HomeMy WebLinkAboutMay 20, 1999 Cable Franchise Renewal Workshop LEIBOWITZ & ASSOCIATES, P.A.
SUITE 1450
BRAULIO L. BAE2 SUNTRUST INTERNATIONAL CENTER TELEPHONE(305)530.1322
JOSEPH A. BELISLE ONE SOUTHEAST THIRD AVENUE TELECOPIER1305)530-
941 J
ILA L GELD ALLISONMIAMI, FLORIDA 33131-1715 E-MAIL Broadlaw@aol.com
MATTHEW K. XIET
L. LEIBOWIT2
May 12, 1999
VIA FACSIMILE 407-656-8504
Ms. Janet G. Shira
Community Relations/Projects Director
City of Ocoee
150 N. Lakeshore Drive
Ocoee, FL 34761
RE: Cable Franchise Renewal Workshop
Dear Janet:
Enclosed please find materials outlining the cable franchise renewal process, for
distribution to the commission at the May 20th, workshop. During the workshop I will provide
more detailed discussion of the process and issues as they pertain to cable services in the City of
Ocoee.
Please do not hesitate to contact me should you have any questions.
1pcerely,
t ..olio L. Baez
end.
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CABLE TELEVISION FRANCHISING FOR THE NEXT CENTURY
The Renewal Process
The renewal of cable television franchises is governed by both Federal and State law.
Federal law provides for both formal and informal cable television franchise renewal procedures.
Renewal negotiations generally proceed along both the formal and informal tracks. In general,
both parties will prefer to reach an agreement under the informal process while following the
formal process as a safeguard to protect their respective rights.
FEDERAL
Formal Renewal Procedures — A formal cable television franchise renewal proceeding
is a three step process that may be initiated by either the franchising authority or the cable
operator during the six (6) month period commencing thirty-six (36) months prior to expiration
of the franchise.
Phase I — The first phase of the proceeding is a public inquiry into (a) future cable-related
community needs and interests and (b) the performance of the cable operator under the existing
franchise. The public must be given appropriate notice and an opportunity to participate in this
inquiry.
Phase II — The second phase of the formal franchise renewal process is a hearing on the
cable operator's renewal proposal. This begins with the filing of the cable operator's franchise
renewal proposal.
The content of the franchise renewal proposal is whatever information the franchise
authority requires,subject to the limitations of Section 624 of the Communications Act. Under
this Section, a franchising authority may not regulate the services, facilities and equipment
provided by a cable operator except to the extent the regulation is consistent with the Cable Act.
For instance, a franchising authority may establish requirements for facilities and equipment but
except for certain notice requirements cannot establish requirements for video programming or
other information services. Further,while a franchising authority can only require the minimum
technical standards established by the FCC, it may apply to the FCC to require more stringent
standards. Section 624 also states that no franchising authority may prohibit, condition or restrict
a cable system's use of any type of subscriber equipment or any transmission technology. A
franchising authority can, however, require that a cable operator provide information in its
franchise renewal proposal concerning the upgrading of the cable system.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 2
During the four-month period commencing on the date that the cable operator's formal
franchise renewal proposal is submitted, the franchising authority must (a) give public notice of
the renewal proposal and either (b) renew the franchise or (c) issue a preliminary assessment that
the franchise should not be renewed.
Phase III — If the franchising authority adopts a preliminary assessment not to renew, it
must set the franchise proposal for hearing on the following issues:
To determine whether—
(A) the cable operator has substantially complied with the material terms of the
existing franchise and with applicable law;
(B) the quality of the operator's service, including signal quality, response to consumer
complaints, and billing practices, but without regard to the mix, quality, or level of cable services
or other services provided over the system, has been reasonable in light of community needs;
(C) the operator has the financial, legal, and technical ability to provide the services,
facilities, and equipment as set forth in the operator's proposal; and
(D) the operator's proposal is reasonable to meet the future cable-related community
needs and interests, taking into account the cost of meeting such needs and interests.
