[Senate Hearing 109-603]
[From the U.S. Government Publishing Office]
S. Hrg. 109-603
VIDEO FRANCHISING
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
FEBRUARY 15, 2006
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
_____
U.S. GOVERNMENT PRINTING OFFICE
29-843 PDF WASHINGTON : 2006
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government
Printing Office Internet: bookstore.gpo.gov Phone: toll free
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana Chairman
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
JIM DeMINT, South Carolina FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana E. BENJAMIN NELSON, Nebraska
MARK PRYOR, Arkansas
Lisa J. Sutherland, Republican Staff Director
Christine Drager Kurth, Republican Deputy Staff Director
Kenneth R. Nahigian, Republican Chief Counsel
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Samuel E. Whitehorn, Democratic Deputy Staff Director and General
Counsel
Lila Harper Helms, Democratic Policy Director
C O N T E N T S
----------
Page
Hearing held on February 15, 2006................................ 1
Statement of Senator Burns....................................... 3
Prepared statement........................................... 4
Statement of Senator Cantwell.................................... 73
Statement of Senator DeMint...................................... 9
Statement of Senator Dorgan...................................... 14
Prepared statement........................................... 14
Statement of Senator Ensign...................................... 4
Statement of Senator Inouye...................................... 1
Statement of Senator Kerry....................................... 7
Statement of Senator Lautenberg.................................. 10
Statement of Senator Lott........................................ 14
Statement of Senator McCain...................................... 11
Statement of Senator Bill Nelson................................. 2
Statement of Senator E. Benjamin Nelson.......................... 5
Prepared statement........................................... 6
Statement of Senator Pryor....................................... 14
Statement of Senator Rockefeller................................. 8
Statement of Senator Smith....................................... 12
Prepared statement........................................... 13
Statement of Senator Stevens..................................... 1
Statement of Senator Sununu...................................... 71
Witnesses
Blackburn, Hon. Marsha, U.S. Representative from Tennessee....... 15
Prepared statement........................................... 16
Evans, Brad, Chief Executive Officer, Cavalier Telephone......... 36
Prepared statement........................................... 38
Kimmelman, Gene, Vice President, Federal and International
Affairs, Consumers Union....................................... 47
Prepared statement........................................... 49
Riddle, Anthony T., Executive Director, Alliance for Community
Media.......................................................... 39
Prepared statement........................................... 41
Rutledge, Thomas M., Chief Operating Officer, Cablevision Systems
Corporation.................................................... 24
Prepared statement........................................... 26
Panzino-Tillery, Lori, President, National Association of
Telecommunications Officers and Advisors (NATOA)............... 28
Prepared statement........................................... 29
Seidenberg, Ivan G., Chairman/Chief Executive Officer, Verizon
Communications................................................. 18
Prepared statement........................................... 20
Sohn, Gigi, President/Co-Founder, Public Knowledge............... 58
Prepared statement........................................... 60
Whitacre, Jr., Edward E., Chairman/Chief Executive Officer, AT&T
Inc............................................................ 21
Prepared statement........................................... 22
Appendix
Armey, Dick, Co-Chairman, FreedomWorks, letter, dated February
14, 2006, to Hon. Jim DeMint................................... 81
Brito, Jerry, J.D., Legal Fellow, and Jerry Ellig, Ph.D., Senior
Research Fellow, Mercatus Center at George Mason University,
joint prepared statement....................................... 79
Freudenthal, Bob, President, American Public Works Association,
prepared statement............................................. 77
Response to Written Questions Submitted by Hon. John McCain to:
Thomas M. Rutledge........................................... 84
Ivan G. Seidenberg........................................... 82
Gigi Sohn.................................................... 86
Snowe, Hon. Olympia J., U.S. Senator from Maine, prepared
statement...................................................... 77
VIDEO FRANCHISING
----------
WEDNESDAY, FEBRUARY 15, 2006
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SD-562, Dirksen Senate Office Building, Hon. Ted Stevens,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
The Chairman. If there is no disagreement, what we will do
is have our opening statements of not more than 5 minutes, and
then we'll listen to Ms. Blackburn and then go to our witnesses
as quickly as possible. I have a short statement.
As different industries begin to emerge into each other's
space, it's the consumer that is poised to win.
First, it was cable providers offering phone service. Now,
Americans see wireline phone providers eager to offer video
service.
As traditional communications providers move into new
services bringing choice, innovation and lower prices to
consumers, Congress is confronted with reexamining our legacy
regulations.
This Committee has scheduled a series of hearings on
communications issues this session through March, about the
middle of March. Including this hearing today, the Committee
has had eight hearings so far. As with all of our hearings, I
look forward to working with the interested parties and the
Members of this Committee to craft fair and even-handed
legislation for the digital communications world that's
expanding far beyond our dreams, and I do hope we're
successful. It's going to take a lot of patience and a lot of
understanding to get a bill. Senator Inouye?
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Thank you very much. This morning, the
Committee turns its attention to video competition and our
current framework under the Communications Act for regulating
the provision of cable services to consumers.
In some respects, today's discussion returns the Committee
to familiar ground. Over a decade ago, Members of this
Committee heard similar testimony from witnesses who explained
how new technology would allow cable companies to provide
telephone service, telephone companies to provide cable
service, and consumers to reap the benefits of this
competition. While this promised competition did not emerge as
rapidly as we once hoped, further advances in technology and
new competitive realities are increasingly driving traditional
telephone companies to enter the video services market.
As a result, these developments lead us back to an all-too-
familiar question--namely, what changes to our communications
laws, if any, are needed to promote fair competition and to
protect consumers in the video services market?
Toward that end, as we begin to think about legislative
proposals to promote robust video competition, there are
certain fundamental principles that should guide us in this
debate. These principles are not Republican or Democratic
principles, but rather, bipartisan and pragmatic. That is why I
was pleased to join with my colleague, Senator Burns, earlier
this month in bringing these ideas into the debate.
First, our laws should promote competition and ensure
speedy entry on fair grounds. The process for obtaining a
franchise should be expeditious and should not be used to
frustrate entry. But in addition to procedural fairness, a
government franchise to provide video services must also ensure
that new operators deal fairly with the communities they serve.
Second, our laws should strive to regulate providers of
video services in a competitively neutral manner. Whether a
video service is called ``cable'' or ``IPTV,'' or is based on
some other type of technology, the regime for regulating these
types of services--where the provider controls the content
included in the service offering--should be consistent.
Third, our regulatory framework should recognize the
significant role that states and localities play in tailoring
the obligations of video service providers to the needs of
particular communities, and in enforcing such obligations. As
we have seen since the beginnings of the cable industry, this
historic reliance on state or local authorities to manage
public rights-of-way and to protect the public interest has
played an essential role in preserving localism.
In my view, our efforts to facilitate fair and robust video
competition, to strengthen universal service, and to ensure
network neutrality will represent the central elements of
telecommunications reform. As a result, I look forward to
listening to today's testimony and to working with my
colleagues in the weeks ahead.
And I thank you very much, Mr. Chairman.
The Chairman. Thank you, Senator. Following the early bird
rule, I recognize Senator Bill Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Bill Nelson. Thank you, Mr. Chairman. Mr. Chairman,
the landscape has changed significantly since 1996 and its Act
because in this digital age now, we now have cable TV providing
broadband voice service, and we have the telephone companies
providing broadband video service. So, now it's time to spur
vigorous competition, lower prices and very significantly,
broadband choices for all consumers.
Now, there are some people that are uptight about all of
this change and how's it going to turn out, and one of the
areas is the question of the local franchising process. It's
outmoded, and it's cumbersome. I support statewide or national
video franchising. But of course, the municipalities have a
good bit of concern about streamlined franchising.
So, I think we've got to be clear that there are ways to
reform the system that will protect the municipality's
franchise fees, and it will protect their rights-of-way
authority, and it will give them the authority to reasonably
negotiate terms of service.
Now, we know that the cable TV industry has some concerns.
So, let me state it clearly again, I support a level playing
field where all the broadband video providers are regulated the
same. And at the end of the day, if we're going to get this
reform bill passed, then we're going to have to work together.
And I feel confident that we can find a good way to reach
statewide or national video franchising by all sitting down
together and finding a way to unleash what is going to be a
broadband revolution for consumers.
The Chairman. Thank you very much. Our next senator under
the early bird rule, Senator Burns.
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. Thank you, Mr. Chairman. Thanks for this
hearing today. I'll just make a couple of points along with the
points that Senator Inouye made. We've been in dialogue now for
about a month and working together and about ready to really
get into the subject because we know it's important. I would
ask you now that my full statement be made part of the record.
The Chairman. Yes, sir.
Senator Burns. I think the outcome of any policy is
removing Federal barriers to competition while supporting the
best government, the one that's closest to the people. I
believe this legislation can gain strong industry and local
government support. We should work with all those entities in
streamlining the franchising of the prospect, but I think we
need to work toward--I think, you know, a long time ago, I can
remember a little video dial tone amendment when I first came
to this Committee, and everybody's eyes glazed over, and we
were discussing then putting new regulations on cable to re-
regulate them, and I thought that was a bad idea, and I still
think it's a bad idea today. But nonetheless, we have come a
long way. And then, when we start talking about digital and
digital technology, we've also--we quit talking about
identifying video data or voice, and now we start talking about
bandwidth. And then, that's it. Ones and zeros, we can't
identify them anymore. So, we're talking about almost the same
thing.
The franchising process must not be permitted to become a
barrier for entry, and we're very much aware of that. So, as we
work through this, I'm looking forward to the witnesses today
and their testimony, and it will be interesting, I think, but
we're--and I want to thank Senator Inouye and the rest of the
Members of this Committee as we move this legislation along.
I'm sure there'll be spirited debate, and there'll be different
ideas, but we want to hear them. And somewhere in the middle,
we'll find a way to be of service to the industry and the
competition and the American way of doing business. Thank you,
Mr. Chairman.
[The prepared statement of Senator Burns follows:]
Prepared Statement of Hon. Conrad Burns, U.S. Senator from Montana
Chairman Stevens, And Co-Chairman Inouye:
Thank you for holding this important hearing on video franchising.
I would also like to thank our guests for taking the time to share
their views with us today.
As Senator Inouye stated, we have been talking about new
franchising legislation that serves the common interests of new
entrants, existing providers of voice, video, and broadband services
while preserving control at the local level. My anticipated outcome of
any policy is removing Federal barriers to competition while supporting
the best government--the one closest to the people. I believe this
legislation can gain strong industry and local government support.
Our goal is to promote competition wherever possible. Coming from
the great State of Montana, I am well aware of how competition for
video services has grown over the past decade, even in rural states.
Satellite competitors, have a significant impact on the marketplace and
most of our constituents can now choose among service providers for
their video programming.
We can do better. Technology has enabled cable companies to compete
for telephone customers, and telephone companies are beginning to
compete for cable and satellite television customers. A March of 2004
GAO study shows that cable TV rates are substantially lower (by 15
percent) in markets where competition exists. Local government has the
opportunity to reduce consumer costs by allowing competition.
The traditional telephone companies seem eager to offer video
services to customers, and our constituents seem eager to have more
options. I've long encouraged additional investment in broadband
networks and additional choices for consumers. These important national
policy objectives should be accomplished without tilting the rules
against existing providers, discourage additional investment, or by
trespassing on the legitimate responsibilities of local governments.
Under existing law, cable operators and telephone companies must
obtain a franchise from local governments before they can provide cable
service. The franchising process ensures that local governments can
continue to manage their rights-of-way. But the franchising process
must not be permitted to become a barrier to entry.
Given the benefits of increased competition, it is important to
remove barriers impeding. Our policy needs to provide that new entrants
and existing providers compete on similar terms and conditions. Video
is only one piece of ``leveling the telecommunications playing field.''
Voice and broadband rules should also be the same for all providers.
The policy Senator Inouye and I have discussed will achieve this
balance. Our policy will treat all video providers the same regardless
of the technology they deploy. The policy will establish a level
playing field between new entrants and existing cable operators,
without undermining the role of local authorities. Franchising
authorities will have to act on applications on an expedited schedule.
Local government oversight will ensure that consumers have access to
new video offerings that are responsive to local community needs.
I look forward to joining with other Senators on this Committee,
local officials, and other interested parties as we move forward with
our legislation. Much is at stake for industry, local governments, and
consumers. I hope the Federal role will be the smallest among them.
The Chairman. Senator Ensign?
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman. This is one of the
most important in the series of telecommunications reform
hearings, that we will have. I want to make a couple of points.
It's been mentioned today by local governments and other
concerned parties about the video franchise agreements, how
they're put together today, whether they should be put together
in the future and whether there should be regulation in today's
marketplace at the local level. Some believe that there
shouldn't be. Some believe that there should. One question is,
what do we do about the 5-percent franchise fee? I think that
everybody's pretty much come to agreement that we will preserve
that for the local governments. It's an important source of
revenue for them.
But does local regulation make sense in today's world where
we have many providers, and we're going to have more providers
for video coming into the home, just like telephone. In a
monopoly situation, it made sense to have regulation, tight
regulation to protect the consumer. But in a competitive
marketplace, the best protection for the consumer, the best way
the consumer's going to get the most services at the best price
is through competition. The more competition, the more
protection for and the more choice that the consumers will
have.
The legislation that I have put together, accomplishes
that. It's going to need some tweaking as we go through the
process, but the bottom line is is that people say we need to
get video services into the home with more competition. Well,
how do we that when over 30,000 local cable franchise
authorities today? We'll hear from one company today that has
formed agreements with just 50 of the 10,000 that they deal
with, and 29 of those 50 come from Texas, which has passed a
streamlined video franchising bill.
There is a barrier today. Video choice is happening too
slow. And one of the reasons that we should all be interested
in getting more video choices into the home and more
competition into the home is because we want to encourage
broadband into everybody's home. Well, there's a reason people
want broadband. Why do they want faster higher speed broadband
coming into their home? Why are they going to be willing to pay
for it? They have to have some kind of incentive there. This is
one of the incentives, probably the major incentive for
consumers to want higher speed Internet access, because they
will get another option in video programming. And that's why
it's so critical for us as we're going forward, to take as many
barriers down as we possibly can to bring more competition into
the local marketplace.
So, Mr. Chairman, I look forward to working with everyone
on this Committee. I think it's an exciting time for us, and I
think that we can do some great things for the American
consumer as well as the American economy if we can get more
choices coming into the American home. Thank you.
The Chairman. Thank you. Next, Senator Ben Nelson?
STATEMENT OF HON. E. BENJAMIN NELSON,
U.S. SENATOR FROM NEBRASKA
Senator Ben Nelson. Thank you, Mr. Chairman, and thank you,
Mr. Chairman and Senator Inouye for scheduling the hearings on
telecom issues and particularly, the one we're dealing with
today. Obviously, the integration of network technologies that
we're discussing means that the networks that were designed for
voice, video or data can now be used to offer all three types
of service, and advancements can continue to contribute to
economic growth while simultaneously resulting in a richer
selection of telecommunications services that lower prices to
consumers. That's obviously what we're interested in exploring
today, what regulatory barriers exist that discourage
innovation and growth. I believe the franchising process needs
to be looked at and needs to be streamlined in order to
facilitate competition in the video market.
The communications marketplace has changed significantly
since the 1996 Act, and I believe it's appropriate that
Congress act to accommodate those changes. It's clearly in the
best interests of consumers to encourage competition in the
video market, and I look forward to hearing from all the
witnesses today as to how they believe we can best accomplish
that. Technology continues to be dynamic. The question is
whether we can make regulation dynamic at the same time and
also where it's necessary to protect consumers.
Municipalities should be able to protect their community
interests to a reasonable degree, and there should be a role
for state and local regulators in addressing consumer concerns.
But while I believe vigorous competition is one of the best
ways to benefit consumers, at the same time, I think it's
appropriate to consider where a public role can help foster
advancement and at the same time, safeguard public interest. I
thank you very much, and I'm anxious to hear from the witnesses
today, and thank you very much, Mr. Chairman.
[The prepared statement of Senator E. Benjamin Nelson
follows:]
Prepared Statement of Hon. Ben Nelson, U.S. Senator from Nebraska
Thank you, Mr. Chairman.
I'd first like to thank Senators Stevens and Inouye for scheduling
this series of hearings on telecom issues.
These are all important issues that deserve full debate, and I
believe these hearings are crucial in ensuring we as a Committee
develop legislation in a responsible and thoughtful manner.
The integration of network technologies we are discussing in these
hearings this year means that networks that were designed for voice,
video, or data can now be used to offer all three types of service.
Such advancements can contribute to economic growth while
simultaneously resulting in a richer selection of telecommunications
services at lower prices to consumers.
What I am interested in exploring at today's hearing is how we can
best capitalize on these advancements in technologies to benefit
consumers the most.
What regulatory barriers exist today that discourage innovation and
growth?
I believe the franchising process must be streamlined in order to
facilitate competition in the video market.
The communications marketplace has changed significantly since the
1996 Act, and I believe it is appropriate that Congress act to
accommodate those changes.
It is in the best interest of consumers to encourage competition in
the video market, and I look forward to hearing from all the witnesses
today as to how they believe we can best accomplish that.
I also believe we must make sure that regulation remains where it
is necessary to protect consumers.
Municipalities should be able to protect their community interests
to a reasonable degree, and there should be a role for state and local
regulators in addressing consumer concerns.
While I believe vigorous competition is one of the best ways to
benefit consumers, at the same time, I do think it is appropriate to
consider where a public role can help foster advancement and safeguard
public interests.
Finally, I believe that technology holds enormous economic promise
to rural America, and innovation and competition must be encouraged in
even the most remote areas of our country.
Therefore, I would like to hear from the witnesses today about how
we can encourage the deployment of infrastructure and new services in
rural areas of the Nation.
Thank you, Mr. Chairman. I look forward to hearing the testimony.
The Chairman. Senator Kerry?
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Mr. Chairman, thank you very much. I was
listening to a couple of the comments, and I think everybody
here has obviously got a pretty good sense of the big stakes
that are on the table here. And as we look back, this has been
a really interesting journey for this Committee. I think it's
important for the Members, for all of us, to sort of look back
at that journey as we think about where we're going. I mean you
can go back to the 1972 Cable Rule, and you can go to the 1984
Cable Act, and you can look at what we thought about then, and
then you can go to 1992 and 1996.
1996, I remember when we passed that, Mr. Chairman. Senator
Inouye, Senator McCain, a few others of us were here. The
entire conversation was about telephony. Despite the fact that
data was literally right around the corner, I don't think many
of us had a lot of conversations about the data components of
this. And obviously, the choices that we make on this Committee
have a profound impact in the marketplace, profound impact on
investment, on jobs. And I think the underlying principles that
we signed yesterday, many of those are really what ought to
guide us in this effort.
There's obviously always also a great struggle here by
those with high stakes, financial interest on the table
already. You look at the cable industry with billions of
dollars of fiber investment and so forth, certain set of rules
they've played by. But the rules are changing, and the game is
changing. And our job is going to be to try to sort through
that in a way that really does put a level playing field and
the best competitive practices ahead of any other kind of
specialized interest.
Now, as we all know, the marketplace is so profoundly
different from what it was in 1996 with VoIP, Vonage, wireless
companies, cable companies, everybody, and a massive
restructuring is still going on. And if you look back on some
of the decisions that we made in 1996, and as a nonpolitical
nonpartisan analysis of that, has to conclude that what we did
had a profound impact on the outcome. So similarly, this is
going to have the same thing, and I think we've got to be
really careful.
I applaud Senator Rockefeller and Senator Smith, who I
think made a bonafide effort here to try to move us toward a
beginning center working place from which we can try to figure
out, you know, how do we accommodate the interests of mayors
and local communities and others without becoming so burdensome
and over-encumbering that we prevent this explosion from taking
place in a positive way? At the same time, Mr. Chairman, we
don't want to micro-manage it, and we need to allow the
competition to play out appropriately.
So, this is going to be a delicate balancing act for this
Committee. And again, I say the history, the road we have
traveled, is really informative as to how we might behave at
this moment. And I applaud you for beginning this process and
look forward to working with you to try to make it work out as
reasonably as possible.
The Chairman. Thank you, Senator. Senator Rockefeller?
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
Senator Rockefeller. Thank you, Mr. Chairman. I want to
thank you and Co-Chairman Inouye for having this hearing. We've
been after it for a while, and we've got it. And I also want to
say that I'm very pleased that Mr. Seidenberg and Mr. Whitacre
are here because they play a large role in this.
In the case of Verizon, I think what Mr. Seidenberg will
talk about is their commitment to bring competition in the
marketplace. Verizon's deployment of the most advanced
communication network will be transformational, and I will
assert, at least for the purposes of this hearing, will change
the way we think about communications altogether. I know West
Virginia has looked forward to Verizon's deploying something
which we have not yet seen in local settings, which is
broadband. Ten years ago, we debated. Senator Kerry said the
1996 Act, which was a lot prettier than 1993 Non-Act, which was
a cable fight, and it was important that any new laws advanced
three core principles, and that one is obviously competition,
the second is broadband deployment, and the third is universal
service. Universal Service is a separate subject which we will
be pursuing in other ways.
Now, with the technology and the industry changes over the
last decade, we find ourselves having to address areas where
competition did not take hold. Repeat, did not take hold, to
wit, cable television. I believe the best way to advance
competition to cable and broadband deployment is to pass the
Video Choice Act of 2005, which Senator Smith and Dorgan and
myself and Senator Kerry pointed out, introduced, and I think
this bill's going to be enormously beneficial for consumers and
because it will spur competition, it'll deliver broadband by
encouraging traditional telephone companies to offer the bundle
of Internet, video and telephone services.
Some of the local officials may be nervous, but I predict
to you that they will not end up nervous because they will find
in the end that we hold them harmless--we hold them harmless,
and all public services we now require will continue to be
required. This isn't just about more television choices, it's
about our economic future. When we were last on this subject a
number of years ago, we were fourth in the world. We're now
16th in high-speed Internet access. That's fairly depressing
for a nation like ours. This isn't just a number, it's a marker
for our future.
As good as this legislation is, we believe--I understand
that many local governments are concerned, and I repeat again,
I was a former Governor. I'm very aware of the important local
revenues, and I think that the local governments are going to
end up quite satisfied with this, although they will be
skeptical at first as they should be. Legislation mandates that
all vital social policy obligations of current cable television
operatives that they have to do will have to be met by the
competitive video industry. It's a short year. There's no
guarantee that we can pass legislation even. We have hearings,
and people get worked up, and then nothing happens. This cannot
be one of those years on this subject because I think the stars
are aligned.
We've tried, Senator Smith and I, to craft a narrowly
tailored bill. We've taken into consideration the worries and
thoughts of others, but we really want competition, and we
think--and as for me, I really want broadband. I need broadband
for my people in West Virginia out in the rural areas. This
will cause it to happen through the free enterprise system.
That, my friends, is exciting. I thank the Chairman.
The Chairman. Thank you. Senator DeMint?
STATEMENT OF HON. JIM DeMINT,
U.S. SENATOR FROM SOUTH CAROLINA
Senator DeMint. Thank you, Mr. Chairman. I appreciate you
holding this hearing. Franchise laws are a legacy instrument
from the era of rotary telephones written before the Internet,
before Internet television, satellite television, voice over
the Internet and before soon-to-come high-quality digital
broadcasting. When there was no competition to the telephone
and cable companies, local governments could tax and over-
regulate both of them and use the extracted revenues for perks
and to cross-subsidize consumers or finance unrelated public
services.
Cable television and phone companies submitted to this
overregulation and overtaxation because their government-
sanctioned monopolies meant they could recover their investment
by raising prices. Consumers had no choice but to pay. The
cable TV and telephone companies are no longer monopolies.
Today, there are more cell phones in use in the United States
than land line phones, and many consumers have dropped their
traditional land lines completely for cell phones. Voice over
the Internet is rapidly eating into the telephone companies'
subscriber base. Cable companies lost over a million
subscribers last year, and alternative methods of video
distribution, such as satellite, are beginning to reach more
and more households. And we know, from action on this
Committee, that digital broadcasting will soon add additional
high-quality choices to consumers.
Competition makes it impossible, or at least very
inefficient, to use regulations to force companies to be tax
collectors for local and state governments or to force some
consumers to subsidize others. In our new era of competition,
local governments must find a way to pay for unrelated services
other than through traditional franchise agreements. Cable
companies have paid a hefty price to operate under local
franchise. And so, they have a good reason to be concerned
about the transition out of local franchising systems. It is
never comfortable for existing companies when increased
competition makes existing regulations obsolete.
But our focus in Congress, and hopefully, Mr. Chairman, on
this Committee, is not on the companies, but on the consumers.
We know that consumers benefit only when regulations and taxes
are reduced on the incumbents instead of being imposed on new
competitors. Local video franchises have become unnecessary
regulatory barriers and need to be removed to allow competition
and choice to flourish. That's why I've introduced Senate bill
2113, the Digital Age Communication Act. It phases out local
franchises over a 4-year period. All the same legislation
maintains the right of localities to manage and be compensated
for the use of right-of-ways. This bill also allows incumbent
providers to get help from new competitors with any legacy
regulatory costs that may have burdened them because of ongoing
franchise obligations.
To benefit consumers and pave the way to investment in
broadband networks, Congress should act swiftly to reform the
franchise process that reflects the realities of the
extraordinary advancements in the communication marketplace.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator. Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thank you, Mr. Chairman. We've got,
obviously, a significant interest in this fairly complex
question, and as I heard colleagues discuss those events of
years past and looked at what's happened with the technology,
and almost as spectators, we see changes that were never
anticipated, satellite services, et cetera. So, we've got to
try and be constructive here and see where we can take the
demand that we hear so much about from our constituents for
better services and lower prices. We all receive letters from
constituents concerned about the high cost of cable TV. In
fact, cable prices have increased 50 percent on average in the
last 5 years, 50 percent. And in many instances, TV rates and
need and demand are almost at a level with other household
utilities, like gas and electric and things of that nature. In
many instances, cable is, or TV itself, is an outlet that
includes learning and company for the aged or disabled and so
forth.
So, these are very serious needs, and new competition in
the television market could reduce prices. And indeed, GAO has
found that where there is competition to cable, rates are 15
percent lower on average. So, we should make sure that our laws
don't prevent a new provider from serving our constituents. But
we've got to recognize that the cable companies have put
significant time and capital into upgrading their
infrastructure, somewhere around $100 billion over the last 10
years. And local communities have been rewarded with new
technology and better services. And there are significant
benefits that flow from oversight of providers by local
authorities.
Local governments use franchise agreements to manage their
rights-of-way and ensure consumer protection. For their part,
the cable companies provide public service and educational
channels. They wire schools and municipalities, and build out
community-wide systems to ensure that everyone has the benefits
of new technology. And a new entrant ought to be willing to
embrace and to provide these important benefits.
Mr. Chairman, I welcome the competition in the video
marketplace, and I'm pleased that new providers are poised to
enter the market in the state of New Jersey, but I hope that
their entry doesn't escape review and simply suggest that
prices would drop, but without providing consumer protections.
And I hope that all of our constituents will see the benefits
of this competition. If new entrants are being denied
franchises or facing unreasonable delays under the current
system, we've got to make changes.
But any new proposal we consider must not allow competitive
advantages by dropping the existing service demands for one
provider over another. It must ensure that local community
leaders will still have the ability to oversee consumer
protection and receive reasonable franchise fees. These are an
important flow of revenue to the communities, and that new
providers shouldn't be able to cherry pick, like pick off the
wealthiest consumers and forget about the rest.
So, I thank you, Mr. Chairman and Senator Inouye, and I
look forward to the testimony of the witnesses today.
The Chairman. Thank you very much. Senator McCain?
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. Thank you, Mr. Chairman. Every year, the
cable companies visit their customers each December with their
song of rising programming costs, which of course requires them
to increase consumer rates. The Wall Street Journal reports
that this year, consumers can look forward to increases of as
much as 6 percent for cable and 4 percent for satellite
subscription services. These rate hikes are on top of increases
of approximately 4 percent in 2005, according to media reports,
preceded by increases of 5.4 percent and 7.8 percent in 2004
and 2003, respectively.
Since 1996, cable rates have spiked 56.6 percent, three
times the rate of inflation. One of the key reasons that the
cable industry can boost its rates each year and still retain
its customer base is because consumers have very few options.
Satellite subscription services now serve more customers than
ever before, according to the FCC, and have provided some
competition.
However, in October 2003, a General Accounting Office study
found that competition from another wire-based company is the
only real check on rising cable rates. Specifically, the GAO
found that cable rates were as much as 15 percent lower in
markets where another wire-based competitor is present. This
finding has proven true in Keller, Texas, where, according to
Bloomberg News, Charter Communications cut their rates 25
percent when Verizon deployed its television delivery service.
Now, citizens in Keller, Texas, can choose from four different
providers.
I hope this is a phenomenon that will quickly take hold
nationwide. Due to deregulation by Congress and the FCC,
consumers have several choices for high-speed Internet access
such as DSL service from their phone company, cable modem
service from their cable company and wireless access from a
wireless carrier. This robust competition has led to lower
rates for consumers from $46 per month in 2002 to $39 per month
in 2004. Tellingly, when Comcast announced a 6-percent rate
increase for cable television service this year, it did not
raise its rates for its high-speed Internet service.
Unfortunately, cable industry deregulation has not led to more
choices and reduced prices. Cable rates, as I mentioned, have
increased 56 percent since 1996. Meanwhile, the prices of
apparel, eggs, beef, airline travel and long-distance telephone
service have fallen.
However, consumers should not only have a wider choice of
providers, but a wider choice of pricing options. The average
customer, pays almost $50 for 72 channels, but a study by Booz
Allen Hamilton commissioned by the cable industry last year
estimated that customers only watch about 16 channels and would
probably subscribe to only nine if they could pick individual
channels on an a-la-carte basis. The FCC's most recent study
found consumers could save as much as 13 percent a month if
they're able to pick and choose the channels they wish to
purchase. This avenue shows that many consumers would like the
choice to only buy the channels they watch.
Therefore, I will soon introduce legislation that would
entice all providers of television services to offer an a-la-
carte option in addition to bundles of channels in return for
regulatory relief, including freedom from local franchising. I
look forward to hearing from the witnesses today.
Mr. Chairman, I don't see why a retired person in Sun City,
Arizona, should have to pay an exorbitant fee to watch ESPN. I
don't see why people on fixed incomes should face ever-
increasing cable rates, and the reason for it is that they have
access to more channels to watch when they don't want more
channels to watch. We need to have a-la-carte if we're going to
give consumers a better break, and we are going to get parents
the ability to exclude channels which contains material that
they find patently offensive. I thank you, Mr. Chairman.
The Chairman. Thank you, Senator. Senator Smith?
STATEMENT OF HON. GORDON H. SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman. In the interest of
time, may I have my statement put in the record.
The Chairman. All statements of senators and witnesses will
be put in the record.
Senator Smith. I would note the unanimity that seems to be
on this committee with the fact that we have to do something.
It's not partisan. It's, frankly, a recognition that we're back
to the future. And frankly, the future, for the sake of
consumers and for the sake of American competitors, demands
that we do something on this committee.
Senator Rockefeller and I have put out a letter of
principles, that we've been joined by Senator Ensign, Senator
DeMint, Senator McCain and Senator Kerry, in laying out those
principles. I am not insensitive to the concerns of
municipalities and certainly think there are things we must do
to help the cable guys with deregulation as well so that
they're not at a competitive disadvantage.
But on the other hand, there is a point to what we should
do. We simply have to recognize that the future will overtake
us if we don't catch up with it. To these ends, I have
introduced, with Senator Rockefeller, the Video Choice Act of
2005. Our bill eliminates redundant and unnecessary video
franchise agreements while preserving important local
prerogatives and authority.
Specifically, our legislation permits any company that has
already obtained a network franchise to offer video services
without obtaining a second video-specific franchise. These
competitive video service providers will still be subject to
the core social and policy obligations that Congress has always
imposed on providers of video service, including the obligation
to pay fees to local governments, to comply with the
retransmission consent and must-carry provisions of the
Communications Act, to carry public, educational, governmental
and noncommercial educational channels, to protect the privacy
of subscribers and to comply with all statutory consumer
protections and customer service requirements.
