House Bill Would Create National Cable Franchise Process
Efforts by Verizon and AT&T to obtain federal legislative relief from local franchising requirements received a boost this week as Representative Joe Barton (Chairman of the House Energy and Commerce Committee) released a bill focused on cable franchising, network neutrality, VoIP provider obligations and municipal provision of communications services (the “Bill”). A number of controversial issues contained in earlier House and Senate draft bills, including reform of the universal service fund, are not addressed in this draft to increase chances of passage this term.
I. Cable franchising
With regard to cable franchising, the Barton Bill amends Title VI of the Communications Act and creates a national franchising scheme administered by the FCC that is available to new cable operators (Verizon and AT&T) immediately and to incumbent cable operators once cable competition exists in a particular community. The Bill contains many ambiguous and contradictory sections that will likely be clarified as the hearing process evolves. In addition, because the Bill does not have the support of key Democratic Representatives (Dingell and Markey), chance of passage in its current form remains questionable.
A. Streamlined National Franchise. The Bill establishes a parallel “national” franchising process that new and eligible incumbent cable operators can elect to follow instead of the existing franchise process that involves negotiation of franchises with individual communities. The Bill does not contemplate a single authorization to serve every community in the country as is implied by the label “national” franchise. Rather, eligible operators obtain the right to provide cable service to specific “franchise areas” that are selected by the operator and identified in a Certification filed with the FCC.
In general, Certification becomes effective 30 days after filing with the FCC for the franchise areas identified. Additional Certifications must be filed with the FCC to add new franchise areas. The Bill only deals with “cable service” as currently defined in the Cable Act and does not address IP video issues. However, Representative Dingell has requested AT&T to clarify its position on the distinctions between cable and IP video services and has inquired whether the Bill would actually be helpful to AT&T in light of AT&T’s stance that it does not even plan to provide “cable service.”
While not entirely clear in the Bill, it appears that the “franchise areas” that must be identified in a Certification need not include an entire community. It appears the operator is free to simply describe the areas that it wishes to serve—even if it is just small portions of existing incorporated areas. No build out requirements are included in the Bill, although a prohibition on red-lining is included, as later described. Contents of the Certification are limited to name, business address, identity of directors and principal officers, declaration of eligibility, description of service to be provided and franchise areas to be served, and commitment to file a copy of the Certification with relevant local franchise authorities.
A national franchise would have a 10-year term, and renewal is “automatic” for another 10 years when the initial “National” franchise for an area expires. The FCC may revoke a National franchise as it pertains to one or more franchise areas based on willful or repeated violations of law, local right of way management regulations or anti-redlining requirements. However, franchise reinstatement will be made when the FCC determines that the basis for revocation has been remedied.
B. Eligibility for National Franchise. All “new” cable operators are eligible to file a Certification with the FCC for a national franchise as described above. This includes any party that does not provide cable service in the specific franchise area that is identified in a Certification to the FCC. The path for incumbent cable operators to obtain a national franchise is ambiguous as a result of poor drafting. On the one hand, the Bill provides that an incumbent can obtain such a national franchise for any franchise area where a new cable operator has begun providing cable service under a national franchise.
However, a second basis for incumbent eligibility—expiration of its existing franchise agreement—seems to only be available in franchise areas where (i) an incumbent telephone company (“ILEC”) was providing cable service in the relevant franchise areas on the enactment date of the Bill and (ii) the ILEC continues to provide cable service in the relevant franchise area on the date that the incumbent’s Certification for a National franchise becomes effective. Such a combination of factors will likely be rare, and it is unclear exactly what is intended to be addressed with this second option other than the fairly small number of communities that currently have both an incumbent cable operator and an ILEC with a cable franchise.
If an incumbent is eligible to receive a National franchise for a particular franchise area, that eligibility can be lost if a competitive cable operator discontinues its cable service to that area. One year after the filing of a petition by a local franchising authority (“LFA”) to the FCC asserting the loss of competition in the franchise area, a national franchise awarded to an incumbent cable operator “shall cease to be effective”. The Bill states that a cable operator can then negotiate with the LFA for a new traditional cable franchise. However, no standards for such a franchise negotiation are provided.
