SACRAMENTO, CA — Looking to expand their reach into the profitable but hard-to-crack cable television market, telephone behemoths AT&T and Verizon are promising the fruits of competition to the 7.4 million California households that currently pay a
monthly cable bill.
They say their entry into the industry will lead to faster service, better picture quality and more consumer-friendly packages that would bundle television with high-speed Internet access and telephone service.
And they are spending millions of dollars to get that message across to state lawmakers in a massive lobbying effort to pass a bill that would rewrite the rules governing the cable industry.
But consumer groups are crying foul over legislation they say would give telephone companies free rein to raise prices and that could cost local governments millions of dollars in lost franchise fees.
“It’s pretty naive to think AT&T is doing this to give us lower prices,” said Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “They are doing it to have more choices themselves so they can charge as much as they like for services and construct lines in communities without local elected officials being able to stop them.”
Under a bill scheduled for its first Senate hearing next week, cable licenses would be issued by the state to companies seeking to enter the cable television business. That would upset a long-established system in which local communities issue franchise agreements to established cable companies, agreements that often remain in effect for years.
The Assembly approved the bill 77-0 last month after Democratic and Republican leaders leaned on their members for support in private caucus meetings.
Lawmakers in the Senate are now rewriting parts of the bill, saying it needs greater consumer protections to ensure that customers in poor areas also reap the benefits of competition.
Sen. Martha Escutia, D-Norwalk, chair of the Senate Energy, Utilities and Communications Committee, is trying to make the bill more consumer-friendly and palatable to cable companies, which fear the bill will create an uneven playing field. She is working with Assembly Speaker Fabian Nunez, D-Los Angeles, who promised to work with the Senate to change the bill.
Even as questions are being raised, some critics say the bill is being pushed through the Legislature with too little scrutiny.
“We feel like this bill is being rushed through much like the energy deregulation bill in 1996 that resulted in blackouts and in one company bankruptcy,” said Anthony Thomas, a lobbyist for the League of California Cities.
“Unfortunately, this bill is being placed in the hands of a few be it the leadership, committee chairs (or) consultants.”
California is one of about a dozen states in which telephone companies are trying to change the existing cable TV structure. They also are pressing for federal legislation.
The House passed a bill earlier this month endorsing a national franchise process, which would pre-empt state franchises such as the one being considered in California and elsewhere. A similar bill is pending in the U.S. Senate.
“These guys are looking at the federal effort and the state effort separately because they don’t put all their eggs in one basket,” said John Dunbar, director of the telecommunications project at the Center for Public Integrity. “If you can get your way in California and a year later get your way in Congress, that year in business in California is worth it to these guys.”
The cable industry in California is a $5.3 billion-a-year business.
To press their cases, the telephone companies and the cable companies that oppose the legislation have launched multimillion dollar media campaigns targeting television and newspapers throughout California. They have hired teams of lobbyists, paid consulting fees to former lawmakers and contributed campaign cash this year to almost every member of the Legislature.
AT&T, which is pushing the California legislation along with Verizon, sponsored a fundraiser in Monterey this spring that raised $1.7 million for the Democratic Party and was headlined by Nunez, the bill’s sponsor.
“The amount of money these parties are spending is a small fraction to the potential gains and losses, so it’s a reasonable investment,” said Tim Hodson, director of the Center for California Studies at Sacramento State University.
LTelecommunication companies gave $10.3 million in campaign contributions and spent $14.4 million for lobbying to advance a variety of bills in California between 1999 to 2004, according to a study by the Center for Public Integrity.
The biggest spenders were SBC Communications and AT&T now one company with a combined $13.5 million in spending. Next was the National Cable and Telecommunications Association, which spent $2.6 million in campaign contributions and lobbying combined.
The latest campaign reports filed with the California secretary of state show
AT&T and Verizon gave $1.4 million in contributions from January 2005 through March 2006. They have spent another $1.4 million combined in lobbying.
During the same period, cable companies have given $649,463 and spent $1 million on lobbying, according to secretary of state records.
“It’s a very expensive undertaking, but that’s just part of the process,” said Tim McCallion, a Verizon executive based in Thousand Oaks.
AT&T and Verizon representatives promise delivery of better products, such as faster video services and higher-quality pictures, in a market that has been monopolized by cable companies such as Comcast Corp., Cox Communications Inc., Time Warner Cable and Charter Communications.
Nationally, cable rates rose by 53 percent from 1993 to 2003, according to the Federal Communications Commission. Meanwhile, local phone rates in urban areas have risen by 23 percent from 1994 to 2004.
“The current process just doesn’t work. It’s old, outdated and slow,” McCallion said. “If we’re going to bring fiber to consumers of California, we need to be able to get into the marketplace to sell our product and show this investment is worth making.”
The Foundation for Taxpayer and Consumer Rights and other critics say the version of the bill that passed the Assembly would allow telephone companies to offer services only in wealthy neighborhoods. Potential customers in those areas are valued for their profit potential because they are more likely to buy more services.
In the Senate, Escutia is working to amend the bill so telephone companies are required to install their fiber-optic cables in all neighborhoods, regardless of income.
McCallion said Verizon is committed to providing universal service, but said the company does not want to be restrained by a timeline for doing so because of the expenses and complications involved in installing new cables. If lawmakers impose too many requirements, Verizon may abandon its support of the bill, he said.
Cable company representatives also say the current bill would give AT&T and Verizon an unfair edge because they would be allowed to bypass the negotiating process cable companies must go through with local governments.
The bill also should allow cable companies to compete for state licenses with fewer obligations and costs imposed by local governments, said Dennis Mangers, president of the California Cable and Telecommunications Association.
“Cable operators shouldn’t be trapped in existing local franchises that are more costly,” he said.
Releasing cable companies from their local franchise agreements could carry a hefty price tag for cities, perhaps as much as $250 million a year, said Thomas, the League of California Cities’ lobbyist.