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AT&T, Verizon and TV

Fiostv_monitorGov. Arnold Schwarzenegger made AT&T and Verizon's day on Friday, signing into law a bill that makes it significantly easier for the companies to sell video service through their phone lines. The bill, AB 2987, emasculates city and county cable regulators by allowing phone companies to obtain a single statewide license to offer video services, rather than having to cajole a franchise agreement out of every local governing body.

This is also a big deal for cable operators, who can avail themselves of a similar agreement as soon as their current franchises expire or a telco starts competing on their turf. But I don't believe the hype voiced by lawmakers and telcos about the impact on consumers. The limiting factor for competition in pay TV hasn't been regulation, at least not since Congress banned monopoly video franchises more than a decade ago. It's been the high cost to build networks capable of delivery video. Compared to that expense, the cost of obtaining local franchises is chump change. Long before this bill passed, telcos were making those upgrades because cable operators had launched a competing phone service that lured away customers.

The billions of dollars in upgrades required by the telcos is one reason to dismiss the idea that competition is going to drive down prices for video service. More likely, it will help slow cable price inflation, and even there a lot will depend on the demands made by must-have programmers (witness Fox News Channel, which originally offered cable operators $10 per subscriber to add it to their lineups -- it's now asking for $1 per subscriber). The telcos themselves have said they plan to compete "on value," which means offering more features for the same not-so-low price. That's similar to what the cable guys do with phone service, which they price well above the cost of a no-frills phone line. Their target is the margin-fattening customer who pays $50 or more a month for extra features and toll calls.

The most promising feature of the telcos' approach to video, as Dave Burstein points out in a recent DSL Prime newsletter (sign up for it here), is the potential for real innovation in equipment and programming. Granted, I may be falling victim to the hype. Verizon has talked about enabling customers to use the digital video recorder inside its set-top boxes to store video from the Internet. Talk about cable bypass! At the very least, that would give foreign broadcasters, YouTube and other independent programming outlets a direct route to the TV set. Given the right software, it could also provide a huge boost to downloadable movie sites like Movielink and CinemaNow. AT&T is poised for a similar leap, thanks to an IPTV strategy that treats a Web-based channel the same as a broadcast network. If the new California law prompts these developments, it will have done viewers a tremendous favor. But that's an if, not a when.

The image is from Verizon's FiOS TV sign-up page. Click here to find out that you're not eligible today!

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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