Miller & Van Eaton P.L.L.C Washington, D.C. San Francisco, CA. The Future of Franchising: Federal Challenges to Local Authority IMLA 2008 Annual Conference

Miller & Van Eaton P.L.L.CMiller & Van Eaton P.L.L.C

Washington, D.C. • San Francisco, CA.Washington, D.C. • San Francisco, CA.

The Future of Franchising: The Future of Franchising: Federal Challenges to Local Federal Challenges to Local

Authority Authority

IMLA 2008 Annual ConferenceIMLA 2008 Annual Conference

Las Vegas, Nevada

September 14, 2008

by Joseph Van Eaton

Partner, Miller & Van Eaton P.L.L.C.

1155 Connecticut Ave NW Ste 1000

Washington, D.C. 20036

September 14, 2008 Page September 14, 2008 Page 22 Miller & Van Eaton P.L.L.CMiller & Van Eaton P.L.L.C

Summary of PresentationSummary of Presentation How FCC has asserted authority over How FCC has asserted authority over

cable franchisingcable franchising Impact in states with state franchise lawsImpact in states with state franchise laws Impact in states with local franchisingImpact in states with local franchising

How FCC action is leading to challenges How FCC action is leading to challenges to local zoning authority to local zoning authority CTIA petition to limit local authority over cell CTIA petition to limit local authority over cell

towerstowers How uncertainties in federal law create How uncertainties in federal law create

new franchising challenges new franchising challenges


The Status of Local FranchisingThe Status of Local Franchising


FCC ProceedingsFCC Proceedings FIRST FRANCHISING ORDERFIRST FRANCHISING ORDER In re In re

Implementation of Section 621(a)(1) of the Cable Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and by the Cable Television Consumer Protection and Competition Act of 1992Competition Act of 1992, , First Report and Order First Report and Order and Further Notice of Proposed Rulemakingand Further Notice of Proposed Rulemaking 22 22 FCC Rcd. 5101 (2007) FCC Rcd. 5101 (2007)

Applies to new entrants and to local (not state) Applies to new entrants and to local (not state) franchising franchising

STATUS: Aff’d by 6STATUS: Aff’d by 6thth Cir, 529 F.3d 763 (2008) – Cir, 529 F.3d 763 (2008) – petition for rehearing/rehearing en banc pending petition for rehearing/rehearing en banc pending


FCC ProceedingsFCC Proceedings SECOND FRANCHISING ORDERSECOND FRANCHISING ORDER In the Matter In the Matter

of Implementation of Section 621(a)(1) of the of Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer amended by the Cable Television Consumer Protection and Competition Act of 1992Protection and Competition Act of 1992, , Second Second Report and OrderReport and Order 22 FCC Rcd 19633 (2007) 22 FCC Rcd 19633 (2007)

Extends some aspects of Extends some aspects of First OrderFirst Order to to incumbents; may affect state franchising lawsincumbents; may affect state franchising laws

STATUS: Petition for reconsideration pending at STATUS: Petition for reconsideration pending at FCC; appeal pending at 6FCC; appeal pending at 6thth Circuit Circuit


What Led To FCC OrdersWhat Led To FCC Orders New entrants claimed local franchising New entrants claimed local franchising

authorities were delaying competitive entryauthorities were delaying competitive entry Asked FCC to interpret and apply Section 621(a)Asked FCC to interpret and apply Section 621(a)

(1) of Cable Act, 47 USC 541(a)(1):(1) of Cable Act, 47 USC 541(a)(1):

““a franchising authority may not...unreasonably a franchising authority may not...unreasonably refuse to award an additional competitive refuse to award an additional competitive franchise. Any applicant whose application… franchise. Any applicant whose application… has been denied by a final decision of the has been denied by a final decision of the franchising authority may appeal such final franchising authority may appeal such final decision” to the courts. decision” to the courts.


Major issues in rulemaking/appealMajor issues in rulemaking/appeal

Did FCC have the authority to issue rules Did FCC have the authority to issue rules governing how the franchising process governing how the franchising process was conducted?was conducted?

If so, how far could it go in directing If so, how far could it go in directing localities to issue franchises?localities to issue franchises?

Were proposed rules arbitrary and Were proposed rules arbitrary and capricious, or justified by record?capricious, or justified by record?


