WHAT THE FCC VOTE MIGHT MEAN
10/31/07

This ruling is one more attempt to destroy even the most humble aspects of community control, self-determination or diversity in media. Note that media concentration, localism, net neutrality, and broadcast ownership by women and minorities are all on the verge of negative rulings by a three member majority of the FCC. It is an unacceptably greedy and small-minded view of our future as a nation.

In a 3-2 vote, the FCC decided to extend the video franchising rules that it issued in December to incumbent franchises.
It is somewhat difficult to know exactly what this means since the do not issue the rules to the public when they vote on them. However, our conversations have suggested the following may be true:
1) The franchise fee and PEG funding components of the original order will likely apply to incumbent franchises—they may not have to wait until the franchises expire before adopting these rules.
2) On the other hand, the FCC seems to be saying that the franchises are not automatically rescinded by the order. They are punting, it appears, to other authorities such as, perhaps, the courts or regulatory bodies for how the order affects the language of specific franchise agreements. It would depend on state law, the franchise in question and specific wording.
3) It is not clear how this order is affected by state laws. One might assume that those areas of state law not preempted by the original order would like-wise not be affected by this second order. We don’t know.
4) The order seems to not preempt “most-favored nation” clauses of franchises. This would mean that an LFA would have to offer an incumbent a deal substantively no worse than that offered a new provider.
It is expected that the rule would go into effect in two to three weeks, when the FCC finally issues it in writing. There are likely some legal procedures following that and before implementation could take place.
This is our first take from second-hand information. Please return here in the next few days for additions, corrections and deletions.

 

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“I never wonder to see men wicked, but I often wonder to see them not ashamed.” ___Jonathan Swift

 

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ADDITION

 