The franchising authority must give public notice of the hearing. However, the only
parties to the proceeding are the franchising authority and the cable operator.
The hearing held after a preliminary assessment that a franchise should not be renewed
is a full hearing, where the cable operator has notice, an opportunity to introduce evidence, the
right to require the production of evidence (i.e., discovery), and the right to question witnesses.
A transcript must be made of the proceedings. The franchising authority must issue a written
decision based upon the record stating the reasons for the decision. The decision must be served
on the cable operator.
In a formal cable television franchise renewal proceeding, denial of renewal may only be
based on adverse findings on the four issues specified. With respect to issues A and B (compliance
with franchise and quality of service)denial of renewal can only be predicated upon failures where
the franchising authority has given the cable operator notice of the failure and an opportunity to
cure. The franchising authority may also be stopped from denying renewal under issues A and
B if it has otherwise waived its right to object to the cable operator's failures.
LEIBOWITZ & ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 3
The cable operator can appeal an adverse franchise renewal decision to the U.S. District
Court after administrative review of the decision by the State is exhausted or after the time for
State administrative review has lapsed.
Informal Renewal Procedures — Under the informal procedure, cable operators are free
to submit a proposal for franchise renewal at any time, even during the pendency of formal
renewal proceedings. Franchising authorities have considerable freedom to respond to an
informal proposal for franchise renewal. So long as the public is given notice and an opportunity
to comment on the informal renewal proposal, the franchising authority can grant or deny the
renewal for any non-arbitrary reasons.
LEIBOWITZ& ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 4
The following chart sets forth the process for renewal negotiations that a local franchising
authority may follow.
CABLE TELEVISION FRANCHISE RENEWAL PROCESS
FORMAL INFORMAL
ACTIVITY RENEWAL RENEWAL
Review of present cable television ordinance, analysis of related materials,
including relevant ordinances and franchise agreements including / /
amendments, if any,and correspondence
If indicated, retain accounting firm to perform ✓
financial audit
If indicated, retain engineer to
perform technical audit
Meet with staff/officials/public to discuss past performance and future / /
needs
Prepare and issue a ✓ ✓
renewal questionnaire to cable operators
Conduct public hearing to identify community needs and interests ✓ Optional
Ascertainment Report to be adopted by local
franchising authority and served on cable ✓ N/A
operator
Renewal Proposal to be submitted by operator ✓ N/A
Franchise negotiations ✓ ✓
Review and compare renewal proposal with Ascertainment Report ✓ N/A
Public Hearing to consider Renewal Proposal and to compare with the ✓ N/A
Ascertainment Report
Municipality to accept or reject proposals ✓ ✓
If accepted,adoption of revised ordinance and franchise ✓ ✓
If rejected, administrative hearing ✓ N/A
LEIBOWITZ&ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 5
The Sturgis Case
On February 24, 1997,the City of Sturgis, Kentucky's decision to deny Union CATV's
proposal for renewal of its cable television franchise was upheld by the United States Court of
Appeals for the Sixth Circuit. Judge Cornelia G.Kennedy wrote the decision for the Court. The
Court found that the Cable Act "provides for limited judicial review" of a franchising authority's
identified cable-related community needs and interests and that the preponderance of the evidence
supported the City's determination that Union's proposal for franchise renewal was not
reasonable to meet those needs and interests.
The decision supports the proposition that City officials, not the cable industry itself, are
the best qualified to identify a community's future cable related needs and interests. Judge
Kennedy stated that "it would be inappropriate for a federal court to second-guess the City in its
identification of needs and interests."
The Sixth Circuit found that the granting of a cable franchise is a legislative act
traditionally entitled to considerable deference from the judiciary. The Court stated that "the
City Council's knowledge of a community gives it an institutional advantage in identifying a
community's cable needs and interests. A Court should defer to the franchising authority's
identification of the community's needs and interests except to the extent necessary to weigh the
needs and interests against the costs of implementing them."
