[Federal Register: November 23, 2007 (Volume 72, Number 225)]
[Rules and Regulations]
[Page 65670-65677]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23no07-10]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MB Docket No. 05-311; FCC 07-190]
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
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Commission adopts rules and provides
guidance to implement section 621(a)(1) of the Communications Act. The
Commission solicited and reviewed comments on this section and found
that to promote the federal goals of enhanced cable competition and
accelerated broadband development, the Commission's rules regarding the
local franchising process should be extended to incumbent cable
operators. The Commission adopts measures to address a variety of means
by which local franchising authorities are unreasonably refusing to
award competitive franchises. The rules and guidance will facilitate
enhanced cable competition and accelerated broadband development.
DATES: The rules contained in this Second Report and Order (Second
Report and Order) will become effective December 24, 2007.
FOR FURTHER INFORMATION CONTACT: For additional information on this
proceeding, contact Holly Saurer, Holly.Saurer@fcc.gov or Brendan
Murray, Brendan.Murray@fcc.gov of the Media Bureau, Policy Division,
(202) 418-2120.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second
Report and Order, FCC 07-190, adopted on October 31, 2007, and released
on November 6, 2007. The full text of this document is available for
public inspection and copying during regular business hours in the FCC
Reference Center, Federal Communications Commission, 445 12th Street,
SW., CY-A257, Washington, DC 20554. These documents will also be
available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents will be
available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The
complete text may be purchased from the Commission's copy contractor,
445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request
this document in accessible formats (computer diskettes, large print,
audio recording, and Braille), send an e-mail to fcc504@fcc.gov or call
the Commission's Consumer and Governmental Affairs Bureau at (202) 418-
0530 (voice), (202) 418-0432 (TTY).
Summary of the Report and Order
I. Introduction
1. In this Second Report and Order, we provide further guidance on
the operation of the local franchising process. To promote the federal
goals of enhanced cable competition and accelerated broadband
development, we extend a number of the rules promulgated in this
docket's preceding First Report and Order (First Report and Order), 72
FR 13189, March 21, 2007, to incumbents as well as new entrants. We
also decline to preempt state or local customer service laws that
exceed the Commission's standards.
II. Background
2. New competitors are entering markets for the delivery of
services historically offered by monopolists: traditional phone
companies are entering the multichannel video market, while traditional
cable companies are competing in the telephone market. Ultimately, both
types of companies are projected to offer customers a ``triple play''
of voice, high-speed Internet access, and video services over their
respective networks. These entities also face competition from other
new providers of bundled services, including overbuilders and utility
companies. We believe this competition for the delivery of bundled
services will benefit consumers by reducing prices and improving the
quality of service offerings. In the First Report and Order, we stated
our concerns that competitive applicants seeking to enter the video
market faced unreasonable regulatory obstacles, to the detriment of
competition generally and cable subscribers in particular.
3. Specifically, in the First Report and Order, we adopted rules
and provided guidance to implement section 621(a)(1) of the
Communications Act of 1934, as amended (the Act), which prohibits
franchising authorities from unreasonably refusing to award competitive
franchises for the provision of cable services. The record in the First
Report and Order showed that new entrants eager to provide video
service are often delayed, and in some cases derailed, by the
unreasonable demands made by local franchising authorities (LFAs)
during the franchising process. The First Report and Order found that
these delays contravened the dual congressional goals of enhancing
cable competition and accelerating broadband deployment. As such, the
Commission found that the operation of the local franchising process in
many jurisdictions constituted an unreasonable barrier to entry.
4. To eliminate unreasonable barriers to entry into the cable
market, and to encourage investment in broadband facilities, we found
in the First Report and Order that: (1) An LFA's failure to issue a
decision on a competitive application within the timeframes specified
in the order constitutes an unreasonable refusal to award a competitive
franchise within the meaning of section 621(a)(1); (2) an LFA's refusal
to grant a competitive franchise because of an applicant's
unwillingness to agree to unreasonable build-out mandates constitutes
an unreasonable refusal to award a competitive franchise within the
meaning of section 621(a)(1); (3) an LFA's refusal to grant a
competitive franchise because of an applicant's unwillingness to agree
to a variety of franchise fee requirements that are impermissible under
section 622 of the Act constitutes an unreasonable refusal to award a
competitive franchise within the meaning of section 621(a)(1); (4) it
would be an unreasonable refusal to award a competitive franchise if
the LFA denied an application based upon a new entrant's refusal to
undertake certain obligations relating to public, educational, and
government channels (PEG) and institutional networks (I-Nets); and (5)
it is unreasonable under section 621(a)(1) for an LFA to refuse to
grant a franchise based on issues related to non-cable services or
facilities.
5. Some of the Commission's findings in the First Report and Order
relied, in part, on statutory provisions that do not distinguish
between incumbent providers and new entrants; however, in light of the
fact that the NPRM in this proceeding focused on competitive entrants,
the findings were made applicable only to new entrants. At the same
time that we adopted the First Report and Order, we therefore issued a
Further Notice of Proposed Rulemaking (FNPRM), 72 FR 13230, March 21,
2007, to provide interested parties with the opportunity to provide
comment on
[[Page 65671]]
which of those findings should be made applicable to incumbent
providers and how that should be done.
