Verizon, SBC Take TV Battle To Statehouses

The nation's largest phone companies are shooting it out with cable rivals in Texas as they push for precedent-setting legislation that would allow them to accelerate their launch of television service to millions of households.

Phone giants SBC Communications Inc. and Verizon Communications Inc. have unleashed an army of lobbyists on the Texas legislature to push for a bill that would allow them to gain statewide permission to roll out television. The current law requires any company offering cable TV service to win individual approval from thousands of municipalities, a costly and time-consuming proposition.

Cable rivals such as Time Warner Inc. and Comcast Corp., wary of the new competitors, also have rolled out their big lobbying guns. They insist that phone companies essentially must follow rules similar to the ones cable companies did years ago to gain approval. A key vote is expected in the Texas House of Representatives over the next week and the outcome could affect television rules in states across the country.

The battle over whether phone companies need local permission to offer TV -- legal agreements known as franchises -- is becoming a major front in the war between cable and phone companies over which can offer households the most-attractive package of phone, high-speed Internet and television services. Cable companies have begun to offer phone service to millions of homes. Phone companies are racing to fight back by offering TV services, but their timetable could be thrown off by the cable companies' lobbying efforts. Both SBC and Verizon hope to begin offering TV service later this year.

Until now, the cable industry has been successful in blocking or slowing down phone companies in states such as Virginia and California. But the phone companies have gotten more traction in Texas, SBC's home state. "Telephone companies will likely pour a disproportionate amount of [investment] capital into states where regulators give them a free pass," by loosening franchising requirements, says Jason Bazinet, a cable analyst at Citigroup Inc.'s Smith Barney unit. "That will turn up the heat on states that are being recalcitrant."

With so much at stake in the franchising battles, both sides are mounting major lobbying blitzes. In Austin, Texas, both sides are spending heavily on TV ads, with SBC's running only on broadcast TV because cable operators won't carry them.

In New Jersey -- even though no bill has been introduced yet -- the offices of the New Jersey League of Municipalities have become a revolving door for representatives of the cable and phone industries. Executive Director William Dressel has hired special counsel to review the particulars and has seen more than a dozen drafts of lengthy proposals, which he tries to wade through to make sure they jibe with the interests of the 556 municipalities he represents.

"I spend more time on the phone talking about something that's not even been formally introduced," he says. "My God, it gives me a headache. I go home at night and say to my wife, 'You're not going to believe this.' It's like trying to figure out the afterlife."

SBC and Verizon have the same objective, but they're pursuing different strategies. While Verizon is trying to change state law, it also has begun to seek franchises in dozens of municipalities throughout the country. Five cities have granted them so far, four in Texas and one in California. Verizon is hoping to win its first Florida franchise today, in Temple Terrace.

SBC hasn't sought any local franchises because the company is taking the legal position that it can offer TV service without them. SBC is arguing this partly because, unlike with Verizon, SBC's new fiber-optic network won't connect directly to homes but instead will use traditional copper lines for the last segment. Also, both companies will be using an Internet technology to deliver TV signals, which SBC says makes it different from traditional cable service.

But this argument is certain to face court challenges. To hedge its bet, SBC is supporting changes in state laws as well. "We support any effort to make sure there's clarity in the rules," says James Epperson Jr., an SBC senior vice president involved in the Texas battle. The franchise issue also may be included in broader, federal telecommunications legislation that is expected to be introduced later this year.

The Texas bill that would enable SBC and Verizon to seek a single franchise for the entire state would greatly speed up the process, benefiting consumers in the same way they have been helped by new entrants in the telephone business, the phone companies say. One TV ad by SBC says that cable rates have gone up 40% nationally since 1999 while Texas phone bills have dropped 18%. "Cable is plotting to kill legislation to increase competition," it says.

Cable companies are fighting back by accusing the phone companies of pursuing a redlining strategy. SBC and Verizon are trying to circumvent local franchising laws, cable companies argue, so they can avoid having to provide TV service throughout their networks. If they succeed, the phone companies will mostly provide TV service in upscale areas, cable companies say. "As local cable providers we think digital technology should be available to everyone, not just the people that SBC thinks are high value," says one cable industry ad. SBC says it will provide service to a diverse population.

The phone companies have won some early rounds in the Texas battle, thanks to maneuvering by Rep. Phil King, the state franchise bill's sponsor and chairman of the House Committee on Regulated Industries, which approved the measure earlier this month. Also helping has been the clout of SBC in its home state, where it has more than 120 registered lobbyists, more than one for every two lawmakers. The Texas legislature is scheduled to adjourn at the end of this month and isn't set to meet again until January 2007.

Rep. King, a Republican, notes that Texas has long been a trendsetter in deregulation, taking steps in 1995 to deregulate telecom ahead of the federal government and four years later loosening restrictions on electric power. "Video is just the next step," he says.