Cable television franchise agreements: is local, state or federal regulation preferable?

• Author: Rushnak, Linda A.

1. INTRODUCTION

   Verizon is upgrading its existing network to provide fiber optic connectivity to homes and businesses. (1) Verizon's fiber-to-the-premises ("FTTP") service offering would allow consumers to enjoy high definition television over Verizon's high-capacity fiber optic cable network. (2) However, "current law requires companies to negotiate [cable television] franchise contracts (3) with individual cities." (4)

   Verizon maintains that the construction involved in building out its fiber optic network in any one service area takes approximately 18 months, but the negotiation of a single franchise agreement to provide that service can take anywhere from 6 to 18 months. (5) Thus, while Verizon possesses the technology, it does not have the approval of local authorities to actually deliver its cable television services to consumers (6)--yet.

   Verizon has obtained about a half dozen local franchises, (7) but would like to streamline the process since there are thousands of [local] franchising authorities, each of which currently requires a separately negotiated deal. (8) Therefore, in addition to pursuing local franchises, Verizon is working with state governments to create state-wide franchises, and is simultaneously encouraging federal legislation for a national video franchise. (9) Currently, seven states have passed statewide franchising laws: Texas, Virginia, Indiana, North Carolina, South Carolina, Kansas, and New Jersey. (10) Although similar legislation had been introduced in several other states, most of these bills have either died in committee (11) or run into public opposition stalling their progress. (12) Louisiana legislation made it all the way to the governor, only to be vetoed, (13) while a California bill awaits the governor's signature. (14)

   While Verizon's spin is that state and federal franchising laws "remove redundant regulatory barriers that delay competition and deny consumers choice," (15) local authorities are concerned with their potential loss of control over cable carriers, which means fewer dollars and perks for their municipalities. (16) Meanwhile, cable companies oppose state and federal franchising legislation because it "unfairly favors telephone companies." (17) Cable operators and municipalities frequently cite three reasons why state-wide or nation-wide franchises are not in the best interests of the public. First, while cable companies must provide service to all residents in each municipality which grants them a franchise, "blanket coverage" does not appear to be a requirement in the proposed state or federal franchise legislation. (18) That means telephone companies, such as Verizon, could build their cable television networks only in those areas forecast as profitable. Second, local municipalities get "extras" such as "educational and local government channels, [and] connectivity for government buildings," among other things, through the franchise negotiation process. (19) Such "extras" may no longer be provided by state or federally franchised cable carriers. And, third, local municipalities would no longer be able to increase franchise fees or levy taxes against cable operators providing service to their residents. (20) Each municipality would only get a portion of the overall fee negotiated at either the state or national level. (21)

   This note examines the local franchising regulations currently in force in fifty states, the possibility of other states following the lead of the seven states with new statewide franchise laws and enacting their own statewide cable television franchise legislation, and the viability of federal franchise legislation. The federal legislation consists of several competing bills: the Video Choice Act of 2005, (22) the Broadband Investment and Consumer Choice Act ("BICCA"), (23) both of which were introduced in the summer of 2005, the Broadband Internet Transmission Services Bill (24) introduced in the fall of 2005, and the Digital Age Communications Act, (25) all of which were introduced during the first session of the 109th Congress. Then, the second session of the 109th Congress saw the arrival of four additional federal bills. The Communications Opportunity, Promotion, and Enhancement Act, the Communications Consumer's Choice, and Broadband Development Act, and the Franchise Reform Act were all introduced in May of 2006. Finally, the Consumers Having Options in Cable Entertainment Act was introduced in June of 2006.

