[Federal Register Volume 72, Number 54 (Wednesday, March 21, 2007)]
[Rules and Regulations]
[Pages 13189-13215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5119]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 05-311; FCC 06-180]


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

[[Page 13190]]

that the current operation of the local franchising process in many 
jurisdictions constitutes an unreasonable barrier to entry that impedes 
the achievement of the interrelated Federal goals of enhanced cable 
competition and accelerated broadband deployment. 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 and expedite entry of new cable 
competitors into the market for the delivery of video programming, and 
accelerate broadband deployment.

DATES: The rules in Sec.  76.41 contains information collection 
requirements that have not been approved by OMB, subject to the 
Paperwork Reduction Act. The Federal Communications Commission will 
publish a document announcing the effective date upon OMB approval.

ADDRESSES: You may submit comments, identified by MB Docket No. 05-311, 
by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
    <bullet> People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: <a href="/cdn-cgi/l/email-protection#f2b4b1b1c7c2c6b2949191dc959d84"><span class="__cf_email__" data-cfemail="5d1b1e1e686d691d3b3e3e733a322b">[email protected]</span></a> or phone: 202-418-
0530 or TTY: 202-418-0432.

For additional information on the rulemaking process, see the 
SUPPLEMENTARY INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Holly Saurer, <a href="/cdn-cgi/l/email-protection#40082f2c2c396e132135322532002623236e272f36"><span class="__cf_email__" data-cfemail="97dff8fbfbeeb9c4f6e2e5f2e5d7f1f4f4b9f0f8e1">[email protected]</span></a> or 
Brendan Murray, <a href="/cdn-cgi/l/email-protection#6a28180f040e0b0444271f18180b132a0c0909440d051c"><span class="__cf_email__" data-cfemail="fab8889f949e9b94d4b78f88889b83ba9c9999d49d958c">[email protected]</span></a> of the Media Bureau, Policy 
Division, (202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (Order), FCC 06-180, adopted on December 20, 2006, and 
released on March 5, 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 
<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="30565353050004705653531e575f46">[email protected]</a> or call the Commission's Consumer and Governmental 
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Paperwork Reduction Act of 1995 Analysis

    This document contains new information collection requirements 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. It will be submitted to the Office of Management and Budget (OMB) 
for review under Section 3507(d) of the PRA. OMB, the general public, 
and other Federal agencies will be invited to comment on the new 
information collection requirements contained in this proceeding. The 
Commission will publish a separate document in the Federal Register at 
a later date seeking these comments. In addition, we note that pursuant 
to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, 
see 44 U.S.C. 3506(c)(4), we previously sought specific comment on how 
the Commission might ``further reduce the information collection burden 
for small business concerns with fewer than 25 employees.''

Summary of the Report and Order

I. Introduction

    1. In this Report and Order (``Order''), we adopt rules and provide 
guidance to implement Section 621(a)(1) of the Communications Act of 
1934, as amended (the ``Communications Act''), 47 U.S.C. 541(a)(1), 
which prohibits franchising authorities from unreasonably refusing to 
award competitive franchises for the provision of cable services. We 
find that the current operation of the local franchising process in 
many jurisdictions constitutes an unreasonable barrier to entry that 
impedes the achievement of the interrelated Federal goals of enhanced 
cable competition and accelerated broadband deployment. While there is 
a sufficient record before us to generally determine what constitutes 
an ``unreasonable refusal to award an additional competitive 
franchise'' at the local level under Section 621(a)(1), we do not have 
sufficient information to make such determinations with respect to 
franchising decisions where a State is involved, either by issuing 
franchises at the State level or enacting laws governing specific 
aspects of the franchising process. We therefore expressly limit our 
findings and regulations in this Order to actions or inactions at the 
local level where a State has not specifically circumscribed the LFA's 
authority. In light of the differences between the scope of franchises 
issued at the State level and those issued at the local level, we do 
not address the reasonableness of demands made by State level 
franchising authorities, such as Hawaii, which may need to be evaluated 
by different criteria than those applied to the demands of local 
franchising authorities.
    Additionally, what constitutes an unreasonable period of time for a 
State level franchising authority to take to review an application may 
differ from what constitutes an unreasonable period of time at the 
local level. Moreover, many States have enacted comprehensive franchise 
reform laws designed to facilitate competitive entry. Some of these 
laws allow competitive entrants to obtain statewide franchises while 
others establish a comprehensive set of statewide parameters that cabin 
the discretion of LFAs. In light of the fact that many of these laws 
have only been in effect for a short period of time, and we do not have 
an adequate record from those relatively few States that have had 
statewide franchising for a longer period of time to draw general 
conclusions with respect to the operation of the franchising process 
where there is State involvement, we lack a sufficient record to 
evaluate whether and how such State laws may lead to unreasonable 
refusals to award additional competitive franchises. As a result, our 
Order today only addresses decisions made by county- or municipal-level 
franchising authorities. Moreover, it does not address any aspect of an 
LFA's decision-making to the extent that such aspect is specifically 
addressed by State law. For example, the State of Massachusetts 
provides LFAs with 12 months from the date of their decision to begin 
the licensing process to approve or deny a franchise application. These 
laws are not addressed by this decision. Consequently, unless otherwise 
stated, references herein to ``the franchising process'' or 
``franchising'' refer solely to processes controlled by county- or 
municipal-level franchising authorities, including but not limited to 
the ultimate decision to award a franchise. We further find that 
Commission action to address this problem is both authorized and 
necessary. Accordingly, we adopt

[[Page 13191]]

measures to address a variety of means by which local franchising 
authorities, i.e., county- or municipal-level franchising authorities 
(``LFAs''), are unreasonably refusing to award competitive franchises. 
We anticipate that the rules and guidance we adopt today will 
facilitate and expedite entry of new cable competitors into the market 
for the delivery of video programming, and accelerate broadband 
deployment consistent with our statutory responsibilities. References 
throughout this Order to ``video programming'' or ``video services'' 
are intended to mean cable services.
    2. New competitors are entering markets for the delivery of 
services historically offered by monopolists: Traditional phone 
companies are primed to enter the cable market, while traditional cable 
companies are competing in the telephony 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. We believe this competition for delivery of 
bundled services will benefit consumers by driving down prices and 
improving the quality of service offerings. We are concerned, however, 
that traditional phone companies seeking to enter the video market face 
unreasonable regulatory obstacles, to the detriment of competition 
generally and cable subscribers in particular.
    3. The Communications Act sets forth the basic rules concerning 
what franchising authorities may and may not do in evaluating 
applications for competitive franchises. Despite the parameters 
established by the Communications Act, however, operation of the 
franchising process has proven far more complex and time consuming than 
it should be, particularly with respect to facilities-based 
telecommunications and broadband providers that already have access to 
rights-of-way. New entrants have demonstrated that they are willing and 
able to upgrade their networks to provide video services, but the 
current operation of the franchising process at the local level 
unreasonably delays and, in some cases, derails these efforts due to 
LFAs' unreasonable demands on competitive applicants. These delays 
discourage investment in the fiber-based infrastructure necessary for 
the provision of advanced broadband services, because franchise 
applicants do not have the promise of revenues from video services to 
offset the costs of such deployment. Thus, the current operation of the 
franchising process often not only contravenes the statutory imperative 
to foster competition in the multichannel video programming 
distribution (``MVPD'') market, but also defeats the congressional goal 
of encouraging broadband deployment.
    4. In light of the problems with the current operation of the 
franchising process, we believe that it is now appropriate for the 
Commission to exercise its authority and take steps to prevent LFAs 
from unreasonably refusing to award competitive franchises. We have 
broad rulemaking authority to implement the provisions of the 
Communications Act, including Title VI generally and Section 621(a)(1) 
in particular. In addition, Section 706 of the Telecommunications Act 
of 1996 directs the Commission to encourage broadband deployment by 
removing barriers to infrastructure investment, and the U.S. Court of 
Appeals for the District of Columbia Circuit has held that the 
Commission may fashion its rules to fulfill the goals of Section 706.
    5. To eliminate the unreasonable barriers to entry into the cable 
market, and to encourage investment in broadband facilities, we: (1) 
Find that an LFA's failure to issue a decision on a competitive 
application within the time frames specified herein constitutes an 
unreasonable refusal to award a competitive franchise within the 
meaning of Section 621(a)(1) of the Communications Act; (2) find that 
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) find that unless certain 
specified costs, fees, and other compensation required by LFAs are 
counted toward the statutory 5 percent cap on franchise fees, demanding 
them could result in an unreasonable refusal to award a competitive 
franchise; (4) find that 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 (``PEG'') and institutional networks (``I-
Nets'') and (5) find that 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. Furthermore, we preempt local laws, 
regulations, and requirements, including level-playing-field 
provisions, to the extent they permit LFAs to impose greater 
restrictions on market entry than the rules adopted herein. We also 
adopt a Further Notice of Proposed Rulemaking (``FNPRM'') seeking 
comment on how our findings in this Order should affect existing 
franchisees. In addition, the FNPRM asks for comment on local consumer 
protection and customer service standards as applied to new entrants.

II. Background

    6. Section 621. Any new entrant seeking to offer ``cable service'' 
as a ``cable operator'' becomes subject to the requirements of Title 
VI. Section 621 of Title VI sets forth general cable franchise 
requirements. Subsection (b)(1) of Section 621 prohibits a cable 
operator from providing cable service in a particular area without 
first obtaining a cable franchise, and subsection (a)(1) grants to 
franchising authorities the power to award such franchises.
    7. The initial purpose of Section 621(a)(1), which was added to the 
Communications Act by the Cable Communications Policy Act of 1984 (the 
``1984 Cable Act''), was to delineate the role of LFAs in the 
franchising process. As originally enacted, Section 621(a)(1) simply 
stated that ``[a] franchising authority may award, in accordance with 
the provisions of this title, 1 or more franchises within its 
jurisdiction.'' A few years later, however, the Commission prepared a 
report to Congress on the cable industry pursuant to the requirements 
of the 1984 Cable Act. In that Report, the Commission concluded that in 
order ``[t]o encourage more robust competition in the local video 
marketplace, the Congress should * * * forbid local franchising 
authorities from unreasonably denying a franchise to potential 
competitors who are ready and able to provide service.''
    8. In response, Congress revised Section 621(a)(1) through the 
Cable Television Consumer Protection and Competition Act of 1992 (the 
``1992 Cable Act'') to read as follows: ``A franchising authority may 
award, in accordance with the provisions of this title, 1 or more 
franchises within its jurisdiction; except that a franchising authority 
may not grant an exclusive franchise and may not unreasonably refuse to 
award an additional competitive franchise.'' In the Conference Report 
on the legislation, Congress found that competition in the cable 
industry was sorely lacking:

    For a variety of reasons, including local franchising 
requirements and the extraordinary expense of constructing more than 
one cable television system to serve a particular geographic area, 
most cable television subscribers have no opportunity to select 
between competing cable systems. Without the presence of another 
multichannel video programming distributor,

[[Page 13192]]

a cable system faces no local competition. The result is undue 
market power for the cable operator as compared to that of consumers 
and video programmers.

    To address this problem, Congress abridged local government 
authority over the franchising process to promote greater cable 
competition:

    Based on the evidence in the record taken as a whole, it is 
clear that there are benefits from competition between two cable 
systems. Thus, the Committee believes that local franchising 
authorities should be encouraged to award second franchises. 
Accordingly, [the 1992 Cable Act] as reported, prohibits local 
franchising authorities from unreasonably refusing to grant second 
franchises.

