I hope USA Today got it wrong on Kevin Martin and local franchising of telco video.

After a brief vacation from the 21st Century, I am back on the job and as puzzled as ever by this USA Today story.

As regular readers know, one of the big issues in telecom right now is whether telephone companies rolling out fiber to the home need a local cable franchise to offer cable services. Now that cable has the capacity to offer voice and broadband to residential customers, many analysts predict residential customers will leave telephone for the “tripple play” of getting voice, broadband, and video in one package.

[I confess I’m skeptical, at least in the near term. My own observation and history show people are very conservative about their voice phones. Yes, many people have stopped getting landlines and switched to cell phones. Many folks subscribe to cable. But the history of long distance choice shows that after an initial rush to competitors, it takes real work to woo new customers away from established networks. For one thing, the hassle of dealing with it puts a lot of folks off. For another, you don’t save that much on your combined bill using “tripple play” cable than buying voice separately from the phone company. Finally, given how many people HATE their cable companies and have bad experiences with them on customer service, I think they’re gonna have hard time convincing customers to switch.]

But back to the point. The telcos argue that they must scurry to deploy fiber to the home and offer competing video services or they will go the way of the dodo, the Pony Express, and AT&T. They also argue they should not have to get a franchise from local governments (“local franchising authorities” or “LFAs”) to offer their new video services. In addition to legal arguments why video over fiber is not a “cable service” needing local franchises but an unregulated “information service,” the telcos have also tried to convince state legislatures and Congress to preempt local franchises and let the telcos operate under a state or national franchise.

In fairness to the telcos, the proposals offer to pay the localities the 5% franchise fee that LFAs can ask from cable cos (although, at least in version introduced by Senator Pete Ensign, that fee is based on a very limited notion of what constitutes costs for management of the public right of way (PROW)). The telco folks I’ve talked to also say they will provide public, educational and government (PEG) access and institutional networks on the same basis as cable. From the telco perspective, they promise to “make the locality whole.” They just want to avoid the delay of getting local franchises and the road blocks the cable cos will throw up against their competitive entry.

Needless to say, the LFAs see it rather differently. LFAs argue they play a critical role in ensuring that everyone gets build outs in a timely manner, not just rich neighborhoods now and poor neighborhoods sometime later. LFAs also enforce local service commitments and resolve complaints for local residents. Kicking enforcement up to state or federal levels makes it easier for telcos to just ignore the individual customer, minority communities, or other problems that will slip through the cracks if only giant corporations and distant state or federal regulators police things. Also, LFAs argue they can better judge what their local community needs by way of PEG, institutional networks (iNets) and management of the PROW. Whatever delay getting local franchises causes (and LFAs think the calims of delay are highly exagerated) is well worth it in protecting local residents.

As regular readers know, I tend to side with keeping local matters local and not preempting LFAs. I’m happy to believe the telcos that there are LFAs out there where the local cable co can manipulate the process and slow things down. No reason why local governments should be more immune to the same problems that afflict state or federal governments in this reagrd. I’m also sensative to the speed of deployment issue. A customer that decides he or she wants to consolidate will do so exactly once. If the customer can chose between the telco and the cable co at the time they go “tripple play,” the telco has a decent shot of winning. But if the consolidating customer has a choice of cable or cable, then that customer drops the telco voice and subscribes to cable. Prying that customer away later is much, much harder. So if you believe the industry hype about bundling, telcos need to get deployed in the next 4 or so years or its too late.

Still, I have yet to see evidence that getting local franchises is so burdensome and so delays competition that state or the federal government should take what should be the extraordinary step of preempting local regulation. As anyone who has problems with cable customer service knows, you want a local person who knows the community and who you can talk to or go to their office rather than some distant state or federal regulator that looks at the “big picture” rather than the single customer. It should take a mountain of proof of a widespread systemic problem to get the feds or states to preempt LFAs, not just a complaint by telcos that it would sure grease the wheels of deployment if pesky local franchising requirements got lifted.

So I was surprised to read in USA Today that, apparently, FCC Chair Kevin Martin thinks otherwise. (Caveat: I’ve heard from some folks that the USA Today article may have overstated Martin’s position). According to the Article, the FCC may invoke a provision of the 1992 Cable Act to prevent LFAs from imposing requirements on telcos seeking local franchises. Now codified as Section 621(a)(1) of the Communications Act of 1934, or 47 USC 521(a)(1) (I’ll call it 621(a)(1), since we telecom lawyers prefer to cite to the Communiations Act and pretend the rest of the US Code doesn’t exist), this provision prevents a local franchising authority from awarding an exclusive franchise and also prevents an LFA from “unreasonably” denying a request for franchise.

