Montgomery County Fights Back

In reaction to last Friday's lawsuit by Verizon, various MC politicians have declared that Verizon is the guilty party and that the county intends to vigorously defend itself. One such statement from a Gazette article:

"The county repeatedly expressed to Verizon and acted upon the county’s commitment to expedite the franchise agreement, but it takes two parties to negotiate," said Chief Administrative Officer Bruce F. Romer.

But it's clear that MC officials are in spin mode. Consider this comment from Councilmember Marilyn Praisner:

"They haven't submitted a franchise application," Praisner said, adding that when Verizon representatives appeared before her committee, she was told that the company would submit a franchise application, but so far that hasn't happened.

Praisner said that if Verizon didn't like the standard franchise agreement that other cable operators have signed, they could have red-lined the parts they didn't like, and submitted the changed version for negotiation, but she said the company hasn't done that, either.

But maybe it's not spin. Maybe the councilmember doesn't know the truth - that there have been extensive negotiations between Verizon and County Executive Doug Duncan.

Dear Councilmembers: MC and Verizon have been negotiating. Back in May of 2005, I reported that the county announced it had officially entered into negotiations with Verizon. Since then, the county has shared nothing publicly. Everything was secret - at least they tried to keep it secret. As an example, a few months ago, I reported some of the disagreements based on FCC filings. (See World's Apart.)

It's true that an application has not been filed but the reason why is not as simple as has been reported in the press. At a May 19 2005 hearing, the county specifically instructed Verizon not to file such an application until county officials had approved the principle terms. FCC filings confirm this. A history of the negotations can be found beginning on page 27 of Verizon's filing in the US District Court. (Thanks to JT, a Rockville citizen, for this link.)

At a February 2006 TAC meeting, the Advisory Committee was similarly informed that the Executive was unwilling to "file" the application - which would've resulted in sending it to the council for consideration, according to the Cable Office. (See 5th paragraph of Negotiations Going From None To Worse.) The filing step is indicated by the "Application Accepted for Filing" box in this flowchart.

Reading this narrative in Verizon's legal filing is almost as confusingly enjoyable as the Da Vinci Code. (I'm sure there's a dead body in here somewhere.) It recounts many meetings, discussions, proposals, and counter-proposals starting in May '05 to a final meeting in April '06 when the parties stopped communicating entirely. Ironically, while failing to cooperate with each other, both sides were sending filings to the FCC describing the inability to make progress. If you want justification for a national franchise bill, here it is. Montgomery County, Maryland: Poster child for the death of local franchising.

Specific Demands

By now you may have read some of the demands that Verizon is making and some of the demands that Verizon has claimed have been made by the county. I'm not going to go through all of these because it requires a better legal background than I have as well as knowledge that is currently buried only in the files of the two parties.

However, I will discuss a few examples to point out what I see as valid claims on both sides as well as misleading, incendiary, and in some cases, downright stupid language all around. (What's the legal term for stupid?) For example, Verizon claims that MC is asking for a franchise fee on all revenues. And the existing franchises do sound that way. They use phrases such as 5% of gross revenues without mentioning that certain things (e.g., internet service) are off the table. So Verizon could technically be correct that MC is "asking" for franchise fees on everything - but it's already settled law that Verizon doesn't have to pay such fees.

Some claims have more meat to them. For example, the claim that MC is requesting 65 PEG channels is based on MC's demand for 78Mhz (sufficient for 13 analog channels) worth of bandwidth. Verizon is restating this in the most damning way and without admitting that Comcast and RCN are already providing roughly the same thing already. It's particularly unfortunate because Verizon does have a good point that is obscured by its hyperbole - that using dedicated analog channels is archaic. Even worse, writing such language in the franchise is shortsighted. Even if Verizon decides to deliver PEGs that way today, it shouldn't have its hands tied tomorrow. Technology changes too rapidly. (Whether MC actually needs so many channels is a separate issue; Personally, I think it makes more sense to stream PEG programming on demand, perhaps via IPTV, and supply whatever connection or hardware is needed, gratis or at a nominal cost.)

This brings us to one of the biggest difficulties in the negotation - that Verizon is a different type of company with a different infrastructure than that of a traditional cable company. Whereas cable companies started with a cable system that has only recently incorporated other services, Verizon started with a telecomm system which only recently added "cable service" (video service would be a much better term, but that's history for you). And this colors the view of how much of the combined service can be regulated using traditional cable service regulation because local regulatory jurisdiction over a telecomm facility is allowed only "to the extent that such facility is used in the transmission of video programming directly to subscribers." (1984 Cable Act.) Must Verizon find that most of its traditional telephone service is now subject to regulation because it shares the same infrastructure as its cable service? How much is really shared? As a simple example, consider a customer who's cable service is improperly grounded - a safety issue that the county would normally investigate. Now consider his neighbor whose internet service is improperly grounded. The physical connections and risks are exactly the same and yet, the neighbor has no cable service. Does this mean Verizon isn't subject to the cable safety regulations?

