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[House Report 109-470]
[From the U.S. Government Publishing Office]

109th Congress                                            Rept. 109-470
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 2

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   COMMUNICATIONS OPPORTUNITY, PROMOTION, AND ENHANCEMENT ACT OF 2006

                                _______
                                

                  June 6, 2006.--Ordered to be printed

                                _______
                                

    Mr. Barton of Texas, from the Committee on Energy and Commerce, 
                        submitted the following

                          SUPPLEMENTAL REPORT

                        [To accompany H.R. 5252]

      [Including cost estimate of the Congressional Budget Office]

    This supplemental report shows the cost estimate of the 
Congressional Budget Office with respect to the bill (H.R. 
5252), as reported, which was not included in part 1 of the 
report submitted by the Committee on Energy and Commerce on May 
17, 2006 (H. Rept. 109-470, pt. 1).
    This supplemental report is submitted in accordance with 
clause 3(a)(2) of rule XIII of the Rules of the House of 
Representatives.

                                CONTENTS

                                                                   Page
Committee Cost Estimate..........................................     1
Congressional Budget Office Estimate.............................     1
Federal Mandates Statement.......................................     7

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

H.R. 5252--Communications Opportunity, Promotion, and Enhancement Act 
        of 2006

    Summary: H.R. 5252 would allow providers of cable service 
to apply to the Federal Communications Commission (FCC) for a 
national franchise. National franchises would be substitutes 
for separate, negotiated agreements with states and localities 
regarding the provision of cable service to a local area. The 
bill also would require providers of Internet-based telephone 
service known as Voice-over-Internet-Protocol (VOIP) to provide 
access to emergency 911 telephone service. Finally, H.R. 5252 
would require the FCC to conduct several studies related to 
telecommunications services.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing H.R. 5252 would cost less than 
$500,000 in 2006 and about $7 million over the 2006-2011 
period. Enacting the bill would not have a significant effect 
on direct spending or revenues.
    H.R. 5252 contains several intergovernmental mandates, as 
defined in the Unfunded Mandates Reform Act (UMRA). In 
particular, it would prohibit intergovernmental entities--
primarily municipal governments--from charging certain fees to 
providers of cable service. The bill also would impose a 
variety of requirements and limitations on public safety access 
points (PSAPs). Further, the bill would preempt state laws that 
prohibit municipal governments from providing Internet access 
services and, if area cable providers receive a national 
franchise, would preempt state and local laws that address 
consumer protection, cable franchises, and the use of municipal 
rights-of-way. CBO estimates that the net direct costs of these 
mandates on state and local governments would grow over time, 
and would likely fall between $100 million and $350 million by 
2011. Such losses would exceed the threshold established in 
UMRA in at least one of the first five years the mandates are 
in effect (the threshold is $64 million in 2006 and is adjusted 
annually for inflation).
    Other impacts of the bill include potential losses to 
intergovernmental entities of in-kind support from cable 
franchisees.
    H.R. 5252 also would impose private-sector mandates as 
defined by UMRA on broadband service providers, and on private 
entities that own 911 components necessary to transmit VOIP 
emergency 911 services over their networks. Based on 
information from government and industry sources CBO estimates 
that the costs of complying with those mandates would fall 
below the annual threshold established by UMRA for private-
sector mandates ($128 million in 2006, adjusted annually for 
inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 5252 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2006      2007      2008      2009      2010      2011
----------------------------------------------------------------------------------------------------------------
                                 CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\

Estimated authorization level.......................         *         2         2         1         1         1
Estimated outlays...................................         *         2         2         1         1         1
----------------------------------------------------------------------------------------------------------------
\1\Enacting H.R. 5252 also would have small effects on direct spending and revenues, but CBO estimates that
  those effects would be less than $500,000 a year.
NOTE: * = less than $500,000.

