The Future of Franchising: Federal Challenges to Local Authority

1. The Future of Franchising: Federal Challenges to Local Authority Las Vegas, Nevada September 14, 2008 by Joseph Van Eaton Partner, Miller & Van EatonP.L.L.C. 1155 Connecticut Ave NW Ste 1000 Washington, D.C. 20036 IMLA 2008 Annual Conference Miller & Van Eaton P.L.L.C Washington, D.C. • San Francisco, CA.

2. Summary of Presentation • How FCC has asserted authority over cable franchising • Impact in states with state franchise laws • Impact in states with local franchising • How FCC action is leading to challenges to local zoning authority • CTIA petition to limit local authority over cell towers • How uncertainties in federal law create new franchising challenges Miller & Van Eaton P.L.L.C

3. The Status of Local Franchising Miller & Van Eaton P.L.L.C

4. FCC Proceedings • FIRST FRANCHISING ORDER In re Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, First Report and Order and Further Notice of Proposed Rulemaking 22 FCC Rcd. 5101 (2007) • Applies to new entrants and to local (not state) franchising • STATUS: Aff’d by 6th Cir, 529 F.3d 763 (2008) – petition for rehearing/rehearing en banc pending Miller & Van Eaton P.L.L.C

5. FCC Proceedings • SECOND FRANCHISING ORDERIn the Matter of Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended by the Cable Television Consumer Protection and Competition Act of 1992, Second Report and Order 22 FCC Rcd 19633 (2007) • Extends some aspects of First Order to incumbents; may affect state franchising laws • STATUS: Petition for reconsideration pending at FCC; appeal pending at 6th Circuit Miller & Van Eaton P.L.L.C

6. What Led To FCC Orders • New entrants claimed local franchising authorities were delaying competitive entry • Asked FCC to interpret and apply Section 621(a)(1) of Cable Act, 47 USC 541(a)(1): “a franchising authority may not...unreasonably refuse to award an additional competitive franchise. Any applicant whose application… has been denied by a final decision of the franchising authority may appeal such final decision” to the courts. Miller & Van Eaton P.L.L.C

7. Major issues in rulemaking/appeal • Did FCC have the authority to issue rules governing how the franchising process was conducted? • If so, how far could it go in directing localities to issue franchises? • Were proposed rules arbitrary and capricious, or justified by record? Miller & Van Eaton P.L.L.C

8. First FCC Order • FCC found localities were delaying competitive entry • FCC found it was a “super franchising authority” and could define what were unreasonable grounds for denying a franchise application • FCC found it could devise remedies to force local action Miller & Van Eaton P.L.L.C

9. First Order: Specific Rules • Federal Deadlines: localities must take final action on a complete franchise application: • within 90 days for entity in rights of way (e.g., a telephone company) • within 180 days for others • Franchise DEEMED GRANTED on TERMS PROPOSED BY APPLICANT if deadline missed, until locality acts • All local charter and ordinance requirements preempted if those prevent locality from meeting deadline. Miller & Van Eaton P.L.L.C

10. Specific Rulings, Cont’d • BUILD-OUT • Cannot establish “unreasonable” build-out mandates. • Generally build-out based on standards that applied to incumbent. • Some build-out requirements are reasonable including requirements that take into account penetration or economic success. • Does not directly prevent universal build-out as long as entrant is provided enough time. Miller & Van Eaton P.L.L.C

11. Specific Rulings, Cont’d • FRANCHISE FEES [5% Limit] • Cable Act franchise fee base limited to cable service related revenues; but there can be fees on other services as permitted under state law • Franchising/transfer legal and consultant costs recovered from franchisee count against 5% limit. • In-kind payments unrelated to cable service count against 5% limit. • Generally, operating support for PEG access counts against limit – but order unclear as to what PEG payments are not counted against the fee. Miller & Van Eaton P.L.L.C

12. Specific Rulings, Cont’d • FRANCHISE FEES - PEG • Cable Act says localities may require cable operators to pay capital costs for PEG facilities in addition to franchise fee; and defines PEG facilities to include channels, equipment and facilities. • FCC Order says costs associated with construction of “facilities” do not count against franchise fee. • Localities claimed FCC erred in excluding equipment; on brief FCC said equipment costs did not necessarily count against franchise fee. • Court of Appeals assumed FCC clarification eliminated dispute. • Likely to lead to confusion Miller & Van Eaton P.L.L.C

