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29–843 PDF 2006

S. HRG. 109–603

VIDEO FRANCHISING

HEARING

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

FEBRUARY 15, 2006

Printed for the use of the Committee on Commerce, Science, and Transportation

(

(II)

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

TED STEVENS, Alaska, Chairman 

JOHN MCCAIN, Arizona 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

GORDON H. SMITH, Oregon 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

DANIEL K. INOUYE, Hawaii, Co-Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

E. BENJAMIN NELSON, Nebraska 

MARK PRYOR, Arkansas 

LISA J. SUTHERLAND, Republican Staff Director 

CHRISTINE DRAGER KURTH, Republican Deputy Staff Director 

KENNETH R. NAHIGIAN, Republican Chief Counsel 

MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel 

SAMUEL E. WHITEHORN, Democratic Deputy Staff Director and General Counsel 

LILA HARPER HELMS, Democratic Policy Director 

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C O N T E N T S 

Page 

Hearing held on February 15, 2006 ....................................................................... 1

Statement of Senator Burns ................................................................................... 3

Prepared statement .......................................................................................... 4

Statement of Senator Cantwell .............................................................................. 73

Statement of Senator DeMint ................................................................................. 9

Statement of Senator Dorgan ................................................................................. 14

Prepared statement .......................................................................................... 14

Statement of Senator Ensign .................................................................................. 4

Statement of Senator Inouye .................................................................................. 1

Statement of Senator Kerry .................................................................................... 7

Statement of Senator Lautenberg .......................................................................... 10

Statement of Senator Lott ...................................................................................... 14

Statement of Senator McCain ................................................................................. 11

Statement of Senator Bill Nelson ........................................................................... 2

Statement of Senator E. Benjamin Nelson ............................................................ 5

Prepared statement .......................................................................................... 6

Statement of Senator Pryor .................................................................................... 14

Statement of Senator Rockefeller ........................................................................... 8

Statement of Senator Smith ................................................................................... 12

Prepared statement .......................................................................................... 13

Statement of Senator Stevens ................................................................................ 1

Statement of Senator Sununu ................................................................................ 71

WITNESSES

Blackburn, Hon. Marsha, U.S. Representative from Tennessee .......................... 15

Prepared statement .......................................................................................... 16

Evans, Brad, Chief Executive Officer, Cavalier Telephone .................................. 36

Prepared statement .......................................................................................... 38

Kimmelman, Gene, Vice President, Federal and International Affairs, Consumers Union ....................................................................................................... 47

Prepared statement .......................................................................................... 49

Riddle, Anthony T., Executive Director, Alliance for Community Media ........... 39

Prepared statement .......................................................................................... 41

Rutledge, Thomas M., Chief Operating Officer, Cablevision Systems Corporation ........................................................................................................................ 24

Prepared statement .......................................................................................... 26

Panzino-Tillery, Lori, President, National Association of Telecommunications 

Officers and Advisors (NATOA) .......................................................................... 28

Prepared statement .......................................................................................... 29

Seidenberg, Ivan G., Chairman/Chief Executive Officer, Verizon Communications ....................................................................................................................... 18

Prepared statement .......................................................................................... 20

Sohn, Gigi, President/Co-Founder, Public Knowledge .......................................... 58

Prepared statement .......................................................................................... 60

Whitacre, Jr., Edward E., Chairman/Chief Executive Officer, AT&T Inc. ......... 21

Prepared statement .......................................................................................... 22

APPENDIX

Armey, Dick, Co-Chairman, FreedomWorks, letter, dated February 14, 2006, 

to Hon. Jim DeMint ............................................................................................. 81

Brito, Jerry, J.D., Legal Fellow, and Jerry Ellig, Ph.D., Senior Research 

Fellow, Mercatus Center at George Mason University, joint prepared statement ...................................................................................................................... 79

Page

IV

Freudenthal, Bob, President, American Public Works Association, prepared 

statement .............................................................................................................. 77

Response to Written Questions Submitted by Hon. John McCain to: 

Thomas M. Rutledge ........................................................................................ 84

Ivan G. Seidenberg ........................................................................................... 82

Gigi Sohn ........................................................................................................... 86

Snowe, Hon. Olympia J., U.S. Senator from Maine, prepared statement .......... 77

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VIDEO FRANCHISING 

WEDNESDAY, FEBRUARY 15, 2006

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m. in room SD–

562, Dirksen Senate Office Building, Hon. Ted Stevens, Chairman 

of the Committee, presiding. 

OPENING STATEMENT OF HON. TED STEVENS,

U.S. SENATOR FROM ALASKA 

The CHAIRMAN. If there is no disagreement, what we will do is 

have our opening statements of not more than 5 minutes, and then 

we’ll listen to Ms. Blackburn and then go to our witnesses as quickly as possible. I have a short statement. 

As different industries begin to emerge into each other’s space, 

it’s the consumer that is poised to win. 

First, it was cable providers offering phone service. Now, Americans see wireline phone providers eager to offer video service. 

As traditional communications providers move into new services 

bringing choice, innovation and lower prices to consumers, Congress is confronted with reexamining our legacy regulations. 

This Committee has scheduled a series of hearings on communications issues this session through March, about the middle of 

March. Including this hearing today, the Committee has had eight 

hearings so far. As with all of our hearings, I look forward to working with the interested parties and the Members of this Committee 

to craft fair and even-handed legislation for the digital communications world that’s expanding far beyond our dreams, and I do hope 

we’re successful. It’s going to take a lot of patience and a lot of understanding to get a bill. Senator Inouye? 

STATEMENT OF HON. DANIEL K. INOUYE,

U.S. SENATOR FROM HAWAII 

Senator INOUYE. Thank you very much. This morning, the Committee turns its attention to video competition and our current 

framework under the Communications Act for regulating the provision of cable services to consumers. 

In some respects, today’s discussion returns the Committee to familiar ground. Over a decade ago, Members of this Committee 

heard similar testimony from witnesses who explained how new 

technology would allow cable companies to provide telephone service, telephone companies to provide cable service, and consumers to 

reap the benefits of this competition. While this promised competiVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
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tion did not emerge as rapidly as we once hoped, further advances 

in technology and new competitive realities are increasingly driving 

traditional telephone companies to enter the video services market. 

As a result, these developments lead us back to an all-too-familiar question—namely, what changes to our communications laws, 

if any, are needed to promote fair competition and to protect consumers in the video services market? 

Toward that end, as we begin to think about legislative proposals 

to promote robust video competition, there are certain fundamental 

principles that should guide us in this debate. These principles are 

not Republican or Democratic principles, but rather, bipartisan and 

pragmatic. That is why I was pleased to join with my colleague, 

Senator Burns, earlier this month in bringing these ideas into the 

debate. 

First, our laws should promote competition and ensure speedy 

entry on fair grounds. The process for obtaining a franchise should 

be expeditious and should not be used to frustrate entry. But in addition to procedural fairness, a government franchise to provide 

video services must also ensure that new operators deal fairly with 

the communities they serve. 

Second, our laws should strive to regulate providers of video 

services in a competitively neutral manner. Whether a video service is called ‘‘cable’’ or ‘‘IPTV,’’ or is based on some other type of 

technology, the regime for regulating these types of services—

where the provider controls the content included in the service offering—should be consistent. 

Third, our regulatory framework should recognize the significant 

role that states and localities play in tailoring the obligations of 

video service providers to the needs of particular communities, and 

in enforcing such obligations. As we have seen since the beginnings 

of the cable industry, this historic reliance on state or local authorities to manage public rights-of-way and to protect the public interest has played an essential role in preserving localism. 

In my view, our efforts to facilitate fair and robust video competition, to strengthen universal service, and to ensure network neutrality will represent the central elements of telecommunications 

reform. As a result, I look forward to listening to today’s testimony 

and to working with my colleagues in the weeks ahead. 

And I thank you very much, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. Following the early bird 

rule, I recognize Senator Bill Nelson. 

STATEMENT OF HON. BILL NELSON,

U.S. SENATOR FROM FLORIDA 

Senator BILL NELSON. Thank you, Mr. Chairman. Mr. Chairman, 

the landscape has changed significantly since 1996 and its Act because in this digital age now, we now have cable TV providing 

broadband voice service, and we have the telephone companies providing broadband video service. So, now it’s time to spur vigorous 

competition, lower prices and very significantly, broadband choices 

for all consumers. 

Now, there are some people that are uptight about all of this 

change and how’s it going to turn out, and one of the areas is the 

question of the local franchising process. It’s outmoded, and it’s 

3

cumbersome. I support statewide or national video franchising. But 

of course, the municipalities have a good bit of concern about 

streamlined franchising. 

So, I think we’ve got to be clear that there are ways to reform 

the system that will protect the municipality’s franchise fees, and 

it will protect their rights-of-way authority, and it will give them 

the authority to reasonably negotiate terms of service. 

Now, we know that the cable TV industry has some concerns. So, 

let me state it clearly again, I support a level playing field where 

all the broadband video providers are regulated the same. And at 

the end of the day, if we’re going to get this reform bill passed, 

then we’re going to have to work together. And I feel confident that 

we can find a good way to reach statewide or national video franchising by all sitting down together and finding a way to unleash 

what is going to be a broadband revolution for consumers. 

The CHAIRMAN. Thank you very much. Our next senator under 

the early bird rule, Senator Burns. 

STATEMENT OF HON. CONRAD BURNS,

U.S. SENATOR FROM MONTANA 

Senator BURNS. Thank you, Mr. Chairman. Thanks for this hearing today. I’ll just make a couple of points along with the points 

that Senator Inouye made. We’ve been in dialogue now for about 

a month and working together and about ready to really get into 

the subject because we know it’s important. I would ask you now 

that my full statement be made part of the record. 

The CHAIRMAN. Yes, sir. 

Senator BURNS. I think the outcome of any policy is removing 

Federal barriers to competition while supporting the best government, the one that’s closest to the people. I believe this legislation 

can gain strong industry and local government support. We should 

work with all those entities in streamlining the franchising of the 

prospect, but I think we need to work toward—I think, you know, 

a long time ago, I can remember a little video dial tone amendment 

when I first came to this Committee, and everybody’s eyes glazed 

over, and we were discussing then putting new regulations on cable 

to re-regulate them, and I thought that was a bad idea, and I still 

think it’s a bad idea today. But nonetheless, we have come a long 

way. And then, when we start talking about digital and digital 

technology, we’ve also—we quit talking about identifying video 

data or voice, and now we start talking about bandwidth. And 

then, that’s it. Ones and zeros, we can’t identify them anymore. So, 

we’re talking about almost the same thing. 

The franchising process must not be permitted to become a barrier for entry, and we’re very much aware of that. So, as we work 

through this, I’m looking forward to the witnesses today and their 

testimony, and it will be interesting, I think, but we’re—and I want 

to thank Senator Inouye and the rest of the Members of this Committee as we move this legislation along. I’m sure there’ll be spirited debate, and there’ll be different ideas, but we want to hear 

them. And somewhere in the middle, we’ll find a way to be of service to the industry and the competition and the American way of 

doing business. Thank you, Mr. Chairman. 

[The prepared statement of Senator Burns follows:]

4

PREPARED STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA

Chairman Stevens, And Co-Chairman Inouye: 

Thank you for holding this important hearing on video franchising. I would also 

like to thank our guests for taking the time to share their views with us today. 

As Senator Inouye stated, we have been talking about new franchising legislation 

that serves the common interests of new entrants, existing providers of voice, video, 

and broadband services while preserving control at the local level. My anticipated 

outcome of any policy is removing Federal barriers to competition while supporting 

the best government—the one closest to the people. I believe this legislation can 

gain strong industry and local government support. 

Our goal is to promote competition wherever possible. Coming from the great 

State of Montana, I am well aware of how competition for video services has grown 

over the past decade, even in rural states. Satellite competitors, have a significant 

impact on the marketplace and most of our constituents can now choose among 

service providers for their video programming. 

We can do better. Technology has enabled cable companies to compete for telephone customers, and telephone companies are beginning to compete for cable and 

satellite television customers. A March of 2004 GAO study shows that cable TV 

rates are substantially lower (by 15 percent) in markets where competition exists. 

Local government has the opportunity to reduce consumer costs by allowing competition. 

The traditional telephone companies seem eager to offer video services to customers, and our constituents seem eager to have more options. I’ve long encouraged 

additional investment in broadband networks and additional choices for consumers. 

These important national policy objectives should be accomplished without tilting 

the rules against existing providers, discourage additional investment, or by trespassing on the legitimate responsibilities of local governments. 

Under existing law, cable operators and telephone companies must obtain a franchise from local governments before they can provide cable service. The franchising 

process ensures that local governments can continue to manage their rights-of-way. 

But the franchising process must not be permitted to become a barrier to entry. 

Given the benefits of increased competition, it is important to remove barriers impeding. Our policy needs to provide that new entrants and existing providers compete on similar terms and conditions. Video is only one piece of ‘‘leveling the telecommunications playing field.’’ Voice and broadband rules should also be the same 

for all providers. 

The policy Senator Inouye and I have discussed will achieve this balance. Our policy will treat all video providers the same regardless of the technology they deploy. 

The policy will establish a level playing field between new entrants and existing 

cable operators, without undermining the role of local authorities. Franchising authorities will have to act on applications on an expedited schedule. Local government oversight will ensure that consumers have access to new video offerings that 

are responsive to local community needs. 

I look forward to joining with other Senators on this Committee, local officials, 

and other interested parties as we move forward with our legislation. Much is at 

stake for industry, local governments, and consumers. I hope the Federal role will 

be the smallest among them.

The CHAIRMAN. Senator Ensign? 

STATEMENT OF HON. JOHN ENSIGN,

U.S. SENATOR FROM NEVADA 

Senator ENSIGN. Thank you, Mr. Chairman. This is one of the 

most important in the series of telecommunications reform hearings, that we will have. I want to make a couple of points. It’s been 

mentioned today by local governments and other concerned parties 

about the video franchise agreements, how they’re put together 

today, whether they should be put together in the future and 

whether there should be regulation in today’s marketplace at the 

local level. Some believe that there shouldn’t be. Some believe that 

there should. One question is, what do we do about the 5-percent 

franchise fee? I think that everybody’s pretty much come to agreeVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00008 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
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ment that we will preserve that for the local governments. It’s an 

important source of revenue for them. 

But does local regulation make sense in today’s world where we 

have many providers, and we’re going to have more providers for 

video coming into the home, just like telephone. In a monopoly situation, it made sense to have regulation, tight regulation to protect 

the consumer. But in a competitive marketplace, the best protection for the consumer, the best way the consumer’s going to get the 

most services at the best price is through competition. The more 

competition, the more protection for and the more choice that the 

consumers will have. 

The legislation that I have put together, accomplishes that. It’s 

going to need some tweaking as we go through the process, but the 

bottom line is is that people say we need to get video services into 

the home with more competition. Well, how do we that when over 

30,000 local cable franchise authorities today? We’ll hear from one 

company today that has formed agreements with just 50 of the 

10,000 that they deal with, and 29 of those 50 come from Texas, 

which has passed a streamlined video franchising bill. 

There is a barrier today. Video choice is happening too slow. And 

one of the reasons that we should all be interested in getting more 

video choices into the home and more competition into the home is 

because we want to encourage broadband into everybody’s home. 

Well, there’s a reason people want broadband. Why do they want 

faster higher speed broadband coming into their home? Why are 

they going to be willing to pay for it? They have to have some kind 

of incentive there. This is one of the incentives, probably the major 

incentive for consumers to want higher speed Internet access, because they will get another option in video programming. And 

that’s why it’s so critical for us as we’re going forward, to take as 

many barriers down as we possibly can to bring more competition 

into the local marketplace. 

So, Mr. Chairman, I look forward to working with everyone on 

this Committee. I think it’s an exciting time for us, and I think 

that we can do some great things for the American consumer as 

well as the American economy if we can get more choices coming 

into the American home. Thank you. 

The CHAIRMAN. Thank you. Next, Senator Ben Nelson? 

STATEMENT OF HON. E. BENJAMIN NELSON,

U.S. SENATOR FROM NEBRASKA 

Senator BEN NELSON. Thank you, Mr. Chairman, and thank you, 

Mr. Chairman and Senator Inouye for scheduling the hearings on 

telecom issues and particularly, the one we’re dealing with today. 

Obviously, the integration of network technologies that we’re discussing means that the networks that were designed for voice, 

video or data can now be used to offer all three types of service, 

and advancements can continue to contribute to economic growth 

while simultaneously resulting in a richer selection of telecommunications services that lower prices to consumers. That’s obviously what we’re interested in exploring today, what regulatory 

barriers exist that discourage innovation and growth. I believe the 

franchising process needs to be looked at and needs to be streamlined in order to facilitate competition in the video market. 

6

The communications marketplace has changed significantly since 

the 1996 Act, and I believe it’s appropriate that Congress act to accommodate those changes. It’s clearly in the best interests of consumers to encourage competition in the video market, and I look 

forward to hearing from all the witnesses today as to how they believe we can best accomplish that. Technology continues to be dynamic. The question is whether we can make regulation dynamic 

at the same time and also where it’s necessary to protect consumers. 

Municipalities should be able to protect their community interests to a reasonable degree, and there should be a role for state 

and local regulators in addressing consumer concerns. But while I 

believe vigorous competition is one of the best ways to benefit consumers, at the same time, I think it’s appropriate to consider where 

a public role can help foster advancement and at the same time, 

safeguard public interest. I thank you very much, and I’m anxious 

to hear from the witnesses today, and thank you very much, Mr. 

Chairman. 

[The prepared statement of Senator E. Benjamin Nelson follows:]

PREPARED STATEMENT OF HON. BEN NELSON, U.S. SENATOR FROM NEBRASKA

Thank you, Mr. Chairman. 

I’d first like to thank Senators Stevens and Inouye for scheduling this series of 

hearings on telecom issues. 

These are all important issues that deserve full debate, and I believe these hearings are crucial in ensuring we as a Committee develop legislation in a responsible 

and thoughtful manner. 

The integration of network technologies we are discussing in these hearings this 

year means that networks that were designed for voice, video, or data can now be 

used to offer all three types of service. 

Such advancements can contribute to economic growth while simultaneously resulting in a richer selection of telecommunications services at lower prices to consumers. 

What I am interested in exploring at today’s hearing is how we can best capitalize 

on these advancements in technologies to benefit consumers the most. 

What regulatory barriers exist today that discourage innovation and growth? 

I believe the franchising process must be streamlined in order to facilitate competition in the video market. 

The communications marketplace has changed significantly since the 1996 Act, 

and I believe it is appropriate that Congress act to accommodate those changes. 

It is in the best interest of consumers to encourage competition in the video market, and I look forward to hearing from all the witnesses today as to how they believe we can best accomplish that. 

I also believe we must make sure that regulation remains where it is necessary 

to protect consumers. 

Municipalities should be able to protect their community interests to a reasonable 

degree, and there should be a role for state and local regulators in addressing consumer concerns. 

While I believe vigorous competition is one of the best ways to benefit consumers, 

at the same time, I do think it is appropriate to consider where a public role can 

help foster advancement and safeguard public interests. 

Finally, I believe that technology holds enormous economic promise to rural America, and innovation and competition must be encouraged in even the most remote 

areas of our country. 

Therefore, I would like to hear from the witnesses today about how we can encourage the deployment of infrastructure and new services in rural areas of the Nation. 

Thank you, Mr. Chairman. I look forward to hearing the testimony.

The CHAIRMAN. Senator Kerry? 

7

STATEMENT OF HON. JOHN F. KERRY,

U.S. SENATOR FROM MASSACHUSETTS 

Senator KERRY. Mr. Chairman, thank you very much. I was listening to a couple of the comments, and I think everybody here has 

obviously got a pretty good sense of the big stakes that are on the 

table here. And as we look back, this has been a really interesting 

journey for this Committee. I think it’s important for the Members, 

for all of us, to sort of look back at that journey as we think about 

where we’re going. I mean you can go back to the 1972 Cable Rule, 

and you can go to the 1984 Cable Act, and you can look at what 

we thought about then, and then you can go to 1992 and 1996. 

1996, I remember when we passed that, Mr. Chairman. Senator 

Inouye, Senator McCain, a few others of us were here. The entire 

conversation was about telephony. Despite the fact that data was 

literally right around the corner, I don’t think many of us had a 

lot of conversations about the data components of this. And obviously, the choices that we make on this Committee have a profound 

impact in the marketplace, profound impact on investment, on jobs. 

And I think the underlying principles that we signed yesterday, 

many of those are really what ought to guide us in this effort. 

There’s obviously always also a great struggle here by those with 

high stakes, financial interest on the table already. You look at the 

cable industry with billions of dollars of fiber investment and so 

forth, certain set of rules they’ve played by. But the rules are 

changing, and the game is changing. And our job is going to be to 

try to sort through that in a way that really does put a level playing field and the best competitive practices ahead of any other kind 

of specialized interest. 

Now, as we all know, the marketplace is so profoundly different 

from what it was in 1996 with VoIP, Vonage, wireless companies, 

cable companies, everybody, and a massive restructuring is still 

going on. And if you look back on some of the decisions that we 

made in 1996, and as a nonpolitical nonpartisan analysis of that, 

has to conclude that what we did had a profound impact on the 

outcome. So similarly, this is going to have the same thing, and I 

think we’ve got to be really careful. 

I applaud Senator Rockefeller and Senator Smith, who I think 

made a bonafide effort here to try to move us toward a beginning 

center working place from which we can try to figure out, you 

know, how do we accommodate the interests of mayors and local 

communities and others without becoming so burdensome and 

over-encumbering that we prevent this explosion from taking place 

in a positive way? At the same time, Mr. Chairman, we don’t want 

to micro-manage it, and we need to allow the competition to play 

out appropriately. 

So, this is going to be a delicate balancing act for this Committee. And again, I say the history, the road we have traveled, is 

really informative as to how we might behave at this moment. And 

I applaud you for beginning this process and look forward to working with you to try to make it work out as reasonably as possible. 

The CHAIRMAN. Thank you, Senator. Senator Rockefeller? 

8

STATEMENT OF HON. JOHN D. ROCKEFELLER IV,

U.S. SENATOR FROM WEST VIRGINIA 

Senator ROCKEFELLER. Thank you, Mr. Chairman. I want to 

thank you and Co-Chairman Inouye for having this hearing. We’ve 

been after it for a while, and we’ve got it. And I also want to say 

that I’m very pleased that Mr. Seidenberg and Mr. Whitacre are 

here because they play a large role in this. 

In the case of Verizon, I think what Mr. Seidenberg will talk 

about is their commitment to bring competition in the marketplace. 

Verizon’s deployment of the most advanced communication network 

will be transformational, and I will assert, at least for the purposes 

of this hearing, will change the way we think about communications altogether. I know West Virginia has looked forward to 

Verizon’s deploying something which we have not yet seen in local 

settings, which is broadband. Ten years ago, we debated. Senator 

Kerry said the 1996 Act, which was a lot prettier than 1993 Non–

Act, which was a cable fight, and it was important that any new 

laws advanced three core principles, and that one is obviously competition, the second is broadband deployment, and the third is universal service. Universal Service is a separate subject which we 

will be pursuing in other ways. 

Now, with the technology and the industry changes over the last 

decade, we find ourselves having to address areas where competition did not take hold. Repeat, did not take hold, to wit, cable television. I believe the best way to advance competition to cable and 

broadband deployment is to pass the Video Choice Act of 2005, 

which Senator Smith and Dorgan and myself and Senator Kerry 

pointed out, introduced, and I think this bill’s going to be enormously beneficial for consumers and because it will spur competition, it’ll deliver broadband by encouraging traditional telephone 

companies to offer the bundle of Internet, video and telephone services. 

Some of the local officials may be nervous, but I predict to you 

that they will not end up nervous because they will find in the end 

that we hold them harmless—we hold them harmless, and all public services we now require will continue to be required. This isn’t 

just about more television choices, it’s about our economic future. 

When we were last on this subject a number of years ago, we were 

fourth in the world. We’re now 16th in high-speed Internet access. 

That’s fairly depressing for a nation like ours. This isn’t just a 

number, it’s a marker for our future. 

As good as this legislation is, we believe—I understand that 

many local governments are concerned, and I repeat again, I was 

a former Governor. I’m very aware of the important local revenues, 

and I think that the local governments are going to end up quite 

satisfied with this, although they will be skeptical at first as they 

should be. Legislation mandates that all vital social policy obligations of current cable television operatives that they have to do will 

have to be met by the competitive video industry. It’s a short year. 

There’s no guarantee that we can pass legislation even. We have 

hearings, and people get worked up, and then nothing happens. 

This cannot be one of those years on this subject because I think 

the stars are aligned. 

9

We’ve tried, Senator Smith and I, to craft a narrowly tailored 

bill. We’ve taken into consideration the worries and thoughts of 

others, but we really want competition, and we think—and as for 

me, I really want broadband. I need broadband for my people in 

West Virginia out in the rural areas. This will cause it to happen 

through the free enterprise system. That, my friends, is exciting. 

I thank the Chairman. 

The CHAIRMAN. Thank you. Senator DeMint? 

STATEMENT OF HON. JIM DEMINT,

U.S. SENATOR FROM SOUTH CAROLINA 

Senator DEMINT. Thank you, Mr. Chairman. I appreciate you 

holding this hearing. Franchise laws are a legacy instrument from 

the era of rotary telephones written before the Internet, before 

Internet television, satellite television, voice over the Internet and 

before soon-to-come high-quality digital broadcasting. When there 

was no competition to the telephone and cable companies, local governments could tax and over-regulate both of them and use the extracted revenues for perks and to cross-subsidize consumers or finance unrelated public services. 

Cable television and phone companies submitted to this overregulation and overtaxation because their government-sanctioned 

monopolies meant they could recover their investment by raising 

prices. Consumers had no choice but to pay. The cable TV and telephone companies are no longer monopolies. Today, there are more 

cell phones in use in the United States than land line phones, and 

many consumers have dropped their traditional land lines completely for cell phones. Voice over the Internet is rapidly eating into 

the telephone companies’ subscriber base. Cable companies lost 

over a million subscribers last year, and alternative methods of 

video distribution, such as satellite, are beginning to reach more 

and more households. And we know, from action on this Committee, that digital broadcasting will soon add additional high-quality choices to consumers. 

Competition makes it impossible, or at least very inefficient, to 

use regulations to force companies to be tax collectors for local and 

state governments or to force some consumers to subsidize others. 

In our new era of competition, local governments must find a way 

to pay for unrelated services other than through traditional franchise agreements. Cable companies have paid a hefty price to operate under local franchise. And so, they have a good reason to be 

concerned about the transition out of local franchising systems. It 

is never comfortable for existing companies when increased competition makes existing regulations obsolete. 

But our focus in Congress, and hopefully, Mr. Chairman, on this 

Committee, is not on the companies, but on the consumers. We 

know that consumers benefit only when regulations and taxes are 

reduced on the incumbents instead of being imposed on new competitors. Local video franchises have become unnecessary regulatory barriers and need to be removed to allow competition and 

choice to flourish. That’s why I’ve introduced Senate bill 2113, the 

Digital Age Communication Act. It phases out local franchises over 

a 4-year period. All the same legislation maintains the right of localities to manage and be compensated for the use of right-of-ways. 

10

This bill also allows incumbent providers to get help from new competitors with any legacy regulatory costs that may have burdened 

them because of ongoing franchise obligations. 

To benefit consumers and pave the way to investment in 

broadband networks, Congress should act swiftly to reform the 

franchise process that reflects the realities of the extraordinary advancements in the communication marketplace. Thank you, Mr. 

Chairman. 

The CHAIRMAN. Thank you, Senator. Senator Lautenberg? 

STATEMENT OF HON. FRANK R. LAUTENBERG,

U.S. SENATOR FROM NEW JERSEY 

Senator LAUTENBERG. Thank you, Mr. Chairman. We’ve got, obviously, a significant interest in this fairly complex question, and 

as I heard colleagues discuss those events of years past and looked 

at what’s happened with the technology, and almost as spectators, 

we see changes that were never anticipated, satellite services, et 

cetera. So, we’ve got to try and be constructive here and see where 

we can take the demand that we hear so much about from our constituents for better services and lower prices. We all receive letters 

from constituents concerned about the high cost of cable TV. In 

fact, cable prices have increased 50 percent on average in the last 

5 years, 50 percent. And in many instances, TV rates and need and 

demand are almost at a level with other household utilities, like 

gas and electric and things of that nature. In many instances, cable 

is, or TV itself, is an outlet that includes learning and company for 

the aged or disabled and so forth. 

So, these are very serious needs, and new competition in the television market could reduce prices. And indeed, GAO has found that 

where there is competition to cable, rates are 15 percent lower on 

average. So, we should make sure that our laws don’t prevent a 

new provider from serving our constituents. But we’ve got to recognize that the cable companies have put significant time and capital 

into upgrading their infrastructure, somewhere around $100 billion 

over the last 10 years. And local communities have been rewarded 

with new technology and better services. And there are significant 

benefits that flow from oversight of providers by local authorities. 

Local governments use franchise agreements to manage their 

rights-of-way and ensure consumer protection. For their part, the 

cable companies provide public service and educational channels. 

They wire schools and municipalities, and build out communitywide systems to ensure that everyone has the benefits of new technology. And a new entrant ought to be willing to embrace and to 

provide these important benefits. 

Mr. Chairman, I welcome the competition in the video marketplace, and I’m pleased that new providers are poised to enter the 

market in the state of New Jersey, but I hope that their entry 

doesn’t escape review and simply suggest that prices would drop, 

but without providing consumer protections. And I hope that all of 

our constituents will see the benefits of this competition. If new entrants are being denied franchises or facing unreasonable delays 

under the current system, we’ve got to make changes. 

But any new proposal we consider must not allow competitive advantages by dropping the existing service demands for one provider 

11

over another. It must ensure that local community leaders will still 

have the ability to oversee consumer protection and receive reasonable franchise fees. These are an important flow of revenue to the 

communities, and that new providers shouldn’t be able to cherry 

pick, like pick off the wealthiest consumers and forget about the 

rest. 

So, I thank you, Mr. Chairman and Senator Inouye, and I look 

forward to the testimony of the witnesses today. 

The CHAIRMAN. Thank you very much. Senator McCain? 

STATEMENT OF HON. JOHN MCCAIN,

U.S. SENATOR FROM ARIZONA 

Senator MCCAIN. Thank you, Mr. Chairman. Every year, the 

cable companies visit their customers each December with their 

song of rising programming costs, which of course requires them to 

increase consumer rates. The Wall Street Journal reports that this 

year, consumers can look forward to increases of as much as 6 percent for cable and 4 percent for satellite subscription services. 

These rate hikes are on top of increases of approximately 4 percent 

in 2005, according to media reports, preceded by increases of 5.4 

percent and 7.8 percent in 2004 and 2003, respectively. 

Since 1996, cable rates have spiked 56.6 percent, three times the 

rate of inflation. One of the key reasons that the cable industry can 

boost its rates each year and still retain its customer base is because consumers have very few options. Satellite subscription services now serve more customers than ever before, according to the 

FCC, and have provided some competition. 

However, in October 2003, a General Accounting Office study 

found that competition from another wire-based company is the 

only real check on rising cable rates. Specifically, the GAO found 

that cable rates were as much as 15 percent lower in markets 

where another wire-based competitor is present. This finding has 

proven true in Keller, Texas, where, according to Bloomberg News, 

Charter Communications cut their rates 25 percent when Verizon 

deployed its television delivery service. Now, citizens in Keller, 

Texas, can choose from four different providers. 

I hope this is a phenomenon that will quickly take hold nationwide. Due to deregulation by Congress and the FCC, consumers 

have several choices for high-speed Internet access such as DSL 

service from their phone company, cable modem service from their 

cable company and wireless access from a wireless carrier. This robust competition has led to lower rates for consumers from $46 per 

month in 2002 to $39 per month in 2004. Tellingly, when Comcast 

announced a 6-percent rate increase for cable television service this 

year, it did not raise its rates for its high-speed Internet service. 

Unfortunately, cable industry deregulation has not led to more 

choices and reduced prices. Cable rates, as I mentioned, have increased 56 percent since 1996. Meanwhile, the prices of apparel, 

eggs, beef, airline travel and long-distance telephone service have 

fallen. 

However, consumers should not only have a wider choice of providers, but a wider choice of pricing options. The average customer, 

pays almost $50 for 72 channels, but a study by Booz Allen Hamilton commissioned by the cable industry last year estimated that 

12

customers only watch about 16 channels and would probably subscribe to only nine if they could pick individual channels on an ala-carte basis. The FCC’s most recent study found consumers could 

save as much as 13 percent a month if they’re able to pick and 

choose the channels they wish to purchase. This avenue shows that 

many consumers would like the choice to only buy the channels 

they watch. 

Therefore, I will soon introduce legislation that would entice all 

providers of television services to offer an a-la-carte option in addition to bundles of channels in return for regulatory relief, including 

freedom from local franchising. I look forward to hearing from the 

witnesses today. 

Mr. Chairman, I don’t see why a retired person in Sun City, Arizona, should have to pay an exorbitant fee to watch ESPN. I don’t 

see why people on fixed incomes should face ever-increasing cable 

rates, and the reason for it is that they have access to more channels to watch when they don’t want more channels to watch. We 

need to have a-la-carte if we’re going to give consumers a better 

break, and we are going to get parents the ability to exclude channels which contains material that they find patently offensive. I 

thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. Senator Smith? 