C. Requirements of National Franchise.
1. Franchise fees. In an apparent oversight, no specific franchise fee percentage is set. The provision simply states that the fee will be established in accordance with Section 622 of the Cable Act. Section 622 currently allows any percentage up to 5 percent of gross revenues from cable service. There is no linkage to the franchise fee percentage already imposed upon the incumbent cable operator in the franchise area.
2. Gross Revenues. This is defined consistent with the industry standard in most respects, including the limitation to “cable services”. One unusual and unfavorable twist is that for bundled service offerings (“functionally integrated services”) all the revenue from such offerings must be included in gross revenues for franchise fees, “unless the cable operator can reasonably identify the division or exclusion of such revenue from its books and records that are kept in the regular course of business.” This could be a troublesome requirement for all National franchisees.
3. Customer Service. Holders of national franchises will only be subject to FCC customer service rules that will be promulgated specifically for National franchisees. Complaints for violations of the FCC rules can be filed with the LFA or the FCC. However, there is an appeal to the FCC from LFA determinations, which must be decided by the FCC within 30 days. Enforcement for violations is left solely to the FCC. LFAs may charge a “nominal fee to cover the costs of issuing” enforcement orders. It would appear that this would not include consultant and legal costs which would not normally be considered “nominal."
4. PEG Channels. A national franchisee must match the number of PEG channels required in the franchise of the incumbent operator with the most subscribers in the franchise area. Note that this is not limited to the number of PEG channels in use, but the capacity the franchise requires. If there is no other cable operator in the franchise area, an FCC rule will establish the channel requirement. At the end of every 10-year franchise term, the PEG channel requirement and I-Net channel capacity can be increased by the LFA by the greater of one channel or 10 percent of the existing channel requirement.
5. PEG/I-Net Financial Support.
New Cable Operators. Generally, a national franchisee must pay 1 percent of gross revenue annually to the LFA for “support” of PEG use and institutional networks. The use of PEG payments for “support” is inconsistent with Section 622 of the Cable Act which limits PEG payments to “capital” expenses as opposed to general support. The Bill further confuses the issue by then directing that the PEG payments be collected in accordance with Section 622, which would prohibit this type of “support” payment (unless credited against the franchise fees paid). LFAs cannot require a new cable operator with a national franchise to construct an I-Net.
Incumbent Cable Operators. An incumbent operator that obtains an national franchise is still bound by any commitment in its original franchise to provide an I-Net. Moreover, there is no indication in the Bill that this commitment has any expiration date, as it would have if the original franchise commitment had simply expired at the end of the franchise term.
6. Interconnection of PEG Channels. If an agreement cannot be reached among operators, then the FCC can require interconnection under a cost sharing approach.
7. Management of Rights of Ways. LFAs retain right to manage their rights of ways on competitively neutral, nondiscriminatory and reasonable terms. The LFA is authorized to impose charges upon all franchisees (both national and incumbents) for such management. Additionally, the Bill also now sweeps easements dedicated to compatible uses (i.e., private utility easements) within the LFA’s management authority.
8. Redlining. National franchisees are prohibited from denying access to cable service to any group of potential residential subscribers because of the income of that group. Interestingly, this is not defined as withholding service within any particular self-selected franchise area. This leaves open the possibility that ILECs could violate the prohibition by not offering cable service to franchise areas that have lower income levels. There is a “placeholder” in this section for “Enforcement,” which indicates some recognition of the need for consequences if this requirement is ignored.
9. EAS. LFAs are permitted to access the emergency alert systems of national franchisees.
10. FCC Rulemaking. The FCC must adopt all implementing regulations required by the Bill within 120 days of enactment.
D. Preservation of Existing Franchising. As noted earlier, the Bill does not abolish the existing franchising regime where community-by-community franchises are negotiated with LFAs and are periodically renewed under Section 626 of the Cable Act. Thus, new cable operators and incumbents alike that are eligible for national franchises remain able to continue under the current franchise process if they determine it is preferable.
