from: ajc.com [1]

AT&T'S ACQUISITION OF BELLSOUTH
Video a vital battleground

By SCOTT LEITH
The Atlanta Journal-Constitution
Published on: 11/22/06

It's no secret that BellSouth — like the company that plans to buy it, AT&T — wants to go head-to-head in the TV business with cable providers such as Comcast.

To help pave the way, BellSouth has launched a big, behind-the-scenes lobbying effort to overhaul how video service franchises are granted in Georgia and in many other states.

The possibility of changes has sparked worries, chiefly among cable companies and local governments. Those entities are accustomed to working within the constraints of the current system, and they're arguing for limits that guard from giving too much of a leg up to AT&T, BellSouth and another big phone company, Verizon Communications.

All the maneuvering is worth watching for consumers because BellSouth and its allies claim they'll be able to get into the video business far faster if the franchise system is overhauled. That additional competition, in turn, is being touted as a way consumers could save money.

"We can spend millions of dollars and a number of years negotiating these agreements," said Kevin Curtin, BellSouth's director of public affairs and economic development in Georgia. "Or we can spend that time and money deploying video services."

Video is shaping up to be the next big battleground between phone and cable companies. Already, they're rivals in high-speed Internet and, more recently, in phone services.

To get into video, AT&T/BellSouth and Verizon face many challenges, starting with massive expenses for network upgrades. That spending is necessary because the technology the companies use, known as Internet Protocol Television, requires stouter bandwidth than what's possible with many phone networks.

But that's the big picture. First they want to alter the bureaucracy that stands in their way.

The current process in most states requires would-be video service providers to get rights, or franchises, to operate in every city, town or county where they want to do business. To operate across Georgia would entail approvals from about 700 sources.

There are several possible changes. Perhaps the most attractive approach for phone companies would be reforms at the federal level, as proposed in Congress earlier this year.

A federal overhaul could still happen. But BellSouth's vice president for regulatory affairs in Georgia, Pete Martin, thinks the prospects aren't good. Earlier this year, a bill passed the U.S. House of Representatives but bogged down in the Senate. With the pending Democratic takeover, further progress appears unlikely.

It looks even less probable, observers said, that the Federal Communications Commission would, in essence, eliminate regulations of any kind for Internet Protocol Television.

New game plan

With that in mind, BellSouth, AT&T and Verizon already have an alternative strategy under way. In certain cases, they're seeking local franchises under the current system while still lobbying for larger changes, state by state.

The process kicked off last year, when Verizon and AT&T — then known as SBC Communications — successful backed a new law in Texas.

In the Southeast, BellSouth went to work in five states in hopes of passing new, statewide franchising rules. The company was successful in South Carolina and North Carolina. Those states are now among 10 in the nation where some kind of statewide franchise is available or in the works.

The changes haven't happened without controversy.

Cable wants 'level' field

In Texas, big cable operators were incensed because the law there didn't allow them to convert to statewide franchises right away.

The subsequent backlash inspired a different approach by the phone companies. BellSouth and AT&T have now decided to support changes that would allow all companies to adopt statewide franchises if they'd like.

"Our preference is always to be as conciliatory as possible," said Sylvia Anderson, southern area vice president for regulatory and legislative affairs for AT&T.

In Georgia, BellSouth has been talking with potential rivals — the Cable Television Association of Georgia, the Georgia Municipal Association and the Association County Commissioners of Georgia — to iron out differences before legislation is drafted.

Nancy Horne, president of Georgia's cable association, said her industry has worked under local franchising rules for 40 years. Most in cable circles would prefer to leave the system alone.

Horne also noted that BellSouth already has obtained a few local franchises in Georgia. "We don't see that there is any barrier to entry on their part," Horne said.

Nonetheless, the lobbying muscle of BellSouth and its allies is considerable, so the cable industry plans to do whatever it can to protect its interests. "If there is going to be a bill, we all need to operate by the same rules," Horne said.

Laws passed in the Carolinas, she said, create a "level playing field" for cable and phone companies.

Cities seek protections

Cities and counties, meanwhile, want to preserve rights they enjoy under the current system.

Gwin Hall, associate general counsel of the Georgia Municipal Association, said that if changes are going to be made, the organization wants local governments to be able to continue handling consumer complaints about cable.

"If there's a problem with your cable service," Hall said, "you can call city hall or the county. Sometimes that works a lot faster than if a customer is left to their own devices."

The GMA also wants local governments to keep oversight of rights of way where cable and phone lines are installed. "That way you ensure the utilities aren't tearing up the roads" without local permission, she said.

Franchise fees are perhaps the most critical issue, and those funds would be preserved under a change to a statewide system.

Clint Mueller, legislative director of the Association County Commissioners of Georgia, said he favors a bill that would ensure that franchise money goes to cities and counties, rather than being doled out at the state level.

Any bill also would protect public access channels that many local governments maintain, Mueller and others said.

Lawmakers primed

Sen. David Shafer (R-Duluth) predicted there's a good chance reforms will pass during the 2007 General Assembly. Shafer chairs the Senate's committee on regulated industries and utilities. On Oct. 19, he led a hearing that kicked off the formal process of developing a bill.

Elsewhere in the Southeast, BellSouth has been in tentative discussions, so other legislatures are likely to weigh bills as well. AT&T, in turn, plans to use its influence in hopes of getting franchising changes around the country.

"We're looking broadly at passing as much legislation as we can," Anderson said.