2. CABLE TELEVISION REGULATORY HISTORY

   1. Communications Act of 1934: Does it regulate cable?

      The Communications Act of 1934 (26) did not address cable television because the first cable television system was not built until approximately 1950. (27) Community Antenna Television ("CATV") originated in towns where the reception of television signals was poor (28) and the population was not large enough to justify the cost of the town operating its own television station. (29) The earliest systems consisted of (1) a well-placed central tower or master antenna which was able to pick up broadcast television signals and (2) a cable network delivering amplified television signals to individual homes in the community. (30)

      Initially, the Federal Communications Commission ("FCC") stated that it did not have jurisdiction over cable television under either Title II (31) or Title III (32) of the Communications Act of 1934. (33) However, a few years later, in Carter Mountain Transmission Corp. v. FCC, (34) the FCC started to subtly shift its regulatory position when it began formulating reasons to justify its regulation of cable carriers. At the outset, the FCC was primarily concerned with "the 'demise' of the local television station." (35) The FCC reasoned that these pay CATV providers would force the free local service provider(s) out of business, leaving those without access to CATV service, or unable to pay for it, without any television service at all. (36)

      Thus, in Carter Mountain, the FCC carefully began laying the groundwork to enable it to regulate cable carriers by stating it would not grant a radio common carrier a license to construct a CATV system because "it would not serve the public interest, convenience, and necessity." (37)

      After Carter Mountain, the FCC sought a Congressional delegation of power authorizing it to regulate cable carriers. (38) However, none was forthcoming as Congress chose not to pass proposed cable television legislation in either 1959 or 1966. (39)

      In the absence of any explicit regulatory authority conferred by Congress, the FCC attempted a back door route to power by asserting its "ancillary jurisdiction" (40) under the Communications Act of 1934. Specifically, the FCC wanted to regulate cable carriers in the best interests of public policy. (41) Finally in 1968, the Supreme Court affirmed that the FCC did indeed have supplemental authority or "ancillary jurisdiction" to regulate cable carriers under Section 2(a) of the Communications Act of 1934. (42) The Supreme Court restricted the FCC's jurisdiction over cable television "to that reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting." (43) The Court went on to specify that the FCC "may ... issue 'such rules and regulations and prescribe such restrictions and conditions' ... as 'public convenience, interest, or necessity requires.'" (44)

      Once the FCC had the Court's blessing, it extended its regulatory reach over cable carriers while also being careful to abide by the Supreme Court's ruling in Southwestern Cable that limited its authority to regulating cable television in the public interest. (45) Thus commenced a see-saw battle between the FCC and cable television carriers over the FCC's scope of regulatory power. (46) The Supreme Court further expanded the FCC's regulatory powers over cable carriers in the Midwest Video Corp. v. United States (47) only to reduce them once again on appeal in FCC v. Midwest Video Corp. (48) While the FCC was battling cable carriers in court, it was also creating a "deliberately structured dualism" (49) in which state and local authorities would be given responsibility for granting franchises to cable operators within their communities for overseeing such local incidents of cable operations as delineating franchise areas, regulating construction of cable facilities, and maintaining rights of way" (50) while the FCC would maintain overall control at the national level. Congress eventually adopted the FCC's concept of dual regulation for cable operators in legislation enacted in 1984.

   2. Cable Communications Policy Act of 1984

      The explosive growth of cable television systems, the FCC's ever-increasing regulations, and cable carriers' distress over the FCC's control of their enterprises forced Congress to create "the first comprehensive statutory scheme for franchising and regulating cable television." (51) The Cable Communications Policy Act of 1984 ("1984 Cable Act") (52) was an ambitious piece of legislation that attempted to, among other things, "(1) establish a national policy concerning cable communications, ... (2) establish franchise (53) procedures and standards, ... (3) establish guidelines for the exercise of Federal, State, and local authority with respect to the regulation of cable systems, ... (5) establish an orderly process for franchise renewal, [and] (6) promote competition." (54) Most importantly, the 1984 Cable Act brought cable carriers under the FCC's jurisdiction by amending Section 2(a) of the Communications Act of 1934 so that it would "apply with respect to cable service, to all persons engaged within the United States in providing such service." (55)

      With respect to franchising, the 1984 Cable Act codified the regulations previously promulgated by the FCC. General franchise requirements included the ability of a franchising authority to grant more than one franchise within its...