Núñez to sponsor major cable deregulation bill
|The following first appeared in Capitol Weekly today|
Assembly Speaker Fabian Núñez is drafting sweeping legislation that could fundamentally change California's phone, Internet and television landscape. The measure would centralize franchising for the state's multibillion-dollar cable market to allow telecommunication giants AT&T and Verizon to better compete with the state's existing cable-operators.
California would become only the fourth state in the nation to allow telecommunications companies to apply for state-issued cable franchises. Since Texas became the first state to deregulate its cable industry last September, California is one of a dozen states that have discussed similar changes.
Núñez is quick to say the legislation is "not fully cooked." The bill, AB 2987, does not yet contain any substantive legal language, but the speaker says a fleshed-out law could be coming in the next weeks. Participants in the high-stakes negotiations have been meeting quietly in the Capitol since last April.
"The bread is being baked as we speak," said Núñez.
What's at stake is the opening wide of the state's estimated $5 billion broadband market that provides millions of Californians high-speed Internet access and cable television. It is a growing market that both AT&T and Verizon are determined to enter. AT&T already has committed to spend $4.4 billion to upgrade its existing phone lines to high-speed fiber optic lines capable of transmitting video and Internet signals faster than DSL. The upgrade would reach out to 18 million customers in 13 states, including California.
But under current state law, phone companies must negotiate separate cable-franchise agreements with each municipality into which they expand. That's the same system the cable companies have navigated over the last three decades. But AT&T and Verizon say the bureaucracy is outdated and ineffective.
"If we had to follow a city-by-city process, and if we were able to secure one agreement a week, it would take over seven years to get all the approvals to roll out this new service in California," said AT&T spokesman Gordon Diamond. "[We are] supporting a statewide process that would … remove some of the barriers that exist right now to enter the video services market."
The Núñez legislation, which is being co-authored by the chair of the utilities and commerce committee, Assemblyman Lloyd Levine, D-Van Nuys, would allow cable and broadband providers to seek a single franchise agreement at the state level. The result, Levine and Núñez say, would be the investment of billions of dollars by the telecommunications industry to create a new, privately funded digital infrastructure for California.
According to industry estimates, it costs $25,000 to $40,000 per mile of new overland fiber optic lines and more than $40,000 per mile of underground wiring.
"I am looking at the biggest investment in technology infrastructure to reach as many Californians as possible," said Núñez. "I think the opportunities are endless."
With both telecommunications firms and existing cable operators potentially offering high-speed Internet, television and voice services in the same area, proponents of the new policy say the average consumer may save on their monthly bill.
"Ultimately I think that the more competition you have, you typically drive down the cost of the product," added Núñez, who has received more than $20,000 from cable and telecommunications companies since 2005.
But Lenny Goldberg, a consumer advocate and lobbyist for The Utility Reform Network who has been involved in the legislation discussions, worries that the new regulations and competition may only benefit more affluent customers.
"Often, you provide competition and the best services for the customer with the most money," says Goldberg. "The result is [that the] so-called benefits of competition go to the high-end and those people at lower incomes or poor locations are paying the disproportionate share of the costs."
One of the central controversies of the proposed legislation is over what populations would be served by the new high-capacity fiber optic lines.
Historically, cable providers have been required to "build out" to serve entire municipalities with their best available technology--without discriminating against racial groups or income levels.
Even latecomers to the cable market have been required to expand via a "balanced build out"--serving affluent and poor neighborhoods equally. For example, Sacramento's SureWest recently was forced to offer cable service to both the wealthy Land Park neighborhood and the less affluent Oak Park area.
But telecommunications companies would rather expand without such a "balanced build" requirement.
"This is a private investment and we have to make sure we are spending our dollars and making our investment wisely," said AT&T spokesman Diamond.
AT&T has said that its business model is to bring "Project Lightspeed," its fastest broadband, to 90 percent of "high-value" customers--defined by those who spend more than $160 a month on telecom and entertainment services.
But the business plan calls for bringing the fastest "Lightspeed" technology to only 5 percent of "low-value" customers that spend less than $110 a month.
Diamond emphasizes that "In no way should this be interpreted as saying that we are targeting affluent areas only. It couldn't be further from the truth. We want to provide our services to as many customers as we can."
But cable operators say such customer selection is unacceptable.
"It is classic redlining," said California Cable Television Association President Dennis Mangers, borrowing a term from other industries' past practice of charging higher rates to predominantly poor, ethnic communities.
Both local government groups, which fear that certain cities or segments of cities could be left underserved, and the legislative sponsors sound committed to requiring some degree of a balanced build.
In February, the board of directors of the League of California Cities adopted a telecommunications policy that demanded "all local community residents" have access "to all available telecommunications services." Further, the League agreed to demand "a reasonable timeframe for deployment of telecommunications service that includes a clear plan for the sequencing of the build out" throughout the municipality.
Núñez was equally unequivocal.
"The key thing first is you have got to be able to bring that fiber optic cable to everyone's doorstep," he said. Levine calls expanded broadband access the central goal of the legislation. "This bill is really about broadband deployment. [Cable television] is really the cash cow that makes broadband deployment financially possible," he said.
There are several other unresolved issues with the legislation, including ensuring that any new state-issued franchise is revenue neutral to local governments--something all sides have committed to. Under current franchise agreements, most municipalities receive 5 percent of the cable company's gross revenues. That amounts to an estimated $250 million in local revenue in the state.
The League of California Cities also wants to ensure the continued providing of public education and government (PEG) channels, as well as control over public rights-of-way (i.e. controlling the installation of cables underneath public property).
These, and other sticking points, have been the focus of a series of unpublicized meetings--chaired by Assemblyman Levine with senior-level staff and industry stakeholders--that have been occurring in the Capitol since last spring. Mangers said those meetings have shown Levine, Núñez, and Sen. Martha Escutia, D-Montebello, who has her own telecom bill, to be "honest brokers" in the regulation changes.
"The way we are going to do this is a level playing field where everybody wins, where there is a benefit to municipalities, a benefit to the state, a benefit to the customer," says Núñez. "That's the only way this is going to work."