What is a cable franchise, and how do I renew it?

What is a cable franchise?

A cable franchise is an agreement between a local franchising authority (“LFA”) (e.g., a city, county, municipality, etc.) and a cable operator (e.g, Comcast, Cox, etc.) that allows the cable operator to provide television services (i.e., cable services) in the city, county, municipality etc. In exchange, cable operators will be often be required to provide assurances regarding service quality and network build-out, support for institutional networks and access channels, and a small percentage of revenue generated by the cable operator.[i] A cable franchise often lasts between five and fifteen years, depending on applicable state law, giving local franchising authorities an opportunity to periodically examine a cable franchise and renegotiate terms and conditions that may not be best serving a community’s present and future cable-related needs.[ii] For example, if a cable operator was continually constructing new cable facilities in the public right-of-way without first obtaining any necessary permits, furnishing inadequate support for access television programming, or providing insufficient customer service protections, these could be issues that a LFA could seek to have addressed in franchise renewal.

How is a cable franchise renewed?

A cable franchise can be renewed in one of two ways: (1) by following a statutory process referred to as “formal renewal,” or (2) through a more traditional contract negotiation process referred to as “informal renewal.”

How does formal renewal of a cable franchise work?

To commence the formal renewal process, a cable operator must submit a request for formal renewal to a LFA (e.g., “a reservation of rights”). This request must be submitted at least thirty (30), but no more than thirty-six (36), months before a cable franchise expires.[iii] Failure to timely submit this request will prevent a cable operator from utilizing the formal renewal process.[iv]

If a request for formal renewal is timely submitted, a LFA must thereafter conduct a review of: (a) the cable operator’s financial, technical, and legal qualifications, (b) the cable operator’s past performance, and (c) the current and future needs of the LFA (e.g., a needs assessment). This process can take up to twelve (12) months to complete. The LFA must then issue a request for renewal proposals (“RFRP”) to the cable operator.[v]

Within four (4) months of receiving a franchise renewal proposal from the cable operator, the LFA must then provide public notice of the proposal and determine whether to accept it.[vi] If the proposal is accepted, the franchise renewal process is complete. If the proposal is not accepted, the LFA must make a “preliminary assessment that the franchise should not be renewed.” As the statutory language plainly states, this is a preliminary decision and not a final appealable decision of the LFA.[vii]  If the LFA makes such a preliminary assessment, the LFA must then commence an administrative proceeding to determine whether the franchise should be renewed. [viii] Only the following issues may be considered at the administrative proceeding:

(A) the cable operator has substantially complied with the material terms of the existing franchise and with applicable law;

(B) the quality of the operator’s service, including signal quality, response to consumer complaints, and billing practices, but without regard to the mix or quality of cable services or other services provided over the system, has been reasonable in light of community needs;

(C) the operator has the financial, legal, and technical ability to provide the services, facilities, and equipment as set forth in the operator’s proposal; and

(D) the operator’s proposal is reasonable to meet the future cable-related community needs and interests, taking into account the cost of meeting such needs and interests.[ix]

It is important to note that a decision to deny a renewal proposal is not appealable to a court until after the conclusion of an administrative proceeding.[x]

How does informal renewal of a cable franchise work?

In informal renewal, a LFA and cable provider will often negotiate a cable franchise entirely outside of the formal process. Although informal and formal renewal are separate processes, they can occur simultaneously.[xi] Often, a cable operator will submit a proper, timely request for formal renewal, but the cable franchise will ultimately be renewed through informal means.

Informal renewal is only informal in the sense that there is a less strict statutory process that must be followed. To properly prepare for informal renewal, a LFA should still review the cable operator’s past performance under the current cable franchise, conduct a thorough needs assessment, and develop a negotiating strategy to address any of the LFA’s unmet needs. There are no issues that can be addressed in formal renewal that cannot be addressed in informal renewal.