But if Martin really wants to preempt local governments, I don’t think 621(a)(1) lets the FCC do it. If you go back and read the legislative history of the 1992 Cable Act (which I’ve lived in for the last month or so), Congress used th 1992 Cable Act to strengthen the power of LFAs to regulate cable franchises, demand PEG channels and iNets, and enforce local build out requirements and serviuce commitments. To encourage competition, Congress did end the practice (declared unconstitutional by the Supreme Court earlier in any event) of allowing local governments to give exclusive franchises.

But nothing suggests that LFAs have acted “unreasonably.” The examples USA Today uses — using the deployed fiber ring to connect traffic lights and setting up wireless networks in libraries — are exactlky the kind of “institutional networks” other sections of the 1992 Act encouraged. How can it be “unreasonable” under Section 621(a)(1) to ask for the things Congress said you could ask for in Section 621(a)(4)(B)?

I’m also somewhat skeptical of the idea that the FCC can promulgate broad general regulations under 621(a)(1). Congress provided a specific remedy for any cable company that feels an LFA “unreasonably” denied a franchise. According to the statute, you get to go to the local federal court. The the local federal court agrees the LFA acted unreasonably, it can order the LFA to grant a franchise.

The FCC has broad general authority to issue any regulations necessary to achieve the goals of the Communications Act, but this authority has limits. In the Cable Act, Congress set up a clearly delineated scheme for who regulated what (and what didn’t get regulated at all). Congress used the 1992 Cable Act to restore power to LFAs to regulate local cable operators. Congress had preempted LFAs from regulating cable operators in the 1984 Act, with the result that cable operators gave very bad local service. One of the explicit goals of the 1992 Act, and the modification of the local franchise rules, was to restore power to LFAs. 1992 Cable Act Section 2(a)(20).

I have difficulty seeing how a section generally designed to enhance local authority and pull back from federal preemption turns into a provision allowing the FCC to preempt LFAs. In light of the last ten years of federalism jurisprudence out of the Supreme Court requiring very explicit Congressional intent to preempt state and local government, using Section 621(a)(1) to preempt LFAs on a national basis simply to encourage deployment of fiber systems strikes me as a real stretch.

Besides, the FCC has other ways to preempt states and localities if it wants. The pending IP Enabled Services rulemaking explicitly considers whether video over IP should be exempt from regulation as an “information service.” Given the authority the Supreme Court gave the FCC in Brand X to redefine things as infromation services, why not go that route instead?

Or, if this is really about broadband (which the second part of the Martin quote indicates), why not use forbearance power of Section 706 of the Telecom Act of 1996? That provision allows the FCC to take necessary regulatory action to promote deployment of broadband.

Of course, the FCC can’t use Section 706 unless it finds that “Advanced telecommunications services” are not being deployed in a timely manner, and since the FCC insists on continuing to find (despite all rational evidence to the contrary) that deployment of “broadband” is going swimmingly, I suppose that leaves Section 706 out. (Unless, of course, the FCC considered the possibility of actually finding a problem and addressing it rather than using its annual reports to conclude that we live in the best of all possible regulatory worlds, deregulation and consolidation works, come back again next year.)

But getting back to the main point — why preempt at all? Where are the LFA horror stories? The industry is quick enough to accuse me and my public interest colleagues of hysterical vaporings when we ask the FCC to require cable and DSL companies to open their lines to competitors to promote competition — despite a 20 year history in the dial up world proving that such regulations work. But when it comes to preempting local government, the industry wants us to take it on faith that LFAs will delay deployment and we therefore need to preempt local government.

It’s always possible that Martin has no intention of doing anything and just wants to send a signal to LFAs not to ask for too much in their negotiations or deliberately hold things up. It’s also possible that USA Today overstated Martin’s willingness to act. The quoted language merely says he (a) asked staff to investigate what the FCC could do to prevent LFAs from unreasonably holding up franchises and (b) that Martin will do what he can to ensure that President Bush’s goal of universal deployment by the end of 2007 is met. That doesn’t mean Martin thinks a problem exists, or that he is about to push a rulemaking.

Frankly, I hope USA Today just got it wrong. I’d like to see some evidence of a real problem before anyone takes action. But, as always,

Stay tuned . . . .