The Multiple Roles of the Cable Franchise 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 I. INTRODUCTION 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. II. THE MULTIPLE FACETED FRANCHISE 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 transaction. 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. III. A CABLE FRANCHISE IS NOT “REDUNDANT.” 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 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 standards.
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