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Video Retailing Public Policy Defies Logic

The four-way battles now raging in the United States around the question of municipal, state, or national franchise agreements for "Telco TV" video services will see the telcos ultimately prevail over cable operators and local governments, according to new analysis from ABI Research. That will mean an accelerated deployment of IPTV video services to customers, and increased sales of set-top boxes.

"We are at the cusp of a strong run-up in IPTV subscriber bases over the next year or two," says principal analyst Michael Arden. "The telcos have sympathy at the higher levels of government, and in general the principles of encouraging competition and preventing monopoly mean that the telcos will be victorious in this battle. It's just a question of when."

Under FCC regulations, local governments can require video operators active in their areas to conclude franchise agreements and pay fees. Cable companies have had to complete agreements with every small municipality. Telcos, arguing that their offerings are not "video services" but "broadband services that happen to have video features," have tried to avoid that arduous process. Now, they are increasingly getting relief in the form of initiatives in several states to grant statewide franchises. Texas, Colorado, Louisiana, South Carolina and New Jersey, among others, have passed or are considering legislation setting up statewide franchises, and a proposal for a federal version has been put forward.

Local governments and cable operators oppose these moves. Their reasons include the obvious - revenue lost to the municipalities and greater competition for the cable companies - but both groups cite an apparently altruistic fear as well. They allege that the telcos will "cherry pick" the most affluent neighborhoods for their IPTV, where customers would be more likely to buy premium channels, video-on-demand, network PVR, and other high-priced services, leaving less prosperous communities further disadvantaged.

Such selectivity is not permitted under equal access provisions of the law, and telcos deny any such intention. However, notes Arden, when AT&T was initially planning its IPTV deployments, it based much of its market selection strategy on which markets would generate the highest ARPU.

Therefore, perhaps policymakers really need to consider the obvious question. Knowing that triple-play bundles (voice, data, video) are inherently beyond the economic reach of poor communities, doesn't redlining or cherry picking actually make sense? In other words, why don't U.S. state and local governments mandate that Gucci and Saks must open stores in poor communities, as a requirement to gain access to nearby affluent communities? Is the act of retailing high-cost communications and entertainment really different than any other expensive product or service?

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