Michael R. Bradley Bradley & Guzzetta, LLC 950 Piper Jaffray Plaza 444 Cedar Street

1. ______________ Is Local Franchising on aSinking Ship? MACTA’s 22nd Annual ConferenceSetting Sail for the FutureOctober 27, 2005 ______________ Michael R. Bradley Bradley & Guzzetta, LLC 950 Piper Jaffray Plaza 444 Cedar Street Saint Paul, MN 55101 P/(651) 379-0900 ext. 2 F/(651) 379-0999 bradley@bradleyguzzetta.com

2. Background – Cable Franchising • Dual Regulatory Model • Federal • State/Local • FCC Adopted in 1972 • Congress 1984/1992/1996 • FCC • Develops National and Uniform Telecommunications Policy • Local Governments • Decides who, what, why, where and how cable service is delivered

3. Background – Early Franchising Concepts • The Cable System will be a Community Asset • Public Access will be a valuable communications medium • Colleges and Universities • Public and in some cases private schools • Art societies • Theater Groups • Great interactive Uses • Education • Medicine • Security • Meter Reading • Gaming

4. Early Franchising Concepts • Institutional Networks • Connecting all government buildings • Voice, video, data (information/computer) • Security • Reliable • High capacity • 2-way interactive • Public-Private Partnership • New Network Construction • PROW management issues • Multi-year process • Concern over fair access • Rate Regulation • Unknown Business Model for Industry

5. Early Roles for Local Government • PROW Mgt • Fees for use of PROW • Rate Regulation • Programming Input • I-Net Mgt–design, equipment and use • PEG – organization, use, equipment • Industry Oversight – Financial Health • Service Territories

6. What Has Changed? • Massive Industry Consolidation • In MN from 100s down to 3 major MSOs • Serious competition from Telephone Industry • Verizon and SBC • Lobbying Power of Industry • Telephone and Cable

7. What Has Changed? • Commitment of Many Cities • Frustrated/deterred by time and Expense of managing franchise contract • Late 70s/early 80s perception of cable system being a valuable community asset largely gone • Unwilling to commit resources to make quality PEG programming • General dissatisfaction with PEG Programming • Public Officials • Early I-Net Technical issues • Led to diverting resources for other networking options

8. Current Role of Local Governments • PROW - Mgt • PROW - Fees • Rate Regulation • Effective Competition • Congress has severely limited LFA authority • Expensive Proposition with large industry oponent • Virtual guarantee of FCC litigation • Cable Programming • Congress has nearly eliminated any LFA authority • Exception – Broad Category of Programming • Construction • Most LFA areas are built out • Some minor repair and replacement issues • I-Nets • Larger Companies increasingly unwilling to construct/upgrade • Industry Oversight • Cable Industry seemingly very strong (despite Adelphia) • Ability to offer the Triple Play and roll out of HD and On-Demand services • Phone Company Competition • Service Territories • In place for cable • In play for Telephone • PEG – capital and operational support • Customer Service

9. Future Roles for Local Gov’t • PROW – Mgt • PROW - Fees • PEG • Management • Funding – Capital and Operational • I-Net migration • From Cable Ops to City owned/maintained

10. Man the Lifeboats!Federal and State Legislation • State Legislation • Led by Minnesota Telephone Alliance • LMC agreements with MTA – 2 yrs • MACTA efforts made deal better in ‘05 • Push to Amend 238.08 – Level Playing Field • Allow different service territories • No real benefits for cities • Working with an industry whose goal is to eliminate local franchising authority • As shown by Texas Legislation and Federal Legislation • Alienating Cable Industry • Should Direct Resources toward Federal Legislation

11. Man the Lifeboats!Federal and State Legislation • Federal Legislation • S 1349/HR 3146 Video Choice Act • S. 1504 Broadband Investment and Consumer Choice Act • National Franchising • Elimination of Existing Franchises • Immediate impact on Franchise Fees, PEG Fees, PEG Channel Capacity, Institutional Networks • Limits on Franchise Fees • Limited to Management Costs up to 5% of G.R. • Significant exceptions to Gross Revenues • Limitations on PEG Channels and Funding • I-Nets probably eliminated • Restrictions on Permit Fees

12. Do Cities Still Want Franchising Authority? • PROW Mgt • ability to unilaterally enact PROW ordinances applicable to all users • PROW Fees • Should not go backwards • PEG • Adequate Channel Capacity • Funding for Operational and Capital Support • Out of Phone/Cable Fights • Out of Customer Service Business • FCC to take all complaints on service and rates • I-Nets – hand over the keys

13. What do the Telecos want? • National or State Franchising • No PEG • Limited PROW Mgt authority • Have been suing Cities for the past 9 years • To Serve the most affluent • SBC Project Lightspeed (p13-14 SBC Investor Update) • Serve 90% of High Value Customers • Serve 5% of Low Value Customers (35% of Total Customer Households – OVER 1/3 of ALL HH!) • Use litigation to escape all obligations

14. What Does Cable Want? • Local Franchising • As long as it slows the Telecos from coming to market • Every month delay is extra padding to the bottom line • Same or similar Territory for all Providers • Unfair for Telecos to serve only the wealthy when cable has to serve all areas • Use litigation to impose obligation on Telecos • Once Franchising does not serve to protect cable interests they will also want to eliminate franchising authority

15. Message in a BottleSending out an S.O.S. • Decide as a City What about Franchising video providers is important • Decide Level of Regulatory involvement is necessary or desirable • Doing Nothing indicates you want no Franchising Role • Convey your Decision to City Organizations • NATOA • MACTA • NLC • LMC • National Conference of Mayors, etc. • Urge your Organizations to dedicate significant resources to obtain your goals • A Sea of Change is Coming • There will be a Tidal Wave of Industry Lobbying • Don’t get lost at Sea!

16. ______________ The End Is Local Franchising on a Sinking Ship?October 27, 2005 ______________ Michael R. Bradley Bradley & Guzzetta, LLC 950 Piper Jaffray Plaza 444 Cedar Street Saint Paul, MN 55101 P/(651) 379-0900 ext. 2 F/(651) 379-0999 bradley@bradleyguzzetta.com