6. This FNPRM tentatively concluded that the findings in the First
Report and Order should apply to incumbent cable operators as they
negotiate renewal of their existing agreements with LFAs. We noted that
two of the statutory provisions that we discussed in the First Report
and Order, sections 611(a) and 622(a), do not distinguish between
incumbents and new entrants or franchises issued to incumbents versus
franchises issued to new entrants. We sought comment on that tentative
conclusion, and also on the Commission's authority to implement this
finding. We also sought comment on what effect, if any, the findings in
the First Report and Order have on most favored nation (MFN) clauses
that may be included in existing franchises. Finally, we asked about
the Commission's authority to preempt state or local customer service
laws that exceed the Commission's standards. We examined the statutory
language of section 632(d)(2) and tentatively concluded that we can
neither preempt state or local customer service laws that exceed the
Commission's standards, nor prevent LFAs and cable operators from
agreeing to more stringent standards.
III. Discussion
A. Incumbent Treatment
7. Based on the comments filed in response to this Second Report
and Order, we agree, as detailed below, that many of the findings in
the sections of the First Report and Order addressing franchise fees,
PEG and I-Net obligations, and non-cable related services and
facilities should be applicable to incumbent operators. We also
conclude, however, that the findings in the First Report and Order
involving timing and build-out should not be applicable to incumbent
operators. Accordingly, we extend the applicable findings from the
First Report and Order to incumbents as discussed below.
8. Time Limits. The ``Time Limit for Franchise Negotiations''
section of the First Report and Order is not applicable to incumbents.
Many commenters argue that this section of the First Report and Order
should not be applicable to incumbents. They point out that section 626
of the Act, which concerns renewals, clearly delineates the process and
timeline for renewal negotiations. We agree. The time limits
established in the First Report and Order for negotiating initial
agreements cannot apply to incumbent renewals because those limits are
not consistent with the 36-month renewal procedure set forth in section
626 of the Act. Moreover, the underlying rationale for the time
limits--that is, preventing unreasonable entry delays--is inapplicable
to incumbents. Although new entrants are barred from providing service
until they obtain a franchise, incumbents are able to continue
providing service during renewal negotiations. Accordingly, the
rationale for the time limits set forth in the First Report and Order
does not apply to the renewal context.
9. Build-Out. The ``Build-Out'' section of the First Report and
Order is also not applicable to incumbents. Again, many commenters
argue that the findings in this section of the First Report and Order
should not be applicable to incumbents. In particular, they contend
that eliminating build-out requirements has no relevance for incumbents
(and might prompt efforts to shrink existing service areas). We agree
that the findings in the First Report and Order concerning build-out
should not apply to incumbents. Our findings regarding build-out
requirements were squarely based on section 621(a)(1) of the Act, a
provision that plainly does not apply to incumbent providers. While we
did indicate in the First Report and Order that section 621(a)(4)(A) of
the Act did not limit our authority to restrict unreasonable build-out
demands made on competitive applicants pursuant to section 621(a)(1),
our findings clearly were not based on that provision. As we stated at
the time, ``[s]ection 621(a)(4)(A) does not address the central
question here.'' We also find there is no basis for applying the build-
out rationale in the First Report and Order to incumbents, because the
underlying rationale--that build-out requirements can serve as a
barrier to new entrants--is inapplicable to incumbents. Incumbents by
definition are not barred from entry, and allowing incumbents to
retract the boundaries of their own franchise areas may create
disruptions that would hinder the statutory goal of broadband
deployment. Moreover, the First Report and Order discussed the
differential impact of build-out requirements on incumbents and new
entrants.
10. Franchise Fees. The ``Franchise Fees'' section of the First
Report and Order applies equally to incumbents and new entrants. Most
commenters agree that our findings regarding franchise fees from the
First Report and Order should apply to incumbents. In that section of
the First Report and Order, we determined that an LFA's refusal to
grant a competitive franchise because of an applicant's unwillingness
to agree to a variety of franchise fee requirements that are
impermissible under section 622 of the Act constitutes an unreasonable
refusal to award a competitive franchise within the meaning of section
621(a)(1). Commenters argue that section 622 of the Act does not
differentiate between new entrants and incumbents, and that when
Congress intended to treat various providers differently, it was
explicit when doing so. NCTA argues that absent a Congressional mandate
otherwise, the Commission has defined its role as establishing a
uniform franchising regime, and uniformity requires equal treatment.
Some LFAs argue that the Commission was incorrect in its interpretation
of section 622, and it should not extend its interpretation. NATOA
states that incumbents have been renewing franchises for years with
full knowledge of the Cable Act, and the FNRPM's proposal to extend the
franchise fee aspects of the First Report and Order to incumbents is a
solution in search of a problem.
