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from: Springfield Business Journal

Gov. Blunt signs state video franchise bill
Springfield officials say bill will reduce city's franchise fee revenues by up to 20 percent

By Jeremy Elwood
Springfield Business Journal Staff
4/2/2007

The state of Missouri has weighed in on competition among cable providers.

Gov. Matt Blunt on March 22 signed Senate Bill 284, the 2007 Video Services Provider Act, which allows cable companies to obtain a statewide cable franchise. Previously, municipalities governed cable franchises individually.

A heated debate on cable franchises has been ongoing in Springfield since last fall, when City Council approved a Multichannel Video Services Franchise. AT&T, which has a strong interest in competing with Mediacom, Springfield’s only cable provider, opposed the city’s bill. AT&T officials said the build-out requirements precluded new companies from successfully entering the market.

The city’s agreement requires companies that want to offer new cable services to meet the same build-out schedule as the incumbent cable provider, if they can’t negotiate a build-out schedule with the city. TeleCable, the predecessor to Mediacom, took three years to cover all areas within the city limits with at least seven dwellings per quarter mile when it first installed cable service in 1978.

Significant impact

Springfield legal staff says the state bill significantly impacts the city’s ability to collect franchise fees. The state bill gives cities the ability to charge up to 5 percent in gross revenue fees from all cable providers.

Assistant City Attorney Nancy Yendes said by e-mail that the city expects a 15 percent to 20 percent reduction in franchise fees, due mostly to a change in the definition of “gross revenues.”

Cities can require up to three channels for public, educational or governmental use, which Yendes pointed out is fewer channels than Mediacom currently provides for public access.

Bill sponsor state Sen. John Griesheimer, R-Washington, said the impetus for the legislation was a situation in St. Charles where SBC, now AT&T, wanted to provide cable service. The incumbent cable company there, Charter Communications, threatened litigation unless SBC’s franchise agreement was exactly the same as its own.

“We wanted to standardize the agreement so you don’t have 556 different agreements, one for each municipality,” Griesheimer said.

The state bill also requires cable providers using telecommunication facilities to provide video service to at least 25 percent of the households in their service area within three years and at least 30 percent within six years.

Also, 25 percent of a cable provider’s service must be provided to low-income households within three years. Both requirements, the bill says, are intended to counteract discrimination “based on race or income.”

Yendes said that because the bill defines a “low income” household as being in an area where the median household income is less than $35,000 – which includes most of Springfield, according to the 2000 U.S. Census – the stipulation doesn’t really protect minorities or homes with lower incomes.

“Serving a large number of single white professionals is a total defense to race discrimination under this bill,” Yendes said.

Randy Hollis, senior manager of government relations for incumbent cable provider Mediacom, said SB 284 was a compromise between existing and new cable companies.

The state’s cable companies opposed a similar bill introduced last year, he added, largely because that bill didn’t allow incumbent companies to obtain a statewide franchise agreement.

AT&T’s $100 million state plan

AT&T, the largest current potential competitor to Mediacom, is proceeding as if the state legislation supersedes Springfield’s city ordinance.

“We plan to roll the service out as fast as we can, but I don’t have a breakdown of specific future plans by state, so I can’t tell you when we’ll be in Springfield,” said AT&T spokesman Kerry Hibbs, who added that the company plans to have cable service available to 19 million households nationwide – about half of its customers – by the end of 2008. This year in Missouri, AT&T plans to spend more than $100 million on infrastructure.

Yendes, however, was not optimistic.

“All it sounds like to me is that they’re going to spend money on some pieces of their equipment so they can shove more capacity down their antiquated telephone lines for a while,” she said. “I’ll be interested to see what they really spend it for – and if they really spend it.”

AT&T plans to provide TV service through a process called IPTV – Internet protocol television – which is transmitted via the company’s existing phone lines.

“It doesn’t mean we’d be digging up anybody’s backyard to put this service in,” Hibbs said. “What it does mean is that we are making improvements to our existing fiber-optic network. Frequently in neighborhoods we’ll have to put up what’s called a utility cabinet, and that’s what makes possible sending video services over phone lines.”

Mediacom’s Hollis said local competition is nothing new.