by Joy Gullikson, Attorney
Many traditional telephone companies (telcos) now offer internet and television services. This is not news, they’ve been doing it for years. In order to provide television services, telcos know that they must first obtain a cable franchise from the local franchising authority. The state statute covering cable issues is Minnesota Statutes Chapter 238.
Telcos are used to the vagaries and subtleties of the Telecommunications Statute, Minn. Stat. § 237. Chapter 237 governs pricing, mergers and acquisitions, service quality, conditions for competition and methods for governing the filing of complaints. The Chapter guides the Minnesota Public Utilities Commission (MPUC) and the MPUC writes rules that specifically address the implementation of Chapter 237. Telco representatives have appeared before the MPUC for years, they know the staff and the staff of the Minnesota Department of Commerce. Simply put, telcos know the rules of the game. They know where to push, when to concede, and generally how to operate profitably within the given parameters.
It is tougher to know where to push in Chapter 238. There is no state forum that convenes for the purpose of addressing and resolving cable issues. No one in the state writes rules that implement the requirements of Chapter 238. Vagaries and subtleties are harder to determine, because the courts are the interpreters of the statute, and rules are set at the interstate level by the FCC. In addition, telcos simply do not have the long experience with Chapter 238 as they have with Chapter 237.
In order to make the most of the television side of the business, however, telcos need to become as immersed in Chapter 238 as they have been in Chapter 237.
Thursday, September 24, 2009
Thursday, September 17, 2009
PEG and I-Net Requirements Under FCC Local Franchising Order
PEG and I-Net Requirements Under FCC Local Franchising Order
By: Michael R. Bradley, Bradley & Guzzetta, LLC
The recently affirmed FCC order on local franchising concludes that “LFAs may not make unreasonable demands of competitive applicants for PEG and I-Net” and that doing so constitutes an unreasonable refusal to award a franchise.
Reasonable and Adequate Support
With regard to PEG channel capacity, the FCC determined that it would be unreasonable "to impose on a new entrant more burdensome PEG carriage obligations that it has imposed on the incumbent cable operator." The FCC found that PEG support must be both “adequate and reasonable.” Adequacy is defined by the FCC as “satisfactory or sufficient.” The order does provide some examples of unreasonable PEG support obligations, including:
· completely duplicative PEG and I-Net requirements;
· payment of the face value of an I-Net that will not be constructed; and
· requirements that are in excess of the incumbent cable operator’s obligations.
Pro Rata Cost Sharing is Per Se Reasonable
According to the FCC, pro rata cost sharing of current (as opposed to future) PEG access obligations is per se reasonable. Unfortunately, the FCC did not provide additional guidance on how to properly and accurately calculate what the appropriate per subscriber payment should be made. Questions remain about situations where lump sum PEG grants and in-kind contributions are included in an existing franchise agreement.
In the event that pro rata cost sharing is utilized, PEG programming providers must permit a new entrant to interconnect with existing PEG video fees. The new entrant must bear the cost of interconnection. The order is silent on where interconnection must take place, or what type of transmission medium (e.g., fiber or coaxial cable) must be used.
Regulation of Mixed-Use Networks
The order states that “LFAs’ jurisdiction applies only to the provision of cable services over cable systems. To the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities.” In other words, cable franchising decisions can only be made based on issues related to cable service.
Conclusion
Ask our attorneys at Bradley & Guzzetta, LLC how to address PEG and I-Net obligations in cable franchises.
By: Michael R. Bradley, Bradley & Guzzetta, LLC
The recently affirmed FCC order on local franchising concludes that “LFAs may not make unreasonable demands of competitive applicants for PEG and I-Net” and that doing so constitutes an unreasonable refusal to award a franchise.
Reasonable and Adequate Support
With regard to PEG channel capacity, the FCC determined that it would be unreasonable "to impose on a new entrant more burdensome PEG carriage obligations that it has imposed on the incumbent cable operator." The FCC found that PEG support must be both “adequate and reasonable.” Adequacy is defined by the FCC as “satisfactory or sufficient.” The order does provide some examples of unreasonable PEG support obligations, including:
· completely duplicative PEG and I-Net requirements;
· payment of the face value of an I-Net that will not be constructed; and
· requirements that are in excess of the incumbent cable operator’s obligations.
Pro Rata Cost Sharing is Per Se Reasonable
According to the FCC, pro rata cost sharing of current (as opposed to future) PEG access obligations is per se reasonable. Unfortunately, the FCC did not provide additional guidance on how to properly and accurately calculate what the appropriate per subscriber payment should be made. Questions remain about situations where lump sum PEG grants and in-kind contributions are included in an existing franchise agreement.