11. We agree that our findings interpreting section 622 should
apply equally to incumbent operators and new entrants. Section 622 does
not distinguish between incumbent providers and new entrants. As a
result, to the extent that a franchise-fee requirement is found to be
impermissible under section 622, that statutory interpretation applies
to both incumbent operators and new entrants. The relevant findings
from the First Report and Order that apply to incumbent providers
include the following: (1) Our clarification that a cable operator is
not required to pay cable franchise fees on revenues from non-cable
services; (2) our finding that the term ``incidental'' in section
622(g)(2)(D) should be limited to the list of incidentals in the
statutory provision, as well as other minor expenses, and that certain
fees are not to be regarded as ``incidental'' and therefore must count
toward the 5 percent franchise fee cap; (3) our clarification that any
municipal projects requested by LFAs unrelated to the provision of
cable services that do not fall within the exempted categories in
section 622(g)(2) are subject to the statutory 5 percent franchise fee
cap; and (4) our finding that payments made to support the operation of
PEG access facilities are considered franchise fees and are subject to
the 5 percent cap, unless they are capital costs, which are excluded
from franchise fees under section 622(g)(2)(C).
12. PEG/I-Nets. Much of the ``PEG/I-Nets'' section of the First
Report and Order applies equally to incumbents
[[Page 65672]]
and new entrants. Many commenters argue that our findings regarding PEG
and I-Net issues from the First Report and Order should apply equally
to incumbents because the statutory provisions discussed do not
distinguish among differing providers. LFAs, on the other hand, argue
that the findings regarding PEG and I-Nets should not be extended to
incumbents. They contend that doing so would freeze PEG support at
current contribution levels without the possibility for future
modification, which would result in either substantially reduced PEG
access facility support or decreased general fund monies. They also
contend that they would lose the ability to benefit from an affordable
I-Net, which cable operators can offer for no net costs. LFAs also
assert that I-Nets provide numerous benefits to the community and are
vital to government functions, and the Commission may not take any
action that would inhibit an LFA's ability to require a cable operator
to build an I-Net. LFAs further argue that some PEG and I-Net
obligations are undertaken as part of a settlement agreement against an
operator, and these contracts cannot be invalidated.
13. We determine that some of the findings related to PEG and I-
Nets should apply to incumbent providers while others should not.
Specifically, the finding, discussed above, that the non-capital costs
of PEG requirements must be offset from the cable operator's franchise
fee payments is applicable to incumbents because it was based upon our
statutory interpretation of section 622 of the Act. Again, nothing in
the language or structure of that provision distinguishes between
different classes of providers, and thus our interpretation applies to
all providers. Similarly, both our refusal to adopt standard terms for
PEG channels for new entrants as well as our refusal to hold that it is
per se unreasonable for LFAs to require the payment of ongoing costs to
support PEG by new entrants (so long as such support costs as
applicable are subject to the franchise fee cap) apply to incumbents as
well.
14. We conclude, however, that other findings pertaining to PEG and
I-Nets should not apply to incumbents. In particular, our findings that
it would be unreasonable for an LFA to impose on a new entrant more
burdensome PEG carriage obligations than it has imposed upon the
incumbent cable operator and that it would be unreasonable for an LFA
to require a new entrant to provide PEG support that is in excess of
the incumbent cable operator's obligations, by their terms, do not
provide relief for incumbents. Neither do we believe that we can
similarly conclude that it would be per se unreasonable for an LFA to
impose less burdensome PEG carriage obligations on a new entrant than
it has imposed on an incumbent cable operator or per se unreasonable
for an LFA to require a new entrant to provide less PEG support than
the incumbent cable provider. Requiring an established incumbent
operator to have a greater PEG carriage obligation or provide greater
PEG support than a fledgling new entrant may very well be reasonable
under the circumstances, and we see no statutory provision that
categorically precludes such an approach. We note that in the First
Report and Order we found that a pro rata cost sharing approach between
incumbents and new entrants is per se reasonable. In doing so, we also
cited Sec. 76.1505 of the Commission's rules, which requires an open
video system operator to match an incumbent cable operator's PEG
obligations. Under a matching approach, the open video system operator
and incumbent cable operator make equal contributions. In a pro rata
cost sharing approach, the new entrant would make PEG contributions
based on the ratio of its subscribership as compared to the incumbent
operator's subscribership. While we did not find a matching arrangement
per se reasonable, we did not find it per se unreasonable either.
Section 653(c)(2)(A) of the Act requires that open video system PEG
obligations be ``no greater or lesser'' than obligations imposed on
incumbent operators, but the Act makes no such requirement with respect
to new cable operator entrants. Finally, in the First Report and Order,
we found that ``completely duplicative PEG and I-Net requirements
imposed by LFAs would be unreasonable,'' and that it was unreasonable
for an LFA to refuse to award a competitive franchise unless the
applicant agrees to pay the face value of an I-Net that will not be
constructed. The problems that these two determinations were designed
to address--the required construction of duplicative networks and
required payments in lieu of the construction of a duplicative
network--are issues that face competitive entrants, and it is not clear
to us how these findings would be of practical relevance to incumbents.
We therefore do not apply them to incumbents at this time. However,
incumbent providers are free in the future to present the Commission
with evidence that these findings are of practical relevance to
incumbents and therefore should be applied to them in an appropriate
form. When doing so, incumbent providers should identify the particular
problems that applying some variation of these findings to them would
address.
15. We disagree with comments arguing that any changes to the PEG
structure means that PEG support would be frozen at current
contribution levels without the possibility for future modification to
reflect the community's needs at that time. Sections 611 and 626
provide a process for requiring PEG carriage and determining a
community's future cable-related needs and interests. Section 626
requires that an LFA identify ``future cable-related community needs
and interests'' prior to the consideration of a franchise renewal
proposal. Therefore, LFAs are to evaluate their current and future PEG
needs at the time of an incumbent provider's renewal, and are allowed
to request such PEG support from their providers, within the limits of
the Act and the Commission's statutory interpretation. Our findings
here and in the First Report and Order have no bearing on these renewal
requirements.