    As revised, Section 621(a)(1) establishes a clear, Federal-level 
limitation on the authority of LFAs in the franchising process in order 
to ``promote the availability to the public of a diversity of views and 
information through cable television and other video distribution 
media,'' and to ``rely on the marketplace, to the maximum extent 
feasible, to achieve that availability.'' Congress further recognized 
that increased competition in the video programming industry would curb 
excessive rate increases and enhance customer service, two areas in 
particular which Congress found had deteriorated because of the 
monopoly power of cable operators brought about, at least in part, by 
the local franchising process.
    9. In 1992, Congress also revised Section 621(a)(1) to provide that 
``[a]ny applicant whose application for a second franchise has been 
denied by a final decision of the franchising authority may appeal such 
final decision pursuant to the provisions of section 635.'' Section 
635, in turn, states that ``[a]ny cable operator adversely affected by 
any final determination made by a franchising authority under section 
621(a)(1) * * * may commence an action within 120 days after receiving 
notice of such determination'' in Federal court or a State court of 
general jurisdiction. Congress did not, however, provide an explicit 
judicial remedy for other forms of unreasonable refusals to award 
competitive franchises, such as an LFA's refusal to act on a pending 
franchise application within a reasonable time period.
    10. The Local Franchising NPRM. Notwithstanding the limitation 
imposed on LFAs by Section 621(a)(1), prior to commencement of this 
proceeding, the Commission had seen indications that the current 
operation of the franchising process still serves as an unreasonable 
barrier to entry for potential new cable entrants into the MVPD market. 
We refer herein to ``new entrants,'' ``new cable entrants,'' and ``new 
cable competitors'' interchangeably. Specifically, we intend these 
terms to describe entities that opt to offer ``cable service'' over a 
``cable system'' utilizing public rights-of-way, and thus are defined 
under the Communications Act as ``cable operator[s]'' that must obtain 
a franchise. Although we recognize that there are numerous other ways 
to enter the MVPD market (e.g., direct broadcast satellite (``DBS''), 
wireless cable, private cable), our actions in this proceeding relate 
to our authority under Section 621(a)(1) of the Communications Act, and 
thus are limited to competitive entrants seeking to obtain cable 
franchises. In November 2005, the Commission issued a Notice of 
Proposed Rulemaking (``Local Franchising NPRM'') to determine whether 
LFAs are unreasonably refusing to award competitive franchises and 
thereby impeding achievement of the statute's goals of increasing 
competition in the delivery of video programming and accelerating 
broadband deployment.
    11. The Commission sought comment on the current environment in 
which new cable entrants attempt to obtain competitive cable 
franchises. For example, the Commission requested input on the number 
of: (a) LFAs in the United States; (b) competitive franchise 
applications filed to date; and (c) ongoing franchise negotiations. To 
determine whether the current operation of the franchising process 
discourages competition and broadband deployment, the Commission also 
sought information regarding, among other things:
    <bullet> How much time, on average, elapses between the date a 
franchise application is filed and the date an LFA acts on the 
application, and during that period, how much time is spent in active 
negotiations;
    <bullet> Whether to establish a maximum time frame for an LFA to 
act on an application for a competitive franchise;
    <bullet> Whether ``level-playing-field'' mandates, which impose on 
new entrants terms and conditions identical to those in the incumbent 
cable operator's franchise, constitute unreasonable barriers to entry;
    <bullet> Whether build-out requirements (i.e., requirements that a 
franchisee deploy cable service to parts or all of the franchise area 
within a specified period of time) are creating unreasonable barriers 
to competitive entry;
    <bullet> Specific examples of any monetary or in-kind LFA demands 
unrelated to cable services that could be adversely affecting new 
entrants' ability to obtain franchises; and
    <bullet> Whether current procedures or requirements are appropriate 
for any cable operator, including incumbent cable operators.
    12. In the Local Franchising NPRM, we tentatively concluded that 
Section 621(a)(1) empowers the Commission to adopt rules to ensure that 
the franchising process does not unduly interfere with the ability of 
potential competitors to provide video programming to consumers. 
Accordingly, the Commission sought comment on how it could best remedy 
any problems with the current franchising process.
    13. The Commission also asked whether Section 706 provides a basis 
for the Commission to address barriers faced by would-be entrants to 
the video market. Section 706 directs the Commission to encourage 
broadband deployment by utilizing ``measures that promote competition * 
* * or other regulating methods that remove barriers to infrastructure 
investment.'' Competitive entrants in the video market are, in large 
part, deploying new fiber-based facilities that allow companies to 
offer the ``triple play'' of voice, data, and video services. New 
entrants' video offerings thus directly affect their roll-out of new 
broadband services. Revenues from cable services are, in fact, a driver 
for broadband deployment. In light of that relationship, the Commission 
sought comment on whether it could take remedial action pursuant to 
Section 706.
    14. The Franchising Process. The record in this proceeding 
demonstrates that the franchising process differs significantly from 
locality to locality. In most States, franchising is conducted at the 
local level, affording counties and municipalities broad discretion in 
deciding whether to grant a franchise. Some counties and municipalities 
have cable ordinances that govern the structure of negotiations, while 
others may proceed on an applicant-by-applicant basis. Where 
franchising negotiations are focused at the local level, some LFAs 
create formal or informal consortia to pool their resources and 
expedite competitive entry.
    15. To provide video services over a geographic area that 
encompasses more than one LFA, a prospective entrant must become 
familiar with all applicable regulations. This is a time-consuming and 
expensive process that has a chilling effect on competitors. Verizon 
estimates, for example, that it will need 2,500-3,000 franchises in 
order to provide video services throughout its service area. AT&T 
states that its Project Lightspeed deployment

[[Page 13193]]

is projected to cover a geographic area that would encompass as many as 
2,000 local franchise areas. BellSouth estimates that there are 
approximately 1,500 LFAs within its service area. Qwest's in-region 
territory covers a potential 5,389 LFAs. While other companies are also 
considering competitive entry, these estimates amply demonstrate the 
regulatory burden faced by competitors that seek to enter the market on 
a wide scale, a burden that is amplified when individual LFAs 
unreasonably refuse to grant competitive franchises.
    16. A few States and municipalities recently have recognized the 
need for reform and have established expedited franchising processes 
for new entrants. Although these processes also vary greatly and thus 
are of limited help to new cable providers seeking to quickly enter the 
marketplace on a regional basis, they do provide more uniformity in the 
franchising process on an intrastate basis. These State level reforms 
appear to offer promise in assisting new entrants to more quickly begin 
offering consumers a competitive choice among cable providers. In 2005, 
the Texas legislature designated the Texas Public Utility Commission 
(``PUC'') as the franchising authority for State-issued franchises, and 
required the PUC to issue a franchise within 17 business days after 
receipt of a completed application from an eligible applicant. In 2006, 
Indiana, Kansas, South Carolina, New Jersey, North Carolina, and 
California also passed legislation to streamline the franchising 
process by providing for expedited, State level grants of franchises. 
Virginia, by contrast, did not establish statewide franchises but 
mandated uniform time frames for negotiations, public hearings, and 
ultimate franchise approval at the local level. In particular, a 
``certificated provider of telecommunications service'' with existing 
authority to use public rights-of-way is authorized to provide video 
service within 75 days of filing a request to negotiate with each 
individual LFA. Similarly, Michigan recently enacted legislation that 
streamlines the franchise application process, establishes a 30-day 
timeframe within which an LFA must make a decision, and eliminates 
build-out requirements.
    17. In some States, however, franchise reform efforts launched in 
recent months have failed. For example, in Florida, bills that would 
have allowed competitive providers to enter the market with a permit 
from the Office of the Secretary of State, and contained no build-out 
or service delivery schedules, died in committee. In Louisiana, the 
Governor vetoed a bill that would have created a State franchise 
structure, provided for automatic grant of an application 45 days after 
filing, and contained no build-out requirements. In Maine, a bill that 
would have replaced municipal franchises with State franchises was 
withdrawn. Finally, a Missouri bill that would have given the Public 
Service Commission the authority to grant franchises and would have 
prohibited local franchising died in committee.

III. Discussion

    18. Based on the voluminous record in this proceeding, which 
includes comments filed by new entrants, incumbent cable operators, 
LFAs, consumer groups, and others, we conclude that the current 
operation of the franchising process can constitute an unreasonable 
barrier to entry for potential cable competitors, and thus justifies 
Commission action. We find that we have authority under Section 
621(a)(1) to address this problem by establishing limits on LFAs' 
ability to delay, condition, or otherwise ``unreasonably refuse to 
award'' competitive franchises. We find that we also have the authority 
to consider the goals of Section 706 in addressing this problem under 
Section 621(a)(1). We believe that, absent Commission action, 
deployment of competitive video services by new cable entrants will 
continue to be unreasonably delayed or, at worst, derailed. 
Accordingly, we adopt incremental measures directed to LFA-controlled 
franchising processes, as described in detail below. We anticipate that 
the rules and guidance we adopt today will facilitate and expedite 
entry of new cable competitors into the market for the delivery of 
multichannel video programming and thus encourage broadband deployment.

A. The Current Operation of the Franchising Process Unreasonably 
Interferes With Competitive Entry

    19. Most communities in the United States lack cable competition, 
which would reduce cable rates and increase innovation and quality of 
service. Although LFAs adduced evidence that they have granted some 
competitive franchises, and competitors acknowledge that they have 
obtained some franchises, the record includes only a few hundred 
examples of competitive franchises, many of which were obtained after 
months of unnecessary delay. For example, Verizon has obtained 
franchises covering approximately 200 franchise areas. In the vast 
majority of communities, cable competition simply does not exist. For 
example, in Michigan, a number of LFAs have granted competitive 
franchises to local telecommunications companies. See Ada Township, et 
al., Comments at 18-26. Vermont has granted franchises to competitive 
operators in Burlington, Newport, Berlin, Duxbury, Stowe, and Moretown. 
VPSB Comments at 5. Mt. Hood Regulatory Commission (``MHRC''), a 
consolidated regulatory authority for six Oregon localities, has 
negotiated franchises with cable overbuilders, although those companies 
ultimately were unable to deploy service. Similarly, the City of Los 
Angeles has granted two competitive franchises, but each of the 
competitors went out of business shortly after negotiating the 
franchise. City of Los Miami-Dade has granted 11 franchises to six 
providers, and currently is considering the application of another 
potential entrant. New Jersey has granted five competitive franchises, 
but only two ultimately provided service to customers.
    20. The dearth of competition is due, at least in part, to the 
franchising process. The record demonstrates that the current operation 
of the franchising process unreasonably prevents or, at a minimum, 
unduly delays potential cable competitors from entering the MVPD 
market. Numerous commenters have adduced evidence that the current 
operation of the franchising process constitutes an unreasonable 
barrier to entry. Regulatory restrictions and conditions on entry 
shield incumbents from competition and are associated with various 
economic inefficiencies, such as reduced innovation and distorted 
consumer choices. We recognize that some LFAs have made reasonable 
efforts to facilitate competitive entry into the video programming 
market. We also recognize that recent State level reforms have the 
potential to streamline the process to a noteworthy degree. We find, 
though, that the current operation of the local franchising process 
often is a roadblock to achievement of the statutory goals of enhancing 
cable competition and broadband deployment.
    21. Commenters have identified six factors that stand in the way of 
competitive entry. They are: (1) Unreasonable delays by LFAs in acting 
on franchise applications; (2) unreasonable build-out requirements 
imposed by LFAs; (3) LFA demands unrelated to the franchising process; 
(4) confusion concerning the meaning and scope of franchise fee 
obligations; (5) unreasonable LFA demands for PEG channel capacity and 
construction of I-Nets; and (6) level-playing-field

[[Page 13194]]

requirements set by LFAs. We address each factor below.
    22. LFA Delays in Acting on Franchise Applications. The record 
demonstrates that unreasonable delays in the franchising process have 
obstructed and, in some cases, completely derailed attempts to deploy 
competitive video services. Many new entrants have been subjected to 
lengthy, costly, drawn-out negotiations that, in many cases, are still 
ongoing. The FTTH Council cited a report by an investment firm that, on 
average, the franchising process, as it currently operates, delays 
entry by 8-18 months. The record generally supports that estimate. For 
example, Verizon had 113 franchise negotiations underway as of the end 
of March 2005. By the end of March 2006, LFAs had granted only 10 of 
those franchises. In other words, more than 90% of the negotiations 
were not completed within one year. Verizon noted that delays are often 
caused by mandatory waiting periods. BellSouth explained that 
negotiations took an average of 10 months for each of its 20 cable 
franchise agreements, and that in one case, the negotiations took 
nearly three years. AT&T claims that anti-competitive conditions, such 
as level-playing-field constraints and LFA demands regarding build-out, 
not only delay entry but can prevent it altogether. BellSouth notes 
that absent such demands (in Georgia, for example), the company's 
applications were granted quickly. Most of Ameritech's franchise 
negotiations likewise took a number of years. New entrants other than 
the large incumbent local exchange carriers (``LECs'') also have 
experienced delays in the franchising process. NTCA provided an example 
of a small, competitive IPTV provider that is in ongoing negotiations 
that began more than one year ago. The term ``local exchange carrier'' 
means any person that is engaged in the provision of telephone exchange 
service or exchange access. 47 U.S.C. 153(26). For the purposes of 
Section 251 of the Communications Act, ``the term `incumbent local 
exchange carrier' means, with respect to an area, the local exchange 
carrier that (A) On the date of enactment of the Telecommunications Act 
of 1996, provided telephone exchange service in such area; and (B)(i) 
On such date of enactment, was deemed to be a member of the exchange 
carrier association * * *; or (B)(ii) is a person or entity that, on or 
after such date of enactment, became a successor or assign of a member 
[of the exchange carrier association].'' 47 U.S.C. 251(h)(1). A 
competitive LEC is any LEC other than an incumbent LEC. A LEC will be 
treated as an ILEC if ``(A) Such carrier occupies a position in the 
market for telephone exchange service within an area that is comparable 
to the position occupied by a carrier described in paragraph 
[251(h)](1); (B) such carrier has substantially replaced an incumbent 
local exchange carrier described in paragraph [251(h)](1); and (C) such 
treatment is consistent with the public interest, convenience, and 
necessity and the purposes of this section.'' 47 U.S.C. 251(h)(2).
    23. These delays are particularly unreasonable when, as is often 
the case, the applicant already has access to rights-of-way. One of the 
primary justifications for cable franchising is the LFA's need to 
regulate and receive compensation for the use of public rights-of-way. 
We note that certain franchising authorities may have existing 
authority to regulate LECs through State and local rights-of-way 
statutes and ordinances. However, when considering a franchise 
application from an entity that already has rights-of-way access, such 
as an incumbent LEC, an LFA need not and should not devote substantial 
attention to issues of rights-of-way management. Recognizing this 
distinction, some States have enacted or proposed streamlined 
franchising procedures specifically tailored to entities with existing 
access to public rights-of-way. Moreover, in obtaining a certificate 
for public convenience and necessity from a State, a facilities-based 
provider generally has demonstrated its legal, technical, and financial 
fitness to be a provider of telecommunications services. Thus, an LFA 
need not spend a significant amount of time considering the fitness of 
such applicants to access public rights-of-way.
    24. Delays in acting on franchise applications are especially 
onerous because franchise applications are rarely denied outright, 
which would enable applicants to seek judicial review under Section 
635. Rather, negotiations are often drawn out over an extended period 
of time. As a result, the record shows that numerous new entrants have 
accepted franchise terms they considered unreasonable in order to avoid 
further delay. Others have filed lawsuits seeking a court order 
compelling the LFA to act, which entails additional delay, legal 
uncertainty, and great expense. For example, in Maryland, Verizon filed 
suit against Montgomery County, seeking to invalidate some of the 
County's franchise rules, and requesting that the County be required to 
negotiate a franchise agreement, after the parties unsuccessfully 
attempted to negotiate a franchise beginning in May 2005. 
Alternatively, some prospective entrants have walked away from unduly 
prolonged negotiations. Moreover, delays provide the incumbent cable 
operator the opportunity to launch targeted marketing campaigns before 
the competitor's rollout, thus undermining a competitor's prospects for 
success.
    25. Despite this evidence, incumbent cable operators and LFAs 
nevertheless assert that new entrants can obtain and are obtaining 
franchises in a timely fashion, and that delays are largely due to 
unreasonable behavior on the part of franchise applicants, not LFAs. 
The incumbent cable operators accuse Verizon of making unreasonable 
demands through its model franchise. Verizon asserts that it submits a 
model franchise to begin negotiations because uniformity is necessary 
for its nationwide service deployment. Verizon states that it is 
willing to negotiate and tailor the model franchise to each locality's 
needs. For example, Minnesota LFAs claim that they can grant a 
franchise in as little as eight weeks. The record, however, shows that 
expeditious grants of competitive franchises are atypical. Most LFAs 
lack any temporal limits for consideration of franchise applications, 
and of those that have such limits, many set forth lengthy time frames. 
In localities without a time limit or with an unreasonable time limit, 
the delays caused by the current operation of the franchising process 
present a significant barrier to entry. We recognize that some 
franchising authorities move quickly, as a matter of law or policy. The 
record indicates that some LFAs have stated that they welcome 
competition to the incumbent cable operator, and actively facilitate 
such competition. For example, a consolidated franchising authority in 
Oregon negotiated and approved competitive franchises within 90 days. 
An advisory committee in Minnesota granted two competitive franchises 
in six months, after a statutorily imposed eight-week notice and 
hearing period. While we laud the prompt disposition of franchise 
applications in these particular areas, the record shows that these 
examples are atypical. For example, the cities of Chicago and 
Indianapolis acknowledged that, as currently operated, their 
franchising processes take one to three years, respectively. Miami-
Dade's cable ordinance permits the county to make a final decision on a 
cable franchise up to eight months after receiving a completed 
application, and the process may take longer if an applicant submits an 
incomplete application or amends its application.