Although a cable operator may submit a renewal proposal at any time in informal renewal, as a practical matter, the parties will first reach an agreement on the terms and conditions of a cable franchise before a LFA will allow for public participation.[xii] Typically, a LFA will make an agreed upon cable franchise available for public comment at a public hearing. After allowing for public participation, a LFA can take final action on a cable franchise (e.g., grant or deny the cable franchise).[xiii]


Cable franchise renewal is a unique opportunity for local franchising authorities to address the cable-related needs of their communities. It is important for local franchising authorities to understand these needs from a financial, technical, and legal point-of-view, regardless of whether a formal or informal renewal process is used. This article is intended to provide an overview of the process that is required for renewal of a cable franchise.

[i] A franchise fee is limited to no more than five-percent of a cable operator’s gross revenues. 47 U.S.C. § 542(b) (1996).

[ii] See, e.g., Minn. Stat. § 238.084, subd. 1(c) (2004) (limiting a franchise term to fifteen years).

[iii] 47 U.S.C. § 546(a)(1) (1992).

[iv] 47 U.S.C. § 546(a)(2)(A).

[v] 47 U.S.C. § 546(b).

[vi] 47 U.S.C. § 546(c).

[vii] 47 U.S.C. § 546 (c)(1).

[viii] 47 U.S.C. § 546(c)(1).

[ix] 47 U.S.C. § 546(c)(1)(A-D).

[x] 47 U.S.C. § 546(e)(1). It is important to note that a preliminary assessment of nonrenewal is not a “final decision” within the meaning of the statute.

[xi] See 47 U.S.C. § 546(h) (“The denial of a renewal pursuant to this subsection shall not affect action on a renewal proposal that is submitted in accordance with subsections (a) through (g).”).

[xii] 47 U.S.C. § 546(h) (“A LFA may, after affording the public adequate notice and opportunity for comment, grant or deny such proposal at any time.”)

[xiii] Id.


Adrian Herbst and Leslie Herbst-Saporito Join Bradley Law Firm

We are pleased to announce that Adrian Herbst and Leslie Herbst-Saporito have joined Bradley Hagen & Gullikson as partners. They will join Mike Bradley in his telecommunications practice at the firm. Both are coming from the well-respected municipal telecommunications law firm of Baller Herbst Stokes & Lide.

“I am so pleased to have Adrian and Leslie join our team,” said Mike Bradley. “No one in Minnesota has more municipal telecommunications legal experience than Adrian Herbst. It is a real honor to have him join us.” Adrian brings over 30 years of municipal telecommunications legal experience to the firm. He served as the City Attorney for the City of Bloomington for many years before going into private practice. He has been a leading attorney in municipal cable franchising, rights-of-way management, and municipal broadband planning. Indeed, Adrian negotiated many of the initial cable television franchises in the Twin Cities.

Adrian has also been a leader in many municipal organizations.  Adrian has served as President of the Minnesota Trial Lawyers Association and Vice President of the League of Minnesota Cities.  He is a charter member of the National Association of Telecommunications Officers and Advisors (NATOA), as well as various other legal organizations including the International Municipal Lawyers Association (IMLA), the Federal Communications Bar Association, and the Telecommunications Committee of the Minnesota State Bar Association. Adrian is a member of the State Bar of Minnesota.  Like Mike Bradley, Adrian holds the highest AV rating with Martindale‑Hubbell.

Leslie, Adrian’s daughter, is an emerging municipal telecommunications attorney in her own right. She has assisted local governments throughout the country on all aspects of cable service franchising and telecommunications rights-of-way management issues. She is experienced in drafting, negotiating and enforcing cable and telecommunications franchises and revising right-of-way ordinances.

“I feel very fortunate to have the opportunity to work with Leslie,” said Adrian Herbst proudly. “I have known and consulted with Mike for many years on municipal telecommunications issues. I’m excited about the synergies of our practices.”

Most recently Leslie has been working on competitive cable franchises for municipal clients in Minnesota.  “Our firm has been a leader in helping cities negotiate competitive cable franchises resulting in wire-line cable television competition for the first time ever in the Twin Cities,” said Bradley, “Leslie’s experience will build on that success.”