Our legislation also preserves state and local government
authority to manage the public rights-of-way and to enact or
enforce any consumer protection law. I believe that local
communities must continue to play a meaningful role in the
management of these networks.
And again, I recognize that the video franchising process
imposes burdens on cable operators and support efforts, either
as part of this legislation or separately moving
simultaneously, to address their concerns. It's important to
note however, that the cable operators do not have to comply
with the legacy phone regulations for their voice services.
Likewise, telephone companies should not have to comply with
legacy cable regulations for their video services.
So, Mr. Chairman, I think this hearing is timely and very,
very important to consumers, competition and America's future.
Thank you.
[The prepared statement of Senator Smith follows:]
Prepared Statement of Hon. Gordon H. Smith, U.S. Senator from Oregon
Thank you, Mr. Chairman and Co-Chairman Inouye, for convening this
hearing to examine the decades old system of local video service
regulation.
The video marketplace was vastly different in 1984 when Congress
first authorized local regulation of cable television service. In those
days, a typical American community was served by a local cable company
that had a few hundred or a few thousand subscribers. More than twenty
years later, nearly all of those communities are still served by just a
single cable company, but that company likely serves millions of
subscribers across the country.
Today, the video market is truly national, but our regulations
remain local.
Some of the largest communications companies in the country are
investing billions of dollars in high speed networks capable of
offering video and other services that will compete with cable. Under
current law, companies like Verizon, AT&T, and BellSouth must negotiate
and sign local franchise agreements before they can offer competitive
video service. There are over 33,000 franchise authorities in the
United States and the slow pace of negotiations has delayed
competition.
The longer consumers go without effective video competition, the
higher their bills will be. Year after year, cable price increases
outpace inflation. According to a January 25, 2006 article from The
Oregonian newspaper, Portland-area cable rates are set to increase by
another 7 percent this year. Although satellite TV services have made
great strides during their 12 years of existence--serving over 20
million subscribers--they have failed to exhibit price control on
cable.
A recent Government Accountability Office (GAO) study underscores
the benefits of wire-based competition in the video market. In August
2004, GAO concluded that cable rates are on average 15 percent lower in
the few markets with a wire-based competitor to the incumbent cable
operator. As Ivan Seidenberg, Chief Executive Officer of Verizon, notes
today in his testimony, cable prices have dropped by about 20 percent
since Verizon entered the video market in Keller, TX.
I believe that Congress must reexamine the local regulation of
video services to ensure that barriers to competition and costs to new
entrants are as low as possible. The benefits of lower prices, better
service, and billions of dollars invested in local economies are clear.
To these ends, I have introduced the Video Choice Act of 2005 with
Senator Rockefeller. Our bill eliminates redundant and unnecessary
video franchise agreements while preserving important local
prerogatives and authority.
Specifically, my legislation permits any company that has already
obtained a network franchise to offer video services without obtaining
a second video-specific franchise. These ``competitive video service
providers'' will still be subject to the core social and policy
obligations that Congress has always imposed on providers of video
service, including the obligation to pay fees to local governments, to
comply with the retransmission consent and must-carry provisions of the
Communications Act, to carry public, educational, governmental and non-
commercial, educational channels, to protect the privacy of
subscribers, and to comply with all statutory consumer protections and
customer service requirements.
Our legislation also preserves state and local government authority
to manage the public rights-of-way and to enact or enforce any consumer
protection law. I believe that local communities must continue to play
a meaningful role in the management of these networks.
I recognize that the video franchising process imposes burdens on
cable operators and support efforts to address those concerns. It is
important to note, however, that cable operators do not have to comply
with legacy phone regulations for their voice services. Likewise,
telephone companies should not have to comply with legacy cable
regulations for their video services.
I look forward to the testimony today and encourage the Members of
this Committee to act swiftly on video franchise reform legislation.
The Chairman. Thank you. Senator Pryor?
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Mr. Chairman, thank you. I do not have an
opening statement. I'm ready to get on with the hearing. Thank
you.
The Chairman. Thank you very much. Senator Lott?
STATEMENT OF HON. TRENT LOTT,
U.S. SENATOR FROM MISSISSIPPI
Senator Lott. I'd like to associate myself with Senator
Pryor's remark and hear the witnesses which I came to hear.
The Chairman. Senator Dorgan?
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, I was necessarily delayed
this morning, and I was very worried I was going to miss the
first panel, but it appears I shouldn't have worried very much.
At any rate, let me do the same. I'll put my statement in the
record. It's a very important hearing. I'm glad that we're
holding it, and I'll ask my entire statement be part of the
record.
[The prepared statement of Senator Dorgan follows:]
Prepared Statement of Hon. Byron L. Dorgan,
U.S. Senator from North Dakota
As we sit here today, it is amazing to me how much, and how little
has changed from the 1996 Telecommunications Act. Back then, the fight
was over phone service--whether regulations encumbered providers from
entering into the lucrative long distance market.
Then, the issue became broadband--whether those regulations
hampered entry into the broadband market.
Now the issue before us today is whether regulations hamper entry
into the video market.
I support competition--I want to ensure that we have as much
competition and benefit to consumers as possible.
But that should not come at the cost of important priorities--
build-out, rights of way fees, community access programming, consumer
protections.
I agree that we should take a close look at how the system can be
changed to facilitate the entry into a market when there are so many
thousands of different franchises.
But I think we must tread carefully and I look forward to today's
hearing to hear the interests that are at stake.
Net Neutrality
I want to point out, just as there is a recognition that there is
insufficient competition in the video market--there is insufficient
competition in the broadband market.
In North Dakota, 49% of consumers have only one choice for a
broadband provider. Yet now broadband providers' executives have made
statements that they believe Internet content providers are
``freeloading,'' or ``using the pipes for free.''
I do not agree with that--content providers pay for their Internet
service, and consumers pay for their Internet service--and when they
pay, they assume that they will have unfettered access to whatever
content they choose.
That is the way the Internet was structured--Internet freedom
drives innovation, competition, and frankly--it has driven the
deployment of broadband. We should keep it that way.
The Chairman. Thank you. We agreed to let Congresswoman
Blackburn make a statement. Congresswoman?
STATEMENT OF HON. MARSHA BLACKBURN,
U.S. REPRESENTATIVE FROM TENNESSEE
Ms. Blackburn. Thank you, Mr. Chairman and Co-Chairman
Inouye. Thank you for holding the hearing on the issue so that
we can discuss video franchising, and it is so relevant in
light of your comments that you made, sir, on Monday regarding
the need for uniformity in franchising. And as Senator Smith
said, it seems as if everyone is in agreement here that
something needs to be done.
My colleague, Representative Wynn, and I introduced
legislation in the House similar to the bill that Senators
Smith and Rockefeller introduced here in the Senate, that would
reform the video franchising process. And Mr. Chairman, the
issue is simply stated, my constituents don't support
government regulations that stifle competition and stifle
innovation. They don't believe a system that restricts video
choice to nothing more than a cable, rabbit ears or a satellite
service is where we should be in our option of choices in 2006.
The House Energy and Commerce Committee is in the process
of drafting an initial telecom reform bill, but I want to take
the opportunity to testify before you about the importance of
the issue in the hopes that the legislation coming out of both
chambers will contain franchise reform language.
The bill Representative Wynn and I introduced H.R. 3146,
the Video Choice Act, will help eliminate the red tape new
entrants into the video market must cut through to lay fiber
and offer new services.
Senator Inouye mentioned that the importance in crafting a
bill and crafting legislation, is that it strike a reasonable
balance between the need to promote competition in the video TV
market and the needs of municipalities to govern their rights-
of-way. I agree with that. Simply put, the current laws that
govern the franchising process serve as a barrier to
competition and prevent new video technologies from entering
the marketplace.
I have heard more than one executive from an incumbent
video service provider say that this is all about giving the
big Bell companies and the big providers an unfair advantage.
And I can't speak for those companies, but I can tell you about
a small rural ILEC based in Tennessee that is laying fiber to
offer a robust array of services. The bill will help the little
guys who are being kept out of the marketplace under the
current structure.
Senator DeMint raised the issue about this being about
consumers, and I agree, but this isn't only about offering
consumers a choice in video service. These pipes that deliver
the video product will also have more space for data, and
cutting the regulations that prevent these companies from
entering in the video market will only help broadband
penetration in the U.S. We've heard several of your panel
mention the need for expanding our broadband today.
The U.S. has fallen to 16th in the world in broadband
penetration, and we believe our bill would improve this
standing. Senator Rockefeller, you said we were at fourth
before we started over the last few years. I join you. We would
love to see the United States return to that standing.
Quite frankly, I think the cable companies know that
competition is coming, and they are fighting hard to preserve
the status quo. In my own district, I am disappointed to say
the current incumbent cable provider used its position as a
Goliath to prevent that small, rural ILEC that I previously
mentioned, from offering video service to their customers over
their own fiber.
Senator Ensign said we don't need more studies to tell us
that competition is good for consumers. I agree with that. In a
competitive marketplace, quality and competition does become
our regulator. We already have a few real-world examples of
what competition can do for prices. Senator McCain mentioned
Keller, Texas, and the FCC just held a meeting there to
highlight the issue. Right now, Verizon is offering its video
package for about $37 a month in Keller, Texas. Almost
overnight, Charter Communications cut its price just to be able
to compete.
The message, I believe, is quite simple. Reducing the
barriers to video competition is good for consumers. I want to
commend you, Mr. Chairman, for your Committee's aggressive
hearing schedule. I hope that any legislation passed out of
your Committee will address franchise reform, and I look
forward to working with you on the issue. Thank you. I yield
back.
[The prepared statement of Representative Blackburn
follows:]
Prepared Statement of Hon. Marsha Blackburn,
U.S. Representative from Tennessee
Chairman Stevens and Ranking Member Inouye,
Thank you for holding this hearing today to discuss video
franchising. Mr. Chairman, it is especially relevant in light of your
comments on Monday about the need for uniformity in franchising. My
colleague Rep. Wynn and I introduced legislation in the House similar
to the bill Senators Smith and Rockefeller introduced here in the
Senate that would reform the video franchising process. Mr. Chairman,
this issue is simply stated, my constituents don't support government
regulations that stifle competition and innovation. They don't believe
a system that restricts video choice to nothing more than a cable
provider, satellite service, or rabbit ears is where we should be in
2006.
The House Energy and Commerce Committee is in the process of
drafting an initial telecom reform bill, but I wanted to take the
opportunity to testify before you about the importance of this issue in
the hopes that the legislation coming out of both chambers will contain
franchise reform language.
The bill Rep. Wynn and I introduced, H.R. 3146, the ``Video Choice
Act,'' will help eliminate the red tape new entrants into the video
market must cut through to lay fiber and offer new services. We sought
to craft a bill that strikes a reasonable balance between the need to
promote competition in the video TV market and the needs of a
municipality to govern their rights of way. Simply put, the current
laws that govern the franchising process serve as a barrier to
competition and prevent new video technologies from entering into the
market.
I have heard more than one executive from an incumbent video
service provider say that this is about giving the big Bell companies
an unfair advantage. I can't speak for those companies--but I can tell
you about a small rural ILEC based in Tennessee that is laying fiber to
offer a robust array of services. This bill will help the little guys
who are being kept out of the marketplace.
But this isn't only about offering consumers a choice in video
service. These pipes that deliver this video product will also have
more space for data--and cutting the regulations that prevent these
companies from entering in the video market will only help broadband
penetration in the US. The United States has fallen to 16th in the
world in broadband penetration and we believe our bill would improve
this standing.
The cable companies know competition is coming, and they are
fighting hard to preserve the status quo. In my own district, I am
disappointed to say, the current incumbent cable provider used its
position as a Goliath to prevent that small rural ILEC I mentioned from
offering video service over their own fiber.
We don't need to fund any more studies to know that competition is
good for consumers. We already have a few real world examples of what
competition does to prices. And I was pleased to see the FCC just held
a meeting in Keller, TX to highlight this issue. Right now Verizon is
offering its video package for about $37 a month in Keller, TX. Almost
overnight Charter Communications cut its price in half to compete.
The message is simple. Reducing the barriers to video competition
is good for consumers. I want to commend you Mr. Chairman for your
Committee's aggressive hearing schedule. I hope that any legislation
passed out of your Committee has franchise reform and I look forward to
working with you to address this issue.
The Chairman. Thank you very much. I don't know what makes
me think of the 20-mule team model that's on my piano. No
inference intended, but we've all got to go in the same
direction with this bill. I would hope that you would agree
that we could have all of the witnesses come to the table now,
that we might hear them. I think it's more important to hear
all of them than to have us have two rounds of questions. We've
all made our statements.
So, if there's no objection, I would ask that all eight of
the witnesses come to the table. Thank you very much,
Congresswoman. We appreciate your courtesy of coming. And we
will listen to the witnesses first. Believe me, this is one you
should stay and listen to because these are two diametrically
opposed panels, I think, but we should listen and listen
carefully. If we can line up the way you're on the schedule,
Ivan Seidenberg, Chairman and Chief Executive Officer of
Verizon on my left; next to him, Ed Whitacre, Chairman and
Chief Executive Officer of AT&T; next to him, Thomas Rutledge,
Chief Operating Officer at Cablevision Systems Corporation;
next to him, Lori Panzino-Tillery, of the National Association
of Telecommunications Officers and Advisors; next to her, Brad
Evans, Chief Executive Officer of Cavalier Telephone; next to
him, Anthony Riddle, Executive Director of Alliance for
Community Media; next to him, Gene Kimmelman, Senior Director
of Public Policy of the Consumers Union, and next to him, Gigi
Sohn, President and Co-Founder of Public Knowledge in
Washington would be on this end, down at the end.
I apologize for sort of squeezing you in there, but I think
you would rather have the opportunity to talk before 1 o'clock.
And let me commend you all for coming because of this, and we
intentionally have the situation where every member can make
the statements so everyone can understand the differences of
opinions. We are all in agreement that something must be done,
but unfortunately, we're not in agreement what to do, so we're
here to listen to you.
Mr. Seidenberg, you would be first. As soon as the
arrangements are made, we'd be happy to have your statements.
All of the statements you have presented to us will be put in
the record in full. We hope you will summarize the best as you
can within the time limits, but we want to hear you.
STATEMENT OF IVAN G. SEIDENBERG, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, VERIZON COMMUNICATIONS
Mr. Seidenberg. OK, Mr. Chairman. Chairman Stevens, Co-
Chairman Inouye and Members of the Committee, thank you very
much for holding this hearing and giving us an opportunity to
present our views here. Let me begin by explaining why video
franchise reform is an urgent matter for Verizon and for the
customers we serve. Today's video franchising laws are out of
date with technology, as you've heard this morning, out of
touch with consumer demands and so mainly delay competition and
deny choice for consumers.
Last September, Verizon began offering our new video
service called FiOS TV to customers in Keller, Texas, just
outside of Dallas. Since our launch there, we've entered the
video market in communities in New York, California,
Massachusetts, Florida, Virginia, while greatly expanding in
Texas, where we have statewide franchise authority.
It's early in the game, but customers appear to really love
this service. In Keller, 20 percent of the market signed up for
FiOS TV in the first 3 months when we offered the service.
Actually, even consumers who don't have FiOS TV like it.
That's because, where FiOS TV competes with cable, consumers
see their cable bills go down. Incumbent cable operators have
offered customers price cuts of between 28 and 42 percent,
although cable companies generally haven't advertised these
discounts or made them available to areas not served by FiOS
TV. For consumers, this is an important kitchen-table issue.
The FCC found that unlike every other competitive
communications market, cable prices have increased 86 percent
since 1995. The key to lowering cable cost is competition.
Where there is wireline competition, cable prices are more than
15 percent lower.
Unfortunately, that kind of competition exists in less than
2 percent of communities. A recent study by The Phoenix Center
found that this lack of wireline alternative in 98 percent of
communities throughout the country costs consumers more than $8
billion per year in excess cable rates.
Verizon thinks we can help you change that. The major
obstacle in our path and the biggest limiting factor to how
fast we can offer video over our fiber network is the existing
local franchise process that requires us to negotiate separate
agreements with thousands of local franchise authorities all
over the country.
As you know, Verizon already has authority to deploy and
operate networks for voice and data services. But under Title
VI of the Communications Act, we're required to obtain a second
local franchise in order to use those networks to offer a
competing video service. By the way, as has been mentioned,
cable companies were not required to obtain a second franchise
to offer a competing voice service over their networks.
There are three down sides to a current market-by-market
franchising process: First, the incumbent cable providers
worked the process to derail or delay the entry of a competitor
in their markets. They sent their lawyers to lobby local
officials to impose on Verizon a laundry list of onerous
obligations. In one community, for example, the incumbent cable
provider has refused for almost a year to license cable
channels to Verizon that it freely licenses to others or to
negotiate agreements for the carriage of public, educational
and government channels. It also filed a lawsuit to block local
franchise after it was approved by the community. That suit was
thrown out in court, but threats of similar suits have popped
up everywhere around the country and created a disincentive for
municipalities to want to tackle the question; second, while
most local communities welcome Verizon's entry, some
communities use the process to place restrictions, requirements
or to mandate additional contributions that have little to do
with our being permitted into the marketplace. One community
asked us to buy new streetlights and to open a Verizon lot as a
free parking lot for a public library. Another demanded free
broadband access for all municipal employees. Other communities
have sought free or subsidized cell phones and service for its
employees; third, the required negotiations are time consuming
and sometimes taking well more than a year. Taken together,
these three facets of the franchising process delay our entry
into the market, deny consumers of choice and video services
and create a disincentive to investment in broadband.
Now, we are not unsympathetic to legitimate concerns of
local and state interests in the franchising process. As a
matter of fact, and for the record sir, let me spell out
Verizon's position on key issues so critical to the interests
of local communities: First, we're prepared to pay local
governments the same franchise fees that cable pays; second, to
serve our customers, we will carry the public, educational, and
government channels in local communities; third, we support
preserving the authority of state and local governments to
manage public rights-of-way as we always have; and fourth, we
have a strong record of serving customers across our market and
would expect to be subject to the Federal redlining rules which
also apply to cable.
We have been working diligently town by town, local
franchise area, by local franchise area, to play by the
existing rules that obtain franchises on a local level. We have
also been working in a number of states to obtain statewide
reform as we have in Texas. However, as we multiply these
efforts across the country, this process quite simply takes too
long, it's too expensive, and ultimately, it's too big an
impediment to investment and competition.
We believe a streamlined national video franchising process
combined with our willingness to ensure that legitimate local
concerns are met, presents a win for localities, consumers and
the marketplace. Consumers gain a long-delayed competitive edge
and a technologically-advanced alternative for their video
services. State and local governments preserve and possibly
grow revenues. The marketplace sees continued investment in
fiber deployment and growth in broadband services.
The time for a national streamlined franchising process is
now, because the era of broadband video is here.
I thank you very much for hearing our comments, and we
stand ready to answer any questions you might have.
[The prepared statement of Mr. Seidenberg follows:]
Prepared Statement of Ivan G. Seidenberg, Chairman and Chief Executive
Officer, Verizon Communications
Chairman Stevens, Ranking Member Inouye, and Members of the
Committee, thank you for the opportunity to testify today. We
appreciate this chance to discuss what Verizon is doing to bring
consumers true video choice through our investment in broadband, and
what Congress can do to bring the benefits of competition to more
Americans, faster, through reform of today's outdated franchising laws.
Today, Verizon is the single largest investor in broadband
technology in America. We now have the most extensive wireless
broadband network in the U.S., which is stimulating a wave of
innovation in multimedia applications. We're also deploying the
Nation's most advanced fiber network, which is transforming customers'
broadband experience.
We are deploying our fiber network directly to homes in almost 800
communities in 16 states. As of the end of 2005, we passed our 3
millionth home. By this time next year, we intend to double that, to 6
million, or somewhere around 20 percent of current Verizon households.
By 2010, we expect to deliver fiber facilities to around 18-20 million
homes and businesses.
This next-generation network equips us to compete through
innovation, as other technology companies do. We are using it today to
deliver broadband capacity to customers of 5, 15, and 30 megabits per
second for Internet access and data services. That's the fastest mass-
market broadband service in the country. In addition, our fiber
investment means that we now have the technology to deliver something
for which customers have been clamoring for a long time--true video
competition.
Last September, Verizon began offering our new video service,
called FiOS TV, to customers in Keller, Texas, outside of Dallas. Since
our launch in Keller, we've entered the video market in communities in
New York, California, Massachusetts, Florida, and Virginia, while
greatly expanding in Texas where we have statewide franchise authority.
Because of our fiber network, we enter the market with a highly
competitive product that's as good as or better than anything in the
market today:
We have hundreds of digital video and music channels, more
HDTV content than any incumbent cable operator, and 2000 on-
demand titles.
We have a diverse line-up of channels, including more than
50 channels targeted to African-American, Hispanic, and other
ethnic audiences.
And we're using IPTV today to deliver video on demand and an
interactive program guide.
It's early in the game, but so far we've learned one thing for
sure: customers love this service. In Keller, 20 percent of the market
has signed up for the service in the first three months alone.
Actually, even consumers who don't have FiOS TV like it. That's
because, where FiOS TV competes with cable, consumers see their cable
bills go down. That's happened in Keller, where cable prices have
dropped by about 20 percent since we entered the market. In fact cable
incumbents have cut prices sharply in each market where we've
introduced FiOS TV.
For consumers, this is an important kitchen-table issue. Unlike
prices in highly competitive services like local and long distance,
wireless and broadband, cable prices have continued to go up. The FCC
found that from July 1998 to January 2004, cable prices rose almost 50
percent--more than four times as fast as the Consumer Price Index. On
the other hand, the FCC found that prices were more than 15 percent
lower in markets where cable has wireline competition.
Unfortunately, that kind of healthy competition exists today in
less than two percent of cable franchise areas. Verizon wants to change
that. However, a major impediment to our rapid entry in the video
marketplace--and a big obstacle to investment in broadband--is the
existing local franchise process, which time and technology have passed
by.
As you know, Verizon already has authority to deploy and operate
networks for voice and data services. But under Title VI of the
Communications Act, we're required to obtain a second local franchise
in order to use those networks to offer a competing video service. This
requires us to negotiate with thousands of local franchise authorities
all over the country.
There are three downsides to this process:
First, the required negotiations are time-consuming and, we
believe, redundant processes that unnecessarily delay our entry
into the market;
Second, they allow the incumbent cable providers to work the
process to derail or delay the entry of a competitor in their
markets; and,
Third, they permit local communities to place restrictions,
requirements, and in some cases, mandate additional
contributions that have little to do with the question of
whether we should be permitted into the marketplace.
Let me be clear: we are committed to being a video provider. To
that end, we are diligently using the existing process to obtain
franchises in local communities across the country. We are also working
at the state level to find broader solutions. Texas, of course, is the
pioneer in this area, and its citizens are now enjoying the fruits of
their ``first mover'' legislation.
However, we strongly believe that a streamlined, national franchise
process is the fastest and fairest route to bringing much-needed choice
and competition to the video market.
I also want to set the record straight on where we stand relative
to the franchising issues so critical to the interests of local
communities:
First, we're prepared to pay local governments the same franchise
fees that cable pays.
Second, to serve our customers, we will carry the Public,
Educational, and Government channels in local communities.
Third, we support preserving the authority of state and local
governments to manage public rights-of-way, just as we have throughout
our history.
Fourth, we have a strong record of serving customers across our
market and would expect to be subject to any Federal redlining rules
which also apply to cable.
Verizon believes a streamlined, national video franchising
process--combined with our willingness to ensure that legitimate local
concerns are met--presents a win-win-win for localities, consumers and
the marketplace. Consumers gain a long-delayed competitive edge and a
true, superior choice for their video services. State and local
governments preserve and possibly grow revenues. The marketplace will
see continued growth and investment in fiber deployment across the
country, as demand for broadband services continues to grow.
The time for a national, streamlined franchising process is now,
because the era of broadband video is here. Verizon is eager to deliver
it to our customers, and to tap the full potential of this great, new
technology that will empower consumers, transform communities, and
encourage innovation and economic growth across America for years to
come.
Thank you. I look forward to answering any questions you may have.
The Chairman. Thank you very much. Our next witness, Ed
Whitacre, Chairman and Chief Executive Officer, AT&T.
STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN/CHIEF EXECUTIVE
OFFICER, AT&T INC.
Mr. Whitacre. Chairman Stevens, Senator Inouye, Members of
the Committee, thank you for the opportunity to be here this
morning. You know, if you look back, both AT&T and cable
companies operate in many cities. And for years, AT&T used its
lines to provide telephone service, and cable companies used
their lines to provide television. Cable companies have begun
using their lines, as you know, to provide telephone service
and broadband service. AT&T wants to begin providing video
services with our lines. In other words, both industries would
compete. Consumers would benefit from competition because cable
has a history of raising rates, 86 percent between 1995 and
2004. Let me repeat that for you. Since 1995, consumer cable
rates have increased 86 percent. These cable price increases
continue in 2005. Some of these increases are truly striking,
for example, Charter's 25-percent increase in Fort Worth, Time
Warner Cable's 14-percent increase in Houston, and Comcast's
16-percent increase in Spokane. In contrast, wireless broadband
Internet access and voice services are all highly competitive.
If you look at those, prices are declining, and consumers have
more choice. Why is that? Because you and the FCC made the
right decisions as new entrants entered the market. You did not
subject them to the legacy regulatory structure of the
incumbent provider.
However, it seems some want us to get TV franchise
agreements with the cities we wish to serve even though we
already have franchise agreements for our telephone-type
services. I don't think cable companies had to get a franchise
to offer telephone service.
The current video franchising process of application,
review, negotiation and approval routinely takes between 12 and
18 months. If the existing franchise process is applied to
AT&T's video offerings, we have to obtain more than 1,600
separate local franchises. If we were somehow able to sign one
franchise agreement every week of the year, it's going to take
us 30 years to complete this process.
In any case, AT&T wants to enter the TV business. It would
give much-needed competition and certainty, and consumers will
benefit. There are real-world examples. In Texas, the Governor
signed a bill into law that created a simple statewide
franchise process. Within weeks, the incumbent cable company in
Keller, Texas, lowered its rates by almost 30 percent and added
new features to its service. And soon after the law passed, we,
AT&T, announced an $800 million investment in rolling out new
services in Texas.
We are prepared and have offered to pay what cable
companies pay so that cities will lose no revenue. In addition,
any law can expressly preserve local government's historical
power over the time, place and manner for the use of public
rights-of-way, but any such rules must be clear and
consistently applied on a nationwide basis.
I commend Senators Ensign, McCain, Rockefeller and Smith
for introducing legislation that would reform the current video
franchising process and allow many of us to bring competition
into the video market. This will only result in lower prices
for your constituents. I am hopeful that the Committee will
move forward and pass this needed legislation soon.
Again, thank you for inviting me here today. It's a
pleasure to be here, and I'll be happy to answer any questions
you have. Thank you.
[The prepared statement of Mr. Whitacre follows:]
Prepared Statement of Edward E. Whitacre, Jr., Chairman/Chief Executive
Officer, AT&T Inc.
Good morning. Thank you, Chairman Stevens, Co-Chairman Inouye, and
Members of the Committee for offering me the opportunity to address the
important subject of video competition.
I will confine my remarks to five basic points.
First, more than twenty years after the passage of the Cable
Act, cable operators still are not subject to effective
competition.
Second, the best evidence of the lack of effective video
competition is that, unlike the pricing trends in every major
segment of the communications marketplace, cable prices
continue to rise--over three times the rate of inflation.
Third, new video providers stand ready to bring real
competition to the video market, but this cannot happen if they
must first negotiate thousands of separate local franchises.
Fourth, Congress should enact legislation that encourages
video competition in the same way it has encouraged competition
across the communications industry--by removing legacy
regulatory barriers to entry.
Fifth, in doing so, Congress can and should protect
legitimate local interests by both requiring that all video
providers pay a reasonable, consistent fee to municipalities
and maintaining the cities' long-standing authority over public
spaces and rights-of-way.
Today, wireless, broadband Internet access, and traditional
telephony services are all highly competitive--as reflected in
declining prices and an array of choices for consumers.
Unfortunately, the same cannot be said for cable service. Between
1995 and 2004, the price for traditional cable service increased by 86
percent. Cable price increases continued in 2005. While a number of the
price increases were in the 6-8 percent range (still more than double
the rate of inflation), some of the increases were truly striking, such
as Charter's 25 percent increase in Fort Worth; Time Warner Cable's 14
percent increase in Houston; and Comcast's 16 percent increase in
Spokane.
Cable operators will tell you that they do face significant
competition, in the form of direct broadcast satellite (DBS) services,
but this is not the case. While DBS providers have taken share from the
incumbents, this penetration has been uneven, and the existing DBS
technology, standing alone, limits the ways in which EchoStar and
DIRECTV can compete with cable companies. Cable overbuilders, thwarted
by cable opposition, misuse of the franchise process, and lacking
sufficient scale or resources, are present in just a small fraction of
cable franchise areas. The proof is in the prices: Cable prices
continue their steady, stubborn rise--in contrast to the price declines
that characterize other communications services.
True competition for cable is, however, just around the corner. A
number of providers are in the process of introducing robust, wire-
based and advanced satellite video competition that can match the scale
of the incumbents and meet--and exceed--the technical capabilities of
the cable plant.
AT&T already has begun offering video services in competition with
cable, and we hope to ramp up significantly over the course of this
year. Using a variety of technologies, including AT&T's IP-based
Project Lightspeed technology and its integrated new DSL/satellite
technology known as HomeZone, AT&T will offer an integrated suite of
broadband-based voice, data and video applications, including
interactive video services that will be unlike, and better than, the
cable services available today. Indeed, AT&T will give customers
unprecedented control over the way they watch TV, surf the web and use
other broadband applications. We plan to make advanced video services
available to nearly 80 percent of the households in our territory. The
fiber-based Project Lightspeed component of our video offerings, in
just its initial deployment, will be available to approximately 18
million households over the next three years.
These kinds of wire-based alternatives can truly make the
competitive difference. In 2003, the GAO found that the rates of cable
incumbents facing competition from a wire-based video provider are
approximately 15 percent lower than in the absence of such competition.
Likewise, FCC Commissioner Adelstein noted just last week in connection
with the Commission's Annual Report on Video Competition that telco
``investment could bring the most substantial new competition into the
video marketplace that this country has ever seen.'' There are real-
world examples: In just the last few months, the introduction of new
video competition in places like Malibu, California, Herndon, Virginia,
and Temple Terrace, Florida, have compelled the incumbent cable
operators to lower prices, freeze prices for the first time in years,
or offer new features, like free broadband service.
The problem that AT&T and other new video entrants face is the
uncertainty, delay and prohibitive costs driven by the current cable
franchising process, which was designed for cable incumbents when they
entered with a monopoly franchise.
The process of franchise application, review, negotiation
and approval routinely takes between 12 and 18 months--if all
things go well. It took BellSouth almost three years to
negotiate some of its key franchises in just two counties in
Georgia. Likewise, Qwest expended three years of intensive
effort just to renegotiate seven franchises in the Phoenix area
and obtain eight others in areas around Phoenix, Denver and
Salt Lake City. If the existing franchise process is applied to
AT&T's video offerings, we would have to obtain as many as
2,000 separate local franchises. If we were somehow
miraculously able to sign one franchise agreement every single
business day of the year, it would still take over 7\1/2\ years
to complete this process.
And delay is just one of the problems inherent in the
current system. Our own experience with the now-defunct
Ameritech New Media cable service proved to us how futile the
franchising process can be. In over 40 communities, Ameritech
had to abandon the franchise process, and its video investment
and plans, sometimes after two or more years of negotiations.
We faced a range of demands that would have rendered our plans
uneconomic, including fees that exceeded the limit under
Federal law, extensive build-out requirements, as well as more
outlandish requests, such as for the construction of fire
stations or recreation centers.
These unreasonable demands added untold layers of complexity, cost,
frustration and delay into what was already a difficult negotiation and
approval process.
This outmoded and anticompetitive system will do nothing but stifle
new competitive entry. Accordingly, we strongly encourage Congress to
enact legislation that fosters new video competition by eliminating the
municipal franchise process. In doing so, Congress need look no further
than the success of wireless, Internet and traditional telephony
services: New entrants were not saddled with the full weight of
regulation designed for incumbents, competition flourished, and prices
dropped.