STATEMENT OF HON. GORDON H. SMITH,

U.S. SENATOR FROM OREGON 

Senator SMITH. Thank you, Mr. Chairman. In the interest of 

time, may I have my statement put in the record. 

The CHAIRMAN. All statements of senators and witnesses will be 

put in the record. 

Senator SMITH. I would note the unanimity that seems to be on 

this committee with the fact that we have to do something. It’s not 

partisan. It’s, frankly, a recognition that we’re back to the future. 

And frankly, the future, for the sake of consumers and for the sake 

of American competitors, demands that we do something on this 

committee. 

Senator Rockefeller and I have put out a letter of principles, that 

we’ve been joined by Senator Ensign, Senator DeMint, Senator 

McCain and Senator Kerry, in laying out those principles. I am not 

insensitive to the concerns of municipalities and certainly think 

there are things we must do to help the cable guys with deregulation as well so that they’re not at a competitive disadvantage. 

But on the other hand, there is a point to what we should do. 

We simply have to recognize that the future will overtake us if we 

don’t catch up with it. To these ends, I have introduced, with Senator Rockefeller, the Video Choice Act of 2005. Our bill eliminates 

redundant and unnecessary video franchise agreements while preserving important local prerogatives and authority. 

Specifically, our legislation permits any company that has already obtained a network franchise to offer video services without 

obtaining a second video-specific franchise. These competitive video 

service providers will still be subject to the core social and policy 

obligations that Congress has always imposed on providers of video 

service, including the obligation to pay fees to local governments, 

to comply with the retransmission consent and must-carry proviVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
13

sions of the Communications Act, to carry public, educational, governmental and noncommercial educational channels, to protect the 

privacy of subscribers and to comply with all statutory consumer 

protections and customer service requirements. 

Our legislation also preserves state and local government authority to manage the public rights-of-way and to enact or enforce any 

consumer protection law. I believe that local communities must 

continue to play a meaningful role in the management of these networks. 

And again, I recognize that the video franchising process imposes 

burdens on cable operators and support efforts, either as part of 

this legislation or separately moving simultaneously, to address 

their concerns. It’s important to note however, that the cable operators do not have to comply with the legacy phone regulations for 

their voice services. Likewise, telephone companies should not have 

to comply with legacy cable regulations for their video services. 

So, Mr. Chairman, I think this hearing is timely and very, very 

important to consumers, competition and America’s future. Thank 

you. 

[The prepared statement of Senator Smith follows:]

PREPARED STATEMENT OF HON. GORDON H. SMITH, U.S. SENATOR FROM OREGON

Thank you, Mr. Chairman and Co-Chairman Inouye, for convening this hearing 

to examine the decades old system of local video service regulation. 

The video marketplace was vastly different in 1984 when Congress first authorized local regulation of cable television service. In those days, a typical American 

community was served by a local cable company that had a few hundred or a few 

thousand subscribers. More than twenty years later, nearly all of those communities 

are still served by just a single cable company, but that company likely serves millions of subscribers across the country. 

Today, the video market is truly national, but our regulations remain local. 

Some of the largest communications companies in the country are investing billions of dollars in high speed networks capable of offering video and other services 

that will compete with cable. Under current law, companies like Verizon, AT&T, 

and BellSouth must negotiate and sign local franchise agreements before they can 

offer competitive video service. There are over 33,000 franchise authorities in the 

United States and the slow pace of negotiations has delayed competition. 

The longer consumers go without effective video competition, the higher their bills 

will be. Year after year, cable price increases outpace inflation. According to a January 25, 2006 article from The Oregonian newspaper, Portland-area cable rates are 

set to increase by another 7 percent this year. Although satellite TV services have 

made great strides during their 12 years of existence—serving over 20 million subscribers—they have failed to exhibit price control on cable. 

A recent Government Accountability Office (GAO) study underscores the benefits 

of wire-based competition in the video market. In August 2004, GAO concluded that 

cable rates are on average 15 percent lower in the few markets with a wire-based 

competitor to the incumbent cable operator. As Ivan Seidenberg, Chief Executive Officer of Verizon, notes today in his testimony, cable prices have dropped by about 

20 percent since Verizon entered the video market in Keller, TX. 

I believe that Congress must reexamine the local regulation of video services to 

ensure that barriers to competition and costs to new entrants are as low as possible. 

The benefits of lower prices, better service, and billions of dollars invested in local 

economies are clear. 

To these ends, I have introduced the Video Choice Act of 2005 with Senator 

Rockefeller. Our bill eliminates redundant and unnecessary video franchise agreements while preserving important local prerogatives and authority. 

Specifically, my legislation permits any company that has already obtained a network franchise to offer video services without obtaining a second video-specific franchise. These ‘‘competitive video service providers’’ will still be subject to the core social and policy obligations that Congress has always imposed on providers of video 

service, including the obligation to pay fees to local governments, to comply with the 

retransmission consent and must-carry provisions of the Communications Act, to 

14

carry public, educational, governmental and non-commercial, educational channels, 

to protect the privacy of subscribers, and to comply with all statutory consumer protections and customer service requirements. 

Our legislation also preserves state and local government authority to manage the 

public rights-of-way and to enact or enforce any consumer protection law. I believe 

that local communities must continue to play a meaningful role in the management 

of these networks. 

I recognize that the video franchising process imposes burdens on cable operators 

and support efforts to address those concerns. It is important to note, however, that 

cable operators do not have to comply with legacy phone regulations for their voice 

services. Likewise, telephone companies should not have to comply with legacy cable 

regulations for their video services. 

I look forward to the testimony today and encourage the Members of this Committee to act swiftly on video franchise reform legislation.

The CHAIRMAN. Thank you. Senator Pryor? 

STATEMENT OF HON. MARK PRYOR,

U.S. SENATOR FROM ARKANSAS 

Senator PRYOR. Mr. Chairman, thank you. I do not have an opening statement. I’m ready to get on with the hearing. Thank you. 

The CHAIRMAN. Thank you very much. Senator Lott? 

STATEMENT OF HON. TRENT LOTT,

U.S. SENATOR FROM MISSISSIPPI 

Senator LOTT. I’d like to associate myself with Senator Pryor’s 

remark and hear the witnesses which I came to hear. 

The CHAIRMAN. Senator Dorgan? 

STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, I was necessarily delayed this 

morning, and I was very worried I was going to miss the first 

panel, but it appears I shouldn’t have worried very much. At any 

rate, let me do the same. I’ll put my statement in the record. It’s 

a very important hearing. I’m glad that we’re holding it, and I’ll 

ask my entire statement be part of the record. 

[The prepared statement of Senator Dorgan follows:]

PREPARED STATEMENT OF HON. BYRON L. DORGAN,

U.S. SENATOR FROM NORTH DAKOTA

As we sit here today, it is amazing to me how much, and how little has changed 

from the 1996 Telecommunications Act. Back then, the fight was over phone service—whether regulations encumbered providers from entering into the lucrative long 

distance market. 

Then, the issue became broadband—whether those regulations hampered entry 

into the broadband market. 

Now the issue before us today is whether regulations hamper entry into the video 

market. 

I support competition—I want to ensure that we have as much competition and 

benefit to consumers as possible. 

But that should not come at the cost of important priorities—build-out, rights of 

way fees, community access programming, consumer protections. 

I agree that we should take a close look at how the system can be changed to 

facilitate the entry into a market when there are so many thousands of different 

franchises. 

But I think we must tread carefully and I look forward to today’s hearing to hear 

the interests that are at stake. 

15

Net Neutrality 

I want to point out, just as there is a recognition that there is insufficient competition in the video market—there is insufficient competition in the broadband 

market. 

In North Dakota, 49% of consumers have only one choice for a broadband provider. Yet now broadband providers’ executives have made statements that they believe Internet content providers are ‘‘freeloading,’’ or ‘‘using the pipes for free.’’ 

I do not agree with that—content providers pay for their Internet service, and 

consumers pay for their Internet service—and when they pay, they assume that 

they will have unfettered access to whatever content they choose. 

That is the way the Internet was structured—Internet freedom drives innovation, 

competition, and frankly—it has driven the deployment of broadband. We should 

keep it that way.

The CHAIRMAN. Thank you. We agreed to let Congresswoman 

Blackburn make a statement. Congresswoman? 

STATEMENT OF HON. MARSHA BLACKBURN,

U.S. REPRESENTATIVE FROM TENNESSEE 

Ms. BLACKBURN. Thank you, Mr. Chairman and Co-Chairman 

Inouye. Thank you for holding the hearing on the issue so that we 

can discuss video franchising, and it is so relevant in light of your 

comments that you made, sir, on Monday regarding the need for 

uniformity in franchising. And as Senator Smith said, it seems as 

if everyone is in agreement here that something needs to be done. 

My colleague, Representative Wynn, and I introduced legislation 

in the House similar to the bill that Senators Smith and Rockefeller introduced here in the Senate, that would reform the video 

franchising process. And Mr. Chairman, the issue is simply stated, 

my constituents don’t support government regulations that stifle 

competition and stifle innovation. They don’t believe a system that 

restricts video choice to nothing more than a cable, rabbit ears or 

a satellite service is where we should be in our option of choices 

in 2006. 

The House Energy and Commerce Committee is in the process of 

drafting an initial telecom reform bill, but I want to take the opportunity to testify before you about the importance of the issue in the 

hopes that the legislation coming out of both chambers will contain 

franchise reform language. 

The bill Representative Wynn and I introduced H.R. 3146, the 

Video Choice Act, will help eliminate the red tape new entrants 

into the video market must cut through to lay fiber and offer new 

services. 

Senator Inouye mentioned that the importance in crafting a bill 

and crafting legislation, is that it strike a reasonable balance between the need to promote competition in the video TV market and 

the needs of municipalities to govern their rights-of-way. I agree 

with that. Simply put, the current laws that govern the franchising 

process serve as a barrier to competition and prevent new video 

technologies from entering the marketplace. 

I have heard more than one executive from an incumbent video 

service provider say that this is all about giving the big Bell companies and the big providers an unfair advantage. And I can’t 

speak for those companies, but I can tell you about a small rural 

ILEC based in Tennessee that is laying fiber to offer a robust array 

of services. The bill will help the little guys who are being kept out 

of the marketplace under the current structure. 

16

Senator DeMint raised the issue about this being about consumers, and I agree, but this isn’t only about offering consumers 

a choice in video service. These pipes that deliver the video product 

will also have more space for data, and cutting the regulations that 

prevent these companies from entering in the video market will 

only help broadband penetration in the U.S. We’ve heard several 

of your panel mention the need for expanding our broadband today. 

The U.S. has fallen to 16th in the world in broadband penetration, and we believe our bill would improve this standing. Senator 

Rockefeller, you said we were at fourth before we started over the 

last few years. I join you. We would love to see the United States 

return to that standing. 

Quite frankly, I think the cable companies know that competition 

is coming, and they are fighting hard to preserve the status quo. 

In my own district, I am disappointed to say the current incumbent 

cable provider used its position as a Goliath to prevent that small, 

rural ILEC that I previously mentioned, from offering video service 

to their customers over their own fiber. 

Senator Ensign said we don’t need more studies to tell us that 

competition is good for consumers. I agree with that. In a competitive marketplace, quality and competition does become our regulator. We already have a few real-world examples of what competition can do for prices. Senator McCain mentioned Keller, Texas, 

and the FCC just held a meeting there to highlight the issue. Right 

now, Verizon is offering its video package for about $37 a month 

in Keller, Texas. Almost overnight, Charter Communications cut its 

price just to be able to compete. 

The message, I believe, is quite simple. Reducing the barriers to 

video competition is good for consumers. I want to commend you, 

Mr. Chairman, for your Committee’s aggressive hearing schedule. 

I hope that any legislation passed out of your Committee will address franchise reform, and I look forward to working with you on 

the issue. Thank you. I yield back. 

[The prepared statement of Representative Blackburn follows:]

PREPARED STATEMENT OF HON. MARSHA BLACKBURN,

U.S. REPRESENTATIVE FROM TENNESSEE

Chairman Stevens and Ranking Member Inouye, 

Thank you for holding this hearing today to discuss video franchising. Mr. Chairman, it is especially relevant in light of your comments on Monday about the need 

for uniformity in franchising. My colleague Rep. Wynn and I introduced legislation 

in the House similar to the bill Senators Smith and Rockefeller introduced here in 

the Senate that would reform the video franchising process. Mr. Chairman, this 

issue is simply stated, my constituents don’t support government regulations that 

stifle competition and innovation. They don’t believe a system that restricts video 

choice to nothing more than a cable provider, satellite service, or rabbit ears is 

where we should be in 2006. 

The House Energy and Commerce Committee is in the process of drafting an initial telecom reform bill, but I wanted to take the opportunity to testify before you 

about the importance of this issue in the hopes that the legislation coming out of 

both chambers will contain franchise reform language. 

The bill Rep. Wynn and I introduced, H.R. 3146, the ‘‘Video Choice Act,’’ will help 

eliminate the red tape new entrants into the video market must cut through to lay 

fiber and offer new services. We sought to craft a bill that strikes a reasonable balance between the need to promote competition in the video TV market and the 

needs of a municipality to govern their rights of way. Simply put, the current laws 

that govern the franchising process serve as a barrier to competition and prevent 

new video technologies from entering into the market. 

17

I have heard more than one executive from an incumbent video service provider 

say that this is about giving the big Bell companies an unfair advantage. I can’t 

speak for those companies—but I can tell you about a small rural ILEC based in 

Tennessee that is laying fiber to offer a robust array of services. This bill will help 

the little guys who are being kept out of the marketplace. 

But this isn’t only about offering consumers a choice in video service. These pipes 

that deliver this video product will also have more space for data—and cutting the 

regulations that prevent these companies from entering in the video market will 

only help broadband penetration in the US. The United States has fallen to 16th 

in the world in broadband penetration and we believe our bill would improve this 

standing. 

The cable companies know competition is coming, and they are fighting hard to 

preserve the status quo. In my own district, I am disappointed to say, the current 

incumbent cable provider used its position as a Goliath to prevent that small rural 

ILEC I mentioned from offering video service over their own fiber. 

We don’t need to fund any more studies to know that competition is good for consumers. We already have a few real world examples of what competition does to 

prices. And I was pleased to see the FCC just held a meeting in Keller, TX to highlight this issue. Right now Verizon is offering its video package for about $37 a 

month in Keller, TX. Almost overnight Charter Communications cut its price in half 

to compete. 

The message is simple. Reducing the barriers to video competition is good for consumers. I want to commend you Mr. Chairman for your Committee’s aggressive 

hearing schedule. I hope that any legislation passed out of your Committee has 

franchise reform and I look forward to working with you to address this issue.

The CHAIRMAN. Thank you very much. I don’t know what makes 

me think of the 20-mule team model that’s on my piano. No inference intended, but we’ve all got to go in the same direction with 

this bill. I would hope that you would agree that we could have all 

of the witnesses come to the table now, that we might hear them. 

I think it’s more important to hear all of them than to have us 

have two rounds of questions. We’ve all made our statements. 

So, if there’s no objection, I would ask that all eight of the witnesses come to the table. Thank you very much, Congresswoman. 

We appreciate your courtesy of coming. And we will listen to the 

witnesses first. Believe me, this is one you should stay and listen 

to because these are two diametrically opposed panels, I think, but 

we should listen and listen carefully. If we can line up the way 

you’re on the schedule, Ivan Seidenberg, Chairman and Chief Executive Officer of Verizon on my left; next to him, Ed Whitacre, 

Chairman and Chief Executive Officer of AT&T; next to him, 

Thomas Rutledge, Chief Operating Officer at Cablevision Systems 

Corporation; next to him, Lori Panzino-Tillery, of the National Association of Telecommunications Officers and Advisors; next to her, 

Brad Evans, Chief Executive Officer of Cavalier Telephone; next to 

him, Anthony Riddle, Executive Director of Alliance for Community 

Media; next to him, Gene Kimmelman, Senior Director of Public 

Policy of the Consumers Union, and next to him, Gigi Sohn, President and Co-Founder of Public Knowledge in Washington would be 

on this end, down at the end. 

I apologize for sort of squeezing you in there, but I think you 

would rather have the opportunity to talk before 1 o’clock. And let 

me commend you all for coming because of this, and we intentionally have the situation where every member can make the 

statements so everyone can understand the differences of opinions. 

We are all in agreement that something must be done, but unfortunately, we’re not in agreement what to do, so we’re here to listen 

to you. 

18

Mr. Seidenberg, you would be first. As soon as the arrangements 

are made, we’d be happy to have your statements. All of the statements you have presented to us will be put in the record in full. 

We hope you will summarize the best as you can within the time 

limits, but we want to hear you. 

STATEMENT OF IVAN G. SEIDENBERG, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, VERIZON COMMUNICATIONS 

Mr. SEIDENBERG. OK, Mr. Chairman. Chairman Stevens, CoChairman Inouye and Members of the Committee, thank you very 

much for holding this hearing and giving us an opportunity to 

present our views here. Let me begin by explaining why video franchise reform is an urgent matter for Verizon and for the customers 

we serve. Today’s video franchising laws are out of date with technology, as you’ve heard this morning, out of touch with consumer 

demands and so mainly delay competition and deny choice for consumers. 

Last September, Verizon began offering our new video service 

called FiOS TV to customers in Keller, Texas, just outside of Dallas. Since our launch there, we’ve entered the video market in communities in New York, California, Massachusetts, Florida, Virginia, 

while greatly expanding in Texas, where we have statewide franchise authority. 

It’s early in the game, but customers appear to really love this 

service. In Keller, 20 percent of the market signed up for FiOS TV 

in the first 3 months when we offered the service. 

Actually, even consumers who don’t have FiOS TV like it. That’s 

because, where FiOS TV competes with cable, consumers see their 

cable bills go down. Incumbent cable operators have offered customers price cuts of between 28 and 42 percent, although cable 

companies generally haven’t advertised these discounts or made 

them available to areas not served by FiOS TV. For consumers, 

this is an important kitchen-table issue. 

The FCC found that unlike every other competitive communications market, cable prices have increased 86 percent since 1995. 

The key to lowering cable cost is competition. Where there is 

wireline competition, cable prices are more than 15 percent lower. 

Unfortunately, that kind of competition exists in less than 2 percent of communities. A recent study by The Phoenix Center found 

that this lack of wireline alternative in 98 percent of communities 

throughout the country costs consumers more than $8 billion per 

year in excess cable rates. 

Verizon thinks we can help you change that. The major obstacle 

in our path and the biggest limiting factor to how fast we can offer 

video over our fiber network is the existing local franchise process 

that requires us to negotiate separate agreements with thousands 

of local franchise authorities all over the country. 

As you know, Verizon already has authority to deploy and operate networks for voice and data services. But under Title VI of the 

Communications Act, we’re required to obtain a second local franchise in order to use those networks to offer a competing video 

service. By the way, as has been mentioned, cable companies were 

not required to obtain a second franchise to offer a competing voice 

service over their networks. 

19

There are three down sides to a current market-by-market franchising process: First, the incumbent cable providers worked the 

process to derail or delay the entry of a competitor in their markets. They sent their lawyers to lobby local officials to impose on 

Verizon a laundry list of onerous obligations. In one community, for 

example, the incumbent cable provider has refused for almost a 

year to license cable channels to Verizon that it freely licenses to 

others or to negotiate agreements for the carriage of public, educational and government channels. It also filed a lawsuit to block 

local franchise after it was approved by the community. That suit 

was thrown out in court, but threats of similar suits have popped 

up everywhere around the country and created a disincentive for 

municipalities to want to tackle the question; second, while most 

local communities welcome Verizon’s entry, some communities use 

the process to place restrictions, requirements or to mandate additional contributions that have little to do with our being permitted 

into the marketplace. One community asked us to buy new 

streetlights and to open a Verizon lot as a free parking lot for a 

public library. Another demanded free broadband access for all municipal employees. Other communities have sought free or subsidized cell phones and service for its employees; third, the required negotiations are time consuming and sometimes taking well 

more than a year. Taken together, these three facets of the franchising process delay our entry into the market, deny consumers of 

choice and video services and create a disincentive to investment 

in broadband. 

Now, we are not unsympathetic to legitimate concerns of local 

and state interests in the franchising process. As a matter of fact, 

and for the record sir, let me spell out Verizon’s position on key 

issues so critical to the interests of local communities: First, we’re 

prepared to pay local governments the same franchise fees that 

cable pays; second, to serve our customers, we will carry the public, 

educational, and government channels in local communities; third, 

we support preserving the authority of state and local governments 

to manage public rights-of-way as we always have; and fourth, we 

have a strong record of serving customers across our market and 

would expect to be subject to the Federal redlining rules which also 

apply to cable. 

We have been working diligently town by town, local franchise 

area, by local franchise area, to play by the existing rules that obtain franchises on a local level. We have also been working in a 

number of states to obtain statewide reform as we have in Texas. 

However, as we multiply these efforts across the country, this process quite simply takes too long, it’s too expensive, and ultimately, 

it’s too big an impediment to investment and competition. 

We believe a streamlined national video franchising process combined with our willingness to ensure that legitimate local concerns 

are met, presents a win for localities, consumers and the marketplace. Consumers gain a long-delayed competitive edge and a technologically-advanced alternative for their video services. State and 

local governments preserve and possibly grow revenues. The marketplace sees continued investment in fiber deployment and growth 

in broadband services. 

20

The time for a national streamlined franchising process is now, 

because the era of broadband video is here. 

I thank you very much for hearing our comments, and we stand 

ready to answer any questions you might have. 

[The prepared statement of Mr. Seidenberg follows:]

PREPARED STATEMENT OF IVAN G. SEIDENBERG, CHAIRMAN AND CHIEF EXECUTIVE

OFFICER, VERIZON COMMUNICATIONS

Chairman Stevens, Ranking Member Inouye, and Members of the Committee, 

thank you for the opportunity to testify today. We appreciate this chance to discuss 

what Verizon is doing to bring consumers true video choice through our investment 

in broadband, and what Congress can do to bring the benefits of competition to more Americans, faster, through reform of today’s outdated franchising laws. 

Today, Verizon is the single largest investor in broadband technology in America. 

We now have the most extensive wireless broadband network in the U.S., which is 

stimulating a wave of innovation in multimedia applications. We’re also deploying 

the Nation’s most advanced fiber network, which is transforming customers’ 

broadband experience. 

We are deploying our fiber network directly to homes in almost 800 communities 

in 16 states. As of the end of 2005, we passed our 3 millionth home. By this time 

next year, we intend to double that, to 6 million, or somewhere around 20 percent 

of current Verizon households. By 2010, we expect to deliver fiber facilities to 

around 18–20 million homes and businesses. 

This next-generation network equips us to compete through innovation, as other 

technology companies do. We are using it today to deliver broadband capacity to 

customers of 5, 15, and 30 megabits per second for Internet access and data services. That’s the fastest mass-market broadband service in the country. In addition, 

our fiber investment means that we now have the technology to deliver something 

for which customers have been clamoring for a long time—true video competition. 

Last September, Verizon began offering our new video service, called FiOS TV, 

to customers in Keller, Texas, outside of Dallas. Since our launch in Keller, we’ve 

entered the video market in communities in New York, California, Massachusetts, 

Florida, and Virginia, while greatly expanding in Texas where we have statewide 

franchise authority. Because of our fiber network, we enter the market with a highly competitive product that’s as good as or better than anything in the market 

today:

• We have hundreds of digital video and music channels, more HDTV content 

than any incumbent cable operator, and 2000 on-demand titles.

• We have a diverse line-up of channels, including more than 50 channels targeted to African-American, Hispanic, and other ethnic audiences.

• And we’re using IPTV today to deliver video on demand and an interactive program guide.

It’s early in the game, but so far we’ve learned one thing for sure: customers love 

this service. In Keller, 20 percent of the market has signed up for the service in 

the first three months alone. 

Actually, even consumers who don’t have FiOS TV like it. That’s because, where 

FiOS TV competes with cable, consumers see their cable bills go down. That’s happened in Keller, where cable prices have dropped by about 20 percent since we entered the market. In fact cable incumbents have cut prices sharply in each market 

where we’ve introduced FiOS TV. 

For consumers, this is an important kitchen-table issue. Unlike prices in highly 

competitive services like local and long distance, wireless and broadband, cable 

prices have continued to go up. The FCC found that from July 1998 to January 

2004, cable prices rose almost 50 percent—more than four times as fast as the Consumer Price Index. On the other hand, the FCC found that prices were more than 

15 percent lower in markets where cable has wireline competition. 

Unfortunately, that kind of healthy competition exists today in less than two percent of cable franchise areas. Verizon wants to change that. However, a major impediment to our rapid entry in the video marketplace—and a big obstacle to investment in broadband—is the existing local franchise process, which time and technology have passed by. 

As you know, Verizon already has authority to deploy and operate networks for 

voice and data services. But under Title VI of the Communications Act, we’re required to obtain a second local franchise in order to use those networks to offer a 

21

competing video service. This requires us to negotiate with thousands of local franchise authorities all over the country. 

There are three downsides to this process:

• First, the required negotiations are time-consuming and, we believe, redundant 

processes that unnecessarily delay our entry into the market;

• Second, they allow the incumbent cable providers to work the process to derail 

or delay the entry of a competitor in their markets; and,

• Third, they permit local communities to place restrictions, requirements, and in 

some cases, mandate additional contributions that have little to do with the 

question of whether we should be permitted into the marketplace.

Let me be clear: we are committed to being a video provider. To that end, we are 

diligently using the existing process to obtain franchises in local communities across 

the country. We are also working at the state level to find broader solutions. Texas, 

of course, is the pioneer in this area, and its citizens are now enjoying the fruits 

of their ‘‘first mover’’ legislation. 

However, we strongly believe that a streamlined, national franchise process is the 

fastest and fairest route to bringing much-needed choice and competition to the 

video market. 

I also want to set the record straight on where we stand relative to the franchising issues so critical to the interests of local communities: 

First, we’re prepared to pay local governments the same franchise fees that cable 

pays. 

Second, to serve our customers, we will carry the Public, Educational, and Government channels in local communities. 

Third, we support preserving the authority of state and local governments to manage public rights-of-way, just as we have throughout our history. 

Fourth, we have a strong record of serving customers across our market and 

would expect to be subject to any Federal redlining rules which also apply to cable. 

Verizon believes a streamlined, national video franchising process—combined with 

our willingness to ensure that legitimate local concerns are met—presents a winwin-win for localities, consumers and the marketplace. Consumers gain a long-delayed competitive edge and a true, superior choice for their video services. State and 

local governments preserve and possibly grow revenues. The marketplace will see 

continued growth and investment in fiber deployment across the country, as demand 

for broadband services continues to grow. 

The time for a national, streamlined franchising process is now, because the era 

of broadband video is here. Verizon is eager to deliver it to our customers, and to 

tap the full potential of this great, new technology that will empower consumers, 

transform communities, and encourage innovation and economic growth across 

America for years to come. 

Thank you. I look forward to answering any questions you may have.

The CHAIRMAN. Thank you very much. Our next witness, Ed 

Whitacre, Chairman and Chief Executive Officer, AT&T. 

STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN/CHIEF 

EXECUTIVE OFFICER, AT&T INC. 

Mr. WHITACRE. Chairman Stevens, Senator Inouye, Members of 

the Committee, thank you for the opportunity to be here this morning. You know, if you look back, both AT&T and cable companies 

operate in many cities. And for years, AT&T used its lines to provide telephone service, and cable companies used their lines to provide television. Cable companies have begun using their lines, as 

you know, to provide telephone service and broadband service. 

AT&T wants to begin providing video services with our lines. In 

other words, both industries would compete. Consumers would benefit from competition because cable has a history of raising rates, 

86 percent between 1995 and 2004. Let me repeat that for you. 

Since 1995, consumer cable rates have increased 86 percent. These 

cable price increases continue in 2005. Some of these increases are 

truly striking, for example, Charter’s 25-percent increase in Fort 

22

Worth, Time Warner Cable’s 14-percent increase in Houston, and 

Comcast’s 16-percent increase in Spokane. In contrast, wireless 

broadband Internet access and voice services are all highly competitive. If you look at those, prices are declining, and consumers 

have more choice. Why is that? Because you and the FCC made the 

right decisions as new entrants entered the market. You did not 

subject them to the legacy regulatory structure of the incumbent 

provider. 

However, it seems some want us to get TV franchise agreements 

with the cities we wish to serve even though we already have franchise agreements for our telephone-type services. I don’t think 

cable companies had to get a franchise to offer telephone service. 

The current video franchising process of application, review, negotiation and approval routinely takes between 12 and 18 months. 

If the existing franchise process is applied to AT&T’s video offerings, we have to obtain more than 1,600 separate local franchises. 

If we were somehow able to sign one franchise agreement every 

week of the year, it’s going to take us 30 years to complete this 

process. 

In any case, AT&T wants to enter the TV business. It would give 

much-needed competition and certainty, and consumers will benefit. There are real-world examples. In Texas, the Governor signed 

a bill into law that created a simple statewide franchise process. 

Within weeks, the incumbent cable company in Keller, Texas, lowered its rates by almost 30 percent and added new features to its 

service. And soon after the law passed, we, AT&T, announced an 

$800 million investment in rolling out new services in Texas. 

We are prepared and have offered to pay what cable companies 

pay so that cities will lose no revenue. In addition, any law can expressly preserve local government’s historical power over the time, 

place and manner for the use of public rights-of-way, but any such 

rules must be clear and consistently applied on a nationwide basis. 

I commend Senators Ensign, McCain, Rockefeller and Smith for 

introducing legislation that would reform the current video franchising process and allow many of us to bring competition into the 

video market. This will only result in lower prices for your constituents. I am hopeful that the Committee will move forward and pass 

this needed legislation soon. 

Again, thank you for inviting me here today. It’s a pleasure to 

be here, and I’ll be happy to answer any questions you have. Thank 

you. 

[The prepared statement of Mr. Whitacre follows:]

PREPARED STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN/CHIEF EXECUTIVE

OFFICER, AT&T INC. 

Good morning. Thank you, Chairman Stevens, Co-Chairman Inouye, and Members of the Committee for offering me the opportunity to address the important subject of video competition. 

I will confine my remarks to five basic points.

• First, more than twenty years after the passage of the Cable Act, cable operators still are not subject to effective competition.

• Second, the best evidence of the lack of effective video competition is that, unlike the pricing trends in every major segment of the communications marketplace, cable prices continue to rise—over three times the rate of inflation.

23

• Third, new video providers stand ready to bring real competition to the video 

market, but this cannot happen if they must first negotiate thousands of separate local franchises.

• Fourth, Congress should enact legislation that encourages video competition in 

the same way it has encouraged competition across the communications industry—by removing legacy regulatory barriers to entry.

• Fifth, in doing so, Congress can and should protect legitimate local interests by 

both requiring that all video providers pay a reasonable, consistent fee to municipalities and maintaining the cities’ long-standing authority over public 

spaces and rights-of-way.

Today, wireless, broadband Internet access, and traditional telephony services are 

all highly competitive—as reflected in declining prices and an array of choices for 

consumers. 

Unfortunately, the same cannot be said for cable service. Between 1995 and 2004, 

the price for traditional cable service increased by 86 percent. Cable price increases 

continued in 2005. While a number of the price increases were in the 6–8 percent 

range (still more than double the rate of inflation), some of the increases were truly 

striking, such as Charter’s 25 percent increase in Fort Worth; Time Warner Cable’s 

14 percent increase in Houston; and Comcast’s 16 percent increase in Spokane. 

Cable operators will tell you that they do face significant competition, in the form 

of direct broadcast satellite (DBS) services, but this is not the case. While DBS providers have taken share from the incumbents, this penetration has been uneven, 

and the existing DBS technology, standing alone, limits the ways in which EchoStar 

and DIRECTV can compete with cable companies. Cable overbuilders, thwarted by 

cable opposition, misuse of the franchise process, and lacking sufficient scale or resources, are present in just a small fraction of cable franchise areas. The proof is 

in the prices: Cable prices continue their steady, stubborn rise—in contrast to the 

price declines that characterize other communications services. 

True competition for cable is, however, just around the corner. A number of providers are in the process of introducing robust, wire-based and advanced satellite 

video competition that can match the scale of the incumbents and meet—and exceed—the technical capabilities of the cable plant. 

AT&T already has begun offering video services in competition with cable, and we 

hope to ramp up significantly over the course of this year. Using a variety of technologies, including AT&T’s IP-based Project Lightspeed technology and its integrated new DSL/satellite technology known as HomeZone, AT&T will offer an integrated suite of broadband-based voice, data and video applications, including interactive video services that will be unlike, and better than, the cable services available today. Indeed, AT&T will give customers unprecedented control over the way 

they watch TV, surf the web and use other broadband applications. We plan to 

make advanced video services available to nearly 80 percent of the households in 

our territory. The fiber-based Project Lightspeed component of our video offerings, 

in just its initial deployment, will be available to approximately 18 million households over the next three years. 

These kinds of wire-based alternatives can truly make the competitive difference. 

In 2003, the GAO found that the rates of cable incumbents facing competition from 

a wire-based video provider are approximately 15 percent lower than in the absence 

of such competition. Likewise, FCC Commissioner Adelstein noted just last week in 

connection with the Commission’s Annual Report on Video Competition that telco 

‘‘investment could bring the most substantial new competition into the video marketplace that this country has ever seen.’’ There are real-world examples: In just 

the last few months, the introduction of new video competition in places like Malibu, 

California, Herndon, Virginia, and Temple Terrace, Florida, have compelled the incumbent cable operators to lower prices, freeze prices for the first time in years, or 

offer new features, like free broadband service. 