In the coming months and years, local governments will be challenged to ensure their residents have access to adequate broadband services. This issue particularly affects rural areas. Many cities are also facing a rise in cell tower applications as mobile phone companies look to increase their coverage and bandwidth for consumers. This increase in demand coupled with recent changes to the law require local governments to reassess its current approach to cell towers. According to Leslie, “it’s an exciting time to be representing local governments on telecommunications issues with recent developments, such as competition in cable, cell tower and broadband planning. I think the firm is in a great position to help local governments navigate successfully through these issues.”

Bradley Hagen & Gullikson is a Twin Cities based law firm located in Woodbury, Minnesota.


Attorney Leslie Saporito

Leslie Herbst-Saporito

Attorney Adrian Herbst

Adrian Herbst

Attorney Mike Bradley

Mike Bradley




New Broadband Recommendations for Minnesota

The Minnesota Governor’s Task Force on Broadband has made a new set of policy recommendations to Governor Mark Dayton and the Minnesota legislature.  They include:

Update Minnesota’s statutory broadband speed goal – It is a state goal that no later than 2022 all Minnesota businesses and homes have access to high-speed broadband that provides minimum download speeds of at least 25 megabits per second and minimum upload speeds of at least 3 megabits per second. Also by 2026, it is a state goal that all Minnesota businesses and homes have access to at least one provider of broadband with download speeds of at least 100 megabits per second and upload speeds of at least 20 megabits per second.

Infrastructure grant program – The Task Force recommends appropriating $200 million to the Border-to-Border Broadband Development Grant Programing FY 2016-17. While this figure is a fraction of the total capital investment required to meet the state’s border-to-border broadband objective, it is an important contribution.

Create an Office of Broadband operating fund to promote broadband adoption and use – The Task Force recommends that the fund be managed by the Office of Broadband Development, at a specific amount to be determined between the Office of Broadband Development and the 47 National Broadband Map, available at http://www.broadbandmap.gov/rank/all/county/minnesota/percentpopulation/demographics-income-median-income/ascending/speed-download-greater-than-25mbps. 48 Provided by Marc Johnson of East Central MN Educational Cable Cooperative (ECMECC). 49 http://mn.gov/deed/images/education-superhighway.pdf, slide 23. 36 legislature, that will allow the Office to advance and support programs and projects aimed at promoting broadband adoption and use.

Increase telecommunications aid for schools and libraries – The Task Force recommends funding library telecommunications aid at $6.6 million in FY 2016-17, and increasing the telecommunications aid equity for schools to $9.75 million in FY 2016-17. This funding will expand the impact of the program in underserved areas of the state and help ensure every person has access to reliable broadband service.

Expand existing sales tax exemption for telecommunications equipment –The Task Force recommends the existing sales tax exemption for telecommunications equipment be made permanent to provide certainty to providers and enable thoughtful, future-oriented investment planning. Further, the Task Force believes policy makers should examine the possibility of expanding the exemption to include additional equipment, including fiber, conduit, poles, wires, and cable, that would assist in network development efforts.

Reform regulations of Minnesota’s telecommunications industry – The Task Force recommends reforming the regulatory framework underlying Minnesota’s telecommunications industry to reflect the modern communications era, bringing regulatory certainty, competitive equity, and relevance to an industry in the midst of dramatic change, while also addressing consumer protections.

Review existing permitting criteria to see where there might be opportunities for efficiencies – The Task Force recommends an administrative review of existing permitting requirements impacting broadband network deployment to determine where there may be opportunities to ensure the most efficient processes are in place. Uncertainty over permitting timelines and requirements can delay or prevent network deployments from moving forward.

Here is a link to the 2016 Governor’s Task Force on Broadband Annual Report.

Municipal Competitive Franchising Process in Minnesota

Many cities/cable commissions in the Twin Cities Metro area have been approached by CenturyLink about submitting an application for a cable franchise. While receiving an application to provide competitive cable service may be an exciting prospect, it is important to recognize that, in Minnesota, the cable franchising process is quasi-judicial and certain procedural safeguards must be followed. The following is a general point of reference for interested city/commission staff and policy makers generally describing the cable franchising process.  Cities/commissions are encouraged to consult their attorneys.