First FCC OrderFirst FCC Order

FCC found localities were delaying FCC found localities were delaying competitive entrycompetitive entry

FCC found it was a “super franchising FCC found it was a “super franchising authority” and could define what were authority” and could define what were unreasonable grounds for denying a unreasonable grounds for denying a franchise applicationfranchise application

FCC found it could devise remedies to FCC found it could devise remedies to force local actionforce local action


First Order: Specific RulesFirst Order: Specific Rules

Federal Deadlines: localities must take final Federal Deadlines: localities must take final action on a complete franchise application:action on a complete franchise application: within 90 days for entity in rights of way (e.g., a within 90 days for entity in rights of way (e.g., a

telephone company)telephone company) within 180 days for otherswithin 180 days for others

Franchise DEEMED GRANTED on TERMS Franchise DEEMED GRANTED on TERMS PROPOSED BY APPLICANT if deadline missed, PROPOSED BY APPLICANT if deadline missed, until locality actsuntil locality acts

All local charter and ordinance requirements All local charter and ordinance requirements preempted if those prevent locality from meeting preempted if those prevent locality from meeting deadline. deadline.


Specific Rulings, Cont’dSpecific Rulings, Cont’d

BUILD-OUTBUILD-OUT Cannot establish “unreasonable” build-out Cannot establish “unreasonable” build-out

mandates.mandates. Generally build-out based on standards that Generally build-out based on standards that

applied to incumbent. applied to incumbent. Some build-out requirements are reasonable Some build-out requirements are reasonable

including requirements that take into account including requirements that take into account penetration or economic success.penetration or economic success.

Does not directly prevent universal build-out Does not directly prevent universal build-out as long as entrant is provided enough time. as long as entrant is provided enough time.



FRANCHISE FEES [5% Limit]FRANCHISE FEES [5% Limit] Cable Act franchise fee base limited to cable service Cable Act franchise fee base limited to cable service

related revenues; but there can be fees on other related revenues; but there can be fees on other services as permitted under state law services as permitted under state law

Franchising/transfer legal and consultant costs Franchising/transfer legal and consultant costs recovered from franchisee count against 5% limit. recovered from franchisee count against 5% limit.

In-kind payments unrelated to cable service count In-kind payments unrelated to cable service count against 5% limit.against 5% limit.

Generally, operating support for PEG access counts Generally, operating support for PEG access counts against limit – but order unclear as to what PEG against limit – but order unclear as to what PEG payments are payments are not counted against the fee.not counted against the fee.



FRANCHISE FEES - PEGFRANCHISE FEES - PEG Cable Act says localities may require cable operators Cable Act says localities may require cable operators

to pay capital costs for PEG facilities in addition to to pay capital costs for PEG facilities in addition to franchise fee; and defines PEG facilities to include franchise fee; and defines PEG facilities to include channels, equipment and facilities.channels, equipment and facilities.

FCC Order says costs associated with construction of FCC Order says costs associated with construction of “facilities” do not count against franchise fee.“facilities” do not count against franchise fee.

Localities claimed FCC erred in excluding equipment; Localities claimed FCC erred in excluding equipment; on brief on brief FCC said equipment costs did not necessarily FCC said equipment costs did not necessarily count against franchise fee. count against franchise fee.

Court of Appeals assumed FCC clarification Court of Appeals assumed FCC clarification eliminated dispute. eliminated dispute.

Likely to lead to confusion Likely to lead to confusion



PEG and INET ObligationsPEG and INET Obligations Can require “adequate” supportCan require “adequate” support No more burdensome requirements than are No more burdensome requirements than are

imposed on incumbent; imposed on incumbent; pro rata cost sharing pro rata cost sharing is reasonable, but not required.is reasonable, but not required.

No unnecessary duplicative facilitiesNo unnecessary duplicative facilities FCC expects localities to require new entrant FCC expects localities to require new entrant

to increase support if incumbent requirements to increase support if incumbent requirements increase increase



Regulation of Mixed Use Networks Regulation of Mixed Use Networks Cannot use authority over cable to regulate other Cannot use authority over cable to regulate other

services on networks that provide multiple services. services on networks that provide multiple services. Unclear: what does this mean for regulation of Unclear: what does this mean for regulation of network itself? network itself?

Level Playing Field Clauses Preempted: “refusal Level Playing Field Clauses Preempted: “refusal to award [franchise]…unless…competitive to award [franchise]…unless…competitive applicant meets substantially all the terms…applicant meets substantially all the terms…imposed on the incumbent cable operator may imposed on the incumbent cable operator may be unreasonable” be unreasonable”


Second Report and OrderSecond Report and Order

FCC considered whether First Report and FCC considered whether First Report and Order should be extended to incumbentsOrder should be extended to incumbents

The following were not applied:The following were not applied: Deadlines for actionDeadlines for action Build-out requirements (can demand more of Build-out requirements (can demand more of

incumbent)incumbent) PEG and INET provisions (except franchise-PEG and INET provisions (except franchise-

fee related findings) fee related findings)



The following First Order rulings were The following First Order rulings were applied to incumbents: applied to incumbents: Franchise fees Franchise fees Mixed use networksMixed use networks

Incumbent may not unilaterally apply rules Incumbent may not unilaterally apply rules to existing franchises [but some are]to existing franchises [but some are]

