[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




                                 _____

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       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\
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    \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.
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    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\
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    \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.
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    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.
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    \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
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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\
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    \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).
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    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.
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    \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\
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    \1\ This testimony reflects only the views of its authors and does 
not represent an official position of George Mason University.
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    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.

                                  
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