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from: SFGate.com

Big business lobbies hard for video licensing bill
Creating statewide franchises would shake up telecom world

Matthew Yi, Chronicle Sacramento Bureau
Monday, August 28, 2006

Sacramento -- When Assembly Speaker Fabian Núñez held a news conference in April to introduce legislation to give telephone companies unprecedented access to the home video market, he did so with props that evoked a bygone era.

Room 317 on the third floor of the state Capitol was filled with bean bags, a red vinyl sofa, macrame wall hanging, lava lamp and even an old black-and-white TV with fuzzy picture.

The message? Living in the era of cable television is like being stuck in the 1970s, and the way to get out of the rut would be to make it easier for new competitors like telephone giants AT&T and Verizon to jump into the business of video service.

Phone companies that stand to gain the most from the legislation, especially AT&T, have pulled out all the stops in making their case before lawmakers, spending more than $200,000 a day during a three-month promotional blitz.

State lobbying reports show that in April, May and June, AT&T and Verizon spent almost $19.7 million to influence the vote on AB2987, an amount that astounds Capitol veterans.

AT&T led the way by spending nearly $18 million on lobbyists; television, radio and newspaper advertising; wining and dining lawmakers at the Monterey Bay Aquarium; and Lakers basketball tickets for the chairwoman of the Senate committee that held hearings on the legislation, records show.

A few weeks after Núñez's news conference, AT&T co-hosted a golf tournament at Pebble Beach that helped the speaker raise $1.7 million for the state Democratic Party.

For phone companies AT&T and Verizon, the efforts have paid off, so far.

Despite initial opposition by cable companies and continuing objection from local governments and consumer groups, which say the increased competition for video service won't lower prices, the legislation has yet to receive a single "no" vote during committee and floor votes. Final votes are expected on the bill this week.

"This appears to be an example of special interest(s) using their financial clout to buy public policy," said Ned Wigglesworth, policy advocate of California Common Cause, a nonprofit government watchdog group. "If you look up 'juiced bill' in the dictionary, this would be the definition."

And in the case of AT&T, the company has been active in contributing to both major political parties, he said.

Just last year, state filings show, the phone giant gave $20,000 to the California Democratic Party and spent $100,000 on fundraising for the party; gave $52,000 to the California Republican Party; and $35,000 to Californians for Schwarzenegger.

"Those contributions set the table for AB2987's whirlwind tour through the Legislature," Wigglesworth said.

For consumers, the stakes are also high. The bill would result in the changing of the telecommunications landscape in California and the way consumers watch TV, make telephone calls and surf the Internet.

Until recently, cable firms provided only television service and telephone companies provided phone service -- without any overlapping businesses. However, the fast-evolving Internet has resulted in cable companies starting to offer telephone service and phone companies delivering video to consumers.

For decades, cable television companies have had to negotiate separate franchise licensing deals with local governments. AT&T and Verizon argue that method is unwieldy and is an unfair barrier to entry for newcomers.

That's where AB2987 comes into play. The bill would allow companies like AT&T to jump into the video market in all of California by granting them a single statewide franchise license.

Núñez said the Legislature's so-far unanimous support is because lawmakers on both sides of the aisle agree that consumer choice is a good idea.

"There's a public process that's been going on here in the Legislature, and we've made sound arguments that passed the smell test -- and then some -- that say this is good for the consumer," he said in an interview.

The speaker said the annual Pebble Beach golf tournament has been around for many years. As for the $9,360 that AT&T paid on Feb. 28 for Democratic lawmakers' dinner reception at the Monterey Bay Aquarium, the phone company was merely one of many sponsors for the Democratic caucus' retreat, he said.

"Utilities are notorious, all of California's utilities, for sponsoring Republican Party activities, Democratic Party activities. This is not unique," Núñez said.

According to lobbying reports filed with the secretary of state's office, some lobbying efforts seemed to be well targeted, such as $1,238 AT&T spent on Lakers basketball tickets and refreshments for Sen. Martha Escutia, D-Whittier (Los Angles County), and her husband and their two sons. Escutia is the chairwoman of the Senate's Energy, Utilities and Communications committee.

