A Digital Dodge City
James Altadonna Jr. won a heated election in 2001 to unseat the incumbent mayor in Massapequa Park, a comfy middle-class suburb on the south shore of New York's Long Island, and he has since been reelected twice. But he has never had his reputation attacked as fiercely as this year, when he got caught in the middle of a fight between two of the country's most powerful communications companies.
The clash Altadonna has become embroiled in pits Cablevision Systems Corp. (CVC ), the sole provider of cable TV in Massapequa Park, against Verizon Communications Inc. (VZ ), which wants a license to offer a competing television service. Altadonna, who serves as mayor part-time and donates his $7,000 salary to the village, thinks Verizon should get its license so residents have more choice. Yet after he pushed through that approval, Cablevision on Oct. 17 slapped the village, its trustees, and Verizon with a lawsuit. Then a Cablevision-funded group distributed fliers and advertised in local papers, accusing the mayor of betraying his town.
Altadonna isn't backing down. The 45-year-old, who runs a local printing company and has lived with his wife and three children in Massapequa Park for 12 years, is sending residents a letter criticizing the fliers as "misleading and deceptive." He says Cablevision is simply trying to delay competition. "The scare tactics they use are ridiculous," he says. "You wouldn't think a billion-dollar company would pick on a mayor." Cablevision says it is not trying to prevent competition. Its goal is to stop Verizon from getting a special deal.
This is just one skirmish in perhaps the most contentious battle in the communications industry. A Digital Age equivalent of the Hatfields and the McCoys, Verizon and Cablevision are shooting it out in town after town across the New York region. Their battle reflects the changes sweeping the tech landscape, with cable companies trying to grab phone customers and phone companies jumping into the cable-TV business.
Yet the clash also shows the benefits of bare-knuckled competition. As they slug it out, Verizon and Cablevision are steadily coming out with better services and lower prices on everything from traditional telephone calling to speedy Net access. In August, Verizon introduced a low-end broadband service for $15 a month, half the price of its previous entry-level offering. In November, Cablevision unveiled broadband with speeds of as much as 50 megabits per second, trumping Verizon's 30 megabits. "Consumers end up getting more products with better prices and greater value," says analyst Anthony Noto of Goldman, Sachs & Co. (GS ).
Their fight offers a study in contrasts. Cablevision is a combative, entrepreneurial outfit run by the eccentric father-and-son team Charles and James L. Dolan. James now runs the Bethpage (N.Y.) company, which also owns Madison Square Garden and the New York Knicks. Verizon is the quintessential corporate icon, a descendant of Ma Bell. Based in Manhattan, Verizon is headed by Ivan G. Seidenberg, a diplomatic exec who shuns the spotlight.
The wrangling dates back to late 2003, when Dolan's Cablevision became the first cable company to offer phone service over its fiber lines. With its stronghold in the New York region, Cablevision added phone customers quickly and now has more than 600,000. About 13% of the people who can get its phone service have signed up, giving Cablevision the highest success rate of any major cable company. Cablevision has also aggressively offered broadband service, and now claims 1.6 million subscribers. "They are going to fight Verizon every step of the way," says analyst Craig E. Moffett of Sanford C. Bernstein & Co.
THE SANDWICH INCIDENT
Seidenberg's response to such challenges has been a counterattack of head-spinning risk. Alone among the phone companies, he's spending billions to string fiber-optic lines into peoples' homes, so Verizon can offer them cable TV and blazing Net service that could one day reach 100 megabits. Verizon offers the Net service, dubbed FiOS, in hundreds of towns nationwide, but its TV service is being rolled out more slowly. Verizon needs to win government approval to offer TV, in most cases from each town or village.
As Massapequa Park demonstrates, the battles for those approvals can be bruising. Verizon began serious negotiations with the village over the summer and participated in a Sept. 12 public hearing on the issue. About the same time, Cablevision's director of franchise management, Jeffrey M. Clark, called the mayor and said the company was planning to run ads condemning the Verizon franchise in local papers. According to an affidavit from Altadonna, Clark offered to pull the ads if trustees postponed a vote on the agreement scheduled for later that month. Altadonna refused. Through a Cablevision spokesman, Clark denies the allegation.
The day trustees planned to vote on the new franchise, Sept. 26, they held another public meeting that hundreds of locals attended. During the hearing, Altadonna and the others took a 15-minute break to eat in a private room before they returned and approved Verizon's application. That 15-minute break is at the heart of Cablevision's lawsuit. The company alleges trustees violated the state's open meeting law by discussing the franchise behind closed doors. Altadonna says they simply ate sandwiches. "There's no question the village followed the law," he says.
Even after the vote, Cablevision has tried to persuade Massapequa Park residents to oppose Verizon. A few weeks later, a trade group, financed by Cablevision, sent flyers out accusing Altadonna of reneging on a promise to keep Verizon's cable equipment above street level. Still, most town residents seem to be on the mayor's side. "I wouldn't mind having some more competition," says Maria Walsh, a 42-year-old local.
Besides the lawsuit and the public relations campaign, Cablevision is appealing to New York regulators. (In New York, the state must confirm the franchises approved by local governments.) The cable company alleges Verizon got a sweetheart deal, with terms that are better than Cablevision's own. Among other things, Cablevision contends that Verizon isn't obligated to offer television service to every resident. "[The agreement] has loopholes that allow it to pick and choose neighborhoods," says a Cablevision spokesman. Altadonna and Verizon say that's not true.
The cable company is pushing hard to win over state regulators. It's sending letters to local mayors, urging them to lobby regulators to reject Verizon's Massapequa Park franchise, according to documents reviewed by BusinessWeek (click here and here for a sample). Cablevision's argument is that Massapequa Park could serve as a template for new cable franchises in other towns -- and that it's one that will poorly serve local communities.
Massapequa Park's fate should be decided soon. State regulators are expected to rule on Verizon's franchise in the coming weeks. And the state Supreme Court is expected to issue a decision in the Cablevision lawsuit next month. If state regulators approve the deal, Verizon plans to start offering cable TV, even if the suit is still in litigation.
Meanwhile, Altadonna is busy addressing one of the issues Cablevision has raised. On a recent sunny morning, he pulls up to the street where two Verizon cable boxes are located. The company's technicians are installing similar boxes 15 feet in the air and removing those near the ground. Rolling down his car window, Altadonna says, "I'm the mayor."
"This box is going to be taken away," says Brad Helford, a technician. "That's what you wanted, right?" Altadonna smiles. "Yup. I always live by what I say."
After he drives back to his office in Town Hall, Altadonna puts the finishing touches on his letter to village residents. "My integrity is not negotiable," it reads. "No malicious fliers, mailed by cowardly, spiteful individuals, will deter me from doing the right thing."
By Spencer E. Ante