State Law – Process for Additional Cable Communications Franchises

The Minnesota Cable Act, found in Minnesota Statutes Chapter 238, lays out the process for granting an additional cable franchise. Each franchising authority should also review its records to determine if it had adopted a franchising policy in previous years. Charter cities should also consult their city charters for additional requirements. The following is a summary of the franchising process found in Section 238.081:

  • Publication of Notice. A notice of intent to franchise must be published once a week for two successive weeks in a newspaper of general circulation. The statute identifies the information required in the notice.
  • Written Notice. In addition to publishing the notice of intent to franchise in one or more newspapers, a franchising authority must mail copies of the notice of intent to franchise to any person it has identified as being a potential candidate for a franchise.
  • Deadline for Application Submission. A franchising authority must allow at least 20 days from the first date of published notice for the submission of franchise proposals. In other words, the deadline for submitting franchise proposals cannot be earlier than 20 days after the date that a jurisdiction’s notice of intent to franchise was first published in a newspaper of general circulation.
  • Contents of franchising proposal. The Minnesota Cable Act requires all franchise applications be signed in front of a notary and that certain other information also be included in all franchise applications.  Additional federal law requirements should also be reviewed.
  • Public hearing on franchise. Each franchising authority must hold a public hearing before the franchising authority affording reasonable notice and a reasonable opportunity to be heard with respect to all applications for a franchise. We address the conduct of the public hearing below.
  • Award of franchise. Cable franchises may be awarded only by ordinance, after holding any necessary public hearings. A franchise may not be awarded until at least seven days after the public hearing.

FCC 90/180-Day Shot Clock

In 2007, the FCC released a Report and Order and Further Notice of Proposed Rulemaking, which was subsequently affirmed by the Sixth Circuit United States Court of Appeals and recently clarified by the FCC in an Order on Reconsideration in 2015. The Report and Order addressed how local franchising authorities could franchise new franchise applicants.

The FCC found “the current operation of the local franchising process in many jurisdictions constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment.” To eliminate these alleged barriers, the FCC promulgated certain market entry rules and furnished “guidance” to cable franchise applicants and local franchising authorities in several subject areas, including the franchise application process.

The Report and Order established a 90-day deadline for acting on franchise applications submitted by an entity with existing authority to access public rights-of-way. Franchise applications for all other entities must be acted on within 180-days. These deadlines begin to run from the date that a complete application or other writing containing all the information required by FCC rules and state and/or local law is first filed with a franchising authority. Payment of a “reasonable application fee” may be required.

Federal Cable Act Considerations

The federal Cable Act does not disturb the process set forth in Minnesota law, however, it does prohibit a franchising authority from unreasonably refusing to award an additional competitive franchise.

Procedural Due Process Considerations

The Minnesota Supreme Court has held that the basic rights of procedural due process required in a hearing such as this are reasonable notice of the hearing date and a reasonable opportunity to be heard. Quasi-judicial proceedings such as this do not invoke the full panoply of procedures required in regular judicial proceedings. The rules of evidence that you would find in a regular judicial proceeding are of course not applicable in municipal public hearings.

The failure to provide adequate due process exposes a franchising authority to possible claims under 42 U.S.C. § 1983 (government deprived a person of a constitutionally protected liberty or property interest) and 42 U.S.C. § 1988 (authorization of attorney fees to the prevailing party of a section 1983 claim).

Minnesota Cable Franchising is Quasi-Judicial

In Minnesota, the consideration of a cable franchise application is quasi-judicial if it complies with the requirements of Minnesota Statutes Section 238.081. “Quasi-judicial proceedings involve an investigation into a disputed claim that weighs evidentiary facts, applies those facts to a prescribed standard, and results in a binding decision.” The franchising procedure under Minnesota law (as described above), “requires documentary evidence in the proposal and allows for testimonial evidence at the public hearing and results in a binding decision.” In most instances, to be upheld on appeal, a quasi-judicial decision must not be arbitrary, oppressive, unreasonable, fraudulent, under an erroneous theory of law, or without any evidence to support it.

