Double Whammy: A Review of the FCC's Actions to Preempt Local - - PowerPoint PPT Presentation

Double Whammy: A Review of the FCC's Actions to Preempt Local Authority New Cable Franchising NPRM

By Mike Bradley Bradley Berkland Hagen & Herbst, LLC mike@bradleylawmn.com (651) 379-0900 ext. 101 October 10, 2018

Agenda

• Brief Background on Cable Act, Cable Franchises and Past Practices
• The Cable Franchising NPRM
• Impact of the NPRM on Local Government
• Local Government Perspectives
• Filing Deadlines

The Cable Act

• The 1984 Cable Act
• Congress Defined Franchise Fee in Section 622(a)(1)
• The Definition Remains Unchanged – 34 Years

A Franchise Fee is “any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity

• n a cable operator or cable subscriber, or both, solely because
• f their status as such.”
• There has been no act of Congress to change this definition
• Franchise Fees are the rent for the ROW – relied upon by LFAs throughout the

Country

The Nature of a Cable Franchise

• The Nature of a Franchise – It’s a Contract
• A cable franchise is a negotiated contract, which takes months and in

most instances years to negotiate – Not Imposed

• Result: Provisions that Benefit Both parties to the Contract.
• Example: Cable operators seek special rights-of-way accommodations and

commitments on how competitive entrants will be treated. In return, the operator may agree to certain other cable-related, in-kind contributions to the LFA.

• Example: Cable Op Negotiates to provide Enterprise Services to a City and in

return offer enhanced PEG Provisions – e.g. Operational Support.

Non-Franchise Fee Consideration

• Negotiated Cable Franchise In-Kind Consideration
• Institutional Networks
• Complementary Cable Service to Government Buildings
• PEG Channels
• Electronic Programming Guide Service
• Video-On-Demand
• Customer Service Location
• Video Transmission Paths
• Discounted Enterprise Services
• ROW Requirements
• Relocation, Restoration, Maintenance
• In-Kind Consideration varies from franchise to franchise
• Due to contractual nature of cable franchises
• Never Considered Part of Franchise Fees – 34 Years of Past Practice

New FCC NPRM

• The FCC recently released a Second Further Notice of Proposed

Rulemaking (NPRM) that:

• (1) treats all negotiated in-kind contributions except for PEG capital costs “incurred

in or associated with the construction of PEG access facilities” as franchise fees – Subject to 5% FF Cap

• (2) bars a local franchising authority from using its video franchising authority to

regulate a cable operator’s non-cable services.

• To the extent State Law would allow such regulation
• (3) Preempts State Franchising Laws
• MB Docket No. 05-311; Released September 25, 2018

FCC: In-Kind Consideration Part of Franchise Fee

• In-Kind Defined in NPRM
• “any non-monetary contributions related to the provision of cable

services provided by cable operators as a condition or requirement

• f a local franchise agreement, including but not limited to free or

discounted cable services and the use of cable facilities or

• equipment. It does not include the cost of build-out requirements.”
• Result: Negotiated In-Kind Consideration Will be Deducted from FF
• Estimated potential impact 20 – 30% of Current Franchise Fee

In-Kind Consideration - Not Franchise Fee

• FCC Interpretation Not Supported by Plain Reading of the Cable Act
• To be included as a Franchise Fee it must be
• An Assessment AND Imposed
• An Assessment refers to a tax-like charge – Not Negotiated Consideration
• Imposed refers to unilateral action – Not Negotiated Consideration
• Contract terms are not imposed – Not an Adhesion Contract
• Not Supported by Legislative History of the Cable Act
• Not Supported by Past Practice
• Not Supported by Other Provisions of the Cable Act
• Allows Cable Operator to recover In-Kind Consideration through Rates
• Since 1992 – All costs recovered in rates

In-Kind Consideration – Other Considerations

• Double Dipping Must be Prohibited
• Many instances In-Kind Consideration (such as an I-Net) were completely paid for

by cable subscribers via a separate line item on their invoices or through the basic service tier rates.

• Allowing a Cable Operator to deduct the value of an asset paid for by cable

subscribers could result in local governments and cable subscribers paying for the asset more than once and perhaps many times over.

• FMV v. Cost
• Significant fiscal impact if FMV rather than cost is used to determine basis of In-

Kind consideration

• Ongoing cost instead of one-time or limited costs
• How is FMV Determined?

In-Kind Consideration – Other Concerns

• Retroactive Impact Unclear
• Imperative to define
• Potential significant negative impact on Municipal Budgets
• Given that local government budgets relied on past practices of the last 34 years, it

would be incredibly unfair and perhaps unlawful to allow retroactive recovery of previously provided in kind consideration.

• Settlement Agreements
• Many instances, LFAs enter into settlement agreements or separate agreements
• utside of the cable franchise agreement for in-kind consideration.
• Fully negotiated bargained-for contracts.
• Unclear how the negotiated consideration in these agreements would be treated

under the FCC tentative conclusions in the NPRM.

• Any action to reduce the bargained-for consideration would be an impermissible

impairment of contract.

Mixed Use Networks

• Cable Operators provide Multiple Services over its systems
• Cable Service – Title VI Service
• Telecommunications Service – Title II Service
• Internet Service – Title I Service
• NPRM – Proposes to Bar Regulation of all Non-Cable Service under

Title VI

• No Support to Bar Regulation of Information Services.
• Cities regulated Cable Services when it was a Title I Service
• “Cable Systems” Unclear
• Part Cable – Part Information – Part Telecommunications
• Example: Back Haul Fiber – Built to areas that will not deliver Cable Serivce

State Preemption

• Preemption of State Franchising Regulations
• Does not Affect All Members
• Proposes to Preempt state statutes, particularly state cable franchising statutes, to

the extent the statutes conflict with the FCC’s 621 Cable Franchising Orders

• Could have Negative Impact on a State by State Basis
• Example: In Minnesota there is a very detailed cable statute that defines a cable

communications system differently than the Cable Act.

• Be vigilant about protecting state law.

Deadlines to File Comments

• Comments Due 30 Days After Publication
• NPRM Has Not Been Published Yet
• Reply Comments Due 60 Days After Publication
• Stay Tuned to NATOA for Updates

Thanks!

Mike Bradley is an attorney, with 25 years of experience, practicing in the area of municipal telecommunications and cable franchising. He is the founding partner

• f Bradley Berkland Hagen & Herbst, LLC, a law firm based in the Twin Cities

and is Special Counsel to the Seattle-based municipal law firm the Lighthouse Law Group. Mike represents cities on cable franchising and wireless siting

• matters. He is working with many cities on preserving local cable franchising

authority and updating municipal codes addressing small cell wireless siting. Mike is the past chair of the Communications Law Section of the Minnesota State Bar Association and was elected to serve on the Board of Directors for the Ramsey County Bar Association. Mike is an AV rated attorney by Martindale Hubble.

If we don’t get to your question, please email me. mike@bradleylawmn.com