By reviewing the identified cable needs only insofar as necessary to weigh the needs against
the costs,and by giving considerable deference to the franchising authority's identified cable needs
and interests, the court preserved the "critical role" of the franchising authority in the franchise
process.
The Naperville Case
The court in this case determined that a level-playing field under the Illinois Level Playing
Field Statute is determined by examining franchises as a whole, rather than on a term by term
basis, allowing a franchise authority the ability to account for extrinsic circumstances that exist
at the time of the grant of a subsequent franchise. The City of Naperville's decision to deny the
incumbent cable provider's request to modify its franchise will be reviewed "de novo" by the
district court.
LEIBOWITZ& ASSOCIATES, P.A.
How To MANAGE TELECOM CONNECTIONS PAGE 6
Critical Issues in the Cable Television
Franchise Renewal Process
Renewals
a. County v. City Jurisdiction - A "franchising authority" is defined as any
governmental entity empowered by the Federal, State or local law to grant a
franchise. Accordingly, under applicable state and federal law, both a City and a
County can qualify as a local franchising authority. Issues can arise,however,over
which entity has jurisdiction over a certain area. Further, issues arise as a result
of annexation and from the creation of new cities.
b. Scope of the Franchise - Notwithstanding advances in technology that have
supported the proliferation of telecommunications services and in some cases the
convergence of such services that may be offered by the same company offering
cable television service, federal law applies on a service by service basis.
Accordingly,cable franchises granted pursuant to Title VI of the Communications
Act should be limited in scope to cable television. Although provision of non-
cable telecommunications services by a cable franchisee may not be prohibited,
local jurisdictions should require the providers of such services to obtain applicable
authorization prior to initiation of services.
c. Internet Service - Local franchising authorities need to address internet services.
What is permissible under a cable franchise? What is prohibited?
d. Level Playing Field-Is a level playing field clause really as benign as cable operators
claim? Why do incumbents attempt to negotiate this term? What does the Florida
statute require?
e. Term - How short is too short, how long is too long?
f. Franchise Fee Payments - What does the law permit? How shall local franchise
authorities calculate gross revenues? Do we need to perform a financial audit?
g. Rebuild Requirements - Can local governments establish a specific technology,
upgrade and rebuild requirements? Does the 1996 Act prohibit local authorities
from requiring particular system design? What is meant by state of the art?
LEIBOWITZ & ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 7
h. Enhanced Customer Service-Local franchising authorities may have an opportunity
to require more meaningful customer service standards than those in existing
franchises. Although FCC regulations provide for minimum guidelines,pursuant
to federal law franchising authorities are permitted to adopt enhanced standards
as well as enforcement mechanisms to ensure compliance on the part of the cable
operator.
PEG Requirements-Local authorities typically require cable operators to set aside
subscriber network channels for public, educational and government use. With
the advent of the digital world, however, questions arise concerning: (1) whether
the community can control some of the new digital capacity for PEG purposes and
use it to provide multiple channels of video and non-video information to
subscribers' homes, and (2) will the type and amount of information provided via
PEG channels be limited if the cable operator controls all of the digital capacity.
Institutional networks -I-Net's can link schools, libraries and government facilities
for video, voice and data communication. Can local authorities require cable
operators to provide these services? Who should bear the cost? What are the
critical elements of an I-Net?
k. Transfer provisions - The transfer of a cable franchise may represent a local
authority's most significant opportunity to review and enforce compliance with
existing franchise provisions as well as to negotiate franchise modifications.
Therefore, all franchises should incorporate provisions that maximize the local
government's ability to exercise its authority in this regard. (See transfer section).
LEIBOWITZ & ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 8
Transfers of Cable Franchises
Millions of cable subscribers have been affected by cable system sales and transfers between
cable companies. The volume and pace of such transfers has increased dramatically as a result of
the 1996 Telecommunications Act. The Act allows telephone companies as well as utility
companies to enter the cable business. In addition, the Act eliminates the three year holding
requirement.