16. Mixed-Use Networks. The ``Mixed-Use Networks'' section of the
First Report and Order also applies equally to incumbents and new
entrants. Consistent with their position on other provisions, a number
of commenters argue that the Commission's mixed-use network findings in
the First Report and Order are based upon a statutory interpretation of
section 602(7)(C), and the statute's failure to distinguish among
differing providers requires that it applies uniformly to all. LFAs
argue that the mixed-use findings presume the competitor is a
telecommunications provider, and that the findings do not speak to an
incumbent cable provider that already is using its network to provide
cable services.
17. Because our findings on mixed-use networks in the First Report
and Order depended upon our statutory interpretation of section 602,
which does not distinguish between incumbent providers and new
entrants, we agree that the findings in this section should be
applicable to incumbent providers. Specifically, we clarify that LFAs'
jurisdiction under Title VI over incumbents applies only to the
provision of cable services over cable systems and that an LFA may not
use its franchising authority to attempt to regulate non-cable services
offered by incumbent video providers. For example, the provision of
video services pursuant to a cable franchise agreement does not provide
a basis for customer service regulation by local law or franchise
agreement of a cable operator's entire network, or any services beyond
cable services.
[[Page 65673]]
18. Timing. The Commission tentatively concluded that the findings
in the First Report and Order should apply to cable operators at the
time of renewal:
[t]he findings in [the First Report and Order] should apply to cable
operators that have existing franchise agreements as they negotiate
renewal of those agreements with LFAs. We note that section 611(a)
states ``A franchising authority may establish requirements in a
franchise with respect to the designation or use of channel capacity
for public, educational, or governmental use'' and section 622(a)
provides ``any cable operator may be required under the terms of any
franchise to pay a franchise fee.'' These statutory provisions do
not distinguish between incumbents and new entrants or franchises
issued to incumbents versus franchises issued to new entrants.
Many commenters agreed with our tentative conclusion. However, some
incumbent providers argue that regulatory parity requires that the
Commission extend the First Report and Order immediately to incumbent
providers, and not wait until renewal. Specifically, incumbent
providers argue that some of the findings in the First Report and
Order, including franchise fees, PEG/I-Nets, and mixed use networks,
were not made solely pursuant to section 621, but also other sections
of the Act that are applicable to all operators, not just new entrants,
and that those provisions should be immediately applicable to all
providers. Further, a small number of incumbent competitive providers
argue that to avoid penalizing them for being the first to risk
competitive entry, the Second Report and Order should be applicable to
such ``legacy'' competitive providers immediately or upon entrance of a
new competitive provider. They argue that if the Commission adopts the
tentative conclusion to apply the decisions in the First Report and
Order at renewal, it is conceivable, where an incumbent's franchise is
up for renewal before a competitive entrant's franchise, that a new
competitive entrant and an incumbent would receive the regulatory
relief of the First Report and Order before the incumbent competitive
provider. LFAs, by contrast, argue that if findings from the First
Report and Order are found to be applicable to incumbents, they should
be effective only at the time of renewal. These commenters argue that
the Commission does not have the authority to void existing agreements,
and that to do so would violate LFAs' contractual rights.
19. We believe that neither of the principal views expressed by
commenters is entirely correct. The statutory interpretations set forth
above represent the Commission's view as to the meaning of various
statutory provisions, such as section 622, and these interpretations
are valid immediately. We do not see, for example, how section 622
could mean different things in different sections of the country
depending on when various incumbents' franchise agreements come up for
renewal. We recognize, however, that franchise agreements involve
contractual obligations and also note 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 existing franchise
agreement. This Second Report and Order should in no way be interpreted
as giving incumbents a unilateral right to breach their existing
contractual obligations. Instead, if an incumbent asserts that the
terms of its franchise should be amended as a result of this Second
Report and Order, we encourage LFAs and incumbents to work
cooperatively to address those issues. Should such efforts fail, we
recognize that particular disputes eventually may make their way to
court but note that there are other means of addressing existing
contract provisions. As further described below, incumbent providers
may pursue avenues for pre-renewal modifications, including contractual
most favored nation clauses, which may allow franchisees to take
advantage of the franchise provisions of new competitive entrants.
Parties may also make adjustments to franchise terms pursuant to
compliance with law provisions within the franchise or contract.
Statutory relief is also available in the form of the franchise
modification provision in section 625 of the Act.
