Franchise Renewal/Competitive Franchising/Franchise Transfer/Legislative Updates

Franchise Renewal

Moss & Barnett has represented several hundred municipalities across the country on cable television issues and has been extensively involved in conducting franchise renewals.  Moss & Barnett has on staff experienced attorneys who are well versed in cable television laws and regulations and familiar with the franchise renewal process.  Brian Grogan is a regular presenter at national conferences on cable franchise renewals.  Moss & Barnett’s understanding of the franchise renewal process and the need to develop a detailed and specific report regarding the future cable-related community needs and interests in a community makes Moss & Barnett uniquely qualified to assist communities in conducting needs assessments as part of franchise renewal.

Of particular interest is a federal court case Mr. Grogan handled on franchise renewal.  Mr. Grogan represented the City of Sturgis, Kentucky which was the first municipality in the country (and one of only three under the Cable Act) to successfully deny a cable operator’s request for franchise renewal because the cable operator’s proposal was not reasonable to meet the future cable-related needs and interests identified by the City.  Mr. Grogan represented the City throughout the renewal process and personally prepared Sturgis’ Needs Assessment Report which the Federal District Court cited extensively in its decision upholding the City’s denial.  This federal litigation experience is quite unique in the cable industry.  This experience is helpful to Moss & Barnett clients since we understand the importance of preparing in advance for renewal negotiations by developing a detailed and comprehensive needs assessment report to place franchising authorities in a favorable position.

With few exceptions, the cable television franchise renewal process has remained unchanged since it was enacted into law 20 years ago.  The renewal process under the Cable Act (47 U.S.C. § 546) provides cable operators with a high presumption in favor of renewal.  Franchising authorities, in particular elected officials, often have difficulty understanding why negotiations regarding franchise renewal are so different than other contract negotiations which cities conduct each day.  The papers/presentations below address a number of issues regarding franchise renewal.

Competitive Franchising

Once a municipality receives a request from a cable operator for an initial cable franchise there are certain steps that municipality should follow.  A municipality should review the requirements of local, state and federal law to determine any specific procedures required prior to the grant of a cable franchise.  The applicant requesting a franchise should submit its application to the city, and the city should review the operator’s legal, technical and financial qualifications.  Federal and state law prohibit a municipality from preventing otherwise qualified entities from providing cable services unless they lack the requisite qualifications or otherwise fail to comply with the franchising procedures.

Moss & Barnett has assisted over 50 communities in granting competitive cable franchises to start-up cable operators as well as incumbent telephone companies.  As both Verizon and AT&T have become active in providing video services each have taken different approaches with respect to local franchising.  Verizon has generally pursued cable television franchises except where state law imposes a different regulatory structure.  AT&T has in certain states pursued a video services agreement while in others has taken more aggressive action to construct its Lightspeed system and thereafter take the position that no local authority is required.  Generally AT&T argues that it is not a cable operator utilizing a cable system to provide cable service, but rather is an information service provider free from local and state regulation.

Regardless of the operators seeking a competitive franchise in your community you can expect careful scrutiny by the incumbent cable operator to ensure that no operator is provided an unfair competitive advantage over the other.  In fact, many existing incumbent cable franchises contain provisions mandating a level playing field in addition to any state law requirements which may exist.  For this reason it is particularly important to pay careful attention to the type of franchise agreement or video service agreement entered into with a competitive provider to ensure it does not negatively impact your existing franchise with the incumbent operator.  In addition, it is also prudent to carefully consider updating your communities’ right-of-way requirements in the local code in the event the video franchise agreement it ultimately preempted by state or federal law changes.

Franchise Fee Payments

Moss & Barnett frequently conducts franchise fee payment reviews for its municipal clients.  Such a review is necessary to ensure that a cable operator’s past performance under the existing franchise has been satisfactory and to uncover any underpayments that may have occurred over the past several years.  Moss & Barnett has on staff several attorneys who, in addition to their law degree, are certified public accountants with substantial audit and accounting experience.

In our experience, municipalities rarely conduct audits to verify franchisee fee payments made by their cable operator.  Over the course of a long-term franchise, the failure to verify franchise fee payments can result in significant lost revenue to a municipality.  Municipalities generally require, through the franchise, that each fee payment be accompanied by some statement or verification by authorized personnel of the cable operator.  Traditionally, municipalities have relied on these verifications and have accepted payments as true and correct.  Unfortunately, these verifications may be based only on “gross revenues” as defined by the cable operator.  Revenue which may be due a municipality as a result of annexation lag time, miscoded customer accounts and excluded revenue accounts, for example, are not generally verified by a cable operator.  The papers/presentations below address a number of issues regarding franchise fee payments.

Franchise Transfers

Moss & Barnett has assisted over 100 municipalities facing transfer requests from their cable operator.  The first step is to review the cable operator’s Form 394 to determine if the application is complete.  The Form 394 is the cable operator’s application for transfer of a municipality’s cable television franchise.  Form 394 is a five (5) page form which generally includes many attachments.  The next step is to review the legal, technical, and financial qualifications of the potential transferee in order to determine whether or not to approve or deny the transfer request.  Any noncompliance issues should also be addressed at the time of a transfer request.

The rules governing a transfer review are found in federal law at 47 U.S.C. §§ 533(d) and 537 and FCC regulations at 47 C.F.R. § 76.502.  Franchising authorities must also carefully consider applicable state law and relevant provisions of the local franchise.  Particular attention should be paid to the local franchise as it may contain additional transfer obligations and deadlines and may trigger rights for the franchising authority in the event of a change of ownership.  A number of procedural requirements control cable television transfer requests.  Under federal law, a municipality has 120 days from the date of receiving a complete Form 394 to act upon the transfer request.  The municipality’s failure to act within that time serves as an approval of the transfer request.  The papers/presentations below address a number of issues regarding transfer of ownership.

Legislative Updates

The papers/presentations below address a number of issues regarding proposals to modify cable television franchising laws and regulation.

Multiple Dwelling Units

On October 31, 2007, the FCC issued a report and order which banned the use of exclusivity clauses for the provision of video services to multiple dwelling units and other real estate developments. The FCC argued that its new rules would increase choice and competition for those residing in multiple dwelling units. The papers below address a number of relevant issues regarding multiple dwelling units.

 The FCC tries to promote choice for those living in apartments

Cable and Telecommunications Access to Residential Multiple Dwelling Units
- Minnesota CLE 2008 Communications Law Forum, June 2008

Inside Wiring and Exclusivity Clauses
- Minnesota CLE 2008 Communications Law Forum, June 2008