Video plan may not be cheap

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Just days ago, the cable industry and the phone companies were at war over AT&T and Verizon getting into the video business in California. Now we have peace in our time.

And the only loser is you.

At issue is a bill approved by a state Senate committee last week that would allow cable operators like Comcast to walk away from agreements with local municipalities as AT&T and Verizon gain franchise rights on a statewide basis.

The phone companies have lobbied fiercely for state franchising, arguing that cutting individual deals with hundreds of municipalities — as cable operators have been required to do for years — would be too much of a hassle as they roll out Internet-based TV service to millions of homes.

The cable industry has countered that phone companies should have to play by the same rules that apply to them, and that state franchising would be bad for consumers because it would allow AT&T and Verizon to pick and choose which communities will get their video programming.

That changed last week when Assembly Speaker Fabian Núñez, D-Los Angeles, unveiled an amendment that would let cable companies abandon existing deals with cities and counties, allowing them to enjoy the same state franchising that the phone companies would be permitted.

This means the state Public Utilities Commission, not local officials, would regulate the phone and cable industries. It also means many commitments by cable operators, such as extra public-access channels or wiring hospitals and fire stations for broadband access, could fall by the wayside.

“This bill has disaster written all over it,” said Bob Finkelstein, executive director of The Utility Reform Network, a San Francisco consumer group. “Anytime you’ve got AT&T, Verizon and Comcast all pushing for the same legislation, what worse rogue’s gallery could there be from a consumer’s perspective?”

A full Senate vote on the legislation is expected next month. It’s expected to pass.

Dennis Mangers, president of the California Cable and Telecommunications Association, an industry group, acknowledged that the cable business has shifted gears in its opposition to state franchising for the phone companies.

“It became clear to us that state franchising laws were passing in every state,” he said. “We figured we’d better get on the train.”

Prior to Núñez’s amendment, Mangers had been adamant that AT&T and Verizon should be subject to local franchising just like cable companies.

“This bill overrides local control so that two big phone companies can cherry pick wealthy communities with their best technology and offer a second-tier, lower quality service to everyone else,” he said in April. “That is an unfair business practice to the cable industry and, more importantly, unfair to consumers.”

Mangers and the cable industry were singing a different tune last week — once they too were offered the chance for state franchising and the ability to abandon existing municipal accords.

He told me that cable customers would benefit under state franchising because companies like Comcast would be able to eliminate fees related to some local agreements.

“This is in the interest of fair play and a level playing field,” Mangers said. “One can expect to see spirited competition over the next few years.”

Comcast spokesman Andrew Johnson echoed this sentiment. “We just want a level playing field,” he said.

Johnson said Comcast would look at its 128 franchise agreements with California cities on a case-by-case basis and determine which ones will be tossed aside in favor of a state franchising pact.

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said he has no doubt that Comcast and other cable companies will abandon all local franchise agreements in favor of one-size-fits-all state franchising.

“Nobody cared about leveling the playing field for the consumer,” he said. “The consumer gets the shaft here.”

Advocates of opening the TV market to phone companies insist that increased competition will benefit consumers through lower prices — as much as $1 billion in savings for California households, according to an AT&T-commissioned study.

But that assumes phone and cable companies actually compete aggressively on pricing.

At a recent Wall Street conference, AT&T Chairman Ed Whitacre said his company’s entry to the video market won’t lead to significant price cuts (and hence lower corporate profits).

“I don’t think there’s going to be a price war,” he was quoted as saying by Broadcasting & Cable magazine. “I think it’s going to be a war of value and of services. I think we will be very well positioned.”

Gordon Diamond, an AT&T spokesman, stressed that his company’s video service will be competitively priced compared to cable rates. But, like Whitacre, he indicated that AT&T‘s service won’t necessarily be cheaper.

“No one wins with a price war,” Diamond said.

No one, that is, except consumers.

Consumer Watchdog
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