20. Most Favored Nations (MFN) Clauses. The First Report and Order
does not have any effect on existing MFN clauses. In the FNPRM, we
sought comment on ``what effect, if any, the findings in this Second
Report and Order have on MFN clauses that may be included in existing
franchises.'' While provisions differ, MFN clauses generally allow
franchisees to adjust their obligations if and when an LFA grants a
competing provider any franchise provisions that are more favorable
than the provisions in the incumbent's franchise agreement. Some
providers state that an incumbent with existing MFN provisions should
be able to amend its franchise to reflect the requirements applicable
to the new entrant, in order to encourage regulatory parity. Others
state that the proceeding should have no effect on MFN clauses, as they
do not impose any barriers to entry. They also argue that MFN clauses
are negotiated in order to adjust obligations when a new competitor
enters the market, and the Commission has no basis to interfere with
these contractual provisions. To the extent that the First Report and
Order allows competitive providers to enter markets with franchise
provisions more favorable than those of the incumbent provider, we
expect that MFN clauses, pursuant to the operation of their own design,
will provide some franchisees the option and ability to change
provisions of their existing agreements. Otherwise, we do not believe
that our First Report and Order has any effect on MFN clauses.
B. Other Issues
21. Franchise Modification. We agree with commenters that the
modification provision of the Cable Act will provide some franchisees
the option and ability to change their existing agreements. Section 625
of the Act provides that a cable operator may obtain a franchise
modification from an LFA: (1) In the case of any requirements for
facilities or equipment (including PEG access) where the provider can
show that it is ``commercially impracticable'' to comply with a
requirement; or (2) in the case of any requirements for services, if
the cable operator demonstrates that the mix, quality, and level of
services required by the franchise at the time it was granted will be
maintained after any proposed modification.
22. Commenters argue that incumbents without an MFN provision
should be allowed to seek modification through section 625 when a
competitor enters the franchise area. They assert that the Commission
should find an incumbent's compliance with more burdensome franchise
provisions than a new competitor ``commercially impracticable'' because
of the possibility of higher costs. Some LFAs and Verizon agree that
section 625 may be applicable in some circumstances, provided that the
incumbent can meet the commercially impracticable test, but contend
that there should not be an assumption that all providers can meet this
test. NATOA argues that the Commission does not have jurisdiction to
construe or enforce this provision under section 625(b)(1), which
provides for review of modification decisions in state or federal
district court under section 635, and that the Commission
[[Page 65674]]
cannot issue any blanket statements about modifications, as any
determinations are fact specific, and cannot be shown merely by the
presence of a new competitor. We agree that the First Report and Order
and this Second Report and Order, to the extent applicable, can be
taken into consideration if an incumbent seeks modification of a
franchise when a competitor enters the franchise area, within the
processes set forth under section 625. However, it is up to the
incumbent to make to the relevant franchising authority the requisite
showing of ``commercial impracticability.''
23. Generally Accepted Accounting Principles. We decline to adopt a
requirement that an operator's gross income be determined under
Generally Accepted Accounting Principles (GAAP). Time Warner asks the
Commission to mandate that the calculation of an operator's gross
income under section 622 be determined in accordance with GAAP. Time
Warner argues that the Commission has authority from Congress to
mandate that uniform federal standards be used to govern franchise fee
calculations. Some franchising authorities reject this assertion and
argue that GAAP will not produce the clarity and uniformity Time Warner
is seeking, because GAAP does not create rules but rather functions as
a set of guidelines interpreted by professionals. They also state that
GAAP was established by the financial community to govern disclosures
to investors and stockholders, not to determine franchise fee payments,
and these differing purposes may result in characterization of revenues
that are not applicable to cable operations. Finally, they argue this
has nothing to do with competitive entry, and a separate NPRM must be
issued to consider it. Given the paucity of comments on the matter, and
conflicting information of the applicability of GAAP to the franchising
process, we do not believe that there is a sufficient record supporting
the requested regulation. We therefore decline to adopt such a
requirement here.
24. Fresh Look. We reject RCN's request that we invoke the fresh
look doctrine. The fresh look doctrine is used to re-open contracts.
The Commission utilizes it sparingly, when it is ``necessary to promote
consumer choice and eliminate barriers to competition.'' RCN urges the
Commission to invoke its ``fresh look'' doctrine to require that LFAs
reconsider existing franchises when a new entrant enters the franchise
area and, in markets where there is more than one franchised operator,
when the first existing franchise comes up for renewal. RCN suggests
that when a new provider files an application to provide service, the
LFA should provide notice to existing franchisees and allow them to
terminate their franchise and negotiate a new one reflecting the rules
in the First Report and Order. Similarly, the Broadband Service
Providers Association asks that if one cable operator in a competitive
market is able to eliminate franchise requirements deemed unlawful by
the First Report and Order, other operators in that LFA should be able
to submit a renewal proposal at any time that would allow that operator
to conform its franchise to the rules in the First Report and Order.
RCN argues that this proceeding is consistent with other contexts where
the Commission adopted the fresh look doctrine, because the entity
holding the long-term contracts has market power, that entity has
exercised that power to create long-term contracts to ``lock up'' the
market in a way that creates unreasonable barriers to competition, and
the contractual obligations can be nullified without harm to the public
interest.
25. We do not believe that it is necessary to invoke the fresh look
doctrine here. As indicated above, we believe that any contractual
issues arising from today's Second Report and Order should be decided
on a case-by-case basis. The fresh look doctrine was developed to allow
customers to take advantage of competition, not to protect incumbent
service providers when competitors enter the market. The case precedent
is thus distinguishable from the circumstances addressed here.
C. Customer Service
26. We find that the explicit statutory language of section 632 of
the Act prohibits the Commission's preemption of state or local cable
customer service laws that exceed the Commission's standards. The
Commission previously sought comment on whether customer service
requirements should be allowed to vary greatly between jurisdictions.