Quasi-Judicial Municipal Best Practices

Bias of a Council Member who takes part in a quasi-judicial process may render a City’s decision as arbitrary and capricious. It is therefore critical that once a cable franchise application has been submitted, Council Members/Commissioners should take measures to provide adequate safeguards for the due process rights of cable franchise applicants that will appear before them.

In a separate post I discuss some aspirational “best practices” that Council Members and/or Commissioners should consider using in connection with quasi-judicial matters over which they may have decision-making authority.

Appeal of Additional Franchise Decision

An applicant may seek Certiorari Review by the Minnesota Court of Appeals of any quasi-judicial final action by a City/Commission. An applicant may also seek judicial review under 47 U.S.C. § 555, which may be brought in– (1) the district court of the United States for any judicial district in which the cable system is located; or (2) in any State court of general jurisdiction having jurisdiction over the parties.

Mike Bradley is a partner at Bradley Hagen & Gullikson, LLC.  He has been practicing law for over 20 years and is licensed in Minnesota, Wisconsin and Washington.  Mike represents cities on cable television franchising issues.

Cable Franchising Quasi-Judicial Best Practices in Minnestoa

Many cities in the Twin Cities Metro area have been approached by CenturyLink about submitting an application for a cable franchise. While receiving an application to provide competitive cable service may be an exciting prospect, it is important to recognize that, in Minnesota, the cable franchising process is quasi-judicial and certain procedural safeguards must be followed. Council Members/Commissioners should take measures to provide adequate safeguards for the due process rights of cable franchise applicants that will appear before them.

The following is a list of aspirational “best practices” that Council Members/Commissioners should consider using in connection with cable franchising matters over which they may have decision-making authority.

  • Maintain neutrality and impartiality at all times. An unbiased decision maker is required to meet the fundamental principles of due process.
  • Limit ex parte (discussions outside of the public hearing) communications with the franchise applicant.
  • In the event of ex parte communications with representatives of the applicant, document the communication and submit it into the official record of the public hearing.
  • Keep a record of all verbal or written contacts relating to the franchise application.
  • Refer questions, complaints, and information you receive on a cable franchise applicant to the department staff person responsible for the matter.
  • Submit the record of contacts, along with any documents received regarding the cable franchise application, into the official record of the proceedings.
  • Refrain from taking a position on the cable franchise application in community forums or elsewhere prior to the official City Council proceedings for such matters. This would include Twitter, Facebook and other social media outlets.
  • Seek legal advice if you have concerns about impartiality (i.e. financial or other personal interest in the decision).
  • Make quasi-judicial decisions based only on the formal record of the proceeding.
  • State the factual findings and reasons that support your quasi-judicial decisions on the record at the time that you make your decision.

Mike Bradley is a partner at Bradley Hagen & Gullikson, LLC.  He has been practicing law for over 20 years and is licensed in Minnesota, Wisconsin and Washington.  Mike represents cities on cable television franchising issues.

Competitive Cable Franchising in Minnesota

Originally published on September 17, 2009

Companies that want to provide cable service are required by the Federal Cable Act to acquire a cable franchise from a unit of local government before providing service. In Minnesota, cities are the local unit of government that is authorized to grant cable franchises. Federal law also requires these franchises to be non-exclusive. In other words, no city may grant an exclusive franchise to any one particular company. For many years, most cities did not see more than one provider seeking a cable franchise. There are many reasons for this, but probably the biggest reason was that it was prohibitively expensive for a competing cable operator to construct cable wire and other facilities throughout a city. It was simply cost-prohibitive in most situations. However, with recent changes in technology and the ability of telephone companies to provide video service through IP technologies, the competitive landscape is changing. More telephone companies, particularly rural telephone companies are seeking to add video to their lineup of service offerings to their customers.

