FCC ISSUES SECOND CABLE FRANCHISE ORDER
In 2005, the Federal Communications Commission (FCC) began seeking input on a proposed rulemaking regarding whether: (1) local franchising authorities are unreasonably refusing to grant cable franchises; and (2) the FCC has the authority to take action in that regard. TML (and many others) filed comments on those rules in early 2006, and argued that the answer to both questions is “no.” The FCC issued its written order on March 5, 2007, and disagreed on both counts.
The good news is that the March 5 order did not affect the Texas cable franchising statute enacted in 2005. That statute (Senate Bill 5) enacted several changes, including: (1) eliminating the local franchising process; (2) streamlining the cable franchising process by authorizing a state-issued certificate of franchise authority for cable and video providers; (3) grandfathering existing cable franchises until they expire; and (4) preserving, as a matter of state law, the key police-power and right-of-way fee authority of Texas cities.
The March order was directed largely at municipal barriers to entry for new providers of video service, barriers that no longer exist in Texas. However, the first order noted that some of its conclusions “also appear germane to existing franchisees.” Under Senate Bill 5, existing franchisees (generally incumbent cable providers) are bound to their existing agreements until those agreements expire. In light of the order’s ambiguity with regard to existing franchise agreements, the FCC sought additional comments on the implementation of the order. TML and others again filed comments on the second rulemaking, and a second FCC order was issued on November 6, 2007.
The second order extends some of the findings from the first order to incumbent cable providers, and thus may affect cities with grandfathered cable franchise agreements under Senate Bill 5. Specifically, the second order concludes that fees paid to support public, educational, and government (PEG) channels may be used only for the “capital costs” of providing the channels. A cable provider in a city that is using the fees in some other way (to pay operating expenses, for example) might seek to have those payments deducted from the five-percent franchise fee cap imposed by federal law.
In addition, some cable providers have claimed that a broad definition of “gross revenue” in a negotiated franchise agreement for purposes of determining the franchise fee should be preempted by using the generally accepted accounting principles (GAAP) standard. In a win for cities, the FCC concluded that franchise agreement definitions of “gross revenue” are not subject to GAAP and are thus not preempted.
The FCC expressly concluded that the second order does not apply automatically to existing franchises, and that it cannot void existing franchises. Rather, a cable provider has the burden to prove, under the facts and circumstances of each situation, that the new rules should apply to its franchise agreement. This last conclusion is somewhat ambiguous, and only time will tell how cable providers will seek to enforce the second order.
The National League of Cities and other national local government groups have sued to challenge the FCC’s authority to issue the first order. That case is currently pending in the federal Sixth Circuit Court of Appeals, and it is probable that the second order will be challenged as well.
The Texas Municipal League will continue to monitor the implementation of the second order and will keep member cities informed.