June 29, 2006
Harry Mitchell, 304-344-7562
WASHINGTON - In an effort to bring video choice and competition to citizens of Montgomery County, Maryland, Verizon today filed a federal lawsuit against the county for its unreasonable and illegal cable-franchising process and demands.
The suit, filed in U.S. District Court for the District of Maryland in Greenbelt, asks the court to declare that Montgomery County's cable franchise process and requirements violate federal communications and antitrust law, as well as the First Amendment to the U.S. Constitution.
Verizon is asking the court for a preliminary injunction invalidating Montgomery County's current cable franchising law and directing the county to negotiate a franchise with Verizon on lawful terms within 60 days. At the same time - in an effort to help speed the negotiations to resolution - Verizon is asking the court to invalidate the numerous unlawful requirements the county is attempting to impose on the company.
"Verizon regrets having to take this step, but the county's unlawful demands leave us no other choice," said John P. Frantz, Verizon vice president and associate general counsel, who is leading the company's legal team on the case. "We would prefer to reach agreement on a franchise that would offer Montgomery County consumers more choice for their cable services, but after a year of essentially fruitless negotiations, we are at an impasse."
Montgomery County's Demands Hurt Consumers, Protect Incumbent
Over the year that Verizon has been negotiating to obtain a franchise to offer its FiOS TV in Montgomery County, county officials have made numerous unlawful demands that have stymied the negotiations. For example:
"We're frustrated at the lack of progress in these negotiations, because the inordinate delay benefits only the monopoly cable incumbent," said Frantz. "Meanwhile, Montgomery County residents continue to suffer, held hostage to Comcast's ever-rising cable rates."
- The county asserts the right to collect fees on, and otherwise regulate, Verizon's telephone and broadband Internet service, in clear violation of federal law. In addition, the county claims authority to regulate the engineering, construction, placement and maintenance of Verizon's entire fiber-optic network once the company starts offering video service, again in clear violation of federal law.
- The county is demanding that Verizon set aside roughly 65 channels of digital capacity for public, educational and governmental programming, even though the county currently has programming for only 11 channels. Verizon wants to use the channels the county is insisting the company set aside to deliver programming that county residents want to see.
- The county is demanding that Verizon pay hundreds of thousands of dollars to cover the fees that the county owes to its own private consultants and attorneys; federal law forbids such demands.
- The county is demanding additional cash and free services as a condition for granting a franchise; it has no right to demand such terms under established federal law.
Comcast has increased Montgomery County cable rates more than three times the inflation rate since 2000. In Montgomery County, the stalled franchise negotiations are costing county households more than $725,000 a month in possible savings.
"Competition will bring lower prices, more innovation and better quality," said Frantz. "It's past time for Montgomery County residents to join their neighbors in Howard County and Northern Virginia who are reaping the benefits of cable competition and choice."
Montgomery County is the only place in the Washington metropolitan area where Verizon has sought a franchise and has not been able to obtain one. In Maryland, Howard County, Bowie and Laurel have all granted Verizon a franchise; Anne Arundel County is poised to do so July 5; and Verizon's negotiations with Prince George's County are on track for an agreement by late summer. In northern Virginia, Verizon has obtained franchises from Arlington, Fairfax, Loudoun and Prince William counties; the City of Fairfax, Dumfries, Herndon, Falls Church and Leesburg; and the Marine Corps Base at Quantico.
Montgomery County Neighbors Enjoy Cable Choice, Competition
In other markets where Verizon has introduced FiOS TV - including neighboring Howard County - cable incumbents have responded with lower prices, more innovative bundled offerings of phone, broadband and video service, and increased broadband speeds.
Verizon's standard FiOS TV package, FiOS TV Premier, offers 180 digital video and music channels, two dozen high-definition channels and access to an extensive on-demand library for $39.95 a month. Comcast's most comparable cable package costs $68.60 in Montgomery County.
A family that switched to Verizon's video offering would save more than $300 a year and get more for its money. Verizon currently offers numerous other channels not provided by Comcast, including the Mid-Atlantic Sports Network, which broadcasts Washington Nationals baseball games.
The competitive response to Verizon's entry to the video market is swift and dramatic. In communities where Verizon already is offering FiOS TV, incumbents initially responded by slashing prices by 28-42 percent.
"Verizon's interest in this is simple," said Frantz. "We want the ability to bring choice and competition to Montgomery County consumers as quickly as possible, and we want Montgomery County officials to do the right thing by their constituents to make that happen."
A summary document provides more detail about the basis for Verizon's lawsuit. Some of it sounds accurate and some of it doesn't but without the filings (not yet available), I can only speculate (and will do so as I find out more info). In the meantime, here is the summary document:
SUMMARY OF VERIZON’S COMPLAINT AGAINST MONTGOMERY COUNTY, MARYLAND
In May 2005, Verizon asked Montgomery County to grant a franchise to offer cable service in competition with Comcast. A full year later, the county has failed to approve Verizon’s application. Instead, county officials have responded by demanding that Verizon agree to a host of unlawful requirements as a condition for getting a franchise.
MONTGOMERY COUNTY’S ILLEGAL ACTIONS
Montgomery County’s Cable Franchising Process Violates the First Amendment.
Montgomery County’s Franchise Demands Violate the Federal Communications Act.