The problem that AT&T and other new video entrants face is the uncertainty, 

delay and prohibitive costs driven by the current cable franchising process, which 

was designed for cable incumbents when they entered with a monopoly franchise.

• The process of franchise application, review, negotiation and approval routinely 

takes between 12 and 18 months—if all things go well. It took BellSouth almost 

three years to negotiate some of its key franchises in just two counties in Georgia. Likewise, Qwest expended three years of intensive effort just to renegotiate 

seven franchises in the Phoenix area and obtain eight others in areas around 

Phoenix, Denver and Salt Lake City. If the existing franchise process is applied 

to AT&T’s video offerings, we would have to obtain as many as 2,000 separate 

local franchises. If we were somehow miraculously able to sign one franchise 

24

agreement every single business day of the year, it would still take over 71⁄2

years to complete this process.

• And delay is just one of the problems inherent in the current system. Our own 

experience with the now-defunct Ameritech New Media cable service proved to 

us how futile the franchising process can be. In over 40 communities, Ameritech 

had to abandon the franchise process, and its video investment and plans, sometimes after two or more years of negotiations. We faced a range of demands that 

would have rendered our plans uneconomic, including fees that exceeded the 

limit under Federal law, extensive build-out requirements, as well as more outlandish requests, such as for the construction of fire stations or recreation centers.

These unreasonable demands added untold layers of complexity, cost, frustration 

and delay into what was already a difficult negotiation and approval process. 

This outmoded and anticompetitive system will do nothing but stifle new competitive entry. Accordingly, we strongly encourage Congress to enact legislation that fosters new video competition by eliminating the municipal franchise process. In doing 

so, Congress need look no further than the success of wireless, Internet and traditional telephony services: New entrants were not saddled with the full weight of regulation designed for incumbents, competition flourished, and prices dropped. 

At the same time, any reform legislation should provide that all video competitors 

pay a fee to municipalities in connection with their video services that is substantially similar to what cable operators pay under their franchise agreements. In addition, any law should expressly preserve local government’s historical police power 

over the time, place and manner of a particular provider’s use of public property. 

But any such rules must be clearly articulated and consistently applied on a nationwide basis. 

In this regard, we applaud the efforts of Senators Ensign and McCain for introducing their bill, S. 1504, and Senators Smith and Rockefeller for introducing their 

bill, S. 1349. Both bills would reform the video regulatory system, protect important 

municipal interests, and, in the process, foster greater investment in broadband deployment and video competition.

The CHAIRMAN. Thank you very much. Next witness is Thomas 

Rutledge, Chief Operating Officer of Cablevision Systems Corporation. 

STATEMENT OF THOMAS M. RUTLEDGE, CHIEF OPERATING 

OFFICER, CABLEVISION SYSTEMS CORPORATION 

Mr. RUTLEDGE. Good morning, Mr. Chairman, Senator Inouye 

and Members of the Committee. I am Tom Rutledge, and I’m the 

Chief Operating Officer of Cablevision Systems Corporation. Thank 

you for inviting me to this hearing. 

In 1996, Congress established a telecommunications framework 

to promote competition and encourage investment. Since then, 

cable operators have invested more than $100 billion and brought 

in an array of new broadband services to consumers. By contrast, 

over the same period, the phone companies have done little to enter 

the video business despite the opportunity Congress created for 

them. 

Now, without any coherent rationale or factual premise other 

than for special treatment, the Bell operating companies are insisting that Congress discard the franchise framework that has successfully balanced local right-of-way management and advanced 

service deployment. Creating new rules in the middle of the game 

to accommodate the Bells’ latest business plan is unnecessary and 

will jeopardize sustainable competition. Broad Federal preemption 

of local franchising undercuts companies that have made substantial investments based on Congress’s existing framework and will 

weaken the unique and legitimate local interest reflected in their 

franchises. 

25

Further, local franchising has already been shown to accommo- date new entry. Cable has invested more than $100 billion to bring 

customers competitive video, high-speed Internet and voice services. Having made that investment, our primary concern is ensuring that we face our competitors on a level playing field. A level 

playing field means that we succeed or fail based on the value and 

quality of our product rather than because our competitor has more 

favorable rules. 

Franchising is a key part of the level playing field. Our franchises contain commitments that are important to the communities 

we serve, but they do impose some costs. For example, Cablevision 

regularly commits in its franchise to serve every resident in a community, but the Bell is focusing their cable fiber upgrade on 

wealthier suburban areas and avoiding more costly rural and 

urban areas and will not guarantee service to all. Instead, some 

customers will get a new fiber-based service, and others will be left 

on an unmaintained, old copper plant. 

Cablevision provides free video and Internet service to more than 

5,000 schools and libraries and supports an array of local programming and provides training and other opportunities for public access programs. Sustainable competition requires that new entrants 

embrace comparable franchise commitments. Adopting new rules 

that undermine local control and allow phone companies to serve 

only affluent neighborhoods will undermine long-term competition 

by putting government’s thumb on the scale and thereby, distorting 

markets and ultimately, reducing investment. 

Cable television is a local business. In New York, New Jersey 

and Connecticut markets alone, Cablevision operates seven fulltime news stations, dozens of small-area news services and 99 community programming and public access channels that deliver community news, information and local services to our customers. 

Franchise agreements embody that localism and other legitimate 

municipal interests. These include requirements for universal service, nondiscrimination, construction standards, zoning, aesthetics 

and public safety. 

The balance struck by the Federal Cable Statute for franchising 

recognizes that these matters are best left to local officials that 

know their community. It might be impossible to address meaningfully if local accountability were removed to the Federal level. 

Finally, the franchising system has demonstrated sufficient flexibility, both to accommodate competitive entry and to serve the values of localism and fair competition. 

Today, local and state governments are using the flexibility of 

the Federal franchising system to encourage Bell entry. New York, 

for instance, has streamlined the local franchising process for new 

entrants. Any new entrant that agrees to the terms of an existing 

franchise can get a franchise approval hearing in 30 days. 

The New York Commission has also approved a pro-competitive 

franchise template that protects local interests and ensures a level 

playing field. New entrants can use this franchise as a road map 

for speedy approvals. Verizon called it ‘‘a framework that should 

help expedite future franchises’’, but Verizon has not used that 

framework to get a new franchise. Connecticut already has a statewide franchise regime. But instead of applying for a franchise, 

26

AT&T has spent nearly a year asking to be exempt from the state’s 

cable and franchise law. 

In New Jersey, local mayors are asking telephone companies to 

come get new video franchises because they welcome additional 

competition. But instead of signing those franchises, Verizon is 

pushing for state legislation to eliminate them. 

Given the complaints about local franchising, one might think 

there are thousands of telephone company franchise applications 

stuck in municipal red tape. That’s not the case. In our service 

area, which has over 400 communities, Verizon has only three franchise applications pending. While the rhetoric about franchising is 

potent, the facts are different. The only thing slowing down Verizon 

is Verizon. And the only thing slowing down AT&T is AT&T. 

The truth is, local franchising works. It’s proven to be a durable, 

stable and effective means of respecting local interests and encouraging massive investment and accommodating entry. To the extent 

that the Committee is considering changes to the franchise model 

to further speed entry while sustaining fair competition, I commend New York’s approach, and I applaud the principles set out 

by Senator Inouye and Senator Burns. 

A procedural shot clock for franchise negotiations prevents delay, 

and the ability of an existing operator to opt into any new competitive franchise ensures competition without bringing major disruption to a very successful statutory system. Thank you for inviting 

me today. I look forward to answering your questions. 

[The prepared statement of Mr. Rutledge follows:]

PREPARED STATEMENT OF THOMAS M. RUTLEDGE, CHIEF OPERATING OFFICER, 

CABLEVISION SYSTEMS CORPORATION

Mr. Chairman, Senator Inouye, and Members of the Committee. My name is Tom 

Rutledge, Chief Operating Officer of Cablevision Systems Corporation. Thank you 

for inviting me to speak about fair competition and video franchising. 

Since 1996, cable operators like Cablevision have invested more than $100 billion 

in our networks and in innovative products for our customers. As a result, we now 

lead the Nation in the deployment of broadband Internet service, digital and highdefinition video, and voice over Internet protocol. 

During this same period, the Bell companies did little to enter the video business 

opened to them by Congress in 1996. Now, facing voice competition from Cablevision 

and other cable operators that invested and planned for this competition, AT&T and 

Verizon argue that they can make up lost time if free from local regulation, such 

as franchising. 

My comments will focus on the importance of a level playing field and why the 

existing franchising regime does support fair competition while allowing local officials to protect community interests. 

Level Playing Field is Essential 

Our primary concern is ensuring that we face our competitors—including the 

phone companies—on a level playing field. A level playing field means that we succeed or fail based on innovation and effort rather than because our competitor may 

get better rules. Franchising is an important part of fair competition. 

Our franchises contain commitments that are important to the communities we 

serve, but are being questioned by phone companies in their new video plans. For 

example, Cablevision has made service to every neighborhood in a community a key 

part of its local franchises. In New York and New Jersey, Verizon’s fiber upgrade 

is focused on wealthier, suburban areas but leaves rural and urban centers virtually 

untouched. Similarly, while new entrants want to avoid franchise commitments of 

interest to local officials, under its franchises Cablevision provides free video and 

Internet services to more than 5,000 local schools and libraries. Sustainable competition requires that new entrants embrace comparable franchise commitments. 

27

Franchising Sustains Localism 

Broadcast television and professional sports programming services are local businesses, as is cable television. Franchises are an important aspect of cable television’s localism. Far more than any other media business, cable has a rich tradition 

of community programming. In the New York, New Jersey, and Connecticut markets alone, Cablevision operates seven full-time news stations, dozens of small, community news services, and 99 government, educational and public access channels 

to deliver local news and information to our customers. In our franchise agreements 

with the communities we serve, Cablevision also agrees to provide local programming services that enable residents to see their local City Council hearing or the 

meeting of the local planning board. 

Franchise agreements reflect other local priorities of the community. These include requirements for universal service, nondiscrimination, construction standards, 

zoning, aesthetics and public safety. These priorities are most effectively selected 

and enforced by local officials that know their community best. For example, if a 

resident’s driveway were damaged by a contractor, or if a neighborhood were improperly denied service because of its demographic profile, the local government is 

best positioned to address those concerns. 

Localism in cable television and local accountability in the community are rooted 

firmly in the franchise relationship. 

Streamlined Franchise Processes Accommodate New Entrants 

Finally, the franchising scheme has demonstrated sufficient flexibility both to accommodate competitive entry and to serve the values of localism and fair competition. Today, local and state governments are using the flexibility of the Federal 

franchising scheme to encourage and accelerate Bell video entry. 

New York, for instance, has streamlined the local franchising process for new entrants. Any new entrant that agrees to the terms of an existing franchise can get 

a franchise approval hearing in 30 days. Yet, no new telco entrant has sought to 

exploit this quick entry mechanism. 

The New York Commission has also approved a pro-competitive franchise template that protects local interests and ensures a level playing field. New entrants 

can use this franchise as a roadmap for speedy approvals. Verizon called it a 

‘‘framework... that should help expedite... future franchises.’’ 

Connecticut already has a statewide franchising scheme that allows providers to 

negotiate authority to serve broad geographic areas. Instead of asking for a franchise there, AT&T has spent close to a year asking the state to exempt it from the 

the state’s cable and franchise law. 

In New Jersey, local mayors are calling on the telephone companies to come get 

new video franchises quickly and bring additional competition. Instead of signing 

those franchises, Verizon is pushing for new state legislation to eliminate local franchising. 

Given the complaints about local franchising, one might think that there are thousands of Bell video franchise applications stuck in municipal red tape, delaying the 

promise of new competition. That is not the case. In our service area of more than 

400 communities, Verizon has only three local franchise applications pending. If this 

is any indication of the national experience, it appears that it is the business decisions of the telephone companies, not the local franchising process itself, that are 

causing delay. 

The truth is, local franchising works. The ‘‘failures’’ that have repeatedly been 

cited by its opponents are not due to the regulatory framework. Franchising has 

proven to be a durable, predictable and effective means of ensuring competition develops on a level playing field. 

To the extent that this Committee is considering modifications to the franchise 

model to further accommodate new entry without sacrificing localism and fair competition, I recommend New York’s approach. There, the procedural ‘‘shot clock’’ protects against delay, and the ability of an existing operator to ‘‘opt in’’ to any new 

competitive franchise provides for fair competition, all within the current regime 

and without sacrificing the legitimate local interests that it sustains. 

Thank you for inviting me here today. I look forward to answering your questions.

The CHAIRMAN. Our next witness is Lori Panzino-Tillery, President of National Association of Telecommunications Officers and 

Advisors. Thank you. 

28

STATEMENT OF LORI PANZINO–TILLERY, PRESIDENT,

NATIONAL ASSOCIATION OF TELECOMMUNICATIONS

OFFICERS AND ADVISORS (NATOA) 

Ms. PANZINO-TILLERY. Mr. Chairman, I want to begin by thanking you for your leadership on this issue, for holding this hearing 

and for the opportunity to appear here today. We would also like 

to thank Senator Inouye and Senator Burns for their recent statement of principles on local video franchising. Local government 

shares this Committee’s commitment to competition. In addition, 

we’d like to express our appreciation to Senators McCain and Lautenberg’s support of community broadband initiatives. 

Mr. Chairman, let me state it plainly. Local government wants 

and needs competition, the same competition Title VI is designed 

to promote. Like the Members of this Committee, local elected officials work hard to be responsive to their constituents. Local governments have and will continue to grant competitive franchises because that’s what their constituents want. Local government plays 

an indispensable role in assuring modern communication technologies are available to all consumers. The Communications Act 

explicitly recognizes local government’s responsibilities for managing public property and for assuring nondiscriminatory treatment of all communication service providers. These private companies enjoy privileged access to public and private property to deliver their services. In return, they must pay appropriate compensation, which may include in-kind capacity and services identified to meet community needs and interests. 

Thanks to Congress’s wisdom and foresight, Title VI has worked 

well for more than 20 years. Of course, some continue to complain 

that even with 300 channels of programming, there’s still nothing 

on television. They must not get C–SPAN 2. But clearly, Title VI 

has not only kept pace with rapid advances in communications 

technology, it has helped fuel them. Institutional networks are 

leading the way in making local government more efficient, keeping the public safer and improving coordination between government agencies. The local franchise process has broadly and widely 

delivered much-needed community video and governmental communication networks. It gives citizens in cities and towns in each of 

your states greater information and involvement in their government, both through televised town council and board of education 

meetings and through programs featuring elected officials at the 

local, state and Federal level. It makes us all more secure because 

local public safety officials can reach area residents with important 

information in a timely fashion. 

Title VI gives people like Cornell Hutton, a 57-year-old factory 

worker who lives in Salina, Kansas, the chance to use his local access television facilities to produce a movie he wrote and realizing 

a lifelong dream. Title VI serves our communities well. Communications technology has undergone enormous change over the last 

two decades, making Title VI and local government’s role more relevant and necessary than ever. 

Nevertheless, some are seeking to eliminate local government 

oversight. They will tell you that it is necessary to expand access, 

ensure competitiveness and encourage innovation. What they really 

29

want though, is to tilt the playing field to their own advantage. We 

believe it should be kept level. 

The radical changes some are seeking would lead to communications redlining. Income will determine who gets access to competition. Rural America will be the last to gain competitive service. 

Just as the Federal Government requires spectrum users to serve 

the public interest, local government requires those who use public 

rights-of-way to serve community interests. Local government is 

best equipped to balance, neighborhood by neighborhood, the conflicting interests of spreading competition and maintaining economic feasibility. We’ve successfully managed this balance for more 

than 20 years. 

Eliminating local government’s role would also make providers 

far less accountable for the service they provide. Can you imagine 

having to call the FCC in Washington every time you have a problem with your video provider? Local governments are better 

equipped for that role as they have demonstrated for more than a 

decade. While we believe Title VI has worked well, local government does support improvements that do not undermine the significant benefits of the Act or the important role government plays 

in protecting our citizens. We support, for example, efforts to 

streamline the franchising process, such as setting reasonable time 

frames for the completion of franchise agreements and using 

preestablished criteria to avoid unnecessary negotiations. Speeding 

new entrants to the market is, after all, a goal we share. 

However, any changes should be akin to the evolution we saw 

when telephone dials were replaced by buttons. The basic instrument remains the same. It’s just easier to use. 

Mr. Chairman, Senator Inouye and Members of this Committee, 

we know that you understand the many benefits that Title VI has 

brought to varied communities in your home states. We simply ask 

that you move forward, that you maintain those benefits for the 

people you serve. The best way to do that is by maintaining local 

responsibility for protecting and defining the needs and interests of 

each community to be served. Thank you. 

[The prepared statement of Ms. Panzino–Tillery follows:]

PREPARED STATEMENT OF LORI PANZINO-TILLERY, PRESIDENT, NATIONAL

ASSOCIATION OF TELECOMMUNICATIONS OFFICERS AND ADVISORS (NATOA) 

I. Introduction 

Good morning Chairman Stevens, Senator Inouye and Members of this Committee. My name is Lori Panzino-Tillery, and I am the franchise administrator for 

the County of San Bernardino, California, the largest county in the continental 

United States, where I oversee 39 franchises for essential utilities as well as 13 individual cable franchise agreements. I am the regional liaison to the California Public Service Commission and appear frequently before the various committees of jurisdiction in the California legislature. I am also currently serving as the President 

of the National Association of Telecommunications Officers and Advisors (NATOA) 

and previously served as the Association’s California and Nevada State Chapter 

President. I am honored to appear here today on behalf of not only NATOA, but 

also on behalf of the local governments across this Nation, as represented by the 

National League of Cities (NLC), the United States Conference of Mayors (USCM), 

30

1 NLC, USCM and NACo collectively represent the interests of almost every municipal or 

county government in the U.S. NATOA’s members include elected officials as well as telecommunications and cable officers who are on the front lines of communications policy development in cities nationwide. GFOA’s members represent the finance officers within communities 

across this county, who assist their elected officials with sound fiscal policy advice. TeleCommUnity is an alliance of local governments and their associations that promote the principles of 

federalism and comity for local government interests in telecommunications. 2 As of five years ago, it was estimated that the valuation of the investment in public rights- of-way owned by local government was between $7.1 and $10.1 trillion. Federal agencies such 

as the United States Department of Transportation, the U.S. Department of the Interior (Bureau of Land Management ‘‘BLM’’), the United States Department of Agriculture (U.S. Forest 

Service) and the National Oceanic and Atmospheric Administration (NOAA) have all been actively engaged in assessing value for rights-of-way for years. Valuation of rights-of-way, and the 

requirement that government receives fair market value for their use, can be found in regulations (43 C.F.R. Sections 2803 and 2883) statutes, and case law. 

the National Association of Counties (NACo), the Government Finance Officers Association (GFOA), and TeleCommUnity. 1

On behalf of local government, we would like to thank you for the opportunity to 

dispel many of the untruths that have been circulated recently pertaining to local 

government involvement in video franchising. We would like to be your ‘‘myth-busters’’ for today—to cut through some of the deceptive claims and to provide you with 

a truthful picture of the status of cable franchising in the market today, and how 

that franchising supports the desired delivery of competitive new entrants and new 

services. 

Local governments embrace technological innovation and competition and actively 

seek the benefits such changes may bring to our communities and to our constituents. We want and welcome genuine competition in video, telephone and broadband 

services in a technologically neutral manner. We support deployment as rapidly as 

the market will allow. Local governments have been managing communications 

competition for many years now—it is not new. What is exciting is the potential new 

entry into video by a few well-funded and dominant players who appear to have finally made a commitment to enter into the video arena. We look forward to developing an even more successful relationship in bringing these competitive services to 

our citizens. 

For local government, this debate is about core local government functions: streets 

and sidewalks, public safety, first responders, citizen involvement in local politics. 

These companies have chosen to put their equipment in the local streets and sidewalks. Local leaders are responsible for managing those streets and sidewalks, and 

no legislative franchising proposal put forward thus far adequately ensures that our 

citizens will not be greeted with open potholes and cracked sidewalks as a consequence. Local government remains concerned that rhetoric and not facts have led 

members of Congress to believe that competition and innovation will flourish only 

if local government is removed from the equation. We are here today to help you 

understand that nothing could be farther from the truth. Throwing away local franchising is not the solution that will bring competition or rapid entry by competitive 

providers. We believe that quite the opposite is true. We have voiced our concerns 

relating to the legislation introduced by Senators Smith, Rockefeller, DeMint, and 

Ensign—each of which would eliminate the local franchise process entirely. These 

bills would deprive local governments of the tools necessary to ensure the timely deployment of services within our communities. 

Local government has been anxiously seeking the competitive provision of video 

services for many years—and indeed the Communications Act has explicitly guaranteed such opportunities since 1992. Despite several previous changes in Federal law 

to ease their entry into the video market, the telecommunications companies seeking new laws today have not brought forth the competition they promised. The reason is not local governments. The reason is not the current Federal law. The reason 

is market place economics. The provision of video services has not yet proven to be 

as financially attractive as the telephone companies apparently require in order to 

provide the services they claim are the new linchpin to their success. I believe that 

a brief review of the current law will demonstrate this trend. 

Neither Franchising nor Current Regulation is a Barrier to Competition 

The concept of franchising is to grant the right to use property and then to manage and facilitate that use in an orderly and timely fashion. For local governments, 

this is true regardless of whether we are franchising gas or electric service, or multiple competing communications facilities—all of which use public property. As the 

franchisor we have a fiduciary responsibility to our citizenry that we take seriously, 

and for which our elected bodies are held accountable by our residents. 2

31

3 United States General Accounting Office, Telecommunications Issues in Providing Cable and 

Satellite Television Service, Report to the Subcommittee on Antitrust, Competition, and Business 

and Consumer Rights, Committee on the Judiciary, U.S. Senate, at 9, GAO–03–130 (2002)(‘‘GAO 

2002 Study’’), available at www.gao.gov/cgibin/getrpt?GAO–03–130

Our constituents demand real competition to increase their options, lower prices 

and improve the quality of services. As you know, a GAO 3 study showed that in 

markets where there is a wire-line based competitor to cable, cable rates were, on 

average, 15 percent lower. Please understand that local governments are under 

plenty of pressure every day to get these agreements in place and not just from the 

companies seeking to offer service. I know this Committee has heard some unflattering descriptions and anticompetitive accusations regarding the franchise process, 

and I would like to discuss with you the reality of that process. 

Managing Streets and Sidewalks is a Core Function of Local Government 

Even as technologies change, certain things remain the same. Most of the infrastructure being installed or improved for the provision of these new services resides 

in the public streets and sidewalks. Local leaders are the trustees of public property 

and must manage it for the benefit of all. We impose important public safety controls to ensure that telecommunications uses are compatible with water, gas, and 

electric infrastructure also in the right-of-way. Keeping track of each street and 

sidewalk and working to ensure that installation of new services do not cause gas 

leaks, electrical outages, and water main breaks are among the core police powers 

of local government. And while it seems obvious, these facilities are located over, 

under or adjacent to property whose primary use is the efficient and safe movement 

of traffic. It is local government that best manages these competing interests. While 

citizens want better programming at lower prices, they do not want potholes in their 

roads, dangerous sidewalks, water main breaks, and traffic jams during rush hour 

as a consequence. 

Thus far, several bills have been introduced in the Senate addressing franchising. 

Unfortunately, none of them adequately protects local government’s ability to manage local streets and sidewalks. We look forward to working with Committee Members to make sure any legislation that is approved by the Senate does not abrogate 

this core tenet of federalism. 

Private Companies Using Public Land Must Pay Fair Rent 

At the same time that we manage the streets and sidewalks, local government, 

acting as trustees on behalf of our constituents, must ensure the community is appropriately compensated for use of the public space. In the same way that we charge 

rent when private companies make a profit using a public building, and the Federal 

Government auctions spectrum for the use of public airwaves, we ensure that the 

public’s assets are not wasted by charging reasonable compensation for use of public 

right-of-way. Local government has the right to require payment of just and reasonable compensation for the private use of this public property—and our ability to continue to charge rent as a landlord over our tenants must be protected and preserved. 

Social Obligations Remain Critical Regardless of Technological Innovation 

Communications companies are nothing if not innovative. When you think back 

over the course of the past 100 years, the changes in technology are mind-boggling. 

At the same time, the social obligations developed over the last 60 years have endured. I strongly urge the Committee to engage in a deliberative process, and take 

the time necessary to engage in dialogue and debate to ensure that any legislative 

changes adopted this year will be as meaningful 20 years from now as two years 

from now. 

Historical and Current Role of Social Obligations 

I appreciate the opportunity to discuss with you the important social obligations 

inherent in current video regulation, and to explain why these core functions must 

be preserved, no matter the technology used to provide them. These include the allocation of capacity for the provision of public, education and government (PEG) access channels, prohibitions on economic redlining, and a basic obligation that local 

government evaluates, and the provider meets, the local needs of the community it 

serves, including public safety needs. 

Public, Educational and Governmental (PEG) Access Channels 

Historically and today, locally produced video programming performs an important civic function by providing essential local news and information. Under the existing law, local government can require that a certain amount of cable system capacity and financial support for that capacity be set aside for the local community’s 

32

4 Hearing on the Nation’s Wireline and Wireless Communications Infrastructure in Light of 

September 11 Before the Committee on Commerce, Science, and Transportation, 107th Cong. 

(2002) (statement of Agostino Cangemi, Deputy Commissioner and General Counsel of New 

York City’s Department of Information Technology). 

use. This capacity is most often used in the form of channels carried on the cable 

system and are referred to as PEG for public, educational and governmental channels. Once the local franchising authority has established the required number of 

channels and amount of financial support required to meet community needs, it 

then determines the nature of the use, which may be mixed between any of the 

three categories. Public channels are set aside for the public and are most often run 

by a free-standing non-profit entity. Educational channels are typically reserved for 

and are managed by various local educational institutions. Government channels 

allow citizens to view city and county council meetings, and watch a wide variety 

of programming about their local community that would otherwise never be offered 

on commercial television. Whether it is video coverage of governmental meetings, information about government services or special programs, local law enforcement’s 

most wanted, school closings or classroom instruction, the government access or 

PEG programming is used to disseminate this information and to better serve and 

interact with our constituents. Local governments continue to make innovative uses 

of this programming capacity as new interactive technology allows more valuable information to be available to our constituents. 

Economic Redlining 

One of the primary interests served by local franchising is to ensure that services 

provided over the cable system are made available to all residential subscribers 

within in a reasonable period of time. These franchise obligations are minimal in 

light of the significant economic benefits that inure to these businesses that are 

given the right to make private use of public property for profit. While there may 

be those who find franchise build out obligations unreasonable—we find them to be 

essential. The concept of ‘‘universal service’’ in telephone, which the Chairman and 

the Ranking Member have long defended, is no less important than in the case of 

broadband. Those who are least likely to be served, as a result of their economic 

status, are those whom we need most to protect. This deployment helps to ensure 

that our citizens, young and old alike, are provided the same opportunities to enjoy 

the benefits of cable and broadband—regardless of income. The capacity that 

broadband deployment offers to our communities is the ability of an urban or rural 

citizen to become enriched by distance education, and other opportunities that until 

recently were not available. But that will never happen if only the most fortunate 

of our residents, and the most affluent of our neighborhoods, are the ones who receive the enormous benefits of broadband competition. 

Public Safety and Community Needs 

Local leaders often focus on the needs of their first responders when evaluating 

community needs. The current law provides that local governments may require 

cable franchisees to provide institutional networks as part of the grant of a franchise. An institutional network is a network dedicated to the purpose of governmental and institutional communications needs. These are essentially ‘‘intra-nets’’ 

serving government facilities including police and fire stations, hospitals, schools, libraries and other government buildings. Institutional networks are typically designed to use state-of-the-art technology for data, voice, and video and allow local 

governments to utilize advanced communications services at minimal taxpayer expense. It has proven effective not only for day to day municipal and educational 

training and operations—but essential in emergencies such as September 11, 2001. 4

It may be possible that, through deliberative processes such as this hearing, we 

will identify new technological opportunities to assist us in our outreach to our citizens. But I suggest to the Committee today that these public interest obligations 

continue to serve an important purpose and must be preserved, regardless of the 

technology that allows us to make the programming available. I hope that you’ll join 

with me in calling for the preservation and enhancement of institutional networks 

to serve local public safety and first responder needs. I hope that you would not 

yield to the simplistic notion that reducing public obligations on providers is always 

the best course. 

No Preemption of Core Local Government Police Powers 

Local government also must emphasize that telecommunications legislation is not 

where we should reform tax policy or interfere with other local police powers such 

as zoning obligations. We strongly urge the Committee to avoid preempting local 

government in these areas. 

33

Strong Enforcement 

Local government cannot be stripped of its power to enforce these local obligations. Currently, local government is able to audit companies that submit revenue 

and to enforce public safety obligations pertaining to rights-of-way in Federal court. 

The Federal Communications Commission has no expertise in these areas and 

should not be given any authority over arbitrating revenue disputes or rights-of-way 

disputes. Such a radical expansion of Federal power into local affairs is not warranted. 

Title VI Franchising is a National Framework With an Essential Local Component 

Congress struck the right balance in 1984 when it wrote Title VI into the Act, 

and again in 1992 when it made appropriate consumer protection improvements to 

it. Title VI established a light-touch national regulatory framework for cable television video services that includes appropriate local implementation and enforcement. The Act authorizes local governments to negotiate for a relatively limited 

range of obligations imposed on cable operators. Virtually none of these obligations 

is mandatory, and each is subject to decision-making at a local level. The current 

legal structure provides for something I hope we would all agree is important: local 

decisions about local community needs should be made locally. For example, while 

some communities require significant capacity for PEG or INet capacity, others seek 

little or none. 

We are encouraged that the telephone industry executives and staff tell us that 

they fully support local governments’ management and control of rights-of-way; that 

they are willing to pay the same fees as cable providers; that they are willing to 

provide the capacity and support for PEG access programming, and even that they 

are aware of and agree to carry emergency alert information on their systems. And 

yet—at least one company claims it is not subject to current law and they do not 

have to do these very things by virtue of individual local franchise agreements. And 

they are often unwilling to pay franchise fees on the same gross revenues as cable 

or to permit the use of audits to ensure proper payment. They have stated that customer service protections are unnecessary, yet provide no recourse to consumers. We 

hope that they will follow through on their public statements and work closely with 

local government to preserve our core functions. We welcome competition and welcome the telephone companies to offer their services under our streets. It would appear to be simply a complaint against having to actually speak with the local governments whose rights-of-way they are tearing up in order to provide the service. 

Congress should realize that local government franchising has facilitated the deployment of not only the largest provider of broadband services in this country—namely 

the cable industry—but that we also facilitated the entry of literally thousands of 

new telephone entrants immediately after the passage of the 1996 Telecommunications Act. We are well versed in the issues of deployment of new services, and 

have managed competitive entry for the benefit of our communities for many years. 

However, we are uncomfortable with current proposals because these companies 

want preferential treatment. Some of the telephone companies apparently want to 

avoid the franchise applications and negotiation process as they argue to state and 

Federal legislators that they should be allowed to by-pass the local process and 

avoid competing on the same terms or under the same social obligations as cable 

operators. Local government supports treating like services alike. 

Local Franchising is Comparatively Efficient and Must Be Fair to Protect All

Competitors 

Franchising need not be a complex or time-consuming process. In some communities the operator brings a proposed agreement to the government based on either 

the existing incumbent’s agreement or a request for proposals, and with little negotiation at all, an agreement can be adopted. In other communities, where the elected 

officials have reason to do so, a community needs assessment is conducted to ascertain exactly what an acceptable proposal should include. Once that determination 

is made, it’s up to the operator to demonstrate that it can provide the services needed over the course of the agreement or demonstrate that the requirements would 

be unreasonable under the conditions of the particular market. 

Furthermore, while some of the new entrants have asserted that franchise negotiations have not proceeded as fast as they would like, it is important to recognize 

that every negotiation must balance the interests of the public with the interests 

of the new entrant. Some new entrants have proposed franchise agreements that 

violate the current state or Federal law and subject local franchise authorities to 

liability for unfair treatment of the incumbent cable operator vis-a`-vis new providers. Some also seek waiver of police powers as a standard term of their agreement. No government can waive its police powers for the benefit of a private entity. 

34

In the same way, the Federal Government cannot waive the constitutional rights 

of its citizens. Unlike other business contracts that are confidential or proprietary, 

local government franchise agreements are public record documents, so a new provider knows the terms of the incumbent’s agreement well before it approaches a 

local government about a competitive franchise. 

Local governments are obligated to treat like providers alike, and we believe in 

the concept of equity and fair play. In addition, many states have level playing field 

statutes, and even more cable franchises contain these provisions as contractual obligations on the local government. If the new competitor is seriously committed to 

providing as high a quality of service as the incumbent, the franchise negotiations 

should not be complicated or unreasonably time consuming. Moreover, local government has no desire to make new entrants change their current network topologies 

to duplicate the incumbent cable operator’s technology or network design. Local government’s concern is to treat all providers fairly, as required by current franchise 

agreements, by Federal law, and good public policy. 

Franchising Provides for Reasonable Deployment Schedules—Objections to

Reasonable Build Obligations are Red Herrings 

Nothing in franchising or current Federal law requires a new video entrant to deploy to an entire community immediately. Local governments have been negotiating 

franchise agreements with new entrants for many years. In these cases, newly built 

developments may have one schedule while existing areas may have a different 

schedule. 