In fact, this has been a dilemma for the county with Comcast as well. But it was easier to make the argument that all Comcast services were inherently cable-related at some level. Indeed, that's why Comcast claimed that the creation of MC's Cable Modem regulations would require no changes to their practices. Not only do they share the same plant, the same line technicians, but they share the same everything - all the way up to billing and marketing! With Verizon, this is not the case.

Needless to say, the county wants to treat Verizon exactly the same as Comcast and RCN with essentially the same franchise. Not surprisingly, Verizon won't swallow this. I'm sure the county recognizes this but yet is horrified with the idea of the alternatives:

• Alternative 1: Different franchises would likely encourage Comcast and RCN to sue for unequal treatment.
  
• Alternative 2: Renegotiating franchises with all 3 - Comcast, RCN, and Verizon - would be a nightmare.

The irony is that the county is absolutely right to require equal treatment. While I don't agree with all of MC's demands, there's little doubt that the differences between telecomms and cable companies are disappearing (or will as soon as the FCC lets them). In that sense, the county is doing the right thing. Alas, they're ahead of their time and thereby dooming us all to this massive quagmire in which we now find ourselves.

What to do? One way MC could resolve the situation would be to drop the demands that are objectionable to Verizon by also dropping them from the Comcast and RCN franchises. As an example, Comcast and RCN have lived with the customer service requirements on cable modems. But Verizon has objected to these same regulations. I used to feel strongly about the cable modem regulations but that was before Executive Duncan gutted them in 2003. What's left are either 1) superficial things like telephone answering time and 2) more essential things like "prompt service" requirements that, while valuable, might be sufficiently addressed by the reality of competition. Remember that the cable modem regulations were passed when Comcast was the de facto monopoly for most of MC. (Indeed, the low percentage of complaints in RCN areas are a good indication of the value of competition. Sadly, I predict that RCN will be a victim of Verizon's success.)

Oh, and the cable modem regulations include another class of items: 3) those that are knowingly ignored, such as county approval over the franchisee privacy polices and disclosure of all promos. Were I Verizon, I'd get the cable modem regulations thrown out on that basis alone. Wouldn't hurt to point out that that they're probably unenforceable anyway given their remarkably vague definitions. For instance, is it an interruption if I can surf the web but email is down? No one knows - the regulations never say what Cable Modem Service actually is!

Most recently, MC appears to have taken a different path, giving up the goal of franchise commonality and instead proposing different requirements. For example, one proposal by MC was for Verizon to provide 100 wireless hotspots around the county. (No mention was made how much it would cost residents to actually use the hotspots.) This was in lieu of traditional in-kind contributions afforded franchise authorities. However, the county doesn't need more of the traditional in-kind contributions, isn't entitled to them by law, nor is it entitled to demand different in-kind contributions - hotspots are simply not on the list of what a franchise authority is entitled to! MC also requested that Verizon cover attorney fees and other fees for handling and reviewing the franchise process - with no cap on those fees. The list of such demands goes on and it's pretty clear that these are excessive - a case of the county asking for something it has no right to except that it can because it has the final say on who gets an franchise.

Instead, what the county should be doing is cutting the demands for in-kind contributions from Comcast and RCN. Then, MC could fairly ask Verizon to shoulder the burden.

The Likely Future

If the case goes forward, I'll be amazed. On the one hand, I want it to go forward so that I can find out more details about what's been going on out of public view. (It drives me crazy when governments abuse their own processes to carry out decision-making in secret that was meant to be done in public view and with public participation. This alone is grounds for legal action.) On the other hand, I'd like this case to be settled so we can get the benefits of competition while avoiding the drawbacks of the pending national franchise bill. (Can't wait to start describing that!)

In the future, I'm confident that Verizon will get a franchise in Montgomery County. There is too much pressure for MC to resist. The citizens are very upset and rightfully so considering how much this is costing them - in legal fees as well as their monthly cable bills. And the lawsuit is a lose-lose suitation for MC. Even if MC wins, it loses. But it won't go that far. The telecomms are lobbying too heavily for the national franchise bill not to succeed before the lawsuit concludes. (On net neutrality alone, the telecomms have spent $9.1M to defeat it!) One way or the other, MC will get competition.