At the same time, any reform legislation should provide that all
video competitors pay a fee to municipalities in connection with their
video services that is substantially similar to what cable operators
pay under their franchise agreements. In addition, any law should
expressly preserve local government's historical police power over the
time, place and manner of a particular provider's use of public
property. But any such rules must be clearly articulated and
consistently applied on a nationwide basis.
In this regard, we applaud the efforts of Senators Ensign and
McCain for introducing their bill, S. 1504, and Senators Smith and
Rockefeller for introducing their bill, S. 1349. Both bills would
reform the video regulatory system, protect important municipal
interests, and, in the process, foster greater investment in broadband
deployment and video competition.
The Chairman. Thank you very much. Next witness is Thomas
Rutledge, Chief Operating Officer of Cablevision Systems
Corporation.
STATEMENT OF THOMAS M. RUTLEDGE, CHIEF OPERATING OFFICER,
CABLEVISION SYSTEMS CORPORATION
Mr. Rutledge. Good morning, Mr. Chairman, Senator Inouye
and Members of the Committee. I am Tom Rutledge, and I'm the
Chief Operating Officer of Cablevision Systems Corporation.
Thank you for inviting me to this hearing.
In 1996, Congress established a telecommunications
framework to promote competition and encourage investment.
Since then, cable operators have invested more than $100
billion and brought in an array of new broadband services to
consumers. By contrast, over the same period, the phone
companies have done little to enter the video business despite
the opportunity Congress created for them.
Now, without any coherent rationale or factual premise
other than for special treatment, the Bell operating companies
are insisting that Congress discard the franchise framework
that has successfully balanced local right-of-way management
and advanced service deployment. Creating new rules in the
middle of the game to accommodate the Bells' latest business
plan is unnecessary and will jeopardize sustainable
competition. Broad Federal preemption of local franchising
undercuts companies that have made substantial investments
based on Congress's existing framework and will weaken the
unique and legitimate local interest reflected in their
franchises.
Further, local franchising has already been shown to
accommodate new entry. Cable has invested more than $100
billion to bring customers competitive video, high-speed
Internet and voice services. Having made that investment, our
primary concern is ensuring that we face our competitors on a
level playing field. A level playing field means that we
succeed or fail based on the value and quality of our product
rather than because our competitor has more favorable rules.
Franchising is a key part of the level playing field. Our
franchises contain commitments that are important to the
communities we serve, but they do impose some costs. For
example, Cablevision regularly commits in its franchise to
serve every resident in a community, but the Bell is focusing
their cable fiber upgrade on wealthier suburban areas and
avoiding more costly rural and urban areas and will not
guarantee service to all. Instead, some customers will get a
new fiber-based service, and others will be left on an
unmaintained, old copper plant.
Cablevision provides free video and Internet service to
more than 5,000 schools and libraries and supports an array of
local programming and provides training and other opportunities
for public access programs. Sustainable competition requires
that new entrants embrace comparable franchise commitments.
Adopting new rules that undermine local control and allow phone
companies to serve only affluent neighborhoods will undermine
long-term competition by putting government's thumb on the
scale and thereby, distorting markets and ultimately, reducing
investment.
Cable television is a local business. In New York, New
Jersey and Connecticut markets alone, Cablevision operates
seven full-time news stations, dozens of small-area news
services and 99 community programming and public access
channels that deliver community news, information and local
services to our customers. Franchise agreements embody that
localism and other legitimate municipal interests. These
include requirements for universal service, nondiscrimination,
construction standards, zoning, aesthetics and public safety.
The balance struck by the Federal Cable Statute for
franchising recognizes that these matters are best left to
local officials that know their community. It might be
impossible to address meaningfully if local accountability were
removed to the Federal level.
Finally, the franchising system has demonstrated sufficient
flexibility, both to accommodate competitive entry and to serve
the values of localism and fair competition.
Today, local and state governments are using the
flexibility of the Federal franchising system to encourage Bell
entry. New York, for instance, has streamlined the local
franchising process for new entrants. Any new entrant that
agrees to the terms of an existing franchise can get a
franchise approval hearing in 30 days.
The New York Commission has also approved a pro-competitive
franchise template that protects local interests and ensures a
level playing field. New entrants can use this franchise as a
road map for speedy approvals. Verizon called it ``a framework
that should help expedite future franchises'', but Verizon has
not used that framework to get a new franchise. Connecticut
already has a statewide franchise regime. But instead of
applying for a franchise, AT&T has spent nearly a year asking
to be exempt from the state's cable and franchise law.
In New Jersey, local mayors are asking telephone companies
to come get new video franchises because they welcome
additional competition. But instead of signing those
franchises, Verizon is pushing for state legislation to
eliminate them.
Given the complaints about local franchising, one might
think there are thousands of telephone company franchise
applications stuck in municipal red tape. That's not the case.
In our service area, which has over 400 communities, Verizon
has only three franchise applications pending. While the
rhetoric about franchising is potent, the facts are different.
The only thing slowing down Verizon is Verizon. And the only
thing slowing down AT&T is AT&T.
The truth is, local franchising works. It's proven to be a
durable, stable and effective means of respecting local
interests and encouraging massive investment and accommodating
entry. To the extent that the Committee is considering changes
to the franchise model to further speed entry while sustaining
fair competition, I commend New York's approach, and I applaud
the principles set out by Senator Inouye and Senator Burns.
A procedural shot clock for franchise negotiations prevents
delay, and the ability of an existing operator to opt into any
new competitive franchise ensures competition without bringing
major disruption to a very successful statutory system. Thank
you for inviting me today. I look forward to answering your
questions.
[The prepared statement of Mr. Rutledge follows:]
Prepared Statement of Thomas M. Rutledge, Chief Operating Officer,
Cablevision Systems Corporation
Mr. Chairman, Senator Inouye, and Members of the Committee. My name
is Tom Rutledge, Chief Operating Officer of Cablevision Systems
Corporation. Thank you for inviting me to speak about fair competition
and video franchising.
Since 1996, cable operators like Cablevision have invested more
than $100 billion in our networks and in innovative products for our
customers. As a result, we now lead the Nation in the deployment of
broadband Internet service, digital and high-definition video, and
voice over Internet protocol.
During this same period, the Bell companies did little to enter the
video business opened to them by Congress in 1996. Now, facing voice
competition from Cablevision and other cable operators that invested
and planned for this competition, AT&T and Verizon argue that they can
make up lost time if free from local regulation, such as franchising.
My comments will focus on the importance of a level playing field
and why the existing franchising regime does support fair competition
while allowing local officials to protect community interests.
Level Playing Field is Essential
Our primary concern is ensuring that we face our competitors--
including the phone companies--on a level playing field. A level
playing field means that we succeed or fail based on innovation and
effort rather than because our competitor may get better rules.
Franchising is an important part of fair competition.
Our franchises contain commitments that are important to the
communities we serve, but are being questioned by phone companies in
their new video plans. For example, Cablevision has made service to
every neighborhood in a community a key part of its local franchises.
In New York and New Jersey, Verizon's fiber upgrade is focused on
wealthier, suburban areas but leaves rural and urban centers virtually
untouched. Similarly, while new entrants want to avoid franchise
commitments of interest to local officials, under its franchises
Cablevision provides free video and Internet services to more than
5,000 local schools and libraries. Sustainable competition requires
that new entrants embrace comparable franchise commitments.
Franchising Sustains Localism
Broadcast television and professional sports programming services
are local businesses, as is cable television. Franchises are an
important aspect of cable television's localism. Far more than any
other media business, cable has a rich tradition of community
programming. In the New York, New Jersey, and Connecticut markets
alone, Cablevision operates seven full-time news stations, dozens of
small, community news services, and 99 government, educational and
public access channels to deliver local news and information to our
customers. In our franchise agreements with the communities we serve,
Cablevision also agrees to provide local programming services that
enable residents to see their local City Council hearing or the meeting
of the local planning board.
Franchise agreements reflect other local priorities of the
community. These include requirements for universal service,
nondiscrimination, construction standards, zoning, aesthetics and
public safety. These priorities are most effectively selected and
enforced by local officials that know their community best. For
example, if a resident's driveway were damaged by a contractor, or if a
neighborhood were improperly denied service because of its demographic
profile, the local government is best positioned to address those
concerns.
Localism in cable television and local accountability in the
community are rooted firmly in the franchise relationship.
Streamlined Franchise Processes Accommodate New Entrants
Finally, the franchising scheme has demonstrated sufficient
flexibility both to accommodate competitive entry and to serve the
values of localism and fair competition. Today, local and state
governments are using the flexibility of the Federal franchising scheme
to encourage and accelerate Bell video entry.
New York, for instance, has streamlined the local franchising
process for new entrants. Any new entrant that agrees to the terms of
an existing franchise can get a franchise approval hearing in 30 days.
Yet, no new telco entrant has sought to exploit this quick entry
mechanism.
The New York Commission has also approved a pro-competitive
franchise template that protects local interests and ensures a level
playing field. New entrants can use this franchise as a roadmap for
speedy approvals. Verizon called it a ``framework . . . that should
help expedite . . . future franchises.''
Connecticut already has a statewide franchising scheme that allows
providers to negotiate authority to serve broad geographic areas.
Instead of asking for a franchise there, AT&T has spent close to a year
asking the state to exempt it from the the state's cable and franchise
law.
In New Jersey, local mayors are calling on the telephone companies
to come get new video franchises quickly and bring additional
competition. Instead of signing those franchises, Verizon is pushing
for new state legislation to eliminate local franchising.
Given the complaints about local franchising, one might think that
there are thousands of Bell video franchise applications stuck in
municipal red tape, delaying the promise of new competition. That is
not the case. In our service area of more than 400 communities, Verizon
has only three local franchise applications pending. If this is any
indication of the national experience, it appears that it is the
business decisions of the telephone companies, not the local
franchising process itself, that are causing delay.
The truth is, local franchising works. The ``failures'' that have
repeatedly been cited by its opponents are not due to the regulatory
framework. Franchising has proven to be a durable, predictable and
effective means of ensuring competition develops on a level playing
field.
To the extent that this Committee is considering modifications to
the franchise model to further accommodate new entry without
sacrificing localism and fair competition, I recommend New York's
approach. There, the procedural ``shot clock'' protects against delay,
and the ability of an existing operator to ``opt in'' to any new
competitive franchise provides for fair competition, all within the
current regime and without sacrificing the legitimate local interests
that it sustains.
Thank you for inviting me here today. I look forward to answering
your questions.
The Chairman. Our next witness is Lori Panzino-Tillery,
President of National Association of Telecommunications
Officers and Advisors. Thank you.
STATEMENT OF LORI PANZINO-TILLERY, PRESIDENT,
NATIONAL ASSOCIATION OF TELECOMMUNICATIONS
OFFICERS AND ADVISORS (NATOA)
Ms. Panzino-Tillery. Mr. Chairman, I want to begin by
thanking you for your leadership on this issue, for holding
this hearing and for the opportunity to appear here today. We
would also like to thank Senator Inouye and Senator Burns for
their recent statement of principles on local video
franchising. Local government shares this Committee's
commitment to competition. In addition, we'd like to express
our appreciation to Senators McCain and Lautenberg's support of
community broadband initiatives.
Mr. Chairman, let me state it plainly. Local government
wants and needs competition, the same competition Title VI is
designed to promote. Like the Members of this Committee, local
elected officials work hard to be responsive to their
constituents. Local governments have and will continue to grant
competitive franchises because that's what their constituents
want. Local government plays an indispensable role in assuring
modern communication technologies are available to all
consumers. The Communications Act explicitly recognizes local
government's responsibilities for managing public property and
for assuring nondiscriminatory treatment of all communication
service providers. These private companies enjoy privileged
access to public and private property to deliver their
services. In return, they must pay appropriate compensation,
which may include in-kind capacity and services identified to
meet community needs and interests.
Thanks to Congress's wisdom and foresight, Title VI has
worked well for more than 20 years. Of course, some continue to
complain that even with 300 channels of programming, there's
still nothing on television. They must not get C-SPAN 2. But
clearly, Title VI has not only kept pace with rapid advances in
communications technology, it has helped fuel them.
Institutional networks are leading the way in making local
government more efficient, keeping the public safer and
improving coordination between government agencies. The local
franchise process has broadly and widely delivered much-needed
community video and governmental communication networks. It
gives citizens in cities and towns in each of your states
greater information and involvement in their government, both
through televised town council and board of education meetings
and through programs featuring elected officials at the local,
state and Federal level. It makes us all more secure because
local public safety officials can reach area residents with
important information in a timely fashion.
Title VI gives people like Cornell Hutton, a 57-year-old
factory worker who lives in Salina, Kansas, the chance to use
his local access television facilities to produce a movie he
wrote and realizing a lifelong dream. Title VI serves our
communities well. Communications technology has undergone
enormous change over the last two decades, making Title VI and
local government's role more relevant and necessary than ever.
Nevertheless, some are seeking to eliminate local
government oversight. They will tell you that it is necessary
to expand access, ensure competitiveness and encourage
innovation. What they really want though, is to tilt the
playing field to their own advantage. We believe it should be
kept level.
The radical changes some are seeking would lead to
communications redlining. Income will determine who gets access
to competition. Rural America will be the last to gain
competitive service. Just as the Federal Government requires
spectrum users to serve the public interest, local government
requires those who use public rights-of-way to serve community
interests. Local government is best equipped to balance,
neighborhood by neighborhood, the conflicting interests of
spreading competition and maintaining economic feasibility.
We've successfully managed this balance for more than 20 years.
Eliminating local government's role would also make
providers far less accountable for the service they provide.
Can you imagine having to call the FCC in Washington every time
you have a problem with your video provider? Local governments
are better equipped for that role as they have demonstrated for
more than a decade. While we believe Title VI has worked well,
local government does support improvements that do not
undermine the significant benefits of the Act or the important
role government plays in protecting our citizens. We support,
for example, efforts to streamline the franchising process,
such as setting reasonable time frames for the completion of
franchise agreements and using preestablished criteria to avoid
unnecessary negotiations. Speeding new entrants to the market
is, after all, a goal we share.
However, any changes should be akin to the evolution we saw
when telephone dials were replaced by buttons. The basic
instrument remains the same. It's just easier to use.
Mr. Chairman, Senator Inouye and Members of this Committee,
we know that you understand the many benefits that Title VI has
brought to varied communities in your home states. We simply
ask that you move forward, that you maintain those benefits for
the people you serve. The best way to do that is by maintaining
local responsibility for protecting and defining the needs and
interests of each community to be served. Thank you.
[The prepared statement of Ms. Panzino-Tillery follows:]
Prepared Statement of Lori Panzino-Tillery, President, National
Association of Telecommunications Officers and Advisors (NATOA)
I. Introduction
Good morning Chairman Stevens, Senator Inouye and Members of this
Committee. My name is Lori Panzino-Tillery, and I am the franchise
administrator for the County of San Bernardino, California, the largest
county in the continental United States, where I oversee 39 franchises
for essential utilities as well as 13 individual cable franchise
agreements. I am the regional liaison to the California Public Service
Commission and appear frequently before the various committees of
jurisdiction in the California legislature. I am also currently serving
as the President of the National Association of Telecommunications
Officers and Advisors (NATOA) and previously served as the
Association's California and Nevada State Chapter President. I am
honored to appear here today on behalf of not only NATOA, but also on
behalf of the local governments across this Nation, as represented by
the National League of Cities (NLC), the United States Conference of
Mayors (USCM), the National Association of Counties (NACo), the
Government Finance Officers Association (GFOA), and TeleCommUnity. \1\
---------------------------------------------------------------------------
\1\ NLC, USCM and NACo collectively represent the interests of
almost every municipal or county government in the U.S. NATOA's members
include elected officials as well as telecommunications and cable
officers who are on the front lines of communications policy
development in cities nationwide. GFOA's members represent the finance
officers within communities across this county, who assist their
elected officials with sound fiscal policy advice. TeleCommUnity is an
alliance of local governments and their associations that promote the
principles of federalism and comity for local government interests in
telecommunications.
---------------------------------------------------------------------------
On behalf of local government, we would like to thank you for the
opportunity to dispel many of the untruths that have been circulated
recently pertaining to local government involvement in video
franchising. We would like to be your ``myth-busters'' for today--to
cut through some of the deceptive claims and to provide you with a
truthful picture of the status of cable franchising in the market
today, and how that franchising supports the desired delivery of
competitive new entrants and new services.
Local governments embrace technological innovation and competition
and actively seek the benefits such changes may bring to our
communities and to our constituents. We want and welcome genuine
competition in video, telephone and broadband services in a
technologically neutral manner. We support deployment as rapidly as the
market will allow. Local governments have been managing communications
competition for many years now--it is not new. What is exciting is the
potential new entry into video by a few well-funded and dominant
players who appear to have finally made a commitment to enter into the
video arena. We look forward to developing an even more successful
relationship in bringing these competitive services to our citizens.
For local government, this debate is about core local government
functions: streets and sidewalks, public safety, first responders,
citizen involvement in local politics. These companies have chosen to
put their equipment in the local streets and sidewalks. Local leaders
are responsible for managing those streets and sidewalks, and no
legislative franchising proposal put forward thus far adequately
ensures that our citizens will not be greeted with open potholes and
cracked sidewalks as a consequence. Local government remains concerned
that rhetoric and not facts have led members of Congress to believe
that competition and innovation will flourish only if local government
is removed from the equation. We are here today to help you understand
that nothing could be farther from the truth. Throwing away local
franchising is not the solution that will bring competition or rapid
entry by competitive providers. We believe that quite the opposite is
true. We have voiced our concerns relating to the legislation
introduced by Senators Smith, Rockefeller, DeMint, and Ensign--each of
which would eliminate the local franchise process entirely. These bills
would deprive local governments of the tools necessary to ensure the
timely deployment of services within our communities.
Local government has been anxiously seeking the competitive
provision of video services for many years--and indeed the
Communications Act has explicitly guaranteed such opportunities since
1992. Despite several previous changes in Federal law to ease their
entry into the video market, the telecommunications companies seeking
new laws today have not brought forth the competition they promised.
The reason is not local governments. The reason is not the current
Federal law. The reason is market place economics. The provision of
video services has not yet proven to be as financially attractive as
the telephone companies apparently require in order to provide the
services they claim are the new linchpin to their success. I believe
that a brief review of the current law will demonstrate this trend.
Neither Franchising nor Current Regulation is a Barrier to Competition
The concept of franchising is to grant the right to use property
and then to manage and facilitate that use in an orderly and timely
fashion. For local governments, this is true regardless of whether we
are franchising gas or electric service, or multiple competing
communications facilities--all of which use public property. As the
franchisor we have a fiduciary responsibility to our citizenry that we
take seriously, and for which our elected bodies are held accountable
by our residents. \2\
---------------------------------------------------------------------------
\2\ As of five years ago, it was estimated that the valuation of
the investment in public rights-of-way owned by local government was
between $7.1 and $10.1 trillion. Federal agencies such as the United
States Department of Transportation, the U.S. Department of the
Interior (Bureau of Land Management ``BLM''), the United States
Department of Agriculture (U.S. Forest Service) and the National
Oceanic and Atmospheric Administration (NOAA) have all been actively
engaged in assessing value for rights-of-way for years. Valuation of
rights-of-way, and the requirement that government receives fair market
value for their use, can be found in regulations (43 C.F.R. Sections
2803 and 2883) statutes, and case law.
---------------------------------------------------------------------------
Our constituents demand real competition to increase their options,
lower prices and improve the quality of services. As you know, a GAO
\3\ study showed that in markets where there is a wire-line based
competitor to cable, cable rates were, on average, 15 percent lower.
Please understand that local governments are under plenty of pressure
every day to get these agreements in place and not just from the
companies seeking to offer service. I know this Committee has heard
some unflattering descriptions and anticompetitive accusations
regarding the franchise process, and I would like to discuss with you
the reality of that process.
---------------------------------------------------------------------------
\3\ United States General Accounting Office, Telecommunications
Issues in Providing Cable and Satellite Television Service, Report to
the Subcommittee on Antitrust, Competition, and Business and Consumer
Rights, Committee on the Judiciary, U.S. Senate, at 9, GAO-03-130
(2002)(``GAO 2002 Study''), available at www.gao.gov/cgibin/getrpt?GAO-
03-130
---------------------------------------------------------------------------
Managing Streets and Sidewalks is a Core Function of Local Government
Even as technologies change, certain things remain the same. Most
of the infrastructure being installed or improved for the provision of
these new services resides in the public streets and sidewalks. Local
leaders are the trustees of public property and must manage it for the
benefit of all. We impose important public safety controls to ensure
that telecommunications uses are compatible with water, gas, and
electric infrastructure also in the right-of-way. Keeping track of each
street and sidewalk and working to ensure that installation of new
services do not cause gas leaks, electrical outages, and water main
breaks are among the core police powers of local government. And while
it seems obvious, these facilities are located over, under or adjacent
to property whose primary use is the efficient and safe movement of
traffic. It is local government that best manages these competing
interests. While citizens want better programming at lower prices, they
do not want potholes in their roads, dangerous sidewalks, water main
breaks, and traffic jams during rush hour as a consequence.
Thus far, several bills have been introduced in the Senate
addressing franchising. Unfortunately, none of them adequately protects
local government's ability to manage local streets and sidewalks. We
look forward to working with Committee Members to make sure any
legislation that is approved by the Senate does not abrogate this core
tenet of federalism.
Private Companies Using Public Land Must Pay Fair Rent
At the same time that we manage the streets and sidewalks, local
government, acting as trustees on behalf of our constituents, must
ensure the community is appropriately compensated for use of the public
space. In the same way that we charge rent when private companies make
a profit using a public building, and the Federal Government auctions
spectrum for the use of public airwaves, we ensure that the public's
assets are not wasted by charging reasonable compensation for use of
public right-of-way. Local government has the right to require payment
of just and reasonable compensation for the private use of this public
property--and our ability to continue to charge rent as a landlord over
our tenants must be protected and preserved.
Social Obligations Remain Critical Regardless of Technological
Innovation
Communications companies are nothing if not innovative. When you
think back over the course of the past 100 years, the changes in
technology are mind-boggling. At the same time, the social obligations
developed over the last 60 years have endured. I strongly urge the
Committee to engage in a deliberative process, and take the time
necessary to engage in dialogue and debate to ensure that any
legislative changes adopted this year will be as meaningful 20 years
from now as two years from now.
Historical and Current Role of Social Obligations
I appreciate the opportunity to discuss with you the important
social obligations inherent in current video regulation, and to explain
why these core functions must be preserved, no matter the technology
used to provide them. These include the allocation of capacity for the
provision of public, education and government (PEG) access channels,
prohibitions on economic redlining, and a basic obligation that local
government evaluates, and the provider meets, the local needs of the
community it serves, including public safety needs.
Public, Educational and Governmental (PEG) Access Channels
Historically and today, locally produced video programming performs
an important civic function by providing essential local news and
information. Under the existing law, local government can require that
a certain amount of cable system capacity and financial support for
that capacity be set aside for the local community's use. This capacity
is most often used in the form of channels carried on the cable system
and are referred to as PEG for public, educational and governmental
channels. Once the local franchising authority has established the
required number of channels and amount of financial support required to
meet community needs, it then determines the nature of the use, which
may be mixed between any of the three categories. Public channels are
set aside for the public and are most often run by a free-standing non-
profit entity. Educational channels are typically reserved for and are
managed by various local educational institutions. Government channels
allow citizens to view city and county council meetings, and watch a
wide variety of programming about their local community that would
otherwise never be offered on commercial television. Whether it is
video coverage of governmental meetings, information about government
services or special programs, local law enforcement's most wanted,
school closings or classroom instruction, the government access or PEG
programming is used to disseminate this information and to better serve
and interact with our constituents. Local governments continue to make
innovative uses of this programming capacity as new interactive
technology allows more valuable information to be available to our
constituents.
Economic Redlining
One of the primary interests served by local franchising is to
ensure that services provided over the cable system are made available
to all residential subscribers within in a reasonable period of time.
These franchise obligations are minimal in light of the significant
economic benefits that inure to these businesses that are given the
right to make private use of public property for profit. While there
may be those who find franchise build out obligations unreasonable--we
find them to be essential. The concept of ``universal service'' in
telephone, which the Chairman and the Ranking Member have long
defended, is no less important than in the case of broadband. Those who
are least likely to be served, as a result of their economic status,
are those whom we need most to protect. This deployment helps to ensure
that our citizens, young and old alike, are provided the same
opportunities to enjoy the benefits of cable and broadband--regardless
of income. The capacity that broadband deployment offers to our
communities is the ability of an urban or rural citizen to become
enriched by distance education, and other opportunities that until
recently were not available. But that will never happen if only the
most fortunate of our residents, and the most affluent of our
neighborhoods, are the ones who receive the enormous benefits of
broadband competition.
Public Safety and Community Needs
Local leaders often focus on the needs of their first responders
when evaluating community needs. The current law provides that local
governments may require cable franchisees to provide institutional
networks as part of the grant of a franchise. An institutional network
is a network dedicated to the purpose of governmental and institutional
communications needs. These are essentially ``intra-nets'' serving
government facilities including police and fire stations, hospitals,
schools, libraries and other government buildings. Institutional
networks are typically designed to use state-of-the-art technology for
data, voice, and video and allow local governments to utilize advanced
communications services at minimal taxpayer expense. It has proven
effective not only for day to day municipal and educational training
and operations--but essential in emergencies such as September 11,
2001. \4\
---------------------------------------------------------------------------
\4\ Hearing on the Nation's Wireline and Wireless Communications
Infrastructure in Light of September 11 Before the Committee on
Commerce, Science, and Transportation, 107th Cong. (2002) (statement of
Agostino Cangemi, Deputy Commissioner and General Counsel of New York
City's Department of Information Technology).
---------------------------------------------------------------------------
It may be possible that, through deliberative processes such as
this hearing, we will identify new technological opportunities to
assist us in our outreach to our citizens. But I suggest to the
Committee today that these public interest obligations continue to
serve an important purpose and must be preserved, regardless of the
technology that allows us to make the programming available. I hope
that you'll join with me in calling for the preservation and
enhancement of institutional networks to serve local public safety and
first responder needs. I hope that you would not yield to the
simplistic notion that reducing public obligations on providers is
always the best course.
No Preemption of Core Local Government Police Powers
Local government also must emphasize that telecommunications
legislation is not where we should reform tax policy or interfere with
other local police powers such as zoning obligations. We strongly urge
the Committee to avoid preempting local government in these areas.
Strong Enforcement
Local government cannot be stripped of its power to enforce these
local obligations. Currently, local government is able to audit
companies that submit revenue and to enforce public safety obligations
pertaining to rights-of-way in Federal court. The Federal
Communications Commission has no expertise in these areas and should
not be given any authority over arbitrating revenue disputes or rights-
of-way disputes. Such a radical expansion of Federal power into local
affairs is not warranted.
Title VI Franchising is a National Framework With an Essential Local
Component
Congress struck the right balance in 1984 when it wrote Title VI
into the Act, and again in 1992 when it made appropriate consumer
protection improvements to it. Title VI established a light-touch
national regulatory framework for cable television video services that
includes appropriate local implementation and enforcement. The Act
authorizes local governments to negotiate for a relatively limited
range of obligations imposed on cable operators. Virtually none of
these obligations is mandatory, and each is subject to decision-making
at a local level. The current legal structure provides for something I
hope we would all agree is important: local decisions about local
community needs should be made locally. For example, while some
communities require significant capacity for PEG or INet capacity,
others seek little or none.
We are encouraged that the telephone industry executives and staff
tell us that they fully support local governments' management and
control of rights-of-way; that they are willing to pay the same fees as
cable providers; that they are willing to provide the capacity and
support for PEG access programming, and even that they are aware of and
agree to carry emergency alert information on their systems. And yet--
at least one company claims it is not subject to current law and they
do not have to do these very things by virtue of individual local
franchise agreements. And they are often unwilling to pay franchise
fees on the same gross revenues as cable or to permit the use of audits
to ensure proper payment. They have stated that customer service
protections are unnecessary, yet provide no recourse to consumers. We
hope that they will follow through on their public statements and work
closely with local government to preserve our core functions. We
welcome competition and welcome the telephone companies to offer their
services under our streets. It would appear to be simply a complaint
against having to actually speak with the local governments whose
rights-of-way they are tearing up in order to provide the service.
Congress should realize that local government franchising has
facilitated the deployment of not only the largest provider of
broadband services in this country--namely the cable industry--but that
we also facilitated the entry of literally thousands of new telephone
entrants immediately after the passage of the 1996 Telecommunications
Act. We are well versed in the issues of deployment of new services,
and have managed competitive entry for the benefit of our communities
for many years. However, we are uncomfortable with current proposals
because these companies want preferential treatment. Some of the
telephone companies apparently want to avoid the franchise applications
and negotiation process as they argue to state and Federal legislators
that they should be allowed to by-pass the local process and avoid
competing on the same terms or under the same social obligations as
cable operators. Local government supports treating like services
alike.
Local Franchising is Comparatively Efficient and Must Be Fair to
Protect All
Competitors
Franchising need not be a complex or time-consuming process. In
some communities the operator brings a proposed agreement to the
government based on either the existing incumbent's agreement or a
request for proposals, and with little negotiation at all, an agreement
can be adopted. In other communities, where the elected officials have
reason to do so, a community needs assessment is conducted to ascertain
exactly what an acceptable proposal should include. Once that
determination is made, it's up to the operator to demonstrate that it
can provide the services needed over the course of the agreement or
demonstrate that the requirements would be unreasonable under the
conditions of the particular market.
Furthermore, while some of the new entrants have asserted that
franchise negotiations have not proceeded as fast as they would like,
it is important to recognize that every negotiation must balance the
interests of the public with the interests of the new entrant. Some new
entrants have proposed franchise agreements that violate the current
state or Federal law and subject local franchise authorities to
liability for unfair treatment of the incumbent cable operator vis-a-
vis new providers. Some also seek waiver of police powers as a standard
term of their agreement. No government can waive its police powers for
the benefit of a private entity. In the same way, the Federal
Government cannot waive the constitutional rights of its citizens.
Unlike other business contracts that are confidential or proprietary,
local government franchise agreements are public record documents, so a
new provider knows the terms of the incumbent's agreement well before
it approaches a local government about a competitive franchise.
Local governments are obligated to treat like providers alike, and
we believe in the concept of equity and fair play. In addition, many
states have level playing field statutes, and even more cable
franchises contain these provisions as contractual obligations on the
local government. If the new competitor is seriously committed to
providing as high a quality of service as the incumbent, the franchise
negotiations should not be complicated or unreasonably time consuming.
Moreover, local government has no desire to make new entrants change
their current network topologies to duplicate the incumbent cable
operator's technology or network design. Local government's concern is
to treat all providers fairly, as required by current franchise
agreements, by Federal law, and good public policy.
Franchising Provides for Reasonable Deployment Schedules--Objections to
Reasonable Build Obligations are Red Herrings
Nothing in franchising or current Federal law requires a new video
entrant to deploy to an entire community immediately. Local governments
have been negotiating franchise agreements with new entrants for many
years. In these cases, newly built developments may have one schedule
while existing areas may have a different schedule.
By managing the deployment as we do, we protect the new provider's
investment in infrastructure. We protect the public from unnecessary
disruption of the rights-of-way, including safe use and enjoyment of
the public rights-of-way. And, we ensure that new entrants are provided
with unfettered access in a reasonable and timely fashion, while
ensuring that they comply with all safety requirements. This system has
worked well for cable, traditional phone and other providers for many
years, and is necessarily performed by the local government. Congress,
when it authored Section 253 of the Act, preserved local government
authority and evidenced its desire to maintain the federalist,
decentralized partnership that has served our country well for 200
years. We trust that under your leadership and guidance these important
principles of federalism will be maintained.
The Current Framework Safeguards Against Abuse and Protects Competition
The current framework ensures that all competitors face comparable
obligations and receive the same benefits, ensuring a fair playing
field and avoiding regulatory gamesmanship. Federal safeguards protect
against abuse. Local governments generally are prohibited from
requiring a video service network provider to use any particular
technology or infrastructure such as demanding fiber or coaxial cable.
Local governments can require that construction and installation
standards be adhered to and that systems are installed in a safe and
efficient manner. Local governments require compliance with the
National Electric Safety Code to protect against the threat of
electrocution or other property damage. Local rules can also require
that signal quality be up to Federal standards, and that systems are
maintained to provide subscribers with state-of-the-art capabilities.