Basis of Estimate

    CBO estimates that implementing H.R. 5252 would cost less 
than $500,000 in 2006 and about $7 million over the 2006-2011 
period to issue regulations, write reports and studies, and 
enforce the bill's provisions regarding new cable franchises 
and VOIP. For this estimate, CBO assumes that the bill will be 
enacted before the end of 2006, that the estimated amounts will 
be appropriated for each year, and that outlays will follow 
historical spending patterns for similar activities. Enacting 
the legislation would not have a significant effect on direct 
spending or revenues.
            Spending subject to appropriation
    H.R. 5252 would allow providers of cable service to apply 
to the FCC for a national franchise in lieu of negotiating 
separate franchise agreements with states and localities for 
providing cable service to a local area. The bill also would 
require VOIP providers to connect users to emergency 911 
telephone service. Under the bill, the FCC would certify the 
new national franchises, conduct annual audits of the new 
franchises, and create regulations regarding the new 
franchising structure and VOIP emergency services. Finally, 
H.R. 5252 would require the FCC to conduct several studies 
regarding telecommunications services, including VOIP, 
municipal provision of telecommunications services, and 
broadband Internet service.
    Based on the level of effort required for previous major 
rulemaking efforts by other agencies, CBO estimates that 
implementing H.R. 5252 would cost less than $500,000 in 2006 
and about $7 million over the 2006-2011 period for the FCC to 
develop and issue regulations, write reports, and enforce the 
bill's provisions related to cable franchises and VOIP. Those 
costs would be subject to the availability of appropriated 
funds.
            Revenues and direct spending
    Enacting H.R. 5252 would affect revenues and direct 
spending because enacting the bill would affect civil penalties 
and copyright royalties. CBO estimates that any such effects 
would not be significant.
    Civil Penalties. Enacting H.R. 5252 could increase federal 
revenues by increasing collections of additional civil 
penalties assessed for violations of laws related to providing 
telecommunications services. Collections of civil penalties are 
recorded in the budget as revenues. CBO estimates, however, 
that any additional revenues that would result from enacting 
the bill would not be significant because of the relatively 
small number of cases likely to be involved.
    Enacting the bill could increase direct spending because 
section 101 would require the FCC to distribute certain 
penalties collected from cable companies to state or local 
franchising authorities. CBO estimates that any distributions 
of penalties to state or local franchising authorities would 
not be significant because of the relatively small number of 
cases likely to be involved.
    Copyright Royalties. Under current law, the users of 
certain copyrighted material must pay royalties and abide by 
certain conditions when using the material. The Copyright 
Office collects royalties from users of certain copyrighted 
material and then distributes the royalties to owners of 
copyrighted works. The receipt of royalties from users of 
copyrighted material are recorded in the budget as federal 
revenues, and the distributions to copyright owners are 
recorded as federal spending. Under current law, cable 
operators pay royalties to transmit distant broadcast signals 
to cable viewers, and satellite carriers pay royalties to 
retransmit distant network and superstation signals by 
satellite.
    The national franchising provisions included in H.R. 5252 
would allow new entrants into the market for providing cable 
service to connect to households faster than would otherwise be 
expected. CBO expects that enacting the bill could affect the 
collection and distribution of copyright royalties. Total 
copyright royalties paid for services provided to existing 
subscribers could increase or decrease as subscribers switch 
from existing satellite or cable service to cable service 
provided by new entrants. Copyright royalties would increase as 
subscribers who currently do not subscribe to either satellite 
or cable service opt to subscribe to cable services provided by 
new entrants. Based on information provided by the Copyright 
Office and cable and telecommunication firms, CBO estimates 
that the net effect of enacting this legislation on copyright 
royalties in any year over the 2006-2016 period would not be 
significant.

