State Franchising and Renewal: What Happens Next?

State Franchising and Renewal:
What Happens Next?
NATOA 2013
ANNUAL CONVENTION
ORLANDO, FLORIDA
September 15, 2013
PRESENTED BY:
Joseph Van Eaton
Partner, Best Best & Krieger

Telecommunications Law

Overview
• State v. local franchising
• How federal Cable Act fits in
• Some key questions (which may affect you
even if you franchise locally)


State Franchising Status Today

LEGEND

State with Franchising Law

Local Franchising – Legislation Under Consideration
Local Franchising – No Active Legislation


…But “State Franchising” Is Not
One Size Fits All
• In some states, state is franchising authority,
issues franchises, sets terms (CA.)
• In some states, locality is franchising authority
but state created “uniform franchise” (MI.)
• In some states, state and locality can franchise
(VA.)
• Significant variations in enforcement authority,
right to modify state model

Number of states passing state
franchise legislation

Rate of State Franchise Law
Adoption
9
8
7
6
5
4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012
Year

“State Franchise” States Now
Heading Into Renewal
• 47 U.S.C. § 546 – establishes formal and
informal process for renewal
• Formal process must be activated 30-36 months
prior to franchise expiration, or formal process
does not apply (the renewal window)
• State franchises issued in 2006 are in renewal
window; 2007-issued franchises hit window
next year

…Consequences
• If operator activates formal renewal process
franchising authority has six months to
“commence proceeding” which provides public
opportunity to participate to review past
performance and identify future, cable-related
needs and interests


…Consequences (cont’d)
• Renewal issues may be resolved informally.
(47 U.S.C. § 546(h)…but a franchise may only
be renewed informally “after affording the
public adequate notice and opportunity for
comment…”
• How can these formal/informal requirements be
squared with state laws that contemplate
renewal by simple application?


California CPUC
- Rulemaking 13-05-007
• CPUC (LFA for CA.) is determining whether
it can or should adopt renewal rules
• Cities and consumer protection groups argue
public (and cities) must have a meaningful
opportunity to comment on renewal even in
informal proceeding
• Providers generally arguing renewal is
automatic unless there are state statutory
grounds for denial

Detroit v. Michigan
• Detroit v. Michigan, 879 F. Supp. 2d 680 (E.D.
Mich. 2012), recon. denied 2012 WL 3234967
(E.D. Mich., Aug. 7, 2012), app. certified 2013
WL 1340108 (E.D. Mich., Apr. 3, 2013)
• District court finds that ‘home rule” provisions
of state constitution means localities must be
able to reject uniform state franchise
• Court finds no conflict between state law and
federal law

Detroit v. Michigan
• Dist. court concludes under MI. law, that old
franchises not extended automatically, so
Comcast is now a trespasser
• Case will be briefed to 6th Circuit this Fall
• Case follows City of Dearborn v. Comcast of
Michigan III, Inc., 2008 U.S. Dist. LEXIS
77755 (E.D. Mich. Oct. 3, 2008, as amended
Nov. 25, 2008) (finding state law preempted in
part by Cable Act)

Why Renewal Issues Matter In
State Law States…and Implications
for Other States


Failure of Benefits:
Prices Continue to Rise
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
Source:
NATOA

Basic Tier
Digital Tier
Before State
Franchise


After State
Franchise

Failure of Benefits: No Change In
Price Slope Post 2006

Source: FCC


Failure of Benefits: Consumer
Satisfaction
• Ninety eight percent
(98%) of local regulators
in state franchise states
when surveyed disagreed
with the statement
“Customer service is
working better now than
it was before the
implementation of state
franchising.”
98% Disagree


2% Agree

Source: NATOA

Failure of Benefits: 2013 American
Customer Satisfaction Index
• Subscription TV industry satisfaction rose from 66 in 2012 to
68% approval in 2013, as an industry only newspapers and
Internet service providers have a worse industry index score.
• Verizon FiOS came out on top of rankings for a second year;
Charter jumped from bottom over Comcast and Time Warner.
• Call center satisfaction was dismal, with a low, low score of 65
— a full nine points below the ACSI average of 74.
• Study anticipates that next year’s Worst Company In America
bracket will be full of cable and Internet providers.
• Source: http://consumerist.com/2013/05/21/comcast-timewarner-cable-bring-up-rear-in-cable-customer-satisfaction/


Failure of Benefits: Jobs
• According to CWA report, even if there were gains
from state franchising, the approved deal between
Verizon Wireless and the big cable companies will
cost workers and communities 72,000 jobs.
• It’s clear there were no such gains
 According to the Bureau of Labor Statistics, the domestic
call center industry continues to shed jobs, losing over
500,000 since 2006.
 According to Bureau of Labor Statistics there were about
309,000 “Line Installer” jobs in 1996, but only 269,100 in
2010. That’s a decrease.


Failure of Benefits to Arrive: Choice
• New state entrants have not appeared at all, or only to
a limited degree in some states (North Carolina), and
for largest entrants, competition is limited to telephone
footprint
• Rural areas are losing wireline even with statewide
franchising
• Does state franchising make a difference? Verizon
has entered without state franchises and is expected to
pass 18 million premises by 2018 - 70 percent of the
Verizon wireline footprint
• No state has made any significant effort to enforce
build-out requirements

Why A Rigorous Renewal Process?
• May allow localities to question new and questionable
charges being levied on bills – or to raise issues
regarding credits due for customer-provided
equipment
• Does allow localities to review customer service
requirements
• Does provide opportunities to review adequacy of
build-out of system (is redlining occurring?)


Significant Questions Remain As To
Meaning of State Laws
• Almost all states provide for some PEG channels. But
none really define what a channel is:
 Is a channel just a pathway from point A to point B? Or is a
“channel” what is provided to broadcasters (what is
commonly understood as a “television channel”)
 If HD is provided by PEG programmer to operator, does the
operator need to deliver the signal in HD?
 What quality standards apply?
 What functionalities are provided?
 Is accessibility part of functionality?
 Can special charges be assessed for PEG channels?


• What does it mean to provide a channel? Where does
the channel begin and end, and who pays to get the
channel to the operator?
• Must the channel be part of basic service? In what
format?
• Is a channel a program delivered in one format? Or is
it capacity, which can be used for multicasting?
• What are obligations with respect to guides, closed
captioning, multi-lingual audio tracks?


• What is effect of state laws on local rights to
enforce I-Net obligations?
• What deductions are permitted from franchise
fees?
• What is obligation to comply with FCC regs –
and how are the regs enforced?
• What is the scope of the franchise, and who
must obtain a franchise?
• Do franchise fee provisions adequately address
changes in manner services are provided?

Joseph Van Eaton
Joseph.VanEaton@bbklaw.com

Contact Information
Best Best & Krieger
1155 Connecticut Ave. NW
Suite 1000
Washington DC 20036
Phone: (202) 785-0600
Fax: (202) 785-1234
Cell: (202) 664-4621
Website: www.bbklaw.com


State Franchising and Renewal: What Happens Next?

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