Showdown at the IPTV Corral

According to this story, SBC (soon to be AT&T) has filed suit against the city of Walnut Creek, CA. To summarize, SBC is upgrading its telephone network in Walnut Creek to support broadband data and video. As part of the installation, SBC has to run fiber optic cables under a bikeway owned by the city, and requested a permit to close access to the bikeway while work was in progress. Walnut Creek’s city administration refused to issue the permit unless SBC agreed to get a local cable franchise. In its lawsuit, SBC claims that both federal and state laws say that SBC’s service will not be a cable service, and so shouldn’t be required to get a cable franchise.

For decades, the cable industry has been subject to local franchise laws. Cable service was effectively a monopoly because it was both uneconomic and infeasible for more than one cable company to serve an area of a city. Thus, municipalities retained the right to approve the cable company that wanted to build in the area. That approval, called a franchise, specifies both the fees that the cable operator has to pay to the city and the services that the company has to provide. These services vary from city to city, but typically include free service for municipal offices and public schools, community channels and studios where local programs can be produced, and at least one tier of low-cost analog service.

Thanks to new technology, the rules have changed. Telcos are now able to offer IPTV television services along with high-speed data and telephone service. Satellite providers aren’t subject to local franchise rules. Even power companies are experimenting with high-speed data services across their power lines that could be used for IPTV. Every one of these services threatens to take away subscribers from the local cable franchisee, and fewer customers means less revenue for both the cable operator and the city.

Cable operators argue that they’re at a cost disadvantage vs. telcos (thanks to those franchise fees,) and therefore, telcos should either be subject to the same franchise rules, or cable operators should be relieved of their franchise obligations. In response to a recent Supreme Court ruling, the FCC recently issued a proposed rule finding that telcos offering “wireline broadband Internet access service” are information services and are thus not subject to local regulation. Cable operators’ broadband Internet services are equally free of local regulation, but here’s the rub: Conventional analog and digital cable services are not information services, and thus are subject to local regulation, but telcos will offer their video services as IPTV over their broadband Internet services, and are not subject to local regulation.

This is one of those situations where both sides have valid points. The FCC proposes to create a level playing field with respect to broadband data services, but unless telco IPTV services are regulated in the same way as cable video services, the cable operators will be at a significant disadvantage. There are literally thousands of local franchises, and if the telcos have to negotiate with each one, rollout of widespread IPTV services could be stalled for years.

The issue will undoubtedly end up back at the FCC. No matter what the FCC rules, however, the losers are going to appeal in federal court, and the case will probably end up back at the Supreme Court. Congress could also jump into the fray with legislation that waives local franchising of cable operators, telcos, or both. The technology for telcos to offer IPTV video already works, but consumers may not get to use it for quite some time.