Bells Will Get Their Fiber

The Bells' network buildout is looking more likely thanks to possible action in Congress.
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Defeated in Texas, the triple-play-minded Bells may now get a big assist in Washington, D.C.

Lawmakers are drafting telecom legislation that would create national franchise rights for video services. If the measures become law, they could enable the big phone companies to skip past a thicket of state and municipal approvals, according to J.P. Morgan Chase analyst Ehud Gelblum. That would speed the companies' efforts to offer customers the industry's holy grail: all-in-one cable television, phone and Internet service.

Citing recent dinner discussions with senior Republican staffers on the Senate Commerce Committee, Gelblum says there is a growing consensus that new telecom laws will hand a huge regulatory victory to the Bells.

Verizon

(VZ) - Get Report

,

SBC

(SBC)

and

BellSouth

(BLS)

are expanding their fiber-optic networks to deliver phone, broadband and TV services to consumers. The bold building plan is aimed squarely at cable companies and predicated on the success of an advanced digital video programming offer.

In case you missed the first few innings, the Bells' most promising hope for avoiding the town-by-town regulatory quagmire was the possibility of a statewide franchise approval. But those

hopes were dashed recently in Texas. Lawmakers in SBC's home state -- an area where Verizon first introduced it fiber service -- voted down a state franchise measure.

For Wall Street, a big green light on the Bells' so-called fiber-to-the-premises, or FTTP, plans means less uncertainty about the flow of orders for equipment from suppliers such as fiber maker

Corning

(GLW) - Get Report

, networking gearmaker

Tellabs

(TLAB)

and set-top box makers such as

Motorola

(MOT)

and

Scientific-Atlanta

(SFA)

.

The phone companies have argued that the new fiber-enabled video-over-the-Internet should not be subject to the same rules that the cable companies face. Under the current rules, cable companies such as

Comcast

(CMCSA) - Get Report

and

Cablevision

(CVC)

have to secure video franchise rights from town and city governments. In exchange for fees, price caps and service guarantees including community access programming, the cable companies are given cable rights to the market.

Each state has hundreds of municipalities with varying requirements.

But technology has changed, and to a large degree the political winds have shifted since the passage of the 1996 Telecom Act. The Bells, their Washington lobbyists and Republican Congress members seem to see ample reason to toss out the old body of regulation and let the businesses compete more directly.

The Republicans say most markets have a cable TV provider and two satellite broadcasters --

EchoStar

(DISH) - Get Report

and

DirecTV

(DTV)

-- offering service. Adding Internet protocol TV, or IPTV, from the phone company would create a more innovative service market for consumers, J.P. Morgan's Gelblum said in his research report issued Tuesday.

Verizon, for example, is planning to offer about 130 channels of programming for between $46 and $49 a month when it introduces its FiOs TV offering later this year, according to

Newsday

. The plan is nearly identical to the satellite broadcasters' offer.

Of course, critics worry that without regulation, TV bills will soar. Plus, local governments won't necessarily want to relinquish their franchising authority and the fees it generates.

But some experts see a battle ahead with the big Bells and pro-business deregulation types on one side and the consumer groups and self-interested local politics on the other side.

The local regulatory structure "is not sustainable," says Scott Wallsten, resident scholar and economist at the American Enterprise Institute. "There's just not much of an economic argument to support local regulations."

On the flip side, says Wallsten, "IPTV could be a failure. It's probably best to let the market decide."