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Whats New December 2007
Newsletter I. FCC Issues 2nd Order
Further Limiting Municipal Franchising On October 31, 2007, the FCC issued a Second Report
and Order ("Second Order") extending to incumbent cable operators (Incumbents) regulatory
relief which had previously been granted only to Competitive Video Providers
(CVPs). The Second Order was published
in the Federal Register on November 23, 2007 and becomes effective December 24,
2007. The below summary addresses 10 of the most frequently
asked questions from Local Franchising Authorities (LFAs) regarding the Second
Order. 1. If my state has recently adopted
legislation offering CVPs and Incumbents a statewide franchise, does the Second
Order have any impact on my community? Answer: Yes. In the
Second Order the FCC states that its statutory interpretations represent the
Commission's view as to the meaning of various statutory provisions and as such
"these interpretations are valid immediately."
Because the interpretations do not depend on section 621 (a) (1) of the
Cable Act they are "valid through the nation."
This position is a departure from the FCC's initial order regarding CVPs
adopted on 12/20/06, released on 3/5/07, in Docket No. 05-311 (First
Order). In the First Order the FCC
emphasized that its ruling did not impact "state" franchising authority nor did
it preempt state statutes which dictate how an LFA is to issue franchises. The Second Order clarifies that all
interpretations by the FCC regarding franchise fees, public, educational and
governmental (PEG) financial support, and institutional networks apply
regardless of state law. Thus LFAs
located in states where CVPs must remit up to a 5% franchise fee and 1% or more
in PEG support payments could be impacted by the FCC's statutory interpretations. 2. Are LFAs required to process
franchise renewals within 90/180 days, the same as they are required to process
applications from CVPs? Answer: No. The 90/180 day shot clock requirement which
the FCC imposed in its First Order with respect to applications from CVPs does
not apply to Incumbents seeking franchise renewal. Renewal of local franchises (to the extent
still relevant under applicable state law) is addressed by the Cable Act at 47
USC § 546. Under § 546 Incumbents must
still provide LFAs with written notice of their intent to seek renewal of their
local franchise 30 to 36 months prior to franchise expiration. 3. Does the Second Order have any
impact on an Incumbent's requirement to build out to un-served areas within a
jurisdiction? Answer: No. The Second Order concludes that the build out
flexibility the FCC sought to provide CVPs in the First Order is not applicable
to Incumbents. The FCC reasoned that
these issues were already addressed within existing local franchises and in most
cases Incumbents had substantially built out the jurisdictions which they
serve. However, the build out
requirements and level playing field provisions of Incumbent franchises may
still have an impact on the requirements an LFA may impose upon a CVP applying
for a competitive franchise. 4. Will the Second Order reduce
franchise fee payments received by an LFA from an Incumbent? Answer:
Possibly. Franchise fees will
likely not be impacted but an Incumbent could seek to offset certain in-kind
payments from franchise fees thereby reducing the revenue received by the
LFA. In the Second Order, the FCC
concluded that its interpretation of statutory provisions contained in the
First Order regarding franchise fees, in-kind obligations and PEG support fees should
apply equally to CVPs and Incumbents.
Therefore, if an Incumbent franchise requires a full five percent (5%)
franchise fee on gross revenues, there is some risk that the Incumbent may seek
to utilize the Second Order to support a modification of certain in-kind
franchise obligations. This issue will
vary significantly between LFAs depending upon state law and the requirements
of the local franchise. 5. Will free cable service to schools
and public buildings be jeopardized? Answer: Not
likely. The FCC addressed this issue in
the legal challenge to the First Order.
LFAs had raised arguments that the First Order could allow CVPs, and now
Incumbents, to offset the costs associated with free service to schools and
public buildings against franchise fee payments made to LFAs. The FCC replied to these arguments by stating
that the First Order's "analysis of in-kind payments was expressly limited to
payments that do not involve the provision of cable services." (See, Alliance For Community Media v. FCC,
Brief in Opposition to Motion for Stay before the Sixth Circuit, Case No.
07-3391, footnote 16). 6. If a local franchise has
obligations requiring the Incumbent to financially support PEG channels, do
these obligations remain enforceable? Answer: Most likely. The FCC concluded "that the non-capital costs
of PEG requirements must be offset" from the Incumbent's franchise fee
payments. The FCC attempted to draw a
line between capital costs and operational costs in support of PEG. The FCC concluded in the First Order that
"capital costs refer to those costs incurred in or associated with the
construction of PEG access facilities."
In its brief before the Sixth Circuit, the FCC clarified that purchasing
equipment used to provide PEG access may well be a capital cost as opposed to
"salaries and training" which the FCC would consider "payments in support of
the use of PEG access facilities" and therefore counted toward the 5% franchise
fee cap. LFAs with PEG support
requirements in a local franchise should carefully review the requirements and
the use of the designated PEG funds to determine the enforceability of the franchise
requirement under the Second Order. 7. Does the Second Order automatically
change conflicting requirements in a local franchise or a state franchise? Answer:
Possibly. The FCC acknowledges
that local franchise agreements involve contractual obligations, and that
certain contractual terms have been implemented as the result of settlement
agreements negotiated at the time the local franchise was granted. The FCC concludes that "the facts and
circumstances of each situation must be assessed on a case-by-case basis under
applicable law to determine whether our statutory interpretation should alter
the Incumbent's existing franchise agreement."
