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The Verizon Bill Three Years Later

Taking Stock of the
Changing Cable
Television Landscape


Steven P. Goodell
By Steven P. Goodell
League Special Counsel on
Telecommunications, Herbert,
Van Ness, Cayci and Goodell

electricity on the darl blue sky above light blue water

It has now been more than three years since Governor Corzine signed what was popularly known as the “Verizon Bill,” the sweeping legislation that amended the State’s Cable Television Act. It’s now time to take stock and to see how the new law has changed the cable landscape.

Before the Verizon Bill, there was just one way for a cable company to get the state and local approvals needed to do business in a town. The franchising process was long and complex. It required findings by the local cable television committee of the municipality’s cable-related needs, hearings by the governing body to determine whether the cable company was capable of meeting its commitments, and protracted negotiations between municipal officials and the cable company to hammer out the terms of the municipal approval. Once all that was done, the cable company had to seek permission from the Board of Public Utilities (BPU) for the final certificate of approval that served as its license to do business in the town.

Under the new law, a company that wants to offer cable services has a choice. Instead of applying town-by-town for permission to do business, the company can apply once, to the BPU, for the right to do business in all of the towns in which it maintains plant and equipment. If the company meets the BPU’s requirements the BPU will issue a “system-wide franchise.” To nobody’s surprise, immediately after the new law was passed Verizon did just that, and on December 15, 2006 the BPU issued Verizon the state’s first system-wide franchise.

The League of Municipalities supported the Verizon Bill. Most significantly, the League fought to ensure that the bill would promote competition, increase the franchise fee to help bring property tax relief, save municipalities the time and expense of negotiating detailed franchise agreements, and contain guarantees that low income areas would not be passed over by new entrants in the cable television market.

Overall, the League believes that the new legislation has met its goals. In particular, Verizon’s rapid entry into the market under the new franchising system has been faster than anticipated. The BPU has authorized Verizon to provide cable television service to 369 municipalities in 19 counties, and by the end of 2009 the company was actually serving portions of 335 municipalities. Verizon’s entry into the market has provided choice for residents in towns that in the past could offer only one cable franchise alternative.

With the new competition, municipalities have seen an increase in franchise fees. The new law required the holder of a system-wide franchise to pay 3½ percent of gross revenues to the municipality, which was a significant improvement over the old law that only allowed a 2 percent franchise fee on revenues on basic programming packages. In addition, the new law required incumbent cable providers to pay the higher 3½ percent fee once the system-wide franchise holder was able to service 60 percent of the households in the municipality. As a result, many municipalities are now seeing higher franchise fees being paid by both the incumbent cable provider and by Verizon.

One provision of the law that the League was concerned about was the section that gave an incumbent cable provider, such as Comcast or Cablevision, the ability to walk away from its existing local franchise and to automatically convert to a system-wide franchise. To date there have been just six such conversions, all by Cablevision, and it appears that the traditional cable companies have been generally satisfied with their existing franchises and the deals they have struck with their towns. From the League’s perspective this is a good thing, because municipalities that have engaged in the lengthy process of negotiating a franchise through the municipal consent procedures should be able to count on a cable company honoring the terms of that franchise.

During the initial stages of Verizon’s build-out there were complaints about the fact that Verizon could not interconnect with the existing cable system. This limited Verizon’s ability to provide local cable programming on public, educational, and governmental (PEG) channels. The new law required that the cable companies interconnect and gave the BPU authority to resolve any disputes that might arise between the incumbent and the new cable companies. In mid-2008 those disputes went before the BPU and were finally resolved. Since then, interconnections between the cable companies have proceeded more smoothly.

The League has not received complaints about discrimination in Verizon’s build out; however, the League is in many ways operating with incomplete information. To address this lack of information, the League has urged municipalities where Verizon is providing cable service to request a map from Verizon of the town’s current build-out. Having such information will allow each town to assess whether there is any evidence of “redlining.”

Remember that when Verizon comes to town, it is up to the town to proactively request the municipal benefits that the new law allows. According to the new law, the holder of a system-wide franchise like Verizon must provide each town with two PEG stations, free basic cable service to public buildings, free internet service to public buildings, equipment and training for access users on an agreed-upon schedule, a return fee to enable live or taped broadcast, and the same for consumer protection standards have always been required. The League would still like to see additional action by Verizon in providing training and equipment to municipalities for their PEG channels.

Overall, the new legislation has saved municipalities countless hours in negotiations with cable providers, and has thereby saved time and expense at a time when municipalities need to conserve resources to the greatest extent possible.

From the League’s perspective, Verizon appears to have worked in good faith to implement its system-wide franchise. Verizon has provided information to the League when requested and has worked aggressively to provide service to our member municipalities. The bottom line is that the new legislation has provided increased franchise fee revenues for municipalities and has provided more choices for municipal residents, which were both goals that the League sought when it originally supported the legislation.

It’s now up to the BPU to formally report on whether the Verizon Bill has met its goals. The law required the BPU to hold hearings and take public comments at the three year mark, and then to issue a report describing the extent of cable service deployment by each system-wide franchise holder, the income and race of the persons in the areas served, the effect of the new cable provider on choice in the marketplace, and the effect that the new competition among cable providers has had on consumers. The BPU held its hearings in December and closed the public comment period on January 22. Its much-anticipated report is due in June. Also, the BPU’s Office of Cable Television will be publishing new rules this year addressing the procedures for renewing and for converting to a system-wide franchise

 


This article appeared in New Jersey Municipalities, Volume 87, Number 3, March 2010

 

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