Similarly, it is local government that inspects the physical plant and
ensures compliance on all aspects of operations. We work closely with
our Federal partners and cable franchise holders to ensure that cable
signal leaks are quickly repaired before there is disruption or
interference with air traffic safety or with other public safety uses
of spectrum.
Title VI is Technology Neutral
Digital electronic transmissions were developed almost 40 years
ago. Internet protocol, as a format for digital packet transmissions,
was developed many years ago, at the time the original Internet was
being developed. Its use today to deliver data, telephone and video, is
something that has evolved and improved over time, and is now so
prevalent as to warrant public attention. The promise of competitive
services being delivered through the use of IP is exciting and
challenging--it's just not necessarily new. The communications tools we
use every day have all evolved under the careful eye of federal, state
and local governments, as should the communications tools of the
future. These Internet innovations are meaningless if the networks used
to deliver them are not widely available to all of our citizens and
tailored to meet local needs. Deployment of the infrastructure used to
deliver these services is of specific interest and concern to those of
us who manage the physical property where this infrastructure resides
and will be installed. This is why local governments have long promoted
the efficient and effective deployment of infrastructure within and
through our communities. At no time has Title VI limited or constrained
the use of new technology to deliver the services under its umbrella.
Local Government Helps Ensure Broadband Deployment
We all share the concern of a lack of broadband access throughout
America, in urban and rural areas alike. Regardless of the locality, it
is likely that communications technologies will be a driving force in
the economic opportunities enjoyed by these communities that have
access to advanced services. I believe that the Cable Act has provided
significant benefits to consumers and communities alike, and I believe
that local governments should be applauded for ensuring that those
benefits are provided in a timely, fair and efficient manner. Under the
current regulatory regime, cable enjoys the highest deployment rate of
broadband in this Nation, with over 105 million homes having access to
cable modem service. The cable industry is now reaping the economic
benefits of an infrastructure that is capable of providing broadband
access to all of our citizens. It is local government's oversight and
diligence, through the franchise process, that has ensured that our
constituents are not deprived of these services. Local government is
the only entity that can adequately monitor and ensure rapid, safe and
efficient deployment of these new technologies when they are being
installed on a neighborhood-by-neighborhood level in our local rights-
of-way.
Changes Local Government Agrees Would Enhance the Competitive
Environment
We appreciate the opportunity to share with the Committee, based on
our extensive expertise, those sections of the Act that, with some
modification, would enhance the provision of competitive services
within our communities.
Application of Title VI
Local government seeks modifications to clarify that the provision
of multichannel video services through landline facilities, regardless
of the technology used, falls within the scope of Title VI. The Act
does not permit local government to dictate the nature of the
technology employed by the provider. It does permit the local
government to require that once the technology has been selected, that
the quality of the service is acceptable. The quality of service should
be maintained, and it should apply in a technology neutral manner.
Uniform Assignment of Responsibilities Among Levels of Government
Local government should retain authority over local streets and
sidewalks, no matter what provider is offering service, or what service
is being offered. At the same time Congress is considering allowing
Federal agencies to determine which companies can offer video services,
all companies in the local rights-of-way should be responsive to the
local government.
Streamlining of Franchise Negotiations
Title VI establishes the broad framework for those elements that
may be negotiated in a local cable franchise. The provision of PEG
access capacity and institutional networks is specifically protected in
the Act. Requirements in that regard should be presumptively
reasonable, and a local government should be given the flexibility to
determine the appropriate amount of capacity and the appropriate level
and use of funding support necessary to meet its local community's own
particular needs. The Act permits extensive community needs
assessments, which while valuable, may be costly and time consuming,
and may prove unnecessary when considering the applicability of the
obligation on a new entrant. We believe that when a competitive
franchise is under consideration, the local government should have
discretion to use these tools on an as-needed basis to verify, but not
be obligated to ``prove,'' the need for the particular PEG or
institutional network requirement. The Act should require a new entrant
to provide at least comparable capacity and support for the provision
of PEG access, as well as for the provision and support of
institutional networks. Similarly, local governments must be authorized
to require the interconnection of these services between the incumbent
provider's system and new entrant's system, to ensure seamless
provision of services to our citizens.
Time Limits for Negotiations
Local governments have experienced just as much frustration as many
in the industry with regard to the time consumed by franchise
negotiations. While it is easy to claim that local governments are the
cause for delay, let me assure you that the industry is at least
equally to blame for not pursuing negotiations in a timely and
efficient manner. Just as the industry would call upon local government
to be under some time constraint for granting an agreement, so too
should they be held to time frames for providing the necessary
information on which a decision can be made and for responding to
requests to negotiate in good faith. Otherwise, a time frame merely
gives the applicant an incentive not to reach an agreement but to wait
until the time frame expires. We do not believe that it is unreasonable
to establish some time frames within which all parties should act,
whether it is on an application for the grant of an initial franchise,
for renewal, transfer or for grant of additional competitive
franchises. But these obligations must apply to both sides and must be
respectful of the principles of public notice and due process.
Applicants must be required to negotiate in good faith rather than
insisting on their own ``form'' agreement. No community should be
forced to make a determination without permitting its citizens--your
constituents--the opportunity to voice their opinion if that is the
process that government has put into place for such matters.
Network Neutrality
While traditional cable operators under Title VI operate on closed
platforms, the Act itself does not address the variety of services or
content that may be provided over that platform. Recent press accounts
have indicated that telephone company new entrants in the video
marketplace also want to be able to control the ability of the end user
to access information purchased over the network. Faster speeds for
those who pay more; and faster access to those locations on the
Internet for which the content provider has paid a higher price to the
network owner. Local government believes that permitting such
favoritism and content control by a network owner is bad for the end
user, bad for business and bad for the future of the Internet. To the
extent that such issues need to be addressed within Title VI, we
encourage the Committee to do so.
Consumer Protection and Privacy
The Communications Act has significant and meaningful consumer
protection and privacy provisions. These are national rules with local
enforcement and they include the ability of the local government to
continue to enforce more stringent local consumer protection
requirements. These rules must be extended to all video providers--to
ensure that information on your personal choices of what you watch on
whatever device you choose to receive your video signal on--is not
being used in an impermissible or improper manner.
Finally, we continue to support the ability of local governments
and the citizens they serve to have self-determination of their
communications needs and infrastructure. Title VI has always recognized
our ability to do so in the video marketplace, and we hope that
Congress will continue to agree that such should be the case regardless
of the services delivered over the network. Where markets fail or
providers refuse, local governments must have the ability to ensure
that all of our citizens are served, even when it means that we have to
do it ourselves.
Conclusion
In the rush to embrace technological innovation, and to enhance the
entry of new competitors into the market, it is still the
responsibility of local government to ensure that the citizens of our
communities are protected and public resources are preserved. We value
the deliberative processes, such as this hearing today, to be sure that
we are accumulating verifiable data and are making informed decisions.
Local control and oversight has served us well in the past and should
not be tossed out simply as the ``old way.'' This year, as the
discussion of the delivery of new products and services over the new
technology platforms includes not just video but new and enhanced video
products and other potential services, I strongly encourage this
Committee to proceed deliberately. The Committee should continue its
excellent work of accumulating information and ensuring a strong record
in support of any decisions to change the law.
Thank you. I look forward to answering any questions you may have.
The Chairman. Thank you very much. Our next witness is Brad
Evans, the Chief Executive Officer at Cavalier Telephone in
Richmond, Virginia.
STATEMENT OF BRAD EVANS, CHIEF EXECUTIVE OFFICER, CAVALIER
TELEPHONE
Mr. Evans. Thank you, Mr. Chairman. We appreciate the
opportunity to testify here today.
Cavalier Telephone is a competitive local exchange
telephone company. We're headquartered in Richmond, Virginia.
We provide local, long distance and broadband services over
207,000 residential and 173,000 commercial telephone lines from
Virginia to Southern New Jersey.
We are the success story of the 1996 Telecom Act. Unlike
many other competitors, Cavalier has embraced the residential
market and is adding 15,000 new residential customers each
month. Our high-speed Internet access is second to none.
Cavalier began in Virginia in 1999, and since that humble
beginning, we have to grown to revenues of $290 million, and we
are profitable. We have made significant capital investments,
and we now own one of the largest fiber networks on the East
Coast.
The 1996 Telecom Act permits Cavalier to interconnect its
network with Verizon and enables Cavalier to access customers
through the leasings of Verizon's local loops covering the so-
called last mile. The preservation of access to unbundled loops
is a primary importance to Cavalier and all other competitive
providers. The reason I am here today is to describe to you a
new technological innovation that will revolutionize how
consumers obtain and pay for cable TV service and how current
laws may impede the deployment of this service.
Cavalier is an industry pioneer and is preparing to launch
a competitive TV service in Richmond, Virginia. The TV service
dubbed IPTV utilizes MPEG-4 video compression, and we can
deliver 150 channels over our existing DSL broadband network.
This service has a crystal-clear digital picture quality. It
has an interactive programming guide and all sets will have
access to video-on-demand and other advanced features.
Cavalier's ``triple play'' will offer consumers video,
local telephone service and high-speed broadband at a
significant savings.
The Cavalier TV network will reach out to approximately 2
million potential customers in the markets of Philadelphia,
Baltimore, Wilmington, Washington, D.C., Richmond and Virginia
Beach. We are not digging up the streets, nor are we trenching
on consumers' property. We can stream our TV signal over the
existing copper-based DSL network. If you can get a Cavalier
high-speed interconnection, then you can get Cavalier TV.
A unique aspect of our service is that it runs over
existing telephony infrastructure. Our TV service will have
greater availability for the condensed inner-city residents,
even more so than the suburban residents.
But the real beauty of our technology is that it is readily
deployable, and it can be easily adapted into small-town rural
communities. Already, small, rural telephone companies are
asking Cavalier to provide IPTV video feeds. With video, rural
telephone companies will finally have an economically feasible
way to expand their broadband footprint.
However, customers will not realize these savings unless
new laws are passed to facilitate its introduction. In our
service areas, there are hundreds of governmental agencies that
would govern TV franchise authority. I personally believe it
would be impossible to reach agreement with many of these
municipalities absent any overarching framework. The time,
energy and expense would stall our deployment and could result
in Cavalier being forced to simply forgo service in several
communities.
We therefore urge you to adopt legislation that would
provide a new framework for competitive entry. First, franchise
authority should be granted on a statewide basis. Second, the
application process should promote ease of entry. Third, we
support current governmental franchise revenues, and we support
public channels being placed on our network. Fourth, copper-
based IPTV providers should be exempt from any requirements for
a mandatory buildout.
A legislative model that adopts these concepts would ensure
a rapid deployment, not only by Cavalier, but by many small,
rural telephone companies and other competitive providers all
across the country. We have seen how competition works in the
telecommunications market. It is now time to launch competition
into the TV business.
Mr. Chairman and Members of the Committee, thank you again
for this opportunity.
[The prepared statement of Mr. Evans follows:]
Prepared Statement of Brad Evans, Chief Executive Officer, Cavalier
Telephone
Mr. Chairman and Members of the Committee, I am Brad Evans, Chief
Executive Officer of Cavalier Telephone. We appreciate the opportunity
to testify here today before this Committee.
Cavalier Telephone is a competitive local exchange telephone
company headquartered in Richmond, Virginia. We provide local, long
distance, and broadband services over 207,000 residential and 173,000
commercial telephone lines from Virginia to Southern New Jersey.
We are a success story of the 1996 Telecom Act. Unlike many other
competitors, Cavalier has embraced the residential market and is adding
15,000 new customers each month. Our high-speed Internet access is
second to none. Cavalier initiated services in Virginia in 1999 and
since that humble beginning, has grown to a company with $290 million
in revenues and is profitable. We have made significant capital
investments and now own one of the largest fiber optic networks on the
East Coast.
The 1996 Telecom Act permits Cavalier to interconnect its network
with Verizon, and enables Cavalier to access customers through the
leasing of Verizon's local loops covering the so-called last mile. The
preservation of access to unbundled loops is of primary importance to
Cavalier and other competitive providers. Due to the fact that we use
our own facilities and control our own telephone infrastructure up to
the last mile, we are able to bring new and innovative services to our
customers at considerable savings. I am here today, to describe to you
a new technological innovation that will revolutionize how consumers
obtain and pay for TV services and how current laws may impede the
deployment of this service unless the Federal Government acts to
preclude that circumstance.
Cavalier is an industry pioneer and is preparing to launch a
competitive TV service in Richmond, Virginia. The TV service is dubbed
``IPTV'', and utilizes MPEG-4 video compression to deliver over 150
channels over Cavalier's existing DSL network. This service will have
clear digital picture quality, interactive programming guide, and all
sets will have access to video-on-demand and other advanced features.
Cavalier will offer consumers 150 video and music channels, local
telephone service, and high-speed broadband at a savings to consumers
compared to current alternatives.
The Cavalier TV network will reach out to approximately 2 million
potential customers, in the major markets of Philadelphia, Baltimore,
Wilmington, Washington, D.C., Richmond, and Virginia Beach. Cavalier TV
service will run over the existing copper-based broadband network. We
are not digging up the streets, nor trenching on any consumers'
property. We can stream our TV signal over the existing DSL network. If
you can get a Cavalier high-speed interconnection, then you can get
Cavalier TV.
A unique aspect of our service is that it runs over existing
telephony infrastructure, and consequently the older neighborhoods
which are served by copper wires will be eligible for our service. Our
TV service will have greater availability for the condensed inner-city
residents than suburban residents.
But the beauty of the technology is that it is readily deployable,
and can easily be adapted to small town rural communities. Already,
small rural telephone companies are asking Cavalier to provide IPTV
video feeds. With video, rural telephone companies will finally have an
economically feasible way to expand their broadband footprint.
However, customers will not realize these savings, unless new laws
are passed to facilitate its introduction. Today Cavalier is faced with
a patchwork franchise process, governed by individual communities and/
or counties. In our service areas, there are hundreds of governmental
agencies that would govern TV franchise authority. Under current law,
every local governing authority exercises their own discretion, towards
creating a framework for TV services. I believe that it would be
impossible to reach agreement with many of the municipalities, absent
any overarching framework. The time, energy, and expense would stall
our deployment, and could result in Cavalier being forced to simply
forgo service in several given communities. Competition and competitive
choice should not be held back. Consumers should be able to obtain
significant cost savings in their cable TV bill as soon as is
practicable.
Cavalier hopes to deploy its IPTV service throughout all its
service areas by the end of the 3rd quarter of this year. That means
that the major metropolitan areas from Virginia, along the east coast,
up to southern New Jersey will be relieved from the stranglehold of the
current cable TV providers. Consumers stand to gain considerably. But
this technology has to be fostered. We therefore urge you to adopt
legislation that would provide a new framework for competitive entry:
1. Franchise authority should be granted on a state-wide basis.
2. The application process should promote ease of entry.
3. Current governmental revenues, public channels should be
sustained.
4. Copper-based IPTV providers should be exempt from any
requirements for a mandatory buildout. A buildout requirement
would make IPTV investments totally unfeasible.
A legislative model that adopts these concepts would ensure a rapid
deployment of this technology, and promote consumer choice and lower
prices. We have seen how competition worked in the telecommunications
market; it is now time to launch competition into the TV business, for
more choice, customized services, and lower prices.
Mr. Chairman and Members of the Committee, thank you again for this
opportunity to share our views with you. We look forward to working
with you in any way we are able to help craft effective legislation.
The Chairman. Thank you very much, Mr. Evans. Our next
witness is Anthony Riddle, Executive Director for the Alliance
for Community Media. Thank you.
STATEMENT OF ANTHONY T. RIDDLE, EXECUTIVE DIRECTOR, ALLIANCE
FOR COMMUNITY MEDIA
Mr. Riddle. Thank you, Chairman Stevens, Senator Inouye and
Members of the Committee. I previously served as Executive
Director of Public Access Centers in Atlanta, Minneapolis and
New York. I am here to testify on behalf of a national
membership organization which has for 30 years represented
3,000 public, educational and government access television
centers across the country. Local PEG programmers produce more
than 20,000 hours of new programs per week, more new programs
than all of the broadcast networks combined.
We urge you to construct bills that will protect the future
of PEG access. On the wider issues of franchising, we support
the testimony of Lori Panzino-Tillery on behalf of local
government organizations.
In 1994, I visited post-Glasnost Russia as a member of
former President Carter's Commission on Radio and Television
Autonomy and the Former Soviet States. The Commission included
many industry leaders and, notably, Chairman Stevens. The
Alliance for Community Media played a small, though distinct
and important role. I shared with the former Soviets the
American notion that a free people must defend the ability to
communicate openly with each other and must have the means to
both hear and speak to their freely elected government.
They easily understood what we in the U.S. often take for
granted. I asked what was the major problem with Communism.
With a knowing twinkle, I was told all of the radio and
television signals ran through a single switch on one man's
desk at the Politburo.
To secure diversity of voices required in a Democratic
society, we must support a free-standing, independent space for
public dialogue. Congress did that by creating PEG facilities
with financial support and placing them under the stewardship
of local franchising authorities. What has blossomed in the
past 30 years is a vital local communications resource that
reinforces the unique character of thousands of cities, towns
and hamlets across America.
Examples of PEG programming:
Montana: Missoula Community Access Television trains at-
risk students at the Willard School, an alternative school, a
last-chance effort to keep troubled kids in school and in the
system. According to one long-time media arts teacher, the
program transforms a school celebration into a community
celebration.
New Jersey: County governments and PEG developed an
emergency public notification system using over 150 stations
across the state. Emergency command centers in mobile disaster
units communicate with affected communities via PEG stations.
This system will help keep the public informed and safe in the
event of emergency.
Southern Oregon: Rogue Valley Television serves four cities
and three counties. Since 1999, the Medford Police Department
has produced a monthly live call-in program on traffic and
pedestrian safety, ``Rules of the Road.'' They use
institutional network fiber and equipment purchased with PEG
funds to reach homes in Medford, Eagle Point and Jackson
County. PEG binds these communities as one.
Bismarck, North Dakota: Inmates at the State Penitentiary
feel they have a powerful message to share, one which would
help in rampant methamphetamine use. Community Access
Television produced an inmate-hosted program. Inmates asked
tough questions of each other. ``How do you explain to your
daughter that you chose meth over her? '' Hardened inmates
broke down on camera.
Honolulu: Palolo works with at-risk youth. They learn job
skills for the future. They tell positive stories about their
communities. The youth are uplifted as they share positive
images of Palolo, Kalihi and Mayor Wright Housing, not normally
seen on 6 o'clock news. These young people feel the power of
local television, and they take responsibility for their
community.
PEG access is only possible if there is adequate funding.
The overwhelming majority of PEG funding comes from three
sources: One, a portion of the 5-percent cable franchise fee
contributed to PEG by the LFA; Two, monetary and in-kind
support for PEG capital facilities from the cable operator
above the 5-percent; and three, grant agreements with cable
operators for direct support of PEG operating expenses. The
combined elimination of PEG grants and the reduction of
franchise fee revenue would mean catastrophic funding
reductions for PEG communities across the Nation.
The Alliance opposes any funding regimen that would reduce
PEG funding resources and supports designating PEG funding
above the 5 percent franchise fee. PEG capacity must not be
tied to decades-old levels. Public bandwidth must reflect
current technology use and system size.
Under The Cable Act, the number of channels for PEG use is
determined by each local community based on its particular
needs. LFAs can reassess these needs periodically and may
reasonably increase the channel capacity for PEG. Meaningful
use of PEG typically grows over time as does the system
capacity. The public must not be frozen out of technical change
or system growth. We embrace competition. We are interested in
affecting the way that that competition affects the public
interest.
We applaud the principles advanced by Senators Burns and
Inouye as an indication that this process that we're going
through now is ongoing and changing. Public good and public
business are not terms of contradiction. Across our Nation,
consumers are also citizens and active participants in society
through the use of public, educational and government access.
We ask that you preserve the only true genuine form of
localism and diversity in television, preserve the stewardship
role that only local governments can fill. We ask that you
include the Alliance as an active partner in drafting
legislation. Thank you very much for hearing us, and we invite
your questions and comments.
[The prepared statement of Mr. Riddle follows:]
Prepared Statement of Anthony T. Riddle, Executive Director, Alliance
for Community Media
Good morning, Chairman Stevens, Senator Inouye and Members of the
Committee. I am Anthony Riddle, Executive Director of the Alliance for
Community Media. I previously served as the Executive Director of the
Public Access Centers in Atlanta, Minneapolis and Manhattan, New York.
I want to thank Chairman Stevens for inviting me to testify today on
behalf of the Alliance for Community Media, a national membership
organization representing 3,000 public, educational and governmental
(PEG) cable television access centers across the Nation. Those centers
include 1.2 million volunteers and 250,000 community groups and
organizations that provide PEG Access television programming in local
communities across the United States. Local PEG programmers produce
20,000 hours of new programs per week--that's more new programming than
all of the broadcast networks combined. As reported in the New York
Times on November 9, 2005:
``For every hour of `Desperate Housewives' on ABC, the Nation's
3,000 public-access television channels present dozens of hours
of local school board meetings, Little League games and
religious services.''
The Center for Creative Voices released a report last Fall that
shows that as large group owners control more local broadcast stations
in a market, local programming disappears, replaced by nationally
produced programs that seek to draw larger audiences through more
inflammatory material. Media consolidation furthers this trend. The
report found that locally controlled programming is more responsive to
community needs.
Congress has traditionally recognized the need to foster localism
in communications. At a time when studies show that less than one-half
of 1 percent of programming on commercial television is local public
affairs, PEG centers serve the people in your home town, city, and
district.
We urge you to oppose proposed bills that would directly and
substantially threaten the future of PEG programming throughout the
Nation. My testimony focuses largely on values that would most directly
impact PEG funding and capacity. On the wider issues of franchising we
support the testimony of Lori Panzino-Tillery on behalf of local
government organizations.
As Chair of the Alliance, I had the opportunity in 1994 to visit
post-Glasnost Russia as a member of former President Carter's
Commission on Radio and Television Autonomy in the Former Soviet
States. The Commission included many industry leaders and, notably,
Chairman Stevens. The Alliance for Community Media played a small,
though distinct and meaningful, role on the Commission: I shared with
the former Soviets the American notion that a free people, in order to
remain free, must have the ability to communicate openly with each
other, must have the means to both receive and send information to
their freely elected government, and must vigilantly defend the need
for open and accessible networks.
Their eyes lit up immediately with recognition. Having then
recently emerged from the tight control of Communism they easily
understood what we in the U.S. often take for granted. Across the gulf
that separated us, I asked one, ``What was the major problem with
Communism?'' With a knowing twinkle in his eye, he told me, ``All of
the radio and television signals ran through a single switch on one
man's desk at the Politburo.''
It seems a hundred years since the collapse of the Soviet Empire.
The reality is that we were already working at that time on what became
the 1996 Telecommunications Act. It was not so long ago.
The best way to secure the diversity of voices required of a
Democratic society is to create and support a free-standing,
independent space for public dialogue. Congress did just that by
providing for PEG facilities with financial support and placing them
under the stewardship of local franchising authorities. What has
blossomed in the past 30 years is a vital local communications resource
that reflects the unique character of the thousands of cities, towns
and hamlets which it serves.
I. PEG Programming--the Last Redoubt of Local Character.
The Federal Cable Act authorizes local franchising authorities to
require cable operators to set aside capacity on their systems for PEG
use, \1\ and to require cable operators to provide, over and above the
5 percent cable franchise fee, funds for PEG capital equipment and
facilities. \2\ The amount of PEG capacity that is set aside on a
particular system, as well as the level of funding provided by the
cable operator, is locally determined, based on each community's
determination of its own particular cable-related community needs and
interests. \3\
---------------------------------------------------------------------------
\1\ 47 U.S.C. Sec. 531.
\2\ 47 U.S.C. Sec. 542(g)(2)(C).
\3\ See, 47 U.S.C. Sec. Sec. 546(a)(4)(B) and 546(c)(1)(d).
---------------------------------------------------------------------------
The PEG provisions of the Cable Act are intended to provide all
members of a community with access to the medium of television. Indeed,
PEG is the only way that average citizens and community groups can
interact in their communities via television. Particularly in this era
of mass media consolidation, PEG Access ensures that locally-produced
programming, of interest to and tailored to the particular local needs
of the community, has an outlet on television.
PEG Access has served that purpose exceedingly well. Among other
things, PEG provides:
The only unmediated coverage Congress Members receive in the
home district. Many members of Congress use Public Access
channels to communicate directly with their constituents. PEG
is often one of the only media outlets in a locality providing
regular political and civic programming to local residents.
Church Outreach--Religious programming represents 20-40
percent of programming at most Public Access centers. For the
shut-in and infirm, this is often the only means by which they
can participate in local services.
Coverage of local cultural activities, particularly in
smaller communities that do not receive commercial media
attention. Examples include coverage of local historical, art
and music events.
The ability to maintain the local cultural identities of our
towns, cities and counties. Examples include coverage of local
high school football games, local parades and other civic
events.
Local Governmental Programming--Coverage of city/town/county
council meetings, and local police, fire, and public safety
programming.
Local Education Programming--Cablecast of public school and
local college educational programming.
Technical training and jobs.--PEG centers provide vocational
training in television camera and production work for local
residents and nonprofit groups that would otherwise have little
to no access to media tools and education.
News for military families--Army Newswatch is the most-
syndicated program on PEG channels, with carriage on over 300
PEG channels nationwide.
Let us provide you with some typical local examples from around the
country:
Ann Arbor, Michigan--At Community Television Network, the Public
Access center created a program in partnership with National Kidney
Foundation focused on the risks of kidney disease among African-
American men and women. African-Americans are seven times more likely
to get kidney disease compared to white Americans. The award winning
program has been cablecast on PEG channels throughout the state of
Michigan.
Austin, Texas--Founded in 1972 by college students, Austin
Community Television has been instrumental in the recognition of as the
live music capital of the Nation. Tejano music was little known outside
the small Latin clubs in Austin until producers Isidoro Lopez and Jerry
Avala began their Public Access television show. Lopez, 67 years old,
disabled and full of energy. His show fully involves the Hispanic
community, including bands, local businesses and volunteers. Isidoro
says, ``Without the Public Access Channels, no one would have known
about this kind of music. The public greatly enjoys this service and
wouldn't find it anywhere else.''
More recently, with the influx of Hurricane Katrina survivors into
Austin, many have found their voices on ACTV--and they say they have
found a home.
New Jersey--PEG stations are working with county governments to
incorporate emergency public notification via the 150+ stations
throughout the state. The system will allow communication from any
emergency command location or mobile disaster unit to the communities
affected via PEG stations. This system will have the ability to
interrupt programming instantly with text notices that include health
hazard notifications, aid station locations, and evacuation
instructions. Using PEG stations, this system will help to keep the
public informed and safe in the event of any emergencies--from a local
level crisis to support of national disaster relief organizations.
Missoula, Montana--Missoula Community Access Television provides
training to over 60 at-risk students at Willard School, an alternative
school that is the final attempt to keep troubled kids in school and in
the system. The TV class helps students connect to school, to each
other and to the community. According to Gwenn Hoppe, long-time media
arts teacher, ``Having a local communication channel is such a blessing
for my kids, who especially need to feel included in the community. The
TV show we make profiles every senior student's courage in making it
through the program. It changes a school celebration into a community
celebration and the psychological effect on the seniors, and the
students struggling to stay in school is positive, permanent and
priceless.''
Olympia, Washington--Cherie Tessier is a 51 year-old,
developmentally disabled woman who, for the past 16 years, has produced
Public Access television programs at Thurston Community Television. Her
show advocates for the rights of the disabled, educates the community
about disability issues, and engages elected officials. Physically and
developmentally challenged people participate to tell their stories,
dispel myths about disabilities, and discuss public policy. Without the
media tools, training, and channels provided by Thurston Community
Television, Cherie's message would be heard by very few people. There
is no other form of media that Cherie could afford to use that would
provide her with access to this large an audience.
When asked one day why she worked so hard to make her programs, her
answer was simple, ``Because I've learned to speak for myself, and this
is what I want other disabled people to learn, too.''
Chicago, Illinois--During the 2004 election season, Chicago Access
Network Television (CAN TV) ran 160 hours of local election coverage,
including information on candidates for presidential, senatorial,
congressional, and local judicial elections, as well as in-depth
interviews by The Illinois Channel with state district candidates. CAN
TV devotes its resources to local programming with an annual budget
that wouldn't buy a single thirty second commercial during the Super
Bowl. Those modest resources can be put at risk by adverse legislation.
In an earlier article on CAN TV's election coverage, the Chicago
Tribune reported that, ``Chicago's five access channels bring no small
measure of serious politics, especially involving those largely shut
out heretofore from mainstream commercial media, including blacks,
Hispanics, and, of course, Republicans.'' (We are talking about
Chicago.)
Cincinnati and Hamilton County, Ohio--Media Bridges cablecasts more
than 15,000 hours of local programming produced by and for greater
Cincinnatians by organizations like the Contemporary Arts Center, the
Lifecenter Organ Donor Network, and Literacy Network of Greater
Cincinnati, as well as better than 80 area religious organizations.
According to a 2003 study, the 96 cents per subscriber per month in PEG
Access support providing the majority of Media Bridges' financial
support is multiplied almost seven times to provide an economic impact
in greater Cincinnati of more than $5.3 million per year. Loss of this
support would hurt more than just the PEG community in Cincinnati.
Knoxville, Tennessee--Community Television of (CTV), has served the
residents of Knoxville and Knox County for 30 years. For only $24 per
year, the typical volunteer community producer at CTV receives training
and unlimited use of PEG equipment (including cameras, studios, and
editing equipment) to produce and air their own television programs.
There is no other means by which community residents can find such an
inexpensive way to effectively reach 110,000 community households with
information pertaining to local issues, local resources and matters of
interest to them, from support for victims of Alzheimer's disease and
their families, to foster care, law enforcement, and youth recreation.
Cambridge, Massachusetts--Every week, Cambridge Community
Television (CCTV) produces 50.5 hours of live programs on its BeLive
set--shows that include Crime Time produced by the Public Information
Officer of the Cambridge Police Department, Bed Time Stories, Muslims
Inside and Out, Local Heroes and two smoking programs, one against, and
one for smokers' rights. Even though Cambridge is a city of over
100,000 residents, it is in the shadow of the Boston media market, and
the commercial television stations and daily newspapers consequently do
not cover the local elections. As a result, CCTV's election programming
is the only place that residents can tune in to learn more about local
candidates.
Southern Oregon--Rogue Valley TV is the PEG Access organization for
four cities and three counties. Since 1999, the Medford Police
Department has produced Rules of the Road, a monthly, one-hour live
call-in program about traffic and pedestrian laws. The police average
30 phone calls per show as Medford residents jam phone lines waiting to
talk with their local police officers. Without use of institutional
network fiber and equipment purchased with PEG funds, the program would
never reach homes in Medford, Eagle Point and Jackson County, and the
phones would be silent.
Bismarck, North Dakota--Inmates at the State Penitentiary called
CAT Channel 12 for help. They had watched, recognized the power of
television and felt that they had a unique, powerful first-hand message
to share--one which could help to stop methamphetamine use. They needed
help in making getting the message out. Community Access Television
(CAT) stepped up to work with the inmates. Programs were taped in the
penitentiary treatment facility, an area that overflowed due to the
drug crisis.
An inmate hosted the program, asking tough questions of fellow
inmates: ``What would you tell your daughter now--why would you choose
meth over her? '' And, ``What would you tell your dead mother about why
you robbed her? '' Life hardened inmates sobbed.
Local schools and churches, the State Attorney General's Office and
groups from Fargo all called for copies of this program which had been
both televised and streamed on the Internet. Senator Conrad's office
contacted CAT for further information. The inmate host of the program,
now in a half-way house, says ``If only one person quits or doesn't use
methamphetamine, the time to make this program was worth it.''
