Internet service franchises offer local governments potential work around to incumbent-sponsored state video franchises

Mediacom questions Iowa City deal with ImOn | The Gazette: Jeff Janssen, vice president of sales and marketing with ImOn Communications, said Tuesday he had not seen the Mediacom letter, but said ImOn has lease agreements similar those with Iowa City in other communities like Hiawatha and Marion.

Janssen also noted a franchise agreement only becomes required when cable TV is added to the list of service offerings. ImOn’s current plans for Iowa City are strictly for telephone and Internet services, he said.

“Franchise agreements are all around cable TV,” he said. “Once we decide, or if we decided to offer cable TV in Iowa City, we would get that franchise agreement, we are required to.”

This issue was bound to emerge sooner or later. In the early 2000s, legacy incumbent telephone and cable companies realized that with the emergence of the Internet and its capability to deliver TV programming, local governments would come under intense pressure from their constituents to require ISPs offering video services to provide Internet connections to all premises under municipal franchise agreements. That would have required substantial capital investment incompatible with the incumbents' business models based on milking their existing wireline "footprints" -- and not modernizing and expanding them to reach every doorstep.

To head off this prospect, the legacy incumbent cable and telephone company lobbies went into high gear to get state laws enacted putting states in charge of so-called "video franchises" and usurping local government authority over video services.

But that left a potential loophole for local governments to franchise Internet services other than video -- what's at issue in this Iowa case. Watch for this gambit to take off elsewhere, especially in states where there are also laws barring local governments from building and/or operating their own Internet services. Local governments could get around both restrictions by creating Internet service franchises and partnering with private ISPs as their franchisees. (Also referred to as "telecommunications franchises" in this item on a recent Brookings Institution panel discussion). They could also pressure the legacy incumbent telephone and cable companies by requiring them to obtain an Internet service franchise serving all premises if they wish to offer Internet services other than video within their jurisdictions.

With interest in wireline-delivered video declining among "cord cutting" consumers and incumbents relying more on Internet service for revenue, that pressure could be quite intense. It would also give localities a powerful tool to bring service to all of their residents and businesses given the U.S. Federal Communications Commission's lack of interest in enforcing its recently adopted rulemaking reclassifying Internet as a common carrier telecommunications service subject to the universal service and anti-redlining provisions of Title II of the Communications Act.

Verizon sends mixed messages on need for Mass. state franchise legislation

Last month, I noted local government franchising doesn't seem to be slowing down telcos like Verizon who have backed legislation in various states that would put the state instead of local governments in charge of issuing franchises. I pointed to Verizon's progress in New York and also questioned why given the slow pace of telco broadband infrastructure deployment there would be any need to bypass the locals in the first place.

The telcos complain it takes too long to deploy new broadband infrastructure to support IPTV (Internet Protocol Over TV) when they have to negotiate agreements with local governments one jurisdiction at a time.

This week, The Boston Globe reports Verizon officials concede that local governments in Massachusetts are not slowing Verizon's rollout of its fiber to the home FiOS infrastructure, undercutting Verizon's claim state franchise legislation is needed in that state.

Protecting the telco/cable duopoly

This story out of New York state shows that telcos (in this case, Verizon) can offer broadband-based Internet Protocol TV (IPTV) in without legislation the telcos are seeking in the Empire State to put the state in charge of issuing so-called "video franchises" In this case, Multichannel News reports, the towns of West Haverstraw and North Castle approved Verizon's applications to provide IPTV over its propriety fiber optic FiOS infrastructure.

The telco/cable duopoly has pursued similar legislation in about a dozen states, claiming it would allow them to bypass local governments, bring greater market competition (pretty hard to do in a duopolistic market) and deploy broadband-based services more rapidly. However, at the slow pace at which the telcos and cable companies are expanding the availability of their broadband services, doing with local government regulation one area at a time certainly doesn't seem to be an impediment.

Rather than speed up deployment of broadband, the true objective of the state franchise measures, like a recently-promulgated Federal Communications Commission rule (which is being legally challenged by local governments), is to protect telcos and cable companies from local government demands they hasten the build out of their infrastructures in order to make broadband available to unserved areas.

Will Comcast seek California state charter?

As demand for broadband Internet access grows, California municipalities and counties will invariably find themselves under pressure to amend franchise agreements with cable companies like Comcast to require them to extend service to neighborhoods lacking cable access. Even areas where AT&T and other telcos provide broadband via Digital Subscriber Line (DSL) could clamor for cable service since it offers a proven bundle of television and Internet access at speeds higher than DSL.

But if they do, will Comcast and other cable providers tell California local governments to take a hike and opt to obtain a statewide franchise under legislation that took effect earlier this year, the Digital Infrastructure and Video Competition Act of 2006?

Enacted last year as AB 2987, the law allows both cable and telephone companies to bypass local governments and instead obtain authority to offer video-capable broadband through franchises issued by the California Public Utilities Commission (CPUC). But AB 2987 also allows cable companies to operate under existing local government franchise agreements if they choose. So far, Comcast is doing just that and has not applied for a statewide franchise from the CPUC. (To date, only one cable provider, Cox Communications, has applied for a statewide franchise.)

If enough California local governments pressure Comcast to build out its cable plant to provide service to more neighborhoods, Comcast could well opt for a state charter under AB 2987. The reason: the law has very limited build out requirements that require providers serve only half of their regional service areas by 2012. Opting for a statewide franchise would provide Comcast and other cable providers an easy exit from local political pressure to expand broadband access.