Cable Franchise Renewal 101: A Primer
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Cable Franchise Renewal 101: A Primer

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Brian T. Grogan presentation to National Association of Telecommunications Officers and Advisors (NATOA), Sept. 27-29, 2012

Brian T. Grogan presentation to National Association of Telecommunications Officers and Advisors (NATOA), Sept. 27-29, 2012

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Cable Franchise Renewal 101: A Primer Cable Franchise Renewal 101: A Primer Presentation Transcript

  • National Association of Telecommunications Officers and Advisors2012 Annual ConferenceSeptember 27-29, 2012, New Orleans, LABrian T. Grogan, Esq., Moss & BarnettCable Franchise Renewal 101: A Primer
  • 1Why is Renewal More DifficultNow Than 15 Years Ago?1. Industry consolidation over the last decade2. Increased competition from Direct TV3. AT&T and Verizon franchising efforts4. State franchising - impacting over 20 states5. Online competitiona. YouTube and over-the-top competition (Hulu)b. Wireless devices – “cable anywhere” (iPad, iPhone, laptops)6. Poor economya. Fewer subscribersb. Reduced cash flow for operator – less staffc. Less capital expendituresd. Tight restrictions on franchise commitments
  • 2Top 15 Cable Operators2010 Subs 2012 Subs1. Comcast Corporation 23,212,000 22,118,0002. Direct TV 18,760,000 19,914,0003. Dish Network Corporation 14,318,000 14,061,0004. Time Warner Cable, Inc. 12,706,000 12,484,0005. Cox Communications, Inc. 5,038,000 4,661,0006. Charter Communications, Inc. 4,716,000 4,269,0007. Verizon Communications, Inc. 3,203,000 4,473,0008. Cablevision Sys. Corp. 3,067,000 3,257,0009. AT&T, Inc. 2,504,000 4,146,00010. Bright House Networks, LLC 2,222,000 2,059,00011. Suddenlink Communications 1,225,000 1,230,00012. Mediacom 1,216,000 1,037,00013. Insight Communications 710,000 Sold to TW14. CableOne, Inc. 654,000 613,00015. WideOpenWest Networks, LLC 393,000 456,000Source: NCTA website
  • Why Does One Contract RequireSo Much Effort?• Because it’s not just the cable franchise that is impacted• During renewal cities must also consider:– Cable regulatory ordinance– Right-of-way ordinance or code provisions– Customer service provisions– General code provisions– Competing operators’ franchises– Gas, electric, telephone franchises• Some of the City Code may require redrafting• Certain agreements with operator may be in “side letter”3
  • 4Renewal DocumentsExistingCable FranchiseCity Code ProvisionsROW ProvisionsCustomer ServiceNew CableFranchiseCable RegulatoryOrdinanceSeparateLetter Agreement
  • 5Why Can’t We Put the CableFranchise Up For Competitive Bid?• Cable Act prohibits a City from denying a cable operator’srequest for franchise renewal– Just because another operator may be willing to agree tomore favorable franchise terms• Under the Cable Act an operator can only be deniedfranchise renewal for one of the following four reasons:1. Operator’s failure to comply with existing franchise2. Quality of operator’s service3. Operator’s legal, technical and financial qualifications4. Reasonableness of operator’s proposal to meet theCity’s assessment of needs and interests- Taking into consideration associated costs
  • 6Should We Conduct Informal orFormal Renewal Process?• Short answer – prepare for both• Operator must request renewal 3 years prior tofranchise expiration.– Request triggers the formal protections– Failure to request renewal• Loss of Cable Act formal protections– Request will also ask for informal negotiations– City has 6 months to “initiate” renewal• If you chose to proceed informally -– Be careful not to “paint yourself in a corner”
  • 7Informal Process1. Most franchises are negotiated informally2. Still need to know local needs/interests- Needs Assessment remains crucial3. Be careful not to get backed into a cornera. Nowhere to go – must accept poor proposalb. What if operator changes deal at 11th hour- What is City’s recourse?4. Renewal is like buying a new cara. Make certain you have a plan Bb. Be prepared to walk if price is too high5. Preparation for formala. Provides City with optionsb. Allows for successful negotiations
  • 8How Can a City MaximizeFranchise Fee Payments?• Cable Act – provides :• during any 12 month period the franchise fees paidby the cable operator with respect to any cablesystem shall not exceed 5% of the operator’s grossrevenues derived in such period from the operationof the cable system to provide cable services– 47 U.S.C. § 542• Key in franchise negotiations is how the parties define“gross revenues”
