Reporting Duty Reopens Messy Fight over California Video-Franchise Law
SAN FRANCISCO -- The California Public Utilities Commission is stirring the pot on state pay-TV franchising, leading players said. The commission will decide, probably in October or November, whether to require franchise holders to make detailed periodic reports of video subscriber numbers, Michael Morris, chief of the video franchising and broadband development group in the PUC communications division, told us. At a meeting of Women in Telecommunications Wednesday night, he expressed the view that the commission needs the data to enforce a new state franchise law’s ban on service discrimination. The PUC has taken up the matter in a second phase of rulemaking under a statute that took effect in January. Rules on buildouts by small incumbent telcos also are a part of the proceeding, Morris said.
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Verizon’s top Western public-policy executive strongly opposed adding the requirement to report the customer data, which he called highly sensitive competitively. Lawmakers specifically rejected the requirement in considering the new law, said the executive, Andres Irlando, Pacific region vice president. Morris acknowledged that the prospect of adding the obligation -- on top of existing duties to report on where a franchise holder offers video and broadband services and where its broadband subscribers are -- “hasn’t been very popular with the industry.”
“You don’t need that kind of data to ensure that we're not discriminating,” Irlando said. Morris replied that the law’s numerical nondiscrimination standards are only safe harbors, not the end of the discussion. “We think there’s a reason to get those data,” he said.
The reporting requirement issue is reopening recently healed wounds. “This was war,” Irlando said of the 2006 fight in the legislature over the Digital Infrastructure and Video Competition Act. Verizon was a prime mover behind the bill, with AT&T, he said. Debbie Luppold, Comcast western division vice president for government affairs, called the Legislature’s work “a very chaotic process.”
Another worry is that cities’ permit demands have risen this year as their franchising role has shrunk, Irlando said. “In each place, it’s a different process,” he said. Los Angeles has a nine-step procedure, Irlando said. “I don’t think there’s enough evidence” to say cities are manipulating their permit processes to regain leverage -- but fees and the number of conditions have grown, proceedings have become more contentious and former franchise consultants to cities are “reinventing themselves as permitting consultants, he said.
No one, including the PUC, wanted the commission assigned control of state franchises, Irlando said. “The fear was the PUC would complicate it, would overregulate it,” he said. But Commissioner Rachelle Chong, once an FCC member, “almost singlehandedly” prevented that, Irlando said. The state commission has been “true not only to the letter of the law but the spirit of the law,” he said.
The law has been “very critical to our success,” Irlando said. “It has done wonders in our fight for investment” in California, in competition with the demands of other Verizon markets, he said. The carrier offers video in what had been territories of 42 California local franchising authorities, and has a PUC green light for over 100 more, Irlando said. When the law took effect Jan. 1, the Verizon service was in 18 cities, he said. By year-end, Verizon video will be offered to 500,000 Californians, up from today’s 133,000, he said.
The law specifies that holders of state video franchises aren’t utilities, the PUC’s Morris said. It puts the commission over them but gives the agency only a “fairly ministerial” role in handling franchise requests, he said. The commission must see within 30 days of filing whether an application is complete, and if so the PUC has 14 days to issue the franchise. Even if the PUC doesn’t send out the certificate, it’s “deemed granted,” Morris said. No protests or interveners are allowed in commission proceedings to consider applications. The “much streamlined process… makes a lot of sense for everybody,” he said. The law is short on specifics about the rules it does impose, Morris said.
The PUC created “a fair process,” in contrast with Comcast’s experience with some local franchising authorities, Luppold said. She cited a well-to-do San Francisco suburb that she said hung up Comcast’s application for years -- officially over environmental requirements but, according to Luppold, actually because the company wouldn’t bow to the city’s “hold up” demands for “public benefits.” Meanwhile, an overbuilder “had a field day” there, Luppold said. “Outright extortion” is a part of “the local franchising process,” Irlando agreed.
The PUC can’t award a franchise without finding the applicant “technically, managerially and financially competent,” Morris said. But that condition is met by posting a $100,000 to $500,000 bond, he said. “If somebody turns out to be not managerially qualified, I guess we get to take some of that money back. We'll have to work that out.” The commission could hold franchise holders to promises in sworn statements that must be included in applications, Morris said.
The law assigns the PUC to prevent cross-subsidization of video services, Morris said. But the main protection is a ban on incumbent telcos raising rates until the beginning of 2009, and “after that, all bets are off,” he said. The legislature drew a line between AT&T and smaller carriers, including Verizon, by giving telcos with more than a million phone customers specific buildout timetables but allowing those with fewer “a reasonable time” to meet the standards, Morris said.
The PUC has put off figuring how to handle requests to renew state franchises, Morris said. The “undefined renewal process” is “an issue that the commission keeps putting off for subsequent proceedings,” he said. The franchises run 10 years, and the first went to Verizon on March 8, a week after the PUC set its first rules, Morris said. Awards have since gone to AT&T, Wave Broadband and Cox Communications, he said. Cox capitalized on the new system to get authorization for video services in small, wealthy pockets of San Diego, Morris said. Its pay TV offerings had been turned off for violation of a state buildout law from the 1990s that Cox had pushed to fend off overbuilders, he said.