Statewide cable franchising: expand nationwide or cut the cord?

• Author: Parker, James G.

1. INTRODUCTION II. NATIONAL CABLE TELEVISION REGULATORY BACKGROUND. A. Communications Act of 1934 B. Carter Mountain Transmission Corporation v. FCC C. United States v. Southwestern Cable Company D. Cable Communications Act of 1984 E. Telecommunications Act of 1996 III. STATEWIDE CABLE FRANCHISING LEGISLATION A. State of Texas--September 2005 B. State of New Jersey--August 2006 C. State of California--September 2006 D. State of Florida--May 2007 IV. ANALYSIS OF CONSEQUENCES A. Franchise Fees B. Public, Educational, and Governmental Access Channels (PEGs) C Public Rights-of-Way Management D. Regulatory Oversight E. Redlining and Build-Out Provisions F. Pricing and Broadband Access V. CONCLUSION & SUMMARY OF RECOMMENDATIONS I. INTRODUCTION

   The cable television business traces its roots to John Walson, an appliance storeowner in mountainous eastern Pennsylvania, and his creation of Community Antenna Television ("CATV"). (1) In June of 1948, seeking to provide broadcast channels from Philadelphia to improve television set sales, Walson placed an antenna at the top of a mountain on the outskirts of town to receive the broadcast signal and then delivered it down to the residents of Mahanoy City, Pennsylvania. (2)

   By 1952, Walson's idea spread beyond Pennsylvania to seventy CATV systems with approximately 14,000 subscribers. (3) That exponential growth would continue as operators realized the value of bringing in distant programming to a market as opposed to simply relaying the local stations. (4) Eight hundred cable systems were in place by 1962, servicing 850,000 subscribers. (5) By 1990, cable had reached nearly fifty-three million subscribers nationwide. (6) However, the phenomenal growth was also "accompanied by rising prices for consumers, incurring growing concern among policy makers." (7)

   The cable television market has been subject to significant foundational changes in response to policy makers' concerns and technological developments. Twenty years ago, the industry operated with the benefit of local monopolies and competition coming only from broadcast stations and the C-Band (8) satellite market. (9) In 1994, the satellite broadcasting industry changed when DIRECTV (and later DISH Network) entered cable's market space with the introduction of the direct broadcast satellite ("DBS") technology. (10) Adoption of the technology was swift; since that time, the two major direct broadcast satellite players in the United States have grown to account for over thirty-three million subscribers. (11) In 2005, the efforts of traditional phone companies to introduce further competition began to get traction in various state legislatures. As of 2011, AT&T and Verizon account for approximately 7.4 million video subscribers (12) and have been instrumental in the passing of laws encouraging their establishment of cable franchises in twenty-five states. (13) With approximately fifty-nine million subscribers, traditional cable companies remain the dominant force in the marketplace. (14) Yet even without the effects of competition, changes are occurring within their business model as a result of the legislation that passed in various forms. (15)

   This Note will explore the approaches taken by four states to invite competition into the cable marketplace to encourage price reductions, improve service offerings, and reduce the digital divide by increasing the broadband service footprint. Part II describes the efforts of Congress, the FCC, and the Supreme Court to create and apply the law to the nascent cable industry. Part III discusses the differences in approaches taken by selected states. Part IV outlines the most significant areas to account for when considering cable franchise reform and analysis of the pros and cons of the different approaches to the various areas of concern. Finally, Part V argues that the data available at this point suggests that those states that adopted laws in coordination with their industry partners are seeing promising results. The positive results also suggest, that for most states, there are minor revisions to existing law that may improve the overall service to the public, but major overhauls or reversals of policy do not appear to be necessary. This Note concludes with a prescription recommended for use by any state considering cable franchise reform.

