remove localities' authority to negotiate franchises. Instead, Verizon wants a new law that will spell out minimum requirements for competitors who want to sell cable television in Virginia. The companies must already have right-of-way for utilities, phone or cable service.
So instead of lengthy behind-the-scenes negotiations with municipalities, Verizon would only need to notify the local government that the company intends to offer service and will follow the rules spelled out in the new bill.
Thirty days later, Verizon could start offering service. The local government would have 120 days to hold public hearings and pass an ordinance spelling out any details such as customer service rules that are more stringent than the state's minimum requirements.
But the new state-level restrictions concern local governments, which would have less flexibility to negotiate some parts of franchises, said Phyllis Errico, general counsel of the Virginia Association of Counties, which hasn't taken a formal position on the bill yet.
Existing cable companies would continue to be bound by 10- to 15-year franchise contracts. The old deals have more stringent requirements for construction, customer service standards and fines that Verizon won't face, said Ray LaMura, president of the Virginia Cable Telecommunications Association.
Verizon wants local governments to have the option to let cable companies out of these contracts and use the same system as Verizon, but that won't work, he said.
"What incentive do they have to let us out of the contract, so we can have less requirements than we already have," said LaMura.
Verizon claims there are two main barriers to entry for new cable competitors - the requirement that the cable system reach an entire locality and up-front capital grants. The grants are used to build studios that broadcast local public shows and city council meetings.
"Maybe a way to get at that is for the new provider to make a contribution," to operating public service facilities instead of building a whole second studio, said Verizon's Mitchell.
The counties association is concerned that rural areas will not get the benefits of competition if Verizon isn't required to reach all consumers in a locality.
"I would doubt that they will benefit from this at all," said Errico. "If there's no build-out requirement, it wouldn't be economically feasible."
Mitchell doesn't deny that Verizon will start with profitable customers in localities, and slowly expand to others as it builds the system. That's the same strategy taken by Verizon's competitors in the Internet and phone businesses. Verizon has strung about 15 million feet of fiber in Northern Virginia, Richmond and Virginia Beach so far - making Virginia one of its biggest targets for building the system besides Texas. Hampton also has a major call center for Verizon's new Internet service.
The only state that has overhauled its cable franchise system so far to make it easier for competition is Texas. Verizon got approval from Texas regulators last Friday for its first state-issued franchises for 21 communities in Texas, and the process only took a few weeks.
The company expects to have 400,000 television customers in the state by the end of 2006.
"There's a finite amount of dollars any company has to invest," said Mitchell, and the Texas law means it's getting a lot of that money.
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