However, the FCC also states that the Second Order "should in no way be
interpreted as giving Incumbent's a unilateral right to breach their existing
contractual obligations." 8. Can an Incumbent unilaterally
change a local franchise or are there specific procedures which must be
followed? Answer: Specific
procedures must be followed. Some local
franchises have provisions which address modification under a "most favored
nation" (MFN) clause. MFN clauses
generally allow an Incumbent to adjust franchise obligations if the LFA grants
a competing franchise to a CVP. The FCC
determined that MFN clauses are unaffected by the First and Second Orders and
that those clauses may allow Incumbents to obtain relief from franchise
obligations in certain cases. The Second Order also addresses the question of
franchise modification without an MFN clause in the local franchise. The FCC cited section 625 of the Cable Act
which allows an Incumbent to obtain a modification from an LFA: 1) if the
Incumbent can show that it is "commercially impracticable" to comply with a
requirement for equipment or facilities; or 2) if the Incumbent can demonstrate
that the mix, level and quality of "services" required by a franchise at the
time it was granted will be maintained following the modification. 9. What if the Incumbent simply stops
complying with certain local franchise obligations arguing that if the CVP is
not obligated to provide certain services/equipment the Incumbent should not
have to comply with such requirements? Answer: The
Incumbent must still comply with the local franchise. The local franchise remains enforceable
against the Incumbent even if a CVP franchise is granted on different terms. To obtain relief Incumbents must follow the
amendment procedures contained in the local franchise or otherwise available
under an MFN provision or section 625 of the Cable Act . The LFA can impose any remedies available via
the franchise or state and federal law for the Incumbent's non-compliance. 10. What is the status of legal challenges
to the FCC's First Order and Second Order regarding local franchising? Answer:
Pending. The Sixth Circuit
granted expedited review of the case challenging the First Order. The case has been briefed but no oral argument
has yet been scheduled. The national
municipal organizations and others are expected to file a petition for
reconsideration of the Second Order with the FCC. Municipal groups have also filed with the
Sixth Circuit seeking to have the Sixth Circuit obtain jurisdiction over any
challenges to the Second Order. II. The City of Minneapolis, Minnesota joined the ranks
of many large jurisdictions worldwide that have partnered with the private
sector to provide nearly ubiquitous wireless broadband coverage of the entire City. The 55 square miles covered by the system
makes it one of the larger citywide wireless services in the country. The system is based on a unique contract that
pays the City substantial revenue for the use of certain infrastructure
provided by the wireless provider, U.S. Internet (USI). The City's contract with USI, drafted by
Brian Grogan of Moss & Barnett, allows USI to use certain City
infrastructure, including traffic signals, light poles and other facilities, to
obtain citywide coverage. The City, in
turn, has contracted with USI to migrate a number of City services to the
wireless broadband network including security cameras, public safety communications
and other City services. With the City as an anchor tenant of the system the
financial model for USI is vastly different than other the "free service" or
"advertising supported" models which have failed for other wireless carriers over
the last several years. As the anchor
tenant, Early indications are that the system has been well
received by initial users and the City and USI are continuing to work on
addressing troubled areas where existing assets are unavailable for the
placement of required equipment. For
additional information regarding the III. Tenants Living in Apartments May No Longer
Be Locked Into a Single Choice For Cable Service. On November 13, 2007, the FCC released a report and
order which voids exclusive access and service clauses in video contracts
between cable operators and multiple dwelling units (MDUs). This decision does not effect bulk rate
agreements or exclusive marketing arrangements although these contractual
arrangements are to be further reviewed by the FCC. At issue was whether tenants in an apartment
building would be able to take advantage of competitive services in the
marketplace or whether the building owner would have the right to enter into an
exclusive arrangement with a cable operator.
The order applies not only to condominiums and apartments but also to
centrally managed real estate developments including gated communities, mobile
home parks, and related facilities. The
order does not prohibit DirecTV or the Dish Network from entering into
exclusive agreements although these too are under further review by the
FCC. The order will undoubtedly be
appealed by the cable industry given that in some communities as many as a
third of the population or more may reside in MDUs. Moss & Barnett has been actively involved
in assisting MDUs and others regarding such exclusive agreements related to the
provision of voice, video and data services.
For further information please contact Moss & Barnett. IV. FCC seeks information regarding pole rental
rates for broadband attachments. On November 20, 2007, the FCC issued a notice of proposed rule making seeking input regarding the rates to be charged by utility companies for access to their poles as well as the terms for such access. Cable and telecommunications companies have raised numerous arguments before the FCC regarding increasing pole rates and their impact on the deployment of broadband services. The FCC's rulemaking tentatively concludes that rates for companies seeking attachments for broadband internet access service should be higher than the cable rate but no greater than the telecommunications rate. Apparently, if a cable operator sought attachment to poles solely to provide cable service the FCC's existing rates would be preserved but if the attachments were to be used for broadband internet access service higher rates may apply. There are a number of other issues addressed in the rulemaking regarding the terms and conditions of access to poles. While the FCC's existing regulations do not directly apply to municipal utilities, many municipal utilities have relied upon the FCC rate formula to support proposed pole attachment rates to private parties. Moss & Barnett advises many municipal utilities on pole attachment and conduit use agreements and will be monitoring the rulemaking proceeding as it moves forward. Wisconsin Video Services Legislation Impact of the FCC's 1st Order on Cable Franchising in Minnesota - MACTA 24th Annual Conference, September 13, 2007 The FCC's Cable Franchising Order - Minnesota Telecom Alliance Video Symposium, May 22, 2007 The FCC's Cable Franchising Order, presentation at the Michigan Association of Municipal Attorneys Conference, Lansing, Michigan, March 20, 2007. Municipal WiFi: A Legal Primer, presentation at Minnesota City Attorneys Conference in Bloomington, MN on February 9, 2007. Municipal WiFi: A Legal Primer, Minnesota City Attorneys Conference in Bloomington, MN on February 9, 2007. Broadband Strategies for New Developments, presentation at Law Seminar in Tampa, FL on February 23, 2007 |
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