State Law Considerations

When there is an existing cable franchise in place in a city, the second competitive franchise must not be “more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees.” When the new cable entrant is proposing different franchising requirements in these three areas, it is up to the franchising authority and the other interested parties to reach agreement on what “more favorable or less burdensome” means in this context. As of this posting, this issue has not yet been fleshed out by any court in Minnesota.

Another consideration is whether the competing company is a “cable communications company” as that term is defined by the Minnesota Cable Act. If it is not, the level playing field provisions of the Minnesota Cable would not apply.

Local Considerations

When looking at granting a competitive cable franchise, it is also important to understand any “competitive equity” or “level playing field” provisions in the existing cable franchise. It is not unusual for the existing franchise to have language that contains limitations beyond the level playing field conditions set forth in state law. The language may also apply to more companies than merely cable communications companies.

Federal Considerations

In 2007, the FCC released two orders relating to competitive franchising. The first order addressed competitive applicants for cable franchise and the second order addressed whether the rules in the first order applied to the existing franchise holder. Under the first order, the FCC adopted new rules concerning the application for an additional cable franchise starting with the time in which a request for a franchise must be acted upon.

Competitive Franchise Deadlines

If a company already has authority to access the public rights-of-way, the franchising authority my act on an application within 90-days.
All other applications must be acted on within six (6) months.
A franchise applicant has the burden of proving that it filed the requisite information with the franchising authority.
Unless otherwise agreed by the applicant and the franchising authority, if deadline is not met then an applicant is automatically granted interim authority to utilize public rights-of-way to provide cable service.
The terms of an “interim franchise” are those proposed in an applicant’s application and remains in effect until a local franchising authority takes final action on a franchise application.
Network Build-Out Requirements

Like state law, the FCC in its first order addressed the area a franchising authority may require in a cable franchise. The FCC declared it is unlawful for franchising authorities to refuse to grant a competitive franchise on the basis of “unreasonable build-out mandates.” In Minnesota, it will be up to the parties to apply this language consistent with the state level playing field language relating to area served.

While the FCC did not definitively define what constitutes an “unreasonable build-out” mandate, it did list examples of both reasonable and unreasonable build-out requirements.

Examples of Unreasonable Build-Out Requirements

The FCC’s examples of unreasonable build-out mandates include:

requiring a new entrant to serve everyone in a franchise area before it has begun to serve anyone;
requiring facilities-based entrants, such as incumbent LECs, to build out beyond the footprint of their existing facilities before they have even begun to provide cable service;
requiring more of a new entrant than an incumbent cable operator by, for instance, requiring the new entrant to build out its facilities in a shorter period of time than that afforded to the incumbent;
requiring the new entrant to build out and provide service to areas of lower density than those that the incumbent cable operator is required to build out to and serve;
requiring a new entrant to build out to and service buildings or developments to which the entrant cannot obtain access on reasonable terms or which cannot be reached using standard technologies; and
requiring a new entrant to build out to and provide service to areas where it cannot obtain reasonable access to and use of public rights-of-way.
Examples of Reasonable Build-Out Requirements

The FCC notes that it would seem reasonable for a local franchising authority to consider benchmarks requiring the new entrant to increase its build-out after a reasonable time, taking into account the new entrant’s market success. The FCC also opined that it would seem reasonable to establish build-out requirements based on a new entrant’s market penetration.


With regard to redlining, the FCC continued to rely on 47 U.S.C. § 541(a)(3) to protect consumers against economic redlining, also known as cherry picking.


Franchising competitive operators in Minnesota involves the consideration of federal, state and local laws and contracts. For more information do not hesitate to contact the attorneys at Bradley & Guzzetta, LLC.

But I Didn’t Order That!

Originally Published October 8, 2013

A Couple of years ago, Comcast told its subscribers that it was converting most of its channels from analog to digital. The transition, according to Comcast, would result in all sorts of great benefits to subscribers. But, there was a catch. You now had to have a converter box on all of your TVs.

