Transcript CABLE FRANCHISING IN A NEW REGULATORY ENVIRONMENT

CABLE FRANCHISING IN A
NEW REGULATORY
ENVIRONMENT
Colorado Municipal League
Annual Conference
Snowmass Village
June 29, 2007
Kenneth S. Fellman
Kissinger & Fellman, P.C.
3773 Cherry Creek N. Dr.
Ptarmigan Place, Suite 900
Denver, Colorado 80209
303-320-6100
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
Kissinger & Fellman, P.C.
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A Brief History of Cable
Franchising

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
Kissinger & Fellman, P.C.
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A Brief History of Cable
Franchising

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
Kissinger & Fellman, P.C.
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A Brief History of Cable
Franchising

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
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Local Authority Under Attack

In Congress

In the state legislatures

At the Federal Communications
Commission (FCC)
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Local Authority Under Attack
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

Kissinger & Fellman, P.C.
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Local Authority Under Attack

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
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
Kissinger & Fellman, P.C.
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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

Kissinger & Fellman, P.C.
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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
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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

Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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The FCC Order

If no final action taken in 90/180 days:
 FCC deems application approved
 Upon terms proposed by applicant

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Parties may agree to extend deadline
If denied, can be challenged in court, so…
Document everything that happens in
negotiations
Consider local application ordinance
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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.”
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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
Kissinger & Fellman, P.C.
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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

Kissinger & Fellman, P.C.
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The Court Challenge
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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……
Kissinger & Fellman, P.C.
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and in closing, again from
Commissioner Adelstein…
Kissinger & Fellman, P.C.
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“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....”
Kissinger & Fellman, P.C.
www.kandf.com
THANK YOU!
Kissinger & Fellman, P.C.
www.kandf.com