By managing the deployment as we do, we protect the new provider’s investment 

in infrastructure. We protect the public from unnecessary disruption of the rightsof-way, including safe use and enjoyment of the public rights-of-way. And, we ensure 

that new entrants are provided with unfettered access in a reasonable and timely 

fashion, while ensuring that they comply with all safety requirements. This system 

has worked well for cable, traditional phone and other providers for many years, 

and is necessarily performed by the local government. Congress, when it authored 

Section 253 of the Act, preserved local government authority and evidenced its desire to maintain the federalist, decentralized partnership that has served our country well for 200 years. We trust that under your leadership and guidance these important principles of federalism will be maintained. 

The Current Framework Safeguards Against Abuse and Protects Competition 

The current framework ensures that all competitors face comparable obligations 

and receive the same benefits, ensuring a fair playing field and avoiding regulatory 

gamesmanship. Federal safeguards protect against abuse. Local governments generally are prohibited from requiring a video service network provider to use any particular technology or infrastructure such as demanding fiber or coaxial cable. Local 

governments can require that construction and installation standards be adhered to 

and that systems are installed in a safe and efficient manner. Local governments 

require compliance with the National Electric Safety Code to protect against the 

threat of electrocution or other property damage. Local rules can also require that 

signal quality be up to Federal standards, and that systems are maintained to provide subscribers with state-of-the-art capabilities. Similarly, it is local government 

that inspects the physical plant and ensures compliance on all aspects of operations. 

We work closely with our Federal partners and cable franchise holders to ensure 

that cable signal leaks are quickly repaired before there is disruption or interference 

with air traffic safety or with other public safety uses of spectrum. 

Title VI is Technology Neutral 

Digital electronic transmissions were developed almost 40 years ago. Internet protocol, as a format for digital packet transmissions, was developed many years ago, 

at the time the original Internet was being developed. Its use today to deliver data, 

telephone and video, is something that has evolved and improved over time, and is 

now so prevalent as to warrant public attention. The promise of competitive services 

being delivered through the use of IP is exciting and challenging—it’s just not necessarily new. The communications tools we use every day have all evolved under 

the careful eye of federal, state and local governments, as should the communications tools of the future. These Internet innovations are meaningless if the networks 

used to deliver them are not widely available to all of our citizens and tailored to 

meet local needs. Deployment of the infrastructure used to deliver these services is 

of specific interest and concern to those of us who manage the physical property 

where this infrastructure resides and will be installed. This is why local governments have long promoted the efficient and effective deployment of infrastructure 

within and through our communities. At no time has Title VI limited or constrained 

the use of new technology to deliver the services under its umbrella. 

35

Local Government Helps Ensure Broadband Deployment 

We all share the concern of a lack of broadband access throughout America, in 

urban and rural areas alike. Regardless of the locality, it is likely that communications technologies will be a driving force in the economic opportunities enjoyed by 

these communities that have access to advanced services. I believe that the Cable 

Act has provided significant benefits to consumers and communities alike, and I believe that local governments should be applauded for ensuring that those benefits 

are provided in a timely, fair and efficient manner. Under the current regulatory 

regime, cable enjoys the highest deployment rate of broadband in this Nation, with 

over 105 million homes having access to cable modem service. The cable industry 

is now reaping the economic benefits of an infrastructure that is capable of providing broadband access to all of our citizens. It is local government’s oversight and 

diligence, through the franchise process, that has ensured that our constituents are 

not deprived of these services. Local government is the only entity that can adequately monitor and ensure rapid, safe and efficient deployment of these new technologies when they are being installed on a neighborhood-by-neighborhood level in 

our local rights-of-way. 

Changes Local Government Agrees Would Enhance the Competitive

Environment 

We appreciate the opportunity to share with the Committee, based on our extensive expertise, those sections of the Act that, with some modification, would enhance 

the provision of competitive services within our communities. 

Application of Title VI 

Local government seeks modifications to clarify that the provision of multichannel 

video services through landline facilities, regardless of the technology used, falls 

within the scope of Title VI. The Act does not permit local government to dictate 

the nature of the technology employed by the provider. It does permit the local government to require that once the technology has been selected, that the quality of 

the service is acceptable. The quality of service should be maintained, and it should 

apply in a technology neutral manner. 

Uniform Assignment of Responsibilities Among Levels of Government 

Local government should retain authority over local streets and sidewalks, no 

matter what provider is offering service, or what service is being offered. At the 

same time Congress is considering allowing Federal agencies to determine which 

companies can offer video services, all companies in the local rights-of-way should 

be responsive to the local government. 

Streamlining of Franchise Negotiations 

Title VI establishes the broad framework for those elements that may be negotiated in a local cable franchise. The provision of PEG access capacity and institutional networks is specifically protected in the Act. Requirements in that regard 

should be presumptively reasonable, and a local government should be given the 

flexibility to determine the appropriate amount of capacity and the appropriate level 

and use of funding support necessary to meet its local community’s own particular 

needs. The Act permits extensive community needs assessments, which while valuable, may be costly and time consuming, and may prove unnecessary when considering the applicability of the obligation on a new entrant. We believe that when a 

competitive franchise is under consideration, the local government should have discretion to use these tools on an as-needed basis to verify, but not be obligated to 

‘‘prove,’’ the need for the particular PEG or institutional network requirement. The 

Act should require a new entrant to provide at least comparable capacity and support for the provision of PEG access, as well as for the provision and support of institutional networks. Similarly, local governments must be authorized to require the 

interconnection of these services between the incumbent provider’s system and new 

entrant’s system, to ensure seamless provision of services to our citizens. 

Time Limits for Negotiations 

Local governments have experienced just as much frustration as many in the industry with regard to the time consumed by franchise negotiations. While it is easy 

to claim that local governments are the cause for delay, let me assure you that the 

industry is at least equally to blame for not pursuing negotiations in a timely and 

efficient manner. Just as the industry would call upon local government to be under 

some time constraint for granting an agreement, so too should they be held to time 

frames for providing the necessary information on which a decision can be made and 

for responding to requests to negotiate in good faith. Otherwise, a time frame merely gives the applicant an incentive not to reach an agreement but to wait until the 

36

time frame expires. We do not believe that it is unreasonable to establish some time 

frames within which all parties should act, whether it is on an application for the 

grant of an initial franchise, for renewal, transfer or for grant of additional competitive franchises. But these obligations must apply to both sides and must be respectful of the principles of public notice and due process. Applicants must be required 

to negotiate in good faith rather than insisting on their own ‘‘form’’ agreement. No 

community should be forced to make a determination without permitting its citizens—your constituents—the opportunity to voice their opinion if that is the process 

that government has put into place for such matters. 

Network Neutrality 

While traditional cable operators under Title VI operate on closed platforms, the 

Act itself does not address the variety of services or content that may be provided 

over that platform. Recent press accounts have indicated that telephone company 

new entrants in the video marketplace also want to be able to control the ability 

of the end user to access information purchased over the network. Faster speeds for 

those who pay more; and faster access to those locations on the Internet for which 

the content provider has paid a higher price to the network owner. Local government believes that permitting such favoritism and content control by a network 

owner is bad for the end user, bad for business and bad for the future of the Internet. To the extent that such issues need to be addressed within Title VI, we encourage the Committee to do so. 

Consumer Protection and Privacy 

The Communications Act has significant and meaningful consumer protection and 

privacy provisions. These are national rules with local enforcement and they include 

the ability of the local government to continue to enforce more stringent local consumer protection requirements. These rules must be extended to all video providers—to ensure that information on your personal choices of what you watch on 

whatever device you choose to receive your video signal on—is not being used in an 

impermissible or improper manner. 

Finally, we continue to support the ability of local governments and the citizens 

they serve to have self-determination of their communications needs and infrastructure. Title VI has always recognized our ability to do so in the video marketplace, 

and we hope that Congress will continue to agree that such should be the case regardless of the services delivered over the network. Where markets fail or providers 

refuse, local governments must have the ability to ensure that all of our citizens 

are served, even when it means that we have to do it ourselves. 

Conclusion 

In the rush to embrace technological innovation, and to enhance the entry of new 

competitors into the market, it is still the responsibility of local government to ensure that the citizens of our communities are protected and public resources are preserved. We value the deliberative processes, such as this hearing today, to be sure 

that we are accumulating verifiable data and are making informed decisions. Local 

control and oversight has served us well in the past and should not be tossed out 

simply as the ‘‘old way.’’ This year, as the discussion of the delivery of new products 

and services over the new technology platforms includes not just video but new and 

enhanced video products and other potential services, I strongly encourage this 

Committee to proceed deliberately. The Committee should continue its excellent 

work of accumulating information and ensuring a strong record in support of any 

decisions to change the law. 

Thank you. I look forward to answering any questions you may have.

The CHAIRMAN. Thank you very much. Our next witness is Brad 

Evans, the Chief Executive Officer at Cavalier Telephone in Richmond, Virginia. 

STATEMENT OF BRAD EVANS, CHIEF EXECUTIVE OFFICER, 

CAVALIER TELEPHONE 

Mr. EVANS. Thank you, Mr. Chairman. We appreciate the opportunity to testify here today. 

Cavalier Telephone is a competitive local exchange telephone 

company. We’re headquartered in Richmond, Virginia. We provide 

local, long distance and broadband services over 207,000 residential 

37

and 173,000 commercial telephone lines from Virginia to Southern 

New Jersey. 

We are the success story of the 1996 Telecom Act. Unlike many 

other competitors, Cavalier has embraced the residential market 

and is adding 15,000 new residential customers each month. Our 

high-speed Internet access is second to none. Cavalier began in Virginia in 1999, and since that humble beginning, we have to grown 

to revenues of $290 million, and we are profitable. We have made 

significant capital investments, and we now own one of the largest 

fiber networks on the East Coast. 

The 1996 Telecom Act permits Cavalier to interconnect its network with Verizon and enables Cavalier to access customers 

through the leasings of Verizon’s local loops covering the so-called 

last mile. The preservation of access to unbundled loops is a primary importance to Cavalier and all other competitive providers. 

The reason I am here today is to describe to you a new technological innovation that will revolutionize how consumers obtain and 

pay for cable TV service and how current laws may impede the deployment of this service. 

Cavalier is an industry pioneer and is preparing to launch a competitive TV service in Richmond, Virginia. The TV service dubbed 

IPTV utilizes MPEG–4 video compression, and we can deliver 150 

channels over our existing DSL broadband network. This service 

has a crystal-clear digital picture quality. It has an interactive programming guide and all sets will have access to video-on-demand 

and other advanced features. 

Cavalier’s ‘‘triple play’’ will offer consumers video, local telephone 

service and high-speed broadband at a significant savings. 

The Cavalier TV network will reach out to approximately 2 million potential customers in the markets of Philadelphia, Baltimore, 

Wilmington, Washington, D.C., Richmond and Virginia Beach. We 

are not digging up the streets, nor are we trenching on consumers’ 

property. We can stream our TV signal over the existing copperbased DSL network. If you can get a Cavalier high-speed interconnection, then you can get Cavalier TV. 

A unique aspect of our service is that it runs over existing telephony infrastructure. Our TV service will have greater availability for the condensed inner-city residents, even more so than 

the suburban residents. 

But the real beauty of our technology is that it is readily 

deployable, and it can be easily adapted into small-town rural communities. Already, small, rural telephone companies are asking 

Cavalier to provide IPTV video feeds. With video, rural telephone 

companies will finally have an economically feasible way to expand 

their broadband footprint. 

However, customers will not realize these savings unless new 

laws are passed to facilitate its introduction. In our service areas, 

there are hundreds of governmental agencies that would govern TV 

franchise authority. I personally believe it would be impossible to 

reach agreement with many of these municipalities absent any 

overarching framework. The time, energy and expense would stall 

our deployment and could result in Cavalier being forced to simply 

forgo service in several communities. 

38

We therefore urge you to adopt legislation that would provide a 

new framework for competitive entry. First, franchise authority 

should be granted on a statewide basis. Second, the application 

process should promote ease of entry. Third, we support current 

governmental franchise revenues, and we support public channels 

being placed on our network. Fourth, copper-based IPTV providers 

should be exempt from any requirements for a mandatory buildout. 

A legislative model that adopts these concepts would ensure a 

rapid deployment, not only by Cavalier, but by many small, rural 

telephone companies and other competitive providers all across the 

country. We have seen how competition works in the telecommunications market. It is now time to launch competition into the TV 

business. 

Mr. Chairman and Members of the Committee, thank you again 

for this opportunity. 

[The prepared statement of Mr. Evans follows:]

PREPARED STATEMENT OF BRAD EVANS, CHIEF EXECUTIVE OFFICER, CAVALIER

TELEPHONE

Mr. Chairman and Members of the Committee, I am Brad Evans, Chief Executive 

Officer of Cavalier Telephone. We appreciate the opportunity to testify here today 

before this Committee. 

Cavalier Telephone is a competitive local exchange telephone company 

headquartered in Richmond, Virginia. We provide local, long distance, and 

broadband services over 207,000 residential and 173,000 commercial telephone lines 

from Virginia to Southern New Jersey. 

We are a success story of the 1996 Telecom Act. Unlike many other competitors, 

Cavalier has embraced the residential market and is adding 15,000 new customers 

each month. Our high-speed Internet access is second to none. Cavalier initiated 

services in Virginia in 1999 and since that humble beginning, has grown to a company with $290 million in revenues and is profitable. We have made significant capital investments and now own one of the largest fiber optic networks on the East 

Coast. 

The 1996 Telecom Act permits Cavalier to interconnect its network with Verizon, 

and enables Cavalier to access customers through the leasing of Verizon’s local loops 

covering the so-called last mile. The preservation of access to unbundled loops is of 

primary importance to Cavalier and other competitive providers. Due to the fact 

that we use our own facilities and control our own telephone infrastructure up to 

the last mile, we are able to bring new and innovative services to our customers 

at considerable savings. I am here today, to describe to you a new technological innovation that will revolutionize how consumers obtain and pay for TV services and 

how current laws may impede the deployment of this service unless the Federal 

Government acts to preclude that circumstance. 

Cavalier is an industry pioneer and is preparing to launch a competitive TV service in Richmond, Virginia. The TV service is dubbed ‘‘IPTV’’, and utilizes MPEG–

4 video compression to deliver over 150 channels over Cavalier’s existing DSL network. This service will have clear digital picture quality, interactive programming 

guide, and all sets will have access to video-on-demand and other advanced features. 

Cavalier will offer consumers 150 video and music channels, local telephone service, 

and high-speed broadband at a savings to consumers compared to current alternatives. 

The Cavalier TV network will reach out to approximately 2 million potential customers, in the major markets of Philadelphia, Baltimore, Wilmington, Washington, 

D.C., Richmond, and Virginia Beach. Cavalier TV service will run over the existing 

copper-based broadband network. We are not digging up the streets, nor trenching 

on any consumers’ property. We can stream our TV signal over the existing DSL 

network. If you can get a Cavalier high-speed interconnection, then you can get Cavalier TV. 

A unique aspect of our service is that it runs over existing telephony infrastructure, and consequently the older neighborhoods which are served by copper wires 

will be eligible for our service. Our TV service will have greater availability for the 

condensed inner-city residents than suburban residents. 

39

But the beauty of the technology is that it is readily deployable, and can easily 

be adapted to small town rural communities. Already, small rural telephone companies are asking Cavalier to provide IPTV video feeds. With video, rural telephone 

companies will finally have an economically feasible way to expand their broadband 

footprint. 

However, customers will not realize these savings, unless new laws are passed to 

facilitate its introduction. Today Cavalier is faced with a patchwork franchise process, governed by individual communities and/or counties. In our service areas, there 

are hundreds of governmental agencies that would govern TV franchise authority. 

Under current law, every local governing authority exercises their own discretion, 

towards creating a framework for TV services. I believe that it would be impossible 

to reach agreement with many of the municipalities, absent any overarching framework. The time, energy, and expense would stall our deployment, and could result 

in Cavalier being forced to simply forgo service in several given communities. Competition and competitive choice should not be held back. Consumers should be able 

to obtain significant cost savings in their cable TV bill as soon as is practicable. 

Cavalier hopes to deploy its IPTV service throughout all its service areas by the 

end of the 3rd quarter of this year. That means that the major metropolitan areas 

from Virginia, along the east coast, up to southern New Jersey will be relieved from 

the stranglehold of the current cable TV providers. Consumers stand to gain considerably. But this technology has to be fostered. We therefore urge you to adopt legislation that would provide a new framework for competitive entry:

1. Franchise authority should be granted on a state-wide basis.

2. The application process should promote ease of entry.

3. Current governmental revenues, public channels should be sustained.

4. Copper-based IPTV providers should be exempt from any requirements for 

a mandatory buildout. A buildout requirement would make IPTV investments 

totally unfeasible.

A legislative model that adopts these concepts would ensure a rapid deployment 

of this technology, and promote consumer choice and lower prices. We have seen 

how competition worked in the telecommunications market; it is now time to launch 

competition into the TV business, for more choice, customized services, and lower 

prices. 

Mr. Chairman and Members of the Committee, thank you again for this opportunity to share our views with you. We look forward to working with you in any 

way we are able to help craft effective legislation.

The CHAIRMAN. Thank you very much, Mr. Evans. Our next witness is Anthony Riddle, Executive Director for the Alliance for 

Community Media. Thank you. 

STATEMENT OF ANTHONY T. RIDDLE, EXECUTIVE DIRECTOR, 

ALLIANCE FOR COMMUNITY MEDIA 

Mr. RIDDLE. Thank you, Chairman Stevens, Senator Inouye and 

Members of the Committee. I previously served as Executive Director of Public Access Centers in Atlanta, Minneapolis and New 

York. I am here to testify on behalf of a national membership organization which has for 30 years represented 3,000 public, educational and government access television centers across the country. Local PEG programmers produce more than 20,000 hours of 

new programs per week, more new programs than all of the broadcast networks combined. 

We urge you to construct bills that will protect the future of PEG 

access. On the wider issues of franchising, we support the testimony of Lori Panzino-Tillery on behalf of local government organizations. 

In 1994, I visited post-Glasnost Russia as a member of former 

President Carter’s Commission on Radio and Television Autonomy 

and the Former Soviet States. The Commission included many industry leaders and, notably, Chairman Stevens. The Alliance for 

40

Community Media played a small, though distinct and important 

role. I shared with the former Soviets the American notion that a 

free people must defend the ability to communicate openly with 

each other and must have the means to both hear and speak to 

their freely elected government. 

They easily understood what we in the U.S. often take for granted. I asked what was the major problem with Communism. With 

a knowing twinkle, I was told all of the radio and television signals 

ran through a single switch on one man’s desk at the Politburo. 

To secure diversity of voices required in a Democratic society, we 

must support a free-standing, independent space for public dialogue. Congress did that by creating PEG facilities with financial 

support and placing them under the stewardship of local franchising authorities. What has blossomed in the past 30 years is a 

vital local communications resource that reinforces the unique 

character of thousands of cities, towns and hamlets across America. 

Examples of PEG programming: 

Montana: Missoula Community Access Television trains at-risk 

students at the Willard School, an alternative school, a last-chance 

effort to keep troubled kids in school and in the system. According 

to one long-time media arts teacher, the program transforms a 

school celebration into a community celebration. 

New Jersey: County governments and PEG developed an emergency public notification system using over 150 stations across the 

state. Emergency command centers in mobile disaster units communicate with affected communities via PEG stations. This system 

will help keep the public informed and safe in the event of emergency. 

Southern Oregon: Rogue Valley Television serves four cities and 

three counties. Since 1999, the Medford Police Department has produced a monthly live call-in program on traffic and pedestrian safety, ‘‘Rules of the Road.’’ They use institutional network fiber and 

equipment purchased with PEG funds to reach homes in Medford, 

Eagle Point and Jackson County. PEG binds these communities as 

one. 

Bismarck, North Dakota: Inmates at the State Penitentiary feel 

they have a powerful message to share, one which would help in 

rampant methamphetamine use. Community Access Television produced an inmate-hosted program. Inmates asked tough questions of 

each other. ‘‘How do you explain to your daughter that you chose 

meth over her? ’’ Hardened inmates broke down on camera. 

Honolulu: Palolo works with at-risk youth. They learn job skills 

for the future. They tell positive stories about their communities. 

The youth are uplifted as they share positive images of Palolo, 

Kalihi and Mayor Wright Housing, not normally seen on 6 o’clock 

news. These young people feel the power of local television, and 

they take responsibility for their community. 

PEG access is only possible if there is adequate funding. The 

overwhelming majority of PEG funding comes from three sources: 

One, a portion of the 5-percent cable franchise fee contributed to 

PEG by the LFA; Two, monetary and in-kind support for PEG capital facilities from the cable operator above the 5-percent; and 

three, grant agreements with cable operators for direct support of 

PEG operating expenses. The combined elimination of PEG grants 

41

and the reduction of franchise fee revenue would mean catastrophic 

funding reductions for PEG communities across the Nation. 

The Alliance opposes any funding regimen that would reduce 

PEG funding resources and supports designating PEG funding 

above the 5 percent franchise fee. PEG capacity must not be tied 

to decades-old levels. Public bandwidth must reflect current technology use and system size. 

Under The Cable Act, the number of channels for PEG use is determined by each local community based on its particular needs. 

LFAs can reassess these needs periodically and may reasonably increase the channel capacity for PEG. Meaningful use of PEG typically grows over time as does the system capacity. The public must 

not be frozen out of technical change or system growth. We embrace competition. We are interested in affecting the way that that 

competition affects the public interest. 

We applaud the principles advanced by Senators Burns and 

Inouye as an indication that this process that we’re going through 

now is ongoing and changing. Public good and public business are 

not terms of contradiction. Across our Nation, consumers are also 

citizens and active participants in society through the use of public, 

educational and government access. 

We ask that you preserve the only true genuine form of localism 

and diversity in television, preserve the stewardship role that only 

local governments can fill. We ask that you include the Alliance as 

an active partner in drafting legislation. Thank you very much for 

hearing us, and we invite your questions and comments. 

[The prepared statement of Mr. Riddle follows:]

PREPARED STATEMENT OF ANTHONY T. RIDDLE, EXECUTIVE DIRECTOR, ALLIANCE FOR

COMMUNITY MEDIA

Good morning, Chairman Stevens, Senator Inouye and Members of the Committee. I am Anthony Riddle, Executive Director of the Alliance for Community 

Media. I previously served as the Executive Director of the Public Access Centers 

in Atlanta, Minneapolis and Manhattan, New York. I want to thank Chairman Stevens for inviting me to testify today on behalf of the Alliance for Community Media, 

a national membership organization representing 3,000 public, educational and governmental (PEG) cable television access centers across the Nation. Those centers include 1.2 million volunteers and 250,000 community groups and organizations that 

provide PEG Access television programming in local communities across the United 

States. Local PEG programmers produce 20,000 hours of new programs per week—

that’s more new programming than all of the broadcast networks combined. As reported in the New York Times on November 9, 2005:

‘‘For every hour of ‘Desperate Housewives’ on ABC, the Nation’s 3,000 publicaccess television channels present dozens of hours of local school board meetings, Little League games and religious services.’’

The Center for Creative Voices released a report last Fall that shows that as large 

group owners control more local broadcast stations in a market, local programming 

disappears, replaced by nationally produced programs that seek to draw larger audiences through more inflammatory material. Media consolidation furthers this trend. 

The report found that locally controlled programming is more responsive to community needs. 

Congress has traditionally recognized the need to foster localism in communications. At a time when studies show that less than one-half of 1 percent of programming on commercial television is local public affairs, PEG centers serve the people 

in your home town, city, and district. 

We urge you to oppose proposed bills that would directly and substantially threaten the future of PEG programming throughout the Nation. My testimony focuses 

largely on values that would most directly impact PEG funding and capacity. On 

42

1 47 U.S.C. § 531. 

2 47 U.S.C. § 542(g)(2)(C). 

3See, 47 U.S.C. § § 546(a)(4)(B) and 546(c)(1)(d). 

the wider issues of franchising we support the testimony of Lori Panzino-Tillery on 

behalf of local government organizations. 

As Chair of the Alliance, I had the opportunity in 1994 to visit post-Glasnost Russia as a member of former President Carter’s Commission on Radio and Television 

Autonomy in the Former Soviet States. The Commission included many industry 

leaders and, notably, Chairman Stevens. The Alliance for Community Media played 

a small, though distinct and meaningful, role on the Commission: I shared with the 

former Soviets the American notion that a free people, in order to remain free, must 

have the ability to communicate openly with each other, must have the means to 

both receive and send information to their freely elected government, and must vigilantly defend the need for open and accessible networks. 

Their eyes lit up immediately with recognition. Having then recently emerged 

from the tight control of Communism they easily understood what we in the U.S. 

often take for granted. Across the gulf that separated us, I asked one, ‘‘What was 

the major problem with Communism?’’ With a knowing twinkle in his eye, he told 

me, ‘‘All of the radio and television signals ran through a single switch on one man’s 

desk at the Politburo.’’

It seems a hundred years since the collapse of the Soviet Empire. The reality is 

that we were already working at that time on what became the 1996 Telecommunications Act. It was not so long ago. 

The best way to secure the diversity of voices required of a Democratic society is 

to create and support a free-standing, independent space for public dialogue. Congress did just that by providing for PEG facilities with financial support and placing 

them under the stewardship of local franchising authorities. What has blossomed in 

the past 30 years is a vital local communications resource that reflects the unique 

character of the thousands of cities, towns and hamlets which it serves. 

I. PEG Programming—the Last Redoubt of Local Character. 

The Federal Cable Act authorizes local franchising authorities to require cable operators to set aside capacity on their systems for PEG use, 1 and to require cable 

operators to provide, over and above the 5 percent cable franchise fee, funds for 

PEG capital equipment and facilities. 2 The amount of PEG capacity that is set aside 

on a particular system, as well as the level of funding provided by the cable operator, is locally determined, based on each community’s determination of its own particular cable-related community needs and interests. 3

The PEG provisions of the Cable Act are intended to provide all members of a 

community with access to the medium of television. Indeed, PEG is the only way 

that average citizens and community groups can interact in their communities via 

television. Particularly in this era of mass media consolidation, PEG Access ensures 

that locally-produced programming, of interest to and tailored to the particular local 

needs of the community, has an outlet on television. 

PEG Access has served that purpose exceedingly well. Among other things, PEG 

provides:

• The only unmediated coverage Congress Members receive in the home district. 

Many members of Congress use Public Access channels to communicate directly 

with their constituents. PEG is often one of the only media outlets in a locality 

providing regular political and civic programming to local residents.

• Church Outreach—Religious programming represents 20–40 percent of programming at most Public Access centers. For the shut-in and infirm, this is 

often the only means by which they can participate in local services.

• Coverage of local cultural activities, particularly in smaller communities that do 

not receive commercial media attention. Examples include coverage of local historical, art and music events.

• The ability to maintain the local cultural identities of our towns, cities and 

counties. Examples include coverage of local high school football games, local parades and other civic events.

• Local Governmental Programming—Coverage of city/town/county council meetings, and local police, fire, and public safety programming.

• Local Education Programming—Cablecast of public school and local college educational programming.

43

• Technical training and jobs.—PEG centers provide vocational training in television camera and production work for local residents and nonprofit groups that 

would otherwise have little to no access to media tools and education.

• News for military families—Army Newswatch is the most-syndicated program 

on PEG channels, with carriage on over 300 PEG channels nationwide.

Let us provide you with some typical local examples from around the country: 

Ann Arbor, Michigan—At Community Television Network, the Public Access center created a program in partnership with National Kidney Foundation focused on 

the risks of kidney disease among African-American men and women. African-Americans are seven times more likely to get kidney disease compared to white Americans. The award winning program has been cablecast on PEG channels throughout 

the state of Michigan. 

Austin, Texas—Founded in 1972 by college students, Austin Community Television has been instrumental in the recognition of as the live music capital of the 

Nation. Tejano music was little known outside the small Latin clubs in Austin until 

producers Isidoro Lopez and Jerry Avala began their Public Access television show. 

Lopez, 67 years old, disabled and full of energy. His show fully involves the Hispanic community, including bands, local businesses and volunteers. Isidoro says, 

‘‘Without the Public Access Channels, no one would have known about this kind of 

music. The public greatly enjoys this service and wouldn’t find it anywhere else.’’

More recently, with the influx of Hurricane Katrina survivors into Austin, many 

have found their voices on ACTV—and they say they have found a home. 

New Jersey—PEG stations are working with county governments to incorporate 

emergency public notification via the 150+ stations throughout the state. The system will allow communication from any emergency command location or mobile disaster unit to the communities affected via PEG stations. This system will have the 

ability to interrupt programming instantly with text notices that include health hazard notifications, aid station locations, and evacuation instructions. Using PEG stations, this system will help to keep the public informed and safe in the event of any 

emergencies—from a local level crisis to support of national disaster relief organizations. 

Missoula, Montana—Missoula Community Access Television provides training to 

over 60 at-risk students at Willard School, an alternative school that is the final 

attempt to keep troubled kids in school and in the system. The TV class helps students connect to school, to each other and to the community. According to Gwenn 

Hoppe, long-time media arts teacher, ‘‘Having a local communication channel is 

such a blessing for my kids, who especially need to feel included in the community. 

The TV show we make profiles every senior student’s courage in making it through 

the program. It changes a school celebration into a community celebration and the 

psychological effect on the seniors, and the students struggling to stay in school is 

positive, permanent and priceless.’’

Olympia, Washington—Cherie Tessier is a 51 year-old, developmentally disabled 

woman who, for the past 16 years, has produced Public Access television programs 

at Thurston Community Television. Her show advocates for the rights of the disabled, educates the community about disability issues, and engages elected officials. 

Physically and developmentally challenged people participate to tell their stories, 

dispel myths about disabilities, and discuss public policy. Without the media tools, 

training, and channels provided by Thurston Community Television, Cherie’s message would be heard by very few people. There is no other form of media that Cherie 

could afford to use that would provide her with access to this large an audience. 

When asked one day why she worked so hard to make her programs, her answer 

was simple, ‘‘Because I’ve learned to speak for myself, and this is what I want other 

disabled people to learn, too.’’

Chicago, Illinois—During the 2004 election season, Chicago Access Network Television (CAN TV) ran 160 hours of local election coverage, including information on 

candidates for presidential, senatorial, congressional, and local judicial elections, as 

well as in-depth interviews by The Illinois Channel with state district candidates. 

CAN TV devotes its resources to local programming with an annual budget that 

wouldn’t buy a single thirty second commercial during the Super Bowl. Those modest resources can be put at risk by adverse legislation. In an earlier article on CAN 

TV’s election coverage, the Chicago Tribune reported that, ‘‘Chicago’s five access 

channels bring no small measure of serious politics, especially involving those largely 

shut out heretofore from mainstream commercial media, including blacks, Hispanics, 

and, of course, Republicans.’’ (We are talking about Chicago.) 

Cincinnati and Hamilton County, Ohio—Media Bridges cablecasts more than 

15,000 hours of local programming produced by and for greater Cincinnatians by organizations like the Contemporary Arts Center, the Lifecenter Organ Donor NetVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
44

work, and Literacy Network of Greater Cincinnati, as well as better than 80 area 

religious organizations. According to a 2003 study, the 96 cents per subscriber per 

month in PEG Access support providing the majority of Media Bridges’ financial 

support is multiplied almost seven times to provide an economic impact in greater 

Cincinnati of more than $5.3 million per year. Loss of this support would hurt more 

than just the PEG community in Cincinnati. 

Knoxville, Tennessee—Community Television of (CTV), has served the residents of 

Knoxville and Knox County for 30 years. For only $24 per year, the typical volunteer community producer at CTV receives training and unlimited use of PEG equipment (including cameras, studios, and editing equipment) to produce and air their 

own television programs. There is no other means by which community residents 

can find such an inexpensive way to effectively reach 110,000 community households with information pertaining to local issues, local resources and matters of interest to them, from support for victims of Alzheimer’s disease and their families, 

to foster care, law enforcement, and youth recreation. 

Cambridge, Massachusetts—Every week, Cambridge Community Television 

(CCTV) produces 50.5 hours of live programs on its BeLive set—shows that include 

Crime Time produced by the Public Information Officer of the Cambridge Police Department, Bed Time Stories, Muslims Inside and Out, Local Heroes and two smoking programs, one against, and one for smokers’ rights. Even though Cambridge is 

a city of over 100,000 residents, it is in the shadow of the Boston media market, 

and the commercial television stations and daily newspapers consequently do not 

cover the local elections. As a result, CCTV’s election programming is the only place 

that residents can tune in to learn more about local candidates. 

Southern Oregon—Rogue Valley TV is the PEG Access organization for four cities 

and three counties. Since 1999, the Medford Police Department has produced Rules 

of the Road, a monthly, one-hour live call-in program about traffic and pedestrian 

laws. The police average 30 phone calls per show as Medford residents jam phone 

lines waiting to talk with their local police officers. Without use of institutional network fiber and equipment purchased with PEG funds, the program would never 

reach homes in Medford, Eagle Point and Jackson County, and the phones would 

be silent. 

Bismarck, North Dakota—Inmates at the State Penitentiary called CAT Channel 

12 for help. They had watched, recognized the power of television and felt that they 

had a unique, powerful first-hand message to share—one which could help to stop 

methamphetamine use. They needed help in making getting the message out. Community Access Television (CAT) stepped up to work with the inmates. Programs 

were taped in the penitentiary treatment facility, an area that overflowed due to 

the drug crisis. 