13. Specific Rulings, Cont’d • PEG and INET Obligations • Can require “adequate” support • No more burdensome requirements than are imposed on incumbent; pro rata cost sharing is reasonable, but not required. • No unnecessary duplicative facilities • FCC expects localities to require new entrant to increase support if incumbent requirements increase Miller & Van Eaton P.L.L.C

14. Specific Rulings, Cont’d • Regulation of Mixed Use Networks • Cannot use authority over cable to regulate other services on networks that provide multiple services. Unclear: what does this mean for regulation of network itself? • Level Playing Field Clauses Preempted: “refusal to award [franchise]…unless…competitive applicant meets substantially all the terms…imposed on the incumbent cable operator may be unreasonable” Miller & Van Eaton P.L.L.C

15. Second Report and Order • FCC considered whether First Report and Order should be extended to incumbents • The following were not applied: • Deadlines for action • Build-out requirements (can demand more of incumbent) • PEG and INET provisions (except franchise-fee related findings) Miller & Van Eaton P.L.L.C

16. Second Report and Order • The following First Order rulings were applied to incumbents: • Franchise fees • Mixed use networks • Incumbent may not unilaterally apply rules to existing franchises [but some are] • Incumbent may be able to enforce level playing field provisions against locality Miller & Van Eaton P.L.L.C

17. Second Report and Order • Open question: does second order apply to state franchising schemes • Several state laws allow PEG funds to be used for operating support unless federal law prohibits it; • Some state laws were based on the assumption that such support was lawful • Issue before FCC on recon. petitions Miller & Van Eaton P.L.L.C

18. Impact of FCC Orders • IMMEDIATE IMPACTS • complicates local franchising • may undercut basic structure of state schemes • LONG TERM IMPACTS • Represents a significant assertion of FCC authority over local procedures and local governing bodies • Broadly finds FCC authority to control local property – although Cable Act intended to protect local authority Miller & Van Eaton P.L.L.C

19. First Shoe Dropping: Tower Siting • 47 USC 332(c)(7) specifically designed to protect local zoning authority • Provides standards for decisions, and makes zoning decisions subject to court review • Wireless trade association (CTIA) has asked FCC to set national zoning deadlines/standards f • Based on Sixth Circuit decision affirming First Franchising Order Miller & Van Eaton P.L.L.C

20. The CTIA Petition • Asserts localities are unreasonably delaying deployment of wireless towers • Asks FCC to establish national deadlines for action on zoning applications • 45 days for collocation • 75 days for any other application • Deadlines do not depend on size, location (residential v. industrial) number of towers, or complexity of safety/siting issues Miller & Van Eaton P.L.L.C

21. The CTIA Petition • If deadlines missed, FCC should deem application for tower granted. • Asks FCC to rule that locality violates the law if its actions would prohibit an individual provider from offering service to any location (translation: an application would have to be granted if necessary to reach one room in one building, regardless of availability of alternative services) Miller & Van Eaton P.L.L.C

22. The CTIA Petition • Asks FCC to preempt all local ordinances and regulations that effectively require a variance in most circumstances. Examples: • an ordinance that limits heights to levels that would require more antennas • significant setback requirements that practically limit the ability to construct antennas Miller & Van Eaton P.L.L.C

23. The CTIA Petition • STATUS: now underway, WT Docket No. 08-165 • Initial comments due September 29, 2008 • Reply comments due October 14, 2008 • This is a very serious petition and will require filings plus efforts at Congress and FCC to protect local authority Miller & Van Eaton P.L.L.C

24. Franchising Future – Basic Local Rights At Issue • Franchising was first and foremost a means of protecting local authority over property • Federal and State actions are chipping away at that authority • Effect is to limit ability to secure basic protections for citizens Miller & Van Eaton P.L.L.C

25. …New Challenges Are Coming • “Infrastructure providers” are • entering into contracts with developers to obtain easements over property that will become RoW • contracts are designed to prevent local governments from exercising franchising authority or obtaining franchise fees • contracts are intended to require homeowners to buy services from providers selected by owner of infrastructure • What Should A Locality Do? Miller & Van Eaton P.L.L.C