The telecommunications reform issue is heating up. While it’s much too early to tell whether or not we will actually see a reform bill pass in Congress or the California Legislature, it’s clear that the debate over whether and how telecommunications will be regulated in the future is intensifying.

Background

Technological advances have made it possible for cable, telephone, Internet providers and other companies to expand the range of telecommunications services they can offer consumers. Cable and satellite TV companies now offer high-speed Internet service, competing with broadband services offered by telephone companies. Phone companies are also expanding beyond their traditional services. They are aggressively marketing video programming and Internet services that compete with cable and satellite television. And new companies are competing with traditional phone companies by offering telephone service using VoIP (voice over Internet protocol). VoIP phone service can be provided at very low cost because it transmits calls over the Internet, virtually for free.

As telecom services converge, the traditional methods of categorizing services for regulatory and tax purposes no longer make sense. For example, both a cable company and a “land-line” telephone company provide video and Internet service, but cable is subject to regulation through a local franchise while telephone companies are regulated by the state and federal governments.

For cities, the convergence of telecom technologies poses both fiscal challenges and concerns about preserving local control and protecting citizens’ interests.

Adopting a Policy Framework

Recognizing the importance of this issue for cities, the League board of directors last year activated its Telecommunications Subcommittee, drawing on the knowledge and experience of city officials who work on telecom issues as well as members of two League policy committees: Revenue and Taxation, and Transportation, Communications and Public Works. The Telecommunications Subcommittee has met periodically throughout the year, with the support and involvement of League policy staff.

After months of debate and analysis by the subcommittee and among League members, in February the League board of directors adopted a “Policy Framework for Telecommunications Reform.” The framework comes down strongly in support of competition among telecom companies, but also recalls the valuable role that traditional franchising at the local level has played in tailoring service to unique local conditions and needs, and in ensuring providers’ responsiveness to consumers. It calls for the continued involvement of local government in any new state or federal regulatory scheme by way of locally negotiated agreements.

The framework spells out specific policies that the League supports in key related regulatory areas, such as revenue protection; rights of way; access to service; public, educational and governmental (PEG) access television support; high-speed Internet (I-Net) service to schools, libraries and other public buildings; public safety services including 9-1-1; and consumer protection. (To view the complete framework, visit www.cacities.org/telecom.)

Board Takes Action as Debate Intensifies

The new framework is an important tool to help ensure that the League and California cities have a say in telecom reform. Even as the League board of directors was deliberating about the framework in February, the telecom debate has been moving beyond the halls of Congress and state capitols and into city halls throughout California and the nation.

For example, while one telephone company has entered into and completed franchise negotiations with various cities to provide cable-like video services to their customers, another has contacted cities to indicate a willingness to enter into “contracts” that would govern the use of city rights-of-way to deliver new video and Internet services. This second company has refused to call the agreements “franchises” because it has received franchises from the state for telephone services.

Like a franchise, the new contracts authorize the former telephone companies to use public rights-of-way to lay fiber-optic cable and other infrastructure — allowing them to compete head-on with cable companies in providing video and Internet services. Negotiations over the contracts cover many topics addressed in a franchise, such as when, where and how the company uses the public right-of-way; franchise-like fees paid to the city; PEG access stations; providing I-Net to schools, libraries and other public buildings; and build-out conditions for providing access to telecom services for all residents of a community.

While the willingness of a few cities to consider “nonfranchise” contracts with providers of these new telecom services is generating the occasional headline, it is important to note that many cities view the video services offered by the former telephone companies in the same category as cable video services. Those cities welcome the idea of introducing competition in video (and Internet) services to local residents and businesses, but believe that the new telecom providers should compete on a level playing field, subject to the same franchise agreements that apply to cable companies.

For some city officials, however, the nonfranchise contracts provide an opportunity to promote competition on the same terms as those agreed to with the cable companies, while yielding more efficient, affordable and timely services for city residents and businesses.

Additionally, some city officials, with an eye toward Congress and the state Legislature, are aware that the days of the traditional local franchise could soon be over. For these city officials, the issue is all about working with the emerging telecom paradigm to ensure that they secure expanded choices and lower prices for their communities. If they can protect their revenue, maintain control over their rights-of-way, and broaden or maintain access to essential telecom tools for all communities, they believe the adjustments make sense.

