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from: LA Times

Phone firms' TV market bid may skip Congress
With Democrats rising, an overhaul of telecom laws is unlikely. The industry turns to states.

By Jim Puzzanghera, Times Staff Writer
November 28, 2006

WASHINGTON — Big phone companies trying to dial in an overhaul of telecommunications laws will have to hang up and try the call again next year.

The Democratic takeover of Congress makes it increasingly unlikely that AT&T Inc. and Verizon Communications Inc. will be able to push through stalled legislation to make it easier for them to sell pay television.

Instead, they probably will focus their efforts on state legislatures as they try to deliver more services to compete against cable companies.

Lobbyists have all but given up on the telecommunications legislation, which also includes new anti-piracy measures for digital TV and radio signals, a three-year ban on new cellphone taxes and a permanent moratorium on Internet access taxes. Even the bill's most ardent backer, Sen. Ted Stevens (R-Alaska) has little hope.

"I really don't see much chance to get a bill like that out," he said. "It's got firm objections."

The bill, which would have eliminated most state and local regulation of pay television, has been stalled for months because of a dispute over rules to assure that data continue to flow freely across phone and cable company lines.

Democrats support those rules, known as "network neutrality," which would apply to high-speed Internet access delivered by the same lines. But most Republicans oppose them and kept them out of the legislation.

With Democrats set to take control of the Senate and the House of Representatives in January, they have no desire to allow the outgoing Republican majority to pass major legislation while still in charge.

The legislation would have to be drafted from scratch next year.

And Democrats, who will control all congressional committee chairmanships, may not make telecommunications overhaul as high a priority as the Republicans had. But AT&T and Verizon haven't been depending solely on Congress.

They can't afford to. Phone companies are locked in a heated battle with cable providers to offer a full-range of services — including pay TV, Internet access and phone service. The cable companies have a big early advantage because their networks and quirks in the regulations make it easier for them to roll out new offerings.

So AT&T and Verizon have pressed state legislatures for changes in oversight of pay television, with some major victories this year, including a new California law that shifts authority away from cities and counties and consolidates it with officials in Sacramento.

"No question, we've had much greater success at the state level," said Tim McKone, AT&T's executive vice president for federal relations.

Since 2005, Texas, New Jersey, Virginia and four other states have enacted laws making it easier for phone companies to deliver TV programming by eliminating the need to get approval from every community they want to serve. Those states provide the phone companies more than enough potential customers for their nascent TV services, which have been rolled out slowly so far.

"They're OK state by state," said Jessica Zufolo, a telecommunications analyst for independent equity research firm Medley Global Advisors. "It's better than federal legislation."

The Michigan House of Representatives passed legislation last week similar to California's that allows phone companies to bypass city and counties for TV service approval.

And the phone companies are expected to push for similar laws next year in other large states, including New York, Florida and Pennsylvania.

Although AT&T and Verizon would prefer a nationwide law that would give them the ability to offer TV service anywhere they choose, federal legislation — particularly if passed by a Democratic Congress — could come with the unwieldy baggage of network neutrality.

Phone companies desperately want to offer TV service, but executives have indicated that they want to help offset the construction of new high-speed lines to handle the extra data by charging websites for faster data delivery.

Those plans provoked an outcry this year from Google Inc., Yahoo Inc. and other major Internet companies, as well as a wide array of public interest groups.

They fear that network operators will create toll lanes on the Internet, stifling innovation.

The controversy stalled the telecommunications bill in the Senate this summer. But proponents of network neutrality have not pushed the issue hard in state capitals — at least not yet.

"If the action is in the states, we'll be in the states," said Ben Scott, policy director for Free Press, a nonpartisan media reform group that is part of a coalition advocating network neutrality rules.

"Net neutrality can and should be addressed at the state level in the absence of any federal activity," Scott said.

Reflecting the shift in strategy, network neutrality supporters will deliver 18,000 petitions today to the Michigan state Senate.

McKone said AT&T would continue to push for a federal law streamlining pay TV franchises. But Verizon's top lobbyist has said his company wouldn't.

Congress may press ahead anyway. Many lawmakers believe that making it easier for phone companies to offer TV services will lead to more high-speed Internet service nationwide because of the desire to offer customers one-stop shopping for all their digital communications.

Rep. John D. Dingell (D-Mich.), the incoming chairman of the House Energy and Commerce Committee, said he planned to consider new telecommunications legislation next year.

A longtime friend of the former Bell companies, Dingell still opposed the House version of the telecommunications legislation because it failed to include rules preventing phone and cable companies from charging websites for higher-speed delivery of content.

"Clearly we're going to have to address the question of network neutrality," he said.