[[Page 13195]]

    26. Incumbent cable operators and LFAs state that new entrants 
could gain rapid entry if the new entrants simply agreed to the same 
terms applied to incumbent cable franchisees. However, this is not a 
reasonable expectation generally, given that the circumstances 
surrounding competitive entry are considerably different than those in 
existence at the time incumbent cable operators obtained their 
franchises. Incumbent cable operators originally negotiated franchise 
agreements as a means of acquiring or maintaining a monopoly position. 
In most instances, imposing the incumbent cable operator's terms and 
conditions on a new entrant would make entry prohibitively costly 
because the entrant cannot assume that it will quickly--or ever--amass 
the same number or percentage of subscribers that the incumbent cable 
operator captured. The record demonstrates that requiring entry on the 
same terms as incumbent cable operators may thwart entry entirely or 
may threaten new entrants' chances of success once in the market.
    27. Incumbent cable operators also suggest that delay is 
attributable to competitors that are not really serious about entering 
the market, as demonstrated by their failure to file the thousands of 
franchise applications required for broad competitive entry. We reject 
this explanation as inconsistent with both the record as well as common 
sense. Given the complexity and time-consuming nature of the current 
franchising process, it is patently unreasonable to expect any 
competitive entrant to file several thousand applications and negotiate 
several thousand franchising processes at once. Moreover, the incumbent 
LECs have made their plans to enter the video services market 
abundantly clear, and the evidence in the record demonstrates their 
seriousness about doing so. For instance, they are investing billions 
of dollars to upgrade their networks to enable the provision of video 
services, expenditures that would make little sense if they were not 
planning to enter the video market. Finally, the record also 
demonstrates that the obstacles posed by the current operation of the 
franchising process are so great that some prospective entrants have 
shied away from the franchise process altogether.
    28. We also reject the argument by incumbent cable operators that 
delays in the franchising process are immaterial because competitive 
applicants are not ready to enter the market and frequently delay 
initiating service once they secure a franchise. We find that lack of 
competition in the video market is not attributable to inertia on the 
part of competitors. Given the financial risk, uncertainty, and delay 
new entrants face when they apply for a competitive franchise, it is 
not surprising that they wait until they get franchise approval before 
taking all steps necessary to provide service. The sooner a franchise 
is granted, the sooner an applicant can begin completing those steps. 
Consequently, shortening the franchising process will accelerate market 
entry. Moreover, the record shows that streamlining the franchising 
process can expedite market entry. For example, less than 30 days after 
Texas authorized statewide franchises, Verizon filed an application for 
a franchise with respect to 21 Texas communities and was able to launch 
services in most of those communities within 45 days.
    29. Incumbent cable operators offer evidence from their experience 
in the renewal and transfer processes as support for their contention 
that the vast majority of LFAs operate in a reasonable and timely 
manner. We find that incumbent cable operators' purported success in 
the franchising process is not a useful comparison in this case. 
Today's large MSOs obtained their current franchises by either renewing 
their preexisting agreements or by merging with and purchasing other 
incumbent cable franchisees with preexisting agreements. For two key 
reasons, their experiences in franchise transfers and renewals are not 
equivalent to those of new entrants seeking to obtain new franchises. 
First, in the transfer or renewal context, delays in LFA consideration 
do not result in a bar to market entry. Second, in the transfer or 
renewal context, the LFA has a vested interest in preserving continuity 
of service for subscribers, and will act accordingly.
    30. We also reject the claims by incumbent cable operators that the 
experiences of Ameritech, RCN, and other overbuilders demonstrate that 
new entrants can and do obtain competitive franchises in a timely 
manner. The term ``overbuild'' describes the situation in which a 
second cable operator enters a local market in direct competition with 
an incumbent cable operator. In these markets, the second operator, or 
``overbuilder,'' lays wires in the same area as the incumbent, 
``overbuilding'' the incumbent's plant, thereby giving consumers a 
choice between cable service providers. Charter claims that it secured 
franchises and upgraded its systems in a highly competitive market and 
that the incumbent LECs possess sufficient resources to do the same. 
BellSouth notes, however, that Charter does not indicate a single 
instance in which it obtained a franchise through an initial 
negotiation, rather than a transfer. Comcast argues that it faces 
competition from cable overbuilders in several markets. The record is 
scant and inconsistent, however, with respect to overbuilder 
experiences in obtaining franchises, and thus does not provide reliable 
evidence. BellSouth also claims that, despite RCN's claims that the 
franchising process has worked in other proceedings, RCN previously has 
painted a less positive picture of the process and has called it a high 
barrier to entry. Given these facts, we do not believe that the 
experiences cited by incumbent cable operators shed any significant 
light on the current operation of the franchising process with respect 
to competitive entrants.
    31. Impact of Build-Out Requirements. The record shows that build-
out issues are one of the most contentious between LFAs and prospective 
new entrants, and that build-out requirements can greatly hinder the 
deployment of new video and broadband services. New and potential 
entrants commented extensively on the adverse impact of build-out 
requirements on their deployment plans. Large incumbent LECs, small and 
mid-sized incumbent LECs, competitive LECs and others view build-out 
requirements as the most significant obstacle to their plans to deploy 
competitive video and broadband services. Similarly, consumer groups 
and the U.S. Department of Justice, Antitrust Division, urge the 
Commission to address this aspect of the current franchising process in 
order to speed competitive entry.
    32. The record demonstrates that build-out requirements can 
substantially reduce competitive entry. Numerous commenters urge the 
Commission to prohibit LFAs from imposing any build-out requirements, 
and particularly universal build-out requirements. They argue that 
imposition of such mandates, rather than resulting in the increased 
service throughout the franchise area that LFAs desire, will cause 
potential new entrants to simply refrain from entering the market at 
all. They argue that even build-out provisions that do not require 
deployment throughout an entire franchise area may prevent a 
prospective new entrant from offering service.
    33. The record contains numerous examples of build-out requirements 
at the local level that resulted in delayed entry, no entry, or failed 
entry. A consortium of California communities demanded that Verizon 
build out to

[[Page 13196]]

every household in each community before Verizon would be allowed to 
offer service to any community, even though large parts of the 
communities fell outside of Verizon's telephone service area. 
Furthermore, Qwest has withdrawn franchise applications in eight 
communities due to build-out requirements. In each case, Qwest 
determined that entering into a franchise agreement that mandates 
universal build-out would not be economically feasible.
    34. In many instances, level-playing-field provisions in local laws 
or franchise agreements compel LFAs to impose on competitors the same 
build-out requirements that apply to the incumbent cable operator. 
Cable operators use threatened or actual litigation against LFAs to 
enforce level-playing-field requirements and have successfully delayed 
entry or driven would-be competitors out of town. Even in the absence 
of level-playing-field requirements, incumbent cable operators demand 
that LFAs impose comparable build-out requirements on competitors to 
increase the financial burden and risk for the new entrant.
    35. Build-out requirements can deter market entry because a new 
entrant generally must take customers from the incumbent cable 
operator, and thus must focus its efforts in areas where the take-rate 
will be sufficiently high to make economic sense. Because the second 
provider realistically cannot count on acquiring a share of the market 
similar to the incumbent's share, the second entrant cannot justify a 
large initial deployment. Rather, a new entrant must begin offering 
service within a smaller area to determine whether it can reasonably 
ensure a return on its investment before expanding. For example, 
Verizon has expressed significant concerns about deploying service in 
areas heavily populated with MDUs already under exclusive contract with 
another MVPD. Due to the risk associated with entering the video 
market, forcing new entrants to agree up front to build out an entire 
franchise area too quickly may be tantamount to forcing them out of--or 
precluding their entry into--the business.
    36. In many cases, build-out requirements also adversely affect 
consumer welfare. DOJ noted that imposing uneconomical build-out 
requirements results in less efficient competition and the potential 
for higher prices. Non-profit research organizations the Mercatus 
Center and the Phoenix Center argue that build-out requirements reduce 
consumer welfare. Each conclude that build-out requirements imposed on 
competitive cable entrants only benefit an incumbent cable operator. 
The Mercatus Center, citing data from the FCC and GAO indicating that 
customers with a choice of cable providers enjoy lower rates, argues 
that, to the extent that build-out requirements deter entry, they 
result in fewer customers having a choice of providers and a resulting 
reduction in rates. The Phoenix Center study contends that build-out 
requirements deter entry and conflict with Federal, State, and local 
government goals of rapid broadband deployment. Another research 
organization, the American Consumer Institute (ACI), concluded that 
build-out requirements are inefficient: if a cable competitor initially 
serves only one neighborhood in a community, and a few consumers in 
this neighborhood benefit from the competition, total welfare in the 
community improves because no consumer was made worse and some 
consumers (those who can subscribe to the competitive service) were 
made better. In comparison, requirements that deter competitive entry 
may make some consumers (those who would have been able to subscribe to 
the competitive service) worse off. In many instances, placing build-
out conditions on competitive entrants harms consumers and competition 
because it increases the cost of cable service. Qwest commented that, 
in those communities it has not entered due to build-out requirements, 
consumers have been deprived of the likely benefit of lower prices as 
the result of competition from a second cable provider. This claim is 
supported by the Commission's 2005 annual cable price survey, in which 
the Commission observed that average monthly cable rates varied 
markedly depending on the presence--and type--of MVPD competition in 
the local market. The greatest difference occurred where there was 
wireline overbuild competition, where average monthly cable rates were 
20.6 percent lower than the average for markets deemed noncompetitive. 
For these reasons, we disagree with LFAs and incumbent cable operators 
who argue that unlimited local flexibility to impose build-out 
requirements, including universal build-out of a franchise area, is 
essential to promote competition in the delivery of video programming 
and ensure a choice in providers for every household. In many cases, 
build-out requirements may have precisely the opposite effects--they 
deter competition and deny consumers a choice.
    37. Although incumbent LECs already have telecommunications 
facilities deployed over large areas, build-out requirements may 
nonetheless be a formidable barrier to entry for them for two reasons. 
First, incumbent LECs must upgrade their existing plant to enable the 
provision of video service, which often costs billions of dollars. 
Second, as the Commission stated in the Local Franchising NPRM, the 
boundaries of the areas served by facilities-based providers of 
telephone and/or broadband services frequently do not coincide with the 
boundaries of the areas under the jurisdiction of the relevant LFAs. In 
some cases, a potential new entrant's service area comprises only a 
portion of the area under the LFA's jurisdiction. When LECs are 
required to build out where they have no existing plant, the business 
case for market entry is significantly weakened because their 
deployment costs are substantially increased. In other cases, a 
potential new entrant's facilities may already cover most or all of the 
franchise area, but certain economic realities prevent or deter the 
provider from upgrading certain ``wire center service areas'' within 
its overall service area. For example, some wire center service areas 
may encompass a disproportionate level of business locations or multi-
dwelling units (``MDUs'') with MVPD exclusive contracts. New entrants 
also point out that some wire center service areas are low in 
population density (measured by homes per cable plant mile). The record 
suggests, however, that LFAs generally have not required franchisees to 
provide service in low-density areas. New entrants argue that the 
imposition of build-out requirements in either circumstance creates a 
disincentive for them to enter the marketplace.
    38. Incumbent cable operators assert that new entrants' claims are 
exaggerated, and that, in most cases, LEC facilities are coterminous 
with municipal boundaries. The evidence submitted by new entrants, 
however, convincingly shows that inconsistencies between the geographic 
boundaries of municipalities and the network footprints of telephone 
companies are commonplace. The cable industry has adduced no contrary 
evidence. The fact that few LFAs argued that non-coterminous boundaries 
are a problem is not sufficient to contradict the incumbent LECs' 
evidence.
    39. Based on the record as a whole, we find that build-out 
requirements imposed by LFAs can constitute unreasonable barriers to 
entry for competitive applicants. Indeed, the record indicates that 
because potential competitive entrants to the cable market may not be 
able to economically justify

