Video Franchise Reform

FCC Reins in Local Authority

FCC’s Jonathan Adelstein

Video franchising law has come a long way, but that’s only because video services have come so far that the old rules no longer apply. At least, that’s the view of the FCC and the incumbent telcos positioned to benefit from the new rules.

The FCC in late 2006 handed down new regulations governing cities’ and municipalities’ franchising decisions, quelling any impulse on their part to draw out franchising negotiations or impose so-called unreasonable financial or public service requirements.

Core Capital’s Tom Wheeler

“It shows you how much the world has changed,” says Tom Wheeler, a partner at Core Capital Partners and former longtime president and CEO of CTIA - The Wireless Association, adding that when the CTIA was working to pass the Cable Act of ’84, the idea that Congress might in any way restrict the rights of cities was very controversial, and the FCC ultimately blocked potential municipal restrictions from being put in place.

ACA’s Matt Polka

FCC Commissioner Jonathan Adelstein agrees that the FCC’s move to box in cities and municipalities regarding video franchising oversight is a significant, and wrong-headed, departure from the long-standing rules. “This is breathtaking in its disrespect of our local and state government partners,” Adelstein said on Dec. 20, the day the agency voted 3-2 to uproot video franchising authority from local officials. Already there’s talk of a legal challenge to the FCC ruling.

“It’s patently absurd that companies like Verizon and AT&T can’t compete under the same rules these smaller companies deal with every day,” says Matthew Polka, president and CEO of the American Cable Association (ACA), a trade organization representing 1,100 small and medium independent cable companies that provide broadband services primarily in rural and smaller suburban markets.

NCTA’s Kyle McSlarrow

“We don’t believe the commission has the legal authority to establish separate regimes for incumbents and new entrants in today’s highly competitive marketplace,” says Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association (NCTA).

However, Jerry Ellig, senior research fellow at the Mercatus Center, a regulatory and economic policy research division at George Mason University in Fairfax, Va., says should legal action be pursued, it is unlikely that the courts will overturn the order. “The FCC has very broad authority to interpret statutory language,” he says, adding the FCC is interpreting language in the Communications Act that says local authorities ‘may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise.’” The commission, he continues, “is simply defining what kinds of behavior by local authorities constitute an ‘unreasonable refusal.’”

Before the FCC’s rules, a new cable competitor’s only recourse when a city ignored its franchise application was to sue in federal court, Ellig explains, and the only remedy federal courts gave was to tell the new competitor to reapply for a franchise. With the Dec. 20 ruling, local authorities now have “stronger incentives” to approve new cable franchises, he says. “Local governments can still collect franchise fees, establish buildout requirements, and create a ‘level playing field,’ but they cannot do these things in ways that give the incumbent cable company an advantage over the new competitor,” he says.

But Tom Cochran, executive director of the United States Conference of Mayors, says the FCC’s changes undermine local franchising authority and threaten local budgets. He adds that the FCC’s order also “limits the benefits of broadband video competition to a few well-to-do neighborhoods and enables the industry to cherry-pick its services.”

Cochran is referring to the fact that the FCC ruled, despite objections from critics, that new entrants do not have to build out in areas where they do not already own facilities. However, this statute only applies to states that have not yet passed video franchising laws. The Bells have come under fire for only rolling out their TV services in affluent suburbs while overlooking rural, multitenant and urban areas. While the buildout relief would not apply in the states that passed new franchising laws in 2006, it remains unclear whether the FCC would force the Bells to install infrastructure in other states’ impoverished or hard-to-reach areas, since the full order was not available at press time.

Despite these concerns, some states see the FCC’s new franchising rules as a way to invite competition for video services and, as a result, benefit residents. Paul Hudson, chairman of the Public Utility Commission of Texas, says that while municipalities do not view themselves as obstacles in the franchising process, “there are some very practical realities to negotiating with hundreds of sovereign entities that I personally believe slows down deployment of potentially very strong competitors in the video market.” Texas is one of the handful of states that last year passed franchise reform bills.

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