An inmate hosted the program, asking tough questions of fellow inmates: ‘‘What 

would you tell your daughter now—why would you choose meth over her? ’’ And, 

‘‘What would you tell your dead mother about why you robbed her? ’’ Life hardened 

inmates sobbed. 

Local schools and churches, the State Attorney General’s Office and groups from 

Fargo all called for copies of this program which had been both televised and 

streamed on the Internet. Senator Conrad’s office contacted CAT for further information. The inmate host of the program, now in a half-way house, says ‘‘If only one 

person quits or doesn’t use methamphetamine, the time to make this program was 

worth it.’’

In a different vein, Tucson, Arizona’s Correction is a documentary that compares 

the training correctional officers receive with their real-life experiences inside prison. Four people seen negotiating the Arizona Department of Corrections’ seven-week 

training academy reveal that officers, inmates and the correctional system itself are 

caught between the contradictory imperatives of security, justice, punishment and 

the economic realities of state government. Media-maker and University of Arizona 

Associate Professor Michael Mulcahy is working to break stereotypes found in most 

movies and television by using the experiences and perspectives of actual corrections 

officers. He says, ‘‘What I saw in prison was nothing like those movies. I saw something that was incredibly complex and incredibly difficult, incredibly ambiguous.’’

Albuquerque, New Mexico—As an example of the diversity which can be found in 

even one PEG center, Sandia Prep School recently sent 30 students through 

Quote... Unquote’s Public Access orientation class as this highly rated academy 

began its third year of television production. One student producer used this experience to win a scholarship to a top college. For four years Quote... Unquote

cablecasts the Catholic Archdiocese of Santa Fe’s daily lunch mass for shut-ins to 

pray The Rosary. It also cablecasts Gun Club of New Mexico, a firearms collector 

NRA program produced locally by volunteers. 

45

The examples mentioned so far have dealt with a wide variety of people, organizations, educational institutions, and local governments that have used PEG access to 

create and distribute local programming. However, it is important to note that there 

is also great interest in viewing locally created PEG programming. Over the past 

ten years, an independent research firm has surveyed cable television subscribers 

in 38 different communities throughout the Nation, with populations ranging from 

less than 10,000 to over a million residents. Respondents to these surveys were 

asked how important they felt it was to have PEG channels on their cable system 

for use by local community groups, educational institutions, and public agencies. 74 

percent of the survey respondents in these diverse communities said that having 

these channels available was ‘’very important’’ or ‘‘important’’ to them. 

PEG demonstrates through action that we can, indeed, all find a way to live together—and that all of us are better for it.

II. PEG Access Is Only Possible If There Are Adequate Funds to Support 

Community Use. 

The overwhelming majority of PEG funding comes from two sources: (1) monetary 

and in kind support for PEG capital facilities and equipment from the cable operator over and above the 5 percent cable franchise fee that is required by the local 

franchise agreement; and (2) contributions by the local franchising authority of a 

portion of the 5 percent cable franchise fee to PEG. 

At Manhattan Neighborhood Network (MNN), our operating support came 

through an appendix to the franchise agreement negotiated directly with Time Warner Cable that provided for both operating and capital support. The operating support was paid directly to MNN by Time Warner quarterly and was less than 1 percent above franchise fees, or around 60 cents per sub per month. The capital support 

was paid annually at 50 cents per subscriber. Thus, the combined public access support payments averaged about 64 cents per subscriber per month. In a system of 

500,000+ subscribers, this percentage provides adequate support for service to the 

community. In a system of 50,000, a different formula would certainly be necessary. 

In other places, such as Kalamazoo, MI for example, PEG funding comes from 

both a portion of the franchise fee and from the cable company. The Access Center 

receives 35 cents/month/subscriber for PEG support and, in addition, the communities contribute 40 percent of their franchise fees. In Cincinnati and Hamilton 

County, Ohio, the Access Center receives 96 cents/subscriber/month in PEG support 

from the cable operator as required by the local franchise agreement. 

We would oppose any funding regimen that would eliminate and/or substantially 

reduce either of those sources of funds to support PEG. 

A. The Loss of PEG Capital Support Obligations 

The Cable Act allows local franchising authorities to require a cable operator to 

provide PEG Access capital facilities and equipment funding over and above the 5 

percent franchise fee. We believe it is important to maintain this support mechanism. It is important that any new bill include provisions that allow municipalities 

to require that broadband video service providers fund PEG Access production facilities and equipment at rates comparable to those of incumbent cable operators. Otherwise, over time, the incumbent cable operators would no longer provide such PEG 

support, as they would no doubt refuse to continue to incur a cost not incurred by 

its broadband video service provider competition. Alternatively, the incumbent cable 

operator might eventually transform itself into a broadband video service provider, 

thereby freeing itself directly from its PEG support obligations. The Alliance for 

Community Media requests elimination of the provision in current cable law which 

restricts use of funds above the 5 percent franchise fees so that those funds may 

be used for both capital and operational support, as determined locally. 

B. A Reduced Franchise Fee Revenue Base Would Reduce Local Franchising Authority Financial Support for PEG. 

Much of the language being proposed restricts the ‘‘gross revenue’’ base for the 

5 percent franchise fee to revenue collected from subscribers. As a result, non-subscriber revenues, from sources such as advertising and home shopping channels, 

would be excluded from the franchise fee revenue base. That would represent anywhere from a 10 percent to 15 percent reduction in the franchise fees that local governments currently receive under the Cable Act. And non-subscriber revenues—especially advertising revenues—are one of the fastest growing revenue streams in the 

current cable franchise fee revenue base. In communities in which the local government contributes a portion of its franchise fee revenues to fund PEG Access operations, the reduced franchise fees would result in a substantial reduction in the 

funds that PEG Access centers currently receive from cable franchise fees. 

46

The combined elimination of PEG grants and the substantial reduction of franchise fee revenue available for PEG use would result in a funding reduction for PEG 

Access that would be nothing short of catastrophic for many, if not most, PEG Access centers across the Nation. 

III. PEG Capacity, If Tied Permanently to Current Levels, Would Deprive 

Communities of the Ability to Adapt to Changing, and Often Growing, 

Community Needs. 

Under the Cable Act, the number of channels set aside for PEG use is determined 

individually by each local community based on its particular PEG needs and interests. Perhaps more importantly for the discussion here, the current Cable Act allows 

local communities, through the cable franchise renewal process, to reassess their 

PEG needs periodically, and to increase the channel capacity set aside for PEG 

where demand warrants. 

As you might expect, the number of PEG channels set aside varies widely from 

community to community. This is precisely the sort of local self-determination and 

flexibility that one would expect—and that should be cherished—if the localism that 

PEG programming embodies is to survive. Some proposed bills, however, would 

short-circuit this process, capping PEG Access capacity at, or even below, current 

levels. This would mean that local communities would be locked into current PEG 

capacity limits—limits that may have been originally set by a franchise drafted even 

before the 1984 Cable Act. 

There is no reason to suppose that PEG capacity needs are static. In fact, those 

needs typically grow over time, as the local community’s interest in PEG programming grows, and the volume of PEG programming grows. Experience shows that 

system capacity has grown parallel to this need. 

Technical Comparability—PEG bandwidth provided in exchange for PROW use 

should to be handled on par with that of the highest commercial user, including that 

of the communications service provider. Municipal users must be allowed to make 

any technical use of PEG bandwidth they find useful and consistent with the capabilities of the system. 

Municipal users of bandwidth provided in exchange for PROW must be allowed 

equal access to electronic promotions and customer portals, such as menus or 

hyperlinks, and to interactive switching as other users, including the service provider. Any type of privileging of programmer access to customers clearly devalues 

the municipal bandwidth. 

IV. Related General Principles 

Ease of Negotiation for New Entrants—The fastest available means of entry is for 

new entrants to adopt agreements equivalent to those of the incumbent provider. 

Manhattan, New York where I managed the Public Access facility is easily one of 

the most complex negotiating environments in the Nation. There, RCN and the City 

worked out an OVS contract to mirror the existing Time Warner franchise in about 

nine months—including negotiation of equivalencies where duplicate obligations 

would have been redundant. This is but one of many instances demonstrating that 

new entrants can quickly enter existing markets if they are willing to match incumbent provider obligations. 

Local Authority—The municipalities should be free to use PROW fees as they feel 

appropriate, though some fees may be designated for communications needs. PEG 

operations are inexorably bound to the municipal owner of the PROW. The municipality should have the authority to determine how those needs are to be met with 

the resources available. 

Local Accountability—Audits and payments should remain at the municipal level. 

Local Enforcement—Regulatory authority for protecting PEG should be a function 

of the municipality, as should resolution of consumer complaints. We believe that 

the municipality should remain the first level of resolution and enforcement of PEG 

concerns. Local PEG centers are not adequately resourced to maintain a balanced 

relationship with large, national corporations. 

Local Design—Municipalities have the responsibility to design their use of 

commun-ications system as suits the needs of local citizens. 

Net Neutrality—Alliance members provide training and equipment not only in television production, but are often providers of first contact for new communications 

tools and methods. Access centers across the country were among the first to share 

the potentials of the Internet with community organizations, providing both computer labs and connectivity. Access centers were the first to stream channels fulltime. Similarly, PEG centers are providing exposure to and the skills and equipment 

needed for communities to use newer technologies such as peer-networking, videoblogging and podcasting. Our members have a direct interest in networks remaining 

47

neutral and open. Such openness not only assures a vibrant community conversation, but leaves room for the thousands of small entrepreneurs whose creativity 

forms the basis of American innovation. 

Technical Neutrality—The Alliance hopes that any new legislation will be technologically neutral. We would like to see all forms of video delivery located in the 

PROW subject to the same or equivalent public obligations. If they are not, then 

legislation will encourage development of technology based on diminishing public obligation rather than competition and innovation. This would launch a race to the 

bottom which would both harm the public interest and skew development. 

In addition, the Alliance can foresee a future in which video services could potentially migrate to the ‘‘info-data’’ section of the pipeline. The physical use of the 

PROW would not be changed. The delivery to the consumer would likely appear to 

be the same. However, the bandwidth and fees provided in exchange for use of the 

PROW would be diminished. Proposed legislation should be carefully constructed to 

avoid providing incentives which artificially interfere with market innovation. 

Citizenship and Access to Broadband Communications—As citizenship, education, 

commerce, government services and community become more intertwined with access to communications services, the Alliance upholds the need to make sure that 

all of us have access to those services. We don’t think that all homes will have or 

want the same services. We do, however, believe that any new legislation should anticipate inevitable market imbalances. Any new legislation should have tests for 

identifying those imbalances and concrete methods to remedy any resultant discrimination. To the degree that a community or section of a community is 

‘‘unreachable’’, the value of all of those working to provide PEG access is diminished. It is imperative for all people to have at least the opportunity to participate 

in the coming world of electronic democracy. 

Conclusion 

Across the Nation, PEG Access centers put television in the hands of the people, 

not as passive consumers, but as speakers and information providers—as citizens 

and other active participants in our society. 

The public good and good business are not terms of contradiction. We ask that 

as this Nation strikes out into this brave new world of competition and creativity, 

of wealth and opportunity, that you take the time to preserve the only truly genuine 

form of localism and diversity in the television medium—Public, Educational and 

Governmental Access. We ask that any legislation preserve the essential role that 

only local governments can fill. We ask that you recognize PEG as a central means 

of preserving the rich tapestry of local character even as these changes move us toward a homogenized national identity. 

What we ask of you is not asked for the purpose of our own enrichment. We ask 

out of love for a society and people that can be a beacon of freedom for all the people 

who will come after us. We ask that you include us active participants in the many 

discussions to come in the drafting of this legislation. The Alliance looks forward 

to working with you to create legislation that honors the founding principals of democracy by preserving a balanced communications environment for all people. 

On behalf of communities across the Nation, we thank you for the opportunity to 

speak to you today. I would be happy to answer any questions you may have.

The CHAIRMAN. Thank you very much. Our next witness is Gene 

Kimmelman, Vice President, Federal and International Affairs, 

Consumers Union, Washington, D.C. 

STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, 

FEDERAL AND INTERNATIONAL AFFAIRS, CONSUMERS UNION 

Mr. KIMMELMAN. Thank you, Mr. Chairman, Senator Inouye and 

Members of the Committee on behalf of Consumers Union, the 

print and online publisher of Consumer Reports. I appreciate the 

invitation. In coming before you now, for more than 20 years, this 

is truly a revolutionary moment where I get to agree with so many 

of the industries that I’ve had problems with in the past, and I do 

believe it is an appropriate time for you to be considering legislation. 

I want to just clarify why I think it’s time to move. You’ve heard 

a lot of numbers out here. It’s true what the phone companies say. 

48

Cable rates have virtually doubled in 10 years. But also, if you give 

cable credit for adding new channels, of course many of which are 

ones people don’t even watch, you find the government statistics 

show rates are up almost 21⁄2 times inflation, so you’ve seen numbers in the 50–60 percent range. That’s where that number comes 

from. And you often find the cable industry talking about price per 

channel because they add channels, which is legitimate. And you 

often hear the figure that where there are two wireline competitors, prices on a per channel basis are 15 percent lower for consumers. That’s what is most relevant to us. You get a clear savings 

where you bring in another major wire-based competitor. And unfortunately, with as much benefit as satellite has added to the market, it still is not disciplining cable prices. So, we do believe it’s 

time for you to move to advance competition with cable. 

It’s also interesting, in following this for 20 years, that many 

things don’t change, but need to be thought through as you consider legislation. The cities have, for many years, been fighting for 

all the principles you’ve heard articulated, but unfortunately, sometimes their view of stewardship is getting maximum revenue for 

the cities and not necessarily taking care of the local community 

needs, the local content, putting money into real programming, into 

doing the maximum wiring, into supporting all the local PEG access programming that is necessary. Yes, the cable companies are 

right. The phone companies did not enter the cable business quickly. But you know what? Cable companies didn’t enter the phone 

business very quickly either. And I’ve heard more praise of local 

franchising from the cable industry this morning than I have ever 

heard in 20 years. 

So, I would urge you to think of legislation from this perspective. 

If it’s true that this digital transition will lead to an explosion of 

providers out there of broadband, telephone, cable, 5–6–7 players, 

then you probably don’t need to worry at all about legislating. That 

truly would be a competitive market. But just assume for a moment we end up with only two major platforms, a telephone wire 

and a cable wire, each delivering telephony, data services, 

broadband access and all our video. What are the long-term policy 

needs for citizens of this country if that happens to be the case five 

to 10 years down the road? 

I would suggest many of the things you’ve pointed out this morning are critical. Affordable broadband for all citizens everywhere—

it’s critical to everything from health, education, business connections, family, and meeting basic needs. We need to make sure that 

those two providers, if there are only two, truly serve or provide 

financial support for broadband. And certainly, we should make 

sure that if there are only two, that as we enhance entry for one 

or the other, that we’re not blocking the rights of communities 

themselves to also offer services and possibly be a third player in 

the market. 

Consumers would also need, in that environment, to ensure that 

broadband and video is available to all or that each of the providers 

is making sure they’re paying to make it available to everyone in 

the community. If we only have two providers offering this big 

package, it’ll be hard for any new entrants to break in the market. 

We’ve seen how difficult it’s been to get competition in video and 

49

telephony. So, it’s critical to ensure that everyone can receive all 

of these important services and are supported by both major providers in the community. 

And don’t forget local content. It’s one thing to talk about PEG 

access, but I think we should go back to principles here. What is 

it we’re looking for? We want people in the community to get the 

financial support, to develop their talents and skills, to debate local 

issues, to present their views and content on television, to have 

websites, to really take advantage of local talent. 

And so, it’s not so much the name, whether it’s a leased access 

channel or a PEG channel and just saying we’ll do it for one company, we’ll do it for the other, we urge you to look carefully at what 

really gets local talent out there. And please understand the local 

conflicts. As long as local communities have an incentive to seek 

the maximum amount of money for the community itself, it will not 

always want to put that money into that local talent, into building 

out, to the libraries, to the schools, to the hospitals, to supporting 

the PEG access channels. 

So, we think it’s critically important that you think about how 

to serve these principles and not just the names that are there. 

And as you move toward a long-term goal here, a transition always 

requires some benefits to the new entrants. In the same way, when 

cable entered telephony, it was not appropriate to put a whole load 

of regulations on them. I think it’s appropriate to look at the telephone companies in the same way. However, they already have 

franchise rights. They already serve communities. There’s no reason why they shouldn’t be required to offer their video services to 

everyone in the community. 

We hope you’ll also look at the problem of bundled programming. 

Chairman Stevens, we appreciate your comments about the potential benefits of moving to a per channel pricing for consumers, 

which the FCC says could save consumers as much as 13 percent 

on their cable bills. We hope that will also be on the table as you 

consider legislation. Thank you. 

[The prepared statement of Mr. Kimmelman ollows:]

PREPARED STATEMENT OF GENE KIMMELMAN, VICE PRESIDENT, FEDERAL AND

INTERNATIONAL AFFAIRS, CONSUMERS UNION

Summary 

Consumers Union, 1 Consumer Federation of America, 2 and Free Press 3 appreciate the opportunity to testify on the issue of video franchising and competition in 

video services. We welcome the Committee’s interest in fostering greater consumer 

choice by promoting competition in the video marketplace. Over the last decade, consumers have suffered under monopolistic cable pricing that has resulted in a 64 percent increase in rates—approximately two and a half times the rate of inflation—

since Congress deregulated the cable industry in the 1996 Telecommunications Act. 

In addition to skyrocketing rates, consumers have virtually no choice of providers 

or channel offerings. Satellite television, the primary competitor to cable, has had 

virtually no price disciplining effect. 

The application of broadband technologies to subscription video services now offers the promise of competition and lower monthly cable bills. The central question 

before Congress is how best to accelerate this new competition while maintaining 

a strong commitment to local community needs, and universal availability of access 

as a condition of video franchising. The public policy goal must be to maximize, as 

rapidly as possible, the benefits of new technologies and competitive markets to 

every American household. 

Is the local franchising process a barrier for local telephone companies’ entry into 

local video markets? Do we need a Federal franchise? That is not at all clear. We 

50

urge the Committee to weigh the evidence in this debate—rather than the rhetoric—very carefully. The focus of any new policy must be primarily the conditions 

of local service in the video franchise and secondarily the process that can best 

achieve them. Before considering the idea of a Federal franchise, Congress must 

clarify precisely what local needs must be met and how to best protect legitimate 

local concerns. 

The establishment of a national franchising mechanism would bring with it substantial risks for local communities and consumers against which any real or perceived competitive benefits must be balanced. The existing local franchise negotiating process may merely delay, rather than impede, new entrants. The balance between facilitating competition and preserving community services may be achieved 

through a streamlined national franchising process or a streamlined local franchising process. The key component in either scheme must be the retention of substantive consumer protections and community obligations that local franchising authorities up to now have been able to negotiate. To maximize consumer benefits, 

Congress should address the process of franchising to provide for greater certainty 

and timely entry of new competitors, but it must maintain consumer protections and 

preserve the carrier obligations to ensure that all residents benefit from new competition. 

Unfortunately, national franchising proposals introduced to date do not strike 

that balance. Instead they provide a franchise exemption, retaining only minimal 

protections and requirements and providing equivalency with only some of the obligations of incumbent providers. Notably absent from these proposals is any requirement that new entrants provide their services to the entire franchise area, opening 

a wide door to economic and ethnic discrimination (‘‘redlining’’) and closing the door 

to rate relief for those families who most need it and who have largely been left 

on the wrong side of the digital divide. 

Should Congress move forward to address video franchising issues, we respectfully urge you to maintain the substantive protections and providers’ obligations to 

the local community regardless of where the power to offer the franchise is located. 

Any franchising model must include strong protections for consumers and communities that include:

• Requirements to provide service to all customers within the entire local franchising area, or in lieu thereof, requirements that new entrants provide significant financial resources to the locality to improve access to affordable 

broadband technologies for those not served;

• Requirements that consumer protection be provided locally to ensure that customers service and billing complaints are quickly and satisfactorily resolved;

• Complete protection of the locality’s right to manage and be fairly compensated 

for use of the public rights-of-way;

• Minimum requirements to ensure providers are truly supporting local needs, including the provision of both capacity and resources for local access channels 

with independent programming that reflects the diversity of the community, 

and broadband networks serving schools, libraries, hospitals and governmental 

facilities (I-Nets).

In addition, it is essential that localities retain their right, subject to local democratic processes, to provide broadband communications services. Ironically, the Bell 

companies who demand new regulations to facilitate their competitive entrance into 

the video market seek to foreclose competition in broadband from local governments 

and their private sector partners. A Federal elimination of state limitations on local 

community broadband networks would end the practice of constraining local choices 

and the rights of localities. However, a policy permitting community broadband is 

not sufficient to address redlining concerns. Simply giving permission to localities 

to establish a broadband network does little to help low-income and rural communities provide service to underserved residents when those communities have few 

resources to do so. The inequities of redlining can only be redressed through universal build-out of like services. In the absence of requirements to provide service 

to the entire franchise area, providers must also be obligated to provide financial 

resources to allow communities to meet the communications needs of the underserved through community broadband networks. 

Even with protective and uniform national standards and a streamlined franchising process, in order for true price competition to emerge in multichannel video 

markets, Congress must address anti-consumer bundling and anti-competitive tying 

requirements imposed by dominant media companies. Programming bundles serve 

the interests of the dominant broadcast networks and cable operators that own the 

lion’s share of cable programming. They impose these bundles upon their subVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
51

scribers and smaller distributors in the all-or-nothing expanded basic tier. If Congress does not prohibit these bundling arrangements and the coercive retransmission consent negotiations that often accompany them, new video entrants will 

have limited ability to compete with existing cable companies on both price and selection through greater channel choice and more diverse programming. 

Finally, in an era of technology convergence, it is essential that Congress enact 

strong, enforceable prohibitions on broadband network discrimination. The appearance of integrated video and broadband services, like franchised video over the 

Internet (IPTV), must not distract us from this fundamental point. The build-out of 

fiber optic IPTV networks will naturally involve costs for the new operators. There 

will be a temptation to recover these costs by precluding subscriber access to competitive video and broadband service offerings that consumers can only reach over 

the same line that brings them IPTV. As Congress considers easing the entrance 

of the Bell companies into video service, it must include strong, enforceable network 

neutrality policies required to protect consumers and preserve the Internet as a 

source of innovation and competition. Consumers, not network operators, should determine winners and losers in the online marketplace. 

Concentrated Video Markets Have Resulted in Skyrocketing Cable Bills 

The last decade has brought a dramatic increase in concentration and clustering 

of video systems. Mergers have been executed between the first, third and fourth 

largest companies, creating a single giant that towers over the industry, almost 

twice as large as the second largest cable operator. Regional markets have been 

drawn into huge clusters of systems. In a pending merger, the top two cable operators propose to devour the number seven cable company and sharply increase their 

control over regional markets. This regional clustering has increased sharply since 

1994, when less than one-third of cable subscribers were in clusters. 4 Today, the 

figure is over 80 percent. 5 Cable systems that are part of a larger national cable 

operator charge prices that are more than five percent higher than those of unaffiliated, independent distributors. 6

And while cable mergers abound, competition between cable systems is almost 

nonexistent; head-to-head competition is moribund. 7 Out of more than 3,000 cable 

systems, head-to-head competition exists in fewer than 200. In short, only about one 

percent of franchise territories have experienced head-to-head competition between 

cable companies. The failure of competition in multichannel video is most evident 

in local markets. Although facilities-based competitors target larger urban areas, 98 

percent of the homes passed by cable companies have a choice of just one facilitiesbased provider. 8

Competition from satellite television is weak as well. Cable’s dominance as the 

multichannel medium is overwhelming, with a subscribership of approximately twothirds of all TV households. Its penetration is about three times as high as satellite. 

Because a large number of satellite subscribers live in areas that are not served by 

cable, competition in geographic markets is even less vigorous than the national totals suggest. Cable has about four times the market share of satellite in areas where 

both are available. The Government Accountability Office has found that satellite 

television penetration, even with the addition of broadcast stations, has little or no 

impact on consumers’ monthly cable bills. 9

Consolidation in both distribution and programming has resulted in cable prices 

that have risen by more than 64 percent in the last ten years—approximately two 

and half times the rate of inflation as measured by the Consumer Price Index. 10

(Attachment 1) Last month, consumers across the country were treated to notices 

that their cable bills would be rising yet again. Cable rates went up by 7 percent 

in Seattle, Washington and Hartford Connecticut; by nearly 8 percent in Portsmouth, New Hampshire and St. Louis, Missouri; and by almost 9 percent in Deptford, New Jersey. (Attachment 2) 

Ensuring All Subscribers Enjoy the Benefits of Competition 

In the few areas where actual facilities based competition exists, consumers enjoy 

cable prices that are 15 percent lower than non-competitive markets. 11 This suggests that the entrance of the Bell operating companies into video distribution offers 

the promise of lower prices. But one of the great disappointments of the 1996 Telecommunications Act has been the failure of competition from alternative technologies to break down the market power of the incumbents. This track record urges 

skepticism about promises about future technologies that are ‘‘just around the corner,’’ which will break the grip of the cable monopoly. 

Skepticism is particularly warranted given statements made last year by thenSBC that it would roll out Project Lightspeed, the company’s IPTV video offering, 

to 90 percent of its high-value customers—those willing to spend up to $200 on comVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00055 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
52

munications services per month. These high-value customers make up just 25 percent of its subscriber base. SBC also contended it would provide the video service 

to just 5 percent of low value customers that constitute 35 percent of its customer 

base. 12 Assurances that ‘‘low-value customers’’ would still be able to receive satellite 

video through SBC’s affiliation with Dish Network ring hollow, given the failure of 

satellite to provide meaningful price discipline. Instead, SBC’s statements suggest 

that it might seek to offer services only in largely affluent franchise areas, disregarding franchise areas that are made up of lower or middle income communities. 

Anecdotal evidence suggests that Verizon is seeking franchise agreements and its 

FiOS service roll out in some of the wealthiest counties in the country. For example, 

Verizon has negotiated or signed franchise agreements to date with largely affluent 

local franchise areas—such as in Fairfax County, Va. (where it has four franchise 

agreements in place for Herndon, Fairfax County, Fairfax City and Falls Church); 

Howard County, Md.; Massepequa Park in Nassau County, N.Y.; Nyack and South 

Nyack, in Rockland County, N.Y.; and Woburn in Middlesex County, Mass. In terms 

of median family income, Fairfax County ranks number one nationally; Howard 

ranks fourth; Nassau 10th; Rockland 12th and Middlesex 17th. 13 New Jersey, in 

which Verizon is seeking a statewide franchise but resisting state-wide build-out requirements, is home to 12 of the top 100 richest counties in the Nation in terms 

of median family income. 

SBC’s lightly veiled admission of economic redlining and Verizon’s video franchising efforts to date raise two questions: First, will the new entrants enter only 

largely affluent franchise areas of the country that are densely populated? Second, 

if they enter mixed income franchise areas (those with both high and low income 

populations) will they build out service to all parts of the franchise area—even into 

rural segments? Verizon has committed to universal or nearly universal build-out 

in several of its franchise agreements. However, given the wealth of those areas, it 

reveals little as to whether the company will voluntarily build-out to all parts of a 

mixed-income franchise area, assuming it ever enters them. However, what those 

commitments do show is both that build-out has been important to those localities 

and that it need not be a barrier to the company’s entry. On the contrary, Verizon 

has quickly negotiated agreements that offer substantial community services and 

consumer protections. 

Many of these agreements provide for universal or near universal build-out to the 

entire franchise area, franchise fees upward of eight percent, requirements that customer service remain local, compliance with customer service standards and regular 

submission of reports on customer complaints and service outages, support for institutional networks, up to 19 public, educational and governmental channels with resources supporting them, and franchise revocation provisions for material violations 

of the agreement. 

These agreements, and the dozens more that Verizon is pursuing, also suggest 

that neither build-out nor the local franchising process need be a barrier to entry. 

AT&T’s failure to secure franchise agreements is not the result of the process; it 

is self imposed. The company has refused to concede that The 1934 Communications 

Act Title VI franchise requirements apply to its service and has even filed suit 

against counties seeking franchise agreements prior to service roll out. 14 Rather 

than seek entry to markets, it has opted to delay pending national and state exemptions from franchising requirements and the resolution by the courts. 

If Congress seeks to streamline the franchising process nationally in order to 

speed entry, it must maintain the consumer protections and community obligations 

that local franchising authorities are currently empowered to negotiate, establishing 

national protective requirements and obligations that apply to all franchise areas 

entered. 

The most important of these protections are requirements for universal build-out 

to all residents within franchise areas. Considering how important build-out requirements have been in preventing redlining in cable service and their prominence 

in Bell video franchise negotiations to date, it is essential that Congress impose a 

comparable requirement nationally should it opt for a national franchising approach 

to Bell video service. It is the only way to ensure that those families who most need 

cable rate relief will get it. 

Anti-redlining provisions, comparable to those in Title VI of the 1934 Communications Act, on their own will be not be sufficient to ensure that low-income areas are 

not excluded from any competitive benefits that Bell entry may bring. Title VI antiredlining provisions have only been effective because they exist in tandem with the 

ability of local franchise authorities to require service throughout the franchise area 

over time. Without the ability to require service to the entire area, anti-redlining 

provisions are toothless. 

53

In the absence of national build-out requirements, Congress should require new 

entrants to provide sufficient financial resources to local communities, in addition 

to reasonable rights-ofway fees paid, for use in fostering alternative means of ensuring broadband competition and service to the entire community. Those resources 

could be used to establish community broadband networks, competitive commercial 

services to areas underserved by the new entrant, or other means of assistance to 

help low-income consumers access advanced telecommunications services at affordable prices and meet local community communications needs. In addition, such resources should be provided up-front, or on an ongoing basis to facilitate the community’s efforts to meet the needs of the underserved. That is, under no circumstances 

should national franchising take a wait-and-see approach to build-out. If it is not 

mandated, then communities must have both the right and the resources available 

immediately to begin efforts to serve low-income residents. Given AT&T’s statements and Verizon’s franchising behavior, a ‘‘trust us’’ approach is unacceptable. 

Each provider must also be subject to reporting requirements that detail where 

service is being provided in the franchise area and to how many households. Without adequate data, there can be no enforceable assessment of discrimination. 

Additionally, Congress must prohibit preemption of community broadband 

projects. At the same time as Verizon and AT&T tout the benefits of competition 

in cable, they are aggressively trying to foreclose it in broadband by seeking state 

preemption of community broadband projects that promise to bring a third competitor into some markets. Cable and DSL providers control almost 98 percent of the 

residential and small-business broadband market. And since there are no ‘‘open access’’ requirements for telephone and cable companies to lease their broadband lines, 

the only opportunities for true competition in broadband are new broadband providers using their own lines or facilities. Community broadband service may be one 

of the few remaining opportunities for a third competitor in high-speed Internet over 

which all media—TV, telephone, radio and the Web—will eventually be delivered. 

Where the Bells fail to offer high-speed Internet and Internet-based video services, 

it is essential that communities be able to step in and fill that gap. Even where 

service is provided, the potential threat of a third provider can help discipline 

prices. 

Lowering Costs to Subscribers 

Because the presence of actual facilities-based, video providers has lowered prices 

in markets where competition exists, there is reason to believe that a comparable 

effect will be experienced when the Bells enter previously monopoly markets. But 

Congress should be skeptical that a national franchise for Bell entrants will necessarily reduce prices for an entire franchise area when the new entrant offers service to just part of it. Dominant cable providers are exempt from the statutory requirement for a uniform rate structure throughout the franchise area when a competitor offers service to just half of that area and when at least 15 percent of those 

offered the competitive service actually subscribe to it. That provides the opportunity for the incumbent cable provider to lower rates where competitive services 

are offered and raise them in unserved areas. Underserved consumers would then 

be hit twice—they will not have the benefit of a second choice for video subscription 

services and they may be faced with higher cable rates. 

Meeting Community Needs 

In addition to nationally imposed build-out requirements or, in lieu of those requirements, significant financial resources for communities to offer their own 

broadband services, any national approach to franchising must retain, at a minimum, provider obligations to serve local communities by requiring national obligations for:

• Institutional Networks: Title VI of the Communications Act of 1934 provides for 

local government requirements that schools, libraries and government buildings 

be connected through the cable network by allowing for the creation of institutional networks (I-Nets). Any national franchise should provide either financial 

resources or provider obligations to provide for I-Nets.

• Local, Independent and Diverse Programming: Title VI also provides that franchising authorities may ‘‘assure that cable systems are responsive to the needs 

and interests of the local community’’ including Public, Education and Government (PEG) access channels. Any national franchise should provide comparable 

provisions to ensure that community needs are met and to provide for both capacity and resources for PEG channels.

• Local Consumer Protection: Title VI authorizes franchise authorities to establish 

consumer protections and technical qualifications to ensure that consumers get 

54

the service they are promised. These local consumer protections must be retained in any national approach. Consumers must have a means for timely and 

local resolution of complaints against their service providers. Federalizing consumer protection is neither workable nor acceptable. The Federal Communications Commission is ill-equipped to address billing, services and outages complaints. Customer service, the process for resolving complaints, reporting requirements and accountability of providers to officials must remain local, with 

appropriate and meaningful sanctions for violations.

