Video competition comes to Calif.

First Verizon lands a statewide deal. Now AT&T is angling for a similar arrangement that will let both compete against cable operators for TV customers.
Written by Marguerite Reardon, Contributor
Verizon Communications is the first company to win a statewide video franchise in California under a new law that took effect January 1, but AT&T may not be far behind.

Verizon said Thursday that the California Public Utilities Commission granted the company the first statewide video franchise, which will allow it to offer its Fios TV service to residents in 45 cities in Southern California.

AT&T filed its application late Wednesday, according to Gordon Diamond, a spokesman for the company. He said he expects to hear soon if AT&T has been granted permission to roll out its TV service called U-verse throughout California.

Verizon already offers its Fios TV service in 18 cities in California where the company worked out local franchise agreements prior to the new law being passed. The company said it would lay out a plan later this month detailing when communities could expect the TV service.

Meanwhile, AT&T is also offering TV service in four California communities: San Ramon, Danville, Cupertino and Saratoga. California is a key market for AT&T because its phone service reaches about 75 percent of the state's geography; and from that the company serves roughly 15 million telephone or DSL customers.

But once AT&T gets its statewide franchise it will have to ramp up deployments quickly because the state law requires companies with more than 1 million access lines to meet certain benchmarks once permission has been granted. For AT&T this means the company will have to reach 35 percent of its customer base with TV service within three years. And it must reach 50 percent with TV within five years.

This could be a challenge for a company that so far has only launched its U-verse service to a handful of residents in 14 markets. Recently, the company said that only 7,000 subscribers have signed up for its TV service. And it only expects to pass about 8 million homes by the end of 2007. But Diamond said the company has already committed $1 billion for the initial deployment of the U-verse service on top of the $20 billion the company has invested over the last decade upgrading its network throughout California.

"We are going to roll out the service as quickly as we can," he said. "Getting the statewide franchise will be a critical piece of that. But we still need to work with cities for permits for public right of way. But we're confident we can move quickly and aggressively to meet the timeline."

AT&T and Verizon have been lobbying statehouses across the country for statewide franchise agreements so that they don't have to negotiate video franchise agreements with every individual community. The phone companies argue that negotiating these deals town by town has slowed their deployments. As a result, they argue that competition in the TV market has suffered.

California is one of nine states that have passed legislation that allows authorities to grant statewide franchises in an effort to boost video competition. Texas was the first state in the country to pass such a law.

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