No problem said Comcast, “we we will provide our residential customers at the Standard level of service and higher with one digital set-top converter and up to two digital adapters – all with remotes – at no change in the current monthly service cost.” All subscribers had to do was call and request the boxes. Subscribers did just that.

For about 2 years, everything went as promised. Then Comcast changed course. It started to charge subscribers $1.99 per subscriber per box for these converter boxes. Subscribers cried out, “wait a second, you said I wouldn’t be charged!” It was pointed out by some rate authorities that the $1.99 charge was $1.49 higher than the maximum permitted rate on Comcast’s Rate form.

Comcast changed course again, indicating that the $1.99 fee was a service fee rather than an equipment fee. Then Comcast said that of the $1.99 fee, $.50 was for equipment and $1.49 was for service. Not only were subscribers now being charged for equipment that they were previously told would be provided at no cost due to Comcast’s decision to convert its cable signals, but they were now being charged for a service that they never ordered at all. When subscribers realize they are now being charged for this new never-been-described service, the collective subscriber response has been, “but I didn’t order that!”

Years ago, Congress passed a law that was designed to protect cable subscribers from being duped into buying new equipment and services without actually asking for it. A practice called negative option billing. The FCC has a similar rule.

Were subscribers duped by Comcast? We think so. This story from King 5 News in Seattle shows that subscribers think so too.

Cable Franchise Fees

Originally published September 27, 2010.

The FCC clarified several issues surrounding the calculation of cable franchise fees in its report and order in 2007, including:

(i) the franchise fee revenue base;

(ii) limitations on charges incidental to the awarding or enforcing of a franchise;

(iii) the proper classification of in-kind payments unrelated to the provision of cable service; and

(iv) the proper classification of contributions in support of PEG services and equipment.

Later in a Second Report and Order, the FCC applied the majority of these findings and rules to existing as well as competitive entrants.

Franchise Fee Revenue Base

In its order, the FCC clarified “that a cable operator is not required to pay franchise fees on revenues from non-cable services.” According to the FCC, this prohibition would specifically apply to cable modem service revenues, broadband data service revenues, Internet access revenues and other non-cable service revenues.

The FCC did not specifically address whether advertising revenues, home shopping channel commissions, launch support, late fees, installation fees and even equipment revenues, because they could be considered “non-cable” services. The FCC does note that advertising revenues and home shopping commissions have historically been included in gross revenues for franchise fee calculation purposes, but it does not say such revenues and commissions can be included in the calculation of gross revenues going forward.

Charges Incidental to the Awarding or Enforcing of a Franchise

Section 622(g)(2)(D) of the Cable Act excludes from the federal five percent franchise fee cap “requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages . . .” According to the FCC, the term “incidental” includes only those items listed in Section 622(g)(2)(D), “as well as other minor expenses” described in the order. Examples of charges that are not “necessarily” to be regarded as incidental include processing fees, acceptance fees, consultant fees, and attorney fees. Reasonable franchise application fees and processing fees are, however, to be regarded as proper incidental fees that do not count towards the federal franchise fee cap.

The FCC also concluded that “free or discounted services provided to an LFA” and certain “in-kind payments” are non-incidental costs that must be considered franchise fees. The order was silent on the specific treatment of institutional networks and whether the costs associated with providing fiber for institutional networks and furnishing free drops, outlets and cable service to governmental institutions could be deducted from a cable operator’s franchise fee payments.

In-Kind Payments Unrelated to the Provision of Cable Service

The Report and Order finds that “any requests made by LFAs that are unrelated to the provision of cable service by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.” The FCC provides no concrete guidance as to what types of financial and in-kind requests would not be counted against the franchise fee cap, but does list certain examples of requirements that apparently would be deemed franchise fees, if included in franchise documents, such as scholarship grants, video hookups, money for wildflower seeds and fiber for traffic signal monitoring.

Contributions in Support of PEG Services and Equipment

Section 622(g)(2)(C) of the Cable Act specifies that “capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities” are not franchise fees. The FCC interprets this language to encompass “those costs incurred in or associated with the construction of PEG access facilities.” The order goes on to state that “payments in support of the use of PEG access facilities” are franchise fees. These payments in support of PEG include, but are not limited to, “salaries and training.”

