companies poised to enter cable TV market
Telephone companies are coiling up in anticipation of taking
on your cable television company.
By Steve Alexander,
Minneapolis Star Tribune
Wednesday, December 20, 2006
After years of tentatively testing the cable television
waters, telephone companies are poised to invade the market
with their own service.
But first, the phone companies, including dominant local
player Qwest Communications, are pushing hard to change the
federal rules governing cable competition. They want to
reduce their costs of becoming cable providers by reducing
obligations to each city government. They argue that easing
rules would spur competition.
New rules being issued today in Washington by the Federal
Communications Commission (FCC) are likely to give them some
of what they want, reducing barriers to entry for new cable
Today in the Twin Cities, the only alternative to cable is
satellite TV, but the telephone companies want to build
wired systems like cable companies have.
While consumers fed up with the cable company might welcome
a competitor who could help keep prices down -- federal
statistics show a 15 percent reduction in monthly cable
rates where there's competition -- there may be a downside
to the more unregulated cable competition the phone
companies are pushing for.
For example, the telephone company might compete only for
the wealthiest customers and ignore the rest. That's
because the FCC's new rules may eliminate existing
requirements that cable companies serve everyone in a
Qwest, in documents filed with the FCC, said it has "walked
away" from cities where it was required to provide cable TV
to everyone. Qwest said it faces a higher hurdle in
attracting customers than the existing cable company and
should not have to offer universal service.
In addition, consumers might have to pay higher property
taxes to offset reduced cable franchise fees. Under the new
rules expected today, it's possible that neither cable nor
telephone companies would have to provide the perks that
cities have been getting under their franchise agreements
with cable companies, such as free police and fire
communications, public-access TV production studios and
cable TV for schools.
"This could be a huge hit to Minnesota cities and to cities
all over the country," said Brian Grogan, an attorney with
Moss & Barnett in Minneapolis who represents several city
governments in the Twin Cities area. "It will certainly
cost cities hundreds of millions of dollars nationwide."
While the expected FCC rules apply to new cable TV
competitors, it might serve to change the rules for existing
cable TV companies as well, allowing them to back out of
existing franchise agreements.
"Most of the incumbent cable TV companies have
level-playing-field provisions built into their agreements,"
Grogan said. "If Qwest comes in with cable TV and serves
only one-third of the city ... there will be some
communities where the incumbent cable operator may be able
to terminate the cable TV franchise and try to get the same
In most of the United States, cable TV systems are
controlled by city governments under franchise agreements.
But dissatisfaction with this system has led about 10 states
to pass laws creating statewide cable franchising agencies
that allow new cable TV competitors to avoid having to deal
with multiple local governments. However, the FCC's new
rules would supersede any state laws.
Qwest, the cable company
Telephone company Qwest hasn't applied for any video
franchises in Minnesota yet, but it already runs cable
systems serving 60,000 subscribers in Arizona, Colorado,
Utah and Nebraska.
"Qwest intends to deploy TV services as broadly as
possible," said Andrew Schriner, the firm's director of
government relations for Minnesota. "But the telecom world
has changed dramatically over the last 30 years, and it's
time to update the cable laws. We believe that expanding
consumer choice and competitive price options, whether under
state or federal rules, is in the consumer's best interest."
FCC spokeswoman Rebecca Fisher declined to comment on the
controversy surrounding the FCC's pending action.
Officials of Comcast, the cable company serving most of the
Twin Cities, referred questions to the National Cable &
Telecommunications Association, a Washington-based trade
organization. Its CEO, Kyle McSlarrow, said Tuesday that he
was not privy to the details of the FCC's pending order but
that "based on what we hear, it's not a level playing field"
and "has to be dramatically pared back."
Cities would lose perks
Cable companies aren't the only ones who are worried.
Cities fear their budgets could be seriously damaged if the
FCC cuts back on the financial responsibility of cable TV
Their concern lies not with the 5 percent franchise fee that
cable firms pay cities, which would not be changed by the
new rules. Those fees generate substantial revenue for a
city. In Lakeville, where the population is 53,000 and 62
percent of homes subscribe to cable TV, franchise fees
generate $400,000 a year for the city, said Jeff Lueders,
cable coordinator for Lakeville.
Instead, the new rules threaten the extra communications
gear and services that cable companies provide in addition
to franchise fees. For example, when seven St. Paul suburbs
renewed a 15-year franchise agreement with Comcast in 2000,
the cities got the standard franchise fee plus funding for
public, education and government cable channels. As part of
that, the cities got TV trucks, equipment and studios. And
they got an institutional communications network serving
local governments and schools.
Those things could go away under the new FCC rules, which
would limit cities to collecting only the franchise fee,
said Jodie Miller, executive director of the Northern Dakota
County Cable Commission, which negotiated the franchise
terms for the seven cities. While that rule would apply to
new cable service from phone companies or others, Miller
believes Comcast could legally demand equal treatment.
That would leave the seven cities holding the bill for
$260,000 a year worth of public TV channels and gear,
$29,000 worth of cable service used by local schools and
city buildings and a city government communications network
that would cost about $2 million to replace, Miller said.
"It's just really scary for us," Miller said. "The cities
will either have to pay for that out of their own pockets or
reduce services. "The real fundamental issue here is
continued local authority to handle this cable TV
franchising process," said Ann Higgins, intergovernmental
relations representative of the League of Minnesota Cities
in St. Paul. "We strongly support that local control,
particularly because of the use the community can make of
the facilities a cable TV company provides."
Steve Alexander •