In a different vein, Tucson, Arizona's Correction is a documentary
that compares the training correctional officers receive with their
real-life experiences inside prison. Four people seen negotiating the
Arizona Department of Corrections' seven-week training academy reveal
that officers, inmates and the correctional system itself are caught
between the contradictory imperatives of security, justice, punishment
and the economic realities of state government. Media-maker and
University of Arizona Associate Professor Michael Mulcahy is working to
break stereotypes found in most movies and television by using the
experiences and perspectives of actual corrections officers. He says,
``What I saw in prison was nothing like those movies. I saw something
that was incredibly complex and incredibly difficult, incredibly
ambiguous.''
Albuquerque, New Mexico--As an example of the diversity which can
be found in even one PEG center, Sandia Prep School recently sent 30
students through Quote . . . Unquote's Public Access orientation class
as this highly rated academy began its third year of television
production. One student producer used this experience to win a
scholarship to a top college. For four years Quote . . . Unquote
cablecasts the Catholic Archdiocese of Santa Fe's daily lunch mass for
shut-ins to pray The Rosary. It also cablecasts Gun Club of New Mexico,
a firearms collector NRA program produced locally by volunteers.
The examples mentioned so far have dealt with a wide variety of
people, organizations, educational institutions, and local governments
that have used PEG access to create and distribute local programming.
However, it is important to note that there is also great interest in
viewing locally created PEG programming. Over the past ten years, an
independent research firm has surveyed cable television subscribers in
38 different communities throughout the Nation, with populations
ranging from less than 10,000 to over a million residents. Respondents
to these surveys were asked how important they felt it was to have PEG
channels on their cable system for use by local community groups,
educational institutions, and public agencies. 74 percent of the survey
respondents in these diverse communities said that having these
channels available was `'very important'' or ``important'' to them.
PEG demonstrates through action that we can, indeed, all find a way
to live together--and that all of us are better for it.
II. PEG Access Is Only Possible If There Are Adequate Funds to Support
Community Use.
The overwhelming majority of PEG funding comes from two sources:
(1) monetary and in kind support for PEG capital facilities and
equipment from the cable operator over and above the 5 percent cable
franchise fee that is required by the local franchise agreement; and
(2) contributions by the local franchising authority of a portion of
the 5 percent cable franchise fee to PEG.
At Manhattan Neighborhood Network (MNN), our operating support came
through an appendix to the franchise agreement negotiated directly with
Time Warner Cable that provided for both operating and capital support.
The operating support was paid directly to MNN by Time Warner quarterly
and was less than 1 percent above franchise fees, or around 60 cents
per sub per month. The capital support was paid annually at 50 cents
per subscriber. Thus, the combined public access support payments
averaged about 64 cents per subscriber per month. In a system of
500,000+ subscribers, this percentage provides adequate support for
service to the community. In a system of 50,000, a different formula
would certainly be necessary.
In other places, such as Kalamazoo, MI for example, PEG funding
comes from both a portion of the franchise fee and from the cable
company. The Access Center receives 35 cents/month/subscriber for PEG
support and, in addition, the communities contribute 40 percent of
their franchise fees. In Cincinnati and Hamilton County, Ohio, the
Access Center receives 96 cents/subscriber/month in PEG support from
the cable operator as required by the local franchise agreement.
We would oppose any funding regimen that would eliminate and/or
substantially reduce either of those sources of funds to support PEG.
A. The Loss of PEG Capital Support Obligations
The Cable Act allows local franchising authorities to require a
cable operator to provide PEG Access capital facilities and equipment
funding over and above the 5 percent franchise fee. We believe it is
important to maintain this support mechanism. It is important that any
new bill include provisions that allow municipalities to require that
broadband video service providers fund PEG Access production facilities
and equipment at rates comparable to those of incumbent cable
operators. Otherwise, over time, the incumbent cable operators would no
longer provide such PEG support, as they would no doubt refuse to
continue to incur a cost not incurred by its broadband video service
provider competition. Alternatively, the incumbent cable operator might
eventually transform itself into a broadband video service provider,
thereby freeing itself directly from its PEG support obligations. The
Alliance for Community Media requests elimination of the provision in
current cable law which restricts use of funds above the 5 percent
franchise fees so that those funds may be used for both capital and
operational support, as determined locally.
B. A Reduced Franchise Fee Revenue Base Would Reduce Local Franchising
Authority Financial Support for PEG.
Much of the language being proposed restricts the ``gross revenue''
base for the 5 percent franchise fee to revenue collected from
subscribers. As a result, non-subscriber revenues, from sources such as
advertising and home shopping channels, would be excluded from the
franchise fee revenue base. That would represent anywhere from a 10
percent to 15 percent reduction in the franchise fees that local
governments currently receive under the Cable Act. And non-subscriber
revenues--especially advertising revenues--are one of the fastest
growing revenue streams in the current cable franchise fee revenue
base. In communities in which the local government contributes a
portion of its franchise fee revenues to fund PEG Access operations,
the reduced franchise fees would result in a substantial reduction in
the funds that PEG Access centers currently receive from cable
franchise fees.
The combined elimination of PEG grants and the substantial
reduction of franchise fee revenue available for PEG use would result
in a funding reduction for PEG Access that would be nothing short of
catastrophic for many, if not most, PEG Access centers across the
Nation.
III. PEG Capacity, If Tied Permanently to Current Levels, Would Deprive
Communities of the Ability to Adapt to Changing, and Often
Growing, Community Needs.
Under the Cable Act, the number of channels set aside for PEG use
is determined individually by each local community based on its
particular PEG needs and interests. Perhaps more importantly for the
discussion here, the current Cable Act allows local communities,
through the cable franchise renewal process, to reassess their PEG
needs periodically, and to increase the channel capacity set aside for
PEG where demand warrants.
As you might expect, the number of PEG channels set aside varies
widely from community to community. This is precisely the sort of local
self-determination and flexibility that one would expect--and that
should be cherished--if the localism that PEG programming embodies is
to survive. Some proposed bills, however, would short-circuit this
process, capping PEG Access capacity at, or even below, current levels.
This would mean that local communities would be locked into current PEG
capacity limits--limits that may have been originally set by a
franchise drafted even before the 1984 Cable Act.
There is no reason to suppose that PEG capacity needs are static.
In fact, those needs typically grow over time, as the local community's
interest in PEG programming grows, and the volume of PEG programming
grows. Experience shows that system capacity has grown parallel to this
need.
Technical Comparability--PEG bandwidth provided in exchange for
PROW use should to be handled on par with that of the highest
commercial user, including that of the communications service provider.
Municipal users must be allowed to make any technical use of PEG
bandwidth they find useful and consistent with the capabilities of the
system.
Municipal users of bandwidth provided in exchange for PROW must be
allowed equal access to electronic promotions and customer portals,
such as menus or hyperlinks, and to interactive switching as other
users, including the service provider. Any type of privileging of
programmer access to customers clearly devalues the municipal
bandwidth.
IV. Related General Principles
Ease of Negotiation for New Entrants--The fastest available means
of entry is for new entrants to adopt agreements equivalent to those of
the incumbent provider. Manhattan, New York where I managed the Public
Access facility is easily one of the most complex negotiating
environments in the Nation. There, RCN and the City worked out an OVS
contract to mirror the existing Time Warner franchise in about nine
months--including negotiation of equivalencies where duplicate
obligations would have been redundant. This is but one of many
instances demonstrating that new entrants can quickly enter existing
markets if they are willing to match incumbent provider obligations.
Local Authority--The municipalities should be free to use PROW fees
as they feel appropriate, though some fees may be designated for
communications needs. PEG operations are inexorably bound to the
municipal owner of the PROW. The municipality should have the authority
to determine how those needs are to be met with the resources
available.
Local Accountability--Audits and payments should remain at the
municipal level.
Local Enforcement--Regulatory authority for protecting PEG should
be a function of the municipality, as should resolution of consumer
complaints. We believe that the municipality should remain the first
level of resolution and enforcement of PEG concerns. Local PEG centers
are not adequately resourced to maintain a balanced relationship with
large, national corporations.
Local Design--Municipalities have the responsibility to design
their use of commun-ications system as suits the needs of local
citizens.
Net Neutrality--Alliance members provide training and equipment not
only in television production, but are often providers of first contact
for new communications tools and methods. Access centers across the
country were among the first to share the potentials of the Internet
with community organizations, providing both computer labs and
connectivity. Access centers were the first to stream channels full-
time. Similarly, PEG centers are providing exposure to and the skills
and equipment needed for communities to use newer technologies such as
peer-networking, video-blogging and podcasting. Our members have a
direct interest in networks remaining neutral and open. Such openness
not only assures a vibrant community conversation, but leaves room for
the thousands of small entrepreneurs whose creativity forms the basis
of American innovation.
Technical Neutrality--The Alliance hopes that any new legislation
will be technologically neutral. We would like to see all forms of
video delivery located in the PROW subject to the same or equivalent
public obligations. If they are not, then legislation will encourage
development of technology based on diminishing public obligation rather
than competition and innovation. This would launch a race to the bottom
which would both harm the public interest and skew development.
In addition, the Alliance can foresee a future in which video
services could potentially migrate to the ``info-data'' section of the
pipeline. The physical use of the PROW would not be changed. The
delivery to the consumer would likely appear to be the same. However,
the bandwidth and fees provided in exchange for use of the PROW would
be diminished. Proposed legislation should be carefully constructed to
avoid providing incentives which artificially interfere with market
innovation.
Citizenship and Access to Broadband Communications--As citizenship,
education, commerce, government services and community become more
intertwined with access to communications services, the Alliance
upholds the need to make sure that all of us have access to those
services. We don't think that all homes will have or want the same
services. We do, however, believe that any new legislation should
anticipate inevitable market imbalances. Any new legislation should
have tests for identifying those imbalances and concrete methods to
remedy any resultant discrimination. To the degree that a community or
section of a community is ``unreachable'', the value of all of those
working to provide PEG access is diminished. It is imperative for all
people to have at least the opportunity to participate in the coming
world of electronic democracy.
Conclusion
Across the Nation, PEG Access centers put television in the hands
of the people, not as passive consumers, but as speakers and
information providers--as citizens and other active participants in our
society.
The public good and good business are not terms of contradiction.
We ask that as this Nation strikes out into this brave new world of
competition and creativity, of wealth and opportunity, that you take
the time to preserve the only truly genuine form of localism and
diversity in the television medium--Public, Educational and
Governmental Access. We ask that any legislation preserve the essential
role that only local governments can fill. We ask that you recognize
PEG as a central means of preserving the rich tapestry of local
character even as these changes move us toward a homogenized national
identity.
What we ask of you is not asked for the purpose of our own
enrichment. We ask out of love for a society and people that can be a
beacon of freedom for all the people who will come after us. We ask
that you include us active participants in the many discussions to come
in the drafting of this legislation. The Alliance looks forward to
working with you to create legislation that honors the founding
principals of democracy by preserving a balanced communications
environment for all people.
On behalf of communities across the Nation, we thank you for the
opportunity to speak to you today. I would be happy to answer any
questions you may have.
The Chairman. Thank you very much. Our next witness is Gene
Kimmelman, Vice President, Federal and International Affairs,
Consumers Union, Washington, D.C.
STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, FEDERAL AND
INTERNATIONAL AFFAIRS, CONSUMERS UNION
Mr. Kimmelman. Thank you, Mr. Chairman, Senator Inouye and
Members of the Committee on behalf of Consumers Union, the
print and online publisher of Consumer Reports. I appreciate
the invitation. In coming before you now, for more than 20
years, this is truly a revolutionary moment where I get to
agree with so many of the industries that I've had problems
with in the past, and I do believe it is an appropriate time
for you to be considering legislation.
I want to just clarify why I think it's time to move.
You've heard a lot of numbers out here. It's true what the
phone companies say. Cable rates have virtually doubled in 10
years. But also, if you give cable credit for adding new
channels, of course many of which are ones people don't even
watch, you find the government statistics show rates are up
almost 2\1/2\ times inflation, so you've seen numbers in the
50-60 percent range. That's where that number comes from. And
you often find the cable industry talking about price per
channel because they add channels, which is legitimate. And you
often hear the figure that where there are two wireline
competitors, prices on a per channel basis are 15 percent lower
for consumers. That's what is most relevant to us. You get a
clear savings where you bring in another major wire-based
competitor. And unfortunately, with as much benefit as
satellite has added to the market, it still is not disciplining
cable prices. So, we do believe it's time for you to move to
advance competition with cable.
It's also interesting, in following this for 20 years, that
many things don't change, but need to be thought through as you
consider legislation. The cities have, for many years, been
fighting for all the principles you've heard articulated, but
unfortunately, sometimes their view of stewardship is getting
maximum revenue for the cities and not necessarily taking care
of the local community needs, the local content, putting money
into real programming, into doing the maximum wiring, into
supporting all the local PEG access programming that is
necessary. Yes, the cable companies are right. The phone
companies did not enter the cable business quickly. But you
know what? Cable companies didn't enter the phone business very
quickly either. And I've heard more praise of local franchising
from the cable industry this morning than I have ever heard in
20 years.
So, I would urge you to think of legislation from this
perspective. If it's true that this digital transition will
lead to an explosion of providers out there of broadband,
telephone, cable, 5-6-7 players, then you probably don't need
to worry at all about legislating. That truly would be a
competitive market. But just assume for a moment we end up with
only two major platforms, a telephone wire and a cable wire,
each delivering telephony, data services, broadband access and
all our video. What are the long-term policy needs for citizens
of this country if that happens to be the case five to 10 years
down the road?
I would suggest many of the things you've pointed out this
morning are critical. Affordable broadband for all citizens
everywhere--it's critical to everything from health, education,
business connections, family, and meeting basic needs. We need
to make sure that those two providers, if there are only two,
truly serve or provide financial support for broadband. And
certainly, we should make sure that if there are only two, that
as we enhance entry for one or the other, that we're not
blocking the rights of communities themselves to also offer
services and possibly be a third player in the market.
Consumers would also need, in that environment, to ensure
that broadband and video is available to all or that each of
the providers is making sure they're paying to make it
available to everyone in the community. If we only have two
providers offering this big package, it'll be hard for any new
entrants to break in the market. We've seen how difficult it's
been to get competition in video and telephony. So, it's
critical to ensure that everyone can receive all of these
important services and are supported by both major providers in
the community.
And don't forget local content. It's one thing to talk
about PEG access, but I think we should go back to principles
here. What is it we're looking for? We want people in the
community to get the financial support, to develop their
talents and skills, to debate local issues, to present their
views and content on television, to have websites, to really
take advantage of local talent.
And so, it's not so much the name, whether it's a leased
access channel or a PEG channel and just saying we'll do it for
one company, we'll do it for the other, we urge you to look
carefully at what really gets local talent out there. And
please understand the local conflicts. As long as local
communities have an incentive to seek the maximum amount of
money for the community itself, it will not always want to put
that money into that local talent, into building out, to the
libraries, to the schools, to the hospitals, to supporting the
PEG access channels.
So, we think it's critically important that you think about
how to serve these principles and not just the names that are
there. And as you move toward a long-term goal here, a
transition always requires some benefits to the new entrants.
In the same way, when cable entered telephony, it was not
appropriate to put a whole load of regulations on them. I think
it's appropriate to look at the telephone companies in the same
way. However, they already have franchise rights. They already
serve communities. There's no reason why they shouldn't be
required to offer their video services to everyone in the
community.
We hope you'll also look at the problem of bundled
programming. Chairman Stevens, we appreciate your comments
about the potential benefits of moving to a per channel pricing
for consumers, which the FCC says could save consumers as much
as 13 percent on their cable bills. We hope that will also be
on the table as you consider legislation. Thank you.
[The prepared statement of Mr. Kimmelman ollows:]
Prepared Statement of Gene Kimmelman, Vice President, Federal and
International Affairs, Consumers Union
Summary
Consumers Union, \1\ Consumer Federation of America, \2\ and Free
Press \3\ appreciate the opportunity to testify on the issue of video
franchising and competition in video services. We welcome the
Committee's interest in fostering greater consumer choice by promoting
competition in the video marketplace. Over the last decade, consumers
have suffered under monopolistic cable pricing that has resulted in a
64 percent increase in rates--approximately two and a half times the
rate of inflation--since Congress deregulated the cable industry in the
1996 Telecommunications Act. In addition to skyrocketing rates,
consumers have virtually no choice of providers or channel offerings.
Satellite television, the primary competitor to cable, has had
virtually no price disciplining effect.
The application of broadband technologies to subscription video
services now offers the promise of competition and lower monthly cable
bills. The central question before Congress is how best to accelerate
this new competition while maintaining a strong commitment to local
community needs, and universal availability of access as a condition of
video franchising. The public policy goal must be to maximize, as
rapidly as possible, the benefits of new technologies and competitive
markets to every American household.
Is the local franchising process a barrier for local telephone
companies' entry into local video markets? Do we need a Federal
franchise? That is not at all clear. We urge the Committee to weigh the
evidence in this debate--rather than the rhetoric--very carefully. The
focus of any new policy must be primarily the conditions of local
service in the video franchise and secondarily the process that can
best achieve them. Before considering the idea of a Federal franchise,
Congress must clarify precisely what local needs must be met and how to
best protect legitimate local concerns.
The establishment of a national franchising mechanism would bring
with it substantial risks for local communities and consumers against
which any real or perceived competitive benefits must be balanced. The
existing local franchise negotiating process may merely delay, rather
than impede, new entrants. The balance between facilitating competition
and preserving community services may be achieved through a streamlined
national franchising process or a streamlined local franchising
process. The key component in either scheme must be the retention of
substantive consumer protections and community obligations that local
franchising authorities up to now have been able to negotiate. To
maximize consumer benefits, Congress should address the process of
franchising to provide for greater certainty and timely entry of new
competitors, but it must maintain consumer protections and preserve the
carrier obligations to ensure that all residents benefit from new
competition.
Unfortunately, national franchising proposals introduced to date do
not strike that balance. Instead they provide a franchise exemption,
retaining only minimal protections and requirements and providing
equivalency with only some of the obligations of incumbent providers.
Notably absent from these proposals is any requirement that new
entrants provide their services to the entire franchise area, opening a
wide door to economic and ethnic discrimination (``redlining'') and
closing the door to rate relief for those families who most need it and
who have largely been left on the wrong side of the digital divide.
Should Congress move forward to address video franchising issues,
we respectfully urge you to maintain the substantive protections and
providers' obligations to the local community regardless of where the
power to offer the franchise is located. Any franchising model must
include strong protections for consumers and communities that include:
Requirements to provide service to all customers within the
entire local franchising area, or in lieu thereof, requirements
that new entrants provide significant financial resources to
the locality to improve access to affordable broadband
technologies for those not served;
Requirements that consumer protection be provided locally to
ensure that customers service and billing complaints are
quickly and satisfactorily resolved;
Complete protection of the locality's right to manage and be
fairly compensated for use of the public rights-of-way;
Minimum requirements to ensure providers are truly
supporting local needs, including the provision of both
capacity and resources for local access channels with
independent programming that reflects the diversity of the
community, and broadband networks serving schools, libraries,
hospitals and governmental facilities (I-Nets).
In addition, it is essential that localities retain their right,
subject to local democratic processes, to provide broadband
communications services. Ironically, the Bell companies who demand new
regulations to facilitate their competitive entrance into the video
market seek to foreclose competition in broadband from local
governments and their private sector partners. A Federal elimination of
state limitations on local community broadband networks would end the
practice of constraining local choices and the rights of localities.
However, a policy permitting community broadband is not sufficient to
address redlining concerns. Simply giving permission to localities to
establish a broadband network does little to help low-income and rural
communities provide service to underserved residents when those
communities have few resources to do so. The inequities of redlining
can only be redressed through universal build-out of like services. In
the absence of requirements to provide service to the entire franchise
area, providers must also be obligated to provide financial resources
to allow communities to meet the communications needs of the
underserved through community broadband networks.
Even with protective and uniform national standards and a
streamlined franchising process, in order for true price competition to
emerge in multichannel video markets, Congress must address anti-
consumer bundling and anti-competitive tying requirements imposed by
dominant media companies. Programming bundles serve the interests of
the dominant broadcast networks and cable operators that own the lion's
share of cable programming. They impose these bundles upon their
subscribers and smaller distributors in the all-or-nothing expanded
basic tier. If Congress does not prohibit these bundling arrangements
and the coercive retransmission consent negotiations that often
accompany them, new video entrants will have limited ability to compete
with existing cable companies on both price and selection through
greater channel choice and more diverse programming.
Finally, in an era of technology convergence, it is essential that
Congress enact strong, enforceable prohibitions on broadband network
discrimination. The appearance of integrated video and broadband
services, like franchised video over the Internet (IPTV), must not
distract us from this fundamental point. The build-out of fiber optic
IPTV networks will naturally involve costs for the new operators. There
will be a temptation to recover these costs by precluding subscriber
access to competitive video and broadband service offerings that
consumers can only reach over the same line that brings them IPTV. As
Congress considers easing the entrance of the Bell companies into video
service, it must include strong, enforceable network neutrality
policies required to protect consumers and preserve the Internet as a
source of innovation and competition. Consumers, not network operators,
should determine winners and losers in the online marketplace.
Concentrated Video Markets Have Resulted in Skyrocketing Cable Bills
The last decade has brought a dramatic increase in concentration
and clustering of video systems. Mergers have been executed between the
first, third and fourth largest companies, creating a single giant that
towers over the industry, almost twice as large as the second largest
cable operator. Regional markets have been drawn into huge clusters of
systems. In a pending merger, the top two cable operators propose to
devour the number seven cable company and sharply increase their
control over regional markets. This regional clustering has increased
sharply since 1994, when less than one-third of cable subscribers were
in clusters. \4\ Today, the figure is over 80 percent. \5\ Cable
systems that are part of a larger national cable operator charge prices
that are more than five percent higher than those of unaffiliated,
independent distributors. \6\
And while cable mergers abound, competition between cable systems
is almost nonexistent; head-to-head competition is moribund. \7\ Out of
more than 3,000 cable systems, head-to-head competition exists in fewer
than 200. In short, only about one percent of franchise territories
have experienced head-to-head competition between cable companies. The
failure of competition in multichannel video is most evident in local
markets. Although facilities-based competitors target larger urban
areas, 98 percent of the homes passed by cable companies have a choice
of just one facilities-based provider. \8\
Competition from satellite television is weak as well. Cable's
dominance as the multichannel medium is overwhelming, with a
subscribership of approximately two-thirds of all TV households. Its
penetration is about three times as high as satellite. Because a large
number of satellite subscribers live in areas that are not served by
cable, competition in geographic markets is even less vigorous than the
national totals suggest. Cable has about four times the market share of
satellite in areas where both are available. The Government
Accountability Office has found that satellite television penetration,
even with the addition of broadcast stations, has little or no impact
on consumers' monthly cable bills. \9\
Consolidation in both distribution and programming has resulted in
cable prices that have risen by more than 64 percent in the last ten
years--approximately two and half times the rate of inflation as
measured by the Consumer Price Index. \10\ (Attachment 1) Last month,
consumers across the country were treated to notices that their cable
bills would be rising yet again. Cable rates went up by 7 percent in
Seattle, Washington and Hartford Connecticut; by nearly 8 percent in
Portsmouth, New Hampshire and St. Louis, Missouri; and by almost 9
percent in Deptford, New Jersey. (Attachment 2)
Ensuring All Subscribers Enjoy the Benefits of Competition
In the few areas where actual facilities based competition exists,
consumers enjoy cable prices that are 15 percent lower than non-
competitive markets. \11\ This suggests that the entrance of the Bell
operating companies into video distribution offers the promise of lower
prices. But one of the great disappointments of the 1996
Telecommunications Act has been the failure of competition from
alternative technologies to break down the market power of the
incumbents. This track record urges skepticism about promises about
future technologies that are ``just around the corner,'' which will
break the grip of the cable monopoly.
Skepticism is particularly warranted given statements made last
year by then-SBC that it would roll out Project Lightspeed, the
company's IPTV video offering, to 90 percent of its high-value
customers--those willing to spend up to $200 on communications services
per month. These high-value customers make up just 25 percent of its
subscriber base. SBC also contended it would provide the video service
to just 5 percent of low value customers that constitute 35 percent of
its customer base. \12\ Assurances that ``low-value customers'' would
still be able to receive satellite video through SBC's affiliation with
Dish Network ring hollow, given the failure of satellite to provide
meaningful price discipline. Instead, SBC's statements suggest that it
might seek to offer services only in largely affluent franchise areas,
disregarding franchise areas that are made up of lower or middle income
communities.
Anecdotal evidence suggests that Verizon is seeking franchise
agreements and its FiOS service roll out in some of the wealthiest
counties in the country. For example, Verizon has negotiated or signed
franchise agreements to date with largely affluent local franchise
areas--such as in Fairfax County, Va. (where it has four franchise
agreements in place for Herndon, Fairfax County, Fairfax City and Falls
Church); Howard County, Md.; Massepequa Park in Nassau County, N.Y.;
Nyack and South Nyack, in Rockland County, N.Y.; and Woburn in
Middlesex County, Mass. In terms of median family income, Fairfax
County ranks number one nationally; Howard ranks fourth; Nassau 10th;
Rockland 12th and Middlesex 17th. \13\ New Jersey, in which Verizon is
seeking a statewide franchise but resisting state-wide build-out
requirements, is home to 12 of the top 100 richest counties in the
Nation in terms of median family income.
SBC's lightly veiled admission of economic redlining and Verizon's
video franchising efforts to date raise two questions: First, will the
new entrants enter only largely affluent franchise areas of the country
that are densely populated? Second, if they enter mixed income
franchise areas (those with both high and low income populations) will
they build out service to all parts of the franchise area--even into
rural segments? Verizon has committed to universal or nearly universal
build-out in several of its franchise agreements. However, given the
wealth of those areas, it reveals little as to whether the company will
voluntarily build-out to all parts of a mixed-income franchise area,
assuming it ever enters them. However, what those commitments do show
is both that build-out has been important to those localities and that
it need not be a barrier to the company's entry. On the contrary,
Verizon has quickly negotiated agreements that offer substantial
community services and consumer protections.
Many of these agreements provide for universal or near universal
build-out to the entire franchise area, franchise fees upward of eight
percent, requirements that customer service remain local, compliance
with customer service standards and regular submission of reports on
customer complaints and service outages, support for institutional
networks, up to 19 public, educational and governmental channels with
resources supporting them, and franchise revocation provisions for
material violations of the agreement.
These agreements, and the dozens more that Verizon is pursuing,
also suggest that neither build-out nor the local franchising process
need be a barrier to entry. AT&T's failure to secure franchise
agreements is not the result of the process; it is self imposed. The
company has refused to concede that The 1934 Communications Act Title
VI franchise requirements apply to its service and has even filed suit
against counties seeking franchise agreements prior to service roll
out. \14\ Rather than seek entry to markets, it has opted to delay
pending national and state exemptions from franchising requirements and
the resolution by the courts.
If Congress seeks to streamline the franchising process nationally
in order to speed entry, it must maintain the consumer protections and
community obligations that local franchising authorities are currently
empowered to negotiate, establishing national protective requirements
and obligations that apply to all franchise areas entered.
The most important of these protections are requirements for
universal build-out to all residents within franchise areas.
Considering how important build-out requirements have been in
preventing redlining in cable service and their prominence in Bell
video franchise negotiations to date, it is essential that Congress
impose a comparable requirement nationally should it opt for a national
franchising approach to Bell video service. It is the only way to
ensure that those families who most need cable rate relief will get it.
Anti-redlining provisions, comparable to those in Title VI of the
1934 Communications Act, on their own will be not be sufficient to
ensure that low-income areas are not excluded from any competitive
benefits that Bell entry may bring. Title VI anti-redlining provisions
have only been effective because they exist in tandem with the ability
of local franchise authorities to require service throughout the
franchise area over time. Without the ability to require service to the
entire area, anti-redlining provisions are toothless.
In the absence of national build-out requirements, Congress should
require new entrants to provide sufficient financial resources to local
communities, in addition to reasonable rights-ofway fees paid, for use
in fostering alternative means of ensuring broadband competition and
service to the entire community. Those resources could be used to
establish community broadband networks, competitive commercial services
to areas underserved by the new entrant, or other means of assistance
to help low-income consumers access advanced telecommunications
services at affordable prices and meet local community communications
needs. In addition, such resources should be provided up-front, or on
an ongoing basis to facilitate the community's efforts to meet the
needs of the underserved. That is, under no circumstances should
national franchising take a wait-and-see approach to build-out. If it
is not mandated, then communities must have both the right and the
resources available immediately to begin efforts to serve low-income
residents. Given AT&T's statements and Verizon's franchising behavior,
a ``trust us'' approach is unacceptable. Each provider must also be
subject to reporting requirements that detail where service is being
provided in the franchise area and to how many households. Without
adequate data, there can be no enforceable assessment of
discrimination.
Additionally, Congress must prohibit preemption of community
broadband projects. At the same time as Verizon and AT&T tout the
benefits of competition in cable, they are aggressively trying to
foreclose it in broadband by seeking state preemption of community
broadband projects that promise to bring a third competitor into some
markets. Cable and DSL providers control almost 98 percent of the
residential and small-business broadband market. And since there are no
``open access'' requirements for telephone and cable companies to lease
their broadband lines, the only opportunities for true competition in
broadband are new broadband providers using their own lines or
facilities. Community broadband service may be one of the few remaining
opportunities for a third competitor in high-speed Internet over which
all media--TV, telephone, radio and the Web--will eventually be
delivered. Where the Bells fail to offer high-speed Internet and
Internet-based video services, it is essential that communities be able
to step in and fill that gap. Even where service is provided, the
potential threat of a third provider can help discipline prices.
Lowering Costs to Subscribers
Because the presence of actual facilities-based, video providers
has lowered prices in markets where competition exists, there is reason
to believe that a comparable effect will be experienced when the Bells
enter previously monopoly markets. But Congress should be skeptical
that a national franchise for Bell entrants will necessarily reduce
prices for an entire franchise area when the new entrant offers service
to just part of it. Dominant cable providers are exempt from the
statutory requirement for a uniform rate structure throughout the
franchise area when a competitor offers service to just half of that
area and when at least 15 percent of those offered the competitive
service actually subscribe to it. That provides the opportunity for the
incumbent cable provider to lower rates where competitive services are
offered and raise them in unserved areas. Underserved consumers would
then be hit twice--they will not have the benefit of a second choice
for video subscription services and they may be faced with higher cable
rates.
Meeting Community Needs
In addition to nationally imposed build-out requirements or, in
lieu of those requirements, significant financial resources for
communities to offer their own broadband services, any national
approach to franchising must retain, at a minimum, provider obligations
to serve local communities by requiring national obligations for:
Institutional Networks: Title VI of the Communications Act
of 1934 provides for local government requirements that
schools, libraries and government buildings be connected
through the cable network by allowing for the creation of
institutional networks (I-Nets). Any national franchise should
provide either financial resources or provider obligations to
provide for I-Nets.
Local, Independent and Diverse Programming: Title VI also
provides that franchising authorities may ``assure that cable
systems are responsive to the needs and interests of the local
community'' including Public, Education and Government (PEG)
access channels. Any national franchise should provide
comparable provisions to ensure that community needs are met
and to provide for both capacity and resources for PEG
channels.
Local Consumer Protection: Title VI authorizes franchise
authorities to establish consumer protections and technical
qualifications to ensure that consumers get the service they
are promised. These local consumer protections must be retained
in any national approach. Consumers must have a means for
timely and local resolution of complaints against their service
providers. Federalizing consumer protection is neither workable
nor acceptable. The Federal Communications Commission is ill-
equipped to address billing, services and outages complaints.
Customer service, the process for resolving complaints,
reporting requirements and accountability of providers to
officials must remain local, with appropriate and meaningful
sanctions for violations.
Local Control over Rights of Way and Appropriate
Compensation for Their Use: It is essential that localities
retain full control over management of their rights of way.
Note that Verizon has already negotiated agreements with many
localities for a five percent franchise fee plus additional
contributions for community needs. If a national franchising
process is to replace local control, it is essential to ensure
that national minimums are placed both on the franchise fee and
additional resources to meet community needs.
True Competition Requires Prohibition on Programmer Tying
Arrangements
In order for true price competition to emerge in multichannel video
markets, Congress must address anticompetitive tying requirements
imposed by dominant media companies.
