Cable Franchise by kjl10467


									                      The Multiple Roles of the Cable Franchise


  Revocable right         Consumer           License to be in       Rental terms             In-Kind
 to use the rights-       Protection            the cable          and Conditions         Compensation
      of-way.            Requirements.          business            for use of the            Access
                                                                   public rights-of-      Channels and I-
                                                                         way.                  Nets

A cable franchise grants special privileges to use the public rights-of-way in return for specific
performance promises negotiated between the parties. Local governments use cable franchises
as a means to protect consumers; promote competition; enhance public safety; meet community
needs; create a community dialogue, while managing and obtaining fair compensation for the use
of the rights-of-way.
Several major telephone companies and some smaller companies have announced their intent to
offer competition to cable companies by offering video programming. They claim that
franchising is burdensome and a barrier to competition. Congress and numerous state
legislatures are considering bills to eliminate or severely reduce local governments’ authority to
franchise the provision of video programming within their communities. The fatal flaw with
these proposals is that they fail to recognize the multiple critical functions a cable franchise
plays. The figure above and this overview explain those roles.
Municipalities had been franchising cable operators for years prior to Congress ever addressing
the issue in the Cable Act in 1984. In fact, the Cable Act reflects a resolution to the debate over
the proper role of the Federal Communications Commission versus local governments. In 1984
Congress recognized local government as the proper level of government to “establish franchise
procedures and standards which encourage the growth and development of cable systems and
which assure that cable systems are responsive to the needs and interests of the local
community.” As reflected in the chart below, the procedures and standards that have developed
to be responsive to the needs of interests of the local government have resulted in three major
components of a franchise, which reflect the three different roles a local government plays in the
       A. Revocable Right to use the Rights-of-Way
The public rights-of-way belong to the community, and neither a private company nor the federal
government can use that property without the owner’s permission. Telecommunications
companies using wires to reach customers’ homes, whether they are cable companies or
telephone companies, must seek permission to put their infrastructure on and under the public’s
property. A franchise provides the revocable right to access and reside in the public’s rights-of-
way to provide service. Different states treat this permission differently, and sometimes
telephone companies received different types of permission than cable companies did.
       B. Financial Rental Terms for Use of the Rights-of-Way
Like any rental arrangement, rent is due from the tenant. Congress capped city’s franchise fees
equal to 5% of the gross revenues derived from the operation of the cable system to provide
cable services. The franchise agreement provides the legal obligation to collect and audit these
fees. A right to receive without a means to enforce is no right at all. Today telecommunications
companies can choose from a wide variety of technology from wires under and above ground, to
wireless technology to satellites, each technology and each business model involves different
costs. Undermining local government’s ability to collect a reasonable rental fee for use of public
rights-of-way will only serve to subsidize the industry at taxpayers’ expense.
       C. In-Kind Rental Terms for Use of the Rights-of-Way
In addition to the franchise fee, Congress recognized that for some communities, an in-kind
dedication of system capacity and/or channels for community programming or linking of public
buildings were valid rental terms. Therefore, the Cable Act affirmed the practice of negotiating
institutional networks (I-Nets) and PEG channels/support. An institutional network is a
portion of the cable system designed primarily to serve customers other than residential
customers. In many communities, operators have agreed to construct institutional networks that
link public safety, schools, libraries or other government buildings. These links are then used for
voice, video and data transmissions, and to provide connections to the Internet. Congress also
explicitly recognized local government can obtain facilities, equipment and capital support for
public, educational and government (PEG) channels via a franchise. These “access channels”
are almost always the most important tool citizens use to learn about local government. PEG
requirements can significantly enhance the ability of government, schools, non-profits and
community members others to deliver information to each other cost-effectively.
       D. Local Government’s Police Power and Consumer Protector
The Cable Act recognizes cities’ authority to protect consumers by means of franchise terms and
as an exercise of their police powers. The Cable Act recognized a community’s ability to:
        • Adopt and enforce customer service standards. The FCC has adopted minimum
           customer service standards, but a locality can also adopt more stringent standards.
        • Require an operator, through the franchising process, to submit a proposal for
           facilities, equipment and services adequate to meet the cable-related needs and
           interests of the community.
        • Define where an operator must serve, and set the time for build-out of the system.
           These can vary. Some franchises require the operator serve all residences, serve all
           businesses and residences; or all areas with a certain population density.
       E. Federal Agent
Federal law requires that a cable operator must have a franchise to offer video programming and
directs that local government be the entity that determines the qualifications of an entity to meet
the federal standards.
Opponents of franchising argue that a franchise is “redundant.” They state that because a
telephone company already has permission to be in the local right of way from the locality or the
state, a requirement that they obtain a cable franchise is duplicative.
Beyond the functions outlined here, video services are different than voice services, and cable
television networks are different than telephone networks. Telephone agreements for use of the
right of way are often inadequate. Provisions for democratic communications such as access
channels have no place in the telephone realm. Local authorities are best positioned to balance
economic costs of build-out against the revenue potential from the local community.
Governmental        Franchise Role                   Description of Franchise Role
Real Estate         Property License or Lease:       As the owner/trustee of the community’s rights of
Owner/Trustee       Revocable Right to Use           way, a franchise grants a cable operator a
                                                     revocable right to access and reside in the
                                                     community’s rights-of-way to provide cable
                                                     services. As part of this real estate transaction, the
                                                     cable operator and franchising authority agree to
                                                     terms and conditions for the use of the real estate
                                                     asset, including construction standards, safety
                                                     requirements, insurance, indemnification, system
                                                     capacity, time and place for construction.
Real Estate         Franchise Fee                    Establishes percentage rate for franchise fee and
Owner/Trustee                                        defines “gross revenue;” method and location for
                                                     payment and audit procedures.
Local Policy        In-Kind Compensation of I-Net    Captures terms for access channels; capital grants
Makers and          and PEG.                         for equipment and facilities; equipment repairs
Real Estate                                          and replacement; and access and program support.
Owner/Trustee                                        Also address I-Nets and buildings that need to be
                                                     connected to the I-net.
Police Powers &     Consumer Protection Terms        In its role as consumer protector, a franchise
Consumer                                             imposes consumer safeguards suited to its
Protection                                           community. Ensures federal prohibition against
                                                     discrimination against people because of income
                                                     is enforced.
Federal Agent       Federal Cable License            Federal law requires that a cable operator have a
                                                     franchise to be in the cable business and directs
                                                     that local government be the entity that determines
                                                     the qualifications of an entity to meet the federal

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