Creating Cyber Places

Current Strategies for Cable Franchising:
An Opportunity to Enhance the Public Communications Infrastructure

by Joe Van Eaton
October 16, 2002

A community has enormous opportunities to enhance its public communications infrastructure and to advance the quality of life in the community through the cable television franchise renewal process. Some contend that the renewal process "is stacked against" communities, but experience suggests otherwise.

Recent renewals include: (1) substantial system upgrades; (2) substantial improvements in the quality of cable service; (3) contributions of television channels, facilities and equipment and operating support for PEG access; (4) advanced provider networks capable of supporting high speed Internet access; and (5) video, data and voice facilities that link schools, libraries and government buildings so that these institutions can communicate more efficiently with one another and with the public. These benefits have been obtained in many communities without significantly increasing rates to consumers.

A successful cable franchise renewal is not a matter of chance. Too many communities allow the cable operator to take control of the process. If a community fails to identify what it can and should obtain through the renewal process, the cable operator will have a large advantage.

For PEG supporters, particularly those outside of government, the key to a successful renewal is to raise the profile of PEG and to show why it is beneficial to the community. The cable operator will almost always argue that PEG costs more than it is worth (and argue that money paid to support PEG will be collected as a pass-through from subscribers). Operators who want to oppose access will also try to convince the community that PEG will only generate objectionable programming.

Some advocates try to respond to these arguments with a "first amendment" rights argument; with threats; or demonstrations. These tend to play into the hands of those who wish to prove access is really an expensive plaything for the few. Much more effective is true grassroots organizing, where one explains the benefits of access to citizens, key community groups and leaders, volunteer groups and reporters. That is, if the community supports access, access can be successful in renewal.

Every renewal is different, and every community has different needs and interests. It is possible to satisfy the needs and interests of your community, including PEG needs - if the community puts the effort into the renewal process.

It is also important for PEG supporters to understand key renewal issues. Access interests are served by a strong franchise. Hot, current issues include the following:

1. PEG Requirements.

Communities have required operators to set aside subscriber network channels for public, educational and government use for some time now - and communities that have obtained adequate financial support for those channels generally have found them to be an invaluable communications asset to the community. As companies move into a new digital world, however, new questions arise: can the community control the new digital capacity for PEG purposes and use this digital capacity to provide multiple channels of video and non-video information to subscribers' homes? If the operator controls all of the digital capacity, will PEG be precluded from digital use entirely, or limited only to the bandwidth required to send a one-way video channel to the home, thereby limiting the type and amount of information that can be provided via PEG channels? Several communities are seeking (a) the right to capacity (not channels) on the system, and the right to use those channels for any purpose, including transmission of data; (b) transitional clauses that ensure that future modifications in the system will not result in financial harm to access; and (c) provisions guaranteeing channel location, or at least guaranteeing payment for "moving costs" if a channel is relocated. For access providers, a key is to think about tomorrow's issues, not just the issues facing access in the next 24 months.

2. The "level playing field" demand.

Almost all operators are now demanding a renewal clause that requires anyone who provides cable service within the community to satisfy the same conditions as those imposed on the incumbent operator. These clauses are very dangerous. The typical "level playing field" clause proffered by cable industry negotiators can easily put a community in breach of its contract, and require the community to give up some of the benefits for which it bargained (this is not just legal speculation - it has happened). A community should approach level playing field clauses with extreme caution and skepticism. PEG supporters need to understand these clauses because the clauses can put PEG access at risk.

3. Can a community establish detailed system rebuild requirements?

The cable industry argues that changes in 1996 to the Cable Act prohibit communities from requiring a company to install fiber optics, or from requiring any particular system design. Any cable operator who tells you that this argument is more than a lawyer's argument at this point is pulling your leg: the Federal Communications Commission has a rulemaking pending to determine what the amendments of 1996 mean. Operators will agree to carefully crafted renewal provisions that require rebuild systems with fiber optics, but reaching agreement on system design is more difficult than ever. This issue is significant for PEG supporters because unless rebuilds are required, it is more difficult to obtain PEG capacity.

4. Institutional Networks.

Communities commonly require operators to provide institutional networks to link schools, libraries and governments for video, voice and data communications. These are powerful tools to bring to your community. With the "information age" it's a small percentage of the cost of building a separate information system. In some cases, the "I-NET" is a frequency set aside on the established network; in some cases, the operator provides fiber optic links, and the community is responsible for purchasing end-user equipment necessary to "light" the fiber and use those links; in some cases, operators agree to build these networks at marginal cost, and to provide a pool of funds that can be used to pay for a certain amount of construction and equipment. In any case, the I-NET language needs to be crafted so that both parties understand what is required to assure that the resulting network will be useable. And, for PEG access supporters, it is useful to have links from the I-Net to the Subscriber Network so that information can flow back and forth throughout the community.

