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House Commerce Committee Releases Draft Franchising Reform Legislation

March 29, 2006

The House Commerce Committee has released a draft version of franchising reform legislation that would allow new entrants and, under certain circumstances, existing cable franchisees to provide cable service under a "national franchise" in lieu of a locally awarded franchise.

In general, the bill permits new entrants to forego local franchising and obtain from the FCC a ten-year national franchise on 30 days notice. Incumbent operators in areas where a new entrant has obtained a national franchise may then elect to abandon their existing local franchises and also operate under a national franchise. In addition, where an ILEC and a cable operator already are competing head-to-head with local franchises, those operators can switch to national franchises as their local franchises expire.

In those communities where an operator provides service pursuant to a national franchise, the role of the local franchising authorities essentially would be limited to enforcing national customer service standards (also enforceable by the FCC) and collecting a 5% franchise fee. Any entity providing service under a national franchise also would be subject to a new 1 % PEG support fee and rules would be adopted to require interconnection and sharing of PEG costs among competing providers. Income based redlining would be prohibited, but there would be no other build out or construction timetable requirements.

Most other existing regulations governing cable system operations, including must carry, program access, etc. are unchanged. In particular, there would be no change in the rate regulation provisions; thus, once an operator is deemed subject to effective competition, it would be exempt from the uniform pricing rules.

The draft bill also contains a general "network neutrality" provision authorizing the FCC to implement limited network neutrality principles; a provision confirming the right of municipalities to provide telecommunications, cable, and information services; and provisions addressing VoIP 911/E911 issues and interconnection issues.

Reaction to the draft bill has been mixed. It generally is viewed by the cable industry as a significant improvement over proposals floated in the last couple of weeks that suggested that the national franchise would only become available to incumbent operators after the new entrant had captured 15% of the subscribers in a community (over and above the subscribers captured by DBS) and that cable operators would remain subject to uniform pricing regulation even after they were found to be subject to effective competition. On the other hand, there is still some concern that the bill does not contain build out or construction schedule requirements for new entrants. The net neutrality provisions have been attacked by both the cable industry, which regards them as unnecessary and groups that believe the rules do not go far enough.

A more detailed summary of the bill, which will be the subject of a hearing later this week, is attached.

We would be happy answer any questions that you may have concerning this matter.

Link: Summary of March 27, 2006 Draft Franchising Reform Legislation

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