[[Page 13197]]

build-out of an entire local franchising area immediately, these 
requirements can have the effect of granting de facto exclusive 
franchises, in direct contravention of Section 621(a)(1)'s prohibition 
of exclusive cable franchises.
    40. Besides thwarting potential new entrants' deployment of video 
services and depriving consumers of reduced prices and increased 
choice, build-out mandates imposed by LFAs also may directly contravene 
the goals of Section 706 of the Telecommunications Act of 1996, which 
requires the Commission to ``remov[e] barriers to infrastructure 
investment'' to encourage the deployment of broadband services ``on a 
reasonable and timely basis.'' We agree with AT&T that Section 706, in 
conjunction with Section 621(a)(1), requires us to prevent LFAs from 
adversely affecting the deployment of broadband services through cable 
regulation.
    41. We do not find persuasive incumbent cable operators' claims 
that build-out should necessarily be required for new entrants into the 
video market because of certain obligations faced by cable operators in 
their deployment of voice services. To the extent cable operators 
believe they face undue regulatory obstacles to providing voice 
services, they should make that point in other proceedings, not here. 
In any event, commenters generally agree that the record indicates that 
the investment that a competitive cable provider must make to deploy 
video in a particular geographic area far outweighs the cost of the 
additional facilities that a cable operator must install to deploy 
voice service.
    42. LFA Demands Unrelated to the Provision of Video Services. Many 
commenters recounted franchise negotiation experiences in which LFAs 
made unreasonable demands unrelated to the provision of video services. 
Verizon, for example, described several communities that made 
unreasonable requests, such as the purchase of street lights, wiring 
for all houses of worship, the installation of cell phone towers, cell 
phone subsidies for town employees, library parking at Verizon's 
facilities, connection of 220 traffic signals with fiber optics, and 
provision of free wireless broadband service in an area in which 
Verizon's subsidiary does not offer such service; the Wall Street 
Journal reported that Verizon also faced a request for a video hookup 
for Christmas celebrations and video cameras to record a math-tutoring 
program. In Maryland, some localities conditioned a franchise upon 
Verizon's agreement to make its data services subject to local customer 
service regulation. AT&T provided examples of impediments that 
Ameritech New Media faced when it entered the market, including a 
request for a new recreation center and pool. FTTH Council highlighted 
Grande Communications' experience in San Antonio, which required that 
Grande Communications make an up-front, $1 million franchise fee 
payment and fund a $50,000 scholarship with additional annual 
contributions of $7,200. The record demonstrates that LFA demands 
unrelated to cable service typically are not counted toward the 
statutory 5 percent cap on franchise fees, but rather imposed on 
franchisees in addition to assessed franchise fees. Based on this 
record evidence, we are convinced that LFA requests for unreasonable 
concessions are not isolated, and that these requests impose undue 
burdens upon potential cable providers.
    43. Assessment of Franchise Fees. The record establishes that 
unreasonable demands over franchise fee issues also contribute to delay 
in franchise negotiations at the local level and hinder competitive 
entry. Fee issues include not only which franchise-related costs 
imposed on providers should be included within the 5 percent statutory 
franchise fee cap established in Section 622(b), but also the proper 
calculation of franchise fees (i.e., the revenue base from which the 5 
percent is calculated). In Virginia, municipalities have requested 
large ``acceptance fees'' upon grant of a franchise, in addition to 
franchise fees. Other LFAs have requested consultant and attorneys' 
fees. Several Pennsylvania localities have requested franchise fees 
based on cable and non-cable revenues. Some commenters assert that an 
obligation to provide anything of value, including PEG costs, should 
apply toward the franchise fee obligation.
    44. The parties indicate that the lack of clarity with respect to 
assessment of franchise fees impedes deployment of new video 
programming facilities and services for three reasons. First, some LFAs 
make unreasonable demands regarding franchise fees as a condition of 
awarding a competitive franchise. Second, new entrants cannot 
reasonably determine the costs of entry in any particular community. 
Accordingly, they may delay or refrain from entering a market because 
the cost of entry is unclear and market viability cannot be projected. 
Third, a new entrant must negotiate these terms prior to obtaining a 
franchise, which can take a considerable amount of time. Thus, 
unreasonable demands by some LFAs effectively creates an unreasonable 
barrier to entry.
    45. PEG and I-Net Requirements. Negotiations over PEG and I-Nets 
also contribute to delays in the franchising process. In response to 
the Local Franchising NPRM, we received numerous comments asking for 
clarification of what requirements LFAs reasonably may impose on 
franchisees to support PEG and I-Nets. We also received comments 
suggesting that some LFAs are making unreasonable demands regarding PEG 
and I-Net support as a condition of awarding competitive franchises. 
LFAs have demanded funding for PEG programming and facilities that 
exceeds their needs, and will not provide an accounting of where the 
money goes. For example, one municipality in Florida requested $6 
million for PEG facilities, and a Massachusetts community requested 10 
PEG channels, when the incumbent cable operator only provides two. 
Several commenters argued that it is unreasonable for an LFA to request 
a number of PEG channels from a new entrant that is greater than the 
number of channels that the community is using at the time the new 
entrant submits its franchise application. The record indicates that 
LFAs also have made what commenters view as unreasonable institutional 
network requests, such as free cell phones for employees, fiber optic 
service for traffic signals, and redundant fiber networks for public 
buildings.
    46. Level-Playing-Field Provisions. The record demonstrates that, 
in considering franchise applications, some LFAs are constrained by so-
called ``level-playing-field'' provisions in local laws or incumbent 
cable operator franchise agreements. Such provisions typically impose 
upon new entrants terms and conditions that are neither ``more 
favorable'' nor ``less burdensome'' than those to which existing 
franchisees are subject. Some LFAs impose level-playing-field 
requirements on new entrants even without a statutory, regulatory, or 
contractual obligation to do so. Minnesota's process allows incumbent 
cable operators to be active in a competitor's negotiation, and 
incumbent cable operators have challenged franchise grants when those 
incumbent cable operators believed that the LFA did not follow correct 
procedure. According to BellSouth, the length of time for approval of 
its franchises was tied directly to level-playing-field constraints; 
absent such demands (in Georgia, for example), the company's 
applications were granted quickly. NATOA contends, however, that

[[Page 13198]]

although level-playing-field provisions sometimes can complicate the 
franchising process, they do not present unreasonable barriers to 
entry. NATOA and LFAs argue that level-playing-field provisions serve 
important policy goals, such as ensuring a competitive environment and 
providing for an equitable distribution of services and obligations 
among all operators.
    47. The record demonstrates that local level-playing-field mandates 
can impose unreasonable and unnecessary requirements on competitive 
applicants. As noted above, level-playing-field provisions enable 
incumbent cable operators to delay or prevent new entry by threatening 
to challenge any franchise that an LFA grants. Comcast asserts that 
MSOs have not threatened litigation to delay franchise approvals, but 
to insist that their legal and contractual rights are honored in the 
grant of a subsequent franchise. The record demonstrates, however, that 
local level-playing-field requirements may require LFAs to impose 
obligations on new entrants that directly contravene Section 
621(a)(1)'s prohibition on unreasonable refusals to award a competitive 
franchise. In most cases, incumbent cable operators entered into their 
franchise agreements in exchange for a monopoly over the provision of 
cable service. Build-out requirements and other terms and conditions 
that may have been sensible under those circumstances can be 
unreasonable when applied to competitive entrants. NATOA's argument 
that level-playing-field requirements always serve to ensure a 
competitive environment and provide for an equitable distribution of 
services and obligations ignores that incumbent and competitive 
operators are not on the same footing. LFAs do not afford competitive 
providers the monopoly power and privileges that incumbents received 
when they agreed to their franchises, something that investors 
recognize.
    48. Moreover, competitive operators should not bear the 
consequences of an incumbent cable operator's choice to agree to any 
unreasonable franchise terms that an LFA may demand. And while the 
record is mixed as to whether level-playing-field mandates ``assure 
that cable systems are responsive to the needs and interests of the 
local community,'' the more compelling evidence indicates that they do 
not because they prevent competition. Local level-playing-field 
provisions impose costs and risks sufficient to undermine the business 
plan for profitable entry in a given community, thereby undercutting 
the possibility of competition.
    49. Benefits of Cable Competition. We further agree with new 
entrants that reform of the operation of the franchise process is 
necessary and appropriate to achieve increased video competition and 
broadband deployment. The record demonstrates that new cable 
competition reduces rates far more than competition from DBS. 
Specifically, the presence of a second cable operator in a market 
results in rates approximately 15 percent lower than in areas without 
competition--about $5 per month. The magnitude of the rate decreases 
caused by wireline cable competition is corroborated by the rates 
charged in Keller, Texas, where the price for Verizon's ``Everything'' 
package is 13 percent below that of the incumbent cable operator, and 
in Pinellas County, Florida, where Knology is the overbuilder and the 
incumbent cable operator's rates are $10-15 lower than in neighboring 
areas where it faces no competition.
    50. We also conclude that broadband deployment and video entry are 
``inextricably linked'' and that, because the current operation of the 
franchising process often presents an unreasonable barrier to entry for 
the provision of video services, it necessarily hampers deployment of 
broadband services. The record demonstrates that broadband deployment 
is not profitable without the ability to compete with the bundled 
services that cable companies provide. As the Phoenix Center explains, 
``the more potential revenues that the network can generate in a 
household, the more likely it is the network will be built to that 
household.'' DOJ's comments underscore that additional video 
competition will likely speed deployment of advanced broadband services 
to consumers. Thus, although LFAs only oversee the provision of 
wireline-based video services, their regulatory actions can directly 
affect the provision of voice and data services, not just cable. We 
find reasonable AT&T's assertion that carriers will not invest billions 
of dollars in network upgrades unless they are confident that LFAs will 
grant permission to offer video services quickly and without 
unreasonable difficulty.
    51. In sum, the current operation of the franchising process deters 
entry and thereby denies consumers choices. Delays in the franchising 
process also hamper accelerated broadband deployment and investment in 
broadband facilities in direct contravention of the goals of Section 
706, the President's competitive broadband objectives, and our 
established broadband goals. In addition, the economic effects of 
franchising delays can trickle down to manufacturing companies, which 
in some cases have lost business because potential new entrants would 
not purchase equipment without certainties that they could deploy their 
services. We discuss below our authority to address these problems.

B. The Commission Has Authority to Adopt Rules to Implement Section 
621(a)(1)

    52. In the Local Franchising NPRM, the Commission tentatively 
concluded that it has the authority to adopt rules implementing Title 
VI of the Act, including Section 621(a)(1). The Commission sought 
comment on whether it has the authority to adopt rules or whether it is 
limited to providing guidance. Based on the record and governing legal 
principles, we affirm this tentative conclusion and find that the 
Commission has the authority to adopt rules to implement Title VI and, 
more specifically, Section 621(a)(1).
    53. Congress delegated to the Commission the task of administering 
the Communications Act. As the Supreme Court has explained, the 
Commission serves ``as the `single Government agency' with `unified 
jurisdiction' and `regulatory power over all forms of electrical 
communication, whether by telephone, telegraph, cable, or radio.' '' To 
that end, ``[t]he Act grants the Commission broad responsibility to 
forge a rapid and efficient communications system, and broad authority 
to implement that responsibility.'' Section 201(b) authorizes the 
Commission to ``prescribe such rules and regulations as may be 
necessary in the public interest to carry out the provisions of this 
Act.'' ``[T]he grant in section 201(b) means what it says: The FCC has 
rulemaking authority to carry out the 'provisions of this Act.' '' This 
grant of authority therefore necessarily includes Title VI of the 
Communications Act in general, and Section 621(a)(1) in particular. 
Other provisions in the Act reinforce the Commission's general 
rulemaking authority. Section 303(r), for example, states that ``the 
Commission from time to time, as public convenience, interest, or 
necessity requires shall * * * make such rules and regulations and 
prescribe such restrictions and conditions, not inconsistent with law, 
as may be necessary to carry out the provisions of this Act. * * *'' 
Section 4(i) states that the Commission ``may perform any and all acts, 
make such rules and regulations, and issue such orders, not 
inconsistent with this Act, as may be

