I attended a Winchester, MA town meeting tonight. The sole purpose of the meeting is to vote on cable franchise application from Verizon for FiOS TV. Meeting ran from 7:30PM to 10PM. Other than a small zoning meeting I once attended, this is my first town meeting.
I am a FiOS customer and follow FTTH issues from a financial and technical basis pretty closely.
THESE ARE RAW NOTES. I reserve right to change them if I get my hands on a transcript from the meeting.
Analysis to follow in a later post.
Guy from Comcast sitting next to me taking notes. Keeping tabs on the competition. Very friendly, do I detect even some sympathy for what Verizon is about to endure?
Lots of people hereâ€¦ they all know each other. They are all Verizon employees who live in Winchester. A little grass roots corporate push.
Board kicks off Meeting
Verizon Application Timeline:
March 2005 – License initiated. Expression of interest.
May – Verizon submitted initial application
Aug â€“ Town issued response
Sep 2005 â€“ Complete Application submitted. Multiple meetings and negotiations follow
May 24th 2006 â€“ Posted notice for June 7th public meeting. 1st public meeting.
7 Months of active negotiations. At least 30 hours of meetings with Verizon. A lot of work.
Verizon speaks first, then a report from cable advisory committee.
Audience can then ask questions. Try to limit question to 5 min.
At end, selectmen may or may not vote. They will ask questions after VZ presentation and cable committee
Peter Hollman. Verizon VP External affairs
He is backed up by others, including a lawyer who is not a Verizon employee.
Thanks. Thanks. Thanks. Thanks to the Academy, my mom, etc. A lot of this goes on all night for 2.5 hours.
(Reading from notes)
Head end infrastructure all in place from local CO, only waiting for approval from board. Ready to go in 30 days with TV service. $500M invested in MA last year alone.
We support local events, 120 VZ employees or ex-employees live in Winchester (My guess is 10 of them are here tonight). Talks about how great FiOS TV is. Must have a level playing field negotiation. Town will not grant a license that is more favorable than the incumbent. Verizon recognizes this.
Cable Advisory Committee â€“ Volunteer Citizens
Ashley Stevens. Bill August. Ashley prepared remarks but left them at home. Guy is good speaker, he doesn’t need them.
Thanks everyone for everything. 7 Meetings since September. 30 Hours of meetings (ugh). 5-6 townies, 2 VZ reps. A challenging process. Challenging regulatory environment.
VZ deployed fiber network based on non-TV services. Unique situation than when Mediaone (Comcast)/RCN originally applied. While meeting, Lots of ongoing discussions in Federal government to eliminate the need for franchising really complicated the negotiation.
Cable committee excited about competition. RCN came in a while back, but they withdrew years ago (during bubble I think). They are very excited about FTTH. Cue fiber love-fest discussion. â€œVZ proved FTTH naysayers wrong.â€ Good point Ashley.
Financial aspects. 14 year license. 15 years is the max. License will be re-negotiated when Comcastâ€™s expires â€“ both expire at same time. VZ has an option to pull out early in some MA franchises, but not Winchester. Must provide free service to public buildings. Access fee is 5% of revenues, the max allowed in the state. Public Educational Grant (PEG) of $210k, $100k up front, $50k 3 years, $60k 6 years from now. All goes to WinCAM. They also get 2 channels, a third if they need it. Holy cow, $210k to the local cable channel!
VZ has requested that their license can be superseded by any new federal laws that are passed. This is written into the agreement.
Cable Committee strongly recommends approval. Should be done quickly in case new federal legislation is passed that would dilute terms and/or complicate agreement. Feel that agreement is very favorable to town and that dynamic regulatory environment may eliminate the financial advantages unless signed now.
I like this guy Ashley a lot. Didnâ€™t get a chance to meet him.
I think a hell of a lot of credit rightfully goes to the citizen committee that negotiated the franchise agreement on a VOLUNTEER basis. Nice job guys.
Town Board â€“ Questions to Verizon
Chairman expressed profligate thanks for the work of the cable committee. VZ continues the process of thanking.
Board Question â€“ What expenses has cable committee incurred?
Answer: $20k in legal expenses. Board may want compensation for this?
Board Question â€“ What if Verizon contract is found to not comply with â€œLevel Playing Field provisionsâ€. This is written into Comcast contract.
Answer: Comcast then requires â€œgood faith negotiationsâ€ of Comcast license. Cable committee does not think this will be an issue in the near term.
Board Question â€“ Are PEG grants pulled from customers bills?
