Telco Franchise Issue Lingers

Verizon Communications Inc. and SBC Communications Inc. — their local phone businesses in decline for the past four years — are looking for new markets and new sources of revenue.

After winning broadband relief from federal regulators last month, both Verizon and SBC said they would accelerate fiber deployments to offer a suite of world-class digital products, including cable television.

As the Baby Bells know from past forays into video, invading the cable business comes with an array of cable-specific regulations that have been on the books for two decades, including the need to obtain local government approval through the execution of a franchise agreement.


Verizon has been outspoken about not wanting to hopscotch around the country to ink franchise agreements.

“We feel we already have rights-of-way to construct networks,” said Brian Blevins, Verizon's director of external communications.

SBC is conducting video trials in three unnamed communities over state-of-the-art, fiber-to-the-premises facilities without a franchise, a company spokesman said. It is promising to spend up to $6 billion to pass 18 million homes by 2007.

Verizon is planning to spend $2.4 billion to lay fiber past 3 million homes by the end of 2005.

SBC spokesman Dave Pacholczyk said although the company has not addressed the franchise issue, it believes the video programming it intends to offer won't be similar to traditional cable television.

“The basic premise here is that this is different from cable. This is an IP-based service,” Pacholczyk said.

An FCC source said Verizon lobbyists have complained that franchise requirements are an entry barrier.

“Verizon has been in a couple of times … saying, 'If you want competition, the FCC should do something,' ” a source said.

Eliminating the franchise requirement is something Congress would need to do, and Capitol Hill lawmakers are planning to overhaul telecommunications policy starting next year.

“We believe that as part of any kind of comprehensive reform, impediments to competition should be eliminated,” said Walter McCormick, president of the United States Telecom Association, a trade group that includes Verizon, SBC, and BellSouth Corp.

But McCormick said the industry has not geared up for a fight over franchises.

“Have we marshaled something big? No,” he said.

National Association of Telecommunications Officers and Advisors executive director Libby Beaty said Verizon's public stance on franchise agreements as enunciated by its top Washington lobbyist, Tom Tauke, has not stopped the company from opening a dialogue with local officials.


“With respect to Verizon, while I do know that Mr. Tauke has said we don't want to go down this path, it is my understanding that they have, in fact, engaged local governments in discussions,” Beaty said.

Verizon, she added, has sought concessions, such as the right to build plant only where it has existing facilities or in areas that cable systems have ignored.

“They are looking for some flexibility,” she said.

Local governments want the phone companies to offer wireline competition to cable. Studies have shown that head-to-head competition between wired networks lowers cable rates, though the National Cable & Telecommunications Association has called at least one major study flawed.

“Most people are very pleased to have some prospect of competitive entry,” Beaty said. “So we will work very diligently to ensure that they can facilitate that entry into the market.”