At the same time that the cable distribution market has
consolidated, concentration in video programming has increased
dramatically. Broadcast giants and cable programmers have merged;
broadcast and satellite distributors have merged; and cable
distributors increasingly offer their own programming or have gained
ownership stake in other video programmers. The anticompetitive effects
of concentration in video programming decreases the likelihood that new
Bell video market entrants will be able to effectively compete on price
and on channel offerings.
Program carriage contracts typically stipulate that distributors
offer several or all of the programmer's channels in the most widely
viewed tier (usually the expanded basic tier), regardless of consumer
demand for them, and prohibit channels from being offered to consumers
individually. These bundling requirements have contributed to increased
size and price of the expanded basic tier, which has increased in cost
by two and a half times compared to the basic tier. \15\ Consumers are
forced to pay more for channels that they don't watch, just to get the
few channels that they do want.
Media companies can secure these commitments because of their
market power. Six media giants, including the top four broadcasters,
dominate the programming landscape, accounting for three-fourths of the
channels that dominate prime time. \16\ Four are networks (ABC, CBS,
FOX and NBC) and two are cable operators (Time Warner and Comcast). The
networks use the retransmission consent negotiations for carriage of
the local stations they own and operate to leverage local cable
carriage of their other channels. These six companies also completely
dominate the expanded basic tiers and the realm of networks that have
achieved substantial cable carriage. These six entities account for
almost 80 percent of the more than 90 cable networks with carriage
above the 20 million subscriber mark.
Moreover, cable operators are majority owners of one-fifth of the
top 90 national networks--a substantial stake in the programming
market. \17\ They also own minority stakes in other networks, as well.
The Government Accountability Office found that vertically integrated
distributors or those affiliated with media companies are more likely
to carry their own programming, \18\ contributing to the size and cost
of the expanded basic tier. These vertically integrated networks
continue to have the largest number of subscribers, \19\ and are the
most popular. \20\ Program ownership by dominant incumbent cable
distributors also provides the incentive to withhold carriage of cable
networks they own from competitive video distributors through use of
the ``terrestrial'' loophole in current law.
Independent, unaffiliated cable distributors that do not own their
own programming have consistently expressed concerns about exclusionary
tactics, contractual bundling requirements, and coercive retransmission
consent negotiations that limit their ability to respond to customer
demand for more choice in program packages and for lower prices. \21\
Regardless of the outcome of video franchising, if Congress wishes
to promote video competition, it must address and prohibit
anticompetitive and coercive contractual requirements for program
bundling. Failure to do so will impede the ability of any new video
market entrant, including Verizon and AT&T, to compete on price.
They'll be forced to buy the same channels their competitor is carrying
and to pay the same or greater licensing fees. Worse, they will be
precluded from offering consumers channels individually, rather than
bundled in a large package, even though doing so may give them an
opportunity to differentiate their services from the incumbent cable
monopoly and respond to strong consumer demand for greater channel
choice.
True Competition Requires Network Neutrality
While it is certainly true that head-to-head competition helps
consumers, it is also important to recognize that a duopoly (cable and
telephone companies) is not enough to create vigorous competition that
gives consumers the full benefit of a competitive video and broadband
market. As subscription video services are increasingly offered using
Internet-based technologies, maintaining the Internet as a neutral
platform on which network owners cannot discriminate becomes even more
essential. The Bells are not the only providers who could compete with
cable. Increasingly, ``video on demand'' is being offered over the
Internet, where consumers can access movies or pay to watch a single
episode of a single program. As Congress considers ways to increase
competition in video services, it must not overlook independent
Internet content providers as a third competitor. But that source of
competition will be squelched if Congress fails to adopt strong,
enforceable prohibitions on network discrimination.
As the Bells enter the video marketplace, there exists an even
stronger incentive for both cable and telephone companies that own and
control the broadband pipes to discriminate against companies that
offer services over the Internet that compete with their own. Both
cable and telephone companies who also own and control broadband
networks will have an incentive to use their network control to
prioritize their own content over others, preventing users from
accessing competitive video services offered by Internet providers.
Moreover, there will be a temptation to recover the costs of the
new video networks by charging not only broadband subscribers but also
those firms offering content and services over the Internet. Recent
media reports describe operators' plans to create pay-for-play
``tiers'' of premium service. The fees charged to content and service
providers would inevitably find their way down to consumer wallets that
have already paid for access. Though this may be rational market
behavior for short-term return on investment, it is patently
discriminatory and reflects a fundamental change in the nature of the
Internet.
With a strong network discrimination prohibition, the promise for
competition in video will come not just from Verizon and AT&T, but from
any other entrepreneurial company that offers video via the Internet in
a manner more appealing to consumers. Without such a prohibition,
however, that promise of competition and innovation will be lost.
The appearance of integrated video and broadband services like
franchised IPTV should not distract policy makers from the fundamental
and pro-competitive policy of network neutrality. Similar services and
content on the Internet must be treated alike, and network owners must
not be allowed to favor their own services by blocking customer access
to competitive services offered on the Internet or to erect barriers to
entry into what has been a competitive online marketplace by requiring
innovators to pay for access to the network.
It is imperative that, as part of its consideration of competition
in video markets, Congress prohibit network operators from blocking,
impairing, or discriminating between content and service providers. The
consumer, not the network operator, should determine winners and losers
in the online marketplace.
Conclusion
The need for greater competition in the monopolistic video
marketplace is an urgent one--but it has been urgent for ten years. We
urge Congress to take the time to consider the many policy issues that
must be addressed beyond the question of franchising if it seeks to
spur true video competition and the consumer benefits that spring from
it. These include mandatory build out requirements or in lieu thereof,
resources to meet the needs of underserved consumers; consumer
protections and provider obligations to serve community needs;
prohibitions on preempting municipal broadband systems; prohibitions on
anticompetitive contractual channel bundling requirements that reduce
consumer choice and prevent product differentiation; and a strong
enforceable prohibition on network discrimination.
Attachment 1
Attachment 2
Announced Cable Rate Increases for 2005, 2006
------------------------------------------------------------------------
Rate Increase
Community Cable Provider (in percent)
------------------------------------------------------------------------
Ann Arbor, MI Comcast 6.0
Baton Rouge, LA Cox 5.0
Boston, MA Comcast 5.9
Burlington, VT Adelphia 5.2
Cincinnati, OH Time Warner 6.1
Clark County, WA Comcast 7.1
Columbia, SC Time Warner 4.9
Deptford, NJ Comcast 8.9
Evansville, IN Insight 8.4
Hartford, CT Comcast 7.0
Houlton, ME Polaris Cable 5.0
Houston, TX Time Warner 3.4
Lincoln, NE Time Warner 5.0
Little Rock, AR Comcast 3.5
Madison, WI Charter 4.4
New York City, NY Time Warner 6.0
New York City, NY Cablevision 2.8
Northern, KY Insight 3.3
Oklahoma City, OK Cox 5.0
Orlando, FL Bright House 5.0
Phoenix, AZ Cox 5.0
Portland, OR Comcast 7.1
Portsmouth, NH Comcast 7.9
Providence, RI Cox 4.7
Reno, NV Charter 5.9
Richmond, VA Comcast 5.9
Rochester, NY Time Warner 5.6
Rockford, IL Insight 7.0
Sacramento, CA Comcast 6.0
San Francisco, CA Comcast 5.7
St. Louis, MO Charter 7.8
Tupelo, MS Comcast 5.5
Wheeling, WV Comcast 9.0
------------------------------------------------------------------------
Source: Local Media Accounts
ENDNOTES
\1\ Consumers Union is a nonprofit membership organization
chartered in 1936 under the laws of the state of New York to Provide
consumers with information, education and counsel about good, services,
health and personal finance, and to initiate and cooperate with
individual and group efforts to maintain and enhance the quality of
life for consumers. Consumers Union's income is solely derived from the
sale of Consumer Reports, its other publications and from noncommercial
contributions, grants and fees. In addition to reports on Consumers
Union's own product testing, Consumer Reports with more than 5 million
paid circulation, regularly, carries articles on health, product
safety, marketplace economics and legislative, judicial and regulatory
actions which affect consumer welfare. Consumers Union's publications
carry no advertising and receive no commercial support.
\2\ The Consumer Federation of America is the Nation's largest
consumer advocacy group, composed of over 280 state and local
affiliates representing consumer, senior, citizen, low-income, labor,
farm, public power an cooperative organizations, with more than 50
million individual members.
\3\ Free Press is a national nonpartisan organization with over
200,000 members working to increase informed public participation in
crucial media policy debates.
\4\ Federal Communications Commission, 2002b, Table C-1. Kagan,
Paul Associates. Major Cable TV System Clusters. Carmel, California:
Paul Kagan Associates 1998; Federal Communications Commission, Tenth
Annual Report.
\5\ Kagan, Paul Associates. Major Cable TV System Clusters. Carmel,
California: Paul Kagan Associates 1998; Federal Communications
Commission, Tenth Annual Report.
\6\ General Accounting Office. ``Issues Related to Competition and
Subscriber Rates in the Cable Television Industry,'' Report to the
Chairman, Committee on Commerce, Science, and Transportation, U.S.
Senate, October 2003, GAO-04-8, Appendix IV.
\7\ Subcommittee on Antitrust, Monopolies and Business Rights,
Committee on the Judiciary, United States Congress. Competitive Issues
in the Cable Television Industry. March 17, 1988; Committee on Energy
and Commerce, Report on H.R. 4850, Senate Committee on Commerce and
Science, Report on S12.
\8\ Federal Communications Commission. ``Report on Cable Industry
Prices.'' In The Matter of Implementation of Section 3 of the Cable
Television Consumer Protection and Competition Act of 1992, Statistical
Report on Average Rates for Basic Service, Cable Programming Service,
and Equipment, 2002, p. 20.
\9\ General Accounting Office. ``Issues Related to Competition and
Subscriber Rates in the Cable Television Industry,'' Report to the
Chairman, Committee on Commerce, Science, and Transportation, U.S.
Senate, October 2003, GAO-04-8 , p. 11. ``The Effect of Competition
From Satellite Providers on Cable Rates.'' Report to Congressional
Requesters, GAO/RCED-00-164, July 2000.
\10\ Bureau of Labor Statistics, U.S. Department of Commerce,
December 2005.
\11\ GAO-04-8, p. 11.
\12\ USA Today. ``Cable, phone companies duke it out for
customers,'' June 22, 2005.
\13\ U.S. Census Bureau. Median Family Income; Counties within the
U.S., 2004 American Community Survey.
\14\ Multichannel News. ``SBC Sues Calif. City Over Access,''
December 19, 2005.
\15\ Mark Cooper, Time to Give Consumers Real Cable Choices,
Consumer Federation of America & Consumers Union, July 2004, p. 5.
\16\ MM Docket No. 92-264, Comments of CFA, CU, Free Press in the
Matter of The Commission's Cable Horizontal and Vertical Ownership
Limits and Attributions Rules., August 8, 2005.
\17\ GAO-04-8, p. 27.
\18\ Id. at 29.
\19\ Federal Communications Commission, Annual Assessment of the
Status of Competition in the Market for the Delivery of Video
Programming: Eleventh Annual Report, January 14, 2005, para. 150.
\20\ Id. at para. 151.
\21\ EchoStar Communications Corporation, Testimony of Charles
Ergen, Chairman & CEO, EchoStar Communications Corporation before the
Senate Committee on Commerce, Science and Transportation, January 19,
2006; Testimony of Bennett Hooks, Chief Executive Officer, Buford Media
Group on behalf of the American Cable Association, before the
Subcommittee on Telecommunications and the Internet, July 14, 2004.
The Chairman. Thank you. Our last witness is Gigi Sohn,
President and Co-Founder of Public Knowledge here in
Washington.
STATEMENT OF GIGI SOHN, PRESIDENT/CO-FOUNDER, PUBLIC KNOWLEDGE
Ms. Sohn. Thank you, Chairman Stevens, Co-Chairman Inouye
and Members of the Committee. I'm president of Public
Knowledge, which is a nonprofit organization that promotes
fundamental Democratic principles and cultural values,
openness, access and the capacity to create and compete for the
digital age.
Public Knowledge believes that competition provides
consumers with the widest choice of video services at the
lowest prices. While the local franchising model produced many
important benefits over the past 20+ years, it also created
disadvantages, both for incumbent and competitive video service
providers.
Today, market conditions require another approach. If
consumers are to reap the benefits of competition, then
Congress should create a national franchise for video service
providers. We believe that, subject to certain conditions that
preserve the best features of local franchises, permitting
broadband video service providers to avoid negotiating
thousands of individual franchise agreements will bring more
competition to market faster, resulting in greater consumer
choice and lower prices. If it adopts national franchise,
Congress should ensure four things: One, that localities remain
empowered to control their streets and protect their citizens
and that they receive reasonable compensation for granting the
franchise; two, that broadband video service providers make
available adequate capacity for public, educational and
governmental uses; three, that universal access to broadband
services is promoted; and four that broadband Internet
providers make their networks available to all applications,
content and services are on a nondiscriminatory basis.
I want to focus on this fourth condition. As we undertake
this discussion of video franchises, I am truly heartened to
hear so many Members of this Committee understand that
broadband video is not just a stand-alone service, but it is
also part of telephone and cable companies suite of broadband
offerings. The companies are marketing their video services in
this matter, as just one piece of a larger broadband pie that
is entirely different from traditional cable and is based, in
part, on that distinction that broadband video service
providers are seeking a national franchise.
Thus, the decisions Congress makes regarding video
regulation will impact the rollout of new, sophisticated
broadband conduits that will carry not only one-way television-
like video, but also interactive video, medical and educational
services, super high-speed data and telephone services. FCC
Chairman Martin recognized this impact at the Commission's
meeting in Keller, Texas, last Friday when he said that
fostering the spread of new video services ``promotes the
deployment of the broadband networks over which the video
services are provided''.
This country has a 20-year history of allowing localities
to administer their cable franchises. Any departure from this
policy should only be granted if the public interest benefits
of a national franchise are clearly set forth in the law.
Therefore, should Congress give broadband video service
providers the extraordinary regulatory relief and cost savings
provided by national broadband video franchises, it should also
require net neutrality. Net neutrality will ensure that those
same companies make their broadband networks available to all
applications, content and service providers on a
nondiscriminatory basis.
The Internet has become a powerful engine of innovation,
communication, education and economic growth because of, and
not in spite of, a requirement that network providers allow
consumers to access any application, content or service without
fear of gatekeeper control. Recent legal and policy changes
will move that obligation giving broadband network operators
the ability and incentive to favor content and services in
which they have a financial interest to the detriment of
competitors and consumers.
Public Knowledge recently issued a report, which is
appended to my written statement, finding at least eight
documented examples of discrimination or blocking by cable,
wireless and phone companies. Furthermore, several economic
studies show that broadband network operators will have
increasing incentives to block traffic. A net neutrality
requirement would address real harms and need not involve the
burdensome revenue to a regime, and it would provide a
reasonable balance, the tremendous benefits that a national
franchise would give broadband video service providers.
In closing, Chairman Stevens, last week, you asked some of
the witnesses at the Committee's net neutrality hearing whether
Congress should completely rewrite the Communications Act,
whether it should undertake a narrow bill or whether to do
nothing at all. My answer is this, the public interest would
best be served by a narrow bill that provides national
franchise relief for broadband video services and requires net
neutrality for broadband, Internet and network operators. Thank
you. I look forward to your questions.
[The prepared statement of Ms. Sohn follows:]
Prepared Statement of Gigi B. Sohn, President/Co-Founder, Public
Knowledge
Chairman Stevens, Co-Chairman Inouye and other Members of the
Committee, my name is Gigi B. Sohn. I am President of Public Knowledge,
a nonprofit public interest organization that addresses the public's
stake in the convergence of communications policy and intellectual
property law. Public Knowledge promotes fundamental democratic
principles and cultural values--openness, access, and the capacity to
create and compete--that must be given new embodiment in the digital
age. I thank the Committee for inviting me to testify on video
franchising issues. \1\
---------------------------------------------------------------------------
\1\ I would like to thank Public Knowledge interns Neil Chilson and
Mike Larmoyeux for their assistance in researching and drafting this
testimony.
---------------------------------------------------------------------------
Introduction and Summary
Public Knowledge believes that competition provides consumers with
the widest choice of video services at the lowest prices. While the
local franchising model produced many important benefits over the past
40 years, it also created disadvantages both for incumbent and
competitive video service providers.
Today, new market conditions require another approach. If consumers
are to reap the benefits of competition, then Congress should create a
national franchise for video service providers. We believe that,
subject to certain conditions that preserve the best features of local
franchises, permitting broadband video providers to avoid negotiating
thousands of individual franchise agreements will bring more
competition to market faster, resulting in greater consumer choice and
lower prices.
A national franchise also provides huge benefits to new broadband
video service providers. These benefits include enormous cost savings
and greater speed bringing services to market. The one-step process of
a national franchise would be a dramatic change from the way we have
regulated video services for the past four decades.
As we undertake this discussion of video franchises, we must
recognize that we are not only talking about a service--we are talking
about a technology and transport mechanism with capabilities far beyond
ordinary video programming services. The decisions Congress makes
regarding video regulation will impact the rollout of new,
sophisticated broadband conduits that will carry not only video, but
also data and telephone services. Rather than splitting hairs, or hair-
thin fiber, Congress should recognize that it is opening the way not
only for video into the home, but for advanced broadband offerings.
While considering the franchise issue, we suggest Congress balance
the tremendous benefits that a national franchise would give to
broadband video service providers with a requirement that those
companies make their networks available to all applications, content
and service providers on a non-discriminatory basis. This ``net
neutrality'' requirement will ensure, in light of recent legal and
policy changes, that the broadband Internet remains the most powerful
engine of economic growth, education and communication on the planet.
A National Franchise Would Benefit Consumers
It is no mystery that more competition leads to lower prices and
greater choice in the multichannel video market. According to a recent
FCC report, average cable rates for basic and expanded basic service
were 15.7 percent lower than in communities with a competing wireline
overbuilder compared to those communities without a wireline
overbuilder. \2\ Similarly, in communities with a competing wireline
overbuilder, the number of channels on basic and expanded basic
increased by 4 percent in 2003 and by 5.5 percent for the period of
July 1998-2004. \3\
---------------------------------------------------------------------------
\2\ See Report on Cable Industry Prices, 20 FCC Rcd 2718, 2721, at
para. 12 (2005).
\3\ Id. at para. 11.
---------------------------------------------------------------------------
Somewhat more surprising, however, is the severe lack of robust
video competition, or at least what the FCC considers ``effective''
competition. \4\ According to the most recent video competition order,
only 3.7 percent of areas served by cable meet the standard for
effective competition based on the Commission's four-part test. \5\
---------------------------------------------------------------------------
\4\ ``Effective competition exists where the Commission has found
that a multi-channel video programming distributor (MVPD) meets one of
the four tests within its franchise area: (1) fewer than 30 percent of
households subscribe to service of the cable system (the ``low
penetration test''); (2) at least two MVPDs serve 50 percent or more of
households and at least 15 percent of those households takes service
other than from the largest MVPD (the ``overbuild test''); (3) a
municipal MVPD offers service to at least 50 percent of households (the
``municipal test''); (4) a local exchange carrier or its affiliate (or
any MVPD using the facilities of the LEC or its affiliate) offers video
programming service other than DBS comparable to the service of an
unaffiliated MVPD (the ``LEC test''). In re Implementation of Section 3
of the Cable Television Consumer Protection and Competition Act of
1992, 20 FCC Rcd 3485 at n.3 (2005).
\5\ Since a cable operator must affirmatively seek certification
from the FCC of the existence of effective competition, these numbers
do not reflect the actual number of communities that might meet the
test. However, even if the FCC's numbers were multiplied by a factor of
ten, nearly two thirds of the Nation's areas served by cable would
still lack effective competition. In any event, we would ask the
Committee to rectify this lack of data by requiring that the FCC
undertake a study to determine how many cable service areas are subject
to effective competition. Two of the current FCC Commissioners have
noted this lack of data. Report on Cable Industry Prices, 20 FCC Rcd at
2753-4 (Joint Statement of Commissioners Michael J. Copps and Jonathan
Adelstein, concurring) (``the Commission gathers less than adequate
data and conducts less analysis than it did even a few years ago.'').
---------------------------------------------------------------------------
A national franchise regime would quickly bring the benefits of
competition to consumers, because competitive video providers would
avoid thousands of individual negotiations with localities. We already
see the consumer benefits, in price and choice, in the brief rollout of
Verizon's FiOS service. For example, a recent Bank of America analysis
showed that in each of the three markets where Verizon has rolled out
its service, incumbent cable operators have offered consumers prices
far lower than their previously advertised prices. If, as discussed
below, Congress maintains the best features of local franchising while
implementing a national franchise regime, there is no good policy
reason to keep this competitive benefit away from consumers nationwide.
Nor is there any good policy reason not to prohibit incumbent video
service providers from benefiting from this streamlined process after
their current agreements have expired.
The Best Features of Local Franchising Should Be Retained
Should Congress choose to adopt a national franchise, it should
retain some of the important and best features of local franchises.
First, it should ensure that localities remain empowered to protect
their streets and their citizens, and that they receive compensation
for the grant of the franchise. Localities should have control over
their rights of way for public safety or zoning purposes, and they
should retain the ability to enforce consumer protection standards.
However, these powers should not be used to recreate the local
franchise agreement by permitting localities to make demands of
broadband video service providers that go beyond those narrow purposes.
\6\
---------------------------------------------------------------------------
\6\ Public Knowledge believes that such local authority should
mirror the narrowly tailored character of section 253 of the
Communications Act. Section 253 preempts local regulation of
telecommunication franchises, but provides specific exceptions
including permission to ``manage the public rights-of-way.'' 47 U.S.C.
Sec. 253. Various local franchise authorities have interpreted these
exceptions as broad grants of authority, but the courts have
consistently denied such interpretations. See generally TCG New York,
Inc. v. White Plains, 305 F.3d 67 (2d Cir. 2002) (holding that a city
ordinance permitting local authorities to reject an application based
on any ``public interest factors'' was preempted by Sec. 253). Instead,
courts have generally required all regulations to be substantially
related to the management of rights-of-way. Id. at 81-82. Additionally,
local authorities may only levy fines, penalties and other sanctions to
preserve the public welfare. Auburn v. Qwest Corp., 260 F.3d 1160 (9th
Cir. 2001). Similarly specific and narrow local authority for video
franchises will preserve the purposes of a national franchise yet
enable appropriate local participation.
---------------------------------------------------------------------------
Second, Congress should require that broadband video service
providers make adequate capacity available for public, educational and
governmental uses, including institutional networks for local public
safety. This capacity should, at a minimum, be no less than what the
incumbent cable operator already provides.
Third, Congress should use the national franchise process to
promote the goal of universal access to broadband. As discussed below,
new broadband video service is interrelated to broadband Internet
service. Thus, any mechanism that speeds access to broadband video
service would also help speed access to broadband Internet service.
This is a vital goal in a country which is ranked 16th in broadband
adoption worldwide.
A Net Neutrality Requirement Should be Part of Any Effort to Codify
National Franchising
While this hearing is intended to be limited to the relatively
narrow issue of franchising for new broadband video services, I would
urge this Committee to view broadband video not as a wholly separate
entity, but as just one piece of telephone and cable companies' larger
broadband network offerings. AT&T's Project Lightspeed service is
delivered over its broadband network, and Verizon's FiOS video service
is delivered through the same pipe as its broadband Internet service
(albeit via a different laser). Indeed, both companies are making no
distinction between their video, voice and data services, and instead
are marketing their services as broadband services that are wholly
different from traditional cable. Here is how Verizon CEO Ivan
Seidenberg described his company's broadband offerings to the National
Association of Broadcasters last year:
We also are the first communications company to make a major
commitment to taking fiber all the way to homes and businesses.
This network, which we call FiOS, delivers super-fast data and
Internet access at speeds of up to 30 megabits downstream and 5
megabits upstream. Our system will deliver 100 megabits
downstream and up to 15 megabits upstream . . . making FiOS the
fastest, most interactive network being deployed in America
today. . . .
Both of these next-generation networks [FiOS and Verizon's
wireless broadband network] are setting a new standard for
broadband services in America. They provide a common protocol
and a common infrastructure for voice, data and video services.
They link to all kinds of interactive devices--anywhere,
anytime. They are built for multi-tasking, and they enable a
whole new generation of innovative services--from voice-over-IP
to video messaging to multi-player games, shopping, interactive
learning and lots of others.
Similarly, AT&T Executive Vice President Lea Ann Champion told the
House Commerce Committee:
In short, we are not building a cable network, nor do we have
any interest in being a cable company offering traditional
cable service. Instead, we intend to offer customers a new
total communications experience, one that they can customize to
suit their families' needs and tastes.
Skeptics may say that we have been talking about media
``convergence'' for the past 20 years, but as Mr. Seidenberg's speech
suggests, that convergence is happening, and it is happening now.
Anyone who attended the International Consumer Electronics show saw
currently available technologies, that blur the lines between
broadcast, cable, and Internet video. The day when a consumer will not
be able to distinguish whether her video service came from traditional
cable or the Internet is fast approaching--and many would say it is
already here.
Therefore, should Congress grant video providers the extraordinary
regulatory relief represented by national broadband video franchises--
turning nearly 40 years of local control of video services on its
head--Congress must also ensure ``net neutrality.'' Net neutrality
requires the broadband Internet pipe to remain open to all applications
and services, including video, on a non-discriminatory basis. \7\ The
Internet has become an extraordinarily popular engine of innovation,
social networking and commerce because of, not in spite of, an
enforceable obligation. That obligation required network providers to
keep their networks open to all consumers, applications, content and
service providers. Recent Supreme Court and FCC rulings defining
broadband networks as unregulated ``information services'' removed that
obligation. As a result, broadband network operators now have the same
authority as traditional cable systems to control the content, services
and equipment consumers receive or use, and to favor content and
services in which they have a financial interest. And because the
telephone and cable operators who own nearly all broadband networks in
this country are what Consumer Federation of America Research Director
Mark Cooper calls a ``dynamic duopoly, `' they have the ability and the
incentive to abuse that authority to the detriment of competitors and
consumers.
---------------------------------------------------------------------------
\7\ Public Knowledge is not advocating ``net neutrality'' for video
services regulated solely under Title VI of the Communications Act.
---------------------------------------------------------------------------
Opponents of net neutrality claim that it is a ``solution in search
of a problem.'' But the search for a problem is brief when executives
of two of the largest broadband network providers announce publicly
that their companies intend to discriminate. AT&T CEO Ed Whitacre's
statement to Business Week that ``for Google or Yahoo! or Vonage or
anybody to expect to use (AT&T's broadband) pipes for free is nuts,''
is now legend. Similarly, Verizon Executive Vice President John
Thorne's statement last week that Google's ``free lunch'', i.e., free
transport over broadband networks, is about to end, \8\ demonstrates a
very real intent to discriminate.
---------------------------------------------------------------------------
\8\ Arshad Mohammed, ``Verizon Executive Calls for End to Google's
`Free Lunch', Washington Post, February 7, 2005 at D1.
---------------------------------------------------------------------------
Moreover, in a white paper that Public Knowledge released last
week, we document not only instances of blocking and degradation of
certain applications and content by network providers, but also show
that technologies are being marketed to network providers for such
purposes. The white paper, entitled ``Good Fences Make Bad Broadband:
Preserving an Open Internet Through Net Neutrality'' is appended to
this testimony.
Opponents also claim that codification of ``net neutrality'' will
lead to burdensome regulation that will stifle investment in broadband.
But reserving the openness of the Internet and preventing it from
become a closed system can be accomplished with a light regulatory
touch. Public Knowledge believes that such a requirement should be very
straightforward--preventing blocking or other degradation of content,
application or services--while allowing network providers to handle
legitimate legal, security and traffic issues. The FCC could enforce
this requirement through a complaint process started by an aggrieved
consumer, application, content or service provider. \9\ Under Public
Knowledge's plan, the network provider would bear the burden of showing
that it either did not discriminate or that it discriminated for the
legitimate reasons set out above. And any application, content or
service that is the subject of the complaint would remain unimpaired
until the matter is resolved.
---------------------------------------------------------------------------
\9\ ``What we need instead of `anticipatory' regulation is a
market-driven approach. This does not mean that there is no role for
government. It's simply an updated role. Instead of attempting to
anticipate how the market will develop and then write the rules
governing that market, government empowers consumers to shape the
market and thereby set the rules of the game. Government is not on the
field calling the plays, or is it writing the rules. Instead, it fills
a referee-like role, observing the field of play, responding to
complaints from any of the players, and addressing cases of market
failure.''
---------------------------------------------------------------------------
Telephone and cable companies will derive enormous benefits from a
national franchise for video services. Companies will realize
significant cost savings by avoiding expensive individual franchise
agreement negotiations. Equally significant will be cost savings such
as flat franchise fees and freedom from other financial obligations
often provided for in franchise agreements. This one-step process is a
radical change from the way we have regulated video services over the
past forty years. Congress should balance this benefit with a
requirement that these very same companies make their broadband pipes
available to all applications, content and service providers without
discrimination or degradation.
Conclusion
In our increasingly broadband communications world, a national
franchise for video services will expedite competition to the benefit
of consumers. But a national franchise without a concurrent ``net
neutrality'' obligation will give consumers far less than what they
have come to expect in this new world. Thus, we urge this Committee and
this Congress to balance any national franchise relief with a
requirement that ensures that broadband networks are not subject to
discriminatory gatekeepers. I thank you for inviting me to testify
today, and I look forward to any questions you might have.
Attachment
Public Knowledge, February 6, 2006
Good Fences Make Bad Broadband--Preserving an Open Internet through Net
Neutrality
A Public Knowledge White Paper by John Windhausen, Jr.
Executive Summary
The genius of the Internet is its promise of unlimited
accessibility. With very limited exceptions, any consumer with an
Internet connection and a computer can visit any web site, attach any
device, post any content, and provide any service.
While the openness of the Internet is universally praised, it is no
longer guaranteed, at least for broadband services. Recent Supreme
Court and FCC rulings define broadband networks as unregulated
``information services,'' which means that the operators of broadband
networks are no longer under any legal obligation to keep their
networks open to all Internet content, services and equipment.
Broadband providers now have the same authority as cable providers
to act as gatekeepers: the network owner can choose which services and
equipment consumers may use. Network operators can adopt conflicting
and proprietary standards for the attachment of consumer equipment, can
steer consumers to certain web sites over others, can block whatever
Internet services or applications they like, and make their preferred
applications perform better than others.
This concern is not just theoretical--broadband network providers
are taking advantage of their unregulated status. Cable operators have
barred consumers from using their cable modems for virtual private
networks and home networking and blocked streaming video applications.
Telephone and wireless companies have blocked Internet telephone
(VoIP--Voice over the Internet Protocol) traffic outright in order to
protect their own telephone service revenues. Equipment manufacturers
are marketing equipment specifically designed to ``filter'' out (i.e.
block) VoIP traffic. Wireless companies often write limitations into
consumers' service agreements that have nothing to do with excessive
bandwidth consumption.
The problem is likely to become worse in the near future. One
telephone company executive threatened to put a stop to on-line
providers that use the telephone network ``for free'' (even though on-
line providers pay to connect to the network). Another telephone
company executive openly announced that his company intends to
establish a higher-priced ``tier'' of service reserved exclusively for
content providers chosen by the network operator. This raises the
concern that consumers and start-up application providers will be
relegated to the ``slow lane'' on the information superhighway.
These examples of discrimination, which this paper shows are
greater in number than the network operators like to acknowledge, are
on the increase because network operators have economic incentives to
discriminate. Network owners today are more than just passive providers
of transmission capacity (the ``conduit''); they also own and provide
services, applications and equipment (the ``content''). By giving their
own (or their affiliated) applications and content preferential access
to the network, they can extract greater profits than if they operate
the network on a non-discriminatory basis.
As a result, several groups have called upon Congress to enact, or
the FCC to adopt, an enforceable ``Net Neutrality'' rule to ensure the
Internet remains open and accessible to all. Not surprisingly, the
network owners object, arguing that such a policy is unnecessary and
will delay their deployment of broadband technologies.
This paper analyzes the Net Neutrality debate in more detail. The
paper is divided into four parts:
Part I is a reference guide on the Net Neutrality issue. It reviews
the rights at stake, describes the terms used in the debate, provides a
brief legal history of broadband network regulation, summarizes the
positions of the parties, describes documented examples of
discrimination or blocking, and includes matrices that compare the
differences among parties and proposals for action.
