Cable Franchising: The Federal and State Outlook

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Cable FranchisingThe Federal and State Outlook
MACo Annual Conference Ocean City,
Maryland August 18, 2006
Frederick E. Ellrod III Miller Van Eaton,
P.L.L.C. www.millervaneaton.com
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The Threat to Local Franchising

• The Bell companies have finally decided to enter
  the cable market
• Technology allowing triple play makes cable
  service attractive
• The Bells are not used to dealing with local
  communities
• Hence they seek federal or state override of
  local cable franchising

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The Threat to Local Franchising

• Federal legislation in House and Senate (H.R.
  5252)
• FCC rulemaking on regulating local franchise
  process (Docket 05-311)
• State legislation advanced in many states, passed
  in several
• Litigation Verizon v. Montgomery Cty.

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The Threat to Local Franchising

• The industries are devoting immense resources to
  advancing their agenda
• U.S. telecom companies spent eight times more on
  federal lobbying in 2005 than in 2002 (16.8
  million)
• Verizon spent 6.8 million of this amount
• Lobbying expense for national cable assn NCTA
  rose 68, to 7 million
• Comcast alone spent 3.9 million in 2005

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The Threat to Local Franchising

• Loss of local franchising authority would
  eliminate many benefits
• Build-out and service requirements
• Customer service and consumer protection
• Service and channels for public, educational, and
  governmental purposes
• Institutional networks
• Right-of-way management mechanisms
• Franchise fees

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The Threat to Local Franchising

• Proposed federal legislation would assert federal
  control over local communities property
• Legislation passed in many states would remove
  control to state level and essentially eliminate
  enforcement

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Federal Legislation

• Several bills introduced
• House passed COPE bill (H.R. 5252) June 8,
  2006, by 321-101 vote
• Sen. Stevens (R-Alaska) introduced broader
  legislation in Senate
• Stevens ATOR bill (labeled as substitute for
  H.R. 5252) adopted by Commerce Committee June 28,
  2006

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Federal Legislation

• House COPE bill would have federal government
  issue franchises for use of local public
  rights-of-way
• Federal franchises would be administered by FCC
• State legislation would remain in place

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Federal Legislation

• Senate ATOR bill would compel localities to issue
  franchises within 90 days with standardized
  federal terms
• Efforts of local government groups (including
  NACo) have improved Senate bill, but it remains
  unacceptable
• Key provisions are summarized below

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Federal Legislation

• Under ATOR, applicant submits FCC application
  form for a franchise
• Locality fills in four blanks
• franchise fee percentage (to 5)
• number of PEG channels
• PEG support 1 or match existing operator
• point of contact for franchising authority

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Federal Legislation

• New entrants can get these streamlined
  franchises
• Incumbent cable operators can also get them once
  a national franchisee commences service in
  franchise area

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Federal Legislation

• No build-out requirements
• On the contrary, legislation prevents build-out
  conditions
• Thus, legislation makes great concessions to Bell
  companies without any guarantee of any benefit in
  return
• Redlining is theoretically prohibited (but
  provider can choose its service area)

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Federal Legislation

• Customer service FCC makes rules franchising
  authorities enforce them
• Public, educational and governmental (PEG)
  access
• Channels match incumbents (3 if none)
• Can increase by one channel every 15 yrs.
• Funding 1 of gross revenues, or match
  incumbents cash and in-kind support

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Federal Legislation

• Institutional network (I-Net) Existing
  obligations continue, but no new I-Nets
• ATOR theoretically protects right-of-way
  management and police powers, but local law must
  be
• reasonable
• competitively neutral
• nondiscriminatory
• consistent with State police powers
• any fees must be cost-based

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Federal Legislation

• Sponsors claim ATOR captures IP (Internet
  protocol) television by a cable operator,
  contrary to ATT/SBC
• Sponsors claim ATOR overrides state legislation,
  but it does not specifically say so

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Federal Legislation

• Other problematic provisions re
• Internet access taxation
• Wireless taxation
• Preemption of state and local oversight of
  wireless practices
• Net neutrality is a major issue in the
  legislation not directly involved in local
  franchising

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Legislation in Other States

• Bells push for franchising at state level
• States that have recently adopted state
  franchising include
• Virginia
• New Jersey
• North and South Carolina
• Texas
• Indiana
• Kansas

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Pre-2006
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As Of July 2006
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Legislation in Other States

• State-level franchising can--
• Eliminate buildout requirements
• Allow buyouts that reduce competition
• Eviscerate customer service standards
• Impact local control of public rights-of-way
• Remove PEG channel benefits
• Cut franchise fees by changing definition of
  gross revenues and hamstringing audits
• Affect permitting process and fees
• Prevent effective enforcement

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Legislation in Other States

• State-level franchises typically impose no
  effective build-out or service obligations on
  providers
• Thus, again, the state receives no real
  consideration in return for concessions to the
  industry
• Verizon or Comcast could bring similar
  legislation to Maryland

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FCC Rulemaking

• FCC is industrys backstop if it doesnt get
  national franchising from Congress, it turns to
  the FCC
• Comments have already been filed
• Industry commenters have filled the record with
  unsubstantiated accusations against unspecified
  local governments

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FCC Rulemaking

• FCC has taken the position that it has broad
  authority to impose federal regulations on local
  franchising
• The FCC is seeking ex parte comments and visits
  from local franchising authorities to balance
  against industry comments

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Litigation

• Montgomery County has franchised two cable
  operators, Comcast and RCN
• Verizon approached the County to discuss a cable
  franchise
• Last meeting April 21, 2006
• Verizon sued Montgomery County on June 29, 2006

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Litigation

• Verizon seeks to overturn many provisions of
  Countys cable law
• Verizon also wishes to have court impose
  franchise terms on the County
• Verizon challenges many provisions of the federal
  Cable Act as they are normally applied in cable
  franchises

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Litigation

• Verizon sought a preliminary injunction to hold
  ordinance provisions invalid and require mediated
  negotiations
• On August 8, the court denied Verizons request
  for preliminary injunction and ordered
  negotiations with a mediator

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Conclusion

• The industry is mounting an all-fronts attack on
  local franchising
• If rights and benefits of local franchising are
  to be preserved, local communities must be
  equally assertive in response
• Localities cannot afford to neglect any of the
  forums in which the industry is active