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DECEMBER 21, 2006 By Stephen Hardy -- As expected, the Federal Communications Commission (FCC) yesterday acted to streamline video franchise rules. Barring challenges in court, the new rules should make it easier for companies such as Verizon and AT&T to offer video services over their FTTP and FTTN networks.
After a 3-2 vote along party lines by members of the commission, the FCC issued a "Report and Order and Further Notice of Proposed Rulemaking" designed to establish rules and provide guidance to implement Section 621(a)(1) of the Communications Act of 1934, which prohibits franchising authorities from "unreasonably refusing" to award competitive franchises for the provision of cable services. The commission concluded that the current operation of the franchising process constitutes "an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment," in the words of an FCC press release.
According to the FCC, these barriers included drawn-out local negotiations with no time limits and "unreasonable" build-out requirements, requests for "in-kind" payments that the Commission asserts attempt to subvert the cap on franchise fees that limits them to 5 percent of revenues, and demands with respect to public, educational, and government access (PEG).
Among other actions, the FCC's order mandated that specified costs, fees, and other compensation required by local franchising authorities be counted toward the statutory five percent cap on franchise fees and preempted local laws, regulations, and requirements, including local level-playing-field provisions, that impose greater restrictions on market entry than the rules the FCC has just adopted. It set a time limit of 90 days for a franchise ruling for carriers with infrastructure already in place, such as incumbent telcos.
While the commission concluded that it believes it can determine generally what constitutes an "unreasonable refusal to award an additional competitive franchise" at the local level, it's not sure if it can make such determinations regarding franchising decisions made at the state level or in compliance with state statutory directives, such as statewide franchising decisions. As a result, the order addressed only decisions made by county- or municipal-level franchising authorities.
The FCC also adopted a Further Notice of Proposed Rulemaking to seek comment on how the order should affect existing franchisees. It also tentatively concludes that the FCC's findings should apply to existing franchisees at the time of their next franchise renewal process and seeks comment on the commission's statutory authority to make its ruling. The commission says it will conclude this rulemaking and release an order no later than six months from now.
FCC Chairman Kevin Martin praised the ruling as opening competition. "As we just found, from 1995 to 2005, cable rates have risen 93%. In 1995 cable cost $22.37 per month. Last year, cable cost $43.04 per month. [Yesterday's] Communications Daily reports that prices for expanded basic are now about $50 per month. The trend in pricing of cable services is of particular importance to consumers. Since 1996 the prices of every other communications service have declined while cable rates have risen year after year after year," he said. "This item appropriately removes such regulatory barriers by giving meaning to the words Congress wrote in section 621 of the Cable Act. Specifically, the commission finds that an LFA [local franchising authority] is unreasonably refusing to grant a competitive franchise when it does not act on an application within a reasonable time period, imposes taxes on non-cable services such as broadband, requires a new entrant to provide unrelated services or imposes unreasonable build-out requirements."
Conversely, dissenting commissioner Michael J. Copps agreed with Martin's goal, but not with the path the FCC has chosen to take in reaching it. "I think that all of my colleagues and I can agree on the central importance of encouraging video competition. It is abundantly clear that cable rates are rising faster than inflation and that wireline cable competition can be helpful in bringing those rates down," Copps said. "But agreeing on the many benefits of video competition is hardly the same thing as coming up with rules that will actually encourage honest-to-goodness competition within the framework of the statutes that Congress has given us. The item before us today doesn't get us there and I cannot support it as written�The various examples of 'unreasonable' franchise requirements that the item enumerates are not closely or carefully supported by the record and often fail to rise beyond isolated episodes or anecdotal evidence."
Echoing other critics, Copps also questioned whether the FCC had overstepped its authority in making its ruling.
Further dissent came from Commissioner Jonathan S. Adelman, who said, "Today's item goes out on a limb in asserting federal authority to preempt local governments, and then saws the limb off with a highly dubious legal and policy scheme that substitutes our judgment as to what is reasonable for that of local officials � all in violation of the franchising framework established in the Communications Act."
Opponents of the ruling are already promising legal action.
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