Part II makes the case in favor of a Network Neutrality rule. It
describes the enormous societal and economic benefits of keeping the
broadband Internet network open to all users. Broadband networks are
fast becoming the essential lifeline of our economy and society,
carrying on-line commercial transactions, current events, local and
national advertising, telemedicine and distance learning, music and
entertainment, interactive games, and videoconferencing. Allowing the
increasingly concentrated cable and telephone industries to have
unchecked control over our access to these sources of information,
entertainment and commerce is cause for great concern.
Net Neutrality is also important for our high-tech manufacturing
industry. Billions of dollars are invested every year at the ``edge''
of the network by the high-tech computing industry, the on-line
commerce industry, the gaming industry, the news and information
industry, and the research community. A statutory Net Neutrality rule
will give investors the confidence to support new, innovative
applications. On the other hand, giving network operators the potential
to block competing applications from getting on the network may be
enough to frighten investors away from otherwise worthy new Internet
applications.
In short, open broadband networks are vitally important to our
society, our future economic growth, our high-tech manufacturing
sector, and our First Amendment rights to information free of
censorship or control. Even if an openness policy imposes some slight
burden on network operators, these microeconomic concerns pale in
comparison to the macroeconomic benefits to the society and economy at
large of maintaining an open Internet.
Part III responds to four arguments against Net Neutrality raised
by the network operators:
1) Network operators allege that Net Neutrality is a ``solution
in search of a problem'' because there is only one documented
case of blocking. In fact, network operators have already
engaged in at least 8 known cases of blocking in the U.S. and
are likely to block or interfere with more traffic in the
future. Network operators have incentives to leverage their
control over the network to reap additional profits in upstream
markets.
2) Network operators allege that Net Neutrality will interfere
with their ability to manage their networks, for instance, to
prevent spam, viruses and congestion. In fact, there is no
reason to believe that a simple non-discrimination policy
should interfere with the operators' network management
responsibilities. Telephone companies have always managed their
networks to protect against unlawful use even under a much more
onerous common carriage regime.
3) Network operators allege that Net Neutrality will interfere
with their ability to earn a return on their broadband
investment and that it will stifle their deployment of
broadband networks. In fact, Net Neutrality promotes broadband
deployment because it increases the value of services and
applications over the Internet, which increases consumer demand
for broadband networks. The greater the demand, the more
network operators will invest in broadband to meet it.
Furthermore, there remain many opportunities for network
operators to profit from their broadband investment that do not
involve blocking or discrimination. For instance, network
operators can continue to develop their own content and/or
enter joint marketing arrangements or other promotional
arrangements with other content providers.
4) Network operators maintain that Net Neutrality will prevent
them from creating ``tiers'' of service, or a ``private
Internet.'' In fact, Net Neutrality does not necessarily
prevent network operators from offering levels of access, at
higher rates, as long as the tier is offered on a
nondiscriminatory basis to every provider and as long as all
broadband customers are offered a minimum level of broadband
service. A Net Neutrality principle does, however, prohibit the
creation of a ``private Internet'' that grants exclusive access
to the higher bandwidth levels to certain providers selected by
the network operator.
Part IV provides an outline of a possible Net Neutrality rule or
statute. Net Neutrality does not require detailed rules that require
network operators to obtain government pre-approval to manage their
networks. Network Neutrality can be enforced through a simple complaint
process, as long as the network operator bears the burden of
demonstrating that any interference with traffic is necessary.
For the full text of Good Fences Make Bad Broadband: Preserving an
Open Internet through Net Neutrality, * please visit: http://
static.publicknowledge.org/pdf/pk-net-neutrality-whitep-20060206.pdf
---------------------------------------------------------------------------
* The information referred to has also been retained in Committee
files.
The Chairman. Thank you very much. Thank you all. I regret
that the decision to have you all be at the same table has
meant the first four had to stay around till this time to have
questions asked of them, but I do hope that you'll give us the
courtesy of trying to keep your answers short, and we'll at
least try to keep our time short so that you can be sure that
we won't go too far into the afternoon. Let's put it that way.
Let me start off by asking Mr. Seidenberg, how long has it
taken you so far on average to get a franchise?
Mr. Seidenberg. Well, they vary, Senator, but it's at least
a year up to 14-15 months in some cases.
The Chairman. For each one?
Mr. Seidenberg. Some we're not even encouraged to file
because the municipalities see that there's going to be
controversy or there are going to be issues, so they tell us
not to file. So, we have a lot in queue that we haven't even
filed yet. If I added that to the time period, I can tell you
that the process is 18 to 24 months usually.
The Chairman. Mr. Whitacre, does the time frame affect your
decisions as to whether you should enter a particular market in
terms of this transition?
Mr. Whitacre. Yes, it does. As you know, we're doing IPTV,
which is a little different than how Mr. Seidenberg's company
is doing it. Technology is just now getting there, but of
course, and we plan to cover like 1.8 or 3 million households
by the end of the year. But certainly, it impacts that and, you
know, we're reluctant, and you have to slow down when this
franchise thing is hanging over you, so we're just getting
started. We hope it gets resolved so that we don't really face
that in other states.
The Chairman. Mr. Rutledge, I listened carefully to your
statement. My memory is is when cable television entered the
telephone business as a competitive local exchange carrier,
Congress gave you the right with special rules, a no-buildout
requirement and little regulation. Now, why shouldn't that same
thing apply to the telephone companies as they come out into
your market?
Mr. Rutledge. Well, I think that the difference between the
CLEC situation and the cable situation is that you have an
existing network operator, a very large--both, you know, both
of these companies are bigger than the entire cable industry,
very large franchised or regulated public utility companies
that have existing rights-of-way and existing networks. They're
talking about upgrading their networks. The CLECs that were
created around the country were new industries, new businesses,
that had no existing infrastructure. So, it's a completely
different situation.
With regard to voice over IP, though, the rules are the
same for both industries today. The phone industry can provide
voice over IP under the same conditions that cable operators
can. Our company actually is a CLEC operator. We created a CLEC
in the mid 1990's, and we filed tariffs with the states that we
operate and created a business that primarily served
businesses, not residential consumers.
The Chairman. You're telling me that fair is not fair.
Mr. Rutledge. Pardon me?
The Chairman. You're telling me that fair is not fair, that
the same privileges should not be given to the telephone
companies to enter your business as you entered into theirs.
Mr. Rutledge. Well, I don't think it is fair. I think that
to allow the phone companies to cherry pick where they're going
to put video, which I think is the real issue here, they want
to serve only limited parts of communities. That's a very
unfair thing for an existing entrenched operator to have that
opportunity whereas we have just gone through a $100 billion
upgrade process and built out our entire network to all parts
of the community.
The Chairman. OK. I want to live within my own time frame
if you don't mind, OK? Ms. Panzino-Tillery, I understand what
you're saying, but do you really think a local community should
be able to say a communications company should upgrade traffic
signals or put flowers along the highway, or shouldn't there be
some limits to what a community can ask for as a secondary
benefit after they get their fee for issuing a franchise?
Ms. Panzino-Tillery. There are limits, Mr. Chairman.
The Chairman. What are the limits?
Ms. Panzino-Tillery. Well, Title VI claims that only those
replacements should have a direct connection to the provision
of the cable service.
The Chairman. Say we need a traffic cop.
Ms. Panzino-Tillery. Well, upgrading of streetlights------
The Chairman. You heard Mr. Seidenberg, what they've asked
for. Do you think that's fair?
Ms. Panzino-Tillery. I don't necessarily agree with his
comments, Mr. Chairman.
The Chairman. You don't agree that he's been asked for all
these subsidiary things that have nothing to do with
communications in order to get a franchise?
Ms. Panzino-Tillery. Not necessarily.
The Chairman. All right. Thank you. My last question, Mr.
Riddle, Public, Education, Government, PEG channels, I do
appreciate your statement, and we've known each other a long
time. Why should a community be able to ask for as many as 14-
15 PEG channels when New York only has four?
Mr. Riddle. Well, it's ironic. I used to work in New York,
and actually, having only four channels in New York City was
wholly inadequate. In addition, those four channels represented
only the public access channels.
The Chairman. Shouldn't there be some limit? That section
didn't mean you could keep going and ask more and more and more
and more from one provider, did it?
Mr. Riddle. No, generally there are limits that are agreed
to, but I would like to point out----
The Chairman. Would you mind if we put limits on?
Mr. Riddle. Well, no, I don't think that that would be a
problem as long as we recognize that systems change and that
the percentage of public bandwidth should remain proportionally
the same as the systems change so that the public wouldn't be
cut out of technological change and system growth.
The Chairman. I'm going to yield to Senator Inouye. I do
hope--each of us has one or two specific questions. If you
don't mind, could we submit them to you and have you respond to
us so we can stay within the time limit, and we could all end
up by going to lunch sometime today? Senator Inouye?
Senator Inouye. Thank you very much. I'd like to submit my
questions also, but I have just one. I heard witnesses testify
that 10 years ago, we were number 4 in broadband, now we're
number 17, and somehow the tone of some of the testimony
presented today would suggest that the Telecommunications Act
of 1996 served as some disincentive or obstacle to advancements
in the size of communications. Anyone claiming that this law
served to hold you back? Mr. Whitacre?
Mr. Whitacre. Yes, I'll try that, Senator Inouye. You know,
I don't like all provisions of the 1996 Act. Has it all worked?
No, it has not, but I'll give you some statistics--90 of the
households we serve are covered with broadband. They have
access to broadband. So, 90 percent's a pretty good number.
It's in places like downtown Detroit. We have 7 million
customers. We sell it for $12.99 to over 90 percent of the
households. I'd say, from a broadband perspective, we've done a
pretty good job.
Mr. Rutledge. Senator, you know, I would just indicate that
in dropping, it's important to look at the statistics to see
what it's saying. It's we have fewer consumers in this country
selecting broadband than in many other countries. Part of it is
the lack of deployment, but part of it is the high cost. And we
have not had enough competition, and part of what was expected
in the 1996 Act was a lot more competition than existed. We
dropped regulations, and the prices stayed very high. So, we're
way behind because a lot of consumers can't afford it. So, I
think focusing on both deployment and affordability is
critical.
The Chairman. Anyone else?
Mr. Seidenberg. Senator, in your question to me, this isn't
a repudiation of the 1996 Act. I think the 1996 Act had a lot
of benefits. I think the video franchise provisions
unintentionally, perhaps, are serving as an entry barrier to
capital investment to create the networks that we think will
compete with the incumbent. And so, I think this provision, we
have found the technology and the capital markets have lacked
the particular usefulness of these laws, and that's the reason
we're asking you to consider it. So, it would be an adjunct, or
I think it would be an enhancement to all the things going on
today anyway.
The Chairman. Senator Burns?
Senator Burns. I thought so. I have just a couple of
questions because we'll be debating this forever, and I guess
I'm in a position where I don't care which direction this goes.
It's just that it's got to be operating out of the same rule
book because both are offering similar or like services, then
we all got to operate out of the same book. Right now, we're
operating out of two different books. And whichever direction
we go, it's got to be fair to everybody. I came out of local
government, so you know where I'm coming from. I think, you
know, local government has to have some say into what goes on
in their neighborhood, and I think they react faster. I think
government closer to the people is sometimes a lot better. Now,
they're also swayed by that. So, in the franchising, maybe we
just take off all the franchising, and just see where it goes.
Now, when I argued that on the floor, I was the first guy
that ever offered the amendment on video dial tone. Remember
that, Mr. Kimmelman? And my gosh, I tell you, it created such
an uproar, but it was the genesis of the 1996 Act if you really
go back to where we got started about the 1996 Act. And I will
tell you there's enough blame to go around on why it didn't
evolve and start working right away because some companies,
while we support this, will sign off on it, but then went to
court, and you know who they are. And so, we didn't try to make
it work. We tried to go against it a little bit. But, I have a
question. Are local governments asking more of you than they
have asked from everybody else, obtaining a franchise to
provide your services? I'll ask that to Mr. Whitacre, and is
that your experience to this point? Or Mr. Seidenberg?
Mr. Seidenberg. Well, I know it's hard to believe, but we
can give you all of the communities, but I'll just give you
one. We had four communities in Pennsylvania that asked us to
share 5 percent of not just the revenues that come from the
video services, but 5 percent of all voice and data that will
be carried over our fiber networks. And so, I think sir, the
answer is that some municipalities, not all of them, but many
of them are overreaching, and that was a problem. That's a
valid entry.
Senator Burns. If we put somewhere in the law that says
whatever franchise you have, then your competitor is
automatically subject to the same franchise, they can't change
from it, what happens in that respect?
Mr. Whitacre. I think both Mr. Seidenberg and I and our
companies have agreed we'll pay the same thing so the cities
suffer no revenue loss. We've already agreed to that.
Senator Burns. OK, Mr. Rutledge? Would you like to react to
that?
Mr. Rutledge. Thank you. Well, I would say a couple of
things about the franchise process. You know, in the last 3
years, we, a company with 409 franchises, have renewed and
renegotiated about 100 franchises. In the same time, if you're
building one of these networks, you actually have to plan
ahead. You have to plan where you're going to put your
facilities, your wires, you have to get permits, open the
streets, cross interstate highways, cross intercoastal
waterways, you've got a lot of planning before you can build
one of these networks.
Verizon has been building these networks and planning them
for over 3 years, and yet, didn't ask for the franchises. Now,
they have 3 million passes built and didn't get--hardly got any
franchises in that period of time. In the same period of time,
we, a much smaller company, were able to get a hundred of them.
So, I think the problem is that you have people who are not
participating in the franchise process. And it is true that
communities ask for things, sometimes, that you wouldn't agree
to, but you just say no. Most communities want competition.
They're glad to get another competitor in. It's not hard to get
a franchise if you're a competitor. What's hard to do is to go
in and ask for a special deal. If you go in and ask for a new
deal that says I can only build the affluent areas, I'm only
going to build the areas that have aerial plants, I'm not going
to build the underground, I'm not going to build the housing
projects, then you have a hard time.
Senator Burns. Mr. Evans, do you have any areas where you
do business that still do not have DSL?
Mr. Evans. Cavalier, in our market areas, can serve DSL to
approximately 60 percent of the homes within our market areas.
We are limited in that we use Verizon's copper, and there is a
distance limitation. So, our sweet point is, people that are
within the two miles of Verizon's central office where we can
reach them, and that is where we can offer the most economical
service. If we were forced to build to every home and rebuild
the whole network, it would not be economically feasible. It'd
be the third time that a person's yard would be torn up so that
we could lay another cable in, and I don't think that is
beneficial to all consumers.
Senator Burns. Mr. Seidenberg, any areas where you still do
not offer DSL?
Mr. Seidenberg. Very few, but the answer, Senator, is that
as the technology improves, as we can deploy better terminals
and gain scale, we do it. We've been doing it for 120 years.
So, the answer is that there could be some areas today that we
keep improving upon our coverage every year.
Senator Burns. Mr. Whitacre, are there any rural areas?
Mr. Whitacre. I said earlier, Senator, we're up to about 90
percent of the households passed. In Texas, we've agreed to put
DSL capability in every central office, and we'll be doing
that. And as Mr. Seidenberg says, the technology gets a little
better, but we're at 90 percent and moving.
Senator Burns. Tell me, in those rural areas, give me an
idea--give me a town of 2,000 people in West Texas.
Mr. Whitacre. It'll be there. DSL will be there. It may not
be there today. It's going to be there very shortly.
Senator Burns. How long?
Mr. Whitacre. I don't know, the next 6 months--8 months.
Senator Burns. Give me an idea of the investment you'll
have to make.
Mr. Whitacre. In total, in Texas is the only one I can give
you. It's in the neighborhood of $800 million to get everybody,
but we're going to do that.
Senator Burns. Thank you.
The Chairman. Senator Rockefeller?
Senator Rockefeller. Mr. Chairman, I'm going to put my
questions in the record because I can't just ask one. I will,
however, say that I would pay a dollar to whichever panelist it
was that said that the city council wanted broadband to each of
their homes. That was their price? Don't answer.
Mr. Kimmelman, maybe I could just ask you and Mr.
Seidenberg to explain why--I mean, I've spent the last 10 years
going crazy doing tax credits on broadband. They do nothing.
They sound good. Nothing ever happens. Along comes a way where
there's a system of folks that use tiny, little wires--I mean
little fiberglass that are already there for the most part, and
that brings it all, all at once. And I--part of me says that's
too good to be true, and I want you to tell me that it's not
too good to be true.
Mr. Kimmelman. Well, Senator Rockefeller, I don't think
it's too good to be true, but it's often too expensive to get
very quickly, and that's been our problem. And companies that
are profit maximizers do wonderful things, but they don't
always have an incentive to expend that extra resource to reach
people who don't spend a lot of money to use that little wire.
And so, all I would----
Senator Rockefeller. Under current law?
Mr. Kimmelman. Under current law, and I would just urge you
to--everyone's got a story about what they can do and can't do
now, and it's one thing if you have a cable franchise to go
back for a renewal because in the law, you almost granted them
an automatic renewal. When that happens, it's very difficult to
be a new entrant. There are many different circumstances in the
transition. I urge you to look at the endpoint you want to get
to. And again, I urge you to think about how you will get that,
that broadband or wireless service, from as many people to as
many people and how the resources should flow. And again, I
suggest, and let's not worry too much about exactly what a city
gets, but let's worry about how people get the service and get
the policy and resources focused on delivering that service to
them.
Senator Rockefeller. Thank you. And Mr. Seidenberg, you
serve policy statement on the importance of broadband----
Mr. Seidenberg. Yes.
Senator Rockefeller.--to the Nation's future.
Mr. Seidenberg. Yeah, I don't want to be quoted it's too
good to be true, but let me say this. There are two things that
have occurred in the last several years that have spurred this
on. The first is, as you said, tremendous technological
advancements.
And second, regulatory policy has now made it a lot more
favorable to invest the capital. So, what we'll see today is--
we're happy to say that private investment will absolutely fund
the growth of the broadband networks. And we'll start small,
we'll get bigger, we'll gain scale, and we'll continue to
deploy in all communities. So, I really do believe that it's
the technological advancements coupled with the regulatory
changes at the FCC and at the state level that have prompted
all this. The perfect example of all of this is wireless. No
one has ever predicted the growth of wireless. We didn't.
Policymakers haven't, but the technological advances in
wireless have created an extraordinary technological service
opportunity. I think the same thing's going to happen here if
we can take down the entry barriers that are causing private
investment, not to put the money where it needs to be put.
Senator Rockefeller. Which I think our bill would do. Thank
you, Mr. Chairman.
The Chairman. Thank you. Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you. Mr. Seidenberg and Mr. Whitacre,
a question about consumer protection. If we were to have either
a new entrant model for franchising, or if we were to
significantly modify the existing Title VI, what assurance
would there be? What would the mechanism be for ensuring
consumer protection in a national franchising environment? I
always feel like it's a reasonably good question when you point
to each other.
Mr. Seidenberg. I was being polite, and he was giving me
the ball, you know, it's the first time he's ever given me the
mike, in his life, you know that, Okay. Look, I don't think
that we're asking to change any of the current rework of rules
that apply to right-of-way, consumer protections. We still have
franchises. We're responsible with the state commissions. There
are redlining rules in the legislation.
So, I think, Senator, when I ask you to change any of the
authority that goes with that, what we're looking for are the
principles to take away all of what we consider to be the
conflicts in trying to negotiate these franchise agreements and
get into the market a lot quicker.
Mr. Whitacre. It was a good answer.
Senator Sununu. Harmony reigns. Mr. Rutledge and Mr.
Kimmelman, a question about PEG. The Chairman raised the issue
of PEG and, I think, asked a very good question. What kind of a
limit is appropriate? And I'd like you to try to answer that
just as specifically as you can. If we were to, you know, fix
into statute something describing the limit on the number of
PEG channels, what should that be? I'm sorry. Yes, both Mr.
Rutledge and Mr. Kimmelman.
Mr. Rutledge. I'll start. One of the things that was
embodied in the more recent Cable Act is a scheme where the
cities are limited in what they can ask from a cable operator,
so 5 percent is the maximum franchise fee. When it comes to
public access, the city has to do a needs assessment, but if
you have to invest new capital as an operator, you have the
ability to pass that through to the consumer or if you have
operating costs and put it on the bill. And so, there's a self-
limiting political reality, which is no municipality wants to
have a big tax that exceeds the value of the service it's
getting. So, there is a built-in structure in the law to limit
it. And since the most recent law, has been passed, the scale
of public access has not generally gotten better. The bandwidth
required to provide it has not been increasing. Gene?
Mr. Kimmelman. Yes, I would say let's look at what we were
trying to do with PEG access. We were trying to get local
governmental and educational content out to the community. We
may be entering an era where channels will no longer be what
they used to be. And so, are we really talking about channels?
I think we ought to be focusing on local content, and what was
always lacking was the support of the local content. PEG
programming hasn't always had the quality that it could have
had. It wasn't invested in as it should have been. And what you
also recall is that you authorized cities to ask for these in
negotiation. You didn't require them to do it. And so, some
cities have a lot of PEG channels. Some have a few. A lot have
none.
And so, I think it's worthwhile going back and coming up
with a formula that's based on the size of the community, or
something like that, just some logical formula, and say this is
an appropriate local concern and there should be minimum PEG
requirements for all communities. We tried to do it with leased
channels as well, and those have flopped completely. It didn't
work at all. So, the variety of tools that were put in the
original Cable Act, I think are worth revisiting and then
making them uniform across all providers, including new
entrants.
Senator Sununu. It seems to me that a lot of the conflicts
that we're discussing today, looking at the 1996 Act, are
created where we have effectively put in place dual regulatory
systems. We've got different sets of regulations for different
players, and they are providing more and more similar products
to consumers. As a result, I'm very concerned with a poor new
entrant regulatory structure, as some people have suggested,
that would exist without looking at the existing regulatory
structure, Title VI in particular, for cable operators. And it
would seem to me to make the most sense to take a look at Title
VI, to take a look at what people are suggesting for new
entrants, and see if we can, in a reasonable way, modify Title
VI, which was written at a different time, different place,
different era, back when the channel was maybe more of a
channel, as Mr. Kimmelman says, than it is today.
If we were to take that kind of an approach, I have a
question for Ms. Sohn. In particular, you laid out four
principles. You didn't talk very specifically about what you
might eliminate from the current Title VI or what elements of
Title VI might not be necessary to maintain those four
principles. Are there any areas of current regulation whose
time you think may have passed?
Ms. Sohn. Well, I certainly think that if a national
franchise model's adopted, it should apply to incumbents as
well as new entrants, absolutely. I know I'm going to upset
some people on the panel if I talk about some things in Title
VI whose time has passed, I think must-carry and retransmission
consent is certainly one of those things. And I couldn't agree
with you more that we really need to look at regulatory parity
in a very, very serious way, and that includes for
broadcasters.
You know, content is content in my mind, and that's why I
think it's important for this Committee to understand we're
talking about broadband pipes of different kinds, and they
really should be treated similarly. So, I could give you a
longer answer and go through Title VI, specifically, to look
at, if you want it in written form, exactly what I think should
be taken apart, but that's just a couple of examples.
But I do think that it's sort of a layered idea of
regulating, that you regulate the infrastructure one way, the
logical way or another way and the content way or another way.
It makes a whole lot of sense. And the silo system we have now
doesn't make so much sense.
Senator Sununu. Thank you. A final comment, Mr. Chairman,
and that is I've suggested before, and I think listening today
to the panel, I feel it all the more strongly. The nature of
this product, the product that we're talking about today,
channels of video in a consumer's home has changed radically in
the last 10-12-15 years, but certainly since the 1940s, 1950s
and 1960s when a lot of these fundamental approaches to
regulation were crafted. And it is one thing to say there is a
compelling public interest and a strong regulation of this
medium when we have three broadcasters and nothing but over-
the-air broadcasting. But it's very different to continue to
try to argue deep, compelling public interest in some of these
regulations when we have 500 cable channels, when we have a
website, a good website, identified with just about every
public and civic group and institution, and that's a great
thing that you can go and find out what's happening in your
community by going onto the law enforcement website or the
library website or the selectman website or the mayor's website
or the city hall website. And there's a very different public
interest at stake that is, quite frankly, not as compelling.
It's still there, but it's not as compelling as it once was.
And these regulations are our barrier to entry. And if I was a
local incumbent, I would be very supportive of the existing
regulatory framework, but they are barrier to entry, there are
thousands of authorities, they have a cost, and those costs are
passed on to consumers. We should all recognize that. We pay
for it. We pay for our access, we're paying the cost of these
regulations. And if we can do a better job reducing the costs
of the regulations, then we will absolutely be reducing prices
for consumers. Thank you, Mr. Chairman.
The Chairman. Thank you. Senator Cantwell?
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Mr. Chairman, and thank you
for this important hearing. I had a couple of questions for
various witnesses. And Mr. Evans, I wanted to ask you
specifically. I listened to your discussion of your deployment
of IPTV and your successes so far. Could you explain to me why
time isn't on your side in the sense of--Mr. Kimmelman talked
about 10 years from now when the principles of having a level
playing field, and Ms. Sohn is talking about how we continue to
guarantee access whatever the platforms are. And while we're
talking now, but maybe there are two platforms, but we don't
know. There's lots to play out. So, why isn't time on your
side?
Mr. Evans. Cavalier has been successful over the last 6
years because we launched innovations quicker than the big
guys, such as AT&T and Verizon did. We give the services to the
people quicker. We find ways to save them money and having that
speed advantage in beating the other guys to the market. Being
there with new channels, a hundred channels of video-on-demand,
new leading-edge things that the consumers want, help us
survive and compete against the big guys that have other
advantages. And so, that's why we are the first ones to deploy
and invest in the new MPEG-4 IPTV technology.
Senator Cantwell. Correct, and what I'm saying is, as my
colleagues have all talked about, the concern about how cable
pricing has risen or the future of a-la-carte options, as cable
as an expensive option, and you've provided the service, why
isn't time just on your side to go ahead and continue to make
in-roads as a cheaper product?
Mr. Evans. Time is ``of essence'' in a competitive
environment. The cable companies have recently launched
telephone services. They've only launched them in the
residential communities where they've built into. They're not
launching them to every commercial building. So, they have an
advantage that they're going to focus on the residential.
Because we cannot offer the video, they're going to go in and
offer the bundle, and that's why we've worked very closely in
Virginia to work with the municipalities to come to an
agreement, which we have in Virginia, to have a statewide
franchising bill. We need to get that out there in days and
weeks, not in years, or we're going to be put out of business.
If you go into battle, and you don't have all the ammunition in
your pocket, you're going to be blown out of the battle. And
with our video, they will price down telephone. We need to have
all three so that we can compete effectively.
Senator Cantwell. What--you do have all three now? I mean
you do----
Mr. Evans. I have all three, but I can't offer it until I
get the franchise. That is my dilemma.
Senator Cantwell. Are you concerned that they're going to
have cheaper telephone service and cheaper----
Mr. Evans. They're going to price----
Senator Cantwell. Just in a sense of a--just in competitive
product, do you think, in 5 years, let's say, this subject was
just put on hold for a while, and you've--we resolved it, but
you still had product in the marketplace, do you think you're
going to have a cheaper product, or do you think you're going
to have a more expensive product?
Mr. Evans. Our pricing right now is $50 per month below
what a competing offer from the cable TV and the telephone
company for phone, video and broadband.
Senator Cantwell. So, you have----
Mr. Evans. Fifty dollars per month per person.
Senator Cantwell. OK, which I think is an interesting
analysis of where you are in the marketplace. And so, I would
say well, why isn't time on your side because you keep having
the ability to offer those services.
Now, we didn't get into how do we maintain a level playing
field, which I want to come to, Mr. Kimmelman. You talked about
principles that you think that we should adhere to, and I don't
think I heard you say specifically if you thought that Inouye-
Burns principles were enough, or if you think that the current
framework can work with a few tweaks to the process, that is,
you know, maybe some issues about speeding up the franchise
process.
Mr. Kimmelman. I think they can be enhanced. I think we
need to really look at what it takes to speed it up and to
streamline new entry and I think get to an endpoint where
everyone is treated the same because I think they will need to
be treated the same. And I think you need to worry about
whether there are only two providers and whether those
providers are offering a bundle of three or four services,
which can make it difficult for any other new entrant to come
in and compete on a single service like broadband or video.
They might have one of the services, but they can be
underpriced and driven out of the market. I think what is also
critical is to get away from just worrying about going back to
the old provisions of the Act, as Senator Sununu indicated, of
what is representative of the local community and look at what
the local community really needs. It really needs the resources
to support local programming. It needs the resources to build
out broadband to underserved communities, ethnic communities,
low-income communities. You can try to force the new entrant to
do that. Even if you did that, they'll resist, so you'd have to
provide for a transition period during which time the community
offers stop-gap broadband service to those households the new
entrant doesn't serve, such as what Philadelphia has done, in
using a community wireless approach to get broadband in the
inner city. So, there are a variety of tools you could use to
achieve an affordable broadband for all as you streamline entry
of a new player and offer cable streamlining as well with
ultimately the same rules as the telephone company.
Senator Cantwell. I see my time has expired, Mr. Chairman,
but I personally believe that there are going to be many, many
models for IPTV. I certainly hope there's many, many models for
IPTV and that there's just not one platform, but that we
certainly have competition, but we should be looking at this
environment not just what is today or what's in 5 years, but in
10 years' time. And the fact that Mr. Riddle talked about some
of those programming services that are available today, and Ms.
Sohn talked about how we keep content neutrality, that we give
people access is very, very important, but I hope that all of
these people will have serious competition from some local ISP
or someone who wants to provide a certain reality TV
programming or whatever it is and that we should think of this
as many, many models in the future and how do we do that as
opposed to making short-term decisions for just the next couple
years. Thank you, Mr. Chairman.
The Chairman. Thank you very much to all of you for coming.
I still feel compelled to tell you where I'm coming from. You
know I'm from Alaska, a place that's roughly the size of Italy,
Germany, France and Spain. We have now, after 10 years of the
1996 Act through tele-education and the availability of some
Universal Service funds, got computer capability at 90 percent
for the whole state, but we have a hundred villages that don't
have Internet at all. And when we go to make a reservation for
a U.S. hotel, we're probably going to talk to someone in India.
Why? Because they have high-speed broadband connections, and
they have satellite connections, but they have a work force
there that's enjoying a quality of life that our people don't
get, and they don't get it because they don't have access to
the systems we're talking about now.
I see no reason why those small villages in Alaska couldn't
be performing some of these functions for American companies if
they had access to these systems. So, while I'm here, and my
friend from Hawaii has similar problems--his state has even a
larger area than mine--we want to help every one of you in what
you're talking about in building out the cities in the areas of
what we call the South 48, but I hope you won't forget the
problems we have in Alaska and Hawaii. We'll be in touch with
you about those. Thank you all very much.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Olympia J. Snowe, U.S. Senator from Maine
Thank you, Mr. Chairman, for holding this hearing on video
franchising this morning. I also want to thank Senators Smith,
Rockefeller, and Ensign for working to bring this issue to the
forefront. The issue before us today is a perfect example of how
technological change is driving the need for Congress to update the
outdated telecommunications laws that were passed only 10 short years
ago.
No one in this room today is going to argue that competition is a
bad thing. Competition brings better products and services to
consumers--and multi-channel video services should be no different. The
example of Keller, Texas--where the local cable company dropped the
price of their bundle by nearly 50 percent the day that a phone company
competitor entered the market--illustrates one of the many consumer
benefits that competition brings. We must examine the best way to
encourage nationwide competition in this market and take steps to ease
the legal barriers to entry.
Although change in our statutory framework is needed, Congress
should be careful not to forget the original goals that the Cable Act
was written to meet, especially the goal that assures community needs
and interests are met.
In the same way that broadcasters must obtain a license to utilize
the public spectrum, video service providers must obtain rights of way
from the local government in order to have access to streets and
sidewalks to lay their cable or fiber. Similarly, as broadcasters have
public interest obligations in exchange for use of the public's
spectrum, video service providers should give something in return to
the community in exchange for public rights of way. Today, as part of
many franchise agreements, cable companies commonly pay a fee and
provide in-kind equipment and facility donations to support public,
education and government access channels, public safety and other local
needs. These local community needs and interests must be preserved as
we move forward with franchise reform.
