cable franchising and peg channels in a new regulatory environment 3cma annual conference fort...

CABLE FRANCHISING AND PEG CHANNELS IN A NEW

REGULATORY ENVIRONMENT

3CMA Annual ConferenceFort Collins, Colorado

August 3, 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

To fully understand the Order’s impact on PEG, one must understand a bit about franchise fees

A franchise is a grant of authority to an entity to use public property -- without the grant, no authority exists

Franchise fees are analogous to rent for the use of the public rights of way


The FCC Order – Franchise Fees

Franchise Fees: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): free or discounted cable services – this had never

before been considered part of franchise fees Certain PEG-related support


The FCC Order - PEG

PEG support has historically been negotiated in franchises 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


The FCC Order - PEG

Commission has set the stage for future disputes and possibly litigation

Capital/depreciable investments: cameras, lighting, playback equipment, editing decks – traditionally supported by PEG fees

Have always been considered outside 5% franchise fee cap


The FCC Order - PEG

Unreasonable to impose on new entrant more burdensome PEG carriage obligations than imposed on incumbent cable operator

While not finding this to be the only reasonable way to impose PEG support, Order noted “pro rata cost-sharing approach is a reasonable means of meeting the provision of adequate PEG facilities.”


The FCC Order - PEG

Not clear how pro rata share to be calculated, particularly if the incumbent cable operator made up front or periodic lump sum grants of PEG support

Tying PEG support to what is imposed on

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


The FCC Order - PEG At renewal, franchising authorities assess community needs

Negotiate new franchise to meet the demonstrated local needs at that point in time

Per Order, competitive provider cannot be required to provide more PEG support than provided by the incumbent operator

If same rule applied to incumbents, at the time of renewal, incumbent can demand no additional PEG requirements be imposed

Conflicts with Congressional authority to obtain PEG support in franchise to meet local cable related needs


Arguments Made by Local Governments in FCC’s Further Notice

Demonstrated history of modifying PEG obligations to meet existing local needs in franchise renewals

Agreements to activate additional channels: Greenwood Village (2001), Broomfield (2003), Englewood (2002), Northglenn (2001), Arvada (1995)

Addressing local PEG needs through financial contributions: Thornton (development of studio-2001), Louisville (capital equipment upgrades-2006)


Other Impacts on Access

In communities with public access – will make competition for limited financial resources much stiffer

Incumbent cable companies less likely to be supportive of PEG because it is seen as “one more cost” impacting their ability to compete


Current Status of 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


Current Status of the FCC Order

Order has been appealed to federal court

Local governments’ motion for stay was denied, but may be reconsidered

The new “shot clock” governing timing to act on new franchise applications going into effect this week


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!

cable franchising and peg channels in a new regulatory environment 3cma annual conference fort...

Documents