Although Ken McNeely, president of AT&T California, refused comment on specific lobbying efforts, the executive argued that the expensive overall effort was necessary because his company's bread and butter -- telephone service -- has been steadily losing ground in part to cable companies that offer their own phone service.

"Our core business is under assault, and it was very clear we had to provide our customer base an alternative to cable services," he said.

Plus, the passage of the bill will result in potentially billions of dollars of infrastructure investment in California, McNeely said.

"Capital dollars in most corporations are in short supply, and those capital dollars will be invested in communities and states that are receptive and encourage new services, investments and innovation. If we didn't feel that California wasn't receptive to that, yes, those capital dollars will be used elsewhere," he said.

Perhaps the group that would have most to lose if AB2987 passes is the cable industry, which has for decades enjoyed a near monopoly of providing television service. And the cable industry hasn't been standing idle, either.

In its early efforts to kill the bill, Comcast spent more than $3 million in April, May and June. A large chunk of that was spent on television advertisements, but also for hiring additional lobbyists. Comcast also spent $216 on March 18 for a Sacramento Kings basketball ticket and refreshments for Assemblyman Lloyd Levine, D-Van Nuys, who is the chairman of the Assembly Utilities and Commerce Committee.

In addition, the California Cable & Telecommunications Association spent $196,080 in the same three-month period for a range of lobbying activities that included meals with lawmakers.

Dennis Mangers, president of the association, said he has had to resort to using the help of contract lobbyists for the first time in his 25 years of representing the cable industry in Sacramento.

"I don't ever recall this kind of money being spent, this much drama, this much public interest," he said.

When the Assembly voted 77-0 on May 31 to approve AB2987, Mangers said, he realized that defeating the bill wasn't realistic.

He contacted Núñez's office and offered to support the bill if cable companies can abrogate their existing local franchises and apply for a state license, and also get a seat at the table as the legislation continues to be tweaked.

The bill was eventually amended to allow cable companies to cancel local licenses and gain a state franchise if phone companies begin service in their regions.

That has left only the local governments and consumer groups standing in opposition to the legislation.

Regina Costa, telecommunications researcher at The Utility Reform Network in San Francisco, said there is no guarantee that rates will actually go down and consumers may be forced to buy bundled packages even if they don't want all of the included services.

"It'll just allow people to come in and gouge you," she said.

Another byproduct of more companies jumping into the video service fray could be tearing up of streets to lay the fiber optic cables, and in the case of AT&T, installing large gray boxes that contain circuitry to bring faster Internet connection to each home, said Judy Dugan, a researcher at the Foundation for Taxpayer and Consumer Rights in Los Angeles.

If the bill passes and AT&T obtains a statewide video franchise, the company could use the same circuitry in those boxes to offer video service to residents.

In San Francisco, for instance, about 600 of these boxes, which measure at least 4 to 5 feet high, already have been sprinkled around the city as part of AT&T's effort to bring faster Internet speeds to residents.

Christine Falvey, a spokeswoman for San Francisco's Department of Public Works, said city officials' main concern is to make sure these boxes do not block public rights of way, especially for those in wheelchairs. But another problem has been graffiti.

"These are graffiti magnets," she said.

The city recently has asked AT&T to come up with specific solutions for such problems, such as giving incentives to private property owners to place the boxes on their premises, Falvey said.

Assembly Bill 2987
What it does: The bill grants statewide franchise licenses for video service, allowing new entrants to quickly jump into the video market. Existing cable companies with franchises with local municipalities can cancel those contracts and also get a state license if another company starts offering video service in their area.

Supporters: Telephone companies, such as AT&T and Verizon, and cable companies, such as Comcast and Time-Warner.

Opposition: Local governments, some consumer groups.

What's next: The bill is expected to be heard in the state Senate this week.

For more information on AB2987, go to www.leginfo.ca.gov.

The money behind the bill
The following is a breakdown of how much was spent lobbying on AB2987 during April, May and June:

AT&T Inc. and affiliates: $17,977,977

Verizon Communications Inc.: $1,709,861

Comcast Corp.: $3,083,886

Time Warner Inc. and subsidiaries: $564,800

California Cable & Telecommunications Association: $196,080

Source: California secretary of state

E-mail Matthew Yi at myi@sfchronicle.com.

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