Commenters urged the Commission to adopt a number of rules limiting LFA
authority to adopt local customer service regulations. After reviewing
those comments, we sought additional comment on our tentative
conclusion that section 632(d)(2) of the Act prevents us from
preempting state or local customer service laws exceeding Commission
standards, and allows LFAs and cable operators to agree to more
extensive customer service requirements.
27. Section 632 of the Communications Act sets out the regulatory
framework for cable customer service. It authorizes LFAs to establish
and enforce customer service requirements and directs the Commission to
establish standards by which cable operators may fulfill these
requirements. Specifically, section 632(d)(1) provides that ``[n]othing
in this title shall be construed to prohibit any State or any
franchising authority from enacting or enforcing any consumer
protection law, to the extent not specifically preempted by this
title.'' Further, section 632(d)(2) states that:
[n]othing in this title shall be construed to prevent the
establishment or enforcement of any municipal law or regulation, or
any State law, concerning customer service that imposes customer
service requirements that exceed the standards set by the Commission
under the section, or addresses matters not addressed by the
standards set by the Commission under this section.
The statute's explicit language makes clear that Commission standards
are a floor for customer service requirements, rather than a ceiling,
and thus do not preclude LFAs from adopting stricter customer service
requirements.
28. In response to the FNPRM, some commenters ask that we clarify
certain issues surrounding customer service. Verizon recognizes that
while LFAs have some discretion in the crafting of customer service
regulations, they argue that this discretion is limited by the language
of section 632(d)(2) to cable customer service issues. They urge the
Commission to plainly state that LFAs only have authority to regulate
cable customer service standards and that the Commission has the
authority to preempt regulations that do not concern customer service
for cable service. They argue that onerous regulations, as well as
those unrelated to the provision of cable services couched as customer
service rules, should be preempted because they amount to an
unreasonable burden under section 621(a)(1). They suggest that customer
service requirements be limited to those general types of issues
recognized in section 632(b). That provision authorizes the Commission
to ``establish standards by which cable operators can fulfill their
customer service requirements'' including ``(1) cable system office
hours and telephone availability; (2) installations, outages, and
service calls; and (3) communications between the cable operator and
subscriber.'' They assert that requirements beyond these limited
categories impose unreasonable burdens on new entrants.
29. Supporters of the Commission's tentative conclusion regarding
section
[[Page 65675]]
632(d)(2) argue that the statute expressly authorizes the establishment
and enforcement of local customer service standards that go beyond
those delineated by the Commission. They assert that the unreasonable
refusal language of section 621(a)(1) has no application to customer
service standards under section 632. In fact, they argue that the only
way to read these sections together is to conclude that Congress
intended that local customer service standards exceeding Commission
standards do not amount to an unreasonable refusal.
30. New entrants also take issue with the local character of
customer service requirements. AT&T cites difficulties created by
disparate local standards and local data reporting requirements and
suggested the Commission adopt uniform customer service standards
because of the inefficiency inherent in varying standards. They argue
that requiring new entrants to comply with these differing standards
can be a potential barrier to entry. They further argue that the
imposition of local data collection requirements also poses a barrier
to entry. AT&T states that under their regional systems it is not
currently possible to compile their data on a franchise area basis. At
minimum, they ask the Commission to allow regional providers to
demonstrate compliance with local standards through aggregate regional
data.
31. Given the explicit language of section 632, we conclude that
the Commission cannot preempt local or state cable customer service
requirements, nor can it prevent LFAs and cable operators from agreeing
to more stringent standards. However, an LFA's authority to implement
customer service rules under section 632 is limited to the adoption of
regulations that, in fact, involve customer service matters and impose
customer service requirements on the provision of cable services. For
instance, LFAs cannot implement a ``customer service'' rule requiring a
six percent franchise fee payment. Furthermore, it would constitute an
unreasonable refusal under section 621(a)(1) for an LFA to make the
grant of a competitive franchise contingent upon a cable customer
service requirement that does not, in fact, involve cable customer
service. While localities may have independent authority to impose
customer service requirements on a cable operator's non-cable
activities, franchising authorities may not condition the exercise of
their video franchising authority on an operator's agreement to such
non-cable requirements because we interpret section 632 to apply only
to customer service requirements related to cable service.
32. Local franchise authorities maintain that Congress made a
policy judgment when it permitted individual franchising authorities to
adopt local customer service standards, despite the inconvenience it
may pose to new entrant compliance. They note that incumbents operating
regional networks have complied with local data reporting requirements
and other differing local standards. They state that local data
collection requirements also are consistent with section 626 of the
Act, which allows LFAs to take the quality of an operator's service
into account during the franchise renewal process. They argue that
limiting local data collection, as AT&T suggests, would make it
impossible for LFAs to assess an operator's performance within their
respective communities.
33. The language of section 632(d)(2) provides that, while the
Commission may adopt standards applicable to all cable operators, it
may not prohibit LFAs from imposing requirements that exceed those
standards. We conclude, therefore, that we do not have authority to
grant AT&T's request for uniform local customer service standards or
data collection requirements. In sum, we find that the explicit
statutory language of section 632 prohibits the Commission's preemption
of state or local cable customer service laws that exceed the
Commission's standards.