Estimated impact on state, local, and tribal governments

            Intergovernmental mandates contained in the bill
    H.R. 5252 contains several intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act. Specifically, the 
bill would:
          Eliminate the authority, in certain 
        circumstances, of local entities to issue franchises 
        for cable providers;
          Prohibit intergovernmental entities--
        primarily municipal governments--from imposing certain 
        fees on providers of cable services;
          Require public safety access points to make 
        their systems accessible to the providers of a type of 
        telephone service known as Voice-over-Internet-Protocol 
        and to make certain information available to the FCC;
          Limit the fees that local governments can 
        charge VOIP providers for access to emergency 911 
        services;
          Preempt state and local consumer protection 
        laws;
          Preempt local government authority over 
        municipal rights of way; and
          Preempt state laws prohibiting local 
        governments from offering certain services to provide 
        Internet access.
    The bill would require there to be competition for video 
services other than satellite in any franchise area before 
providers of such services could apply for a national 
franchise. Such competition would likely come from those 
companies that have traditionally provided telephone service. 
While the speed with which new providers would offer such 
service is uncertain, industry sources suggest that these 
companies would offer cable services under the bill in at least 
10 percent to 20 percent of franchise areas by 2011. Based on 
this information and the large number of franchises nationwide 
(about 30,000), CBO estimates that the net costs of complying 
with the intergovernmental mandates in the bill would, in 
aggregate, exceed the threshold established in UMRA in at least 
one of the first five years that the mandates are in effect 
(the threshold is $64 million in 2006 and is adjusted annually 
for inflation).
    CBO estimates that prohibiting intergovernmental entities--
primarily municipal governments--from raising certain revenues 
from providers of cable services that have a national franchise 
would impose the most significant costs resulting from the 
mandates. By increasing competition in some markets, enacting 
the bill would likely lead to more people subscribing to cable 
services that are subject to local franchise fees. Thus, local 
governments would gain new revenues that partially offset those 
costs.
    CBO further estimates that the requirements on PSAPs, the 
limitations on the ability of state and local governments to 
charge fees to VOIP providers, and the other preemptions in the 
bill would probably not impose significant costs on 
intergovernmental entities.
            Estimated direct cost of mandates to state and local 
                    governments
    Under current law, Local Franchise Authorities (LFAs) in 
most states negotiate compensation with cable providers seeking 
to serve their franchise area. (In at least three states, the 
law provides for a statewide franchise). Each agreement is 
different, and the amount of forgone revenue from the bill's 
prohibition would depend on the specifics of each franchise 
agreement preempted by a national franchise. Current federal 
law caps fees for the franchise at 5 percent of gross 
revenues--a fee maintained in H.R. 5252. However, local 
governments also negotiate fees for public, educational, and 
governmental (PEG) programming--some in cash and some in-kind--
totaling, on average, between 1 percent and 3 percent of the 
gross revenues of the provider. In general, urban and suburban 
areas have a higher percentage of PEG contributions than do 
nonurban areas. The bill would limit charges by LFAs to 1 
percent of gross revenues of cable providers.
    By prohibiting intergovernmental entities from charging 
certain cable providers more than 1 percent of gross revenues 
to provide PEG programing, enacting the bill would lead to a 
loss in state and local revenues. CBO estimates that the gross 
costs of this prohibition--that is, the amount of the revenues 
that state and local governments would no longer be able to 
collect--would grow to between $150 million and $450 million by 
2011.
    UMRA includes in its definition of the direct costs of a 
mandate the amounts that state and local governments would be 
prohibited from raising in revenues to comply with the mandate. 
Thus, CBO counts as direct costs the cash portion of what state 
and local governments would be prohibited from charging under 
the bill.
    At the same time, however, the bill would likely increase 
competition for cable service, decreasing the average price for 
such service. As a result, more people would likely subscribe 
to cable services, and they would pay additional franchise fees 
to local governments that would offset some of the state and 
local government losses described above. CBO estimates that 
these new revenues would total about 25 percent of aggregate 
losses. On balance, we estimate that the net costs of this 
mandate would likely fall between $100 million and $350 million 
by 2011.
    Under H.R. 5252, it is likely that competitors would 
increase the speed with which they enter the cable market 
because costly barriers to entry would be removed. Under 
current law, there is competition in fewer than 5 percent of 
local franchise areas. Under the provisions of the bill, new 
entrants would likely increase the areas to which they provide 
cable service, reaching into at least 10 percent to 20 percent 
of franchise areas by 2011. As competition increases, more 
cable providers would likely apply for national franchises, and 
as national franchises increase, forgone revenues to state and 
local governments also would increase. While losses would 
depend on the specifics of the franchise agreements in the 
areas with new entrants and industry business plans, average 
PEG rates in such areas suggest that forgone revenues would 
likely total at least 1 percent to 2 percent of the gross 
revenues for cable providers in areas with a national 
franchise.
            Other impacts on state and local governments
    The bill also would impose a significant impact on state 
and local governments not covered under direct costs or direct 
savings in UMRA. Specifically, such entities would incur some 
in-kind losses from enactment of the bill.
    In franchise agreements, cable providers often agree to 
complete and maintain a variety of in-kind contributions to 
public entities including schools, police and fire stations, 
libraries, and other municipal buildings. These are called 
institutional networks (INETs). Providers often will also 
supply studios and equipment for public access television 
stations to support PEG programming. Depending on the 
interpretation of the bill's provision concerning maintenance 
of INETs, anecdotal information from several local governments 
suggest they could lose in-kind contributions totaling several 
million dollars. Most communities in areas where cable 
providers receive a national franchise would forgo some in-kind 
benefits for PEG programming.