• Local Control over Rights of Way and Appropriate Compensation for Their Use:

It is essential that localities retain full control over management of their rights 

of way. Note that Verizon has already negotiated agreements with many localities for a five percent franchise fee plus additional contributions for community 

needs. If a national franchising process is to replace local control, it is essential 

to ensure that national minimums are placed both on the franchise fee and additional resources to meet community needs.

True Competition Requires Prohibition on Programmer Tying

Arrangements 

In order for true price competition to emerge in multichannel video markets, Congress must address anticompetitive tying requirements imposed by dominant media 

companies. 

At the same time that the cable distribution market has consolidated, concentration in video programming has increased dramatically. Broadcast giants and cable 

programmers have merged; broadcast and satellite distributors have merged; and 

cable distributors increasingly offer their own programming or have gained ownership stake in other video programmers. The anticompetitive effects of concentration 

in video programming decreases the likelihood that new Bell video market entrants 

will be able to effectively compete on price and on channel offerings. 

Program carriage contracts typically stipulate that distributors offer several or all 

of the programmer’s channels in the most widely viewed tier (usually the expanded 

basic tier), regardless of consumer demand for them, and prohibit channels from 

being offered to consumers individually. These bundling requirements have contributed to increased size and price of the expanded basic tier, which has increased in 

cost by two and a half times compared to the basic tier. 15 Consumers are forced 

to pay more for channels that they don’t watch, just to get the few channels that 

they do want. 

Media companies can secure these commitments because of their market power. 

Six media giants, including the top four broadcasters, dominate the programming 

landscape, accounting for three-fourths of the channels that dominate prime time. 16

Four are networks (ABC, CBS, FOX and NBC) and two are cable operators (Time 

Warner and Comcast). The networks use the retransmission consent negotiations for 

carriage of the local stations they own and operate to leverage local cable carriage 

of their other channels. These six companies also completely dominate the expanded 

basic tiers and the realm of networks that have achieved substantial cable carriage. 

These six entities account for almost 80 percent of the more than 90 cable networks 

with carriage above the 20 million subscriber mark. 

Moreover, cable operators are majority owners of one-fifth of the top 90 national 

networks—a substantial stake in the programming market. 17 They also own minority stakes in other networks, as well. The Government Accountability Office found 

that vertically integrated distributors or those affiliated with media companies are 

more likely to carry their own programming, 18 contributing to the size and cost of 

the expanded basic tier. These vertically integrated networks continue to have the 

largest number of subscribers, 19 and are the most popular. 20 Program ownership 

by dominant incumbent cable distributors also provides the incentive to withhold 

carriage of cable networks they own from competitive video distributors through use 

of the ‘‘terrestrial’’ loophole in current law. 

Independent, unaffiliated cable distributors that do not own their own programming have consistently expressed concerns about exclusionary tactics, contractual 

bundling requirements, and coercive retransmission consent negotiations that limit 

their ability to respond to customer demand for more choice in program packages 

and for lower prices. 21

Regardless of the outcome of video franchising, if Congress wishes to promote 

video competition, it must address and prohibit anticompetitive and coercive contractual requirements for program bundling. Failure to do so will impede the ability 

of any new video market entrant, including Verizon and AT&T, to compete on price. 

They’ll be forced to buy the same channels their competitor is carrying and to pay 

the same or greater licensing fees. Worse, they will be precluded from offering consumers channels individually, rather than bundled in a large package, even though 

55

doing so may give them an opportunity to differentiate their services from the incumbent cable monopoly and respond to strong consumer demand for greater channel choice. 

True Competition Requires Network Neutrality 

While it is certainly true that head-to-head competition helps consumers, it is also 

important to recognize that a duopoly (cable and telephone companies) is not enough 

to create vigorous competition that gives consumers the full benefit of a competitive 

video and broadband market. As subscription video services are increasingly offered 

using Internet-based technologies, maintaining the Internet as a neutral platform 

on which network owners cannot discriminate becomes even more essential. The 

Bells are not the only providers who could compete with cable. Increasingly, ‘‘video 

on demand’’ is being offered over the Internet, where consumers can access movies 

or pay to watch a single episode of a single program. As Congress considers ways 

to increase competition in video services, it must not overlook independent Internet 

content providers as a third competitor. But that source of competition will be 

squelched if Congress fails to adopt strong, enforceable prohibitions on network discrimination. 

As the Bells enter the video marketplace, there exists an even stronger incentive 

for both cable and telephone companies that own and control the broadband pipes 

to discriminate against companies that offer services over the Internet that compete 

with their own. Both cable and telephone companies who also own and control 

broadband networks will have an incentive to use their network control to prioritize 

their own content over others, preventing users from accessing competitive video 

services offered by Internet providers. 

Moreover, there will be a temptation to recover the costs of the new video networks by charging not only broadband subscribers but also those firms offering content and services over the Internet. Recent media reports describe operators’ plans 

to create pay-for-play ‘‘tiers’’ of premium service. The fees charged to content and 

service providers would inevitably find their way down to consumer wallets that 

have already paid for access. Though this may be rational market behavior for 

short-term return on investment, it is patently discriminatory and reflects a fundamental change in the nature of the Internet. 

With a strong network discrimination prohibition, the promise for competition in 

video will come not just from Verizon and AT&T, but from any other entrepreneurial company that offers video via the Internet in a manner more appealing to 

consumers. Without such a prohibition, however, that promise of competition and 

innovation will be lost. 

The appearance of integrated video and broadband services like franchised IPTV 

should not distract policy makers from the fundamental and pro-competitive policy 

of network neutrality. Similar services and content on the Internet must be treated 

alike, and network owners must not be allowed to favor their own services by blocking customer access to competitive services offered on the Internet or to erect barriers to entry into what has been a competitive online marketplace by requiring 

innovators to pay for access to the network. 

It is imperative that, as part of its consideration of competition in video markets, 

Congress prohibit network operators from blocking, impairing, or discriminating between content and service providers. The consumer, not the network operator, 

should determine winners and losers in the online marketplace. 

Conclusion 

The need for greater competition in the monopolistic video marketplace is an urgent one—but it has been urgent for ten years. We urge Congress to take the time 

to consider the many policy issues that must be addressed beyond the question of 

franchising if it seeks to spur true video competition and the consumer benefits that 

spring from it. These include mandatory build out requirements or in lieu thereof, 

resources to meet the needs of underserved consumers; consumer protections and 

provider obligations to serve community needs; prohibitions on preempting municipal broadband systems; prohibitions on anticompetitive contractual channel bundling requirements that reduce consumer choice and prevent product differentiation; 

and a strong enforceable prohibition on network discrimination. 

56

ATTACHMENT 1


kimm1.eps
57

ATTACHMENT 2

Announced Cable Rate Increases for 2005, 2006

Community Cable Provider Rate Increase 

(in percent) 

Ann Arbor, MI Comcast 6.0

Baton Rouge, LA Cox 5.0

Boston, MA Comcast 5.9

Burlington, VT Adelphia 5.2

Cincinnati, OH Time Warner 6.1

Clark County, WA Comcast 7.1

Columbia, SC Time Warner 4.9

Deptford, NJ Comcast 8.9

Evansville, IN Insight 8.4

Hartford, CT Comcast 7.0

Houlton, ME Polaris Cable 5.0

Houston, TX Time Warner 3.4

Lincoln, NE Time Warner 5.0

Little Rock, AR Comcast 3.5

Madison, WI Charter 4.4

New York City, NY Time Warner 6.0

New York City, NY Cablevision 2.8

Northern, KY Insight 3.3

Oklahoma City, OK Cox 5.0

Orlando, FL Bright House 5.0

Phoenix, AZ Cox 5.0

Portland, OR Comcast 7.1

Portsmouth, NH Comcast 7.9

Providence, RI Cox 4.7

Reno, NV Charter 5.9

Richmond, VA Comcast 5.9

Rochester, NY Time Warner 5.6

Rockford, IL Insight 7.0

Sacramento, CA Comcast 6.0

San Francisco, CA Comcast 5.7

St. Louis, MO Charter 7.8

Tupelo, MS Comcast 5.5

Wheeling, WV Comcast 9.0

Source: Local Media Accounts 

ENDNOTES 1 Consumers Union is a nonprofit membership organization chartered in 1936 

under the laws of the state of New York to Provide consumers with information, 

education and counsel about good, services, health and personal finance, and to initiate and cooperate with individual and group efforts to maintain and enhance the 

quality of life for consumers. Consumers Union’s income is solely derived from the 

sale of Consumer Reports, its other publications and from noncommercial contributions, grants and fees. In addition to reports on Consumers Union’s own product 

testing, Consumer Reports with more than 5 million paid circulation, regularly, carries articles on health, product safety, marketplace economics and legislative, judicial and regulatory actions which affect consumer welfare. Consumers Union’s publications carry no advertising and receive no commercial support. 2The Consumer Federation of America is the Nation’s largest consumer advocacy 

group, composed of over 280 state and local affiliates representing consumer, senior, 

citizen, low-income, labor, farm, public power an cooperative organizations, with 

more than 50 million individual members. 3Free Press is a national nonpartisan organization with over 200,000 members 

working to increase informed public participation in crucial media policy debates. 4Federal Communications Commission, 2002b, Table C–1. Kagan, Paul Associates. Major Cable TV System Clusters. Carmel, California: Paul Kagan Associates 

1998; Federal Communications Commission, Tenth Annual Report. 5Kagan, Paul Associates. Major Cable TV System Clusters. Carmel, California: 

Paul Kagan Associates 1998; Federal Communications Commission, Tenth Annual 

Report. 6General Accounting Office. ‘‘Issues Related to Competition and Subscriber Rates 

in the Cable Television Industry,’’ Report to the Chairman, Committee on ComVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00061 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
58

merce, Science, and Transportation, U.S. Senate, October 2003, GAO–04–8, Appendix IV. 7Subcommittee on Antitrust, Monopolies and Business Rights, Committee on the 

Judiciary, United States Congress. Competitive Issues in the Cable Television Industry. March 17, 1988; Committee on Energy and Commerce, Report on H.R. 4850, 

Senate Committee on Commerce and Science, Report on S12. 8Federal Communications Commission. ‘‘Report on Cable Industry Prices.’’ In The 

Matter of Implementation of Section 3 of the Cable Television Consumer Protection 

and Competition Act of 1992, Statistical Report on Average Rates for Basic Service, 

Cable Programming Service, and Equipment, 2002, p. 20. 9General Accounting Office. ‘‘Issues Related to Competition and Subscriber Rates 

in the Cable Television Industry,’’ Report to the Chairman, Committee on Commerce, Science, and Transportation, U.S. Senate, October 2003, GAO–04–8 , p. 11. 

‘‘The Effect of Competition From Satellite Providers on Cable Rates.’’ Report to Congressional Requesters, GAO/RCED–00–164, July 2000. 10 Bureau of Labor Statistics, U.S. Department of Commerce, December 2005. 11GAO–04–8, p. 11. 12 USA Today. ‘‘Cable, phone companies duke it out for customers,’’ June 22, 2005. 13 U.S. Census Bureau. Median Family Income; Counties within the U.S., 2004 

American Community Survey. 14Multichannel News. ‘‘SBC Sues Calif. City Over Access,’’ December 19, 2005. 15Mark Cooper, Time to Give Consumers Real Cable Choices, Consumer Federation of America & Consumers Union, July 2004, p. 5. 16MM Docket No. 92–264, Comments of CFA, CU, Free Press in the Matter of 

The Commission’s Cable Horizontal and Vertical Ownership Limits and Attributions 

Rules., August 8, 2005. 17GAO–04–8, p. 27. 18 Id. at 29. 19Federal Communications Commission, Annual Assessment of the Status of 

Competition in the Market for the Delivery of Video Programming: Eleventh Annual 

Report, January 14, 2005, ¶ 150. 20 Id. at ¶ 151. 21 EchoStar Communications Corporation, Testimony of Charles Ergen, Chairman 

& CEO, EchoStar Communications Corporation before the Senate Committee on 

Commerce, Science and Transportation, January 19, 2006; Testimony of Bennett 

Hooks, Chief Executive Officer, Buford Media Group on behalf of the American 

Cable Association, before the Subcommittee on Telecommunications and the Internet, July 14, 2004.

The CHAIRMAN. Thank you. Our last witness is Gigi Sohn, President and Co-Founder of Public Knowledge here in Washington. 

STATEMENT OF GIGI SOHN, PRESIDENT/CO–FOUNDER, 

PUBLIC KNOWLEDGE 

Ms. SOHN. Thank you, Chairman Stevens, Co–Chairman Inouye 

and Members of the Committee. I’m president of Public Knowledge, 

which is a nonprofit organization that promotes fundamental 

Democratic principles and cultural values, openness, access and the 

capacity to create and compete for the digital age. 

Public Knowledge believes that competition provides consumers 

with the widest choice of video services at the lowest prices. While 

the local franchising model produced many important benefits over 

the past 20+ years, it also created disadvantages, both for incumbent and competitive video service providers. 

Today, market conditions require another approach. If consumers 

are to reap the benefits of competition, then Congress should create 

a national franchise for video service providers. We believe that, 

subject to certain conditions that preserve the best features of local 

franchises, permitting broadband video service providers to avoid 

negotiating thousands of individual franchise agreements will bring 

more competition to market faster, resulting in greater consumer 

choice and lower prices. If it adopts national franchise, Congress 

59

should ensure four things: One, that localities remain empowered 

to control their streets and protect their citizens and that they receive reasonable compensation for granting the franchise; two, that 

broadband video service providers make available adequate capacity for public, educational and governmental uses; three, that universal access to broadband services is promoted; and four that 

broadband Internet providers make their networks available to all 

applications, content and services are on a nondiscriminatory basis. 

I want to focus on this fourth condition. As we undertake this 

discussion of video franchises, I am truly heartened to hear so 

many Members of this Committee understand that broadband 

video is not just a stand-alone service, but it is also part of telephone and cable companies suite of broadband offerings. The companies are marketing their video services in this matter, as just 

one piece of a larger broadband pie that is entirely different from 

traditional cable and is based, in part, on that distinction that 

broadband video service providers are seeking a national franchise. 

Thus, the decisions Congress makes regarding video regulation 

will impact the rollout of new, sophisticated broadband conduits 

that will carry not only one-way television-like video, but also 

interactive video, medical and educational services, super highspeed data and telephone services. FCC Chairman Martin recognized this impact at the Commission’s meeting in Keller, Texas, 

last Friday when he said that fostering the spread of new video 

services ‘‘promotes the deployment of the broadband networks over 

which the video services are provided’’. 

This country has a 20-year history of allowing localities to administer their cable franchises. Any departure from this policy 

should only be granted if the public interest benefits of a national 

franchise are clearly set forth in the law. Therefore, should Congress give broadband video service providers the extraordinary regulatory relief and cost savings provided by national broadband 

video franchises, it should also require net neutrality. Net neutrality will ensure that those same companies make their 

broadband networks available to all applications, content and service providers on a nondiscriminatory basis. 

The Internet has become a powerful engine of innovation, communication, education and economic growth because of, and not in 

spite of, a requirement that network providers allow consumers to 

access any application, content or service without fear of gatekeeper control. Recent legal and policy changes will move that obligation giving broadband network operators the ability and incentive to favor content and services in which they have a financial 

interest to the detriment of competitors and consumers. 

Public Knowledge recently issued a report, which is appended to 

my written statement, finding at least eight documented examples 

of discrimination or blocking by cable, wireless and phone companies. Furthermore, several economic studies show that broadband 

network operators will have increasing incentives to block traffic. 

A net neutrality requirement would address real harms and need 

not involve the burdensome revenue to a regime, and it would provide a reasonable balance, the tremendous benefits that a national 

franchise would give broadband video service providers. 

60

1 I would like to thank Public Knowledge interns Neil Chilson and Mike Larmoyeux for their 

assistance in researching and drafting this testimony. 2See Report on Cable Industry Prices, 20 FCC Rcd 2718, 2721, at ¶ 12 (2005). 3 Id. at ¶ 11. 

In closing, Chairman Stevens, last week, you asked some of the 

witnesses at the Committee’s net neutrality hearing whether Congress should completely rewrite the Communications Act, whether 

it should undertake a narrow bill or whether to do nothing at all. 

My answer is this, the public interest would best be served by a 

narrow bill that provides national franchise relief for broadband 

video services and requires net neutrality for broadband, Internet 

and network operators. Thank you. I look forward to your questions. 

[The prepared statement of Ms. Sohn follows:]

PREPARED STATEMENT OF GIGI B. SOHN, PRESIDENT/CO-FOUNDER, PUBLIC

KNOWLEDGE

Chairman Stevens, Co-Chairman Inouye and other Members of the Committee, 

my name is Gigi B. Sohn. I am President of Public Knowledge, a nonprofit public 

interest organization that addresses the public’s stake in the convergence of communications policy and intellectual property law. Public Knowledge promotes fundamental democratic principles and cultural values—openness, access, and the capacity to create and compete—that must be given new embodiment in the digital age. 

I thank the Committee for inviting me to testify on video franchising issues. 1

Introduction and Summary 

Public Knowledge believes that competition provides consumers with the widest 

choice of video services at the lowest prices. While the local franchising model produced many important benefits over the past 40 years, it also created disadvantages 

both for incumbent and competitive video service providers. 

Today, new market conditions require another approach. If consumers are to reap 

the benefits of competition, then Congress should create a national franchise for 

video service providers. We believe that, subject to certain conditions that preserve 

the best features of local franchises, permitting broadband video providers to avoid 

negotiating thousands of individual franchise agreements will bring more competition to market faster, resulting in greater consumer choice and lower prices. 

A national franchise also provides huge benefits to new broadband video service 

providers. These benefits include enormous cost savings and greater speed bringing 

services to market. The one-step process of a national franchise would be a dramatic 

change from the way we have regulated video services for the past four decades. 

As we undertake this discussion of video franchises, we must recognize that we 

are not only talking about a service—we are talking about a technology and transport mechanism with capabilities far beyond ordinary video programming services. 

The decisions Congress makes regarding video regulation will impact the rollout of 

new, sophisticated broadband conduits that will carry not only video, but also data 

and telephone services. Rather than splitting hairs, or hair-thin fiber, Congress 

should recognize that it is opening the way not only for video into the home, but 

for advanced broadband offerings. 

While considering the franchise issue, we suggest Congress balance the tremendous benefits that a national franchise would give to broadband video service providers with a requirement that those companies make their networks available to 

all applications, content and service providers on a non-discriminatory basis. This 

‘‘net neutrality’’ requirement will ensure, in light of recent legal and policy changes, 

that the broadband Internet remains the most powerful engine of economic growth, 

education and communication on the planet. 

A National Franchise Would Benefit Consumers 

It is no mystery that more competition leads to lower prices and greater choice 

in the multichannel video market. According to a recent FCC report, average cable 

rates for basic and expanded basic service were 15.7 percent lower than in communities with a competing wireline overbuilder compared to those communities without 

a wireline overbuilder. 2 Similarly, in communities with a competing wireline overbuilder, the number of channels on basic and expanded basic increased by 4 percent 

in 2003 and by 5.5 percent for the period of July 1998–2004. 3

61

4 ‘‘Effective competition exists where the Commission has found that a multi-channel video 

programming distributor (MVPD) meets one of the four tests within its franchise area: (1) fewer 

than 30 percent of households subscribe to service of the cable system (the ‘‘low penetration 

test’’); (2) at least two MVPDs serve 50 percent or more of households and at least 15 percent 

of those households takes service other than from the largest MVPD (the ‘‘overbuild test’’); (3) 

a municipal MVPD offers service to at least 50 percent of households (the ‘‘municipal test’’); (4) 

a local exchange carrier or its affiliate (or any MVPD using the facilities of the LEC or its affiliate) offers video programming service other than DBS comparable to the service of an unaffiliated MVPD (the ‘‘LEC test’’). In re Implementation of Section 3 of the Cable Television Consumer 

Protection and Competition Act of 1992, 20 FCC Rcd 3485 at n.3 (2005). 5Since a cable operator must affirmatively seek certification from the FCC of the existence 

of effective competition, these numbers do not reflect the actual number of communities that 

might meet the test. However, even if the FCC’s numbers were multiplied by a factor of ten, 

nearly two thirds of the Nation’s areas served by cable would still lack effective competition. 

In any event, we would ask the Committee to rectify this lack of data by requiring that the 

FCC undertake a study to determine how many cable service areas are subject to effective competition. Two of the current FCC Commissioners have noted this lack of data. Report on Cable 

Industry Prices, 20 FCC Rcd at 2753–4 (Joint Statement of Commissioners Michael J. Copps 

and Jonathan Adelstein, concurring) (‘‘the Commission gathers less than adequate data and conducts less analysis than it did even a few years ago.’’). 6Public Knowledge believes that such local authority should mirror the narrowly tailored 

character of section 253 of the Communications Act. Section 253 preempts local regulation of 

telecommunication franchises, but provides specific exceptions including permission to ‘‘manage 

the public rights-of-way.’’ 47 U.S.C. § 253. Various local franchise authorities have interpreted 

these exceptions as broad grants of authority, but the courts have consistently denied such interpretations. See generally TCG New York, Inc. v. White Plains, 305 F.3d 67 (2d Cir. 2002) 

(holding that a city ordinance permitting local authorities to reject an application based on any 

‘‘public interest factors’’ was preempted by § 253). Instead, courts have generally required all 

regulations to be substantially related to the management of rights-of-way. Id. at 81–82. Additionally, local authorities may only levy fines, penalties and other sanctions to preserve the public welfare. Auburn v. Qwest Corp., 260 F.3d 1160 (9th Cir. 2001). Similarly specific and narrow 

local authority for video franchises will preserve the purposes of a national franchise yet enable 

appropriate local participation. 

Somewhat more surprising, however, is the severe lack of robust video competition, or at least what the FCC considers ‘‘effective’’ competition. 4 According to the 

most recent video competition order, only 3.7 percent of areas served by cable meet 

the standard for effective competition based on the Commission’s four-part test. 5

A national franchise regime would quickly bring the benefits of competition to 

consumers, because competitive video providers would avoid thousands of individual 

negotiations with localities. We already see the consumer benefits, in price and 

choice, in the brief rollout of Verizon’s FiOS service. For example, a recent Bank 

of America analysis showed that in each of the three markets where Verizon has 

rolled out its service, incumbent cable operators have offered consumers prices far 

lower than their previously advertised prices. If, as discussed below, Congress maintains the best features of local franchising while implementing a national franchise 

regime, there is no good policy reason to keep this competitive benefit away from 

consumers nationwide. Nor is there any good policy reason not to prohibit incumbent video service providers from benefiting from this streamlined process after 

their current agreements have expired. 

The Best Features of Local Franchising Should Be Retained 

Should Congress choose to adopt a national franchise, it should retain some of the 

important and best features of local franchises. First, it should ensure that localities 

remain empowered to protect their streets and their citizens, and that they receive 

compensation for the grant of the franchise. Localities should have control over their 

rights of way for public safety or zoning purposes, and they should retain the ability 

to enforce consumer protection standards. However, these powers should not be used 

to recreate the local franchise agreement by permitting localities to make demands 

of broadband video service providers that go beyond those narrow purposes. 6

Second, Congress should require that broadband video service providers make 

adequate capacity available for public, educational and governmental uses, including 

institutional networks for local public safety. This capacity should, at a minimum, 

be no less than what the incumbent cable operator already provides. 

Third, Congress should use the national franchise process to promote the goal of 

universal access to broadband. As discussed below, new broadband video service is 

interrelated to broadband Internet service. Thus, any mechanism that speeds access 

to broadband video service would also help speed access to broadband Internet service. This is a vital goal in a country which is ranked 16th in broadband adoption 

worldwide. 

62

7Public Knowledge is not advocating ‘‘net neutrality’’ for video services regulated solely under 

Title VI of the Communications Act. 

A Net Neutrality Requirement Should be Part of Any Effort to Codify

National Franchising 

While this hearing is intended to be limited to the relatively narrow issue of franchising for new broadband video services, I would urge this Committee to view 

broadband video not as a wholly separate entity, but as just one piece of telephone 

and cable companies’ larger broadband network offerings. AT&T’s Project 

Lightspeed service is delivered over its broadband network, and Verizon’s FiOS 

video service is delivered through the same pipe as its broadband Internet service 

(albeit via a different laser). Indeed, both companies are making no distinction between their video, voice and data services, and instead are marketing their services 

as broadband services that are wholly different from traditional cable. Here is how 

Verizon CEO Ivan Seidenberg described his company’s broadband offerings to the 

National Association of Broadcasters last year:

We also are the first communications company to make a major commitment 

to taking fiber all the way to homes and businesses. This network, which we 

call FiOS, delivers super-fast data and Internet access at speeds of up to 30 

megabits downstream and 5 megabits upstream. Our system will deliver 100 

megabits downstream and up to 15 megabits upstream... making FiOS the 

fastest, most interactive network being deployed in America today....

Both of these next-generation networks [FiOS and Verizon’s wireless broadband 

network] are setting a new standard for broadband services in America. They 

provide a common protocol and a common infrastructure for voice, data and 

video services. They link to all kinds of interactive devices—anywhere, anytime. 

They are built for multi-tasking, and they enable a whole new generation of innovative services—from voice-over-IP to video messaging to multi-player games, 

shopping, interactive learning and lots of others.

Similarly, AT&T Executive Vice President Lea Ann Champion told the House 

Commerce Committee:

In short, we are not building a cable network, nor do we have any interest in 

being a cable company offering traditional cable service. Instead, we intend to 

offer customers a new total communications experience, one that they can customize to suit their families’ needs and tastes.

Skeptics may say that we have been talking about media ‘‘convergence’’ for the 

past 20 years, but as Mr. Seidenberg’s speech suggests, that convergence is happening, and it is happening now. Anyone who attended the International Consumer 

Electronics show saw currently available technologies, that blur the lines between 

broadcast, cable, and Internet video. The day when a consumer will not be able to 

distinguish whether her video service came from traditional cable or the Internet 

is fast approaching—and many would say it is already here. 

Therefore, should Congress grant video providers the extraordinary regulatory relief represented by national broadband video franchises—turning nearly 40 years of 

local control of video services on its head—Congress must also ensure ‘‘net neutrality.’’ Net neutrality requires the broadband Internet pipe to remain open to all 

applications and services, including video, on a non-discriminatory basis. 7 The 

Internet has become an extraordinarily popular engine of innovation, social networking and commerce because of, not in spite of, an enforceable obligation. That 

obligation required network providers to keep their networks open to all consumers, 

applications, content and service providers. Recent Supreme Court and FCC rulings 

defining broadband networks as unregulated ‘‘information services’’ removed that 

obligation. As a result, broadband network operators now have the same authority 

as traditional cable systems to control the content, services and equipment consumers receive or use, and to favor content and services in which they have a financial interest. And because the telephone and cable operators who own nearly all 

broadband networks in this country are what Consumer Federation of America Research Director Mark Cooper calls a ‘‘dynamic duopoly, ‘’ they have the ability and 

the incentive to abuse that authority to the detriment of competitors and consumers. 

Opponents of net neutrality claim that it is a ‘‘solution in search of a problem.’’ 

But the search for a problem is brief when executives of two of the largest 

broadband network providers announce publicly that their companies intend to discriminate. AT&T CEO Ed Whitacre’s statement to Business Week that ‘‘for Google 

or Yahoo! or Vonage or anybody to expect to use (AT&T’s broadband) pipes for free 

is nuts,’’ is now legend. Similarly, Verizon Executive Vice President John Thorne’s 

63

8 Arshad Mohammed, ‘‘Verizon Executive Calls for End to Google’s ‘Free Lunch’, Washington 

Post, February 7, 2005 at D1. 9 ‘‘What we need instead of ‘anticipatory’ regulation is a market-driven approach. This does 

not mean that there is no role for government. It’s simply an updated role. Instead of attempting 

to anticipate how the market will develop and then write the rules governing that market, government empowers consumers to shape the market and thereby set the rules of the game. Government is not on the field calling the plays, or is it writing the rules. Instead, it fills a refereelike role, observing the field of play, responding to complaints from any of the players, and addressing cases of market failure.’’

statement last week that Google’s ‘‘free lunch’’, i.e., free transport over broadband 

networks, is about to end, 8 demonstrates a very real intent to discriminate. 

Moreover, in a white paper that Public Knowledge released last week, we document not only instances of blocking and degradation of certain applications and content by network providers, but also show that technologies are being marketed to 

network providers for such purposes. The white paper, entitled ‘‘Good Fences Make 

Bad Broadband: Preserving an Open Internet Through Net Neutrality’’ is appended 

to this testimony. 

Opponents also claim that codification of ‘‘net neutrality’’ will lead to burdensome 

regulation that will stifle investment in broadband. But reserving the openness of 

the Internet and preventing it from become a closed system can be accomplished 

with a light regulatory touch. Public Knowledge believes that such a requirement 

should be very straightforward—preventing blocking or other degradation of content, application or services—while allowing network providers to handle legitimate 

legal, security and traffic issues. The FCC could enforce this requirement through 

a complaint process started by an aggrieved consumer, application, content or service provider. 9 Under Public Knowledge’s plan, the network provider would bear the 

burden of showing that it either did not discriminate or that it discriminated for 

the legitimate reasons set out above. And any application, content or service that 

is the subject of the complaint would remain unimpaired until the matter is resolved. 

Telephone and cable companies will derive enormous benefits from a national 

franchise for video services. Companies will realize significant cost savings by avoiding expensive individual franchise agreement negotiations. Equally significant will 

be cost savings such as flat franchise fees and freedom from other financial obligations often provided for in franchise agreements. This one-step process is a radical 

change from the way we have regulated video services over the past forty years. 

Congress should balance this benefit with a requirement that these very same companies make their broadband pipes available to all applications, content and service 

providers without discrimination or degradation. 

Conclusion 

In our increasingly broadband communications world, a national franchise for 

video services will expedite competition to the benefit of consumers. But a national 

franchise without a concurrent ‘‘net neutrality’’ obligation will give consumers far 

less than what they have come to expect in this new world. Thus, we urge this Committee and this Congress to balance any national franchise relief with a requirement that ensures that broadband networks are not subject to discriminatory gatekeepers. I thank you for inviting me to testify today, and I look forward to any questions you might have. 

ATTACHMENT

Public Knowledge, February 6, 2006

GOOD FENCES MAKE BAD BROADBAND—PRESERVING AN OPEN INTERNET THROUGH

NET NEUTRALITY

A Public Knowledge White Paper by John Windhausen, Jr. 

Executive Summary 

The genius of the Internet is its promise of unlimited accessibility. With very limited exceptions, any consumer with an Internet connection and a computer can visit 

any web site, attach any device, post any content, and provide any service. 

While the openness of the Internet is universally praised, it is no longer guaranteed, at least for broadband services. Recent Supreme Court and FCC rulings define 

broadband networks as unregulated ‘‘information services,’’ which means that the 

operators of broadband networks are no longer under any legal obligation to keep 

their networks open to all Internet content, services and equipment. 

64

Broadband providers now have the same authority as cable providers to act as 

gatekeepers: the network owner can choose which services and equipment consumers may use. Network operators can adopt conflicting and proprietary standards 

for the attachment of consumer equipment, can steer consumers to certain web sites 

over others, can block whatever Internet services or applications they like, and 

make their preferred applications perform better than others. 

This concern is not just theoretical—broadband network providers are taking advantage of their unregulated status. Cable operators have barred consumers from 

using their cable modems for virtual private networks and home networking and 

blocked streaming video applications. Telephone and wireless companies have 

blocked Internet telephone (VoIP—Voice over the Internet Protocol) traffic outright 

in order to protect their own telephone service revenues. Equipment manufacturers 

are marketing equipment specifically designed to ‘‘filter’’ out (i.e. block) VoIP traffic. 

Wireless companies often write limitations into consumers’ service agreements that 

have nothing to do with excessive bandwidth consumption. 

The problem is likely to become worse in the near future. One telephone company 

executive threatened to put a stop to on-line providers that use the telephone network ‘‘for free’’ (even though on-line providers pay to connect to the network). Another telephone company executive openly announced that his company intends to 

establish a higher-priced ‘‘tier’’ of service reserved exclusively for content providers 

chosen by the network operator. This raises the concern that consumers and startup application providers will be relegated to the ‘‘slow lane’’ on the information superhighway. 

These examples of discrimination, which this paper shows are greater in number 

than the network operators like to acknowledge, are on the increase because network operators have economic incentives to discriminate. Network owners today are 

more than just passive providers of transmission capacity (the ‘‘conduit’’); they also 

own and provide services, applications and equipment (the ‘‘content’’). By giving 

their own (or their affiliated) applications and content preferential access to the network, they can extract greater profits than if they operate the network on a nondiscriminatory basis. 

As a result, several groups have called upon Congress to enact, or the FCC to 

adopt, an enforceable ‘‘Net Neutrality’’ rule to ensure the Internet remains open and 

accessible to all. Not surprisingly, the network owners object, arguing that such a 

policy is unnecessary and will delay their deployment of broadband technologies. 

This paper analyzes the Net Neutrality debate in more detail. The paper is divided into four parts: 

Part I is a reference guide on the Net Neutrality issue. It reviews the rights at 

stake, describes the terms used in the debate, provides a brief legal history of 

broadband network regulation, summarizes the positions of the parties, describes 

documented examples of discrimination or blocking, and includes matrices that compare the differences among parties and proposals for action. 

