Breaking News

House Commerce Committee Approves Franchising Reform Legislation

April 28, 2006

The House Commerce Committee has approved, by a vote of 42-12, legislation (the "Communications Opportunity, Promotion, and Enhancement" or "COPE" Act), under which new entrants and existing cable operators that face head-to-head competition, may provide service pursuant to a "national franchise" in lieu of locally awarded franchises. Consideration of the legislation by the full House of Representatives could come as early as next week. However, companion legislation has not yet been introduced in the Senate and, even if the Senate takes up a bill in the next few weeks, it remains unclear whether final legislation will be enacted this year.

The bill, as approved by the Committee, differs in certain significant respects from earlier versions. For example, previous versions only made the national franchise available to incumbent operators on a limited basis. As approved by the Committee, the bill permits any incumbent cable operator that is subject to head-to-head competition from another cable operator to abandon their existing local franchise and operate instead under the terms of the national franchise.

Another significant change in the legislation is that it more clearly defines the "franchise area" within which service can be provided pursuant to a national franchise. As approved, the bill generally requires that the franchise area specified in an application for a national franchise must be either (1) the entirety of the franchise area of the incumbent cable operator or (2) a contiguous geographic area covering the entirety of a geopolitical unit (e.g., a county, city, township, or political subdivision of a county, township or city). Earlier versions of the bill had raised concerns that telcos applying for national franchises could self-define their franchise areas as a means of getting around red-lining restrictions.

The legislation as approved also expands on the consumer protection and customer service provisions in earlier versions. Previously, the bill directed the FCC to adopt national customer service standards that could be supplemented by generally applicable state and local consumer protection laws. The bill now specifically mandates that the rules adopted by the FCC address billing and discontinuation of service, loss of service and service quality, channel line-up changes, and availability of parental control options. Moreover, the rules adopted by the FCC shall require penalties or customer rebates, or both, for violations of the national standards and shall provide for the payment of forfeitures to the local franchising authority rather than to the FCC.

The bill also modifies the definition of cable service to make clear that it covers service provided via Internet Protocol transmission. However, even as amended, it is unclear whether the language completely closes the door on AT&T's argument that a telco providing IPTV service is not a cable operator providing cable service over a cable system and thus is not subject to any franchising requirement or other rules imposed on cable system operators by the Communications Act or the FCC's rules.

A number of proposed amendments to the bill were defeated, including an amendment that would have specified a "buildout" deadline for new entrants operating pursuant to a national franchise and an amendment that would have broadened the redlining prohibition to cover other forms of discrimination. Another highly contentious amendment that went down to defeat would have imposed broad "network neutrality" requirements on broadband service providers. As approved, the bill simply authorizes the FCC to implement limited network neutrality principles.

From the standpoint of the cable industry, the changes in the bill generally represent further improvements in legislation that initially was tilted very much in favor of the telcos. Nonetheless, the industry would still prefer stronger buildout or anti redlining language and is opposed to any net neutrality language.

As indicated above, the next step in the process is consideration of the bill by the full House, possibly as early as next week. It is expected that the fight over net neutrality will continue on the floor. In addition, it is believed that a companion bill will be introduced in the Senate in the near future; however, the Senate bill also may address issues not covered in the House bill, such as Universal Service Fund reform, program access, and/or digital transition implementation. It remains to be seen whether a bill that is acceptable to both the House and Senate can be agreed upon before the end of the year.

We would be happy to respond to any questions that you may have concerning this matter.

Other News