  • 9Defining “Gross Revenues”• Simplest definition =– Any and all revenue in any way derived, directly orindirectly, by the Grantee or any affiliated entity from theoperation of the cable system to provide cable servicesin the City.• Listing revenue categories is fine, however– Watch for operator requested exclusions:• Fee on fee• Late fees• Bundling• Advertising revenue• GAAP exclusions• Other non-subscriber revenues
  • 10Can Operators’ Itemize Fees onSubscriber Bills?• Yes• Subscriber bill itemization - Cable Act §622(c) [542(c)]– Each cable operator may identify as a separate line itemon each regular bill of each subscriber:1. The amount of the total bill assessed as a franchise fee- And the identity of the LFA (City) to which the fee is paid2. Franchise imposed support for PEG channels or the use ofsuch channels3. The amount of any other fee, tax, assessment- Imposed by any governmental authority- On transaction between the operator and subscriber
  • 11Can City Obtain PEG SupportBeyond The 5% Fee?• Yes• The term "franchise fee" does not include:– Capital costs which are required by the franchise to beincurred by the cable operator for public, educational, orgovernmental access facilities.- 47 U.S.C. § 542• Operators oppose PEG fees – Operators argue:– Makes them less competitive than Direct TV / Dish– Use your franchise fees, that’s what they’re for– Why do you want raise taxes; Mayor won’t like that?– Nobody watches PEG anyway– No other cities ask for PEG fees– We never pay PEG fees – corporate policy
  • 12What Are The Key PEGIssues to Consider?Start with the four “C’s”1. Channels - Identify needed PEG channelsa. Analog/digital migration (HDTV)b. Location, location, locationc. Transmission compatibility2. Connectivity with origination facilitiesa. Two-way connectionsb. I-Net obligations3. Cash - capital and operational supporta. Capital - equipment and facilities = “depreciable life”b. Operator will argue against “operational support”4. Content –who will program the channels- City, Schools, Colleges, Non-profit, public users
  • 13What Is AnInstitutional Network?The term Institutional Network “I-Net” means:– Cable Act §611(f) [531(f)]• A communication network which is constructed oroperated by the cable operator• Generally available only to subscribers who are notresidential subscribers– In practice an I-Net is typically:• a dedicated network built by an operator• used by a city free of charge or at a low cost• for voice, video and data transmissions– Operators want to convert I-Nets to:• Commercial services contracts to increase profits
  • 14Can an Operator Say NOto a Requested I-Net?• Cable operator usually cites to:- Cable Act §621(b) [541(b)]A franchising authority may not impose any requirement thathas the purpose or effect of prohibiting, limiting, restricting,or conditioning the provision of a telecommunications serviceby a cable operator or an affiliate thereof.• Cities should look to:- Cable Act §621(b) [541(b)]Except as otherwise permitted by sections 611 and 612, afranchising authority may not require a cable operator toprovide any telecommunications service or facilities, otherthan institutional networks, as a condition of the initialgrant of a franchise, a franchise renewal, or a transfer of afranchise.
  • 15Can City’s Still RegulateCustomer Service?1. FCC standards:a. Office hours and telephone availableb. Installations, outages, and service callsc. Comm. b/t operators and subscribersd. Billing, refunds, and creditse. Local office- Look to both 47 C.F.R. § 76.309 and § 76.1601 - 1604 (notices)1. Reporting/enforcement – not in FCC regs- Specify in franchise2. Operator may argue - competitive disadvantage- May want relief if FCC amends regs3. City can adopt separate Customer Service Ordinance- Part of City Code
  • Is a Level Playing Field ProvisionMandatory in Renewal?• No• Operator will demand LPF language– Nothing in federal law requires such a provision– Check state law for state obligation• Why should the City agree to any language moreburdensome than state or federal law?• Issues to watch for in proposed language– “Opt-out” provisions that allow operator to avoid franchiseobligations– “Line item veto” - allows the operator to unilaterallymodify franchise if different than competing franchise– See paper for sample language16
  • 17Thank YouBrian T. Grogan, Esq.Moss & Barnett, A Professional Association4800 Wells Fargo Center, 90 South Seventh StreetMinneapolis, MN 55402-4129(612) 877-5340 phone / (612) 877-5999 facsimilee-mail: GroganB@moss-barnett.comWebsite: municipalcommunicationslaw.com