PEG and I-NET Requirements Under FCC Local Franchising Order

Originally published on September 27, 2010.

The recently affirmed FCC order on local franchising concludes that “LFAs may not make unreasonable demands of competitive applicants for PEG and I-Net” and that doing so constitutes an unreasonable refusal to award a franchise.

Reasonable and Adequate Support

With regard to PEG channel capacity, the FCC determined that it would be unreasonable “to impose on a new entrant more burdensome PEG carriage obligations that it has imposed on the incumbent cable operator.” The FCC found that PEG support must be both “adequate and reasonable.” Adequacy is defined by the FCC as “satisfactory or sufficient.” The order does provide some examples of unreasonable PEG support obligations, including:

· completely duplicative PEG and I-Net requirements;
· payment of the face value of an I-Net that will not be constructed; and
· requirements that are in excess of the incumbent cable operator’s obligations.

Pro Rata Cost Sharing is Per Se Reasonable

According to the FCC, pro rata cost sharing of current (as opposed to future) PEG access obligations is per se reasonable. Unfortunately, the FCC did not provide additional guidance on how to properly and accurately calculate what the appropriate per subscriber payment should be made. Questions remain about situations where lump sum PEG grants and in-kind contributions are included in an existing franchise agreement.

In the event that pro rata cost sharing is utilized, PEG programming providers must permit a new entrant to interconnect with existing PEG video fees. The new entrant must bear the cost of interconnection. The order is silent on where interconnection must take place, or what type of transmission medium (e.g., fiber or coaxial cable) must be used.

Regulation of Mixed-Use Networks

The order states that “LFAs’ jurisdiction applies only to the provision of cable services over cable systems. To the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities.” In other words, cable franchising decisions can only be made based on issues related to cable service.

Is PEG Television Relevant in a Social Media World?

I’m re-posting this blog entry on PEG from 2010.

With technology today, a person interested in producing a video is as easy as pulling out a smart phone and shooting video and uploading it to Facebook or YouTube or some other type of interactive social media network. Anyone with access to widely available video recording devices can produce and distribute video. Add a mac or pc to the mix and now you can produce a fully edited video clip for distribution. So with these capabilities in our hands, is there any reason to support Public, Educational and Governmental (“PEG”) television?

PEG Channels are cable channels that are typically operated by cities or counties. A “Public Access” channel is generally open to anyone who wants to put some type of video programming on the channel. It is the public soapbox in the cable television world. An “Education Access” channel is typically a channel that is programmed by the local school district or college/university and could contain classroom instruction or video of school board meetings and other school activities, like a school pep fest. A channel that shows local government meetings and other information on the local community is a “Government Access” channel. These PEG channels have been around for about 30 years now.

While there are new and inexpensive ways to produce video, PEG operations still allow people to produce video in a higher quality and shown to a local audience. While you can put a video out on YouTube, the chances of it being seen by significant numbers of people is still very small. There are still some financial obstacles to producing video. Although the technology to produce a decent quality video has decreased significantly over the years, there are still many people that simply do not have access to the cameras to shoot the video, the computers to edit the video, or the internet to upload the content. Many PEG operations also provide training to help new producers make quality video productions. Sometimes these productions are later shown on other channels, such as PBS. Volunteer producers go on to careers in video production.

The audience of the PEG channels should also not be underestimated. For example, folks who want to know what is going on with their local government need only tune into their local government access channel. They will likely see the council or board meetings that they are interested in, shows about current city/county/state projects, and perhaps bulletin board notices with important information. Viewers know where this information is and the amount of content exceeds what you can put on a social networking site.

Is PEG Television relevant in a social media world? Yes! Should local governments exclude the use of social media? No! Local governments can and should use social media to highlight good programming and information. Robust viewership is good for the future of the PEG channels and good for the cable operator providing the channels. Food for thought!

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