Summary and Commentary on the FCC’s 2nd Report & Order
To: Members, Alliance for Community Media
Fr: Anthony Riddle, Executive Director
Re: FCC 2nd Report and Order
Da: November 9, 2007
The 2nd Report and Order was issued this week. According to counsel, it is close to what was expected. The Order underscores the potential damage to local franchising authorities (LFAs) in the areas of franchise fee & PEG support. Any real damages will be decided by the outcome of our pending 6th Circuit appeal of the 1st R&O.
Summary and commentary on the 2d R&O
Please keep in mind that this is a summary and does not include all matters contained in the Order. It also relays the arguments made by the FCC in support of their Order, even if we disagree that they are correct or relevant. It is a good idea to read the Order itself (30 pages Word ; PDF) and especially the dissents by Commissioners Copps (Word; PDF) and Adelstein (Word; PDF). These and related documents are at FCC.gov.
I. Applicability of 1st R&O Rulings to Incumbents (¶7-25).
Overall, the FCC concludes that the shot clock and the build-out rulings in the 1st R&O do not apply to incumbents.
The FCC concludes that the 1st R&O’s rulings on franchise fees and most, but not all, of its rulings on PEG and I-Nets, do apply to incumbents.
On the critical issue of when or how these rulings will be applied to incumbents, the 2d R&O seems to abandon the FNPRM’s proposal to apply those rulings to incumbents at the end of their current franchises. Apparently, the incumbent must have franchises changed in other venues such as courts or utilities commissions—though the FCC does not offer a definitive answer on venue.
A. Shot Clock (¶ 8).
The shot clock rule will not apply to incumbents because it was based on Sec. 621(a)(1), which does not apply to incumbents. The franchise renewal provisions of Sec. 626 are inconsistent with the shot clock. It would, if applied to incumbents at renewal, place the Order in conflict with the Cable Act.
B. Buildout Requirements (¶ 9).
The FCC ruled that incumbents will have to keep existing build-out requirements despite disallowing build-out requirements for new entrants.
C. Franchise Fees (¶ 10-11).
The FCC ruled that the Franchise Fees section of the 1st R&O (¶ 94-109) “applies equally to incumbents and new entrants.” They are ruling that the FCC correctly interprets the cable act definition of franchise fees and that the Act makes no distinction between incumbents and new entrants. They say that payments “made to support the operation of PEG access facilities are considered franchise fees…, unless they are capital costs, which are excluded from franchise fees under Section 622(g)(2)(C).”
These are 1st R&O rulings which will rise or fall on the outcome of our pending 6th Circuit appeal. The new rulings rest on the previous ruling. We will file in one of several ways to make sure these 2nd R&O rulings are overturned if the court overturns the 1st R&O.
D. PEG/I-Nets (¶ 12-15).
The 2d R&O extends some of the PEG and I-Net rulings of the 1st R&O to incumbents.
It extends the PEG non-capital costs/franchise fee aspects of the 1st R&O to incumbents.
It does not adopt standard terms for PEG channels.
It allows that requirement for PEG support is reasonable as long as such support is subject to the franchise fee cap.
In other areas, the 2d R&O declined to extend aspects of the 1st R&O to incumbents. Of particular note, the FCC held that, while the 1st R&O ruled that it would be unreasonable to impose greater PEG carriage or support obligations on new entrants than incumbents, the reverse is not true: The 2d R&O states that it “may very well be reasonable” for an LFA to impose more burdensome PEG carriage or support obligations on an incumbent than on a new entrant. The FCC added that it “see[s] no statutory provision that categorically precludes such an approach.”
This claims that in those cases where an LFA grants a new entrant a franchise with lesser PEG obligations than the incumbent, the incumbent operator cannot rely on this Order or the Cable Act to support any claim that it is entitled to the same lesser PEG obligations as the new entrant. The cable industry is likely that the cable to appeal this part of the 2d R&O.
The FCC attempts to fix problems in the 1st R&O regarding the meaning of “pro rata” and “matching” support of PEG by new entrants. We will forward clarification on this as we work through the difficult and somewhat confusing passage.
The 2d R&O rules that most of the I-Net determinations in the 1st R&O do not apply to incumbents. The FCC added, however, that incumbent operators are free in the future to present the FCC with evidence that the I-Net rulings in the 1st R&O should apply to them, but that providers will have to identify the particular problem that application.
E. Renewal
The FCC said that it disagrees with suggestions that its rulings will mean that PEG support would be frozen at current contribution levels without the possibility for future modification. They seem to be saying that new entrants eventually face the renewal process with its mechanisms for adjusting PEG requirements to changed community needs.
This means that when new entrants like Verizon come up for renewal, they will be subject to the same Sec. 626 PEG need and interest reassessment as, in fact, Verizon will be an “incumbent” when its renewal rolls around. There do not seem to be minimum lengths to franchises anywhere in the law or in the rulings.
F. Timing of Applicability to Incumbents (¶ 19).
This is perhaps the key issue in the 2d R&O. The 2d R&O concludes that the 1st R&O’s rulings are applicable to incumbents 30 days after Federal Registry publication. The 2d R&O, however, places several potentially helpful qualifications on this conclusion.
G. MFN Clauses (¶ 20).
The FCC notes that some franchises may contain most favored nations (MFN) clauses that would allow the incumbent, consistent with its existing franchise, to take immediate advantage of the FCC’s rulings.
The FCC rules that MFN clauses are NOT preempted. The MFN ruling will be particularly problematic for LFAs whose incumbent franchises have both an MFN and a substantial I-Net obligation. We know that Verizon and AT&T do not build I-Nets.
The 2d R&O recognizes that “franchise agreements involve contractual obligations and also note[s] that some terms may have been implemented as part of a settlement agreement regarding rate disputes or past performance by the franchisee. As a result, we believe that the facts and circumstances of each situation must be assessed on a case-by-case basis under applicable law to determine whether our statutory interpretation should alter the incumbent’s franchise agreement.” The FCC goes on to say the 2d R&O “should in no way be interpreted as giving incumbents a unilateral right to breach their existing contractual obligations,” nor can the 2d R&O “be used [by an incumbent] as an independent basis for obtaining retrospective relief.”
Conflicts
The Order addresses some of the ways the FCC perceives that conflicts between LFAs and incumbents concerning the applicability of the FCC’s rulings to existing franchises might be resolved. First, the FCC “urges LFAs and incumbents to work cooperatively to address those issues.” If that fails, the FCC recognizes that some disputes “may make their way to courts.” This strongly suggests that the FCC expects disputes between individual LFAs and incumbents over individual franchise agreements to go to the courts, not the FCC.
There are strong arguments that the FCC’s decision not to preempt MFNs is arbitrary, capricious and inexplicably inconsistent with its 1st R&O ruling preempting franchise “level playing field” provisions. Like all level playing field provisions, an MFN is designed to deter an LFA from granting more favorable terms to a new entrant than the incumbent’s franchise terms — precisely the supposed evil that the 1st R&O relied on to justify preempting franchise level playing field provisions.
II. Sec. 632 Customer Service Standard Issues (¶ 26-33).
As LFAs urged, the FCC adopted its tentative conclusion that Sec. 632 prohibits the FCC from preempting state or local customer service laws that exceed the FCC’s cable customer service standards. It recognized that, under Sec. 632, the FCC’s standards “are a floor …, rather than a ceiling, and thus do not preclude LFAs from adopting stricter customer service requirements.”
The FCC also rejected “AT&T’s request for uniform local customer service standards or data collection requirements.”
III. Applicability to Statewide Franchising Laws.
The 2d R&O never mentions or addresses the question of whether the “state law exemption” that the FCC fashioned in the 1st R&O extends to the 2d R&O’s application of 1st R&O’s rulings to incumbents. Leaving this question unanswered in the 2d R&O will be a source of considerable uncertainty & confusion for LFAs in states falling within the 1st R&O’s state law exemption.
Again, please keep in mind that this is a quick summary and does not include all matters contained in the Order. It also relays the arguments made by the FCC in support of their Order, even if we disagree that they are correct or relevant. It is a good idea to read the Order itself—especially the dissents by Commissioners Copps and Adelstein.