Tuesday, May 09, 2006

BellSouth's Bait and Switch: The Franchise Bill

In a recent post I promised a review of the Bait and Switch that BellSouth (soon to be AT&T) is attempting to pull on Louisiana. It's a story that takes a bit to unfold. You need to know what it is that Bellsouth is trying to sell to the public and the communities (the bait) and something of what it is really up to before you get to the final quick switcheroo.

The story BellSouth tells:

BellSouth tells a very attactive story about this bill. They tell us (and legislators not in on the game) that it is all about enabling them to compete on an level playing field with cable companies, who they imply, are engaged in a subtle collusion with local governments to exclude their competition. They are simply asking for a little relief and are willing to pay local governments for the use of their property. Voting for the bill is supposed to be a vote for competition and cable and local objections are only sour grapes. You are intended to visualize BellSouth as riding to the rescue on a white horse. However, there is a more complicated story in which it is pretty hard to see BellSouth as wearing the white hat.

A fuller story:

Bellsouth, in pursuit of competitive advantage over the cable companies in the coming war over video and broadband customers is trying to enlist the state legislature to create a special competitive advantage for its new cable services. They'd like to be able to compete with the cable companies only in the most profitable neighborhoods. BellSouth/AT&T want high-value, highly profitable, cable customers. None of those low-value cheapo basic cable types. Trouble is, local governments won't write a contract to allow BellSouth to use publicly-owned rights of way property--without which they can't offer cable services--without including a provision that requires the phone company to offer the same service at the same price to everyone in town. Cable companies have all signed such franchise agreements and are contractually obligated to equitable service: they have to offer the service to all and to offer it for the same price throughout the local community.

Were BellSouth to receive such a gift from the state legislature it would not only be in a position to reap unusually high profits by competing only in the "sweet spots" in a town (aka the richer, newer neighborhoods) it would also force the cable companies to either forgo competing for their best cusotmers or offer the same low prices to its whole, mostly less proftiable, customer base in the community. BellSouth would reap a higher profit from each of its customers than cable would--and could use that disparity to drive cable out the "best" areas.

If that sounds unfair and bloodthirsty rest assured that it is. It uses the power of the state to put its only real competitor at a major disadvantage.

All that stands in their way is the local governments which own the property to which they must have access. (Well they could try negotiating a separate contract with each landowner to pass over their property but, however much juicy new business that would mean for Louisiana's landmen, rest assured that telecom companies know they have always gotten a better deal from local governments.) Since local governments stubbornly refuse to compromise away their franchise's "build out" requirements ithat all citzens be served equally local governments need to be eliminated from the equation. They need to get the state to forbid local governments from making such frustratingly equitable requirements. That beneath all the stage dressing is what HB 699 and SB 386 would do. (The specific clause lies at §1363, Prohibition against build-out requirements)

Local governments are simply in the way and the local property rights of the communities is at risk because of it. Rest assured that were BellSouth suggesting that private individual's property rights could be redefined by state law to prevent owners from writing contracts that BellSouth didn't like they'd be faced with a firestorm of opposition about "expropriation" and legal "takings." The principle is no different.

Ok, that's the background for the story...So far it's a pretty straightforward story of misrepresenting your purposes in an attempt to get what you want. Anyone with children (or who's been a child) knows the tale. But the next step in the story is a good bit uglier, it is what parents call a lie: making a promise that you have every intention of not keeping. BellSouth is promising local communities something it has no intention of delivering. Communities are supposed to get a new revenue stream; they're being promised that they won't lose vital income that is crucial to keeping the sidewalks repaired. But BellSouth/AT&T has no intention of paying them a cent. We're all being played for fools.

BellSouth's Bait and Switch

Let's trace out the sneaky logic of the HB 699:

1) In one place the bill would exempt any “certificate holder” from build out requirements that municipalities typically use to ensure that all citizens are offered service.

2) Elsewhere the bill provides that non-cable service providers who offer video services that are not covered in the act may become a “certificate holder” and that doing so does not make them a cable service provider. (Start paying attention now, the curve ball is coming.)

3) Federal law and HB 699 share the same definition of cable services, in particular, cable services are said to be “one-way systems." (Be patient.)

4) AT&T (which is buying BellSouth) has always held that its IPTV video system is not a cable system, in part because it is “two way.” It tells the feds that when they ask and they even tell local reporter John Hill that their service is not cable because their service is two-way. (Can you see it coming?)

5) BellSouth's proposed law defines the gross revenues franchise fees are based on in terms of “cable services.” So only "cable services" will owe any franchise fees. (Here it comes)

6) BellSouth doesn't intend to offer any of those old "one-way" cable services. It is going to offer its snazzy new "two-way" IPTV instead. BellSouth does owe anyone anything. (Bam!)

7) But thats not all...reach back to #1 on this list: even if it's not offering a cable service BellSouth can have a "certificate" that will exempt it from build-out requirements. (Home Run! BellSouthAT&T strips local communities of their right to control their own property and doesn't even have to pay for them anything for using it.)

Tbat is a real switcheroo.

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