Verizon Communications Inc. and SBC Communications Inc. think they can break cable's powerful grip and get consumers to switch to the enhanced television services they're cooking up, but they are having a tough time getting state legislators to help.
The two telecommunications powers lost a key battle this weekend when Texas lawmakers failed to act on a bill that would have let phone companies obtain a statewide television franchise instead of having to negotiate franchises with individual cities and towns.
Verizon and SBC had hoped Texas would serve as a model for the country, speeding their ability to sell TV service in many other states. Instead, it joined Virginia in frustrating the regional Bell companies.
"This is a big setback for SBC and Verizon," UBS Investment Research analyst John Hodulik said. "This could slow down their rollout of video service."
The legislative loss comes as Internet and related technologies further blur the distinctions between providers of telecommunications and television. Cable companies are moving toward offering the "triple play" of television, 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 fight, given cable's 40-year head start in television, he said.
The industry battle 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 Congress and the Federal Communications Commission for help.
The phone companies are investing heavily to build fiber-optic networks that could, by virtue of robust bandwidth, offer greater programming selection and interactivity.
Verizon has already spent $1 billion, or $1,000 per home, to connect 1 million homes and plans to connect another 2 million homes in 14 states this year. SBC expects to spend $5 billion over the next three years in its 13-state area.
Gaining a statewide franchise to provide television service would greatly simplify the process phone companies must go through to deliver TV signals. A single, large metropolitan area can require several hundred franchise agreements. To blanket its planned phone service area, Verizon would need licenses from 10,000 municipalities.
It's not a quick process -- it can take six to 18 months to get a license in one city. After six months of work, the company has just six municipal licenses, according to Verizon spokesman Bill Kula -- four in Texas, and one each in California and Florida.
New York-based Verizon plans to offer television service later this year in two suburbs north of Fort Worth, Kula said. It has been laying fiber in Northern Virginia and Maryland, and in parts of New York and Pennsylvania.
SBC officials say they plan to begin offering video service around the end of the year. They're not saying where, but they acknowledge that the pace is slower than they would like.
"If we have to go through and get 2,000 franchise agreements, we won't build this in three years," Randall L. Stephenson, SBC's chief operating officer, told analysts recently. "We're going to have to do something to make this go quicker or else it's going to hit a brick wall."
The phone companies say they already have a franchise to provide phone service, so they shouldn't need another to provide television service. Cable operators say the phone companies should face the same rules they do.
Tom Kinney, a Time Warner executive and chairman of the Texas Cable & Telecommunications Association, said phone companies are trying to dodge cable's requirements to serve all neighborhoods, even poor ones.
Kinney's organization has 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," Kinney said. "It creates a bigger gap in the digital divide."
SBC has countered that argument by citing 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 phone companies now are turning to Washington, including lobbying Congress to take over regulation of services delivered over the Internet, including video.
Several lawmakers have expressed interest in overhauling the most recent 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 solve the telephone companies' franchise problems.