Video Franchise Legislation Moves Forward in Tex.

SBC and Verizon can apply for statewide certification to sell pay-TV starting Sept. 1, if the bill passes the House and is signed, said Bill Bragg, spokesman for Tex. Senator Troy Fraser (R), who wrote the bill. Both firms, which are seeking to sell their own video product, offer phone and other services in Tex. Bragg said the bill grew out of 2 months of talks that saw elements removed that would have limited municipal broadband activity. The bill passed out of committee Thurs. and may reach the floor Sunday, a Tex. cable official said. After legislators deadlocked on the franchise rules, “the House and the Senate are on the same page,” Bragg said in an interview.

The bill could reach the full House as early as today (Fri)., said an aide to Regulated Industries Chmn Rep. Phil King (R), whose committee was set to vote on it Thurs. Analysts such as Legg Mason’s Blair Levin said they think the bill likely will be passed by the full House, a view echoed by an NCTA official. That would make Tex. the first state to provide a video franchise, said UBS cable analyst Aryeh Bourkoff.

Cable executives, conceding defeat in Tex., downplayed the bill’s potential impact. An official at a cable operator said the industry will keep seeking fairness in regulation, as consistently advocated by NCTA Pres. Kyle McSlarrow (CD June 8 p1). Charter, Comcast, Cox and Time Warner provide cable in Tex. Officials at many of the companies didn’t respond to inquiries seeking comment on statewide franchising.

“It’s pretty hard in a situation like that (in Tex.) to ultimately defeat the legislation or amend it in any significant way,” said a cable official who asked not to be identified: “I don’t think that holds true for other states,” including N.J., where Verizon is pushing a similar bill. Still, the official said the cable industry faces an uphill battle in fighting passage of the legislation there.

“We would love to see this bill be a harbinger for the future,” said Verizon spokesman Bob Elek. “Texas is definitely a big step if it passes, and I would imagine other states would look at it pretty closely.” Verizon, with 4 franchises in towns near Dallas, is testing video through its FiOS project with some employees, he said. The company is planning fiber buildouts in about 15 states. “Consumers will applaud the Senate’s action,” SBC Tex. Pres. Jan Newton said in a statement to us: “Senate Bill 21 reflects a compromise that will encourage competition.”

Bells would have “pricing flexibility” because the bill lifts rate caps, Jessica Zufolo, senior policy dir.- Medley Global Advisors said. Intercarrier charges for calls placed within the state, as much as 4 times higher than nationwide rates, also would fall under the bill, Zufolo noted.

Municipalities may join cable operators in fighting a statewide franchising structure because it would hamstring their regulatory power, lawyers representing them said. “There is a very real risk that specific communities are going to be ignored,” said Harold Feld, senior vp Media Access Project: “There will certainly be a push to push back on this… I expect there will be a full-court press.”

The clock is ticking on any amendments from cities or cable operators. The special legislative session called Tues. by Gov. Rick Perry (R) will end July 21, analysts said. “Time is short,” Legg Mason’s Levin said in a client note about the bill, which also would allow broadband services to be sold through electric utilities. “If the House amends the lengthy bill… the two bodies would have to rush to iron out their differences.”

Lawyers for cities conceded it will be an uphill task in Tex. One attorney for the cities said the Tex. Municipal League is working vigorously against the bill. “Things can move like lightning in state legislatures,” the lawyer said. He said it is turning out that “we are seeing federal legislation that is much more friendly than what we are seeing in some of the state legislation.” So, he said, “we are pretty knee-deep at the federal level.” One also has to consider “how long-lived the Texas legislation will be” when things happen at the federal level, he added.

“Texas is going to be a favorable ground” for the phone companies, said attorney Tim Lay when asked whether cities are losing out in the battle for franchising authority. SBC is an “extraordinarily influential party” in Tex., he said. But the dynamics vary by state, he added. Cal. isn’t as favorable for the Bells, he said: “They tried to push for the same thing in California and they are not getting it as fast. And they obviously didn’t [succeed] in Virginia.” Lay said he believes the Bells will keep using a “double-edged” approach, pursuing legislation at the federal and state levels. He said cities would make a concerted effort to defend local franchising, which “is not the source of the problem” for the Bells.