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Bell Companies' FCC Victory Might Be Short-Lived
By Amy Schatz
The Wall Street Journal
Thursday,
December 21, 2006

WASHINGTON -- Phone companies scored a win at the Federal Communications Commission when the agency agreed to change rules to let them enter the cable-television business faster, but the victory may be short-lived, as congressional Democrats complained and opponents threatened legal action.

The FCC, in a 3-2 party-line vote, passed rules that give state and local authorities a 90-day deadline to grant video-franchising agreements to new competitors.  The commission also struck down rules requiring that the Bells do more to provide service to all residents in an area than current providers.

The FCC action raises potentially significant issues for the Bells, which have persuaded eight states -- including California, New Jersey and Texas -- to change laws to accelerate entry to the video business.  State and local officials say the FCC is trying to usurp their authority, and cable companies say the Bells are getting preferential treatment.  The matter looks to be heading for court.  Yesterday's decision may make it more difficult for the Bells to persuade other states to change some rules that are made somewhat moot by the FCC action.

Verizon Communications Inc. and AT&T Inc. lobbyists have argued to state legislatures that more competition will lead to lower prices and more broadband Internet services.

"We don't expect states [that] are interested in passing legislation to stop that work because of today's FCC action," said David Fish, a Verizon spokesman.  Michael Balmoris, an AT&T spokesman, said the company intends to continue to press states to change franchising laws and said the FCC "expressly chose not to pre-empt existing state franchising law."

Verizon, AT&T and other phone companies argue it isn't in the public's best interest for them to have to seek approval from 30,000 local communities to offer digital television service.  The Bells say community officials have demanded various incentives -- such as landscaping for parks and street lights -- before allowing them to offer local video service.

FCC Chairman Kevin Martin has argued that the FCC has authority to stop unreasonable delays by local officials in granting video franchises.  Mr. Martin said changing the rules nationally to set time limits will promote video competition, increase the spread of high-speed Internet service across the U.S. and lower cable rates.  He said he is "committed to seeing that consumers are able to realize the benefits of competition in the forms of better services and lower prices."

In recent weeks, organizations representing U.S. cities, mayors and governors challenged the FCC's authority to impose federal rules on what has been a state and local decision, essentially telling the FCC to back off.  Along with cable operators, they argued there is scant evidence suggesting the Bells haven't had success getting approval from communities to offer competitive video service.

FCC Commissioner Jonathan Adelstein, a Democrat who voted against the change, argued the FCC was doing "legal gymnastics that would only impress an Olympic judge whose vote has been promised before the competition begins" to justify its authority.

The decision "undermines local franchising authority and enforcement, threatens local budgets, and limits the benefits of broadband video competition to a few well-to-do neighborhoods," said Larry Naake, executive director for the National Association of Counties.

"Fundamentally, as a matter of good policy, we're not too keen on any proposals that treat us and the telcos differently.  We have serious questions about the FCC's ability to set legislative policy," said Kyle McSlarrow, president of the National Cable & Telecommunications Association, a lobbying group.

Questions surrounding the FCC's authority over video franchising is the main reason phone companies tried to get Congress to make similar changes earlier this year.  That effort died amid partisan bickering over Internet discrimination rules.

Write to Amy Schatz at Amy.Schatz@wsj.com

http://online.wsj.com/article/SB116664369395955925.html?mod=home_whats_news_us