Answer: 5.4MM revenue annually for Comcast in Winchester. Some potential decrease in 5% franchise revenue if competition drives pricing lower.
Board Question â€“ Does contract include any sort of rate controls?
Answer: No. Some lower court actions that would allow this have been reversed on appeal.
Ashley makes this point – If a federal franchise override is passed, this contract would still be valid. This was the biggest area of negotiation in the contract. Pending Fed legislation makes negotiating these contracts a challenge (Read â€“ Major pain in the ass)
Board Question â€“ What is WinCam (Local Cable Access Channel) subscriber base? Answer: Representative there was asked how many citizens watch. He says he does not know. Unbelievable.
Board Question â€“ Can the infrastructure be shared with other providers?
Board Question â€“ Universal service within 3 years- Any known areas where it is known this is not possible?
Answer: 80% can be served by end-of-month. Three stage process. Aerial component completed. Underground component is second stage. This has begun. Final is Multiple Dwelling Units (MDU), this effort has begun. VZ has six years by MA law to reach universal service. This franchise agreement stipulates three. Verizon is OK with these terms. (I think they are glossing over the MDU challenge)
Now things get interesting-
Board Question â€“ Prop 2 Â½ creates great fiscal stress. (Prop 2 Â½ is State Law indicating towns cannot increase property taxes more than 2 1/2 % a year, and as a result every town is in a tight fiscal situation) Depth of staff with technical expertise is short. Towns ask developers, etc. to bear the burden of investigative costs. Asks VZ to accept this burden. Answer: VZ already paying 1.4% more than Comcast.
Response from board- budget blah blah blah they want $20k â€œWhenever we can find that legal fees could be covered externally we try to do thatâ€.
Board Member Speaking â€“ We need to act in interest of citizens. Having two providers clearly does this. Thinks arguing over $20k is silly when town budget is 4000x that. Savings to citizens will be huge.
Board Proposal â€“ drop PEG grant by $25k and allocate to paying legal fees? VZ says â€˜does not knowâ€™ this is a new wrinkle. Turns out later this is not a legal move according to franchise law.
Questions to Board from Citizens
Citizen (VZ employee) â€“ Satellite doesnâ€™t pay fees. Conversion of those customers will generate more revenue.
Citizen (VZ employee) â€“ Comcast has dropped cost of triple play by $40 based on threat of competition. Need to follow through to guarantee price breaks for town residents.
I ask some questions-
Financial comparison of VZ and CMCSA. Comcast makes fixed dollar payments – $116k year, inflation adjusted. Not related to subscriber revenue. Verizon will pay 5% of all revenue received. Comcast % will climb as subscribers goes down. This was put into place based on the assumption that RCN would come online but never did. 6200 Comcast subs in town today. My analysis â€“ town cannot lose with this deal. The more subscribers that shift to Verizon, the more money they take in.
——- Break ——-
The $20k is an issue that impacts the boardâ€™s decision. Board will take this issue under advisement. Oh crap, they are not going to vote because of $20k in legal fees they want VZ to pay.
One board member said holding deal up for $25k was ridiculous. VZ indicates legally that their money cannot legally be allocated to general town funding. Winchester contract is far better than what other communities have negotiated. No other communities have asked for legal fee compensation.
OK, now things are getting good and heated.
Board guy is bringing up the fact that legal budget is high and that budget is tight, everything counts. We are asking the public for more usage fees, more for town dump licenses, etc. Canâ€™t just spend money here without recovering it.
Now the town is asking for VZ to get creative. Cue municipal extortion speech. Suggests sponsoring â€œVerizon Library Dayâ€ to keep Library open on Sunday. Spend the 20k somewhere in the town. â€œYou are a good corporate neighbor, we are just asking you to demonstrate it.â€ Thatâ€™s a classic one. This guy should do business in China.
VZ states that the law clearly states franchise fees cannot be used for any general funding in a franchise agreement, period. They must be used for cable services in the town. Incumbent (Comcast) was not asked to pay legal fees when they were granted the agreement and neither will they. VZ guys getting pissed, they thought they had a deal.
Other board member will vote no. Wants $25k more for legal fees. Indicates process can be extended 60 days and they plan to negotiate for the 25k. Verizon indicates they will not change their mind. Verizon makes the point that ultimately, all of these costs are passed on to the consumer.
One board guy motioned for 2 min private meeting with board, try to work things out.
10 min later, they emerge.
Agree to delay vote until June 19th â€“ Gives committee time to â€˜evaluateâ€™ agreement and make sure it represents the interests of the community. Will be at 6:30 and will not be a public forum.