[[Page 13199]]

necessary in the execution of its functions.''
    54. Section 2 of the Communications Act grants the Commission 
explicit jurisdiction over ``cable services.'' Moreover, as we 
explained in the Local Franchising NPRM, Congress specifically charged 
the Commission with the administration of the Cable Act, including 
Section 621. In addition, Federal courts have consistently upheld the 
Commission's authority in this area.
    55. Although several commenters disagreed with our tentative 
conclusion, none has persuaded us that the Commission lacks the 
authority to adopt rules to implement Section 621(a)(1). Incumbent 
cable operators and franchise authorities argue that the judicial 
review provisions in Sections 621(a)(1) and 635 indicate that Congress 
gave the courts exclusive jurisdiction to interpret and enforce Section 
621(a)(1), including authority to decide what constitutes an 
unreasonable refusal to award a competitive cable franchise. We find, 
however, that this argument reads far too much into the judicial review 
provisions. The mere existence of a judicial review provision in the 
Communications Act does not, by itself, strip the Commission of its 
otherwise undeniable rulemaking authority. As a general matter, the 
fact that Congress provides a mechanism for judicial review to remedy a 
violation of a statutory provision does not deprive an agency of the 
authority to issue rules interpreting that statutory provision. Here, 
nothing in the statutory language or the legislative history suggests 
that by providing a judicial remedy, Congress intended to divest the 
Commission of the authority to adopt and enforce rules implementing 
Section 621. In light of the Commission's broad rulemaking authority 
under Section 201 and other provisions in the Act, the absence of a 
specific grant of rulemaking authority in Section 621 is ``not 
peculiar.'' Other provisions in the Act demonstrate that when Congress 
intended to grant exclusive jurisdiction, it said so in the 
legislation. Here, however, neither Section 621(a)(1) nor Section 635 
includes an exclusivity provision, and we decline to read one into 
either provision.
    56. In addition, we note that the judicial review provisions at 
issue here on their face apply only to a final decision by the 
franchising authority. They do not provide for review of unreasonable 
refusals to award an additional franchise by withholding a final 
decision or insisting on unreasonable terms that an applicant properly 
refuses to accept. Nor do the judicial review provisions say anything 
about the broader range of practices governed by Section 621.
    57. We also reject the argument by some incumbent cable operators 
and franchise authorities that Section 621(a)(1) is unambiguous and 
contains no gaps in the statutory language that would give the 
Commission authority to regulate the franchising process. We strongly 
disagree. Congress did not define the term ``unreasonably refuse,'' and 
it is far from self-explanatory. The United States Court of Appeals for 
the District of Columbia Circuit has held that the term 
``unreasonable'' is among the ``ambiguous statutory terms'' in the 
Communications Act, and that the ``court owes substantial deference to 
the interpretation the Commission accords them.'' We therefore find 
that Section 621(a)(1)'s requirement that an LFA ``may not unreasonably 
refuse to award an additional competitive franchise'' creates ambiguity 
that the Commission has the authority to resolve. The possibility that 
a court, in reviewing a particular matter, may determine whether an LFA 
``unreasonably'' denied a second franchise does not displace the 
Commission's authority to adopt rules generally interpreting what 
constitutes an ``unreasonable refusal'' under Section 621(a)(1).
    58. Some incumbent cable operators and franchise authorities argue 
that Section 621(a)(1) imposes no general duty of reasonableness on the 
LFA in connection with procedures for awarding a competitive franchise. 
According to these commenters, the ``unreasonably refuse to award'' 
language in the first sentence in Section 621(a)(1) must be read in 
conjunction with the second sentence, which relates to the denial of a 
competitive franchise application. Based on this, commenters claim that 
``unreasonably refuse to award'' means ``unreasonably deny'' and, thus, 
Section 621(a)(1) is not applicable before a final decision is 
rendered. We disagree. By concluding that the language ``unreasonably 
refuse to award'' means the same thing as ``unreasonably deny,'' 
commenters violate the long-settled principle of statutory construction 
that each word in a statutory scheme must be given meaning. We find 
that the better reading of the phrase ``unreasonably refuse to award'' 
is that Congress intended to cover LFA conduct beyond ultimate denials 
by final decision, such as situations where an LFA has unreasonably 
refused to award an additional franchise by withholding a final 
decision or by insisting on unreasonable terms that an applicant 
refuses to accept. While the judicial review provisions in Sections 
621(a)(1) and 635 refer to a ``final decision'' or ``final 
determination,'' the Commission's rulemaking authority under Section 
621 is not constrained in the same manner. Instead, the Commission has 
the authority to address what constitutes an unreasonable refusal to 
award a franchise, and as stated above, a local franchising authority 
may unreasonably refuse to award a franchise through other routes than 
issuing a final decision or determination denying a franchise 
application. For all of these reasons, we conclude that the Commission 
may exercise its statutory authority to establish Federal standards 
identifying those LFA-imposed terms and conditions that would violate 
Section 621(a)(1) of the Communications Act.
    59. Incumbent cable operators and local franchise authorities also 
maintain that the legislative history of Section 621(a)(1) demonstrates 
that Congress reserved to LFAs the authority to determine what 
constitutes ``reasonable'' grounds for franchise denials, with 
oversight by the courts, and left no authority under Section 621(a)(1) 
for the Commission to issue rules or guidelines governing the franchise 
approval process. Commenters point to the Conference Committee Report 
on the 1992 Amendments, which adopted the Senate version of Section 
621, rather than the House version, which ``contained five examples of 
circumstances under which it is reasonable for a franchising authority 
to deny a franchise.'' We find commenters' reliance on the legislative 
history to be misplaced. While the House may have initially considered 
adopting a categorical approach for determining what would constitute a 
``reasonable denial,'' Congress ultimately decided to forgo that 
approach and prohibit franchising authorities from unreasonably 
refusing to award an additional competitive franchise. To be sure, 
commenters are correct to point out that Congress chose not to define 
in the Act the meaning of the phrase ``unreasonably refuse to award.'' 
However, commenters'' assertion that Congress therefore intended for 
this gap in the statute to be filled in by only LFAs and courts lacks 
any basis in law or logic. Rather, we believe that it is far more 
reasonable to assume, consistent with settled principles of 
administrative law, that Congress intended that the Commission, which 
is charged by Congress with the administration of Title VI, to have the 
authority to do so. There is nothing in the statute or the legislative 
history to suggest that

[[Page 13200]]

Congress intended to displace the Commission's explicit authority to 
interpret and enforce provisions in Title VI, including Section 
621(a)(1).
    60. The pro-competitive rules and guidance we adopt in this Order 
are consistent with Congressional intent. Section 601 states that Title 
VI is designed to ``promote competition in cable communications.'' In a 
report to Congress prepared pursuant to the 1984 Cable Act, the 
Commission concluded that in order ``[t]o encourage more robust 
competition in the local video marketplace, the Congress should * * * 
forbid local franchising authorities from unreasonably denying a 
franchise to potential competitors who are ready and able to provide 
service.'' In response, Congress revised Section 621(a)(1) to prohibit 
a franchising authority from unreasonably refusing to award an 
additional competitive franchise. The regulations set forth herein give 
force to that restriction and vindicate the national policy goal of 
promoting competition in the video marketplace.
    61. Our authority to adopt rules implementing Section 621(a)(1) is 
further supported by Section 706 of the Telecommunications Act of 1996, 
which directs the Commission to encourage broadband deployment by 
utilizing ``measures that promote competition * * * or other regulating 
methods that remove barriers to infrastructure investment.'' The D.C. 
Circuit has found that the Commission has the authority to consider the 
goals of Section 706 when formulating regulations under the Act. The 
record here indicates that a provider's ability to offer video service 
and to deploy broadband networks are linked intrinsically, and the 
Federal goals of enhanced cable competition and rapid broadband 
deployment are interrelated. Thus, if the franchising process were 
allowed to slow competition in the video service market, that would 
decrease broadband infrastructure investment, which would not only 
affect video but other broadband services as well. As the DOJ points 
out, potential gains from competition, such as expedited broadband 
deployment, are more likely to be realized without imposed restrictions 
or conditions on entry in the franchising process.
    62. We reject the argument by incumbent cable operators and LFAs 
that any rules adopted under Section 621(a)(1) could adversely affect 
the franchising process. In particular, LFAs contend that cable service 
requirements must vary from jurisdiction to jurisdiction because cable 
franchises need to be ``tailored to the needs and interests of the 
local community.'' The Communications Act preserves a role for local 
jurisdictions in the franchise process. We do not believe that the 
rules we adopt today will hamper the franchising process. While local 
franchising authorities and potential new entrants have opposing 
viewpoints about the reasonableness of certain terms, we received 
comments from both groups that agree that Commission guidance 
concerning factors that are ``reasonable'' will help to expedite the 
franchising process. Therefore, we anticipate that our implementation 
of Section 621(a)(1) will aid new entrants, incumbent cable operators, 
and LFAs in understanding the bounds of local authority in considering 
competitive franchise applications.
    63. In sum, we conclude that we have clear authority to interpret 
and implement the Cable Act, including the ambiguous phrase 
``unreasonably refuse to award'' in Section 621(a)(1), to further the 
congressional imperatives to promote competition and broadband 
deployment. As discussed above, this authority is reinforced by Section 
4(i) of the Communications Act, which gives us broad power to perform 
acts necessary to execute our functions, and the mandate in Section 706 
of the Telecommunications Act of 1996 that we encourage broadband 
deployment through measures that promote competition. We adopt the 
rules and regulations in this Order pursuant to that authority. We find 
that Section 621(a)(1) prohibits not only an LFA's ultimate 
unreasonable denial of a competitive franchise application, but also 
LFA procedures and conduct that have the effect of unreasonably 
interfering with the ability of a would-be competitor to obtain a 
competitive franchise, whether by (1) Creating unreasonable delays in 
the process, or (2) imposing unreasonable regulatory roadblocks, such 
that they effectively constitute an ``unreasonable refusal to award an 
additional competitive franchise'' within the meaning of Section 
621(a)(1).

C. Steps To Ensure That the Local Franchising Process Does Not 
Unreasonably Interfere With Competitive Cable Entry and Rapid Broadband 
Deployment

    64. Commenters in this proceeding identified several specific 
issues regarding problems with the current operation of the franchising 
process. These include: (1) Failure by LFAs to grant or deny franchises 
within reasonable time frames; (2) LFA requirements that a facilities-
based new entrant build out its cable facilities beyond a reasonable 
service area; (3) certain LFA-mandated costs, fees, and other 
compensation and whether they must be counted toward the statutory 5 
percent cap on franchise fees; (4) new entrants' obligations to provide 
support mandated by LFAs for PEG and I-Nets; and (5) facilities-based 
new entrants' obligations to comply with local consumer protection and 
customer service standards when the same facilities are used to provide 
other regulated services, such as telephony. We discuss each measure 
below.
1. Maximum Time Frame for Franchise Negotiations
    65. As explained above, the record demonstrates that, although the 
average time that elapses between application and grant of a franchise 
varies from locality to locality, unreasonable delays in the 
franchising process are commonplace and have hindered, and in some 
cases thwarted entirely, attempts to deploy competitive video services. 
The record is replete with examples of unreasonable delays in the 
franchising process, which can indefinitely delay competitive entry and 
leave an applicant without recourse in violation of Section 621(a)(1)'s 
prohibition on unreasonable refusals to award a competitive franchise.
    66. We find that unreasonable delays in the franchising process 
deprive consumers of competitive video services, hamper accelerated 
broadband deployment, and can result in unreasonable refusals to award 
competitive franchises. Thus, it is necessary to establish reasonable 
time limits for LFAs to render a decision on a competitive applicant's 
franchise application. We define below the boundaries of a reasonable 
time period in which an LFA must render a decision, and we establish a 
remedy for applicants that do not receive a decision within the 
applicable time frame. We establish a maximum time frame of 90 days for 
entities with existing authority to access public rights-of-way, and 
six months for entities that do not have authority to access public 
rights-of-way. The deadline will be calculated from the date that the 
applicant files an application or other writing that includes the 
information described below. Failure of an LFA to act within the 
allotted time constitutes an unreasonable refusal to award the 
franchise under Section 621(a)(1), and the LFA at that time is deemed 
to have granted the entity's application on an interim basis, pursuant 
to which the applicant may begin providing service. Thereafter, the LFA 
and applicant may continue to negotiate the terms of the

[[Page 13201]]