- By adding cable television to its menu of communications services, Verizon seeks to engage in a form of speech protected by the First Amendment. Local laws licensing speakers must spell out narrow, objective standards that limit the discretion of government officials in deciding whether to grant franchises and what conditions may be attached.
- Montgomery’s County’s cable franchise process violates the First Amendment because it delegates to county officials discretion to approve or withhold franchises at will, to charge any fees they wish, to condition franchises on any demands they see fit, and to render decisions on any timeline they choose.
- The First Amendment requires that local authorities issue franchises in a timely manner. Yet county officials told Verizon it would take until at least November 2006 to grant a franchise, even if Verizon agreed to all the county’s illegal demands – a full 18 months after Verizon first asked for a franchise.
Montgomery County Is Enforcing Its Franchise Agreement With Comcast in a Way That Violates Federal Antitrust Law.
- The Communications Act expressly prohibits local governments from exploiting their control over cable franchises to seize control over telephone and broadband Internet services. Yet county officials have, by ordinance and regulation, imposed a host of requirements on broadband and telephone services, as well as a series of rules governing the construction, operation and maintenance of Verizon’s telephone network, to which Verizon would be subject once it begins offering video service.
- The county has no justification for these requirements. Verizon is selling broadband and telephone services in Montgomery County today free from these regulations. There is nothing about Verizon’s offering video programming that suddenly creates a need to regulate its other services.
- Federal law limits the fees the county can collect to 5 percent of Verizon’s cable revenues. Montgomery County’s cable ordinance requires Verizon to pay 5 percent of its revenues on all services, including Internet service.
- In addition, to secure a franchise, the county has demanded that Verizon pay an additional 3 percent of its revenues to cover the county’s cable programs; provide free cable service to hundreds of government and private buildings around the county; pay hundreds of thousands of dollars to cover the county’s consultants’ and attorneys’ fees; and provide additional cash or free services on top of all these other concessions. Federal law prohibits all of these demands.
- The county’s contention that its actions are justified because it imposed the same requirements on Comcast is specious. Comcast’s franchise provides that if the county negotiates an agreement with a new entrant that requires smaller monetary contributions, Comcast can renegotiate its agreement to match those terms. This is not a question of competitive equity, but of county officials being unwilling to part with the perquisites offered by a cable monopolist.
- The county does not need the money. It is projecting a surplus of roughly $1 million for its cable fund in fiscal year 2007.
COMPETITION WILL BENEFIT MONTGOMERY COUNTY CONSUMERS
- Congress outlawed exclusive franchises in 1992. Prior to that, cable operators often offered perks over and above what the law required in order to win monopoly control of a market. The cable operator could then exploit its monopoly position to recoup the costs of these give-aways. Incumbent cable operators continue to employ this strategy to raise barriers to entry.
- The county has interpreted Comcast’s franchise agreement to block the county from offering a franchise agreement to a Verizon on different terms. This halts competition and protects Comcast’s monopoly. By entering into an agreement with Comcast that ensures the county will impose cost-prohibitive terms on new entrants, effectively blocking entry, the county has violated federal antitrust laws.
If allowed to compete in Montgomery County, Verizon’s FiOS TV will introduce much-needed competition and create significant benefits for cable customers.
The Lack of Cable Competition Is Harming Montgomery County Consumers.
Competition Can Constrain Comcast’s Price Increases.
- Control of the Market … Comcast currently controls the video market in Montgomery County. Roughly two-thirds of all households in the county, and roughly 75 percent of households that purchase cable or satellite service, subscribe to Comcast.
- Rising Prices … Because of a lack of competition, Comcast has been able to raise prices in Montgomery County by 25 percent since 2000 – nearly three times the rate of inflation. From 2004-2005, Comcast raised prices by 6 percent.
- No Competition … While satellite service is available, the FCC has determined that satellite is not effective at constraining price increases by cable companies.
Verizon’s FiOS TV: A Much-Needed Competitor in Montgomery County.
- Competition Works … In its March 2006 report on video competition, the FCC found that in areas with real cable competition, monthly cable rates are 16 percent lower and customers pay 27 percent less per programming channel.
- Delay Costs Consumers … Nationwide, the delay in wireline competition is creating economic losses of between $8.2 billion and $21.4 billion per year.
- Montgomery County Consumers Are Paying a Huge Price … Thomas Hazlett, an economist at George Mason University who submitted a declaration in support of Verizon’s case, concluded that the county’s actions are costing residents more than $725,000 per month.
Customers who switch to Verizon will save money. Verizon’s standard digital package costs $28.65 less than the comparable package offered by Comcast in Montgomery County. A family in Montgomery County that switches to Verizon could save more than $300 per year.
Even customers who don’t subscribe to FiOS TV will benefit from competition. In communities where Verizon has been allowed to compete, cable prices have dropped 28 to 42 percent.
Verizon carries the Mid-Atlantic Sports Network, which broadcasts Washington Nationals baseball games. This is just one of the many channels Verizon carries that Comcast does not.
- In Keller, Texas, the first location where FiOS TV began competing, Charter lowered its rate by $16 per month or 28 percent.
- In Herndon, Va., Cox dropped its price from $52.44 per month to $30 per month after FiOS TV entered the market.
- In Temple Terrace, Fla., Bright House lowered its price from $58.45 per month to $36.33 per month.
Anyone from the Montgomery County Executive's Office or Cable Office care to respond?