I look forward to hearing from the panel today about how to best
move forward with franchise reform. What are the different proposals
stakeholders have? How can local needs and interests be preserved? What
are video service providers willing to pay for access to public rights
of way? How can reform be fair to existing franchise holders? What
policy is best for consumers?
The bottom line is that the law needs to change for consumers to
have meaningful choice in the video service market. Complex, drawn-out
negotiations are inhibiting the deployment of these services. The
process must be simplified. During this simplification, however, we
must not push aside the public needs and interests that have been
served by franchise agreements successfully for so many years. Local
government proceedings must continue to be shown on a video service
provider's network. Educators should continue to be able to utilize the
advanced services enabled by the network. And, public safety should
have access to essential industrial services. I urge my colleagues not
to forget these local interests as this Committee moves forward with
legislation.
Thank you, Mr. Chairman.
______
Prepared Statement of Bob Freudenthal, President, American Public Works
Association
Mr. Chairman and Members of the Committee, thank you for the
opportunity to submit this testimony for the hearing on video
franchising. My name is Bob Freudenthal, President of the American
Public Works Association (APWA), and Deputy General Manager of the
Hendersonville Utility District in Hendersonville, Tennessee. I submit
this statement today on behalf of the 27,000 public works officials who
are members of APWA, including our nearly 2,000 public agency members.
APWA is an organization dedicated to providing public works
infrastructure and services to millions of people in rural and urban
communities, both small and large. Working in the public interest, APWA
members design, build, operate and maintain transportation and rights-
of-way; natural gas, electricity and steam distribution facilities;
water supply, sewage, and refuse disposal systems; public buildings and
other structures and facilities essential to our Nation's economy and
way of life.
I appreciate the opportunity to address the important role local
governments and public works departments play in managing local public
rights-of-way and how local franchising supports that role. APWA has
been and will continue to be an advocate for the development of
policies which ensure the safe and efficient management of public
rights-of-way. As Congress considers rewriting sections of the Nation's
communications laws and policies, we urge you to consider several
important principles relating to local governments and rights-of-way
management.
The first is that local government officials have a fiduciary
responsibility on behalf of the citizens we serve to manage public
property, including the public rights-of-way, a public asset with an
estimated value of more than $7 trillion. Respect for local control and
local governments' long-standing authority to manage rights-of-way is
necessary to ensure their safe and efficient operation. As Congress
considers updating national communications policy, it is vital that
local governments and other public agencies retain their authority to
fulfill their statutory obligations and duties related to managing
public rights-of-way.
This authority includes the ability to establish permit, location,
inspection and pavement restoration controls and rights-of-way
restoration; to encourage cooperation among and develop scheduling and
coordination mechanisms for all rights-of-way users; to obtain and
maintain accurate information for locating existing and new facilities
in the public rights-of-way; to hold responsible parties accountable
for the restoration of the public rights-of-way; and to charge and
receive compensation for the use of the public rights-of-way.
The second principle is that local governments support competition
in communications services and technology. We embrace innovations that
make possible competition in video, telephone and broadband services.
Moreover, we support deployment of these technologies as rapidly as
possible. However, as new communications technologies and services
enter the marketplace, local governments must be kept whole and our
authority to manage public rights-of-way preserved.
Preserving full local franchising authority is critically important
to rights-of-way management. Franchises do not just provide permission
to offer video services; they are the core tool local governments use
to manage streets and sidewalks, provide for public safety and
emergency response capability, enhance competition and collect
compensation for private use of public land. Eliminating franchises
will cause chaos, undermine safety and deprive local government of the
power to perform its basic functions.
Public agencies have the responsibility to keep public rights-of-
way in a state of good repair and free of unnecessary encumbrances. The
public expects local governments to ensure that the deployment of new
services does not result in potholes, traffic backups and congestion,
damaged sidewalks, ruptured water or gas lines, disrupted electrical
power or diminished community aesthetics, particularly with respect to
managing above ground versus below ground installations.
The right to obtain and use land for public benefit is a long-
standing tradition and is provided for by law. For more than a century,
the concept of accommodating both public and privately owned utilities
in the public rights-of-way has been recognized to be in the public
interest. Public rights-of-way are normally acquired and developed by
public agencies for transportation routes, water supply, waste
disposal, power distribution, means of communications and similar
services. Such services are provided for the common good of the public,
and are generally authorized and directed by public agencies, which
have an obligation to regulate and manage the use of public rights-of-
way in the interest of the convenience, health, safety and welfare of
the public.
It is our duty and responsibility as public agencies and that of
elected officials to be good stewards of the public rights-of-way and
to adopt reasonable ordinances that allow public officials to: manage
the public rights-of-way on behalf of their citizens to ensure public
health, safety and convenience; manage the surface of the public
rights-of-way to ensure structural integrity, availability, safety and
a smooth street surface for the traveling public; manage the space
below the surface of the public rights-of-way to ensure safe and
economical access for all current and future users of the rights-of-
way; and manage the space above the surface of the public rights-of-
way, including the placement of overhead utility facilities, to ensure
efficient use of space and to minimize safety hazards and impact on
community aesthetics.
As the pace of implementing new communications technologies
accelerates, the number of damages incurred by owners of both private
and public utilities is sure to grow, if local governments are not
allowed to manage their rights-of-way. Managing public rights-of-way is
complex, and decisions regarding management and control of local public
rights-of-way belong to local governments. Each utility provider
installs a separate system in its own unique location within the public
rights-of-way. The systems are often installed on existing pole lines,
in narrow trenches or in conduits that are bored into place. There is a
correlation between the number of excavations and corresponding damage,
and repeatedly cutting and repairing streets can permanently damage
street pavement structures. Moreover, in the absence of compensation
from utilities, taxpayers bear the burden of significantly increased
street maintenance costs.
APWA has a Utility and Public Rights-of-Way Technical Committee
whose members provide education and information to raise awareness and
promote the best use of the public rights-of-way for the public good.
Our committee provides a forum where stakeholders can come together to
discuss common issues and best management practices that will promote
the effective integration of all users and stakeholders within the
public rights-of-way.
In conclusion, APWA supports competition and the rapid deployment
of communications technologies and services in the communities we
serve. We support a balanced approach that encourages innovation and
preserves local governments' long-standing authority to manage public
rights-of-way and to receive fair and reasonable compensation for their
use. Franchising authority is a core tool local governments use to
manage rights-of-way in the public interest in order to protect public
safety and public infrastructure.
Mr. Chairman, we are especially grateful to you and Committee
Members for the opportunity to submit this statement. APWA and our
members stand ready to assist you and the Committee in any way we can.
______
Prepared Statement of Jerry Brito, J.D., Legal Fellow, and Jerry Ellig,
Ph.D., Senior Research Fellow, Mercatus Center at George Mason
University
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to enter written testimony into the
record of the Committee's hearing on video franchising. We are research
fellows with the Regulatory Studies Program of the Mercatus Center, a
501(c)(3) research, educational, and outreach organization affiliated
with George Mason University. \1\
---------------------------------------------------------------------------
\1\ This testimony reflects only the views of its authors and does
not represent an official position of George Mason University.
---------------------------------------------------------------------------
As part of the Mercatus Center's ongoing program to assess the
costs and outcomes associated with regulation, we have recently
completed an analysis of the effects on consumers of video franchising.
Our study is attached as an appendix to this testimony. We also
submitted this analysis in the Federal Communications Commission's
proceeding on video franchising. Principal findings include:
Cable franchising costs consumers approximately $10.1
billion annually in higher prices and forgone benefits.
Higher cable prices account for $8.4 billion of this cost:
-- $5.9 billion in higher rates for basic, expanded basic, and
equipment rental.
-- $113 million in higher rates for digital cable.
-- $2.4 billion in franchise fees.
The remaining $1.7 billion is what economists call
``deadweight loss''--value that consumers forego because the
higher prices induce some consumers to go without cable
television.
Excluding the effects of franchise fees, franchise
regulation costs consumers approximately $6 billion in higher
prices and $1 billion in forgone benefits (deadweight loss).
The ``natural monopoly'' rationale for preventing
competition is unconvincing. Contrary to natural monopoly
theory, two decades of research by Federal agencies and
independent scholars consistently finds that cable rates are
lower in markets with wireline video competition. The most
recent Government Accountability Office study finds that cable
rates in markets with wireline video competition are 16.9
percent lower than they would be without this competition.
The argument that entry regulation lowers rates by reducing
the cable operators' risks and costs is also unconvincing. Even
when cable was first deployed in urban and suburban areas,
jurisdictions with open entry policies or competing cable
companies had rates equal to or lower than rates in monopoly
jurisdictions.
Local governments' need to manage public rights-of-way may
justify some regulation of construction and a cost-based fee to
prevent congestion and reimburse the public for inconvenience
when video providers use the public rights-of-way. Legitimate
rights-of-way management, however, does not justify
monopolization, and there is no evidence that a 5 percent
franchise fee reflects costs actually imposed on the public
when video providers use the rights-of-way.
The Federal Communications Commission has significant authority to
preempt unreasonable franchising practices by local franchise
authorities. We urged the FCC to take the following steps to promote
competition:
Declare unreasonable any refusal to grant a franchise
justified on the grounds of natural monopoly, reduced
investment risk, or rights-of-way management unless the local
franchising authority presents overwhelming empirical evidence
that the alleged problem exists and cannot be solved in any way
other than barring new entry.
Require local franchise authorities to explain in writing
any refusal to grant a franchise.
Preempt aspects of state level playing field laws that force
entrants to make the same capital expenditures or cover the
same service area as the incumbents.
Declare unreasonable any state or local requirement that
would force a new entrant to build out its network faster than
the incumbent actually and originally built out its network.
Declare unreasonable any delay in granting a franchise that
exceeds some specified deadline, such as 120 days. Establish
simple default conditions under which a new entrant would
automatically receive a franchise if the local franchising
authority has not acted by the deadline.
Declare unreasonable any ``nonprice concessions'' in
franchise agreements that are not directly related to setup or
operation of a cable system.
These steps could significantly reduce the anticompetitive effects
of franchise regulation. However, it is not clear at this time whether
the FCC will choose to take all of these steps. In addition, some
anticompetitive franchising practices might be dealt with more
comprehensively in Federal legislation. Clearly, the stakes for
consumers are significant. Congress could address anticompetitive
franchising practices in the following ways:
Remove barriers to open entry by amending Title VI of the
Communications Act to no longer require a franchise before a
provider may offer video service.
Promote certainty and regulatory uniformity by adopting
clear rules for anyone offering video service, including:
-- An obligation to carry no more than a fixed number of
Public, Education, and Government (PEG) channels. For example,
Texas's statewide franchise statute has set this number at
three channels for a municipality with a population of at least
50,000, and two channels for a municipality with a population
of less than 50,000.
-- In place of franchise fees, obligate video providers to pay
only a reasonable fee to the municipality in which it operates
to cover the costs imposed on the municipality by its use of
the public rights-of-way. However, this fee should be capped,
just as franchise fees are now capped. If a video provider is
already making payments for use of the public rights of way,
these payments should be taken into account.
Allow municipalities to manage the public rights-of-way only
through nondiscriminatory rules that apply generally to all
users of the rights-of-way.
Allow providers to offer video service in only part of a
municipality, and prohibit any authority from requiring a
provider to build out its video service in any particular
manner.
The above framework should be made applicable not just to
new entrants, but incumbents as well. Existing franchises
should be preempted to the extent they are inconsistent with
the new system.
The evidence is overwhelming that where video competition is
permitted, it has served consumers well. We hope our findings are
useful to the Committee as it weighs various options for reform of
video franchising policy.
MB Docket No. 05-311; FCC 05-189, attached to this prepared
statement, has been retained in Committee files.
______
FreedomWorks
Washington DC, February 14, 2006
Hon. Jim DeMint,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Dear Senator DeMint:
As the Senate moves forward with its evaluation of the
telecommunications market, I want to thank you for your efforts to
promote true competition in the telecommunications sector. FreedomWorks
is a grassroots organization with more than 800,000 members nationwide
that promotes market-based solutions to public policy problems. An
integral component of our efforts has been to educate consumers on the
important benefits of open competition and the need for regulatory
reform in telecommunications. This dynamic and evolving sector of our
economy has the potential to provide consumers with an exciting new
array of products and services. Unfortunately, the Nation's
telecommunications laws--last updated a decade ago--impede deployment
of new technologies and unnecessarily limit consumer choice.
Today's telecommunications markets are in flux as once distinct
products and services converge and cross platform competition
fundamentally re-defines this sector of the economy. Cable companies
and others have already entered the voice market, telephone companies
are poised to enter the video programming market, and wireless
providers are emerging as a considerable rival to both cable and
traditional wireline telephone companies. Content providers,
applications providers, and Internet Service Providers are also proving
to be critical actors in this market as well.
Just as the industry is re-inventing itself, Congress must re-
examine the regulatory framework to eliminate excessive government
mandates and promote competition in an open marketplace. It no longer
makes sense to view this market in terms of monopoly providers offering
unique services at regulated prices. This view underlies much of
telecommunications law, yet it is ill-suited for today's technology
sector. Excessive regulation ignores the realities of the current
marketplace and makes it difficult to provide consumers with latest
technologies. Regulations also impede the deployment of new high-speed
broadband networks, something the administration has made a priority.
The Digital Age Communications Act that you introduced recognizes
the changes underway in telecommunications and seeks to replace
outdated regulations with a new competitive model of the marketplace.
Under today's laws similar services and products are regulated
completely differently simply by virtue of their regulatory history.
The Digital Age Communications Act eliminates such artificial
distinctions while promoting competition in all forms--across
platforms, across technologies, and across applications. This approach
is much more apt for today's marketplace and assures consumers will
have access to the latest technologies at the lowest prices.
FreedomWorks believes that a competitive telecommunications
marketplace holds great promise for consumers and the Digital Age
Communications Act would be an important step toward achieving that
goal. When producers are forced to compete in the marketplace,
consumers have enjoyed falling prices, innovative products, and greater
choice. Once again, thank you for pursuing this important issue.
Attached please find comments prepared by FreedomWorks that highlights
the importance of moving toward a more competitive model as well as
some of the barriers that prevent competition in today's market. As a
consumer group that promotes the benefits of competition in an open
market, FreedomWorks sees great potential for consumer gain as the next
technological revolution unfolds. Should you have any questions, please
do not hesitate to contact me.
Sincerely yours,
Dick Armey,
Co-Chairman.
MB Docket No. 05-311, Implementation of Section 621(a)(1) of the
Cable Communications Policy Act of 1984 as amended by the Cable
Television Consumer Protection and Competition Act of 1992--submitted
for the record by Wayne T. Brough, Vice President for Research/Chief
Economist, FreedomWorks--has been retained in Committee files.
______
Response to Written Questions Submitted by Hon. John McCain to
Ivan G. Seidenberg
Question 1. As you know, I have long championed choice for
consumers, in particular the ability for consumers to pay for only the
channels they wish to view. Studies show that consumers generally only
watch about 16 channels. AT&T, Cablevision and Echostar have stated
that they would provide channels on an ``a la carte'' basis to their
subscribers if their contracts with cable programmers allowed for such
an offering. Would Verizon be willing to offer an ``a la carte'' option
to its subscribers?
Answer. The best way to achieve consumer choice is to remove
barriers to competitive entry into the video market. Where we have
gained permission to enter the video market, consumers have benefited
from the additional choices that competition brings. For example, in
communities where Verizon's FiOS TV is available, incumbent cable
operators have offered price cuts of 28-42 percent, although these
incumbents generally have ``not actively advertised'' these discounts
or made them available to other areas. In Keller, Texas--the first
community with FiOS TV--over 20 percent of eligible households
subscribed to FiOS TV in the first three months that it was available.
In addition to the benefits of lower prices and improved customer
service, the residents of communities in which Verizon offers FiOS TV
have available to them a wide range of diverse programming options,
including a variety of innovative programming packages. For example,
Verizon offers a Spanish-English package called La Conexion, for only
$32.95/month, that includes more than 20 of the hottest Spanish-
language channels as well as more than 30 of the most popular English
channels. We also offer a variety of international or other premium
channels on an individually-priced basis, including channels in
Vietnamese, Chinese, Mandarin Chinese, Japanese, Korean, Arabic,
Italian, French, Polish, Farsi, and Russian.
While we have endeavored to offer programming to our customers in
innovative ways, there are limits on what we, as new entrants, can do.
We must obtain programming from content providers who bundle their most
popular channels along with new and developing channels. As a new
provider, Verizon lacks any ability to persuade content providers to
sell their programming in any other way--particularly if we are to
obtain the programming on reasonable and competitive terms. And the
terms on which we have been able to obtain content from programmers--
which often extend for a number of years--often preclude us from
offering their content on an a la carte basis.
Ultimately, the best way to benefit consumers and get them the
programming they want in the manner they desire is to facilitate
competitive entry into the video market. As competition for video
services increases, programming providers will respond to consumer
demand and provide their subscribers with the products that they desire
in the manner that they want them.
Question 2. Verizon lodged an aggressive campaign to prevent the
city of Philadelphia from building its own municipal broadband network.
The Community Broadband Act introduced this past June would ensure that
any municipality that sought to build such a network could do so as
long as the municipality complied with any existing state or Federal
laws. Now that the network is launched in Philadelphia, can you comment
on the impact it has had on Verizon and your thoughts on municipal
networks.
Answer. To set the record straight, Verizon did NOT lodge any
campaign to prevent the City of Philadelphia from building its own
municipal broadband network. In fact, Verizon worked with the City of
Philadelphia and policymakers in Pennsylvania to exempt Philadelphia
from limitations on municipal ownership of broadband networks being
adopted by the Commonwealth of Pennsylvania as a provision of
legislation mandating that telecom carriers in the state deploy
broadband services to all citizens. Philadelphia has not yet deployed
its proposed City-wide network--so far it is trialing the service in a
few limited test sites--so it has had no impact on Verizon.
Verizon has not actively engaged in efforts to ban municipal
broadband networks in Philadelphia or elsewhere and does not oppose
municipal network legislation introduced by Members of this Committee.
We also believe the record clearly demonstrates that in many cases
municipal investment in broadband networks is an unwise use of public
money and that broadband deployment is generally best left to private
investment and to the marketplace. Having said that, there are
instances where the involvement of local government may be a positive
force in delivering broadband services to rural communities, and we are
partnering with several communities in trials of new technology that
deliver broadband capability to residents of those rural areas.
We also believe that robust broadband investment by the private
sector will continue to promote community economic development
opportunities and associated social benefits including telemedicine,
distance learning and services for the disabled. Private companies have
responded and continue to respond to the huge demand for broadband by
investing heavily and deploying broadband services wherever it is
economically and technically feasible to do so. In the vast majority of
cities and urban/suburban areas, for example, broadband already is
widely available from multiple providers. For example, in Philadelphia,
more than 95 percent of Verizon's lines are DSL-capable, and Verizon
offers a broadband DSL service for $14.95 per month.
Question 3. In your written testimony, you state that competitive
video providers should be given a national franchise in order to ease
their entry into the market, while Mr. Rutledge and Ms. Panzino-Tillery
in their written testimony advocate that the current system of local
franchises is best. What are your thoughts on the merits of a statewide
franchise as recently enacted in the state of Texas?
Answer. When cable first developed and was subjected to local
franchise requirements, these systems generally were limited to local
facilities that served as community antenna television systems--
literally an antenna on a hillside that picked up and transmitted
broadcast TV signals to households in the local community. In contrast,
Verizon's FiOS TV network and service are part of an advanced national
broadband network that is being rolled out in areas across the country.
And a national franchise system is most appropriate for this advanced
national broadband network and services.
Moreover, Verizon strongly believes that a streamlined, national
franchise process is the fastest and fairest route to bringing much-
needed choice and competition to the video market. One process is
better than 51--especially when there is no guarantee when or how other
states will follow Texas's lead. Verizon believes that the residents of
every state should enjoy the benefits of video competition.
That being said, Verizon is trying to enter a new business and will
explore all avenues to remove barriers to entry. As such, we have
supported state legislation that would streamline the video franchising
process. Texas, of course, is the pioneer in this area, and its
citizens are now enjoying the fruits of their ``first mover''
legislation.
Question 4. Should Federal legislation address access to
programming? Is sports programming a unique problem?
Answer. Although the 1992 Cable Act prohibits vertically integrated
cable companies from discriminating against competitors in the
distribution of satellite-delivered programming, so far this provision
has not been applied in the context of terrestrially delivered
programming.
Some cable operators have exploited this loophole in an effort to
deny competitors certain popular programming, like regional sports
programming. Without access to that unique and desirable programming,
it is much more difficult for competitive providers to compete
effectively in the marketplace. Congress should close this loophole.
Attached for the record is an excerpt of Verizon's recent filing at
the FCC in its current proceeding addressing certain aspects of the
local franchising process. * Paragraphs 64-74 describe the difficulties
that Verizon has experienced obtaining programming from Cablevision, a
vertically integrated cable operator. (See Attachment A, Declaration
Marilyn O'Connell, Sr. Vice President--Video Solutions, Verizon, In the
Matter of Implementation of Section 621(a)(1) of the Cable
Communications Policy Act of 1984 as amended by the Cable Television
Consumer Protection and Competition Act of 1992, MB Docket. No. 05-
311).
---------------------------------------------------------------------------
* The information referred to has been retained in Committee files.
Question 5. Gene Kimmelman comments in his written testimony about
current legislative proposals, ``Notably absent . . . is any
requirement that new entrants provide their services to the entire
franchise area, opening a wide door to economic and ethnic
discrimination (redlining) and closing the door to rate relief for
those families who most need it and who have largely been left on the
wrong side of the digital divide.'' How do you respond to Mr.
Kimmelman's criticism?
Answer. Verizon does not engage in redlining, and we agree that new
entrants should be subject to the same Federal prohibition on economic
redlining that applies to the cable incumbents. We have an excellent
record of providing service to customers of all demographics. We will
continue doing so with our fiber network and services, including FiOS
TV.
In fact, the very nature of Verizon's deployment belies any
suggestion of discrimination. Verizon deploys its FTTP on a wire
center-by-wire center basis, generally upgrading to FTTP throughout the
wire center, not picking and choosing particular neighborhoods. Even in
the early stages of Verizon's FTTP rollout, it is clear that Verizon
seeks to offer FiOS to a diverse range of subscribers throughout its
service area. For example, communities like Lynn, Massachusetts, Fort
Wayne, Indiana, and Passaic, New Jersey are now receiving the benefits
of FTTP, even though the average income in those communities is lower
than the average in their respective states. As Verizon undertakes the
massive investment required to deploy FTTP, its goal is to include, not
exclude, any group of potential customers.
Moreover, redlining would be a bad business strategy. Studies
repeatedly show that low-income households are significant subscribers
to video services. As such, new entrants in the video market have every
incentive to make their services widely available, and not just to the
wealthy. In rolling out FTTP, Verizon's primary goals include marketing
additional services such as video to customers it already serves, while
reducing day-to-day cost of operation by deploying an all-fiber
network. Therefore, redlining would not square with what Verizon seeks
to accomplish in competition with cable and would be inconsistent with
its core belief in diversity.
Verizon's programming proves that redlining is not our intent. We
are offering one of the most diverse programming line ups in the
history of the business. We have more than 50 ethnic channels that are
available to all of our subscribers across our footprint--not just in
selected areas. Verizon is offering subscribers a basic service package
at $12.95/month, an expanded basic package at $34.95/month, or a
Spanish-English package called La Conexion at $32.95/month. La Conexion
includes more than 20 of the hottest Spanish-language channels, more
than 30 of the most popular English channels, local channels such as
Telemundo, Univision, and Telefutura. Verizon offers an additional all
Spanish-language package with more than 20 channels of news, sports,
movies, telenovelas, and more for an additional $11.95/month. Our
subscribers may also select other individually-priced international
channels in Vietnamese, Chinese, Mandarin Chinese, Japanese, Korean,
Arabic, Italian, French, Polish, Farsi, and Russian.
While we agree that a new entrant should be subject to the same
Federal prohibition on economic redlining that applies to incumbents, a
new entrant should not be required to build-out and provide video
service to all of the same households as the incumbent. Imposing build-
out requirements on competitive providers increases dramatically the
costs of entering the market, and can create an insurmountable barrier
to competitive entry. This is because there are dramatic differences
between a competitive provider--who will face ubiquitous competition
from an entrenched competitor and who will receive a smaller market
share and smaller profit margins than the incumbent did when it built
out--and an incumbent provider who agreed to build-out in exchange for
a decades-long monopoly position in the market.
Moreover, build-out requirements are particularly problematic
because of differences in the network architecture of new entrants into
the video business such as Verizon, including differences in the areas
where we and other new entrants provide non-cable services. For
example, as noted above, Verizon upgrades to FTTP on a wire center
basis. When we upgrade, we generally extend fiber throughout the area
served by a particular wire center, regardless of community or
neighborhood boundaries. A particular wire center may not serve the
entirety of a community (or the incumbent's franchise area), or it may
serve parts of several communities. In either case, forcing Verizon to
offer service to households outside of the wire center that is being
upgraded to FTTP could make deployment in the area uneconomic, thus
potentially denying all customers in the area the benefits of the
competitive services we offer over FTTP. That, of course, is cable's
objective. And these anticompetitive effects would be magnified if we
were required to build out and offer services completely outside of our
telephone service area where we have no facilities at all--as some
cable incumbents and franchising authorities have suggested.
Finally, the cable incumbents' calls for a broad build-out
requirement should ring hollow because those same providers were never
required to build-out as a condition of providing competitive telephone
service, and they argued vociferously at the time that build-out
requirements imposed on them would prevent them from offering
competitive voice services. The same is true here.
______
Response to Written Questions Submitted by Hon. John McCain to
Thomas M. Rutledge
Question 1. Title VI of the Communications Act allows localities to
ask for ``in kind'' payments in return for a franchise. What is the
most outrageous request that has been made of Cablevision?
Answer. Generally, we enter into franchises that impose reasonable
terms that are related to the community's cable-related needs as the
Federal statute provides. There are times when a community may ask for
an terms that we believe are not reasonable, but because Title VI
constrains what a franchise authority may seek, we are able to reject
those requests.
Question 2. In your testimony. you state that ``local franchising
works.'' However would you concede that a statewide or national
franchise could provide Cablevision with cost savings that could be
passed on to consumers?
Answer. While there is some cost associated with local franchising,
there are important countervailing considerations that support the
continued role of local government in video programming. These include
the ability of a local community to address individual priorities of
community and what parts of the community will get service and when,
local programming, safety and aesthetic considerations. These
considerations cannot be as effectively met at the Federal or state
level, and any assessment of the current franchise process must take
into account the considerable history and value of local interests.
Furthermore, to the extent that a new entrant is not required to meet
comparable requirements, the playing field will not be level.
Question 3. The New York Times reported on September 15, 2005 that
ESPN signed an eight-year, $2.4 billion contract extension with Major
League Baseball, which is a 51 percent increase over the parties'
current contract. Inevitably, this increase will be passed on to
consumers. What can Congress do to stem the flow of expensive sports
contracts? Or should Congress be involved?
Answer. We believe that cable operators could benefit from
unbundled availability of programming, especially high-cost programming
such as sports. It is worth noting that Cablevision fought a public
battle for more than a year for the right to buy and sell the YES
Network in tiers and individually. Ultimately we were forced to add
this expensive programming service to our expanded basic line-up.
Today, program suppliers resist offering operators, like Cablevision,
such a choice. This is not an operator or franchise issue. Rather, it
is a programming supplier issue affecting all distributors, including
satellite and phone companies. Congress could articulate a policy to
force programmers to change the way they sell programming to the
multichannel distribution industry.
Question 4. In their written testimony, Mr. Seidenberg and Mr.
Whitacre state that competitive video providers should be given a
national franchise in order to ease their entry into the market, while
Mr. Rutledge and Ms. Panzino-Tillery in their written testimony
advocate that the current system of local franchises is best. What are
your thoughts on the merits of a statewide franchise as recently
enacted in the state of Texas?
Answer. Some states determine that they should have the primary
role in franchising; some decide it should be mixed; some decide they
should have no role. Cablevision supports the ability of states to
decide for themselves the appropriate allocation of franchise
authority. We have endorsed efforts by the states (such as New York)
that impose some time limitations and level playing field requirements
(the ``shot clock'' and the ability to ``opt in'') that are consistent
with local prerogatives. We similarly endorse the principles
articulated by Senators Burns and Inouye on these points.
However, even in States with broader franchising authority, the
role of local government is critical. The local government is best
positioned to address the individual priorities of a community,
including serving all residents in a community, local programming,
safety and aesthetics.
Question 5. Should Federal legislation address access to
programming? Is sports programming a unique problem?
Answer. See response to Rutledge Question 3 above.
Question 6. Gene Kimmelman comments in his written testimony about
current legislative proposals, ``Notably absent . . . is any
requirement that new entrants provide their services to the entire
franchise area, opening a wide door to economic and ethnic
discrimination (redlining) and closing the door to rate relief for
those families who most need it and who have largely been left on the
wrong side of the digital divide.'' How do you respond to Mr.
Kimmelman's criticism?
Answer. Mr. Kimmelman makes a valid point. Allowing new entrants to
serve only affluent or low-cost areas is inherently unfair and will
serve to divide communities and deny new technologies to a significant
number of Americans. The cable industry has invested in state-of-the-
art networks that serve all residents within a franchise area, not only
the neighborhoods that are potentially the most lucrative or least
costly to reach. Communities, in their local franchise agreements,
typically have had the ability to accommodate both entry and broad
service needs by setting requirements to serve all residents to avoid
this kind of disparity. Congress should not remove that local
prerogative.
Response to Written Questions Submitted by Hon. John McCain to
Gigi Sohn
Question 1. In their written testimony, Mr. Seidenberg and Mr.
Whitacre state that competitive video providers should be given
afranchise in order to ease their entry into the market, while Mr.
Rutledge and Ms. Panzino-Tillery in their written testimony advocate
that the current system of franchises is best. What are your thoughts
on the merits of a franchise as recently enacted in the state of Texas?
Answer. Public Knowledge supports a national video franchise
because it would lead to the fastest possible rollout of video
competition, which will benefit consumers with greater choices and
lower prices. A statewide franchise would certainly be an improvement
over the current local franchising structure, but would not be optimal.
Also, to the extent that the rationale for local franchises is that
local authorities act as proxies for their citizenry, a statewide
franchise would not necessarily accomplish those goals. Indeed, a state
franchising process might provide other obstacles to video competition,
such as giving incumbent providers an opportunity to oppose or delay
new entrants.
Question 2. Should Federal legislation address access to
programming? Is sports programming a unique problem?
Answer. To the extent that video providers also have ownership
interests in the programming on their systems, it is important that
they be required to make that programming available to other
competitive video providers. Otherwise, vertically integrated video
providers might either withhold programming from competitors, or make
that programming prohibitively expensive, which will harm video
competition to the detriment of consumers. Our understanding is that
competitors have particular difficulties obtaining local and regional
sports programming from video service providers with financial
interests in that programming.
To the extent that the Communications Act already requires program
access (47 USC Sec. 548), the law should be clarified to ensure that
vertically integrated video providers do not impose conditions on
access to their programming that appear to be ``nondiscriminatory,''
but in fact are impossible for competitors to meet because of
technological, delivery or capacity differences.
Question 3. Gene Kimmelman comments in his written testimony about
current legislative proposals, ``Notably absent . . . is any
requirement that new entrants provide their services to the entire
franchise area, opening a wide door to economic and ethnic
discrimination (redlining) and closing the door to rate relief for
those families who most need it and who have largely been left on the
wrong side of the digital divide.'' How do you respond to Mr.
Kimmelman's criticism?
Answer. At a minimum, any national franchise legislation must
prohibit redlining, and must ensure that the prohibition is
enforceable. S. 1349, the Video Choice Act of 2005, includes a
provision that says that a competitive video services provider may
``not deny services to any group of potential residential subscribers
because of the income of the residents of the local area in which such
group resides.'' That prohibition could be expanded to also forbid
discrimination based on ethnicity or race. Another possible solution to
the problem of redlining would be a negotiated build out requirement
such as that found in the recently passed Virginia video franchise
bill.