In the event that pro rata cost sharing is utilized, PEG programming providers must permit a new entrant to interconnect with existing PEG video fees. The new entrant must bear the cost of interconnection. The order is silent on where interconnection must take place, or what type of transmission medium (e.g., fiber or coaxial cable) must be used.
Regulation of Mixed-Use Networks
The order states that “LFAs’ jurisdiction applies only to the provision of cable services over cable systems. To the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities.” In other words, cable franchising decisions can only be made based on issues related to cable service.
Conclusion
Ask our attorneys at Bradley & Guzzetta, LLC how to address PEG and I-Net obligations in cable franchises.
Cable Franchise Fees
Cable Franchise Fees
By: Michael R. Bradley, Bradley & Guzzetta, LLC
The FCC clarified several issues surrounding the calculation of cable franchise fees in its report and order in 2007, including:
(i) the franchise fee revenue base;
(ii) limitations on charges incidental to the awarding or enforcing of a franchise;
(iii) the proper classification of in-kind payments unrelated to the provision of cable service; and
(iv) the proper classification of contributions in support of PEG services and equipment.
Later in a Second Report and Order, the FCC applied the majority of these findings and rules to existing as well as competitive entrants.
Franchise Fee Revenue Base
In its order, the FCC clarified “that a cable operator is not required to pay franchise fees on revenues from non-cable services.” According to the FCC, this prohibition would specifically apply to cable modem service revenues, broadband data service revenues, Internet access revenues and other non-cable service revenues.
The FCC did not specifically address whether advertising revenues, home shopping channel commissions, launch support, late fees, installation fees and even equipment revenues, because they could be considered “non-cable” services. The FCC does note that advertising revenues and home shopping commissions have historically been included in gross revenues for franchise fee calculation purposes, but it does not say such revenues and commissions can be included in the calculation of gross revenues going forward.
Charges Incidental to the Awarding or Enforcing of a Franchise
Section 622(g)(2)(D) of the Cable Act excludes from the federal five percent franchise fee cap “requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages . . .” According to the FCC, the term “incidental” includes only those items listed in Section 622(g)(2)(D), “as well as other minor expenses” described in the order. Examples of charges that are not “necessarily” to be regarded as incidental include processing fees, acceptance fees, consultant fees, and attorney fees. Reasonable franchise application fees and processing fees are, however, to be regarded as proper incidental fees that do not count towards the federal franchise fee cap.
The FCC also concluded that “free or discounted services provided to an LFA” and certain “in-kind payments” are non-incidental costs that must be considered franchise fees. The order was silent on the specific treatment of institutional networks and whether the costs associated with providing fiber for institutional networks and furnishing free drops, outlets and cable service to governmental institutions could be deducted from a cable operator’s franchise fee payments.
In-Kind Payments Unrelated to the Provision of Cable Service
The Report and Order finds that “any requests made by LFAs that are unrelated to the provision of cable service by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.” The FCC provides no concrete guidance as to what types of financial and in-kind requests would not be counted against the franchise fee cap, but does list certain examples of requirements that apparently would be deemed franchise fees, if included in franchise documents, such as scholarship grants, video hookups, money for wildflower seeds and fiber for traffic signal monitoring.
Contributions in Support of PEG Services and Equipment
Section 622(g)(2)(C) of the Cable Act specifies that “capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities” are not franchise fees. The FCC interprets this language to encompass “those costs incurred in or associated with the construction of PEG access facilities.” The order goes on to state that “payments in support of the use of PEG access facilities” are franchise fees. These payments in support of PEG include, but are not limited to, “salaries and training.”
Conclusion
It is important to understand the rules surrounding the calculation of cable franchise fees. Please contact the attorneys at Bradley & Guzzetta, LLC if you would like additional information.
By: Michael R. Bradley, Bradley & Guzzetta, LLC
The FCC clarified several issues surrounding the calculation of cable franchise fees in its report and order in 2007, including:
(i) the franchise fee revenue base;
(ii) limitations on charges incidental to the awarding or enforcing of a franchise;
(iii) the proper classification of in-kind payments unrelated to the provision of cable service; and
(iv) the proper classification of contributions in support of PEG services and equipment.
Later in a Second Report and Order, the FCC applied the majority of these findings and rules to existing as well as competitive entrants.
