FCC Adopts NPRM to Review Competitive Cable Franchising Process
At an open meeting today, the FCC adopted a Notice of Proposed Rulemaking (“NPRM”) regarding the process for awarding competitive cable television franchises. The FCC is seeking comment on whether local franchise authorities (“LFAs”) are complying with the Cable Act’s provision prohibiting unreasonable refusals to award additional competitive cable television franchises. Although the text of the NPRM is not yet available, in a news release issued today the FCC tentatively concludes that it has jurisdiction and should broadly interpret the Cable Act’s prohibition by establishing preemptive procedures and requirements that will facilitate the entry of competitors where local processes “unreasonably interfere” with obtaining a franchise or otherwise create an “unreasonable barrier to entry.” Chairman Martin clearly is interested in facilitating the award of additional franchises and encouraging competitive entry.
By way of background, it appears that this initiative has been promoted by the major phone companies (principally Verizon) who have been seeking quick authority to offer cable television services across the country. However, in most cases, these phone companies have been reluctant to accept the terms of the incumbent operators’ agreements and instead have pushed for more favorable franchise terms. For example, Verizon has tried to avoid build-out requirements and PEG obligations equivalent to those of incumbent franchisees. Verizon has also sought, and in some cases received, favorable “exit” clauses that would allow it to terminate its franchise obligations at the end of three years if it unilaterally believes it has not achieved a commercially reasonable level of subscribers. As a result of these proposed deviations from existing franchises, LFAs have had to grapple with equalizing franchise burdens among franchisees (as required by the explicit terms of local franchises or state level-playing field laws) and thus, have been slower than the telephone companies would like to issue franchises authorizing competitive cable service.
The NPRM will complement other phone company efforts to facilitate easy entry into the cable television market on less than equal terms. In September, under pressure from SBC and Verizon, the Texas legislature adopted statewide franchising legislation that allows new entrants, but not incumbent operators, to obtain franchise authority from the state with a few basic certifications. Similar initiatives are pending in other states and in Congress (see Updates dated October 17, 2005 and August 29, 2005).
Significantly, while expressing concern that competition might be unreasonably hindered by LFA delays and policies, the NPRM will also recognize an appropriate statutory role for LFAs in the franchising process. The FCC has tentatively concluded that it would not be unreasonable for an LFA to prohibit redlining, to provide a reasonable time for a full build-out of a franchise area, and to require the new entrant to provide adequate PEG facilities and financial support, provisions important to ensure a level-playing field among competitors. In addition, the Commission seeks comment from incumbent cable operators regarding problems that they themselves have encountered with LFAs that inhibit investment in providing broadband services.
To the extent that the FCC pushes for local franchise reforms, it is critical that such reforms be applied to all competitors (including incumbents) in a competitively neutral manner. The FCC will hold an en banc hearing concerning these issues at a later date that is yet to be determined. The comment and reply periods have not yet been established, and we will provide more information once the full text of the decision is released.
We believe that this will be a critical proceeding, and we encourage you to let us know if you are interested in participating in the submission of formal comments to the FCC.