IV. Procedural Matters
34. Paperwork Reduction Act Analysis. This document does not
contain new or modified information collection requirements subject to
the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In
addition, we note that there is no new or modified ``information burden
for small business concerns with fewer than 25 employees,'' pursuant to
the Small Business Paperwork Relief Act of 2002, Public Law 107-198,
see U.S.C. 3506(c)(4).
35. Final Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980, as amended (RFA) an Initial
Regulatory Flexibility Analysis (IRFA) was incorporated in the FNPRM to
this proceeding. The Commission sought written public comment on the
proposals in the FNPRM, including comment on the IRFA. The Commission
received one comment on the IRFA. This Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.
A. Need for, and Objectives of, the Second Report and Order
36. This Second Report and Order adopts rules and provides guidance
to implement the findings in the First Report and Order dealing with
section 611 and section 622 of the Communications Act of 1934, as
amended (the Communications Act). The First Report and Order adopted
rules in accordance with section 621(a) of the Communications Act to
prevent Local Franchising Authorities (LFAs) from creating unreasonable
barriers to competitive entry. It also provided clarifications of
section 611, restricting LFAs' authority to establish capacity and
support requirements for PEG channels, and section 622, setting limits
on the franchise fees LFAs may charge cable operators. Neither of these
sections distinguishes between the treatment of new entrants and
incumbent cable operators. The Commission extends these findings to
incumbent cable operators to further the interrelated goals of enhanced
cable competition and accelerated broadband deployment. The Commission
also finds that it cannot preempt state or local customer service rules
exceeding Commission standards.
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
37. Only one commenter, the Local Government Lawyer's Roundtable,
submitted a comment that specifically responded to the IRFA. The Local
Government Lawyer's Roundtable contends that the Commission should
issue a revised IRFA because of the erroneous determination that the
proposed rules would have a de minimis effect on small governments.
They argue that the Commission has not given weight to the economic
impact the rules will have on small governments, including training and
hiring concerns.
38. We disagree with the Local Government Lawyer's Roundtable's
assertion that our rules will have any more than a de minimis effect on
small governments. LFAs today must review and decide upon competitive
and renewal cable franchise applications, and will continue to perform
that role. While the Local Government Lawyer's Roundtable expresses
concern about additional training that may be necessary to understand
these actions, and potential hiring of additional personnel to
accommodate the Second Report and Order's requirements, we disagree
that those steps will be necessary. This Second Report and Order simply
extends existing
[[Page 65676]]
requirements to apply to incumbent cable providers. LFAs should be
familiar with those existing requirements, and therefore should not
need additional training or personnel to implement the Second Report
and Order's requirements. Moreover, modifications made to the
franchising process that result from this proceeding further streamline
the franchising process, lessening the economic burdens placed upon
LFAs.
C. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply
39. The RFA directs the Commission to provide a description of and,
where feasible, an estimate of the number of small entities that will
be affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small government
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A small business concern is one which: (1) Is independently owned
and operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA).
40. The rules adopted by this Second Report and Order will
streamline the local franchising process by adopting rules that provide
guidance as to the applicability of prior findings in this proceeding
to incumbents and the limitations on the Commission's authority
regarding customer service regulations. The Commission has determined
that the group of small entities directly affected by the rules adopted
herein consists of small governmental entities (which, in some cases,
may be represented in the local franchising process by not-for-profit
enterprises). Therefore, in this FRFA, we consider the impact of the
rules on small governmental entities. A description of such small
entities, as well as an estimate of the number of such small entities,
is provided below.
41. Small Governmental Jurisdictions. The term ``small governmental
jurisdiction'' is defined generally as ``governments of cities, towns,
townships, villages, school districts, or special districts, with a
population of less than fifty thousand.'' Census Bureau data for 2002
indicate that there were 87,525 local governmental jurisdictions in the
United States. We estimate that, of this total, 84,377 entities were
``small governmental jurisdictions.'' Thus, we estimate that most
governmental jurisdictions are small.
42. Cable and Other Program Distribution. The Census Bureau defines
this category as follows: ``This industry comprises establishments
primarily engaged as third-party distribution systems for broadcast
programming. The establishments of this industry deliver visual, aural,
or textual programming received from cable networks, local television
stations, or radio networks to consumers via cable or direct-to-home
satellite systems on a subscription or fee basis. These establishments
do not generally originate programming material.'' The SBA has
developed a small business size standard for Cable and Other Program
Distribution, which is: All such firms having $13.5 million or less in
annual receipts. According to Census Bureau data for 2002, there were a
total of 1,191 firms in this category that operated for the entire
year. Of this total, 1,087 firms had annual receipts of under $10
million, and 43 firms had receipts of $10 million or more but less than
$25 million. Thus, under this size standard, the majority of firms can
be considered small.
43. Cable Companies and Systems. The Commission has also developed
its own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small.
44. Cable System Operators. The Communications Act of 1934, as
amended, also contains a size standard for small cable system
operators, which is ``a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent of all
subscribers in the United States and is not affiliated with any entity
or entities whose gross annual revenues in the aggregate exceed
$250,000,000.'' The Commission has determined that an operator serving
fewer than 677,000 subscribers shall be deemed a small operator, if its
annual revenues, when combined with the total annual revenues of all
its affiliates, do not exceed $250 million in the aggregate. Industry
data indicate that, of 1,076 cable operators nationwide, all but ten
are small under this size standard. We note that the Commission neither
requests nor collects information on whether cable system operators are
affiliated with entities whose gross annual revenues exceed $250
million, and therefore we are unable to estimate more accurately the
number of cable system operators that would qualify as small under this
size standard.