franchise, consistent with the guidance and rulings in this Order.
a. Time Limit
    67. The record shows that the franchising process in some 
localities can drag on for years. We are concerned that without a 
defined time limit, the extended delays will continue, depriving 
consumers of cable competition and applicants of franchises. We thus 
consider the appropriate length of time that should be afforded LFAs in 
reaching a final decision on a competitive franchise application. 
Commenters suggest a wide range of time frames that may be reasonable 
for an LFA's consideration of a competitive franchise application. TIA 
proposes that we adopt the time limit used in the Texas franchising 
legislation, which would allow a new entrant to obtain a franchise 
within 17 days of submitting an application. Other commenters propose 
time limits ranging from 30 days to six months. While NATOA in its 
comments opposes any time limit, in February 2006 a NATOA 
representative told the Commission that the six-month time limit that 
California law imposes is reasonable. Some commenters have suggested 
that a franchise applicant that holds an existing authorization to 
access rights-of-way (e.g., a LEC) should be subject to a shorter time 
frame than other applicants. These commenters reason that deployment of 
video services requires an upgrade to existing facilities in the 
rights-of-way rather than construction of new facilities, and such 
applicants generally have demonstrated their fitness as a provider of 
communications services.
    68. In certain States, an SFA is responsible for all franchising 
decisions (e.g., Hawaii, Connecticut, Vermont, Texas, Indiana, Kansas, 
South Carolina, and beginning January 1, 2007, California and North 
Carolina), and the majority of these States have established time 
frames within which those SFAs must make franchising decisions. We are 
mindful, however, that States in which an LFA is the franchising 
authority, the LFA may be a small municipal entity with extremely 
limited resources. We note that a number of other States in addition to 
Texas have adopted or are considering statewide franchising in order to 
speed competitive entry. Nothing in our discussion here is intended to 
preempt the actions of any States. The time limit we adopt herein is a 
ceiling beyond which LFA delay in processing a franchise application 
becomes unreasonable. To the extent that States and/or municipalities 
wish to adopt shorter time limits, they remain free to do so. Thus, it 
may not always be feasible for an LFA to carry out legitimate local 
policy objectives permitted by the Act and appropriate State or local 
law within an extremely short time frame. We therefore seek to 
establish a time limit that balances the reasonable needs of the LFA 
with the needs of the public for greater video service competition and 
broadband deployment. As set out in detail below, we believe that it is 
appropriate to provide rules to guide LFAs that retain ultimate 
decision-making power over franchise decisions.
    69. As a preliminary matter, we find that a franchise applicant 
that holds an existing authorization to access rights-of-way should be 
subject to a shorter time frame for review than other applicants. 
First, one of the primary justifications for cable franchising is the 
locality's need to regulate and receive compensation for the use of 
public rights-of-way. In considering an application for a cable 
franchise by an entity that already has rights-of-way access, however, 
an LFA need not devote substantial attention to issues of rights-of-way 
management. Recognizing this distinction, some States have created 
streamlined franchising procedures specifically tailored to entities 
with existing access to public rights-of-way. Second, in obtaining a 
certificate for public convenience and necessity from a State, a 
facilities-based provider generally has demonstrated its legal, 
technical, and financial fitness to be a provider of telecommunications 
services. Thus, an LFA need not spend a significant amount of time 
considering the fitness of such applicants to access public rights-of-
way. NATOA and its members concede that the authority to occupy the 
right-of-way has an effect on the review of the financial, technical, 
and legal merits of the application, and eases right-of-way management 
burdens. We thus find that a time limit is particularly appropriate for 
an applicant that already possesses authority to deploy 
telecommunications infrastructure in the public rights-of-way. We 
further agree with AT&T that entities with existing authority to access 
rights-of-way should be entitled to an expedited process, and that 
lengthy consideration of franchise applications made by such entities 
would be unreasonable. Specifically, we find that 90 days provides LFAs 
ample time to review and negotiate a franchise agreement with 
applicants that have access to rights-of-way.
    70. Based on our examination of the record, we believe that a time 
limit of 90 days for those applicants that have access to rights-of-way 
strikes the appropriate balance between the goals of facilitating 
competitive entry into the video marketplace and ensuring that 
franchising authorities have sufficient time to fulfill their 
responsibilities. In this vein, we note that 90 days is a considerably 
longer time frame than that suggested by some commenters, such as TIA. 
Additionally, we recognize that the Communications Act gives an LFA 120 
days to make a final decision on a cable operator's request to modify a 
franchise. We believe that the record supports an even shorter time 
here because the costs associated with delay are much greater with 
respect to entry. When an incumbent cable franchisee requests a 
modification, consumers are not deprived of service while an LFA 
deliberates. Here, delay by an individual LFA deprives consumers of the 
benefits of cable competition. An LFA should be able to negotiate a 
franchise with a familiar applicant that is already authorized to 
occupy the right-of-way in less than 120 days. The list of legitimate 
issues to be negotiated is short, and we narrow those issues 
considerably in this Order. We therefore impose a deadline of 90 days 
for an LFA to reach a final decision on a competitive franchise 
application submitted by those applicants authorized to occupy rights-
of-way within the franchise area.
    71. For other applicants, we believe that six months affords a 
reasonable amount of time to negotiate with an entity that is not 
already authorized to occupy the right-of-way, as an LFA will need to 
evaluate the entity's legal, financial, and technical capabilities in 
addition to generally considering the applicant's fitness to be a 
communications provider over the rights-of-way. Commenters have 
presented substantial evidence that six months provides LFAs sufficient 
time to review an applicant's proposal, negotiate acceptable terms, and 
award or deny a competitive franchise. We are persuaded by the record 
that a six-month period will allow sufficient time for review. Given 
that LFAs must act on modification applications within the 120-day 
limit set by the Communications Act, we believe affording an additional 
two months--i.e., a six-month review period--will provide LFAs ample 
time to conduct negotiations with an entity new to the franchise area.
    72. Failure of an LFA to act within these time frames is 
unreasonable and constitutes a refusal to award a competitive 
franchise. Consistent with other time limits that the Communications 
Act and our rules impose, a franchising authority and a

[[Page 13202]]

competitive applicant may extend these limits if both parties agree to 
an extension of time. We further note that an LFA may engage in 
franchise review activities that are not prohibited by the 
Communications Act or our rules, such as multiple levels of review or 
holding a public hearing, provided that a final decision is made within 
the time period established under this Order.
b. Commencement of the Time Period for Negotiations
    73. The record demonstrates that there is no universally accepted 
event that ``starts the clock'' for purposes of calculating the length 
of franchise negotiations between LFAs and new entrants. Accordingly, 
we find it necessary to delineate the point at which such calculation 
should begin. Few commenters offer specific suggestions on what event 
should open the time period for franchise negotiations. Qwest contends 
that the period for negotiations should commence once an applicant 
files an application or a proposed agreement. On the other hand, 
Verizon argues that the clock must start before an applicant files a 
formal application because significant negotiations often take place 
before a formal filing. Specifically, the company advocates starting 
the clock when the applicant initiates negotiations with the LFA, which 
could be documented informally between the applicant and the LFA or 
with a formal Commission filing for evidentiary purposes.
    74. We will calculate the deadline from the date that the applicant 
first files certain requisite information in writing with the LFA. This 
filing must meet any applicable State or local requirements, including 
any State or local laws that specify the contents of a franchise 
application and payment of a reasonable application fee in 
jurisdictions where such fee is required. This application, whether 
formal or informal, must at a minimum contain: (1) The applicant's 
name; (2) the names of the applicant's officers and directors; (3) the 
applicant's business address; (4) the name and contact information of 
the applicant's contact; (5) a description of the geographic area that 
the applicant proposes to serve; (6) the applicant's proposed PEG 
channel capacity and capital support; (7) the requested term of the 
agreement; (8) whether the applicant holds an existing authorization to 
access the community's public rights-of-way; and (9) the amount of the 
franchise fee the applicant agrees to pay (consistent with the 
Communications Act and the standards set forth herein). Any requirement 
the LFA imposes on the applicant to negotiate or engage in any 
regulatory or administrative processes before the applicant files the 
requisite information is per se unreasonable and preempted by this 
Order. Such a requirement would delay competitive entry by undermining 
the efficacy of the time limits adopted in this Order and would not 
serve any legitimate purpose. At their discretion, applicants may 
choose to engage in informal negotiations before filing an application. 
These informal negotiations do not apply to the deadline, however; we 
will calculate the deadline from the date that the applicant first 
files its application with an LFA. For purposes of any disputes that 
may arise, the applicant will have the burden of proving that it filed 
the requisite information or, where required, the application with the 
LFA, by producing either a receipt-stamped copy of the filing or a 
certified mail return receipt indicating receipt of the required 
documentation. We believe that adoption of a time limit with a specific 
starting point will ensure that the franchising process will not be 
unduly delayed by pre-filing requirements, will increase applicants' 
incentive to begin negotiating in earnest at an earlier stage of the 
process, and will encourage both LFAs and applicants to reach agreement 
within the specified time frame. We note that an LFA may toll the 
running of the 90-day or six-month time period if it has requested 
information from the franchise applicant and is waiting for such 
information. Once the information is received by the LFA, the time 
period would automatically begin to run again.
c. Remedy for Failure To Negotiate a Franchise Within the Time Limit
    75. Finally, we consider what remedy or remedies may be appropriate 
in the event that an LFA and franchise applicant are unable to reach 
agreement within the 90-day or six-month time frame. Section 635 of the 
Communications Act provides a specific remedy for an applicant who 
believes that an LFA unreasonably denied its application containing the 
requisite information within the applicable time frame. Here, we 
establish a remedy in the event an LFA does not grant or deny a 
franchise application by the deadline. In selecting this remedy, we 
seek to provide a meaningful incentive for local franchising 
authorities to abide by the deadlines contained in this Order while at 
the same time maintaining LFAs' authority to manage rights-of-way, 
collect franchise fees, and address other legitimate franchise 
concerns.
    76. In the event that an LFA fails to grant or deny an application 
by the deadline set by the Commission, Verizon urges the Commission to 
temporarily authorize the applicant to provide video service. In 
general, we agree with this proposed remedy. In order to encourage 
franchising authorities to reach a final decision on a competitive 
application within the applicable time frame set forth in this Order, a 
failure to abide by the Commission's deadline must bring with it 
meaningful consequences. Additionally, we do not believe that a 
sufficient remedy for an LFA's inaction on an application is the 
creation of a remedial process, such as arbitration, that will result 
in even further delay. We also decline to agree to NATOA's suggestion 
that an applicant should be awarded a franchise identical to that held 
by the incumbent cable operator. This suggestion is impractical for the 
same reasons that we find local level-playing-field requirements are 
preempted. Therefore, if an LFA has not made a final decision within 
the time limits we adopt in this Order, the LFA will be deemed to have 
granted the applicant an interim franchise based on the terms proposed 
in the application. This interim franchise will remain in effect only 
until the LFA takes final action on the application. We believe this 
approach is preferable to having the Commission itself provide interim 
franchises to applicants because a ``deemed grant'' will begin the 
process of developing a working relationship between the competitive 
applicant and the franchising authority, which will be helpful in the 
event that a negotiated franchise is ultimately approved.
    77. The Commission has authority to deem a franchise application 
``granted'' on an interim basis. As noted above, the Commission has 
broad authority to adopt rules to implement Title VI and, specifically, 
Section 621(a)(1) of the Communications Act. As the Supreme Court has 
explained, the Commission serves ``as the `single Government agency' 
with `unified jurisdiction' and `regulatory power over all forms of 
electrical communication, whether by telephone, telegraph, cable, or 
radio.' '' Section 201(b) authorizes the Commission to ``prescribe such 
rules and regulations as may be necessary in the public interest to 
carry out the provisions of this Act.'' ``[T]he grant in section 201(b) 
means what it says: The FCC has rulemaking authority to carry out the 
`provisions of this Act.' '' Section 2 of the Communications Act grants 
the Commission explicit jurisdiction over ``cable services.'' Moreover, 
Congress

[[Page 13203]]

specifically charged the Commission with the administration of the 
Cable Act, including Section 621, and Federal courts have consistently 
upheld the Commission's authority in this area.
    78. The Commission has previously granted franchise applicants 
temporary authority to operate in local areas. In the early 1970s, the 
Commission required every cable operator to obtain a Federal 
certificate of compliance from the Commission before it could 
``commence operations.'' In effect, the Commission acted as a co-
franchising authority--requiring both an FCC certificate and a local 
franchise (granted pursuant to detailed Commission guidance and 
oversight) prior to the provision of services. As the Commission noted, 
``[a]lthough we have determined that local authorities ought to have 
the widest scope in franchising cable operators, the final 
responsibility is ours.'' And the Commission granted interim franchises 
for cable services in areas where there was no other franchising 
authority.
    79. We note that the deemed grant approach is consistent with other 
Federal regulations designed to address inaction on the part of a State 
decision maker. In addition, this approach does not raise any special 
legal concerns about impinging on State or local authority. The Act 
plainly gives Federal courts authority to review decisions made 
pursuant to Section 621(a)(1). As the Supreme Court observed in Iowa 
Utilities Board, ``This is, at bottom, a debate not about whether the 
States will be allowed to do their own thing, but about whether it will 
be the FCC or the Federal courts that draw the lines to which they must 
hew. To be sure, the FCC's lines can be even more restrictive than 
those drawn by the courts--but it is hard to spark a passionate 
`States' rights' debate over that detail.''
    80. We anticipate that a deemed grant will be the exception rather 
than the rule because LFAs will generally comply with the Commission's 
rules and either accept or reject applications within the applicable 
time frame. However, in the rare instance that a local franchising 
authority unreasonably delays acting on an application and a deemed 
grant therefore occurs, we encourage the parties to continue to 
negotiate and attempt to reach a franchise agreement following 
expiration of the formal time limit. Each party will have a strong 
incentive to negotiate sincerely: LFAs will want to ensure that their 
constituents continue to receive the benefits of competition and cable 
providers will want to protect the investments they have made in 
deploying their systems. If the LFA ultimately acts to deny the 
franchise after the deadline, the applicant may appeal such denial 
pursuant to Section 635(a) of the Communications Act. If, on the other 
hand, the LFA ultimately grants the franchise, the applicant's 
operations will continue pursuant to the negotiated franchise, rather 
than the interim franchise.
2. Build-Out
    81. As discussed above, build-out requirements in many cases may 
constitute unreasonable barriers to entry into the MVPD market for 
facilities-based competitors. Accordingly, we limit LFAs' ability to 
impose certain build-out requirements pursuant to Section 621(a)(1).
a. Authority
    82. Proponents of build-out requirements do not offer any 
persuasive legal argument that the Commission lacks authority to 
address this significant problem and conclude that certain build-out 
requirements for competitive entrants are unreasonable. Nothing in the 
Communications Act requires competitive franchise applicants to agree 
to build-out their networks in any particular fashion. Nevertheless, 
incumbent cable operators and LFAs contend that it is both lawful and 
appropriate, in all circumstances, to impose the same build-out 
requirements on competitive applicants that apply to incumbents. We 
reject these arguments and find that Section 621(a)(1) prohibits LFAs 
from refusing to award a new franchise on the ground that the applicant 
will not agree to unreasonable build-out requirements.
    83. The only provision in the Communications Act that even alludes 
to build-out is Section 621(a)(4)(A), which provides that ``a 
franchising authority * * * shall allow the applicant's cable system a 
reasonable period of time to become capable of providing cable service 
to all households in the franchise area.'' Far from a grant of 
authority, however, Section 621(a)(4)(A) is actually a limitation on 
LFAs' authority. In circumstances when it is reasonable for LFAs to 
require cable operators to build out their networks in accordance with 
a specific plan, LFAs must give franchisees a reasonable period of time 
to comply with those requirements. However, Section 621(a)(4)(A) does 
not address the central question here: Whether it may be unreasonable 
for LFAs to impose certain build-out requirements on competitive cable 
applicants. To answer that question, Section 621(a)(4)(A) must be read 
in conjunction with Section 621(a)(1)'s prohibition on unreasonable 
refusals to award competitive franchises, and in light of the Act's 
twin goals of promoting competition and broadband deployment.
    84. Our interpretation of Section 621(a)(4)(A) is consistent with 
relevant jurisprudence and the legislative history. The DC Circuit has 
squarely rejected the notion that Section 621(a)(4)(A) authorizes LFAs 
to impose universal build-out requirements on all cable providers. The 
court has held that Section 621(a)(4)(A) does not require that cable 
operators extend service ``throughout the franchise area,'' but instead 
is a limit on franchising authorities that seek to impose such 
obligations. That decision comports with the legislative history, which 
indicates that Congress explicitly rejected an approach that would have 
imposed affirmative build-out obligations on all cable providers. The 
House version of the bill provided that an LFA's ``refusal to award a 
franchise shall not be unreasonable if, for example, such refusal is on 
the ground * * * of inadequate assurance that the cable operator will, 
within a reasonable period of time, provide universal service 
throughout the entire franchise area under the jurisdiction of the 
franchising authority.'' By declining to adopt this language, Congress 
made clear that it did not intend to impose uniform build-out 
requirements on all franchise applicants.
    85. LFAs and incumbent cable operators also rely on Section 
621(a)(3) to support compulsory build-out. That Section provides: ``In 
awarding a franchise or franchises, a franchising authority shall 
assure that access to cable service is not denied to any group of 
potential residential cable subscribers because of the income of the 
residents of the local area in which such group resides.'' We therefore 
address below some commenters' concerns that limitations on build-out 
requirements will contravene or render ineffective the statutory 
prohibition against discrimination on the basis of income 
(``redlining.'') But for present purposes, it has already been 
established that Section 621(a)(3) does not mandate universal build-
out. As the Commission previously has stated, ``the intent of [Section 
621(a)(3)] was to prevent the exclusion of cable service based on 
income'' and ``this section does not mandate that the franchising 
authority require the complete wiring of the franchise area in those 
circumstances where such an exclusion is not based on the income status 
of the residents of the unwired area.'' The U.S. Court of Appeals for 
the District of Columbia