2. NATIONAL CABLE TELEVISION REGULATORY BACKGROUND

   1. Communications Act of 1934

      With the advent of cable television still more than a decade away, the 1934 Communications Act did not lay out provisions setting out the regulation of its operations. (16) Instead, the Act laid out provisions governing the burgeoning telephone and radio networks. (17) The legislation addressed telephony with "common carrier" provisions in Title II of the Act and radio with radio transmission regulations in Title III. (18) During cable's formative years, the FCC recognized the limits of Title II and Title III, thus taking a hands-off approach to the new technology. (19) However, with the rapid expansion of cable systems, the FCC began to assert its implied authority to protect the public interest in having local broadcasters when CATV proposed retransmitting distant programming into underserved rural areas. (20) Cable providers proposed using the existing antenna technology to collect broadcast signals and then using microwave transmission equipment to make them available far beyond the geographic footprint that would have been possible using existing broadcast methods. (21) For example, this proposed innovation could have allowed a Chicago television station to be retransmitted to cable subscribers in rural Iowa at the expense of the local stations of Iowa City or Cedar Rapids.

   2. Carter Mountain Transmission Corporation v. FCC

      The issue came to a head in Carter Mountain Transmission Corp. v. FCC in 1963. (22) Carter Mountain sought a license from the FCC to retransmit via microwave transmitter stations from out of state into Riverton, Lander, and Thermopohs, Wyoming. (23) The licensee of television station KWRB-TV, m Riverton, filed a protest. (24) The FCC determined that it "would not serve the public interest, convenience, and necessity to grant" Carter Mountain's request. (25) The FCC reasoned that permitting Carter Mountain to bring in outside programs for the CATV systems on the basis proposed "would result in the 'demise' of the local television station (intervenor KWRB-TV) and the loss of service to a substantial rural population not served by the community antenna systems, and to many other persons who did not choose (or were unable) to pay the cost of subscribing to [CATV] systems." (26) The FCC decided this on the basis that "the need for the local outlet outweighed the improved service which appellant's proposed new facilities would bring to those who subscribed to the community antenna systems." (27) The FCC did, however, suggest in its ruling that it may have decided differently had the applicant showed that the CATV system would carry the local station without duplicating its network programming. (28)

      Rather than adjust the application as suggested, Carter Mountain appealed the ruling of the FCC on several grounds, including that the FCC was acting outside of its authority in regulating cable systems. (29) The court upheld the FCC decision by suggesting that the ruling by the FCC was not regulating the CATV system; instead the court found the FCC was protecting the public interest in having local broadcasters, and by noting that the FCC does have the power to indirectly affect CATV systems in furtherance of that legitimate goal. (30) Hence, the era of FCC involvement in cable systems began.

   3. United States v. Southwestern Cable Company

      Newly empowered by the Carter Mountain decision and concerned about the explosive growth of cable television systems nationwide, the FCC began putting rules in place to regulate CATV systems. Most significantly, the FCC developed "must-carry" regulations to protect local broadcasters via formal regulatory provisions, unlike the method used in Carter Mountain where the suggestion was made to the denied applicant to carry the local station. (31) These rules specifically outlined that "CATV systems were required to transmit to their subscribers the signals of any station into whose service area they have brought competing signals" and that "CATV systems were forbidden to duplicate the programming of such local stations for periods of 15 days before and after a local broadcast." (32)

      In 1966, Southwestern Cable was expanding its CATV offerings south from Los Angeles into the San Diego marketplace. (33) Upon reaching the viewing area of San Diego, local broadcaster KFMB-TV, through its owner and licensee, Midwest Television, filed a protest with the FCC due to the carriage by Southwestern Cable of Los Angeles network stations. (34) Midwest Television alleged that this violated both the must-carry provision and the prohibition against the carriage of the same network content from outside the market in direct competition with the local broadcast station. (35) The FCC agreed, ruling that Southwestern Cable must cease further expansion during the consideration of the merits of Midwest Television's allegations. (36) Southwestern Cable appealed to the Ninth Circuit Court of Appeals, which held that the FCC lacked authority for such an order under the Communications Act of 1934. (37) The FCC appealed to the Supreme Court and was granted certiorari. (38)

      The Court, in Justice Harlan's unanimous opinion, overturned the Ninth Circuit by upholding the FCC ruling. (39) While the Court declined to issue a blank check regarding FCC authority of the cable television industry, it did set out that the FCC could regulate that which was "reasonably ancillary to the effective performance of the Commission's various responsibilities for the regulation of television broadcasting." (40) The FCC "may, for these purposes, issue 'such...