Cable Television Franchise Developments on Military Bases
Many important changes are taking place at military bases that impact cable television operators, in some cases quite adversely. These include:
- Significant developments in housing privatization. The military branches are undertaking massive efforts to upgrade military base housing through privatization. Developers selected for privatized housing, including Hunt Building Corp., Lincoln Properties, Clark Realty Builders (operating together as Hunt Lincoln Clark Family Communities, LLC), and Pinnacle Building Group, are entering into exclusive deals for provision of multichannel video, Internet, and telephone service to privatized housing. In some cases, this has resulted in forced revenue sharing arrangements with the developers, and in others, cable operators are being excluded from serving the housing, which in most cases comprised the majority of revenue for the base. For example, Hunt Lincoln Clark Family Communities, Inc., recently inked an exclusive deal with Verizon for voice, video, and data for privatized housing at a military base in Virginia, and privatization developers at another Virginia military base also are negotiating with Verizon. In some cases, developers have chosen to enter into exclusive deals with cable operators but typically these deals are for five years or less, and require the operator to share a portion of revenue with, or pay a fee to, the developer.
- Increase in deals with multichannel video satellite distributors and resellers (Sprint, Verizon) for bulk service to barracks. Specifically, the Army Air Force Exchange Service (AAFES), a government entity charged with supplying nonessential goods and services to the Army and Air Force, has entered into an exclusive 15-year deal with Sprint to provide multichannel video service to the barracks located on bases served by AAFES. (AAFES serves a large number of Army bases and is now expanding to Air Force bases). Consequently, cable operators are now being excluded from serving the barracks at these bases and are losing a significant source of revenue.
- Across-the-board refusals by the military branches to follow the renewal procedures of the Cable Act, opting instead to put out competitive bids for cable television service, or to take the position that franchises are not required—just annual contracts. Those bases that have agreed, after pressure, to follow the renewal procedures are attempting to limit the agreements to five years and loading the agreements with language that allows the base to close, privatize housing, and enter into bulk deals with cable competitors, without compensation to, or recourse for, the operator.
Another round of base closures slated for 2005. Notwithstanding a 1996 Court of Federal Claims decision and resulting federal authorization legislation stating that cable television franchise agreements are subject to the Federal Acquisition Regulations (“FAR”) and that cable operators are thus entitled to damages in the event of base closure, the military branches have not awarded any such damages for base closure and continue to force cable operators to enter into franchise agreements that provide that the agreements are not subject to the FAR.
All of this activity means significant potential loss of subscribers for cable operators and/or a significant loss of investment in upgrades or other capital commitments undertaken many times in conjunction with renewals.
Arguments can be made that the actions listed above constitute a breach of cable operators’ franchise agreements, and that cable operators should be compensated for any lost sales to the base that result from privatization deals, realignment, or base closure. In addition, exclusive bulk deals with private developers that displace competitive franchises arguably violate other laws including the Cable Act’s restriction on exclusive franchises, and the First Amendment. Moreover, Verizon or other video providers that cross public rights of way are providing cable service and thus must be franchised. Also, the military branches, as franchising authorities, must follow the renewal provisions of the Cable Act, and cannot treat a cable operator eligible for renewal as simply one of many competitive bidders.
There are several potential strategies cable operators can adopt to stop, or least reduce, the potential loss of subscribers and capital investment. First, operators can challenge the military’s practices in court. We believe that, depending on the facts of the case, there is a good likelihood of success on challenges asserting that franchised operators should be permitted to serve privatized housing and barracks, and that the failure to permit operators to serve the housing or barracks violates the Cable Act’s prohibition on exclusive franchises, violates the First Amendment and constitutes a breach of contract. Cable operators also have strong arguments that military bases are bound by the renewal provisions of the Act and cannot force operators to submit competitive bids or waive their rights to reimbursement in the event of base closure, realignment or privatization. Second, operators can lobby the military branches and appropriate Congressional representatives in an effort to exert pressure on the bases to permit franchised operators to continue serving the housing. Such lobbying sessions would focus on the investment-backed expectations created by franchises and the Cable Act renewal requirements, as well as the benefit of allowing competition to the housing and barracks. Third, operators can increase their marketing efforts with developers such as Hunt, Lincoln, Clark, and Pinnacle to assure that, in the event that military bases and private developers are permitted to continue their practice of entering into exclusive agreements for housing or barracks, franchised cable operators are selected as the exclusive provider.
CRB has extensive experience in negotiating military base franchise renewals and has represented operators in disputes with the Air Force, Army and Marine Corps. Please contact us if you would like to discuss these matters further or would like our help in addressing specific issues relating to military base franchises.