Brian T. Grogan

(612) 347-0340

E-Mail:  GroganB@moss-barnett.com

Communications Law Update

To:                  Moss & Barnett Clients and Interested Parties

From:              Brian T. Grogan, Esq.

Date:               March 19, 2001

 

 

1.                  CITIES PREVAIL IN DECISIONS ON FRANCHISE RENEWAL

 

A.        Brunswick

 

Since 1984 when federal law was changed to prescribe a franchise renewal procedure, only two (2) municipalities have successfully denied a cable operator’s request for franchise renewal.  The cities of Rolla, Missouri and Sturgis, Kentucky[1] have been the only cities to successfully deny a cable operator’s franchise renewal request.  Recently, a third city has joined this list by denying its cable operator franchise renewal on the basis of the operator’s past performance.  The case, Cablevision of the Midwest, Inc. v. City of Brunswick, Ohio, No. 199CV1442 (N.D.OH Dec. 18, 2000), found that there was sufficient evidence in the record to conclude that “Cablevision failed substantially to comply with material provisions of the existing franchise agreement.”  

 

The case is interesting in that the City had used a hearing officer to conduct the administrative hearing required under 47 U.S.C. § 546, but ultimately issued findings contrary to those of the hearing officer.  The court held that while the City was entitled to use a hearing officer to promote administrative efficiency, it was not bound to accept the hearing officer’s findings of fact and conclusions of law.  This decision is particularly important in that it supports the decision of Union CATV, Inc. v. City of Sturgis, Kentucky, 107 F.3d 434 (6th Circuit 1999) by specifying that the task of the District Court was to “determine whether, considering the evidence in the light most favorable to Brunswick, a reasonable fact finder could have found by a preponderance of the evidence that Cablevision had not substantially complied with the material provisions of the franchise.”  This standard of review is quite favorable to municipalities and strengthens their rights during franchise renewal.

 

The cable industry has long argued that the Sturgis decision was an anomaly given that only a limited administrative hearing was conducted in that case.  The Brunswick decision provides valuable support to municipalities around the country that are engaged in “formal” renewal proceedings with cable operators and are in need of clarification regarding how best to conduct an administrative proceeding.

 

B.        Naples

 

Another recent decision regarding franchise renewal helps to clarify the procedural timing requirements of the formal renewal process at 47 U.S.C. § 546.  In the case, Frontier Operating Partners, L.P. v. Town of Naples, Maine, No. 01-16-P-DMC, 2001 WL 220192 (D.Me Mar. 7, 2001), the court found in favor of the Town in a dispute over the applicable deadlines imposed by Section 546.  Often cities and cable operators will enter into agreements clarifying whether the renewal process is being conducted “formally” or “informally.”  The Naples decision is helpful in clarifying the statutory deadlines imposed upon operators involved in a formal renewal process.

 

2.                  COMPETITIVE FRANCHISING HITS HARD TIMES

 

The wave of competitive cable television applications sweeping across the United States early last year has dissipated significantly.  An extraordinary turn in both the debt and equity markets has significantly altered many competitive overbuilders’ plans.  Cities which six months ago were grappling with two to three applications from competitive providers have, in some cases, found themselves with just the incumbent cable operator remaining. 

 

The FCC’s report on competition for the year 2000 suggests that several large competitive providers are scaling back plans to provide competitive services.  In the state of Connecticut, SNET, which holds a franchise for the entire state, is exiting the market.  Other competitive providers such as, WIN, WOW, RCN, and Everest have all retreated in certain markets and are focusing their attentions on much more limited regions.  While the FCC notes that cable rates have increased 5.8%, as compared with a 3.5% inflation rate, it also notes that cable operators facing competition were charging, on average, $32.40 while operators not facing competition were charging $34.11.  The FCC further found that in areas where competition exists subscribers often benefit from increased service offerings from the incumbent operator in the form of an increased number of video programming services as well as the introduction of new services such as high speed data and Internet services.

 

3.                  CABLE SYSTEM TRANSFERS

 

AT&T Broadband has recently been active in shedding subscribers in a number of regions.  Mediacom and Charter appear to be the beneficiaries of these sales with Charter picking up approximately 500,000 subscribers for $1.8 billion and Mediacom picking up approximately 840,000 subscribers for just over $2.2 billion.  The affected regions include Georgia, Illinois, Iowa, Missouri, Alabama, Nevada, California and Florida.

 

In many cases, FCC Form 394 has already been forwarded seeking transfer approval from municipalities.  Many communities have already begun to explore the impact of the transfer on existing system upgrade commitments and on pending franchise renewal negotiations.  Moss & Barnett is working with a number of communities regarding these proposed transfers and would be happy to discuss these transactions and share relevant information if desired.  The trend of system transfers and/or system swaps is likely to continue as a result of a recent D.C. Circuit decision described below.