5. Scope of the franchise.

The operator will seek to include language in the franchise which effectively authorizes provision of telecommunications services without obtaining any additional license or franchise. If the cable franchise is authority to provide telecommunications services, the operator will argue that it cannot be required to pay charges and fees imposed on other telecommunications companies. Dollars to the community can mean more dollars available for access. Debate over the scope of the franchise has been quite heated in some recent renewals.

6. Internet Services.

The Federal Communications Commission has suggested that Internet service is not a "telecommunications service" [Federal State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 62 F.R. 32862, pp.436-439 (May 8, 1997]. But is it a "cable service" that can be addressed in a cable franchise? If Internet service is treated as a cable service, is it possible that PEG capacity can be reserved on menu systems offered by the operator? Several operators have agreed to treat Internet service as a cable service in recent renewals, and have agreed to rebuild systems so that the cable systems have the capability to provide high-speed, two-way communications to and from the home. So far, related PEG issues have not been broadly addressed. The exact status of Internet service has not been finally resolved by the courts. You may find that there is a clear misunderstanding of the renewal process in your community. A basic understanding is key to a successful renewal. Some of the most frequently asked questions are the following:

1. I understand that the federal law has a complicated formal process, and also an informal process. My operator wants me to ignore the formal process and just enter into negotiations. Is that a good idea?

It is generally not a good idea. Federal law does allow two ways to work a renewal: through a formal process, or by negotiated agreement. But the two processes can and should work in tandem. The first step in the formal process is to identify future, cable-related needs and interests of the community and to review the past performance of the operator. By taking this first step, a community will obtain the information that it needs to be successful at the bargaining table, and it will be in a position to comply with the formal procedures if bargaining fails. An operator that suggests that a community ignore this step often is seeking to bring the local franchise authority to the bargaining table before it has a good idea of community needs , and before it can understand or put itself in a good position to protect its interests.

2. Why can't a community just kick its operator out of town and seek bids from others?

Federal law doesn't allow it. Under the federal Cable Act, the incumbent cable operator has special rights to consideration. If the operator activates the formal renewal process, it is protected against an arbitrary denial of renewal. A community has to go through certain steps and conduct certain proceedings before renewal can be denied. The process is not competitive. Renewal cannot be denied simply because someone else might be willing to offer more. An incumbent operator's past performance and proposal for future renewal must be evaluated on its own merits (or demerits).

3. Can a renewal request be denied?

Yes, both legally and practically. Although most communities do renew the incumbent's franchise, several communities have successfully denied renewal. The Cable Act permits a community to deny renewal if past performance has been inadequate, or if the operator is legally unqualified or is unwilling or unable to devote the necessary technical skills and financial resources to the community; or if the operator is unwilling to reasonably satisfy the future, cable-related needs and interests of the community (considering the cost of meeting those needs and interests), including PEG needs and interests.

4. How long does the renewal process take?

Communities usually devote one to three years, or more, to the renewal process. A longer period is possible but carries additional practical and legal risks.

5. What can I get through the renewal process?

Among other things, as part of the renewal process, you can ensure that the cable system is properly upgraded; require the operator to set aside channels for public, educational and government use of the cable system, and require certain support for those channels (studios and equipment, for example). You can also require the operator to provide an institutional network providing, for example, a modern telecommunications link for schools, libraries and government. In many communities, operators have agreed to provide support outside the franchise agreement for access operations. The support for access is often provided above and beyond the franchise fee.

A community can also ensure that any construction of the cable system proceeds in an orderly fashion, that all parts of the community can obtain service, and that the system is rebuilt in a reasonable period of time. The franchise term can also be established through the renewal process - renewals do not have to be for 15 years, and often are far shorter. In addition, as the renewal process proceeds, communities often will establish customer service standards; franchise fee requirements; procedures for reviewing operator performance and for ensuring that the operator continues to satisfy community needs throughout the franchise term.

There are some things that communities cannot do through the renewal process. Perhaps most importantly, a municipality cannot (1) require the operator to provide specific programs (a community should be able to establish channel capacity requirements); or (2) require the operator to provide service at a certain rate (other than the rate established consistent with federal regulations).

6. The operator tells me that anything I ask for will be passed through in rates. Is that right?

No, it is not. In communities that are regulating cable rates, an operator can pass through increases in its external costs to subscribers. Some franchise requirements, such as PEG and franchise fee requirements, are external costs, but not all are. In addition, because the operator is only entitled to pass through the increase in those costs, renewal franchise requirements do not necessarily result in rate increases, depending in part on what was required under the prior franchise. In several recent renewals, for example, operators have agreed that only a small part of the total renewal franchise requirements are eligible for rate pass-through under FCC rules.

Joe Van Eaton is a partner with the Washington D.C. law firm of Miller & Van Eaton, P.L.L.C. He is a former member of the Board of the Alliance, and received the George Stoney award for Humanistic Communication in 1993. Joe has worked in support of PEG access for over 15 years.