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Telephone company SBC Communications Inc. says a legislative defeat in Texas won’t stop it from competing against cable TV without the local licenses traditionally required by municipal governments. Cable operators have long had to negotiate franchise agreements with each city they serve, but SBC doesn’t because it will be offering TV service with new Internet technology that isn’t subject to local regulation, Senior Vice President Jim Epperson said Tuesday. SBC and Verizon Communications Inc., the nation’s two largest phone companies, are spending billions of dollars to offer robust video services they hope will break cable’s powerful grip on the market. But the phone companies have had a tough time getting state legislators to help. Over the weekend, SBC and Verizon lost a key battle when Texas lawmakers failed to act on a bill that would have let them get a single statewide TV franchise. The bill was critical because it would have spared the phone companies the lengthy and arduous job of negotiating franchises with every individual city and town. They hoped Texas would serve as a model for the nation, speeding their ability to sell TV service in many other states. Instead, Texas joined Virginia in frustrating those plans. “This is a big setback for SBC and Verizon,” UBS analyst John Hodulik said in an interview. “This could slow down their rollout of video service.” But Epperson vowed that SBC won’t be delayed by the Texas setback. He said SBC plans to begin offering video service in some places around the end of the year even without local franchise agreements. “We will not negotiate any type of traditional franchise agreement because those were cast when cable was the only game in town,” Epperson said in an interview. “Our technology uses the Internet. It’s new technology, and it’s not regulated.” Texas state Rep. Phil King, a Republican who pushed the SBC-backed bill that died when the Legislature adjourned Monday, said SBC’s approach invited lawsuits by both cable operators and cities that count on franchise fees for TV service. “If [SBC officials] say the federal law is vague and we’re going to go for it, it’s going to open the door to years of litigation,” King said. SBC is splitting from Verizon’s more cautious approach. New York-based Verizon is going through the grind of negotiating local franchise deals. It can take six to 18 months to get a license in one city, and there may be hundreds of licenses needed in a large metropolitan area. After six months of work, Verizon has just six municipal licenses, according to spokesman Bill Kula: four in Texas, and one each in California and Florida. Verizon plans to offer TV service in some markets later this year. It has been rewiring its copper-based phone network with fiber-optic cables in 14 states. SBC is pursuing a somewhat less-ambitious strategy, replacing only some copper with fiber in its 13-state market. The phone companies are investing heavily to create networks that could, by virtue of fiber’s increased bandwidth, offer greater programming selection and interactivity. Verizon has already spent $1 billion, or an average of $1,000 per home, to replace the copper lines serving areas with 1 million homes and expects that number to reach 2 million homes this year. SBC expects to spend $5 billion over the next three years. The phone companies’ loss in the Texas Legislature comes as Internet and related technologies further blur the distinctions between different telecommunications services. Cable companies are now moving quickly toward offering the so-called triple play of TV, phone and high-speed Internet access. “The only option the phone companies have to survive is to offer the same bundles,” said Steve Kirkeby, a telecommunications analyst for J.D. Power & Associates. The regional Bells are underdogs in the television fight, given cable’s 40-year head start in that market, he said. Phone companies, however, hold a similar advantage when it comes to selling both traditional and cellular phone service. Cable operators accuse the phone companies of trying to dodge rules requiring a television provider to serve all neighborhoods, even poor ones. The Texas Cable & Telecommunications Association seized on an internal SBC report from last year in which the phone company told investors it planned to target its new network at 90 percent of “high value” homes but only 5 percent of “low value” homes. “It’s a fancy way of defining redlining,” said Tom Kinney, the Texas cable group’s chairman. “It creates a bigger gap in the digital divide.” SBC fired back with ads that cited an FCC report showing cable rates have gone up 40 percent since 1999 while average phone bills in Texas fell 18 percent. The loss in Texas was especially acute for SBC, which is based in San Antonio and deployed dozens of lobbyists to press its case. The fight is likely to shift next to New Jersey, where Verizon plans to push this summer for statewide franchising legislation, and California, where it supports a bill to let phone companies avoid cable’s requirement to serve all homes in an area. Verizon and SBC are also lobbying the Federal Communications Commission and Congress for help. Several lawmakers have expressed interest in overhauling the most recent federal law governing telecommunications, which was passed in 1996, before the Internet’s explosive growth. An aide to the House Commerce Committee said the panel expected to produce a bill this year that could lessen the telephone industry’s franchise burden. The cable industry is sure to fight it. Copyright 2005 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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