TIME WARNER MAY EXERCISE OPTION TO CANCEL LOCAL CABLE FRANCHISES

Senate Bill 1087, passed during the 2011 regular legislative session, provides that – beginning September 1, 2011 – a cable service provider in a city with a population of less than 215,000 may elect to terminate not less than all unexpired local cable franchises in the state and seek a state-issued certificate of franchise authority.  The cable provider may do so by providing written notice to the Texas Public Utility Commission (PUC) and each of those cities before January 1, 2012.

Time Warner Cable has apparently started that process by sending an informal letter to many cities in the Dallas/Fort Worth area.  The informal letter has been sent prior to the September 1 date in the bill, so affected cities should receive a more formal letter after September 1.  Time Warner’s informal letter states that it will apply to the PUC on November 23 to obtain a state-issued franchise on December 19.

What is the background behind S.B. 1087 and Time Warner’s actions?  For many years, cable companies were the sole provider of wire-based video programming to city residents.  Until 2005, when Chapter 66 of the Texas Utilities Code was enacted, a cable company that wanted to serve customers within a Texas city did so by obtaining a franchise agreement from that city.  Because of ever-growing technological capabilities, telecommunications companies now also have the ability to provide video programming.  These companies wanted the local franchise system reformed so that they would not have to obtain hundreds of franchises, which they felt would be an impediment to installing the infrastructure necessary to implement their new technology. 

Cities weren’t opposed to the idea, so long as the new law:  (1) provided for stable and predictable compensation for use of the public rights-of-way; (2) ensured that they retained police power authority over their rights-of-way; and (3) made possible the provision of public, educational, and governmental (PEG) programming to their citizens. 

Chapter 66 does just that.  However, the cable industry was opposed to another provision in the law that allowed existing cable franchises to be “grandfathered” until they expire.  In 2005, it brought a lawsuit claiming that the grandfathering provision is preempted by federal law and sought to invalidate the entire bill.  In 2006, the court dismissed the case on procedural grounds. In 2007, the industry appealed the dismissal to the Fifth Circuit Court of Appeals. In 2008, the Fifth Circuit issued its opinion and concluded that the industry’s claims deserve consideration by the trial court.  The case has since languished in the trial court.

Senate Bill 1087 appears to be the cable industry’s “plan B” for getting out of grandfathered local franchises.  But the bill will likely benefit many Texas cities.  That is because the terms of the state-issued franchise will often be more favorable in terms of revenue to the city.  Once Time Warner cancels all its existing franchises in cities with less than 215,000 population, each city will be entitled to a quarterly franchise payment of five percent of the company’s gross receipts as defined by the bill. 

Under the state franchise, Time Warner is also required to pay an additional one-percent fee to support PEG channels.  Time Warner’s informal letter speaks of a city’s ability to “elect” to receive the one-percent fee.  That characterization is somewhat misleading.  Some cities may be receiving a “per-subscriber” fee under their local franchise to support PEG channels.  The law does allow those cities to elect to continue to receive that fee, or elect to receive the one-percent fee (usually the better choice).  However, if your city was not receiving any PEG fee, Time Warner is required to begin payment of the one-percent fee when it begins operating under the state franchise.  (Note that the one-percent fee may be used only to support capital costs [e.g., equipment] related to PEG channels.  The revenue from the fee must be deposited in a separate account and may be used only for statutorily authorized purposes.)

Finally, cities (and perhaps school districts within the city) that receive existing cable service and/or institutional network (I-Net) capacity will also need to verify those services with Time Warner and take appropriate action to continue them if the city wishes to do so.  (Time Warner may be authorized to deduct certain service costs from the five-percent franchise fee.)  

Each city should consult with its city attorney upon receiving a letter.


TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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