Part II makes the case in favor of a Network Neutrality rule. It describes the 

enormous societal and economic benefits of keeping the broadband Internet network 

open to all users. Broadband networks are fast becoming the essential lifeline of our 

economy and society, carrying on-line commercial transactions, current events, local 

and national advertising, telemedicine and distance learning, music and entertainment, interactive games, and videoconferencing. Allowing the increasingly concentrated cable and telephone industries to have unchecked control over our access 

to these sources of information, entertainment and commerce is cause for great concern. 

Net Neutrality is also important for our high-tech manufacturing industry. Billions of dollars are invested every year at the ‘‘edge’’ of the network by the hightech computing industry, the on-line commerce industry, the gaming industry, the 

news and information industry, and the research community. A statutory Net Neutrality rule will give investors the confidence to support new, innovative applications. On the other hand, giving network operators the potential to block competing 

applications from getting on the network may be enough to frighten investors away 

from otherwise worthy new Internet applications. 

In short, open broadband networks are vitally important to our society, our future 

economic growth, our high-tech manufacturing sector, and our First Amendment 

rights to information free of censorship or control. Even if an openness policy imposes some slight burden on network operators, these microeconomic concerns pale 

in comparison to the macroeconomic benefits to the society and economy at large 

of maintaining an open Internet. 

Part III responds to four arguments against Net Neutrality raised by the network 

operators:

65

* The information referred to has also been retained in Committee files.

1) Network operators allege that Net Neutrality is a ‘‘solution in search of a problem’’ because there is only one documented case of blocking. In fact, network operators have already engaged in at least 8 known cases of blocking in the U.S. 

and are likely to block or interfere with more traffic in the future. Network operators have incentives to leverage their control over the network to reap additional profits in upstream markets.

2) Network operators allege that Net Neutrality will interfere with their ability 

to manage their networks, for instance, to prevent spam, viruses and congestion. 

In fact, there is no reason to believe that a simple non-discrimination policy 

should interfere with the operators’ network management responsibilities. Telephone companies have always managed their networks to protect against unlawful use even under a much more onerous common carriage regime.

3) Network operators allege that Net Neutrality will interfere with their ability 

to earn a return on their broadband investment and that it will stifle their deployment of broadband networks. In fact, Net Neutrality promotes broadband 

deployment because it increases the value of services and applications over the 

Internet, which increases consumer demand for broadband networks. The greater the demand, the more network operators will invest in broadband to meet 

it. Furthermore, there remain many opportunities for network operators to profit from their broadband investment that do not involve blocking or discrimination. For instance, network operators can continue to develop their own content 

and/or enter joint marketing arrangements or other promotional arrangements 

with other content providers.

4) Network operators maintain that Net Neutrality will prevent them from creating ‘‘tiers’’ of service, or a ‘‘private Internet.’’ In fact, Net Neutrality does not 

necessarily prevent network operators from offering levels of access, at higher 

rates, as long as the tier is offered on a nondiscriminatory basis to every provider and as long as all broadband customers are offered a minimum level of 

broadband service. A Net Neutrality principle does, however, prohibit the creation of a ‘‘private Internet’’ that grants exclusive access to the higher bandwidth levels to certain providers selected by the network operator.

Part IV provides an outline of a possible Net Neutrality rule or statute. Net Neutrality does not require detailed rules that require network operators to obtain government pre-approval to manage their networks. Network Neutrality can be enforced through a simple complaint process, as long as the network operator bears 

the burden of demonstrating that any interference with traffic is necessary. 

For the full text of Good Fences Make Bad Broadband: Preserving an Open Internet through Net Neutrality, * please visit: http://static.publicknowledge.org/pdf/pknet-neutrality-whitep-20060206.pdf

The CHAIRMAN. Thank you very much. Thank you all. I regret 

that the decision to have you all be at the same table has meant 

the first four had to stay around till this time to have questions 

asked of them, but I do hope that you’ll give us the courtesy of trying to keep your answers short, and we’ll at least try to keep our 

time short so that you can be sure that we won’t go too far into 

the afternoon. Let’s put it that way. 

Let me start off by asking Mr. Seidenberg, how long has it taken 

you so far on average to get a franchise? 

Mr. SEIDENBERG. Well, they vary, Senator, but it’s at least a year 

up to 14–15 months in some cases. 

The CHAIRMAN. For each one? 

Mr. SEIDENBERG. Some we’re not even encouraged to file because 

the municipalities see that there’s going to be controversy or there 

are going to be issues, so they tell us not to file. So, we have a lot 

in queue that we haven’t even filed yet. If I added that to the time 

period, I can tell you that the process is 18 to 24 months usually. 

66

The CHAIRMAN. Mr. Whitacre, does the time frame affect your decisions as to whether you should enter a particular market in 

terms of this transition? 

Mr. WHITACRE. Yes, it does. As you know, we’re doing IPTV, 

which is a little different than how Mr. Seidenberg’s company is 

doing it. Technology is just now getting there, but of course, and 

we plan to cover like 1.8 or 3 million households by the end of the 

year. But certainly, it impacts that and, you know, we’re reluctant, 

and you have to slow down when this franchise thing is hanging 

over you, so we’re just getting started. We hope it gets resolved so 

that we don’t really face that in other states. 

The CHAIRMAN. Mr. Rutledge, I listened carefully to your statement. My memory is is when cable television entered the telephone 

business as a competitive local exchange carrier, Congress gave you 

the right with special rules, a no-buildout requirement and little 

regulation. Now, why shouldn’t that same thing apply to the telephone companies as they come out into your market? 

Mr. RUTLEDGE. Well, I think that the difference between the 

CLEC situation and the cable situation is that you have an existing 

network operator, a very large—both, you know, both of these companies are bigger than the entire cable industry, very large franchised or regulated public utility companies that have existing 

rights-of-way and existing networks. They’re talking about upgrading their networks. The CLECs that were created around the country were new industries, new businesses, that had no existing infrastructure. So, it’s a completely different situation. 

With regard to voice over IP, though, the rules are the same for 

both industries today. The phone industry can provide voice over 

IP under the same conditions that cable operators can. Our company actually is a CLEC operator. We created a CLEC in the mid 

1990’s, and we filed tariffs with the states that we operate and created a business that primarily served businesses, not residential 

consumers. 

The CHAIRMAN. You’re telling me that fair is not fair. 

Mr. RUTLEDGE. Pardon me? 

The CHAIRMAN. You’re telling me that fair is not fair, that the 

same privileges should not be given to the telephone companies to 

enter your business as you entered into theirs. 

Mr. RUTLEDGE. Well, I don’t think it is fair. I think that to allow 

the phone companies to cherry pick where they’re going to put 

video, which I think is the real issue here, they want to serve only 

limited parts of communities. That’s a very unfair thing for an existing entrenched operator to have that opportunity whereas we 

have just gone through a $100 billion upgrade process and built out 

our entire network to all parts of the community. 

The CHAIRMAN. OK. I want to live within my own time frame if 

you don’t mind, OK? Ms. Panzino-Tillery, I understand what you’re 

saying, but do you really think a local community should be able 

to say a communications company should upgrade traffic signals or 

put flowers along the highway, or shouldn’t there be some limits 

to what a community can ask for as a secondary benefit after they 

get their fee for issuing a franchise? 

Ms. PANZINO-TILLERY. There are limits, Mr. Chairman. 

The CHAIRMAN. What are the limits? 

67

Ms. PANZINO-TILLERY. Well, Title VI claims that only those replacements should have a direct connection to the provision of the 

cable service. 

The CHAIRMAN. Say we need a traffic cop. 

Ms. PANZINO-TILLERY. Well, upgrading of streetlights———

The CHAIRMAN. You heard Mr. Seidenberg, what they’ve asked 

for. Do you think that’s fair? 

Ms. PANZINO-TILLERY. I don’t necessarily agree with his comments, Mr. Chairman. 

The CHAIRMAN. You don’t agree that he’s been asked for all these 

subsidiary things that have nothing to do with communications in 

order to get a franchise? 

Ms. PANZINO-TILLERY. Not necessarily. 

The CHAIRMAN. All right. Thank you. My last question, Mr. Riddle, Public, Education, Government, PEG channels, I do appreciate 

your statement, and we’ve known each other a long time. Why 

should a community be able to ask for as many as 14–15 PEG 

channels when New York only has four? 

Mr. RIDDLE. Well, it’s ironic. I used to work in New York, and 

actually, having only four channels in New York City was wholly 

inadequate. In addition, those four channels represented only the 

public access channels. 

The CHAIRMAN. Shouldn’t there be some limit? That section 

didn’t mean you could keep going and ask more and more and more 

and more from one provider, did it? 

Mr. RIDDLE. No, generally there are limits that are agreed to, but 

I would like to point out——

The CHAIRMAN. Would you mind if we put limits on? 

Mr. RIDDLE. Well, no, I don’t think that that would be a problem 

as long as we recognize that systems change and that the percentage of public bandwidth should remain proportionally the same as 

the systems change so that the public wouldn’t be cut out of technological change and system growth. 

The CHAIRMAN. I’m going to yield to Senator Inouye. I do hope—

each of us has one or two specific questions. If you don’t mind, 

could we submit them to you and have you respond to us so we can 

stay within the time limit, and we could all end up by going to 

lunch sometime today? Senator Inouye? 

Senator INOUYE. Thank you very much. I’d like to submit my 

questions also, but I have just one. I heard witnesses testify that 

10 years ago, we were number 4 in broadband, now we’re number 

17, and somehow the tone of some of the testimony presented today 

would suggest that the Telecommunications Act of 1996 served as 

some disincentive or obstacle to advancements in the size of communications. Anyone claiming that this law served to hold you 

back? Mr. Whitacre? 

Mr. WHITACRE. Yes, I’ll try that, Senator Inouye. You know, I 

don’t like all provisions of the 1996 Act. Has it all worked? No, it 

has not, but I’ll give you some statistics—90 of the households we 

serve are covered with broadband. They have access to broadband. 

So, 90 percent’s a pretty good number. It’s in places like downtown 

Detroit. We have 7 million customers. We sell it for $12.99 to over 

90 percent of the households. I’d say, from a broadband perspective, we’ve done a pretty good job. 

68

Mr. RUTLEDGE. Senator, you know, I would just indicate that in 

dropping, it’s important to look at the statistics to see what it’s saying. It’s we have fewer consumers in this country selecting 

broadband than in many other countries. Part of it is the lack of 

deployment, but part of it is the high cost. And we have not had 

enough competition, and part of what was expected in the 1996 Act 

was a lot more competition than existed. We dropped regulations, 

and the prices stayed very high. So, we’re way behind because a 

lot of consumers can’t afford it. So, I think focusing on both deployment and affordability is critical. 

The CHAIRMAN. Anyone else? 

Mr. SEIDENBERG. Senator, in your question to me, this isn’t a repudiation of the 1996 Act. I think the 1996 Act had a lot of benefits. I think the video franchise provisions unintentionally, perhaps, 

are serving as an entry barrier to capital investment to create the 

networks that we think will compete with the incumbent. And so, 

I think this provision, we have found the technology and the capital markets have lacked the particular usefulness of these laws, 

and that’s the reason we’re asking you to consider it. So, it would 

be an adjunct, or I think it would be an enhancement to all the 

things going on today anyway. 

The CHAIRMAN. Senator Burns? 

Senator BURNS. I thought so. I have just a couple of questions 

because we’ll be debating this forever, and I guess I’m in a position 

where I don’t care which direction this goes. It’s just that it’s got 

to be operating out of the same rule book because both are offering 

similar or like services, then we all got to operate out of the same 

book. Right now, we’re operating out of two different books. And 

whichever direction we go, it’s got to be fair to everybody. I came 

out of local government, so you know where I’m coming from. I 

think, you know, local government has to have some say into what 

goes on in their neighborhood, and I think they react faster. I think 

government closer to the people is sometimes a lot better. Now, 

they’re also swayed by that. So, in the franchising, maybe we just 

take off all the franchising, and just see where it goes. 

Now, when I argued that on the floor, I was the first guy that 

ever offered the amendment on video dial tone. Remember that, 

Mr. Kimmelman? And my gosh, I tell you, it created such an uproar, but it was the genesis of the 1996 Act if you really go back 

to where we got started about the 1996 Act. And I will tell you 

there’s enough blame to go around on why it didn’t evolve and start 

working right away because some companies, while we support 

this, will sign off on it, but then went to court, and you know who 

they are. And so, we didn’t try to make it work. We tried to go 

against it a little bit. But, I have a question. Are local governments 

asking more of you than they have asked from everybody else, obtaining a franchise to provide your services? I’ll ask that to Mr. 

Whitacre, and is that your experience to this point? Or Mr. 

Seidenberg? 

Mr. SEIDENBERG. Well, I know it’s hard to believe, but we can 

give you all of the communities, but I’ll just give you one. We had 

four communities in Pennsylvania that asked us to share 5 percent 

of not just the revenues that come from the video services, but 5 

percent of all voice and data that will be carried over our fiber netVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00072 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
69

works. And so, I think sir, the answer is that some municipalities, 

not all of them, but many of them are overreaching, and that was 

a problem. That’s a valid entry. 

Senator BURNS. If we put somewhere in the law that says whatever franchise you have, then your competitor is automatically subject to the same franchise, they can’t change from it, what happens 

in that respect? 

Mr. WHITACRE. I think both Mr. Seidenberg and I and our companies have agreed we’ll pay the same thing so the cities suffer no 

revenue loss. We’ve already agreed to that. 

Senator BURNS. OK, Mr. Rutledge? Would you like to react to 

that? 

Mr. RUTLEDGE. Thank you. Well, I would say a couple of things 

about the franchise process. You know, in the last 3 years, we, a 

company with 409 franchises, have renewed and renegotiated 

about 100 franchises. In the same time, if you’re building one of 

these networks, you actually have to plan ahead. You have to plan 

where you’re going to put your facilities, your wires, you have to 

get permits, open the streets, cross interstate highways, cross 

intercoastal waterways, you’ve got a lot of planning before you can 

build one of these networks. 

Verizon has been building these networks and planning them for 

over 3 years, and yet, didn’t ask for the franchises. Now, they have 

3 million passes built and didn’t get—hardly got any franchises in 

that period of time. In the same period of time, we, a much smaller 

company, were able to get a hundred of them. So, I think the problem is that you have people who are not participating in the franchise process. And it is true that communities ask for things, sometimes, that you wouldn’t agree to, but you just say no. Most communities want competition. They’re glad to get another competitor 

in. It’s not hard to get a franchise if you’re a competitor. What’s 

hard to do is to go in and ask for a special deal. If you go in and 

ask for a new deal that says I can only build the affluent areas, 

I’m only going to build the areas that have aerial plants, I’m not 

going to build the underground, I’m not going to build the housing 

projects, then you have a hard time. 

Senator BURNS. Mr. Evans, do you have any areas where you do 

business that still do not have DSL? 

Mr. EVANS. Cavalier, in our market areas, can serve DSL to approximately 60 percent of the homes within our market areas. We 

are limited in that we use Verizon’s copper, and there is a distance 

limitation. So, our sweet point is, people that are within the two 

miles of Verizon’s central office where we can reach them, and that 

is where we can offer the most economical service. If we were 

forced to build to every home and rebuild the whole network, it 

would not be economically feasible. It’d be the third time that a 

person’s yard would be torn up so that we could lay another cable 

in, and I don’t think that is beneficial to all consumers. 

Senator BURNS. Mr. Seidenberg, any areas where you still do not 

offer DSL? 

Mr. SEIDENBERG. Very few, but the answer, Senator, is that as 

the technology improves, as we can deploy better terminals and 

gain scale, we do it. We’ve been doing it for 120 years. So, the anVerDate 0ct 09 2002 13:53 Oct 06, 2006 Jkt 029843 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\29843.TXT JACKF PsN: JACKF
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swer is that there could be some areas today that we keep improving upon our coverage every year. 

Senator BURNS. Mr. Whitacre, are there any rural areas? 

Mr. WHITACRE. I said earlier, Senator, we’re up to about 90 percent of the households passed. In Texas, we’ve agreed to put DSL 

capability in every central office, and we’ll be doing that. And as 

Mr. Seidenberg says, the technology gets a little better, but we’re 

at 90 percent and moving. 

Senator BURNS. Tell me, in those rural areas, give me an idea—

give me a town of 2,000 people in West Texas. 

Mr. WHITACRE. It’ll be there. DSL will be there. It may not be 

there today. It’s going to be there very shortly. 

Senator BURNS. How long? 

Mr. WHITACRE. I don’t know, the next 6 months—8 months. 

Senator BURNS. Give me an idea of the investment you’ll have 

to make. 

Mr. WHITACRE. In total, in Texas is the only one I can give you. 

It’s in the neighborhood of $800 million to get everybody, but we’re 

going to do that. 

Senator BURNS. Thank you. 

The CHAIRMAN. Senator Rockefeller? 

Senator ROCKEFELLER. Mr. Chairman, I’m going to put my questions in the record because I can’t just ask one. I will, however, say 

that I would pay a dollar to whichever panelist it was that said 

that the city council wanted broadband to each of their homes. 

That was their price? Don’t answer. 

Mr. Kimmelman, maybe I could just ask you and Mr. Seidenberg 

to explain why—I mean, I’ve spent the last 10 years going crazy 

doing tax credits on broadband. They do nothing. They sound good. 

Nothing ever happens. Along comes a way where there’s a system 

of folks that use tiny, little wires—I mean little fiberglass that are 

already there for the most part, and that brings it all, all at once. 

And I—part of me says that’s too good to be true, and I want you 

to tell me that it’s not too good to be true. 

Mr. KIMMELMAN. Well, Senator Rockefeller, I don’t think it’s too 

good to be true, but it’s often too expensive to get very quickly, and 

that’s been our problem. And companies that are profit maximizers 

do wonderful things, but they don’t always have an incentive to expend that extra resource to reach people who don’t spend a lot of 

money to use that little wire. And so, all I would——

Senator ROCKEFELLER. Under current law? 

Mr. KIMMELMAN. Under current law, and I would just urge you 

to—everyone’s got a story about what they can do and can’t do 

now, and it’s one thing if you have a cable franchise to go back for 

a renewal because in the law, you almost granted them an automatic renewal. When that happens, it’s very difficult to be a new 

entrant. There are many different circumstances in the transition. 

I urge you to look at the endpoint you want to get to. And again, 

I urge you to think about how you will get that, that broadband 

or wireless service, from as many people to as many people and 

how the resources should flow. And again, I suggest, and let’s not 

worry too much about exactly what a city gets, but let’s worry 

about how people get the service and get the policy and resources 

focused on delivering that service to them. 

71

Senator ROCKEFELLER. Thank you. And Mr. Seidenberg, you 

serve policy statement on the importance of broadband——

Mr. SEIDENBERG. Yes. 

Senator ROCKEFELLER.—to the Nation’s future. 

Mr. SEIDENBERG. Yeah, I don’t want to be quoted it’s too good to 

be true, but let me say this. There are two things that have occurred in the last several years that have spurred this on. The first 

is, as you said, tremendous technological advancements. 

And second, regulatory policy has now made it a lot more favorable to invest the capital. So, what we’ll see today is—we’re happy 

to say that private investment will absolutely fund the growth of 

the broadband networks. And we’ll start small, we’ll get bigger, 

we’ll gain scale, and we’ll continue to deploy in all communities. So, 

I really do believe that it’s the technological advancements coupled 

with the regulatory changes at the FCC and at the state level that 

have prompted all this. The perfect example of all of this is wireless. No one has ever predicted the growth of wireless. We didn’t. 

Policymakers haven’t, but the technological advances in wireless 

have created an extraordinary technological service opportunity. I 

think the same thing’s going to happen here if we can take down 

the entry barriers that are causing private investment, not to put 

the money where it needs to be put. 

Senator ROCKEFELLER. Which I think our bill would do. Thank 

you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator Sununu? 

STATEMENT OF HON. JOHN E. SUNUNU,

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SUNUNU. Thank you. Mr. Seidenberg and Mr. Whitacre, 

a question about consumer protection. If we were to have either a 

new entrant model for franchising, or if we were to significantly 

modify the existing Title VI, what assurance would there be? What 

would the mechanism be for ensuring consumer protection in a national franchising environment? I always feel like it’s a reasonably 

good question when you point to each other. 

Mr. SEIDENBERG. I was being polite, and he was giving me the 

ball, you know, it’s the first time he’s ever given me the mike, in 

his life, you know that, Okay. Look, I don’t think that we’re asking 

to change any of the current rework of rules that apply to rightof-way, consumer protections. We still have franchises. We’re responsible with the state commissions. There are redlining rules in 

the legislation. 

So, I think, Senator, when I ask you to change any of the authority that goes with that, what we’re looking for are the principles 

to take away all of what we consider to be the conflicts in trying 

to negotiate these franchise agreements and get into the market a 

lot quicker. 

Mr. WHITACRE. It was a good answer. 

Senator SUNUNU. Harmony reigns. Mr. Rutledge and Mr. 

Kimmelman, a question about PEG. The Chairman raised the issue 

of PEG and, I think, asked a very good question. What kind of a 

limit is appropriate? And I’d like you to try to answer that just as 

specifically as you can. If we were to, you know, fix into statute 

something describing the limit on the number of PEG channels, 

72

what should that be? I’m sorry. Yes, both Mr. Rutledge and Mr. 

Kimmelman. 

Mr. RUTLEDGE. I’ll start. One of the things that was embodied in 

the more recent Cable Act is a scheme where the cities are limited 

in what they can ask from a cable operator, so 5 percent is the 

maximum franchise fee. When it comes to public access, the city 

has to do a needs assessment, but if you have to invest new capital 

as an operator, you have the ability to pass that through to the 

consumer or if you have operating costs and put it on the bill. And 

so, there’s a self-limiting political reality, which is no municipality 

wants to have a big tax that exceeds the value of the service it’s 

getting. So, there is a built-in structure in the law to limit it. And 

since the most recent law, has been passed, the scale of public access has not generally gotten better. The bandwidth required to 

provide it has not been increasing. Gene? 

Mr. KIMMELMAN. Yes, I would say let’s look at what we were trying to do with PEG access. We were trying to get local governmental and educational content out to the community. We may be 

entering an era where channels will no longer be what they used 

to be. And so, are we really talking about channels? I think we 

ought to be focusing on local content, and what was always lacking 

was the support of the local content. PEG programming hasn’t always had the quality that it could have had. It wasn’t invested in 

as it should have been. And what you also recall is that you authorized cities to ask for these in negotiation. You didn’t require 

them to do it. And so, some cities have a lot of PEG channels. Some 

have a few. A lot have none. 

And so, I think it’s worthwhile going back and coming up with 

a formula that’s based on the size of the community, or something 

like that, just some logical formula, and say this is an appropriate 

local concern and there should be minimum PEG requirements for 

all communities. We tried to do it with leased channels as well, and 

those have flopped completely. It didn’t work at all. So, the variety 

of tools that were put in the original Cable Act, I think are worth 

revisiting and then making them uniform across all providers, including new entrants. 

Senator SUNUNU. It seems to me that a lot of the conflicts that 

we’re discussing today, looking at the 1996 Act, are created where 

we have effectively put in place dual regulatory systems. We’ve got 

different sets of regulations for different players, and they are providing more and more similar products to consumers. As a result, 

I’m very concerned with a poor new entrant regulatory structure, 

as some people have suggested, that would exist without looking at 

the existing regulatory structure, Title VI in particular, for cable 

operators. And it would seem to me to make the most sense to take 

a look at Title VI, to take a look at what people are suggesting for 

new entrants, and see if we can, in a reasonable way, modify Title 

VI, which was written at a different time, different place, different 

era, back when the channel was maybe more of a channel, as Mr. 

Kimmelman says, than it is today. 

If we were to take that kind of an approach, I have a question 

for Ms. Sohn. In particular, you laid out four principles. You didn’t 

talk very specifically about what you might eliminate from the current Title VI or what elements of Title VI might not be necessary 

73

to maintain those four principles. Are there any areas of current 

regulation whose time you think may have passed? 

Ms. SOHN. Well, I certainly think that if a national franchise 

model’s adopted, it should apply to incumbents as well as new entrants, absolutely. I know I’m going to upset some people on the 

panel if I talk about some things in Title VI whose time has 

passed, I think must-carry and retransmission consent is certainly 

one of those things. And I couldn’t agree with you more that we 

really need to look at regulatory parity in a very, very serious way, 

and that includes for broadcasters. 

You know, content is content in my mind, and that’s why I think 

it’s important for this Committee to understand we’re talking about 

broadband pipes of different kinds, and they really should be treated similarly. So, I could give you a longer answer and go through 

Title VI, specifically, to look at, if you want it in written form, exactly what I think should be taken apart, but that’s just a couple 

of examples. 

But I do think that it’s sort of a layered idea of regulating, that 

you regulate the infrastructure one way, the logical way or another 

way and the content way or another way. It makes a whole lot of 

sense. And the silo system we have now doesn’t make so much 

sense. 

Senator SUNUNU. Thank you. A final comment, Mr. Chairman, 

and that is I’ve suggested before, and I think listening today to the 

panel, I feel it all the more strongly. The nature of this product, 

the product that we’re talking about today, channels of video in a 

consumer’s home has changed radically in the last 10–12–15 years, 

but certainly since the 1940s, 1950s and 1960s when a lot of these 

fundamental approaches to regulation were crafted. And it is one 

thing to say there is a compelling public interest and a strong regulation of this medium when we have three broadcasters and nothing but over-the-air broadcasting. But it’s very different to continue 

to try to argue deep, compelling public interest in some of these 

regulations when we have 500 cable channels, when we have a 

website, a good website, identified with just about every public and 

civic group and institution, and that’s a great thing that you can 

go and find out what’s happening in your community by going onto 

the law enforcement website or the library website or the selectman website or the mayor’s website or the city hall website. And 

there’s a very different public interest at stake that is, quite frankly, not as compelling. It’s still there, but it’s not as compelling as 

it once was. And these regulations are our barrier to entry. And if 

I was a local incumbent, I would be very supportive of the existing 

regulatory framework, but they are barrier to entry, there are 

thousands of authorities, they have a cost, and those costs are 

passed on to consumers. We should all recognize that. We pay for 

it. We pay for our access, we’re paying the cost of these regulations. 

And if we can do a better job reducing the costs of the regulations, 

then we will absolutely be reducing prices for consumers. Thank 

you, Mr. Chairman. 

The CHAIRMAN. Thank you. Senator Cantwell? 

74

STATEMENT OF HON. MARIA CANTWELL,

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. Thank you, Mr. Chairman, and thank you 

for this important hearing. I had a couple of questions for various 

witnesses. And Mr. Evans, I wanted to ask you specifically. I listened to your discussion of your deployment of IPTV and your successes so far. Could you explain to me why time isn’t on your side 

in the sense of—Mr. Kimmelman talked about 10 years from now 

when the principles of having a level playing field, and Ms. Sohn 

is talking about how we continue to guarantee access whatever the 

platforms are. And while we’re talking now, but maybe there are 

two platforms, but we don’t know. There’s lots to play out. So, why 

isn’t time on your side? 

Mr. EVANS. Cavalier has been successful over the last 6 years because we launched innovations quicker than the big guys, such as 

AT&T and Verizon did. We give the services to the people quicker. 

We find ways to save them money and having that speed advantage in beating the other guys to the market. Being there with new 

channels, a hundred channels of video-on-demand, new leadingedge things that the consumers want, help us survive and compete 

against the big guys that have other advantages. And so, that’s 

why we are the first ones to deploy and invest in the new MPEG–

4 IPTV technology. 

Senator CANTWELL. Correct, and what I’m saying is, as my colleagues have all talked about, the concern about how cable pricing 

has risen or the future of a-la-carte options, as cable as an expensive option, and you’ve provided the service, why isn’t time just on 

your side to go ahead and continue to make in-roads as a cheaper 

product? 

Mr. EVANS. Time is ‘‘of essence’’ in a competitive environment. 

The cable companies have recently launched telephone services. 

They’ve only launched them in the residential communities where 

they’ve built into. They’re not launching them to every commercial 

building. So, they have an advantage that they’re going to focus on 

the residential. Because we cannot offer the video, they’re going to 

go in and offer the bundle, and that’s why we’ve worked very closely in Virginia to work with the municipalities to come to an agreement, which we have in Virginia, to have a statewide franchising 

bill. We need to get that out there in days and weeks, not in years, 

or we’re going to be put out of business. If you go into battle, and 

you don’t have all the ammunition in your pocket, you’re going to 

be blown out of the battle. And with our video, they will price down 

telephone. We need to have all three so that we can compete effectively. 

Senator CANTWELL. What—you do have all three now? I mean 

you do——

Mr. EVANS. I have all three, but I can’t offer it until I get the 

franchise. That is my dilemma. 

Senator CANTWELL. Are you concerned that they’re going to have 

cheaper telephone service and cheaper——

Mr. EVANS. They’re going to price——

Senator CANTWELL. Just in a sense of a—just in competitive 

product, do you think, in 5 years, let’s say, this subject was just 

put on hold for a while, and you’ve—we resolved it, but you still 

75

had product in the marketplace, do you think you’re going to have 

a cheaper product, or do you think you’re going to have a more expensive product? 

Mr. EVANS. Our pricing right now is $50 per month below what 

a competing offer from the cable TV and the telephone company for 

phone, video and broadband. 

Senator CANTWELL. So, you have——

Mr. EVANS. Fifty dollars per month per person. 

Senator CANTWELL. OK, which I think is an interesting analysis 

of where you are in the marketplace. And so, I would say well, why 

isn’t time on your side because you keep having the ability to offer 

those services. 

Now, we didn’t get into how do we maintain a level playing field, 

which I want to come to, Mr. Kimmelman. You talked about principles that you think that we should adhere to, and I don’t think 

I heard you say specifically if you thought that Inouye–Burns principles were enough, or if you think that the current framework can 

work with a few tweaks to the process, that is, you know, maybe 

some issues about speeding up the franchise process. 

Mr. KIMMELMAN. I think they can be enhanced. I think we need 

to really look at what it takes to speed it up and to streamline new 

entry and I think get to an endpoint where everyone is treated the 

same because I think they will need to be treated the same. And 

I think you need to worry about whether there are only two providers and whether those providers are offering a bundle of three 

or four services, which can make it difficult for any other new entrant to come in and compete on a single service like broadband or 

video. They might have one of the services, but they can be underpriced and driven out of the market. I think what is also critical 

is to get away from just worrying about going back to the old provisions of the Act, as Senator Sununu indicated, of what is representative of the local community and look at what the local community 

really needs. It really needs the resources to support local programming. It needs the resources to build out broadband to underserved 

communities, ethnic communities, low-income communities. You 

can try to force the new entrant to do that. Even if you did that, 

they’ll resist, so you’d have to provide for a transition period during 

which time the community offers stop-gap broadband service to 

those households the new entrant doesn’t serve, such as what 

Philadelphia has done, in using a community wireless approach to 

get broadband in the inner city. So, there are a variety of tools you 

could use to achieve an affordable broadband for all as you streamline entry of a new player and offer cable streamlining as well with 

ultimately the same rules as the telephone company. 

Senator CANTWELL. I see my time has expired, Mr. Chairman, 

but I personally believe that there are going to be many, many 

models for IPTV. I certainly hope there’s many, many models for 

IPTV and that there’s just not one platform, but that we certainly 

have competition, but we should be looking at this environment not 

just what is today or what’s in 5 years, but in 10 years’ time. And 

the fact that Mr. Riddle talked about some of those programming 

services that are available today, and Ms. Sohn talked about how 

we keep content neutrality, that we give people access is very, very 

important, but I hope that all of these people will have serious 

76

competition from some local ISP or someone who wants to provide 

a certain reality TV programming or whatever it is and that we 

should think of this as many, many models in the future and how 

do we do that as opposed to making short-term decisions for just 

the next couple years. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much to all of you for coming. 

I still feel compelled to tell you where I’m coming from. You know 

I’m from Alaska, a place that’s roughly the size of Italy, Germany, 

France and Spain. We have now, after 10 years of the 1996 Act 

through tele-education and the availability of some Universal Service funds, got computer capability at 90 percent for the whole state, 

but we have a hundred villages that don’t have Internet at all. And 

when we go to make a reservation for a U.S. hotel, we’re probably 

going to talk to someone in India. Why? Because they have highspeed broadband connections, and they have satellite connections, 

but they have a work force there that’s enjoying a quality of life 

that our people don’t get, and they don’t get it because they don’t 

have access to the systems we’re talking about now. 

I see no reason why those small villages in Alaska couldn’t be 

performing some of these functions for American companies if they 

had access to these systems. So, while I’m here, and my friend from 

Hawaii has similar problems—his state has even a larger area 

than mine—we want to help every one of you in what you’re talking about in building out the cities in the areas of what we call the 

South 48, but I hope you won’t forget the problems we have in 

Alaska and Hawaii. We’ll be in touch with you about those. Thank 

you all very much. 

[Whereupon, at 12:10 p.m., the hearing was adjourned.] 

(77)

APPENDIX

PREPARED STATEMENT OF HON. OLYMPIA J. SNOWE, U.S. SENATOR FROM MAINE

Thank you, Mr. Chairman, for holding this hearing on video franchising this 

morning. I also want to thank Senators Smith, Rockefeller, and Ensign for working 

to bring this issue to the forefront. The issue before us today is a perfect example 

of how technological change is driving the need for Congress to update the outdated 

telecommunications laws that were passed only 10 short years ago. 