While many franchising authorities recognize the opportunities represented by renewals,
many communities overlook the significance of a transfer,sale or assignment of the cable system.
In fact, some franchising authorities fail to retain the right to approve or deny a transfer within
the franchise agreement. In the past, local authorities frequently treated transfers, sales and
assignments on a pro-forma basis. However,transfers represent a significant opportunity for local
franchising authorities to modify current agreements.
Transfers of cable operators have meaningful implications for the community, and failure
to adequately evaluate these transactions may result in the local authority unknowingly waiving
its rights, including but not limited to the right to deny a renewal. Thus, local franchising
authorities should be vigilant in their oversight of transfer applications submitted by the cable
operator. In considering any application for transfer,the local authority should diligently review
the operator's performance under the existing franchise in order to avoid waiving of any non-
compliance by the operator. The review should include, but not be limited to, fee payments,
customer service, satisfaction of public, education and government access requirements,technical
facilities and capabilities and compliance with outstanding orders of the local authority.
As is the case with franchise renewals, transfers of cable system ownership are governed
by federal law, as well as in some cases, state and local law. Under federal law, where the
franchise agreement gives the local franchising authority the right to review a transfer, the cable
operator must submit an FCC Form 394 and any other information specifically required by the
franchise to support the transferee's legal, financial and technical qualifications. The local
franchising authority must issue a decision to approve or deny the transfer within 120 days of
receipt of the completed transfer application on Form 394.
LEIBOWITZ& ASSOCIATES, P.A.
HOW TO MANAGE TELECOM CONNECTIONS PAGE 9
Critical Issues in the Transfer Process
• When is a transfer a transfer? When is a reorganization or corporate
streamlining a transfer?
• Are there any deficiencies in the Seller's past and current performance; are
there any noncompliance issues?
• What are the buyer's financial,technical, legal and character qualifications?
What is its history with other cities?
• Has the cable operator provided all information required by the franchise
authority?
• What are the limits imposed by the 1996 Telecommunications Act on cross
ownership between cable operators and local exchange carriers, OVS
operators and SMATV systems within the same region? Local franchise
authorities should carefully review the corporate structure and interlocking
corporate relationships prior to granting approval to any sale, assignment
or transfer.
• How long does the franchising authority have to act on the transfer
request?
• What modifications and updates in the current franchise agreement are
desired by the franchising authority?
• What effect, if any, does a transfer have on franchise renewal?
LEIBOWITZ& ASSOCIATES,P.A.
HOW TO MANAGE TELECOM CONNECTIONS PACE 10
How Do Internet Services Over the Cable
System Affect Local Jurisdictions
A. Definition of Internet Services
• What is the scope of services that a cable franchise confers on a cable
operator?
• Can a cable services operator provide internet services via its cable system
within its franchise area?
• Does a franchising authority have the right to prohibit internet services
provided by a cable operator within its franchise area?
B. Gross Revenues
Does revenue from internet services fall within the definition of gross revenues subject to
franchise fees?
C. FCC Staff Working Paper
The FCC recently released a staff working paper analyzing the policy issues raised by the
delivery of internet services over cable television systems. A FCC summary of the report
is attached.
D. Pending Federal Legislation
In 1998, the Internet Tax Freedom Act created the Advisory Commission on Electronic
Commerce to conduct a study of Internet related issues. Specifically excluded from the
study is an examination of fees or charges imposed by the Federal Communications
Commission or States related to the Communications Act of 1934 and the
Telecommunications Act of 1996. The Act declared that the moratorium promulgated
by the Act on Federal taxes with respect to the Internet and Internet access does not
include any franchise fee or similar fee imposed by a State or local franchising authority,
pursuant to Section 622 or 653 of the Communications Act of 1934 (47 USC § 542, 573)
or any other fee related to obligations of telecommunications carriers under the
Communications Act of 1934, as amended.
LEIBOWITZ& ASSOCIATES, P.A.
