Save Access

from: KnoxNews

AT&T vs. the Cable Industry

From Knoxville News Sentinel, November 9, 2007
By Andrew Eder

Tennessee’s telecommunications heavyweights are gearing up for round two of the bout over competition in the TV market that began in the last state legislative session.

In the blue corner, sporting a new state president and a strong desire to get in the digital television business, is AT&T.

“It’s about competition, choice, better prices, jobs and investment,” AT&T Tennessee President Gregg Morton said of his company’s renewed push to change state law and roll out video services under a statewide agreement.

In the red corner, arguing that the country’s largest phone company is trying to gain an unfair advantage and circumvent local control, is Tennessee’s cable industry, backed by local governments.

“They’re behind,” Stacey Briggs, president of industry group Tennessee Cable Telecommunications Association, said of AT&T. “Now they want to pick their customers, and they’ve got to change the law to do it.”

AT&T, which merged with BellSouth last year, says the change would prompt the company to invest hundreds of millions of dollars in the state while also pushing the cable companies to lower prices and improve their service. The cable industry says AT&T will “cherry pick” the best customers if it’s not made to negotiate contracts with individual cities, towns and counties, as cable companies have done for decades. Local governments worry that control over consumer access, rights-of-way and public-service channels will be lost if licensing is handled in Nashville.

Earlier this year, the issue dominated the state Legislature, with one legislator suggesting that the Competitive Cable and Video Services Act should really be called the Lobbyist Employment Act. Similar laws have been enacted in 17 states, including Florida, Georgia, North Carolina and South Carolina.

The curtain has yet to lift on the 2008 legislative session in Tennessee, but both sides are already on the offensive. Morton, a veteran of legislative and regulatory battles for BellSouth in Washington, D.C., and South Carolina, was appointed state president for AT&T in September, replacing Marty Dickens. He’s been working to convince local officials, legislators and editorial boards across the state that the bill — which Morton said is the No. 1 legislative issue for AT&T across all 50 states — would be a win for consumers and local governments.

A statewide licensing process would allow AT&T to avoid negotiating separate agreements with the more than 300 municipalities in the state. Cable industry representatives and others argue that a recent Federal Communications Commission rule establishing a 90-day “shot-clock” for local governments to rule on franchise requests will streamline the process for AT&T, but the company says local agreements are still a barrier to competition that would delay getting new products to consumers.

In a turnabout for the telecommunications giant, Morton is casting AT&T as the David going against cable’s Goliath in trying to roll out its U-verse service in Tennessee.

“The fact of the matter is, we have no customers and no market share,” Morton said. “We’re a new entrant.”

U-verse is AT&T’s attempt to match the cable providers’ bundled packages of Internet, phone and television services, which have proven popular with consumers. Currently available in 12 metro areas across nine states, the high-speed Internet and video service pushes television content to consumers using Internet Protocol, rather than traditional cable or broadcast formats.

AT&T said it is gearing up to invest $1.85 billion to upgrade networks for U-verse in the four Southeastern states that have approved statewide franchise laws. Morton said potential investment in Tennessee would be comparable to North Carolina, where the company intends to spend $350 million.

If the bill passes, he said services could be rolled out as early as mid-2009. The rollout would be in areas with DSL high-speed Internet service — about 85 percent of AT&T’s coverage area in Tennessee — and would be “based on propensity to buy,” Morton said.

Morton concedes that the cable providers have been successful in poaching many of AT&T’s traditional landline telephone customers, prompting the company to aggressively pursue the television business. But he argues that AT&T should be on the same licensing basis as the cable companies are in their pursuit of telephone customers. The telephone business is regulated at the state, rather than local, level.

Briggs counters that the state regulation of telephone companies is set by federal law and that AT&T’s complaint is sour grapes from a competitor that did not act as quickly as cable to build out a next-generation network following a 1996 rewrite of the nation’s telecommunications laws.

“We upgraded our networks — as they could have, as they should have — to offer a two-way interactive digital platform,” said Briggs, who added that the cable industry has invested more than $1 billion in Tennessee during the last 10 years.

Currently, cable providers negotiate contracts with local governments that specify how and where the providers will build out their networks, among other issues. Consumer advocates and local governments worry that a statewide franchise would allow AT&T to target only the most desirable neighborhoods in a community.

“We believe that it weakens consumer protections because there are no build-out requirements,” said Carole Graves, communications director for the Tennessee Municipal League, an organization of cities and towns across the state.

Morton said that not only would the bill’s language prohibit discrimination, but low-income consumers tend to be excellent television customers.

“We would be foolish to avoid those customers,” Morton said.

State Sen. Tim Burchett of Knoxville, who predicted a “bloodbath” over the issue in the next legislative session, said he was concerned that AT&T might not carry public-access channels on U-verse, although Morton said the service would provide more such channels than cable does. Beyond that, Burchett worried the legislation would generally strip control from local governments.

“I don’t like Washington telling me what to do, and one step smaller, I don’t like Nashville telling the locals what to do on an issue like that,” Burchett said.

Knox County Mayor Mike Ragsdale has headed the Tennessee Association of County Mayors, which opposed AT&T’s move. The county is taking a wait-and-see approach on the issue in the next legislative session.

“It appears that both sides are starting from scratch on this issue,” said Dwight Van de Vate of the Knox County Mayor’s Office. “Until a clear proposal is developed and put on the table for discussion, it would be premature for our office to take a position.”

City of Knoxville spokeswoman Margie Nichols said the city also would need to examine the details of any proposal. But she sounded a common refrain among AT&T critics — the fact that the company can get into the television business right now by working with local governments.

“We will negotiate a contract with them anytime,” Nichols said. “We want them to do business here.”