Local Franchising- Swimming Upstream? NATOA Annual Conference Seattle 2017

Transcription

1 Local Franchising- Swimming Upstream? NATOA Annual Conference Seattle 2017

2 Local Franchising Presenter: Dan Cohen Attorney, Cohen Law Group Pittsburgh PA

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4 Local Franchising More Challenging and Uncertain Environment years ago, cable companies were virtual monopolies in the video market. Today, incumbent cable companies have much greater competition Wired competitive operators (telephone companies) Satellite dish (DBS) operators (Dish, Direct TV) Video streaming Major technical changes in the industry with the increase in cable cord cutters and the proliferation of over the top (OTT) video streaming services.

5 Local Franchising More Challenging and Uncertain Environment Questions about the future classification of these new video services; Industry consolidation has made cable operators more corporate and less local; Statewide franchising laws have reduced local benefits and have eviscerated local franchise rights; Yet, within this climate of uncertainty, there are some things we know for sure:

6 In the states that still have local franchising, local governments still control the public rights-ofway with respect to cable services.

7 These local governments have significant power and strong enforcement authority over cable operators.

8 There are still 58.4 million cable subscribers in the U.S. (Leichtman Research), but the cable industry has suffered significant losses and they are emboldened to weaken municipal control.

9 Local Franchising How should local governments respond to this new climate of uncertainty? Prepare for battle and fight for your legal rights. Here s how:

10 Local Franchising Guiding Principle In the 25 or so states with local franchising, local officials are effectively the landlords of their public rights-of-way Cable operators use the rights-of-way to install wires and other equipment to offer cable services Local governments are entitled under federal law to a fair return on the cable operator s use of municipal property Franchise renewal is the best opportunity to assert your rights and obtain benefits from your cable company(ies)

11 Ascertainment Process: Past Performance Review the cable operator s past performance and identify your future cable-related community needs Did the cable operator comply with its obligations under the current franchise agreement? Past performance reviews may include: Technical audit: Does the system comply with the technical specs in the franchise agreement and with NEC and NESC requirements? Cable compliance review Customer service complaints(e.g. outages, telephone answering time) Build-out requirements (e.g. density issue, service to unserved areas) PEG channel compliance (e.g. return lines, signal quality, etc.) Complementary services review (e.g. correct level of services to the correct number of government buildings, schools, and public libraries) Franchise fee audit

12 Purposes: Franchise Fee Audit To ensure that you re receiving all the franchise fees to which you re entitled under franchise agreement, federal law, and accounting rules. To collect any franchise fee underpayments from the cable operator prior to renewal. To bring accountability to the franchise fee line item inyour budget.

13 Franchise Fee Audit Has the cable operator paid on all revenue sources included in gross revenues? Currently 27 separate revenue source groups comprising gross revenues. Expands as operators charge new fees. Subscriber based v. non-subscriber based revenues New revenue sources since your last renewal! Has the cable operator allocated bundled service revenue sources correctly to cable service? Has the cable operator included all residential addresses to the correct jurisdiction? Homes passed list. More likely than not, the cable operator has underpaid, which means more retroactive and prospective payments.

14 Ascertainment Process: Future Needs Planning is critical for successful renewal negotiations Internal setting of priorities among staff and attorney Opinions and comments from residents either residential subscriber survey or public hearing(s) Cable system technical needs PEG channel needs PEG financial support I-Net needs: only if you currently have an I-Net from your cable operator Customer service needs

15 Its not the will to win that matters. Everyone has that. It s the will to prepare to win that matters Bear Bryant, Football Coach, University of Alabama

16 Key Points to Negotiate Increased franchise fees through a re-definition of gross revenues Greater franchise fee accountability through stronger audit provisions and enforcement Upgrade of the cable system: Except for new entrants, prior upgrades by incumbents may now be obsolete PEG channel enhancements (e.g. high definition format, new return lines, VOD platform, electronic menu) PEG financial support: Between incumbents and competitors, must be a race to the top, not to the bottom.

17 Key Point to Negotiate Free cable services: Montgomery County v. FCC (6 th Cir. 2017): in-kind cable-related exactions may not be may not be offset against franchise fees I-Net expansion and enhancements: Montgomery County Court held that the FCC s mixed use ruling does not mean that we can t regulate I-Nets Stronger, more measurable and more enforceable customer service standards Legal protections for the rights-of-way and stronger enforcement measures (liquidated damages are key)

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