CQ TODAY
March 23, 2006 - Updated 2:39 p.m.

Telecom Deregulation Talks Break Down

By Joelle Tessler, CQ Staff

Bipartisan House Energy and Commerce Committee talks over legislation to make it easier for telephone companies to enter the video market broke down Thursday after committee leaders could not agree on several key issues, congressional staffers said.

The impasse marked a sharp turn of events just two weeks after five committee leaders said they had reached a broad agreement on the legislation after months of on-again, off-again negotiations. Committee Republicans are expected to release a partisan draft and are hoping to hold a hearing next week.

The bill is intended to pave the way for telephone companies to compete head-to-head with cable operators by replacing the existing local franchising system with a national one.

Phone companies are spending billions to build fiber-optic networks that can deliver voice, Internet and video services. But they argue that requiring video providers to negotiate municipality-by-municipality for the right to offer services locally is slowing their push into the video market.

The cable industry, which wants to head off new competition, insists the existing rules work well.

Committee leaders have been meeting since late last year to try to hammer out compromise legislation after two earlier drafts ran into substantial opposition - the first from phone companies and the second from committee Democrats.

Those participating in the talks include Chairman Joe L. Barton, R-Texas; Vice Chairman Charles W. "Chip" Pickering Jr., R-Miss.; ranking member John D. Dingell, D-Mich.; Fred Upton, R-Mich., chairman of the panel's Telecommunications and the Internet Subcommittee; and subcommittee ranking member Edward J. Markey, D-Mass.

But this week it became clear Barton could not sell the agreement the five had reached to other Republicans on the panel. The five committee leaders also could not agree on whether the bill should require phone companies to offer video service to an entire franchising region before offering service to anyone in that region.

A "build-out" requirement had been a priority of committee Democrats, who want to ensure broadband providers do not limit their new services to lucrative suburban markets. But the Democrats had agreed to drop the mandate in exchange for compromise language barring cable companies from cutting their prices in select areas to compete with new entrants - instead requiring them to maintain uniform prices across an entire franchising area - until the phone company has at least 15 percent of the market.

Commerce Committee members who have not been involved in the talks, however, have objected to this compromise, along with another provision to allow incumbent cable companies to obtain a national franchise only after a phone company captures at least 15 percent of a local market. They argue that both provisions are unfair to incumbent cable companies, which now can selectively drop rates in franchising areas where a satellite competitor has at least 15 percent penetration or where a phone company has entered the market.

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