Incumbent may be able to enforce level Incumbent may be able to enforce level playing field provisions against locality playing field provisions against locality



Open question: does second order apply Open question: does second order apply to state franchising schemesto state franchising schemes Several state laws allow PEG funds to be Several state laws allow PEG funds to be

used for operating support unless federal law used for operating support unless federal law prohibits it;prohibits it;

Some state laws were based on the Some state laws were based on the assumption that such support was lawfulassumption that such support was lawful

Issue before FCC on recon. petitions Issue before FCC on recon. petitions


Impact of FCC OrdersImpact of FCC Orders IMMEDIATE IMPACTSIMMEDIATE IMPACTS

complicates local franchisingcomplicates local franchising may undercut basic structure of state schemesmay undercut basic structure of state schemes

LONG TERM IMPACTSLONG TERM IMPACTS Represents a significant assertion of FCC authority Represents a significant assertion of FCC authority

over local procedures and local governing bodiesover local procedures and local governing bodies Broadly finds FCC authority to control local property – Broadly finds FCC authority to control local property –

although Cable Act intended to protect local authority although Cable Act intended to protect local authority


First Shoe Dropping: Tower SitingFirst Shoe Dropping: Tower Siting

47 USC 332(c)(7) specifically designed to 47 USC 332(c)(7) specifically designed to protect local zoning authority protect local zoning authority

Provides standards for decisions, and makes Provides standards for decisions, and makes zoning decisions subject to court reviewzoning decisions subject to court review

Wireless trade association (CTIA) has asked Wireless trade association (CTIA) has asked FCC to set national zoning deadlines/standards f FCC to set national zoning deadlines/standards f

Based on Sixth Circuit decision affirming First Based on Sixth Circuit decision affirming First Franchising Order Franchising Order


The CTIA PetitionThe CTIA Petition

Asserts localities are unreasonably Asserts localities are unreasonably delaying deployment of wireless towersdelaying deployment of wireless towers

Asks FCC to establish national deadlines Asks FCC to establish national deadlines for action on zoning applicationsfor action on zoning applications 45 days for collocation45 days for collocation 75 days for any other application75 days for any other application

Deadlines do not depend on size, location Deadlines do not depend on size, location (residential v. industrial) number of towers, (residential v. industrial) number of towers, or complexity of safety/siting issues or complexity of safety/siting issues



If deadlines missed, FCC should deem If deadlines missed, FCC should deem application for tower granted.application for tower granted.

Asks FCC to rule that locality violates the Asks FCC to rule that locality violates the law if its actions would prohibit an law if its actions would prohibit an individual provider from offering service to individual provider from offering service to any location (translation: an application any location (translation: an application would have to be granted if necessary to would have to be granted if necessary to reach one room in one building, regardless reach one room in one building, regardless of availability of alternative services) of availability of alternative services)



Asks FCC to preempt all local ordinances Asks FCC to preempt all local ordinances and regulations that effectively require a and regulations that effectively require a variance in most circumstances. variance in most circumstances. Examples:Examples: an ordinance that limits heights to levels that an ordinance that limits heights to levels that

would require more antennaswould require more antennas significant setback requirements that significant setback requirements that

practically limit the ability to construct practically limit the ability to construct antennasantennas



STATUS: now underway, WT Docket No. STATUS: now underway, WT Docket No. 08-16508-165

Initial comments due September 29, 2008Initial comments due September 29, 2008 Reply comments due October 14, 2008Reply comments due October 14, 2008 This is a very serious petition and will This is a very serious petition and will

require filings plus efforts at Congress and require filings plus efforts at Congress and FCC to protect local authority FCC to protect local authority


Franchising Future – Basic Local Franchising Future – Basic Local Rights At IssueRights At Issue

Franchising was first and foremost a Franchising was first and foremost a means of protecting local authority over means of protecting local authority over propertyproperty Federal and State actions are chipping away Federal and State actions are chipping away

at that authorityat that authority Effect is to limit ability to secure basic Effect is to limit ability to secure basic

protections for citizensprotections for citizens


……New Challenges Are ComingNew Challenges Are Coming

““Infrastructure providers” areInfrastructure providers” are entering into contracts with developers to obtain entering into contracts with developers to obtain

easements over property that will become RoWeasements over property that will become RoW contracts are designed to prevent local governments contracts are designed to prevent local governments

from exercising franchising authority or obtaining from exercising franchising authority or obtaining franchise feesfranchise fees

contracts are intended to require homeowners to buy contracts are intended to require homeowners to buy services from providers selected by owner of services from providers selected by owner of infrastructureinfrastructure

What Should A Locality Do?What Should A Locality Do?

Documents

Miller & Van Eaton P.L.L.C Washington, D.C. San Francisco, CA. The Future of Franchising: Federal Challenges to Local Authority IMLA 2008 Annual Conference