Category Archives: Cable Television

Originally Published October 8, 2013

Originally published September 27, 2010.

The FCC clarified several issues surrounding the calculation of cable franchise fees in its report and order in 2007, including:

(i) the franchise fee revenue base;

(ii) limitations on charges incidental to the awarding or enforcing of a franchise;

(iii) the proper classification of in-kind payments unrelated to the provision of cable service; and

(iv) the proper classification of contributions in support of PEG services and equipment.

Later in a Second Report and Order, the FCC applied the majority of these findings and rules to existing as well as competitive entrants.

Franchise Fee Revenue Base

In its order, the FCC clarified “that a cable operator is not required to pay franchise fees on revenues from non-cable services.” According to the FCC, this prohibition would specifically apply to cable modem service revenues, broadband data service revenues, Internet access revenues and other non-cable service revenues.

The FCC did not specifically address whether advertising revenues, home shopping channel commissions, launch support, late fees, installation fees and even equipment revenues, because they could be considered “non-cable” services. The FCC does note that advertising revenues and home shopping commissions have historically been included in gross revenues for franchise fee calculation purposes, but it does not say such revenues and commissions can be included in the calculation of gross revenues going forward.

Charges Incidental to the Awarding or Enforcing of a Franchise

Section 622(g)(2)(D) of the Cable Act excludes from the federal five percent franchise fee cap “requirements or charges incidental to the awarding or enforcing of the franchise, including payments for bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages . . .” According to the FCC, the term “incidental” includes only those items listed in Section 622(g)(2)(D), “as well as other minor expenses” described in the order. Examples of charges that are not “necessarily” to be regarded as incidental include processing fees, acceptance fees, consultant fees, and attorney fees. Reasonable franchise application fees and processing fees are, however, to be regarded as proper incidental fees that do not count towards the federal franchise fee cap.

The FCC also concluded that “free or discounted services provided to an LFA” and certain “in-kind payments” are non-incidental costs that must be considered franchise fees. The order was silent on the specific treatment of institutional networks and whether the costs associated with providing fiber for institutional networks and furnishing free drops, outlets and cable service to governmental institutions could be deducted from a cable operator’s franchise fee payments.

In-Kind Payments Unrelated to the Provision of Cable Service

The Report and Order finds that “any requests made by LFAs that are unrelated to the provision of cable service by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.” The FCC provides no concrete guidance as to what types of financial and in-kind requests would not be counted against the franchise fee cap, but does list certain examples of requirements that apparently would be deemed franchise fees, if included in franchise documents, such as scholarship grants, video hookups, money for wildflower seeds and fiber for traffic signal monitoring.

Contributions in Support of PEG Services and Equipment

Section 622(g)(2)(C) of the Cable Act specifies that “capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities” are not franchise fees. The FCC interprets this language to encompass “those costs incurred in or associated with the construction of PEG access facilities.” The order goes on to state that “payments in support of the use of PEG access facilities” are franchise fees. These payments in support of PEG include, but are not limited to, “salaries and training.”

Originally published on September 27, 2010.

The recently affirmed FCC order on local franchising concludes that “LFAs may not make unreasonable demands of competitive applicants for PEG and I-Net” and that doing so constitutes an unreasonable refusal to award a franchise.

Reasonable and Adequate Support

With regard to PEG channel capacity, the FCC determined that it would be unreasonable “to impose on a new entrant more burdensome PEG carriage obligations that it has imposed on the incumbent cable operator.” The FCC found that PEG support must be both “adequate and reasonable.” Adequacy is defined by the FCC as “satisfactory or sufficient.” The order does provide some examples of unreasonable PEG support obligations, including:

· completely duplicative PEG and I-Net requirements;
· payment of the face value of an I-Net that will not be constructed; and
· requirements that are in excess of the incumbent cable operator’s obligations.

Pro Rata Cost Sharing is Per Se Reasonable

According to the FCC, pro rata cost sharing of current (as opposed to future) PEG access obligations is per se reasonable. Unfortunately, the FCC did not provide additional guidance on how to properly and accurately calculate what the appropriate per subscriber payment should be made. Questions remain about situations where lump sum PEG grants and in-kind contributions are included in an existing franchise agreement.

In the event that pro rata cost sharing is utilized, PEG programming providers must permit a new entrant to interconnect with existing PEG video fees. The new entrant must bear the cost of interconnection. The order is silent on where interconnection must take place, or what type of transmission medium (e.g., fiber or coaxial cable) must be used.

Regulation of Mixed-Use Networks

The order states that “LFAs’ jurisdiction applies only to the provision of cable services over cable systems. To the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities.” In other words, cable franchising decisions can only be made based on issues related to cable service.

I’m re-posting this blog entry on PEG from 2010.

With technology today, a person interested in producing a video is as easy as pulling out a smart phone and shooting video and uploading it to Facebook or YouTube or some other type of interactive social media network. Anyone with access to widely available video recording devices can produce and distribute video. Add a mac or pc to the mix and now you can produce a fully edited video clip for distribution. So with these capabilities in our hands, is there any reason to support Public, Educational and Governmental (“PEG”) television?

PEG Channels are cable channels that are typically operated by cities or counties. A “Public Access” channel is generally open to anyone who wants to put some type of video programming on the channel. It is the public soapbox in the cable television world. An “Education Access” channel is typically a channel that is programmed by the local school district or college/university and could contain classroom instruction or video of school board meetings and other school activities, like a school pep fest. A channel that shows local government meetings and other information on the local community is a “Government Access” channel. These PEG channels have been around for about 30 years now.

While there are new and inexpensive ways to produce video, PEG operations still allow people to produce video in a higher quality and shown to a local audience. While you can put a video out on YouTube, the chances of it being seen by significant numbers of people is still very small. There are still some financial obstacles to producing video. Although the technology to produce a decent quality video has decreased significantly over the years, there are still many people that simply do not have access to the cameras to shoot the video, the computers to edit the video, or the internet to upload the content. Many PEG operations also provide training to help new producers make quality video productions. Sometimes these productions are later shown on other channels, such as PBS. Volunteer producers go on to careers in video production.

The audience of the PEG channels should also not be underestimated. For example, folks who want to know what is going on with their local government need only tune into their local government access channel. They will likely see the council or board meetings that they are interested in, shows about current city/county/state projects, and perhaps bulletin board notices with important information. Viewers know where this information is and the amount of content exceeds what you can put on a social networking site.

Is PEG Television relevant in a social media world? Yes! Should local governments exclude the use of social media? No! Local governments can and should use social media to highlight good programming and information. Robust viewership is good for the future of the PEG channels and good for the cable operator providing the channels. Food for thought!