Estimated impact on the private sector

    H.R. 5252 would impose mandates as defined by UMRA on 
broadband service providers, and on private entities that own 
911 components necessary to transmit VOIP emergency 911 
services over their networks. Based on information from 
government and industry sources CBO estimates that the costs of 
complying with those mandates would fall below the annual 
threshold established by UMRA for private-sector mandates ($128 
million in 2006, adjusted annually for inflation).
    The bill would impose mandates by:
         Prohibiting broadband service providers from 
        requiring subscribers to purchase other services as a 
        bundle; and
         Requiring certain entities that own 911 
        components to allow VOIP providers access to their 
        infrastructure.
            Unbundling of broadband services
    Section 501 would prohibit any provider of broadband 
services from requiring a subscriber to purchase other services 
offered by the provider (including cable service, 
telecommunications service, or VOIP) as a condition of 
purchasing broadband service.
    The costs of the mandate would be the expenditures 
necessary for converting systems to offer stand-alone service 
and the ongoing loss of net income from the direct lost sales. 
According to industry sources most of the industry already 
offers stand-alone broadband services. The cost of compliance 
for the remaining providers of converting their systems would 
be small.
    Broadband service providers also could lose income as some 
consumers chose to subscribe only to the broadband service, 
forgoing any bundled services. Assuming the providers of 
broadband service who currently provide stand-alone service 
continue to do so independent of the mandate, the net loss of 
income should be small relative to the threshold.
            Making 911 components accessible to VOIP providers
    Section 301 would clarify FCC regulations relating to VOIP 
access to 911 and E911 infrastructure. The language in section 
301 would impose a new mandate on all private entities that own 
911 components necessary to transmit VOIP emergency 911 
services over their networks. Section 301 would require such 
entities to allow VOIP providers to have full access to the 
necessary 911 components. Owners of 911 components would be 
able to charge VOIP providers a fee for using their network 
components, but would be mandated to enter into such agreements 
with those providers. Large private entities that own 911 
components have most of the infrastructure in place to comply 
with the mandate. Some smaller owners of 911 components may not 
have such capacity and would incur costs to comply with the 
mandate. Based on information provided by industry and 
government sources, CBO expects that the direct costs of 
complying with this mandate would be minimal.
    Estimate prepared by: Federal costs: Melissa Z. Petersen; 
impact on state, local, and tribal governments: Sarah Puro; 
impact on the private sector: Philip Webre and Fatimot Ladipo
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                                  
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