45. Open Video Systems (OVS). In 1996, Congress established the
open video system framework, one of four statutorily recognized options
for the provision of video programming services by local exchange
carriers (LECs). The OVS framework provides opportunities for the
distribution of video programming other than through cable systems.
Because OVS operators provide subscription services, OVS falls within
the SBA small business size standard of Cable and Other Program
Distribution Services, which consists of such entities having $13.5
million or less in annual receipts. The Commission has certified 25 OVS
operators, with some now providing service. Broadband service providers
(BSPs) are currently the only significant holders of OVS certifications
or local OVS franchises. As of June, 2005, BSPs served approximately
1.4 million subscribers, representing 1.5 percent of all MVPD
households. Affiliates of Residential Communications Network, Inc.
(RCN), which serves about 371,000 subscribers as of June, 2005, is
currently the largest BSP and 14th largest MVPD. RCN received approval
to operate OVS systems in New York City, Boston, Washington, DC and
other areas. The Commission does not have financial information
regarding the entities authorized to provide OVS, some of which may not
yet be operational. We thus believe that at least some of the OVS
operators may qualify as small entities.
D. Description of Projected Reporting, Recordkeeping and Other
Compliance Requirements
46. The rule and guidance adopted in the Second Report and Order
will require a de minimus additional reporting, record keeping, and
other compliance requirements. LFAs will continue to perform its role
of reviewing and deciding upon competitive cable franchise
applications; the rules adopted in this Second Report and Order will
decrease the procedural burdens faced by LFAs. Since the adopted rules
do not apply until franchise renewal, there is no additional burden
beyond what has been required during past renewals. Therefore, the
[[Page 65677]]
rules adopted will not require any additional special skills beyond any
already needed in the cable franchising context.
E. Steps Taken To Minimize Significant Impact on Small Entities, and
Significant Alternative Considered
47. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
why may include the following four alternatives (among others): (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.
48. In the FNPRM, the Commission sought comment on the extension of
its findings that do not distinguish between new entrants and
incumbents in the First Report and Order to incumbents and its
authority to do so. The Commission also invited comment on the effect,
if any, the findings in the First Report and Order had on most favored
nation clauses in existing franchises. Additionally, the Commission
also sought comment on its tentative conclusion that it cannot preempt
state or local customer service laws exceeding Commission standards,
nor can it prevent LFAs and cable operators from agreeing to more
stringent standards. The Commission tentatively concluded that any
rules likely would have at most a de minimis impact on small
governmental jurisdictions, and that the interrelated, high-priority
federal communications policy goals of enhanced cable competition and
accelerated broadband deployment necessitated the extension of its
rules to incumbent cable providers. We agree with those tentative
conclusions, and we believe that the rules adopted in the Second Report
and Order will not impose a significant impact on any small entity.
49. In the Second Report and Order, we provide that the First
Report and Order's findings resting upon statutory provisions that do
not distinguish between new entrants and incumbents should be extended
to incumbent cable operators at the time of franchise renewal. This
will result in decreasing the regulatory burdens on incumbent cable
operators. We declined to impose the findings of the First Report and
Order immediately so that we do not unduly disrupt existing contracts.
As an alternative, we considered not extending the First Report and
Order's rules to incumbent cable operators at all. We conclude that the
guidance we provide minimizes any adverse impact on small entities
because it clarifies the terms within which parties must negotiate, and
should prevent small entities from facing costly litigation over those
terms.
50. Report to Congress: The Commission will send a copy of the
Second Report and Order, including this FRFA, in a report to be sent to
Congress pursuant to the Congressional Review Act. In addition, the
Commission will send a copy of the Second Report and Order, including
the FRFA, to the Chief Counsel for Advocacy of the Small Business
Administration.
51. Congressional Review Act. The Commission will send a copy of
this Second Report and Order in a report to be send to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
52. Additional Information. For additional information on this
proceeding, please contact Holly Saurer, Policy Division, Media Bureau
at (202) 418-2120, or Brendan Murray, Policy Division, Media Bureau at
(202) 418-2120.
V. Ordering Clauses
53. It is ordered that, pursuant to the authority contained in
sections 1, 2, 4(i), 303, 303r, 403, 405, 602, 611, 621, 622, 625, 626,
and 632 of the Communications Act of 1934, 47 U.S.C 151, 152, 154(i),
303, 303(r), 403, 405, 522, 531, 541, 542, 545, 546, and 552, this
Second Report and Order is adopted.
54. It is further ordered that the Second Report and Order shall be
effective December 24, 2007.
55. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Second Report and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
56. It is further ordered that the Commission shall send a copy of
this Second Report and Order in a report to be sent to Congress and the
General Accounting Office pursuant to the Congressional Review Act, see
5 U.S.C. 801(a)(1)(A).
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 07-5802 Filed 11-21-07; 8:45 am]
BILLING CODE 6712-01-P