Increasing Competition to Cable Incumbents: the Future of Regulation

1
Increasing Competition to Cable Incumbents the
Future of Regulation

• Nicholas P. Miller

February 9, 2006 Practicing Law Institute New
York
2
Overview

• Industry Developments
• State/Federal Efforts
• Legislation
• FCC
• Local Government Role?
• Some Perspective

3
The Milieu Packet Switched Data Innovations

• A Revolution in Traditional Economies of Scale
• Fiber cheaper than copper
• Digital cheaper than analog
• Wireless bandwidth capacity
• Fiber Makes Backbone Bandwidth a commodity
• The digital on-ramps still
• Limited bandwidth
• Duopoly

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RBOC Wing Walking to the Future Obsolescence of
Circuit Switch Voice

• Short Term Strengths
• Lots of cash
• Lots of political clout
• Healthy (but diminishing) cash flows
• Long Term Weaknesses
• Obsolete technical plant
• Obsolete business model based on scale economies
• Universal service and non-discrimination
  Expectations

5
Industry Developments RBOC Resurgence

• Short Term Revenue Gains
• Total Dereg of local phone rates
• Demise of CLEC competition
• Absorption of MCI/ATT Long Distance/Business
  Revenues
• Major Long Term Gain No fiber unbundling!!

6
RBOC Strategy Use the Cash to Buy a New Business

• Fiber to the Home (in stages)
• Enter New Lines of Business
• Use Deregulation to Reestablish Monopoly Choke
  Points

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Industry Developments Cable

• Continued Debt Burden Is the price per sub too
  high?
• Continued Consolidation-the Adelphia transaction
• Limited Capital Plans suggest too much mortgage
  debt limiting new technology expenditures
• Cable and Wireless IP Services
• New Revenue Streams
• Free of Regulation

8
Cable Still Dwarfed by RBOC

• Size
• Political Clout
• See, e.g. Mr. Icahns plans for Time Warner

9
RBOC 3-D Chess Local/State/Federal

• Play All Forums Simultaneously
• Move to the One with Earliest Relief

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Federal Legislation-Comprehensive Rewrite?

• BITS III?
• Stevens/Inouye?
• Ensign?

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Federal Video Franchising?

• Taukes Statement
• Blackburn/Rockefeller
• Inouye/Burns

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Dont Forget TeleComm Taxes

• No Progress on Industry Government Negotiations
• Streamline Tax Project Continues
• Allen-Wyden Extension of Internet Tax Moratorium
  to all internet services is DOA
• On-going tax rationalization push by RBOCs

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State Legislation-2005 Texas and 2006 Virginia
set the table

• Issues
• Buildout? No/Yes
• PEG capacity? Yes/Yes
• PEG ? Yes/Yes
• In-kind/Inets? No/No
• Existing Franchise Contracts Enforceable? Yes/No

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14 States NowHere are some

• Indiana
• SB245
• http//www.in.gov/legislative/bills/2006/SB/SB0245
  .3.html
• HB.1279
• http//www.in.gov/apps/lsa/session/billwatch/billi
  nfo?year2006session1requestgetBilldocno1279
  
• Kansas SB 449 http//www.kslegislature.org/bills/2
  006/449.pdf
• Maine LR2800

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Some More

• Missouri SB16
• http//www.senate.mo.gov/06info/pdf-bill/intro/SB8
  16.pdf1/18/2006
• New Jersey A.804 http//www.njleg.state.nj.us/2006
  /Bills/A1000/804_I1.HTML
• S. 192 http//www.njleg.state.nj.us/2006/Bills/S05
  00/192_I1.HTML
• New York S 1433
• North Carolina Study Committee North Carolina
  Revenue Laws Study Committee Looking At State
  Cable Franchising

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And More

• South Carolina S. 1053 http//www.scstatehouse.net
  /sess116_2005-2006/bills/1053.html
• H.4428
• http//www.scstatehouse.net/sess116_2005-2006/bill
  s/4428.html
• Virginia HB 568, HB 881 SB 706

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FCCHey Dont Forget Us!

• Cable Franchise NPRM
• MB Dkt No. 05-311 FCC 05-189
• Comments Due on Monday, 2-13-06
• Issue Is LFA RBOC Negotiation for Franchise per
  se unreasonable under 621(a)(1)?

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FCCIP Services

• Federal Preemption--Vonage
• Broad Authority Brand X
• Incremental Approach
• E911
• CALEA?
• Consumer Recourse?
• Net Neutrality?
• Interconnection?
• Non-Discrimination?

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Whither Local Governments?
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Local Governments Remain Major Stakeholders

• Landlord
• Largest Customer
• Economic Development
• Digital Divide
• Distorted Competition

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Testimony before Senate and House and at FCC

• Franchising is a Real Property Transaction--Entitl
  ed to Reasonable
• No alternative to Local Management of PROW
• Must Have Reasonable Taxing Authority
• Feds Can Have Business Regulation
• Does Congress really want consumers to call DC
  for relief?

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Some Perspective

• RBOCs will not get the relief they need in the
  time they need it unless they deal with LFAs
• Consensus that all competitors should face
  comparable requirements
• Taxes and rents are sine qua non
• Universal Build-out Must Occur

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Contact Information
Nicholas Miller nmiller_at_millervaneaton.com Miller
Van Eaton, P.L.L.C. 1155 Connecticut Avenue,
N.W. Suite 1000 Washington, D.C.
20036-4301 phone [phone] fax [phone] www
.millervaneaton.com