[[Page 13204]]

Circuit (the ``DC Circuit'') has upheld this interpretation in the face 
of an argument that universal build-out was required by Section 
621(a)(3):

    The statute on its face prohibits discrimination on the basis of 
income; it manifestly does not require universal [build-out]. * * * 
[The provision requires] ``wiring of all areas of the franchise'' to 
prevent redlining. However, if no redlining is in evidence, it is 
likewise clear that wiring within the franchise area can be limited.
b. Discussion
    86. Given the current state of the MVPD marketplace, we find that 
an LFA's refusal to award a competitive franchise because the applicant 
will not agree to specified build-out requirements can be unreasonable. 
Market conditions today are far different from when incumbent cable 
operators obtained their franchises. Incumbent cable providers were 
frequently awarded community-wide monopolies. In that context, a 
requirement that the provider build out facilities to the entire 
community was eminently sensible. The essential bargain was that the 
cable operator would provide service to an entire community in exchange 
for its status as the only franchisee from whom customers in the 
community could purchase service. Thus, a financial burden was placed 
upon the monopoly provider in exchange for the undeniable benefit of 
being able to operate without competition.
    87. By contrast, new cable entrants must compete with entrenched 
cable operators and other video service providers. A competing cable 
provider that seeks to offer service in a particular community cannot 
reasonably expect to capture more than a fraction of the total market. 
Build-out requirements thus impose significant financial risks on 
competitive applicants, who must incur substantial construction costs 
to deploy facilities within the franchise area in exchange for the 
opportunity to capture a relatively small percentage of the market. In 
many instances, build-out requirements make entry so expensive that the 
prospective competitive provider withdraws its application and simply 
declines to serve any portion of the community. Given the entry-
deterring effect of build-out conditions, our construction of Section 
621(a)(1) best serves the Act's purposes of promoting competition and 
broadband deployment.
    88. Accordingly, we find that it is unlawful for LFAs to refuse to 
grant a competitive franchise on the basis of unreasonable build-out 
mandates. For example, absent other factors, it would seem unreasonable 
to require a new competitive entrant to serve everyone in a franchise 
area before it has begun providing service to anyone. It also would 
seem unreasonable to require facilities-based entrants, such as 
incumbent LECs, to build out beyond the footprint of their existing 
facilities before they have even begun providing cable service. It also 
would seem unreasonable, absent other factors, to require more of a new 
entrant than an incumbent cable operator by, for instance, requiring 
the new entrant to build out its facilities in a shorter period of time 
than that originally afforded to the incumbent cable operator; or 
requiring the new entrant to build out and provide service to areas of 
lower density than those that the incumbent cable operator is required 
to build out to and serve. As we understand these franchising 
agreements are public documents, we find it reasonable to require the 
new entrant to produce the incumbent's current agreement. We note, 
however, it would seem reasonable for an LFA in establishing build-out 
requirements to consider the new entrant's market penetration. It would 
also seem reasonable for an LFA to consider benchmarks requiring the 
new entrant to increase its build-out after a reasonable period of time 
had passed after initiating service and taking into account its market 
success.
    89. Some other practices that seem unreasonable include: Requiring 
the new entrant to build out and provide service to buildings or 
developments to which the new entrant cannot obtain access on 
reasonable terms; requiring the new entrant to build out to certain 
areas or customers that the entrant cannot reach using standard 
technical solutions; and requiring the new entrant to build out and 
provide service to areas where it cannot obtain reasonable access to 
and use of the public rights of way. Subjecting a competitive applicant 
to more stringent build-out requirements than the LFA placed on the 
incumbent cable operator is unreasonable in light of the greater 
economic challenges facing competitive applicants explained above. 
Moreover, build-out requirements may significantly deter entry and thus 
forestall competition by placing substantial demands on competitive 
entrants.
    90. In sum, we find, based on the record as a whole, that build-out 
requirements imposed by LFAs can operate as unreasonable barriers to 
competitive entry. The Commission has broad authority under Section 
621(a)(1) to determine whether particular LFA conditions on entry are 
unreasonable. Exercising that authority, we find that Section 621(a)(1) 
prohibits LFAs from refusing to award a competitive franchise because 
the applicant will not agree to unreasonable build-out requirements.
c. Redlining
    91. The Communications Act forbids access to cable service from 
being denied to any group of potential residential cable subscribers 
because of neighborhood income. The statute is thus clear that no 
provider of cable services may deploy services with the intent to 
redline and ``that access to cable service [may not be] denied to any 
group of potential residential cable subscribers because of the income 
of the residents of the local area in which such group resides.'' 
Nothing in our action today is intended to limit LFAs' authority to 
appropriately enforce Section 621(a)(3) and to ensure that their 
constituents are protected against discrimination. This includes an 
LFA's authority to deny a franchise that would run afoul of Section 
621(a)(3).
    92. MMTC suggests that the Commission develop anti-redlining ``best 
practices,'' specifically defining who is responsible for overseeing 
redlining issues, what constitutes redlining, and developing 
substantial relief for those affected by redlining. MMTC suggests that 
an LFA could afford a new entrant means of obtaining pre-clearance of 
its build-out plans, establishing a rebuttable presumption that the new 
entrant will not redline (for example, proposing to replicate a 
successful anti-redlining program employed in another franchise area). 
Alternatively, an LFA could allow a new entrant to choose among 
regulatory options, any of which would be sufficient to allow for 
build-out to commence while the granular details of anti-redlining 
reporting are finalized. We note these suggestions but do not require 
them.
3. Franchise Fees
    93. In response to questions in the Local Franchising NPRM 
concerning existing practices that may impede cable entry, various 
parties discussed unreasonable demands relating to franchise fees. 
Commenters have also indicated that unreasonable demands concerning 
fees or other consideration by some LFAs have created an unreasonable 
barrier to entry. Such matters include not only the universe of 
franchise-related costs imposed on providers that should or should not 
be included within the 5 percent statutory franchise fee cap 
established in Section 622(b), but also the calculation of franchise 
fees (i.e., the revenue base from which the 5 percent is calculated).

[[Page 13205]]

Accordingly, we will exercise our authority under Section 621(a)(1) to 
address the unreasonable demands made by some LFAs. In particular, any 
refusal to award an additional competitive franchise because of an 
applicant's refusal to accede to demands that are deemed impermissible 
below shall be considered to be unreasonable. The Commission's 
jurisdiction over franchise fee policy is well established. The general 
law with respect to franchise fees should be relatively well known, but 
we believe it may be helpful to restate the basic propositions here in 
an effort to avoid misunderstandings that can lead to delay in the 
franchising process as well as unreasonable refusals to award 
competitive franchises. To the extent that our determinations are 
relevant to incumbent cable operators as well, we would expect that 
discrepancies would be addressed at the next franchise renewal 
negotiation period, as noted in the FNPRM infra, which tentatively 
concludes that the findings in this Order should apply to cable 
operators that have existing franchise agreements as they negotiate 
renewal of those agreements with LFAs.
    94. We address below four significant issues relating to franchise 
fee payments. First, we consider the franchise fee revenue base. 
Second, we examine the limitations on charges incidental to the 
awarding or enforcing of a franchise. Third, we discuss the proper 
classification of in-kind payments unrelated to the provision of cable 
service. Finally, we consider whether contributions in support of PEG 
services and equipment should be considered within the franchise fee 
calculation.
    95. The fundamental franchise fee limitation is set forth in 
Section 622(b), which states that ``franchise fees paid by a cable 
operator with respect to any cable system shall not exceed 5 percent of 
such cable operator's gross revenues derived in such period from the 
operation of the cable system to provide cable services.'' Section 
622(g)(1) broadly defines the term ``franchise fee'' to include ``any 
tax, fee, or assessment of any kind imposed by a franchising authority 
or other governmental entity on a cable operator or cable subscriber, 
or both, solely because of their status as such.'' Section 
622(g)(2)(c), however, excludes from the term ``franchise fee'' any 
``capital costs which are required by the franchise to be incurred by 
the cable operator for public, educational, or governmental access 
facilities.'' And Section 622(g)(2)(D) excludes from the term (and 
therefore from the 5 percent 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.'' It has been established that 
certain types of ``in-kind'' obligations, in addition to monetary 
payments, may be subject to the cap. The legislative history of the 
1984 Cable Act, which adopted the franchise fee limit, specifically 
provides that ``lump sum grants not related to PEG access for municipal 
programs such as libraries, recreation departments, detention centers 
or other payments not related to PEG access would be subject to the 5 
percent limitation.''
    96. Definition of the 5 percent fee cap revenue base. As a 
preliminary matter, we address the request of several parties to 
clarify which revenue-generating services should be included in the 
gross fee figure from which the 5 percent calculation is drawn. The 
record indicates that in the franchise application process, disputes 
that arise as to the propriety of particular fees can be a significant 
cause of delay in the process and that some franchising authorities are 
making unreasonable demands in this area. This issue is of particular 
concern where a prospective new entrant for the provision of cable 
services is a facilities-based incumbent or competitive provider of 
telecommunications and/or broadband services. A number of controversies 
regarding which revenues are properly subject to application of the 
franchise fee were resolved before the Supreme Court's decision in NCTA 
v. Brand X, which settled issues concerning the proper regulatory 
classification of cable modem-based Internet access service. 
Nevertheless, in some quarters, there has been considerable uncertainty 
over the application of franchise fees to Internet access service 
revenues and other non-cable revenues. Thus, we believe it may assist 
the franchise process and prevent unreasonable refusals to award 
competitive franchises to reiterate certain conclusions that have been 
reached with respect to the franchise fee base.
    97. We clarify that a cable operator is not required to pay 
franchise fees on revenues from non-cable services. Advertising revenue 
and home shopping commissions have been included in an operator's gross 
revenues for franchise fee calculation purposes. Section 622(b) 
provides that the ``franchise fees paid by a cable operator with 
respect to any cable system shall not exceed 5 percent of such cable 
operator's gross revenues derived in such period from the operation of 
the cable system to provide cable services.'' The term ``cable 
service'' is explicitly defined in Section 602(6) to mean (i) ``the 
one-way transmission to subscribers of video programming or other 
programming service,'' and (ii) ``subscriber interaction, if any, which 
is required for the selection or use of such video programming or other 
programming service.'' The Commission determined in the Cable Modem 
Declaratory Ruling that a franchise authority may not assess franchise 
fees on non-cable services, such as cable modem service, stating that 
``revenue from cable modem service would not be included in the 
calculation of gross revenues from which the franchise fee ceiling is 
determined.'' Although this decision related specifically to Internet 
access service revenues, the same would be true for other ``non-cable'' 
service revenues. Thus, Internet access services, including broadband 
data services, and any other non-cable services are not subject to 
``cable services'' fees.
    98. Charges incidental to the awarding or enforcing of a franchise. 
Section 622(g)(2)(D) excludes from the term ``franchise fee'' 
``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.'' 
Such ``incidental'' requirements or charges may be assessed by a 
franchising authority without counting toward the 5 percent cap. A 
number of parties assert, and seek Commission clarification, that 
certain types of payments being requested in the franchise process are 
not incidental fees under Section 622(g)(2)(D) but instead must either 
be prohibited or counted toward the cap. Furthermore, a number of 
parties report that disputes over such issues as well as unreasonable 
demands being made by some franchising authorities in this regard may 
be leading to delays in the franchising process as well as unreasonable 
refusals to award competitive franchises. We therefore determine that 
non-incidental franchise-related costs required by LFAs must count 
toward the 5 percent franchise fee cap and provide guidance as to what 
constitutes such non-incidental franchise-related costs. Under the Act, 
these costs combined with other franchise fees cannot exceed 5 percent 
of gross revenues for cable service.
    99. BellSouth urges us to prohibit franchising authorities from 
assessing fees that the authorities claim are ``incidental'' if those 
fees are not specifically allowed under Section 622 of the Cable Act. 
BellSouth asserts that LFAs often seek fees beyond the 5 percent 
franchise fee allowed by the