Getting Up to Speed on Telecom Reform Issues

For the past year, the League has been working to educate and engage city officials on this issue. Cities have a great deal at stake in reforms that could alter the traditional franchise fee arrangements under which cable television stations were able to build up their infrastructure.

In recent months the League board of directors has ramped up its outreach to telecom companies. Early this year, representatives from AT&T, Verizon and the California Cable Telecommunications Association were invited to make presentations at several League forums — first at a meeting of the Telecom Subcommittee, then at the City Managers Department meeting and later at the board’s February meeting. The purpose of these discussions was to present a full and unbiased opportunity for both city officials and industry representatives to share their ideas about the issues involved for cities and the companies, and their proposals for how to work together in the future on the shared goals of delivering high quality telecom services to Californians.

As discussions have continued, the League board and members at all levels involved with this issue have worked to clarify our position on key reform elements and the principles that must guide the League’s lobbying work as we go forward.

The Importance of Preserving Local Control

The decisions that city councils are making about contracting versus franchising for video services play an important role in the overall state and national debate about telecom reform. Referencing their local experiences, many telecom companies argue that the length of time required to reach agreement through negotiations with individual cities, for either a franchise or a contract, represents a barrier to entry for new providers and is thus anti-competitive. However, in San Mateo County, a joint powers authority composed of 16 cities, SAMCAT, has offered to process an agreement within 90 days for any and all phone, cable and video providers — on the same terms as the incumbent cable TV operator. So far, there have been no takers.

The telecom companies’ arguments for a statewide franchise as an alternative are supported in some areas. For example, last year the State of Texas adopted a statewide franchise approach for new market entrants, leaving in place the local franchise agreements that cable companies had negotiated. (The cable industry is challenging the legislation in court, arguing that forcing them to comply with a patchwork of more rigorous franchise requirements than the newer market entrants puts them at a disadvantage.)

Additionally, industry complaints to the Federal Communications Commission (FCC) about the length of time required to negotiate local franchises have caused that agency to consider the need to establish new rules governing what has traditionally been a matter of local decision-making. (Earlier this year, the League urged cities to provide information to help educate the FCC about their experiences negotiating franchise agreements and how the agreements have protected consumers.)

No decision on reform has yet been reached by Congress or the California Legislature, making it all the more important for the League and its members to provide our state and congressional representatives with information and clearly stated principles that reflect our core beliefs about what we need to protect our communities.

League Framework Is a Vital Tool For Cities

In this context, the League’s new framework becomes an essential tool for cities in their discussions with telecom companies that want to provide service in their communities, as well as with their legislators and members of Congress. The League has also provided talking points based on principles for city officials to use in these discussions, including:

• Support for open competition because it produces more affordable services and improves the quality of telecom services to city residents.
• Support for equal public access to these competing services throughout a company’s franchised areas. All city residents and the business community should enjoy the benefits of competition — regardless of income or size of business.
• The necessity of preserving franchise and other revenues to support important city programs, including public safety and transportation programs.
• Protecting the taxpayer’s investment in the public right-of-way by controlling the time, place, appearance and manner of use of public property in providing these services.
• Establishing and maintaining PEG channels at a level appropriate to a city’s size, community needs and demands.
• Retaining the authority of local governments to provide broadband, cable and/or wi-fi telecom services to their citizens when private sector telecom providers choose not to serve a community.

Maintaining Our Footing on the Road Ahead

The hard decisions about reform are still ahead of us, and city officials must become familiar with the issues involved and how they will affect their city.

While the issues may seem complicated and the path ahead is anything but clear, we are privileged to work on this issue of tremendous importance to our cities — one that affords extensive opportunities to enhance the quality of our residents’ lives, invigorate local economies and expand our understanding of the world outside our city boundaries.

And finally, we must be realistic. The principles we spell out here must not — cannot — be static. Our responses and positions on reform must be dynamic, as dynamic as the changing, challenging and ultimately rewarding world in which we live.

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This article appears in the April 2006 issue of Western City
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