FCC Franchise Order Limits Local Video Rollout Regulation
The FCC’s eagerly awaited franchise order (CD Dec 21 p1) limits cities’ ability to regulate Bell video rollouts and impose fees on the new entrants to underwrite municipal data networks and public access channels. The Commission reiterated previous comments by Chmn. Martin and other officials that local franchise authorities (LFAs) can’t make telcos build out video systems to all homes in an area as a condition of a permit to sell TV service. Mon.’s order said the Telecom Act precludes cities from imposing franchise fees on products other than cable, including broadband service and public, educational and govt. (PEG) access channels beyond the cost of supporting “PEG services and equipment.”
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The order set out a laundry list of fees in the FCC’s 5% franchise tax cap, including “lump sum grants not related to PEG access for municipal programs such as libraries, recreation departments, detention centers” and costs for data networks that duplicate existing facilities. Municipalities can charge telcos the same per-subscriber PEG already imposed on incumbent cable companies. It’s uncertain how many cities the order will affect, because many municipalities have said they don’t tax broadband revenue, have no plans to make new providers build out TV networks to entire municipalities and already limit taxes operators must pay.
The order gives a boost to AT&T’s IPTV U-verse rollout by clarifying that LFAs can’t require companies with rights of way for telco services to seek local permission for system upgrades. AT&T has contended some municipalities have sought such provisions. “We find it unreasonable for an LFA to refuse to grant a cable franchise to an applicant for resisting an LFA’s demands for regulatory control over non- cable services or facilities,” the order says: “So long as there is a non-cable purpose associated with the network upgrade, the LEC is not required to obtain a franchise until and unless it proposes to offer cable services.” The order doesn’t clarify whether IPTV is a cable service, which the AT&T had sought in a separate inquiry.
The franchise order doesn’t immediately apply to cable operators. Local cable systems won’t be subject to the rulemaking until they enter talks to renew franchises with cities, said the FCC: “We tentatively conclude that the findings in this order should apply to cable operators that have existing franchise agreements as they negotiate renewal of those agreements with LFAs.” But the Commission noted that NCTA has asked for the regulatory relief given Bells. Different treatment of cable and Bells creates an “uneven playing field,” said a cable industry official, “because the changes apply to new entrants right away but not to existing franchise holders until they are renewed. And many franchises are 10 or 15 year terms.” NCTA declined to comment on the order.
Bells cheered the franchise rulemaking. But analysts cautioned it won’t have much effect on video rollouts because technology and customer interest are more important than regulation. “The FCC wisely determined that consumers benefit from the rapid deployment of bigger, faster and smarter broadband pipes,” said Robert Quinn, AT&T federal regulatory senior vp. Verizon also endorsed the order. “This decision removes obstacles to the continued aggressive rollout of our all fiber optic network and our FiOS TV service,” said Marilyn O'Connell, Verizon Telecom chief mktg. officer.
Analysts were skeptical that the franchise action would help Bells significantly and said there’s a strong chance that cities will sue the Commission. “This wasn’t the telcos’ plan A. It wasn’t their plan B. I'm not even sure it was their plan C,” said Stifel Nicolaus’s Blair Levin: “It’s not federal relief, which [would mean] immediately they're everywhere. It still leaves them with the task of going to thousands of places” for franchises instead of through one federal proceeding as some 2006 Capitol Hill legislation had envisioned. Verizon needs as many as 3,000 franchises to sell TV throughout its service area, and the combined AT&T-BellSouth would need up to 3,500 permits, the FCC said, citing the companies’ data. “Potentially this order is very weak in its jurisdictional reach to impact the rules governing local franchising authorities,” said Medley Global Advisors’ Jessica Zufolo. “You can argue that the relief granted here may be symbolic at best,” she added, saying a municipal challenge is likely. Municipal groups including the National Assn. of Telecom Officers & Advisors have said they're studying a lawsuit. The Assn. didn’t comment Mon.
Another tentative FCC finding: It can’t preempt state or local customer service laws. The Commission said comments are due 30 days after the order is published in the Federal Register. Replies are due 15 days later. The Commission promised to issue a related order on those findings within 6 months.