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Big cable vs. big telephone

Two telecom bills currently in legislation pit a pair of mighty communications monopolies against each other

By Michael Summers

michael_summers@fortwaynereader.com

Fort Wayne Reader

2006-03-06

Down in Indianapolis, state law makers and lobbying interests are hurling accusations of lying, obfuscation, and public deception at each other.

The cause of all this discord isn’t a Democratic walkout or a Republican monopoly. It isn’t about time zones or the sale of the toll road or legalizing electronic gambling. No, what’s stirring up all this heat are two pieces of legislation dealing with telecommunications deregulation.

If you’ve missed the finer points of Senate Bill 245 and House Bill 1279, you’re probably not alone. Compared to time zones and toll roads, the telecom bills are as complicated as… well, as the network of wires, cables, and cords that you use for phone, television and internet.

But considering that, if passed, these two pieces of legislation will affect practically any Hoosier who picks up a telephone, SB 245 and HB 1279 bear looking into. The debate pits two gigantic industries against each other — cable vs. telephone — in a battle that resembles a Toho studios production, where Godzilla takes on Rodan or Ghidora. At the end of the day, opponents of the bill suggest that it doesn’t really matter which behemoth wins; lots of people are still going to get stomped. “This whole thing,” says State Representative Win Moses (D-Fort Wayne), who has been one of the more outspoken critics of the bills, “is just greed against greater greed.”

What SB 245 and HB 1279 boil down to is this: the phone companies want to provide you with what’s referred to as “the triple play” — voice (phone), data (internet), and video (television). The phone companies argue that regulations placed on the telephone industry are preventing them from being able to compete effectively with the cable companies when it comes to offering these services.

“Cable companies now are providing voice, data, and video,” says John Koppin, President of the Indiana Telecommunications Association, a non-profit trade association representing Indiana's telecommunications industry. “They (the cable companies) are doing it in an unregulated fashion. The Indiana Utilities Regulatory Commission (IURC) doesn’t tell them what to charge for voice service. They decide how much to charge and they charge it. In our case, we have to go to the commission, we have to beg, and it can take six months or more to get a decision out. And when we go over there, the cable companies are sitting on the other side of the table. They don’t want us to get quick action, because they don’t want us competing. That’s the problem with the current regulatory scheme and why it doesn’t work.”

Proponents of the bills argue that current regulations regarding basic local service are obsolete. They say removing regulations would allow phone companies to increase broadband expansion. Being able to offer customers these bundled services would ultimately save customers money.

All of which is a big, fat, pack of lies, according to opponents of SB 246 and HB 1279. “Wherever it says ‘deregulation’ in the bills, take that out and insert ‘higher rates’, ” says Win Moses. Not only can you count on your rates going up if these bills pass, they say (possibly as much as 30% for basic local phone service in some areas), but there will be no overseer to hold phone companies accountable for shoddy customer service; under SB 245, the IURC would no longer be able to regulate telecommunications service quality after 2009. Under HB 1279, the IURC’s service quality authority would be severely curtailed beginning in 2006.

“I’ve been lobbying for 20 years, and this is the worst I’ve ever seen in terms of misinformation,” says Grant Smith, Executive Director of the Citizens Action Coalition. “The entire bill is based on a pack of lies. The people pushing this bill should be ashamed of themselves. It is unbelievable, everything that’s been said… People like Murphy and Hershman (the authors of the bills) shouldn’t be allowed in the state house. It’s that bad.”

Smith continues: “Basically, a vote for this bill says, ‘I don’t care if you can afford a phone, I don’t care if it works. We’re putting in these unjustified rate increases so we’re forcing you to subsidize the build-out of any broadband the largest telecommunications companies might want to do on your backs.’”

Time zones usually don’t inspire language like that, though it’s hardly the only harsh statement that has been heard in this debate. The Indiana Cable Telecommunications Association (who is obviously against the bills) launched a series of ads warning of increased rates and taxes, shoddy customer service, and wealthier, more densely populated areas being favored over smaller towns and rural communities. The ads were lambasted by Senators Tom Wyss (R-Fort Wayne) and one of the bills sponsors, Brandt Hershman (R-Whitfield). “Cable companies have a near monopoly status, so it does not surprise me that they oppose legislation requiring them to compete,” said Wyss in a press release. “I am very disappointed with the misleading tactics they are using in an effort to scare Hoosiers.”

