The Commission has released a Report and Order and Further Notice of Proposed Rulemaking ("FNPRM") regarding its authority to regulate with respect to the Communications Act’s prohibition against local franchising authorities ("LFAs") unreasonably refusing to award competitive franchises for the provision of cable services. Following is a summary of the Commission's decision.
The Commission found that the current operation of the local franchising process in many jurisdictions constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment. In this regard, it explicitly stated its "concern ... that traditional phone companies seeking to enter the video market face unreasonable regulatory obstacles, to the detriment of competition generally and cable subscribers in particular."
The Commission first determined that it is authorized to act. Although a fundamental premise of its decision, this is an issue that almost certainly will be subjected to judicial scrutiny. Indeed, two of the five Commissioners dissented. Commissioner Adelstein characterized the FNPRM as "legislation disguised as regulation" and "an arrogant case of federal power riding roughshod over local governments." He noted that states and municipalities already have introduced franchise reform where needed, that a national remedy is unnecessary, and that many of the specific determinations are unwarranted by the anecdotal evidence presented.
The Commission adopted rules determining that all of the following would constitute an unreasonable refusal to award a competitive franchise:
* an LFA's failure to issue a decision on a competitive application within explicit timeframes – 90 days for entities with existing authority to access rights-of-way and six months for those without such authority;
* an LFA's refusal to grant a competitive franchise because of an applicant’s unwillingness to agree to unreasonable build-out mandates;
* an LFA demanding certain specified costs, fees and other compensation unless such costs are counted toward the statutory 5 percent cap on franchise fees;
* an LFA's denial of an application based upon a new entrant's refusal to undertake certain obligations relating to public, educational and government ("PEG") and institutional networks ("I-Nets") channels; and
* an LFA's refusal to grant a franchise based on issues related to non-cable services or facilities.
Failure to act within the prescribed time limits will result in the grant of an interim franchise based on the terms proposed in the application. The interim grant will remain in effect until final action is taken on the application.
The FNPRM seeks comment on how its findings should affect existing franchisees.
The Commission also preempted local laws, regulations and requirements, including level-playing-field provisions, to the extent they permit LFAs to impose greater restrictions on market entry than the rules adopted in this item.
The Commission found that certain build-out conditions can have an entry-deterring effect. It identified several instances where a build-out requirement would be unreasonable.
* Absent other factors, to require a new competitive entrant to serve everyone in a franchise area before it has begun providing service to anyone.
* To require facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun providing cable service.
* Absent other factors, to require 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 originally afforded to the incumbent cable operator, or requiring the new entrant to build out and provide service to areas of lower density than those to which the incumbent cable operator is required to build out and serve.
The Commission also identified reasonable build-out requirements that an LFA could consider:
* the new entrant's market penetration.
* benchmarks requiring the new entrant to increase its build-out after a reasonable period of time had passed after initiating service and taking into account its market success.
The Commission clarified that cable operators cannot be required to pay franchise fees on revenues from non-cable services. It also held that non-incidental franchise-related costs required by LFAs, such as attorney’s and consultant’s fees, must count toward the 5 percent franchise fee cap. It found that the term "incidental" should be limited to those costs itemized in the Act as well as certain other minor expenses. It also held that requests made by LFAs that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.
The Commission further clarified that the Act grants LFAs jurisdiction only with respect to the provision of cable services over cable systems and that it would be unreasonable for an LFA to deny a franchise based on issues unrelated to such services. The Commission makes it clear that LFAs may not use their video franchising authority to regulate a local exchange carrier's network beyond the provision of cable services.
http://www.wcsr.com/default.asp?id=114&objId=226