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/TIME WARNER
COMMUNICATIC9 NS
VIA: FACSIMILE
May 19, 1999
Mr. Ellis Shapiro
City Manager. City of Ocoee
ISO Lakeshore Drive
Ocoee,Fl 34761
Dear Mr. Shapiro.
Enclosed please find ti e Sample Area Prices as requested from Commissioner Anderson.
If you have any questions, please do no hesitate to contact me.
Sincerely,
David Spencer
Vice President ofOpei:ations
General Manager
DS. agb
Enclosure
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9-/96 nomd6 PIA!O ]MU aOtli SI II 68, 61 ATh
/R]TIME WARNER
COMMUNICATIONS
SCHEDULE OF PRICES Effective January 1999
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6 Orlando Orange Co OHMS Ocom l6nPw000PAndarme n
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Standard Service . ... .... 22.92 10.55 Y0.55 20A6 301
Remote Gomel
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Smad Box(am)
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Ad3blal OutIM ._. _.. _. _...._.. .. $ NC NIC WC NC WC WC
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ShowtimHn• - - _..$ 1095 1095 1095 1005 10.95 1095
Magmas llntl. .. The Movie Channel) -- ?05 105 ?95 ?05 L95 205
Vie Disney
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HOME THEATER _$ 305 ]05 3.953.95 3.95 396
Spatial• _.. _.., _..__. _. ..........�-..... 'diced lldMdU.Ly
Spatial events and eMeraroclal5ervins_.. _. _ _ ..._.._..... _...
NEW VALUE PACKAGING f 3TW SIB9 x.9A N99 3?9B 9?09
ENTSRTANMENT PAK _.._..
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Roman Paeages-available to aspmale veili EnNitlinmant Pak
(Mons of HBO.Cinemax,Shdnime,The Dailey Clwnay
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SMART CHOICE(2 premium'ammo)wMul Ines or The Disney Channel•.. _ _.._....S 15.90 1500 15.90 15.90 1590 1520
SMART CHOICE PAK(2 premium service)' . ... .... .. . .. ... 1695 1095 1095 1895 16.95 1695
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... 3 le ea 19,5 19.05 la a6 ta.ae 1915
FOUR STAR PAK(4 penngm aefMwel• -. - - -- ._ S 24.05 24.95 2605 24.96 24A5 2495
INSTALLATION AND SERVICE CHARGWr11ILL PRANCHIIE0) S b.2a
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OTHER FEES:(ALL FRANCHISES) S 1
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NofStMCie4 Funds Fee..... ............... __.
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Collection Fw.__.._ _...._ . .__ $ 166.00
UnremMd Converter
Sox ...N n
unrewmed Lomener Roc Fee-NonAdn luck ....., .............. S 40.99
OPmumbl NamMe S 2200
Refundable EciuMeard Deposit(one Smart l ea on4
. ... .
atthionelbox) S 2500
Refundable Equipment Deposit Ipr the wit rind each additional box) ....,. i SO.OD
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VCR I AB Switch K11 S tom
_.._... 3 B95
VCR Candidly.. .....__. ._ .. _ ._....
S 995
No Monthly Cluga(NC)
NOTE:FrinctslaFee clad Sales Tints dined to aabmer ebtamenb punuarI to Federal.State end meal lam. Prima am subject10 change due to Weal regulations.
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P96-i EC/EIS d 299-1 226S-299-109 la5uad5 pine0 7M1:1110di 51:I1 66, 61 AYR
/TIME WARNER
COMMUNICATIONS
Fax Cover Sheet
Date: May 1S . 1999
To: Ellis S(lapiro, City Manager From: David Spencer
City of Ocoee
Phone: 407 659-2322 ext. 121 Phone: (407) 532-8630
Fax: 407 656-8504 Fax: (407) 667-5922
Number of pages in::luding cover sheet 3
MESSAGE
V66d E0/10 d 299-1 2265-199-10V minds pNAe0 3M1)%0dd V1111 66, 61 AVII