But opponents say Hoosiers should be scared. Indeed, cable companies may have “near monopoly status,” but these bills don’t do anything to break up that monopoly. In fact, they argue, removing the authority of the IURC allows what’s already a monstrous monopoly in the telephone industry to do business practically unchecked. “Verizon and SBC/AT&T control over 93% of the lines in Indiana,” says Grant Smith. “AT&T is already the largest wireless and DSL provider in the country. Their biggest problem is their subdivisions taking money from one another. Because SBC owns AT&T and a lot of the long-distance networks, they basically own the internet backbone. Verizon owns MCI. People are afraid they’re going to start charging smaller companies to run data over their line. These companies are huge! It’s utterly insane to deregulate a monopoly.”

Smith points out that there is an automatic rate increase built into the bills. “If you’re in a more densely populated area, like Fort Wayne, you’ll get an automatic rate increase of $12/year for three years (until 2009),” he says. “And at the end of that period, the phone company can set its own rates.”

The Indiana Telecommunications Association says that even though SB 245 allows them to raise their rates in 2009, in order to do that they have to make broadband available to 50% of the people in an exchange. “The opposition is saying ‘look at these companies. They already have to bring broadband to 70% of their service area’,” says Lori Pugh of the ITA. “Well, 70% of the service area is very different than 50% of an exchange. You may have the bulk of your customers in the cities, so just by serving the cities, and not by serving anybody in the rural areas you can meet your 70%. That’s come up over and over again. This can really help the rural areas get more broadband.”

After 2009, adds Pugh, if they’ve fulfilled their commitment to offer broadband to 50% of an exchange, the telephone company would “charge as the market dictates.” But opponents say that the rate increase is based on DSL being available to 50% of the people in a local exchange. It doesn’t mean they have DSL or use DSL; it just has to be available for them to use, and the phone companies in urban areas are already offering DSL over copperwire. They’ve already made the investment.

Even opponents of the bills admit that broadband investment throughout Indiana is spotty, especially to more rural areas. The Indiana Association of Cities and Towns, a long-standing not-for-profit organization with more than 450 members that represents municipalities before state lawmakers, has come out in favor of the bill, citing its potential to get quality broadband service to smaller, more rural municipalities. “We started out the session being opposed to them both,” says Andrea Johnson, deputy director of IACT. “Both of the bills authors and the governor’s office has been working with us closely to fix most of the major concerns that we had.”

The first concern was that the bills prevented municipalities from offering their own telecommunications services. “That was a big deal to us,” Johnson says. “Several cities and towns offer their own broadband service. It’s so crucial to economic development.”

The second concern involved franchise fees. The bills would implement a state-wide franchise, which in earlier versions of the bill meant municipalities could lose millions in potential revenue. Johnson says this has also been fixed.

Yet the issue of municipal franchise fees for cable is an important one, especially for local access stations. For decades, cable companies have negotiated a local franchise agreement with whatever municipality they are doing business with. It’s basically a contract that defines how the particular company (Comcast, in Fort Wayne’s case) is going to do business in the community. “When you pay your cable bill, typically there’s a franchise fee,” explains Norm Compton of the Allen County Public Library and manager of Access Fort Wayne, the public access channels for Fort Wayne. “Right now, that franchise fee is 5%. In 2005, that came to $1.7 million. 60% goes straight into the city fund. 40% of that is set aside to support the local public access channels.”

SB 245 and HB 1279 would take the local municipality out of the equation. The phone companies would only have to negotiate with the state. “Again, we have a situation where we want to be able to get in and start competing with cable, but if we have to go get a cable agreement from every city and town and burg that’s out there, it’ll take forever, “ says John Koppin. “Verizon has close to 300 cable franchise applications out there; only a handful over a two-year time frame were ever granted.” Koppin points to Texas, the only other state to approve state-wide cable franchising, saying they have nearly 21 cities being built-up now.

But Norm Compton says that SB 245 redefines how the 5% franchise fee is calculated, estimating that it would probably cut local access funding by about 30% and severely curtail an important local voice. “I think of public access as the editorial page of the cable system,” he says. “ It’s five channels set aside for local coverage. We’ve seen the broadcasters consolidate, so that we now have two TV stations covering local news. The radio stations have been consolidated as well. How much local stuff does PBS do? As far as local programs… how many times do they engage the community?”

Some state political analysts point out that this is indeed a fight between two huge industry forces, and both sides have unleashed a flood of spin that drowns out any consideration of how, or even if, Indiana will really benefit. One thing, however, seems pretty certain: if the bills become law, you won’t be paying less for anything.