The battle over who sets the terms of a franchise agreement came to a head Oct. 29. That's when a federal appeals court decided not to force the Federal Communications Commission (FCC) to reconsider its 2007 order that limits compensation and build-out requirements and imposes a deadline on communities for ruling on applications.
The case was brought by organizations like the National League of Cities and the National Association of Telecommunications Officers and Advisors. They believe the FCC's order isn't fair, and at press time were considering whether to appeal to the U.S. Supreme Court on the grounds that it violates local property rights and exceeds the agency's authority.
The nation's highest court is the last resort for reversing the power that providers have gained over local authority. When Congress didn't grant national franchise authority, companies went to work at the state level, claiming the time-consuming process of negotiating agreements community by community stifles competition. To date, 24 states have laws governing franchise terms (see below).
But communities should be allowed to charge fair market value to access their rights of way, and these laws don't let them, says Frederick Ellrod III of Miller & Van Eaton, one of the law firms representing local governments.
Required by law to charge market rates for land under its jurisdiction, the National Oceanic and Atmospheric Administration estimates the price for 5 or more miles of right of way rose from $8,000/mile in 1987 to $100,000 in 1997. Alaska charges a 12.5% royalty on crude oil pumped from state land.
In contrast, federal law caps cable franchise fees at 5% of gross revenues; and many state laws as well as the FCC have imposed increasingly narrow restrictions on what sorts of revenues — such as encroachment fees — can be used to calculate that percentage. And while federal law allows communities to negotiate additional amounts for capital costs for PEG (public, educational, and governmental) facilities, state laws often limit the amount.
Since 2005, providers have gotten most of what they wanted, so your state probably won't pass a franchise-agreement law if it hasn't already, Ellrod says. But semantics ensure the legal wrangling continues.
In 2002 the FCC decided that the federal definition of “cable service” doesn't include Internet access. So while the average person uses “cable service” nd “telecommunications service” interchangeably, federal and state law apply different regulatory schemes to each term.
“The traditional phone network was designed to be two-way from the begin beginning, but allowed very little bandwidth,” Ellrod says. “The traditional cable network had much more bandwidth, but was originally designed to be one-way, pushing programming out to customers but not receiving data back. Each type of system has been working toward a fully two-way, high-bandwidth goal, but they're coming from different directions.
“Similarly, in terms of service, each one began with a single type — voice for t telephony, video for cable — and is working toward a ‘triple play' goal.”
Modern systems can handle both. But while the technologies overlap, their regulatory classifications do not.
“Some of this is at issue in the Sixth Circuit appeal: The FCC tends to try to confine cable franchising to a smaller subset of matters than the statute does,” Ellrod says. “The legal tension over these issues, sparked by the technological convergence, is likely to continue for some years to come.”
In the meantime, Ellrod recommends educating state legislators about the laws' effectiveness, and to make sure providers satisfy all legal requirements.
A National Association of Telecommunications Officers and Advisors survey shows that rates haven't fallen among 139 local franchising authorities representing 10 million cable subscribers in 14 states that have adopted legislation.
One-third of respondents reported that existing providers abandoned local agreements in favor of state law. One-quarter said that at least one new provider had entered the market, but since most don't report rates it's difficult for customers to compare rates to those of existing providers. Meanwhile, the number of consumer complaints remains constant.
The results indicate that the laws improve neither cable rates nor service.
Review state law to see what rights your community has and that they're enforced. While cable companies must provide PEG channels, the quality sometimes isn't the same as the rest of the provider's channels. State or federal law may require companies to provide the same, or similar-quality, PEG channels.
Similarly, if the community has settled a dispute with a provider, read the settlement documents carefully. If the provider signed a separate contract agreeing to certain terms as a remedy for past performance problems, a state law that focuses exclusively on obligations in the franchise agreement may not apply.
If an existing agreement is coming up for renewal, check the state law to see whether the provider can “opt out” into a state franchise at that point. Even if it can, it may be willing to negotiate a local agreement that benefits both parties.
For more information, the Right-of-Way Management Subcommittee of the American Public Works Association's (www.apwa.net) Utilities and Public Right-of-Way Technical Committee wrote an excellent analysis of state-by-state developments: “State Video Franchise Law: State of Art or State of War?” dated Aug. 19, 2008.