Bells Back Tex. Bill to Move Cable Franchising to State

The phone and cable industries also disagree over HB- 3176’s aim to equalize levies on communications services, including satellite and cellphones, via a state sales tax replacing access line payments for phone companies and franchise fees for cable.

“The effort in the bill is to insulate the phone companies from having to serve communities in a non- discriminatory manner, in the way cable services are traditionally provided,” said Kathy Grant, vp-govt. relations for the Tex. Cable & Telecom Assn. When cable gets a local franchise it must serve the entire community, she said: “What they are trying to do is create a statewide franchise that has none of those traditional obligations.”

“Redlining is a red herring,” an SBC spokesman countered. Cable companies pushed that line because they “want a distraction from the real issue. Our integrated IP service will be an attractive alternative to the entrenched cable companies and their yearly price hikes,” he said. He called it “incredible” that “cable companies argue with a straight face that their IP service shouldn’t be regulated, usually right after they argue that the IP service of their competitors should be regulated.”

Grant said SBC is being disingenuous by supporting state-level franchising while maintaining it doesn’t need a franchise. “They say they don’t need a franchise at all but then they are advocating this legislation because it would insulate them from any legal challenge by any municipality that would sue them if they entered without a franchise.” Tex. cities haven’t taken a position on the bill. “Nobody is quite sure what the bill is going to be at the end of the day,” said Don Knight, chmn. of the Texas Coalition of Cities for Utility Issues. SBC’s support for state-level franchising “reflects the reality that despite their position on the law, they know it’s one that is not going to go unchallenged,” Knight said. SBC is trying to change the law to make sure that it gets “clear authorization” for its IPTV service, he added. Knight said if there was a movement to the state-level, cities want to ensure that “basic protections” are retained such as preserving channel capacity for public, educational and govt. (PEG) channels.

Cities haven’t obstructed companies, said Libby Beaty, exec. dir. of the National Assn. of Telecom Officers & Advisors (NATOA): “All we do is require people to comply with the law, and I don’t think that’s inappropriate.” Even the handful of states with state- level cable franchising retain municipal involvement, she said: “Just because you put it at the state level doesn’t mean that local governments are out of the picture and are not involved in the process.” Phone companies, she said, mistakenly assume that moving franchising to the state level will “unfetter their decision-making on what their service is and where.” By the time the Va. bill got tabled, all provisions involving local govts. were included, Beaty added: “And it was a bill that Verizon still supported.” Even in the era of convergence, local franchising is relevant, she insisted.

On HB-3179’s objective of creating a new “inter-modal communications assessment” for all voice and video services, Grant said cable has basic reservations about methodology. “The effect is it equalizes on the backs of residential video and voice providers the very high access line rates that are associated with business lines that phone companies provide.” For instance, she said, existing access line obligations for phone companies in Dallas total $38 million. Only $1.6 million would be generated by new sales tax structure in Dallas, she added, so phone company obligations drop $36 million. “It’s a huge windfall to them in terms of what happens on their pricing. And it happens on the backs of other customers.” Saying SBC will continue to work with cities, the spokesman said the company already pays rights-of-way fees. “Paying for fees for franchises would be tantamount to double-taxation .” He said SBC also pays its “fair share” of taxes in various states. In Tex., he said, the average tax rate on SBC exceeds 28%, vs. 8% for general businesses.

State and local govts. know industry’s concerns and want to ensure there’s “revenue neutrality and no entity or group is necessarily harmed as a result of any normalization or reformation of the tax system,” said NATOA’s Beaty, saying there’s now an “impetus” for looking at such reforms. She said she sees no harm in examining the issue, seeing if any change is appropriate and making sure no “one is disadvantaged” as a result of those changes, she added. Tax simplification efforts that started with Fla. are being eyed by several states, including Tex., Ariz and Va., said attorney James Baller, who represents municipalities. But local govts. haven’t seen equalization proposals that work, he added: “Until there are proposals that work, it’s hard to support them.” Baller said tax equalization could generate more revenue for cities depending on how it’s done, but also could erode municipal authority if such efforts are accompanied by proposals to move franchising to the state level, he added.