No one in this room today is going to argue that competition is a bad thing. Competition brings better products and services to consumers—and multi-channel video 

services should be no different. The example of Keller, Texas—where the local cable 

company dropped the price of their bundle by nearly 50 percent the day that a 

phone company competitor entered the market—illustrates one of the many consumer benefits that competition brings. We must examine the best way to encourage 

nationwide competition in this market and take steps to ease the legal barriers to 

entry. 

Although change in our statutory framework is needed, Congress should be careful not to forget the original goals that the Cable Act was written to meet, especially 

the goal that assures community needs and interests are met. 

In the same way that broadcasters must obtain a license to utilize the public spectrum, video service providers must obtain rights of way from the local government 

in order to have access to streets and sidewalks to lay their cable or fiber. Similarly, 

as broadcasters have public interest obligations in exchange for use of the public’s 

spectrum, video service providers should give something in return to the community 

in exchange for public rights of way. Today, as part of many franchise agreements, 

cable companies commonly pay a fee and provide in-kind equipment and facility donations to support public, education and government access channels, public safety 

and other local needs. These local community needs and interests must be preserved 

as we move forward with franchise reform. 

I look forward to hearing from the panel today about how to best move forward 

with franchise reform. What are the different proposals stakeholders have? How can 

local needs and interests be preserved? What are video service providers willing to 

pay for access to public rights of way? How can reform be fair to existing franchise 

holders? What policy is best for consumers? 

The bottom line is that the law needs to change for consumers to have meaningful 

choice in the video service market. Complex, drawn-out negotiations are inhibiting 

the deployment of these services. The process must be simplified. During this simplification, however, we must not push aside the public needs and interests that 

have been served by franchise agreements successfully for so many years. Local government proceedings must continue to be shown on a video service provider’s network. Educators should continue to be able to utilize the advanced services enabled 

by the network. And, public safety should have access to essential industrial services. I urge my colleagues not to forget these local interests as this Committee 

moves forward with legislation. 

Thank you, Mr. Chairman. 

PREPARED STATEMENT OF BOB FREUDENTHAL, PRESIDENT, AMERICAN PUBLIC WORKS

ASSOCIATION

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

submit this testimony for the hearing on video franchising. My name is Bob 

Freudenthal, President of the American Public Works Association (APWA), and 

Deputy General Manager of the Hendersonville Utility District in Hendersonville, 

Tennessee. I submit this statement today on behalf of the 27,000 public works officials who are members of APWA, including our nearly 2,000 public agency members. 

APWA is an organization dedicated to providing public works infrastructure and 

services to millions of people in rural and urban communities, both small and large. 

78

Working in the public interest, APWA members design, build, operate and maintain 

transportation and rights-of-way; natural gas, electricity and steam distribution facilities; water supply, sewage, and refuse disposal systems; public buildings and 

other structures and facilities essential to our Nation’s economy and way of life. 

I appreciate the opportunity to address the important role local governments and 

public works departments play in managing local public rights-of-way and how local 

franchising supports that role. APWA has been and will continue to be an advocate 

for the development of policies which ensure the safe and efficient management of 

public rights-of-way. As Congress considers rewriting sections of the Nation’s communications laws and policies, we urge you to consider several important principles 

relating to local governments and rights-of-way management. 

The first is that local government officials have a fiduciary responsibility on behalf of the citizens we serve to manage public property, including the public rightsof-way, a public asset with an estimated value of more than $7 trillion. Respect for 

local control and local governments’ long-standing authority to manage rights-of-way 

is necessary to ensure their safe and efficient operation. As Congress considers updating national communications policy, it is vital that local governments and other 

public agencies retain their authority to fulfill their statutory obligations and duties 

related to managing public rights-of-way. 

This authority includes the ability to establish permit, location, inspection and 

pavement restoration controls and rights-of-way restoration; to encourage cooperation among and develop scheduling and coordination mechanisms for all rights-ofway users; to obtain and maintain accurate information for locating existing and 

new facilities in the public rights-of-way; to hold responsible parties accountable for 

the restoration of the public rights-of-way; and to charge and receive compensation 

for the use of the public rights-of-way. 

The second principle is that local governments support competition in communications services and technology. We embrace innovations that make possible competition in video, telephone and broadband services. Moreover, we support deployment 

of these technologies as rapidly as possible. However, as new communications technologies and services enter the marketplace, local governments must be kept whole 

and our authority to manage public rights-of-way preserved. 

Preserving full local franchising authority is critically important to rights-of-way 

management. Franchises do not just provide permission to offer video services; they 

are the core tool local governments use to manage streets and sidewalks, provide 

for public safety and emergency response capability, enhance competition and collect 

compensation for private use of public land. Eliminating franchises will cause chaos, 

undermine safety and deprive local government of the power to perform its basic 

functions. 

Public agencies have the responsibility to keep public rights-of-way in a state of 

good repair and free of unnecessary encumbrances. The public expects local governments to ensure that the deployment of new services does not result in potholes, 

traffic backups and congestion, damaged sidewalks, ruptured water or gas lines, disrupted electrical power or diminished community aesthetics, particularly with respect to managing above ground versus below ground installations. 

The right to obtain and use land for public benefit is a long-standing tradition 

and is provided for by law. For more than a century, the concept of accommodating 

both public and privately owned utilities in the public rights-of-way has been recognized to be in the public interest. Public rights-of-way are normally acquired and 

developed by public agencies for transportation routes, water supply, waste disposal, 

power distribution, means of communications and similar services. Such services are 

provided for the common good of the public, and are generally authorized and directed by public agencies, which have an obligation to regulate and manage the use 

of public rights-of-way in the interest of the convenience, health, safety and welfare 

of the public. 

It is our duty and responsibility as public agencies and that of elected officials 

to be good stewards of the public rights-of-way and to adopt reasonable ordinances 

that allow public officials to: manage the public rights-of-way on behalf of their citizens to ensure public health, safety and convenience; manage the surface of the public rights-of-way to ensure structural integrity, availability, safety and a smooth 

street surface for the traveling public; manage the space below the surface of the 

public rights-of-way to ensure safe and economical access for all current and future 

users of the rights-of-way; and manage the space above the surface of the public 

rights-of-way, including the placement of overhead utility facilities, to ensure efficient use of space and to minimize safety hazards and impact on community aesthetics. 

As the pace of implementing new communications technologies accelerates, the 

number of damages incurred by owners of both private and public utilities is sure 

79

1This testimony reflects only the views of its authors and does not represent an official position of George Mason University. 

to grow, if local governments are not allowed to manage their rights-of-way. Managing public rights-of-way is complex, and decisions regarding management and control of local public rights-of-way belong to local governments. Each utility provider 

installs a separate system in its own unique location within the public rights-of-way. 

The systems are often installed on existing pole lines, in narrow trenches or in conduits that are bored into place. There is a correlation between the number of excavations and corresponding damage, and repeatedly cutting and repairing streets can 

permanently damage street pavement structures. Moreover, in the absence of compensation from utilities, taxpayers bear the burden of significantly increased street 

maintenance costs. 

APWA has a Utility and Public Rights-of-Way Technical Committee whose members provide education and information to raise awareness and promote the best use 

of the public rights-of-way for the public good. Our committee provides a forum 

where stakeholders can come together to discuss common issues and best management practices that will promote the effective integration of all users and stakeholders within the public rights-of-way. 

In conclusion, APWA supports competition and the rapid deployment of communications technologies and services in the communities we serve. We support a balanced approach that encourages innovation and preserves local governments’ longstanding authority to manage public rights-of-way and to receive fair and reasonable compensation for their use. Franchising authority is a core tool local governments use to manage rights-of-way in the public interest in order to protect public 

safety and public infrastructure. 

Mr. Chairman, we are especially grateful to you and Committee Members for the 

opportunity to submit this statement. APWA and our members stand ready to assist 

you and the Committee in any way we can. 

PREPARED STATEMENT OF JERRY BRITO, J.D., LEGAL FELLOW, AND JERRY ELLIG, PH.D., SENIOR RESEARCH FELLOW, MERCATUS CENTER AT GEORGE MASON

UNIVERSITY

Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to enter written testimony into the record of the 

Committee’s hearing on video franchising. We are research fellows with the Regulatory Studies Program of the Mercatus Center, a 501(c)(3) research, educational, 

and outreach organization affiliated with George Mason University. 1

As part of the Mercatus Center’s ongoing program to assess the costs and outcomes associated with regulation, we have recently completed an analysis of the effects on consumers of video franchising. Our study is attached as an appendix to 

this testimony. We also submitted this analysis in the Federal Communications 

Commission’s proceeding on video franchising. Principal findings include:

• Cable franchising costs consumers approximately $10.1 billion annually in higher prices and forgone benefits.

• Higher cable prices account for $8.4 billion of this cost:

—$5.9 billion in higher rates for basic, expanded basic, and equipment rental.

—$113 million in higher rates for digital cable.

—$2.4 billion in franchise fees.

• The remaining $1.7 billion is what economists call ‘‘deadweight loss’’—value 

that consumers forego because the higher prices induce some consumers to go 

without cable television.

• Excluding the effects of franchise fees, franchise regulation costs consumers approximately $6 billion in higher prices and $1 billion in forgone benefits (deadweight loss).

• The ‘‘natural monopoly’’ rationale for preventing competition is unconvincing. 

Contrary to natural monopoly theory, two decades of research by Federal agencies and independent scholars consistently finds that cable rates are lower in 

markets with wireline video competition. The most recent Government Accountability Office study finds that cable rates in markets with wireline video competition are 16.9 percent lower than they would be without this competition.

• The argument that entry regulation lowers rates by reducing the cable operators’ risks and costs is also unconvincing. Even when cable was first deployed 

80

in urban and suburban areas, jurisdictions with open entry policies or competing cable companies had rates equal to or lower than rates in monopoly jurisdictions.

• Local governments’ need to manage public rights-of-way may justify some regulation of construction and a cost-based fee to prevent congestion and reimburse 

the public for inconvenience when video providers use the public rights-of-way. 

Legitimate rights-of-way management, however, does not justify monopolization, and there is no evidence that a 5 percent franchise fee reflects costs actually imposed on the public when video providers use the rights-of-way.

The Federal Communications Commission has significant authority to preempt 

unreasonable franchising practices by local franchise authorities. We urged the FCC 

to take the following steps to promote competition:

• Declare unreasonable any refusal to grant a franchise justified on the grounds 

of natural monopoly, reduced investment risk, or rights-of-way management unless the local franchising authority presents overwhelming empirical evidence 

that the alleged problem exists and cannot be solved in any way other than barring new entry.

• Require local franchise authorities to explain in writing any refusal to grant a 

franchise.

• Preempt aspects of state level playing field laws that force entrants to make the 

same capital expenditures or cover the same service area as the incumbents.

• Declare unreasonable any state or local requirement that would force a new entrant to build out its network faster than the incumbent actually and originally 

built out its network.

• Declare unreasonable any delay in granting a franchise that exceeds some specified deadline, such as 120 days. Establish simple default conditions under 

which a new entrant would automatically receive a franchise if the local franchising authority has not acted by the deadline.

• Declare unreasonable any ‘‘nonprice concessions’’ in franchise agreements that 

are not directly related to setup or operation of a cable system.

These steps could significantly reduce the anticompetitive effects of franchise regulation. However, it is not clear at this time whether the FCC will choose to take 

all of these steps. In addition, some anticompetitive franchising practices might be 

dealt with more comprehensively in Federal legislation. Clearly, the stakes for consumers are significant. Congress could address anticompetitive franchising practices 

in the following ways:

• Remove barriers to open entry by amending Title VI of the Communications Act 

to no longer require a franchise before a provider may offer video service.

• Promote certainty and regulatory uniformity by adopting clear rules for anyone 

offering video service, including:

—An obligation to carry no more than a fixed number of Public, Education, and 

Government (PEG) channels. For example, Texas’s statewide franchise statute has set this number at three channels for a municipality with a population of at least 50,000, and two channels for a municipality with a population of less than 50,000.

—In place of franchise fees, obligate video providers to pay only a reasonable 

fee to the municipality in which it operates to cover the costs imposed on the 

municipality by its use of the public rights-of-way. However, this fee should 

be capped, just as franchise fees are now capped. If a video provider is already making payments for use of the public rights of way, these payments 

should be taken into account.

• Allow municipalities to manage the public rights-of-way only through nondiscriminatory rules that apply generally to all users of the rights-of-way.

• Allow providers to offer video service in only part of a municipality, and prohibit 

any authority from requiring a provider to build out its video service in any particular manner.

• The above framework should be made applicable not just to new entrants, but 

incumbents as well. Existing franchises should be preempted to the extent they 

are inconsistent with the new system.

The evidence is overwhelming that where video competition is permitted, it has 

served consumers well. We hope our findings are useful to the Committee as it 

weighs various options for reform of video franchising policy.

81

MB Docket No. 05–311; FCC 05–189, attached to this prepared statement, has been 

retained in Committee files.

FREEDOMWORKS

Washington DC, February 14, 2006

Hon. JIM DEMINT, 

Senate Committee on Commerce, Science, and Transportation, 

Washington, DC.

Dear Senator DeMint:

As the Senate moves forward with its evaluation of the telecommunications market, I want to thank you for your efforts to promote true competition in the telecommunications sector. FreedomWorks is a grassroots organization with more than 

800,000 members nationwide that promotes market-based solutions to public policy 

problems. An integral component of our efforts has been to educate consumers on 

the important benefits of open competition and the need for regulatory reform in 

telecommunications. This dynamic and evolving sector of our economy has the potential to provide consumers with an exciting new array of products and services. 

Unfortunately, the Nation’s telecommunications laws—last updated a decade ago—

impede deployment of new technologies and unnecessarily limit consumer choice. 

Today’s telecommunications markets are in flux as once distinct products and 

services converge and cross platform competition fundamentally re-defines this sector of the economy. Cable companies and others have already entered the voice market, telephone companies are poised to enter the video programming market, and 

wireless providers are emerging as a considerable rival to both cable and traditional 

wireline telephone companies. Content providers, applications providers, and Internet Service Providers are also proving to be critical actors in this market as well. 

Just as the industry is re-inventing itself, Congress must re-examine the regulatory framework to eliminate excessive government mandates and promote competition in an open marketplace. It no longer makes sense to view this market in 

terms of monopoly providers offering unique services at regulated prices. This view 

underlies much of telecommunications law, yet it is ill-suited for today’s technology 

sector. Excessive regulation ignores the realities of the current marketplace and 

makes it difficult to provide consumers with latest technologies. Regulations also 

impede the deployment of new high-speed broadband networks, something the administration has made a priority. 

The Digital Age Communications Act that you introduced recognizes the changes 

underway in telecommunications and seeks to replace outdated regulations with a 

new competitive model of the marketplace. Under today’s laws similar services and 

products are regulated completely differently simply by virtue of their regulatory 

history. The Digital Age Communications Act eliminates such artificial distinctions 

while promoting competition in all forms—across platforms, across technologies, and 

across applications. This approach is much more apt for today’s marketplace and 

assures consumers will have access to the latest technologies at the lowest prices. 

FreedomWorks believes that a competitive telecommunications marketplace holds 

great promise for consumers and the Digital Age Communications Act would be an 

important step toward achieving that goal. When producers are forced to compete 

in the marketplace, consumers have enjoyed falling prices, innovative products, and 

greater choice. Once again, thank you for pursuing this important issue. Attached 

please find comments prepared by FreedomWorks that highlights the importance of 

moving toward a more competitive model as well as some of the barriers that prevent competition in today’s market. As a consumer group that promotes the benefits 

of competition in an open market, FreedomWorks sees great potential for consumer 

gain as the next technological revolution unfolds. Should you have any questions, 

please do not hesitate to contact me. 

Sincerely yours, 

DICK ARMEY, 

Co-Chairman.

MB Docket No. 05–311, Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection 

and Competition Act of 1992—submitted for the record by Wayne T. Brough, Vice 

President for Research/Chief Economist, FreedomWorks—has been retained in Committee files.

82

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

IVAN G. SEIDENBERG

Question 1. As you know, I have long championed choice for consumers, in particular the ability for consumers to pay for only the channels they wish to view. 

Studies show that consumers generally only watch about 16 channels. AT&T, Cablevision and Echostar have stated that they would provide channels on an ‘‘a la carte’’ 

basis to their subscribers if their contracts with cable programmers allowed for such 

an offering. Would Verizon be willing to offer an ‘‘a la carte’’ option to its subscribers? 

Answer. The best way to achieve consumer choice is to remove barriers to competitive entry into the video market. Where we have gained permission to enter the 

video market, consumers have benefited from the additional choices that competition brings. For example, in communities where Verizon’s FiOS TV is available, incumbent cable operators have offered price cuts of 28–42 percent, although these incumbents generally have ‘‘not actively advertised’’ these discounts or made them 

available to other areas. In Keller, Texas—the first community with FiOS TV—over 

20 percent of eligible households subscribed to FiOS TV in the first three months 

that it was available. 

In addition to the benefits of lower prices and improved customer service, the residents of communities in which Verizon offers FiOS TV have available to them a 

wide range of diverse programming options, including a variety of innovative programming packages. For example, Verizon offers a Spanish-English package called 

La Conexion, for only $32.95/month, that includes more than 20 of the hottest Spanish-language channels as well as more than 30 of the most popular English channels. We also offer a variety of international or other premium channels on an individually-priced basis, including channels in Vietnamese, Chinese, Mandarin Chinese, Japanese, Korean, Arabic, Italian, French, Polish, Farsi, and Russian. 

While we have endeavored to offer programming to our customers in innovative 

ways, there are limits on what we, as new entrants, can do. We must obtain programming from content providers who bundle their most popular channels along 

with new and developing channels. As a new provider, Verizon lacks any ability to 

persuade content providers to sell their programming in any other way—particularly if we are to obtain the programming on reasonable and competitive terms. And 

the terms on which we have been able to obtain content from programmers—which 

often extend for a number of years—often preclude us from offering their content 

on an a la carte basis. 

Ultimately, the best way to benefit consumers and get them the programming 

they want in the manner they desire is to facilitate competitive entry into the video 

market. As competition for video services increases, programming providers will respond to consumer demand and provide their subscribers with the products that 

they desire in the manner that they want them.

Question 2. Verizon lodged an aggressive campaign to prevent the city of Philadelphia from building its own municipal broadband network. The Community 

Broadband Act introduced this past June would ensure that any municipality that 

sought to build such a network could do so as long as the municipality complied 

with any existing state or Federal laws. Now that the network is launched in Philadelphia, can you comment on the impact it has had on Verizon and your thoughts 

on municipal networks. 

Answer. To set the record straight, Verizon did NOT lodge any campaign to prevent the City of Philadelphia from building its own municipal broadband network. 

In fact, Verizon worked with the City of Philadelphia and policymakers in Pennsylvania to exempt Philadelphia from limitations on municipal ownership of broadband 

networks being adopted by the Commonwealth of Pennsylvania as a provision of legislation mandating that telecom carriers in the state deploy broadband services to 

all citizens. Philadelphia has not yet deployed its proposed City-wide network—so 

far it is trialing the service in a few limited test sites—so it has had no impact on 

Verizon. 

Verizon has not actively engaged in efforts to ban municipal broadband networks 

in Philadelphia or elsewhere and does not oppose municipal network legislation introduced by Members of this Committee. We also believe the record clearly demonstrates that in many cases municipal investment in broadband networks is an unwise use of public money and that broadband deployment is generally best left to 

private investment and to the marketplace. Having said that, there are instances 

where the involvement of local government may be a positive force in delivering 

broadband services to rural communities, and we are partnering with several communities in trials of new technology that deliver broadband capability to residents 

of those rural areas. 

83

* The information referred to has been retained in Committee files.

We also believe that robust broadband investment by the private sector will continue to promote community economic development opportunities and associated social benefits including telemedicine, distance learning and services for the disabled. 

Private companies have responded and continue to respond to the huge demand for 

broadband by investing heavily and deploying broadband services wherever it is economically and technically feasible to do so. In the vast majority of cities and urban/

suburban areas, for example, broadband already is widely available from multiple 

providers. For example, in Philadelphia, more than 95 percent of Verizon’s lines are 

DSL-capable, and Verizon offers a broadband DSL service for $14.95 per month.

Question 3. In your written testimony, you state that competitive video providers 

should be given a national franchise in order to ease their entry into the market, 

while Mr. Rutledge and Ms. Panzino-Tillery in their written testimony advocate that 

the current system of local franchises is best. What are your thoughts on the merits 

of a statewide franchise as recently enacted in the state of Texas? 

Answer. When cable first developed and was subjected to local franchise requirements, these systems generally were limited to local facilities that served as community antenna television systems—literally an antenna on a hillside that picked up 

and transmitted broadcast TV signals to households in the local community. In contrast, Verizon’s FiOS TV network and service are part of an advanced national 

broadband network that is being rolled out in areas across the country. And a national franchise system is most appropriate for this advanced national broadband 

network and services. 

Moreover, Verizon strongly believes that a streamlined, national franchise process 

is the fastest and fairest route to bringing much-needed choice and competition to 

the video market. One process is better than 51—especially when there is no guarantee when or how other states will follow Texas’s lead. Verizon believes that the 

residents of every state should enjoy the benefits of video competition. 

That being said, Verizon is trying to enter a new business and will explore all 

avenues to remove barriers to entry. As such, we have supported state legislation 

that would streamline the video franchising process. Texas, of course, is the pioneer 

in this area, and its citizens are now enjoying the fruits of their ‘‘first mover’’ legislation.

Question 4. Should Federal legislation address access to programming? Is sports 

programming a unique problem? 

Answer. Although the 1992 Cable Act prohibits vertically integrated cable companies from discriminating against competitors in the distribution of satellite-delivered 

programming, so far this provision has not been applied in the context of terrestrially delivered programming. 

Some cable operators have exploited this loophole in an effort to deny competitors 

certain popular programming, like regional sports programming. Without access to 

that unique and desirable programming, it is much more difficult for competitive 

providers to compete effectively in the marketplace. Congress should close this loophole. 

Attached for the record is an excerpt of Verizon’s recent filing at the FCC in its 

current proceeding addressing certain aspects of the local franchising process. * 

Paragraphs 64–74 describe the difficulties that Verizon has experienced obtaining 

programming from Cablevision, a vertically integrated cable operator. (See Attachment A, Declaration Marilyn O’Connell, Sr. Vice President—Video Solutions, 

Verizon, In the Matter of Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, MB Docket. No. 05–311). 

Question 5. Gene Kimmelman comments in his written testimony about current 

legislative proposals, ‘‘Notably absent . . . is any requirement that new entrants 

provide their services to the entire franchise area, opening a wide door to economic 

and ethnic discrimination (redlining) and closing the door to rate relief for those 

families who most need it and who have largely been left on the wrong side of the 

digital divide.’’ How do you respond to Mr. Kimmelman’s criticism? 

Answer. Verizon does not engage in redlining, and we agree that new entrants 

should be subject to the same Federal prohibition on economic redlining that applies 

to the cable incumbents. We have an excellent record of providing service to customers of all demographics. We will continue doing so with our fiber network and 

services, including FiOS TV. 

In fact, the very nature of Verizon’s deployment belies any suggestion of discrimination. Verizon deploys its FTTP on a wire center-by-wire center basis, generally 

upgrading to FTTP throughout the wire center, not picking and choosing particular 

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neighborhoods. Even in the early stages of Verizon’s FTTP rollout, it is clear that 

Verizon seeks to offer FiOS to a diverse range of subscribers throughout its service 

area. For example, communities like Lynn, Massachusetts, Fort Wayne, Indiana, 

and Passaic, New Jersey are now receiving the benefits of FTTP, even though the 

average income in those communities is lower than the average in their respective 

states. As Verizon undertakes the massive investment required to deploy FTTP, its 

goal is to include, not exclude, any group of potential customers. 

Moreover, redlining would be a bad business strategy. Studies repeatedly show 

that low-income households are significant subscribers to video services. As such, 

new entrants in the video market have every incentive to make their services widely 

available, and not just to the wealthy. In rolling out FTTP, Verizon’s primary goals 

include marketing additional services such as video to customers it already serves, 

while reducing day-to-day cost of operation by deploying an all-fiber network. Therefore, redlining would not square with what Verizon seeks to accomplish in competition with cable and would be inconsistent with its core belief in diversity. 

Verizon’s programming proves that redlining is not our intent. We are offering 

one of the most diverse programming line ups in the history of the business. We 

have more than 50 ethnic channels that are available to all of our subscribers across 

our footprint—not just in selected areas. Verizon is offering subscribers a basic service package at $12.95/month, an expanded basic package at $34.95/month, or a 

Spanish-English package called La Conexion at $32.95/month. La Conexion includes 

more than 20 of the hottest Spanish-language channels, more than 30 of the most 

popular English channels, local channels such as Telemundo, Univision, and 

Telefutura. Verizon offers an additional all Spanish-language package with more 

than 20 channels of news, sports, movies, telenovelas, and more for an additional 

$11.95/month. Our subscribers may also select other individually-priced international channels in Vietnamese, Chinese, Mandarin Chinese, Japanese, Korean, 

Arabic, Italian, French, Polish, Farsi, and Russian. 

While we agree that a new entrant should be subject to the same Federal prohibition on economic redlining that applies to incumbents, a new entrant should not be 

required to build-out and provide video service to all of the same households as the 

incumbent. Imposing build-out requirements on competitive providers increases dramatically the costs of entering the market, and can create an insurmountable barrier to competitive entry. This is because there are dramatic differences between a 

competitive provider—who will face ubiquitous competition from an entrenched competitor and who will receive a smaller market share and smaller profit margins than 

the incumbent did when it built out—and an incumbent provider who agreed to 

build-out in exchange for a decades-long monopoly position in the market. 

Moreover, build-out requirements are particularly problematic because of differences in the network architecture of new entrants into the video business such 

as Verizon, including differences in the areas where we and other new entrants provide non-cable services. For example, as noted above, Verizon upgrades to FTTP on 

a wire center basis. When we upgrade, we generally extend fiber throughout the 

area served by a particular wire center, regardless of community or neighborhood 

boundaries. A particular wire center may not serve the entirety of a community (or 

the incumbent’s franchise area), or it may serve parts of several communities. In 

either case, forcing Verizon to offer service to households outside of the wire center 

that is being upgraded to FTTP could make deployment in the area uneconomic, 

thus potentially denying all customers in the area the benefits of the competitive 

services we offer over FTTP. That, of course, is cable’s objective. And these anticompetitive effects would be magnified if we were required to build out and offer 

services completely outside of our telephone service area where we have no facilities 

at all—as some cable incumbents and franchising authorities have suggested. 

Finally, the cable incumbents’ calls for a broad build-out requirement should ring 

hollow because those same providers were never required to build-out as a condition 

of providing competitive telephone service, and they argued vociferously at the time 

that build-out requirements imposed on them would prevent them from offering 

competitive voice services. The same is true here. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

THOMAS M. RUTLEDGE

Question 1. Title VI of the Communications Act allows localities to ask for ‘‘in 

kind’’ payments in return for a franchise. What is the most outrageous request that 

has been made of Cablevision? 

Answer. Generally, we enter into franchises that impose reasonable terms that 

are related to the community’s cable-related needs as the Federal statute provides. 

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There are times when a community may ask for an terms that we believe are not 

reasonable, but because Title VI constrains what a franchise authority may seek, 

we are able to reject those requests.

Question 2. In your testimony. you state that ‘‘local franchising works.’’ However 

would you concede that a statewide or national franchise could provide Cablevision 

with cost savings that could be passed on to consumers? 

Answer. While there is some cost associated with local franchising, there are important countervailing considerations that support the continued role of local government in video programming. These include the ability of a local community to 

address individual priorities of community and what parts of the community will 

get service and when, local programming, safety and aesthetic considerations. These 

considerations cannot be as effectively met at the Federal or state level, and any 

assessment of the current franchise process must take into account the considerable 

history and value of local interests. Furthermore, to the extent that a new entrant 

is not required to meet comparable requirements, the playing field will not be level.

Question 3. The New York Times reported on September 15, 2005 that ESPN 

signed an eight-year, $2.4 billion contract extension with Major League Baseball, 

which is a 51 percent increase over the parties’ current contract. Inevitably, this increase will be passed on to consumers. What can Congress do to stem the flow of 

expensive sports contracts? Or should Congress be involved? 

Answer. We believe that cable operators could benefit from unbundled availability 

of programming, especially high-cost programming such as sports. It is worth noting 

that Cablevision fought a public battle for more than a year for the right to buy 

and sell the YES Network in tiers and individually. Ultimately we were forced to 

add this expensive programming service to our expanded basic line-up. Today, program suppliers resist offering operators, like Cablevision, such a choice. This is not 

an operator or franchise issue. Rather, it is a programming supplier issue affecting 

all distributors, including satellite and phone companies. Congress could articulate 

a policy to force programmers to change the way they sell programming to the multichannel distribution industry.

Question 4. In their written testimony, Mr. Seidenberg and Mr. Whitacre state 

that competitive video providers should be given a national franchise in order to 

ease their entry into the market, while Mr. Rutledge and Ms. Panzino-Tillery in 

their written testimony advocate that the current system of local franchises is best. 

What are your thoughts on the merits of a statewide franchise as recently enacted 

in the state of Texas? 

Answer. Some states determine that they should have the primary role in franchising; some decide it should be mixed; some decide they should have no role. Cablevision supports the ability of states to decide for themselves the appropriate allocation of franchise authority. We have endorsed efforts by the states (such as New 

York) that impose some time limitations and level playing field requirements (the 

‘‘shot clock’’ and the ability to ‘‘opt in’’) that are consistent with local prerogatives. 

We similarly endorse the principles articulated by Senators Burns and Inouye on 

these points. 

However, even in States with broader franchising authority, the role of local government is critical. The local government is best positioned to address the individual 

priorities of a community, including serving all residents in a community, local programming, safety and aesthetics.

Question 5. Should Federal legislation address access to programming? Is sports 

programming a unique problem? 

Answer. See response to Rutledge Question 3 above.

Question 6. Gene Kimmelman comments in his written testimony about current 

legislative proposals, ‘‘Notably absent . . . is any requirement that new entrants 

provide their services to the entire franchise area, opening a wide door to economic 

and ethnic discrimination (redlining) and closing the door to rate relief for those 

families who most need it and who have largely been left on the wrong side of the 

digital divide.’’ How do you respond to Mr. Kimmelman’s criticism? 

Answer. Mr. Kimmelman makes a valid point. Allowing new entrants to serve 

only affluent or low-cost areas is inherently unfair and will serve to divide communities and deny new technologies to a significant number of Americans. The cable 

industry has invested in state-of-the-art networks that serve all residents within a 

franchise area, not only the neighborhoods that are potentially the most lucrative 

or least costly to reach. Communities, in their local franchise agreements, typically 

have had the ability to accommodate both entry and broad service needs by setting 

requirements to serve all residents to avoid this kind of disparity. Congress should 

not remove that local prerogative. 

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RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. JOHN MCCAIN TO

GIGI SOHN

Question 1. In their written testimony, Mr. Seidenberg and Mr. Whitacre state 

that competitive video providers should be given afranchise in order to ease their 

entry into the market, while Mr. Rutledge and Ms. Panzino-Tillery in their written 

testimony advocate that the current system of franchises is best. What are your 

thoughts on the merits of a franchise as recently enacted in the state of Texas? 

Answer. Public Knowledge supports a national video franchise because it would 

lead to the fastest possible rollout of video competition, which will benefit consumers 

with greater choices and lower prices. A statewide franchise would certainly be an 

improvement over the current local franchising structure, but would not be optimal. 

Also, to the extent that the rationale for local franchises is that local authorities act 

as proxies for their citizenry, a statewide franchise would not necessarily accomplish 

those goals. Indeed, a state franchising process might provide other obstacles to 

video competition, such as giving incumbent providers an opportunity to oppose or 

delay new entrants.

Question 2. Should Federal legislation address access to programming? Is sports 

programming a unique problem? 

Answer. To the extent that video providers also have ownership interests in the 

programming on their systems, it is important that they be required to make that 

programming available to other competitive video providers. Otherwise, vertically 

integrated video providers might either withhold programming from competitors, or 

make that programming prohibitively expensive, which will harm video competition 

to the detriment of consumers. Our understanding is that competitors have particular difficulties obtaining local and regional sports programming from video service providers with financial interests in that programming. 

To the extent that the Communications Act already requires program access (47 

USC § 548), the law should be clarified to ensure that vertically integrated video 

providers do not impose conditions on access to their programming that appear to 

be ‘‘nondiscriminatory,’’ but in fact are impossible for competitors to meet because 

of technological, delivery or capacity differences.

Question 3. Gene Kimmelman comments in his written testimony about current 

legislative proposals, ‘‘Notably absent . . . is any requirement that new entrants 

provide their services to the entire franchise area, opening a wide door to economic 

and ethnic discrimination (redlining) and closing the door to rate relief for those 

families who most need it and who have largely been left on the wrong side of the 

digital divide.’’ How do you respond to Mr. Kimmelman’s criticism? 

Answer. At a minimum, any national franchise legislation must prohibit redlining, and must ensure that the prohibition is enforceable. S. 1349, the Video 

Choice Act of 2005, includes a provision that says that a competitive video services 

provider may ‘‘not deny services to any group of potential residential subscribers because of the income of the residents of the local area in which such group resides.’’ 

That prohibition could be expanded to also forbid discrimination based on ethnicity 

or race. Another possible solution to the problem of redlining would be a negotiated 

build out requirement such as that found in the recently passed Virginia video franchise bill.

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