 

4.                  CABLE OPERATORS CAN GET BIGGER

 

On March 2, 2001, U.S. Court of Appeals for the DC Circuit overturned the FCC’s rules which limit the number of cable subscribers one company can serve.  Time Warner Entertainment Co., L.P. v. Federal Communications Commission and United States of America, 2001 WL 201978 (D.C.Cir. Mar. 2, 2001).  The FCC rules had prevented cable operators from owning more than 30% of multi-channel video subscribers in the country.  The rules also imposed a 40% limit on the number of channels that a cable operator could devote to programming supplied by their affiliates.  The decision is particularly important to both AT&T and AOL Time Warner, the two largest cable operators in the U.S.  It is not yet known the impact to this decision on a previous FCC order which required AT&T to reduce its total subscribers as a result of its acquisition of the MediaOne cable systems.  The decision will likely result in greater consolidation in the cable industry through the continued formation of large regional clusters which provide greater operating efficiency for cable providers. 

 

5.                  FEDERAL COURT HANDS CITIES TROUBLING DECISION ON TRANSFER REVIEW

 

On March 7, 2001, a Federal District Court handed municipalities a significant setback regarding the ability to review proposed transfers of ownership.  The case, Charter Communications v. County of Santa Cruz, No. C 99-01874 WHA (N.D.Cal. March 7, 2001) issued a number of findings which will likely be argued by the cable industry as a limiting municipalities’ rights to review legitimate issues in a transfer proceeding.  Among the court’s findings were the following:

 

            1.         Cities must raise questions within 30 days of Form 394 concerning the “accuracy” or “completeness” of the transfer request.

            2.         Cities must limit the scope of their follow-up inquiries to focused concerns.

            3.         Cities cannot co-mingle reasonable follow-up questions with unfocused boilerplate interrogatories.

            4.         Supplemental inquiries must be conducted expeditiously.

            5.         Cities cannot insist that transfer applicants pay consulting or legal fees over and above the 5% cap on franchise fees.

            6.         Cities may not use transfer authority to regulate rates or impose illegal fees.

           

While the facts of this case are likely distinguishable from the actions of most cities in reviewing a transfer request, the court’s findings present a particularly troubling precedent.

 

6.                  CITY’S TELECOMMUNICATIONS ORDINANCE UPHELD

 

On December 20, 2000, Judge Barrington D. Parker, Jr. found that the City of White Plains, New York’s ordinance requiring the payment of an annual 5% franchise fee on revenue derived from operating telecommunications equipment within the City was “fair and reasonable” under Section 253 of the 1996 Telecommunications Act.  TCG New York, Inc. v. City of White Plains, 125 F.Supp.2d 81 (S.D.N.Y.2000).  While the court did strike down portions of the City’s ordinance which did not relate to the management of the public rights-of-way, the case helps to provide clarification regarding Section 253 of the 1996 Telecommunications Act.  In particular, the court held that Bell Atlantic’s exemption from imposition of the 5% franchise fee was not discriminatory because the City provided “powerful reasons why Bell Atlantic should be treated differently.”  Bell Atlantic had been providing service within the City for over 100 years, had provided the City with free use of conduit and had offered universal service to all the City’s residents.  Thus, the City was permitted to impose a franchise fee on TCG yet grandfather the incumbent, Bell Atlantic.

 

Moss & Barnett has prepared a detailed article regarding the application of Section 253 to telecommunications ordinances.  For a complimentary copy please contact Terri Hammer at

(612) 347-0349 or hammert@moss-barnett.com.

 

7.                  POLE ATTACHMENT GOES TO THE SUPREME COURT

 

The showdown between cable television operators and utility pole owners is headed to the Supreme Court and the outcome will likely have an impact on the rates to be paid by cable subscribers.  In the case, Gulf Power Co. v. F.C.C., 208 F.3d 1263 (11th Cir. 2000), cert. granted, 121 S.Ct. 879 (U.S. Jan. 22, 2001) the question is whether the FCC may establish the rates which cable operators should pay to attach their cable to utility poles.  The 11th Circuit concluded that the FCC has authority to establish rates for pole attachments when cable operators are providing “cable service” but not if such operators are providing Internet access service.  While the case will not be heard until the fall of 2001, it will have a significant impact on cable rates as both utility companies and telephone companies, which own virtually all of the poles in the country, are pushing for significantly higher rates for cable operator attachments.

 

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Brian T. Grogan is a shareholder with the Minneapolis law firm of Moss & Barnett.  He represents entities throughout the country on franchise renewals, transfers of ownership, telecommunications planning, issues regarding Section 253, right-of-way issues, wireless sitting disputes, First Amendment issues, litigation and other related communication matters.  Brian is a frequent presenter at state and national conferences regarding communications law.  He is a member of the American Bar Association (Forum Committee on Communications Law), National Association of Telecommunications Officers and Advisors, International Municipal Lawyers Association, and is the past Chair of the Communications Law Section of the Minnesota State Bar Association.

For further information on Moss & Barnett’s cable communications practice, please see the firm’s website at www.moss-barnett.com.

 

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The materials in this Communications Law Update have been complied from a variety of sources and address only a portion of the relevant issues contained within hundreds of pages of regulations and decisions.  We have not addressed many important points which may apply to your situation.  You should consult with legal counsel before taking any action on matters covered by this Communications Law Update.

 

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[1] Moss & Barnett assisted in representing Sturgis, which prevailed before the 6th Circuit in denying franchise renewal.