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FCC Adopts Rules Implementing Cable Act Section 621(a)(l) Prohibiting Municipalities from Unreasonably Refusing to Award Competitive Franchises

December 21, 2006

In its "Report and Order and Further Notice of Proposed Rulemaking" ("Order" and "Further Notice "), adopted yesterday but not yet released, the FCC identified the following practices by local franchising authorities ("LFAs") which the Commission concluded have resulted in the unreasonable refusal to award competitive cable franchises under Section 621(a)(1).

• Extended franchise negotiations;

• Unreasonable build-out requirements;

• Requirement of fees and other "in-kind" payments exceeding the statutory 5% franchise fee cap; and

• Unreasonable Public, Educational and Government ("PEG") Access and Institutional Network ("I-Net") requirements.

In an attempt to remedy the results of such practices, the Commission in its Order adopted time limits on franchise negotiations. In addition, the Commission preempted unreasonable build out requirements, costs exceeding the 5% franchise fee cap and unreasonable PEG and I-Net requirements imposed by LFAs, as well as level playing field provisions in local laws and regulations to the extent they exceed the rules adopted in the Order. Notably, these actions only apply to new entrants seeking competing cable franchises, not to incumbent cable operators. The Order does not address state-level franchising, noting that the Commission does not have enough information at this time to undertake a conclusive analysis on the state franchising process.

The Further Notice adopted concurrently with the Order seeks comment on how the Commission's findings in the Order should affect incumbent franchisees and the Commission's authority to apply those findings to incumbent operators at the time of their next renewal. The Commission committed to conclude action on the Further Notice no later than six months following the release of the Order.

All five Commissioners issued separate statements. Chairman Martin, pointing to the Commission's Annual Report on Cable Industry Prices that was also adopted yesterday, noted that the Commission's recent findings of a 93% increase in cable rates from 1995 to 2005 indicate the need for video competition. Reiterating his top priority of broadband deployment, the Chairman noted that offering video to consumers is intrinsically linked to rapid broadband deployment as the additional revenue stream from video provides recovery of costs for deployment.

In a dissenting statement, Commissioner Copps expressed his regret at the lack of a national strategy to provide universal high speed broadband development, noting the United States ranking as twenty-first in the International Telecommunications Union Digital Opportunity Index. Commissioner Copps expressed his belief that a national strategy, however, would require consensus and national by-in from diverse interests that this Order would not generate. Although Commissioner Copps believes franchise reform could contribute to broadband build out, he stated that the Order does not present a solid record, preserve a local authority's rights, or clearly demonstrate the Commission's legal authority for its actions.

Commissioner Adelstein's dissent also expressed concern about the Commission's action. His statement highlighted the efforts in Congress to address this issue and stated his view that the agency's action is an attempt to legislate with the disguise of regulation, an action likely to be overturned by Federal courts.

We would be pleased to respond to any questions regarding this matter.