CABLE FRANCHISING IN A NEW REGULATORY ENVIRONMENT Colorado Municipal League Annual Conference...

CABLE FRANCHISING IN A NEW REGULATORY

ENVIRONMENTColorado Municipal League

Annual ConferenceSnowmass Village

June 29, 2007

Kenneth S. FellmanKissinger & Fellman, P.C.3773 Cherry Creek N. Dr.

Ptarmigan Place, Suite 900Denver, Colorado 80209

303-320-6100www.kandf.com

Kissinger & Fellman, P.C. www.kandf.com

A Brief History of Cable Franchising

Pre-1984 Cable Act: No federal statute Some regulatory oversight from FCC Local Franchising Authorities (LFAs)

often granted exclusive rights LFAs often conditioned franchise grant

on provision of unrelated benefits



Congress passes 1984 Cable Act, adding Title VI to Communications Act of 1934: Federal action had been demanded by

Cable industry Local control and local franchising

preserved… Within a federal, statutory framework,

establishing limits on local action



1992 Cable Act amendments Implements limited rate regulation Restricts support for Public, Educational and

Government (PEG) access to financial support for capital and equipment

1996 Telecom Act Further limits rate regulation Creates Open Video System status to ease

regulation and encourage telco competition



Post 1996 Act: Telcos did not make significant efforts to

compete with cable companies Dot com bust after late 1990s – capital dried

up Big telephone companies begin to merge;

convergence of technologies By 2005, new telco cries to eliminate local

control in order to spur video competition


Local Authority Under Attack

In Congress

In the state legislatures

At the Federal Communications Commission (FCC)



Federal legislation fails in 2006 State laws preempting local

franchising pass in 14 states in 2005 & 2006

But state franchising bill killed in Colorado

Meanwhile, lack of action in Congress “empowers” FCC to act



FCC opened docket in 2005 to determine if LFAs were acting as “barriers to entry” of companies wanting to offer competitive video programming services

Comments filed by many industry interests, hundreds of local governments and many more supports of access programming

Many industry comments referred to unnamed LFAs; some claims patently false


The FCC Order

Announced on December 20, 2006 3 – 2 vote, along party lines Not published until March 20, 2007 Effective (in part) on April 20, 2007 Basis for decision – Section 621 of

Cable Act: Franchising authorities may not “unreasonably withhold” approval of competitive franchises


The FCC Order

“…[This Order] goes out on a limb in asserting federal authority to preempt local governments, and then saws off the limb with a highly dubious legal scheme. It substitutes our judgment as to what is reasonable – or unreasonable – for that of local officials – all in violation of the franchising framework established in the Communications Act.”

- FCC Commissioner Jonathan Adelstein


The FCC Order

Local franchising process is inhibiting competitive entry into the video services market

Insufficient record as to whether the state franchising process (where state franchising legislation exists) was similarly problematic

Therefore, no FCC preemption of state franchising practices


The FCC Order

Order address 6 major areas of local authority: time limits to act on franchise

applications build-out requirements franchise fees PEG and I-Net support authority over mixed use networks level playing field requirements


The FCC Order

Time Limits to Act failure to act within 90/180 days amounts to

unreasonable denial (unless state law provides otherwise) “Shot clock” starts when federal application

and locally required info (if any) is received Federal application requires only minimal info Federal form still not yet approved by OMB


The FCC Order

If no final action taken in 90/180 days: FCC deems application approved Upon terms proposed by applicant

Parties may agree to extend deadline If denied, can be challenged in court, so… Document everything that happens in

negotiations Consider local application ordinance


The FCC Order

Build out requirements: Cable Act: must give company reasonable

time to be capable of providing service to all households in the franchise area

FCC interprets this to mean that “unreasonable” build out requirements amount to “unreasonable denial” of franchise

FCC gave extreme (and not very helpful) examples of reasonable/unreasonable requirements


The FCC Order Build out: what to expect in negotiations

Any requirements company objects to will be claimed to be on FCC’s “seems unreasonable list

Applicants will try to tie all build out requirements to market penetration threshold

Commissioner Adelstein: “Our knee-jerk embrace of everything interested companies say while discounting local elected officials on a matter grounded in local property rights certainly does not inspire a great deal of confidence in the Commission’s ability on the federal level to arbitrate every local dispute in the country and fairly decide who is unreasonable and who is not.”


The FCC Order

Franchise Fees: Rent for the use of public rights of way Per Cable Act, limited to 5% of company’s

cable related gross revenues Does not include fees “incidental” to franchise

award FCC’s new interpretation of what is not

“incidental” (and thus included in 5% cap): included free or discounted cable services this had never before been considered part of

franchise fees


The FCC Order

PEG and I-Net Support Historically negotiated in franchise to meet

local needs – over and above franchise fees FCC says support for “building and

construction” outside of 5% cap Support for salaries to be credited against 5%

cap No reference to capital contributions for

equipment – historically outside of 5% cap


The FCC Order

PEG and I-Net Support (cont.) Unreasonable to impose on new entrant more

burdensome PEG carriage obligations than imposed on incumbent cable operator

Tying PEG support to incumbent will likely result in freezing PEG support at current levels, regardless of future community needs

Duplicative I-Net requirements (or obligation to pay comparable value) now impermissible


The FCC Order

Mixed Use Networks Cannot refuse to award cable franchise

based upon issues related to non-cable services

Cannot demand new entrant obtain cable franchise before issuing necessary permits to upgrade its network

New entrant does not need to apply for a franchise until it is ready to provide video service


The FCC Order

Mixed Use Networks (cont.) Cannot use franchising authority to regulate

network beyond provision of cable services Example in practice: Qwest’s proposed

language to exclude the telephone network from any of the police power directives in the cable franchise, so...

Make sure general ROW ordinances contain sufficient provisions to regulate rights of way access and operational issues, regardless of the entity utilizing the ROW


The FCC Order

Level Playing Field Provisions Appear today in franchises and in some

local codes May only grant competitive franchises

upon substantially similar terms and conditions as that of incumbent cable operator

Are now preempted by FCC order Most Comcast and Bresnan franchises

have LPF provisions of some kind


The FCC Order

Application of the Order – only to new entrants

Further rulemaking pending to determine if the preemptory rules and findings should apply to incumbent cable operators, and if so, when

Decision expected in the fall


The Court Challenge

Federal court appeal by multiple local governments, national local government associations, and some in the industry

Appeal pending in 6th Circuit (Cincinnati) Briefing to occur between July and October Local governments have just filed for a

stay of the Order Stay tuned……


and in closing, again from Commissioner Adelstein…


“Instead of acknowledging the vast dispute in the record as to whether there are actually any unreasonable refusals being made today, the majority simply accepts in every case that the phone companies are right and the local governments are wrong.... This is breathtaking in its disrespect of our local and state government partners....”


THANK YOU!

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CABLE FRANCHISING IN A NEW REGULATORY ENVIRONMENT Colorado Municipal League Annual Conference...

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