Franchise Fee Revenue Base
In its order, the FCC clarified “that a cable operator is not required to pay franchise fees on revenues from non-cable services.” According to the FCC, this prohibition would specifically apply to cable modem service revenues, broadband data service revenues, Internet access revenues and other non-cable service revenues.
The FCC did not specifically address whether advertising revenues, home shopping channel commissions, launch support, late fees, installation fees and even equipment revenues, because they could be considered “non-cable” services. The FCC does note that advertising revenues and home shopping commissions have historically been included in gross revenues for franchise fee calculation purposes, but it does not say such revenues and commissions can be included in the calculation of gross revenues going forward.
Charges Incidental to the Awarding or Enforcing of a Franchise
Section 622(g)(2)(D) of the Cable Act excludes from the federal five percent franchise fee cap “requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages . . .” According to the FCC, the term “incidental” includes only those items listed in Section 622(g)(2)(D), “as well as other minor expenses” described in the order. Examples of charges that are not “necessarily” to be regarded as incidental include processing fees, acceptance fees, consultant fees, and attorney fees. Reasonable franchise application fees and processing fees are, however, to be regarded as proper incidental fees that do not count towards the federal franchise fee cap.
The FCC also concluded that “free or discounted services provided to an LFA” and certain “in-kind payments” are non-incidental costs that must be considered franchise fees. The order was silent on the specific treatment of institutional networks and whether the costs associated with providing fiber for institutional networks and furnishing free drops, outlets and cable service to governmental institutions could be deducted from a cable operator’s franchise fee payments.
In-Kind Payments Unrelated to the Provision of Cable Service
The Report and Order finds that “any requests made by LFAs that are unrelated to the provision of cable service by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.” The FCC provides no concrete guidance as to what types of financial and in-kind requests would not be counted against the franchise fee cap, but does list certain examples of requirements that apparently would be deemed franchise fees, if included in franchise documents, such as scholarship grants, video hookups, money for wildflower seeds and fiber for traffic signal monitoring.
Contributions in Support of PEG Services and Equipment
Section 622(g)(2)(C) of the Cable Act specifies that “capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities” are not franchise fees. The FCC interprets this language to encompass “those costs incurred in or associated with the construction of PEG access facilities.” The order goes on to state that “payments in support of the use of PEG access facilities” are franchise fees. These payments in support of PEG include, but are not limited to, “salaries and training.”
Conclusion
It is important to understand the rules surrounding the calculation of cable franchise fees. Please contact the attorneys at Bradley & Guzzetta, LLC if you would like additional information.
Competitive Cable Franchising in Minnesota
Competitive Cable Franchising In Minnesota
By: Michael R. Bradley, Bradley & Guzzetta, LLC
Companies that want to provide cable service are required by the Federal Cable Act to acquire a cable franchise from a unit of local government before providing service. In Minnesota, cities are the local unit of government that is authorized to grant cable franchises. Federal law also requires these franchises to be non-exclusive. In other words, no city may grant an exclusive franchise to any one particular company. For many years, most cities did not see more than one provider seeking a cable franchise. There are many reasons for this, but probably the biggest reason was that it was prohibitively expensive for a competing cable operator to construct cable wire and other facilities throughout a city. It was simply cost-prohibitive in most situations. However, with recent changes in technology and the ability of telephone companies to provide video service through IP technologies, the competitive landscape is changing. More telephone companies, particularly rural telephone companies are seeking to add video to their lineup of service offerings to their customers.
State Law Considerations
When there is an existing cable franchise in place in a city, the second competitive franchise must not be "more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees." When the new cable entrant is proposing different franchising requirements in these three areas, it is up to the franchising authority and the other interested parties to reach agreement on what "more favorable or less burdensome" means in this context. As of this posting, this issue has not yet been fleshed out by any court in Minnesota.
Another consideration is whether the competing company is a "cable communications company" as that term is defined by the Minnesota Cable Act. If it is not, the level playing field provisions of the Minnesota Cable would not apply.
Local Considerations
When looking at granting a competitive cable franchise, it is also important to understand any "competitive equity" or "level playing field" provisions in the existing cable franchise. It is not unusual for the existing franchise to have language that contains limitations beyond the level playing field conditions set forth in state law. The language may also apply to more companies than merely cable communications companies.
Federal Considerations
In 2007, the FCC released two orders relating to competitive franchising. The first order addressed competitive applicants for cable franchise and the second order addressed whether the rules in the first order applied to the existing franchise holder. Under the first order, the FCC adopted new rules concerning the application for an additional cable franchise starting with the time in which a request for a franchise must be acted upon.