II. Network Neutrality
The Bill provides the FCC specific authority to enforce the principles of its broadband policy statement that was adopted on Aug. 5, 2005. To the disappointment of network neutrality advocates, such enforcement can only proceed through case by case adjudications, and the FCC is specifically denied the authority to adopt rules with regard to such enforcement. Within 180 days after the enactment of the Bill, the FCC is required to submit a study to the House Committee on Energy and Commerce and the Senate Committee on Commerce, Science, and Transportation on whether the objectives of the broadband policy statement are being achieved.
III. VoIP Obligations
A. 911 Obligations and Interconnection Rights Applied to VoIP Providers. The Bill also includes several provisions imposing new rights and duties on any provider of a voice over Internet protocol (“VoIP”) service. VoIP service is defined very broadly as any voice communications that is offered “with or without a fee to the public” which enables any person to send or receive voice communications in TCP/IP (or a successor protocol) to any telephone number or other specific individual network identifier. All VoIP service providers covered by that broad definition would be subject to a duty to ensure that 911 and E-911 services are provided to their VoIP subscribers. In return, such providers are granted the right to interconnect and exchange traffic with the public switched telephone network (“PSTN”) in the same manner as telecommunications carriers under Sections 251 and 252 of the Act.
1. Duty to Provide 911 Service. The Bill imposes a duty on all VoIP service providers (except for a limited class described below) to provide 911 service to subscribers of VoIP service. The Bill also specifically authorizes and requires the FCC to prescribe new regulations governing the provision of 911 services. Excluded from the general obligation to provide 911 service are those VoIP service providers that offer “receive-only” VoIP services, defined as a service that allows subscribers to receive, but not send, voice communications over a VoIP platform. Providers of “receive-only” VoIP service must notify subscribers that 911 service will not be available.
Under a temporary safe harbor provision, the Bill provides that until the FCC promulgates new VoIP 911 service regulations any VoIP service provider that complies with the FCC’s current VoIP 911 regulations will be deemed to be in compliance with the statutory obligations to provide such service. In addition, the Bill also imposes a non-discrimination obligation on any entity (typically ILECs) that own network infrastructure (trunks, routers, databases, etc.) necessary to provide full 911 functionality. Also, under this measure, States will continue to have the authority to impose fees or charges on entities in order to support 911 networks and services.
Importantly, the Bill fails to specifically define 911 or E-911 service, apparently leaving that task to the FCC. Moreover, the Bill’s very broad definition of a service provider includes those entities that provide VoIP communications without imposing a fee for such service. As such, the Bill would apparently cover well known peering services like Pulver.com’s Free World Dial-up service and Skype’s peer-to-peer voice service, neither of which connects to the PSTN or use public telephone numbers.
2. Interconnection Rights. The measure also extends to VoIP service providers the current statutory rights of telecommunications carrier to interconnect and exchange traffic with the PSTN. In a brief, and somewhat ambiguous, section the measure establishes that VoIP service providers shall have the same rights, duties and obligations “with respect to interconnection” as a requesting telecommunications carrier under Sections 251 and 252 of the Act. This seemingly broad grant of interconnection rights also includes all “associated rights, duties, and obligations” that are necessary to effect such interconnection.
What is not clear from the proposed language is whether the “interconnection” rights referenced in the Bill include other obligations under Section 251 of the Act. For example, reciprocal compensation, unbundling, and collocation are all obligations established under Section 251 of the Act, which may or may not be considered rights “associated” with the right of interconnection.
Putting aside the scope of such rights, the Bill makes very clear that such rights are elective, and will only extend to the VoIP service provider if the provider elects to assert such rights.
IV. Municipal Provision of Services
The Bill establishes the authority of municipalities (and other public entities) to provide cable service, information services, and telecommunications services. State or local laws that are inconsistent are pre-empted. Public providers of such services are prohibited from granting preferences or advantages to such providers over private competitors. This nondiscrimination requirement extends to all ordinances, rules, and policies of the public provider (or its affiliates) including use of public rights of way, permitting, performance bonding, and reporting.
If you are interested in more information about this legislation or related regulatory developments relating to franchising, network neutrality, VoIP, or municipals, please contact us.