Pay-TV Rules Change Sought

As they plan to roll out television service rivaling cable, California’s two largest phone companies are pushing to change the rules on pay TV -- taking control away from cities and counties and giving it to state officials.

Assembly Speaker Fabian Nunez (D-Los Angeles) on Thursday amended a bill backed by AT&T; Inc. and Verizon Communications Corp. to create a statewide franchise for pay TV.

Nunez’s bill is the latest legislative effort nationwide championed by the two phone giants to make it easier for them to compete against cable.

Nunez said his legislation would boost competition, lower bills and create “billions of dollars of infrastructure upgrades and more jobs to California.” He said local franchise agreements, designed for an era when cable TV was the exclusive provider, have “certainly outlived their usefulness.”

But the legislation drew the wrath of local governments and the cable TV industry.

Both said the bill lacked assurances that phone companies would build out entire cities, not just affluent areas, and created a new formula for deciding what revenue could be taxed. Many municipalities depend on the taxes they collect from cable operators, and local franchise agreements ensure that even poor neighborhoods are served.

“AT&T; can’t have its way all the time, all the way,” said P. Anthony Thomas, a lobbyist for the League of California Cities.

California is the biggest market to consider new rules that would strip cities and counties of their ability to negotiate and oversee pay-TV franchises. Last year, Texas became the first state to adopt statewide franchise rules.

In Congress, a bill aimed primarily at giving phone firms a nationwide franchise passed a House subcommittee this week and heads to the full Energy and Commerce Committee. California legislators want a state law in place so it would remain valid under a new federal law.

The phone companies raised horror stories about how some cities have dragged their feet for a year or more on granting approvals and even have used blackmail. Verizon said one city, which it wouldn’t name, required parking for city employees in a Verizon lot as a condition for getting a franchise approved.

AT&T; and Verizon also don’t believe they have to serve every community -- or even every household in a community.

Timothy McCallion, Verizon’s California president, likened it to rivals, including cable TV, entering the telephone market. Phone service competitors, he said, aren’t held to the same rules that incumbents such as Verizon and SBC have to follow, including a mandate to serve everyone.

“New competition requires new rules,” McCallion said.

Nunez’s bill also would change the formula for determining gross revenue by excluding a list of items. Lower revenue would mean less money for cities and counties because local governments receive 5% of gross revenues from cable TV providers.

Los Angeles is reviewing Nunez’s measure to determine what effect it might have on city finances, said Joe Ramallo, spokesman for Mayor Antonio Villaraigosa.

State Sen. Martha Escutia (D-Whittier), chair of the Energy, Utilities and Communications Committee, said she shared the speaker’s “desire to bring more competition to cable customers,” but she didn’t endorse his legislation.

She said any bill that passed the Legislature should contain principles that include a level playing field “to ensure that competition is fair” and a requirement for building out new networks “so that all communities have access to broadband and competitive video service.”

The bill “must not allow cherry-picking and must narrow the digital divide” between affluent and low-income neighborhoods, Escutia said.

Acknowledging that his bill didn’t provide much assurance, Nunez stressed that it would guarantee local government revenues and access to the best technology for all users, regardless of neighborhood or income.

“California laws restricting choice in television service have been on the books since 1963,” Nunez said at a news conference.

Kenneth McNeely, AT&T;’s California president, said the state “is taking the first step ... to bring video choice to consumers. This legislation is designed to bring new investment and job growth to the state.”

The cable industry has insisted on a level playing field.

“California’s consumers will only benefit if telephone companies are held to the same public access, build-out and fee structure regulations that existing cable providers have been under for more than a decade,” said Dennis Mangers, president of the California Cable & Telecommunications Assn.

Granelli reported from Orange County and Lifsher from Sacramento.