Competitive Franchise Deadlines
By: Michael R. Bradley, Bradley & Guzzetta, LLC
Companies that want to provide cable service are required by the Federal Cable Act to acquire a cable franchise from a unit of local government before providing service. In Minnesota, cities are the local unit of government that is authorized to grant cable franchises. Federal law also requires these franchises to be non-exclusive. In other words, no city may grant an exclusive franchise to any one particular company. For many years, most cities did not see more than one provider seeking a cable franchise. There are many reasons for this, but probably the biggest reason was that it was prohibitively expensive for a competing cable operator to construct cable wire and other facilities throughout a city. It was simply cost-prohibitive in most situations. However, with recent changes in technology and the ability of telephone companies to provide video service through IP technologies, the competitive landscape is changing. More telephone companies, particularly rural telephone companies are seeking to add video to their lineup of service offerings to their customers.
State Law Considerations
When there is an existing cable franchise in place in a city, the second competitive franchise must not be "more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees." When the new cable entrant is proposing different franchising requirements in these three areas, it is up to the franchising authority and the other interested parties to reach agreement on what "more favorable or less burdensome" means in this context. As of this posting, this issue has not yet been fleshed out by any court in Minnesota.
Another consideration is whether the competing company is a "cable communications company" as that term is defined by the Minnesota Cable Act. If it is not, the level playing field provisions of the Minnesota Cable would not apply.
Local Considerations
When looking at granting a competitive cable franchise, it is also important to understand any "competitive equity" or "level playing field" provisions in the existing cable franchise. It is not unusual for the existing franchise to have language that contains limitations beyond the level playing field conditions set forth in state law. The language may also apply to more companies than merely cable communications companies.
Federal Considerations
In 2007, the FCC released two orders relating to competitive franchising. The first order addressed competitive applicants for cable franchise and the second order addressed whether the rules in the first order applied to the existing franchise holder. Under the first order, the FCC adopted new rules concerning the application for an additional cable franchise starting with the time in which a request for a franchise must be acted upon.
Competitive Franchise Deadlines
- If a company already has authority to access the public rights-of-way, the franchising authority my act on an application within 90-days.
- All other applications must be acted on within six (6) months.
- A franchise applicant has the burden of proving that it filed the requisite information with the franchising authority.
- Unless otherwise agreed by the applicant and the franchising authority, if deadline is not met then an applicant is automatically granted interim authority to utilize public rights-of-way to provide cable service.
- The terms of an “interim franchise” are those proposed in an applicant’s application and remains in effect until a local franchising authority takes final action on a franchise application.
Network Build-Out Requirements
Like state law, the FCC in its first order addressed the area a franchising authority may require in a cable franchise. The FCC declared it is unlawful for franchising authorities to refuse to grant a competitive franchise on the basis of "unreasonable build-out mandates.” In Minnesota, it will be up to the parties to apply this language consistent with the state level playing field language relating to area served.
While the FCC did not definitively define what constitutes an “unreasonable build-out” mandate, it did list examples of both reasonable and unreasonable build-out requirements.
Examples of Unreasonable Build-Out Requirements
The FCC’s examples of unreasonable build-out mandates include:
- requiring a new entrant to serve everyone in a franchise area before it has begun to serve anyone;
- requiring facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun to provide cable service;
- requiring more of a new entrant than an incumbent cable operator by, for instance, requiring the new entrant to build out its facilities in a shorter period of time than that afforded to the incumbent;
- requiring the new entrant to build out and provide service to areas of lower density than those that the incumbent cable operator is required to build out to and serve;
- requiring a new entrant to build out to and service buildings or developments to which the entrant cannot obtain access on reasonable terms or which cannot be reached using standard technologies; and
- requiring a new entrant to build out to and provide service to areas where it cannot obtain reasonable access to and use of public rights-of-way.
Examples of Reasonable Build-Out Requirements
The FCC notes that it would seem reasonable for a local franchising authority to consider benchmarks requiring the new entrant to increase its build-out after a reasonable time, taking into account the new entrant’s market success. The FCC also opined that it would seem reasonable to establish build-out requirements based on a new entrant’s market penetration.
Redlining
With regard to redlining, the FCC continued to rely on 47 U.S.C. § 541(a)(3) to protect consumers against economic redlining, also known as cherry picking.
Conclusion
Franchising competitive operators in Minnesota involves the consideration of federal, state and local laws and contracts. For more information do not hesitate to contact the attorneys at Bradley & Guzzetta, LLC.
Subscribe to:
Posts (Atom)
