Could newly proposed House legislation rewire the Bell System?

Washington (DC) - New draft legislation being proposed by the Republican chairman of the House Energy and Commerce Committee, in the wake of a fallout with House Democrats last Friday, would ease the restrictions on telecommunications companies seeking to obtain national franchises for cable television service. But with the definition of "cable television service" changing by the month, the likelihood of piggy-backed Internet and voice services atop digital CATV could make it possible for AT&T and Verizon to provide the "triple threat" - voice, data, and multimedia - on a nationwide scale.

Rep. Joe Barton (R - Texas) introduced the new committee draft, currently dubbed the "Communications Opportunity, Promotion, and Enhancement Act of 2006," last Friday after a bipartisan compromise, which the Committee had been debating for a year, was scrapped. The earlier, bipartisan language of the legislation interpreted the underlying technology quite differently, focusing mainly on the Internet aspect of a national franchise. It introduced the acronym "Broadband Internet Transmission (BIT)" to refer to the principal service that telecom operators would provide on a national scale, with television and VoIP services defined as derivatives of that basic platform. Provisions in the earlier draft would have regulated the eligible service area and competitive requirements of national licensees, based on the levels and quality of service provided by existing ISPs in the regions which this new national service would overlap. The intent, supporters claimed, was to maintain fairness and an equal playing field with existing, smaller companies.

But the new draft legislation, to be discussed in an open session of the Committee on Thursday morning, removed the BIT interpretation entirely, reverting to older language that would regulate national service based on current cable TV standards, not Internet service. National licensees would be required to make way for, and compete fairly with, existing providers of cable TV service. But even the term "broadband" is relegated, in the new draft, to a significantly shortened Title II, which simply grants the Federal Communications Commission broad authority to adjudicate and enforce decisions regarding complaints that may arise about a national licensee's broadband service.

By changing the playing field from broadband Internet to cable television, Rep. Barton's draft may be paving the way for the newly re-consolidated telecom giants Verizon and AT&T to establish next-generation telephone service - and thereby, Internet service - under existing regulations whose language applies only to the realm of cable TV.

When the Bell System was broken up in 1984, the new Communications Act mandated that no single corporation could ever hold monopolies on local and long-distance telephone service in the US. The Barton draft, ostensibly, would not re-enable such a monopoly; in fact, its language contains provisions for ensuring competition between national licensees and existing local licensees, within the coverage area served by the local ones. But one of the ostensibly pro-competitive provisions in the new draft has a curious provision, which opponents could conceivably target as a potential loophole.

Technically, the proposed Sec. 630(b)(2)(E) would only allow a national franchisee to do business in a given local franchise area so long as there was another competitive CATV provider within the same area. In the event that there is no competitor, the draft legislation currently reads, the service area would revert to local licensing only, and provisions in the bill mandating that national franchisees must be accredited by local franchising agents, would not apply to that area. The remedy, however, for the national franchisee would be to apply for a local license within the newly non-competitive area; in which case, that franchisee's petition would likely be granted, effectively filling the void with the new franchisee.

Currently in the US, CATV contracts are awarded by local or municipal authorities to individual carriers, each of which is given license to provide CATV service exclusively within its given area. So the maximum number of CATV providers within any given area of the US, is presently one. The Barton draft would mandate that these authorities recognize national franchisees - perhaps not limited to one - as equal competitors, and that when the existing local franchise holder is forced out of an area, the national franchisee's petition to take over that area exclusively (under the existing local provisions) be given consideration.

The National Cable and Telecommunications Association quickly came out in support of the Barton draft. In a statement yesterday, the Association's CEO, Kyle McSlarrow, praised the proposed substitute legislation. "Earlier drafts of the House bill focused on picking winners and losers on the basis of technology," wrote McSlarrow, "and we are pleased that focus has now changed. While our policy recommendation would be to reform and streamline the franchising process to ensure speedy entry by new competitors, we are pleased that the national franchising scheme proposed in the House bill seeks to ensure all providers compete on a level playing field."

McSlarrow pointed out that telephone companies currently have an estimated 85% share of the voice communications market, and applauded the new draft for apparently recognizing that fact and opening up the means to balancing that market. His NCTA represents the interests of major cable providers such as Comcast and Cox Communications, which may also seek to become national franchisees under the proposed legislation. But while this might extend the reach of CATV providers to areas where regional and local licensing has excluded them up to now, the Barton draft proposes that existing providers (such as Comcast) within local coverage areas can only become national licensees within those same areas if and only if a "new cable operator" has applied to provide service to that local area as well. Current language makes it clear that no company is excluded from being that "new cable operator," even if it's already a national licensee.

So in other words, if Comcast seeks to nationalize, it has to be national within every local area in the nation, and allow for competition in every local area within that nation. And while local provisions may continue to allow for only one local franchisee per service area, the number of national franchisees within that same area with which that single local service may find itself competing, may be unlimited.

Draft legislation is typically as solid as bread dough, and may be subject to extensive rewriting and amendment - perhaps metamorphosing the entire purpose of a bill - prior to its final passage by both houses of Congress. But Rep. Barton's introduction makes it clear where the dividing lines are, with respect to regulation of Internet service in the US. As tense as relations are at present between the two parties in Congress, the Barton provision that could potentially grease the wheels for a federally-mandated duopoly in Internet service, will most certainly not go unnoticed.