[[Page 13206]]

statutory provision. The company therefore asks us to clarify that any 
costs that an LFA requires a cable provider to pay beyond the 
exceptions listed in Section 622--including generally applicable taxes, 
PEG capital costs, and ``incidental charges''--count toward the 5 
percent cap. OPASTCO asserts that higher fees discourage investment and 
often will need to be passed on to consumers. Verizon also requests 
that we clarify that fees that exceed the cap are unreasonable.
    100. AT&T argues that we should find unreasonable any fees or 
contribution requirements that are not credited toward the franchise 
fee obligation. AT&T also asserts that any financial obligation to the 
franchising authority that a provider undertakes, such as application 
or acceptance fees that exceed the reasonable cost of processing an 
application, free or discounted service to an LFA, and LFA attorney or 
consultant fees, should apply toward the franchise fee obligation.
    101. Conversely, NATOA asserts that costs such as those enumerated 
above by AT&T fall within Section 622(g)(2)(D)'s definition of charges 
``incidental'' to granting the franchise. NATOA contends that the word 
``incidental'' does not refer to the amount of the charge, but rather 
the fact that a charge is ``naturally appertaining'' to the grant of a 
franchise. Thus, NATOA argues, these costs are not part of the 
franchise fee and therefore do not count toward the cap.
    102. There is nothing in the text of the statute or the legislative 
history to suggest that Congress intended the list of exceptions in 
Section 622(g)(2)(D) to include the myriad additional expenses that 
some LFAs argue are ``incidental.'' Given that the lack of clarity on 
this issue may hinder competitive deployment and lead to unreasonable 
refusals to award competitive franchises under Section 621, we seek to 
provide guidance as to what is ``incidental'' for a new competitive 
application. We find 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, as described 
below. We find instructive a series of Federal court decisions relating 
to this subsection of Section 622. These courts have indicated that (i) 
There are significant limits on what payments qualify as ``incidental'' 
and may be requested outside of the 5 percent fee limitation; and (ii) 
processing fees, consultant fees, and attorney fees are not necessarily 
to be regarded as ``incidental'' to the awarding of a franchise. In 
Robin Cable Systems v. City of Sierra Vista, for example, the United 
States District Court for the District of Arizona held that 
``processing costs'' of up to $30,000 required as part of the award of 
a franchise were not excluded under subsection (g)(2)(D) because they 
were not ``incidental,'' but rather ``substantial'' and therefore 
``inconsistent with the Cable Act.'' Additionally, in Time Warner 
Entertainment v. Briggs, the United States District Court for the 
District of Massachusetts decided that attorney fees and consultant 
fees fall within the definition of franchise fees, as defined in 
Section 622. Because the municipality in that case was already 
collecting 5 percent of the operator's gross revenues, the Court 
determined that a franchise provision requiring the cable operator to 
pay such fees above and beyond its 5 percent gross revenues was 
preempted and therefore unenforceable. Finally, in Birmingham Cable 
Comm. v. City of Birmingham, the United States District for the 
Northern District of Alabama stated that ``it would be an aberrant 
construction of the phrase `incidental to the awarding * * * of the 
franchise,' in this context, to conclude that the phrase embraces 
consultant fees incurred solely by the City.''
    103. We find these decisions instructive and emphasize that LFAs 
must count such non-incidental franchise-related costs toward the cap. 
We agree with these judicial decisions that non-incidental costs 
include the items discussed above, such as attorney fees and consultant 
fees, but may include other items, as well. Examples of other items 
include application or processing fees that exceed the reasonable cost 
of processing the application, acceptance fees, free or discounted 
services provided to an LFA, any requirement to lease or purchase 
equipment from an LFA at prices higher than market value, and in-kind 
payments as discussed below. Accordingly, if LFAs continue to request 
the provision of such in-kind services and the reimbursement of 
franchise-related costs, the value of such costs and services should 
count towards the provider's franchise fee payments. To the extent that 
an LFA requires franchise fee payments of less than 5 percent an offset 
may not be necessary. Such LFAs are able to request the reimbursement 
or provision of such costs up to the 5 percent statutory threshold. For 
future guidance, LFAs and video service providers may look to judicial 
cases to determine other costs that should be considered 
``incidental.''
    104. In-kind payments unrelated to provision of cable service. The 
record indicates that in the context of some franchise negotiations, 
LFAs have demanded from new entrants payments or in-kind contributions 
that are unrelated to the provision of cable services. While many 
parties argue that franchising authority requirements unrelated to the 
provision of cable services are unreasonable, few parties provided 
specific details surrounding the in-kind payment demands of LFAs. Some 
LFAs argue that commenters' allegations about inappropriate fees fail 
to identify the LFAs in question. As a consequence, they contend, we 
should not rely on such unsubstantiated claims unless the particular 
LFAs in question are given a chance to respond. We need not resolve 
particular disputes between parties, however, in order to address this 
issue. Our clarification that all LFA requests not related to cable 
services must be counted toward the 5 percent cap is a matter of 
statutory construction, and all commenters have had ample opportunity 
to address this issue. As discussed further below, most parties 
generally discussed examples of concessions, but were unwilling to 
provide details of specific instances, including the identity of the 
LFA requesting the unrelated services. Even without specific details 
concerning the LFAs involved, however, the record adequately supports a 
finding that LFA requests unrelated to the provision of cable services 
have a negative impact on the entry of new cable competitors in terms 
of timing and costs and may lead to unreasonable refusals to award 
competitive franchises. Accordingly, we clarify that any requests made 
by LFAs that are unrelated to the provision of cable services by a new 
competitive entrant are subject to the statutory 5 percent franchise 
fee cap.
    105. The Broadband Service Providers Association states that an 
example of a municipal capital requirement can include traffic light 
control systems. FTTH Council states that non-video requirements raise 
the cost of entry for new entrants and should be prohibited. As an 
example, FTTH Council asserts that in San Antonio, Grande 
Communications was required to prepay $1 million in franchise fees 
(which took the company five years to draw down) and to fund a $50,000 
scholarship, with an additional $7,200 to be contributed each year. 
They assert that new entrants agree to these requirements because they 
have no alternative. The National Telecommunications Cooperative 
Association (``NTCA'') also asserts that its members have complained 
that LFAs require them to accept franchise terms unrelated to the 
provision of video service. NTCA states that any

[[Page 13207]]

incumbent cable operator that already abides by such a requirement has 
made the concession in exchange for an exclusive franchise, but that 
new entrants, in contrast, must fight for every subscriber and will not 
survive if forced into expensive non-video related projects.
    106. AT&T refers to a press article stating that Verizon has faced 
myriad requests unrelated to the provision of cable service. These 
include: a $13 million ``wish list'' in Tampa, Florida; a request for 
video hookup for a Christmas celebration and money for wildflower seeds 
in New York; and a request for fiber on traffic lights to monitor 
traffic in Virginia. Verizon provides little additional information 
about these examples, but argues that any requests must be considered 
franchise-related costs subject to the 5 percent franchise fee cap, as 
discussed above.
    107. We clarify that any requests made by LFAs unrelated to the 
provision of cable services by a new competitive entrant are subject to 
the statutory 5 percent franchise fee cap, as discussed above. 
Municipal projects unrelated to the provision of cable service do not 
fall within any of the exempted categories in Section 622(g)(2) of the 
Act and thus should be considered a ``franchise fee'' under Section 
622(g)(1). The legislative history of the 1984 Cable Act supports this 
finding, providing that ``lump sum grants not related to PEG access for 
municipal programs such as libraries, recreation departments, detention 
centers or other payments not related to PEG access would be subject to 
the 5 percent limitation.'' Accordingly, any such requests for 
municipal projects will count towards the 5 percent cap.
    108. Contributions in support of PEG services and equipment. As 
further discussed in the Section below, we also consider the question 
of the proper treatment of LFA-mandated contributions in support of PEG 
services and equipment. The record reflects that disputes regarding 
such contributions are impeding video deployment and may be leading to 
unreasonable refusals to award competitive franchises. Section 
622(g)(2)(C) excludes from the term ``franchise fee'' any ``capital 
costs which are required by the franchise to be incurred by the cable 
operator for public, educational, or governmental access facilities.'' 
Accordingly, payments of this type, if collected only for the cost of 
building PEG facilities, are not subject to the 5 percent limit. 
Capital costs refer to those costs incurred in or associated with the 
construction of PEG access facilities. These costs are distinct from 
payments in support of the use of PEG access facilities. PEG support 
payments may include, but are not limited to, salaries and training. 
Payments made in support of PEG access facilities are considered 
franchise fees and are subject to the 5 percent cap. While Section 
622(g)(2)(B) excluded from the term franchise fee any such payments 
made in support of PEG facilities, it only applies to any franchise in 
effect on the date of enactment. Thus, for any franchise granted after 
1984, this exemption from franchise fees no longer applies.
4. PEG/Institutional Networks
    109. In the Local Franchising NPRM, we tentatively concluded that 
it is not unreasonable for an LFA, in awarding a franchise, to 
``require adequate assurance that the cable operator will provide 
adequate public, educational and governmental access channel capacity, 
facilities, or financial support'' because this promotes important 
statutory and public policy goals. However, pursuant to Section 
621(a)(1), we conclude that LFAs may not make unreasonable demands of 
competitive applicants for PEG and I-Net and that conditioning the 
award of a competitive franchise on applicants agreeing to such 
unreasonable demands constitutes an unreasonable refusal to award a 
franchise. An I-Net is defined as ``a communication network which is 
constructed or operated by the cable operator and which is generally 
available only to subscribers who are not residential customers.'' 47 
U.S.C. 531(f). This finding is limited to competitive applicants under 
Section 621(a)(1). Yet, as this issue is also germane to existing 
franchisees, we ask for further comment on the applicability of this 
and other findings in the Further Notice of Proposed Rulemaking. The 
FNPRM tentatively concludes that the findings in this Order should 
apply to cable operators that have existing franchise agreements as 
they negotiate renewal of those agreements with LFAs.
    110. As an initial matter, we conclude that we have the authority 
to address issues relating to PEG and I-Net support. Some commenters 
argue that Congress explicitly granted the responsibility for PEG and 
I-Net regulation to State and local governments. For example, NATOA 
contends that we cannot limit the in-kind or monetary support that LFAs 
may request for PEG access, because Sections 624(a) and (b) allow an 
LFA to establish requirements ``related to the establishment and 
operation of a cable system,'' including facilities and equipment. In 
response, Verizon claims that PEG requirements should extend only to 
channel capacity, and that LFAs can obtain other contributions only to 
the extent that they are agreed to voluntarily by the cable operator. 
Verizon also asserts that the record confirms that LFAs often demand 
PEG support that exceeds statutory limits.
    111. Section 611(a) of the Communications Act operates as a 
restriction on the authority of the franchising authority to establish 
channel capacity requirements for PEG. This Section provides that ``[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 only to the extent provided in this 
section.'' Section 611(b) allows a franchising authority to require 
that ``channel capacity be designated for public, educational or 
governmental use,'' but the extent of such channel capacity is not 
defined. Section 621(a)(4)(b) provides that a franchising authority may 
require ``adequate assurance'' that the cable operator will provide 
``adequate'' PEG access channel capacity, facilities, or financial 
support.'' Because the statute does not define the term ``adequate,'' 
we have the authority to interpret what Congress meant by ``adequate 
PEG access channel capacity, facilities, and financial support,'' and 
to prohibit excessive LFA demands in this area, if necessary. We note 
that the legislative history does not define ``adequate,'' nor does it 
provide any guidance as to what Congress meant by the term. We 
therefore conclude that ``adequate'' should be given its plain meaning: 
the term does not mean significant but rather ``satisfactory or 
sufficient.'' As discussed above, we have also accepted the tentative 
conclusion of the Local Franchising NPRM that Section 621(a)(1) 
prohibits not only the ultimate refusal to award a competitive 
franchise, but also the establishment of procedures and other 
requirements that have the effect of unreasonably interfering with the 
ability of a would-be competitor to obtain a competitive franchise. 
Given this conclusion and our authority to interpret the term 
``adequate'' in Section 621(a)(4), we will provide guidance as to what 
constitutes ``adequate'' PEG support under that provision as subject to 
the constraints of the ``reasonableness'' requirement in Section 
621(a)(1).
    112. AT&T asserts that we should shorten the period for franchise 
negotiations by adopting standard terms for PEG channels. We reject 
this suggestion and clarify that LFAs are free to establish their own 
requirements for

[[Page 13208]]

PEG to the extent discussed herein, provided that the non-capital costs 
of such requirements are offset from the cable operator's franchise fee 
payments. This is consistent with the Act and the historic management 
of PEG requirements by LFAs.
    113. Consumers for Cable Choice and Verizon argue that it is 
unreasonable for an LFA to request a number of PEG channels from a new 
entrant that is greater than the number of channels that the community 
is using at the time the new entrant submits its franchise application. 
We find that it is unreasonable for an LFA to impose on a new entrant 
more burdensome PEG carriage obligations than it has imposed upon the 
incumbent cable operator.
    114. Some commenters also asked whether certain requirements 
regarding construction or financial support of PEG facilities and I-
Nets are unreasonable under Section 621(a)(1). Several parties indicate 
that, as a general matter, PEG contributions should be limited to what 
is ``reasonable'' to support ``adequate'' facilities. We agree that PEG 
support required by an LFA in exchange for granting a new entrant a 
franchise should be both adequate and reasonable, as discussed above. 
In addressing each of these concerns below, we seek to strike the 
necessary balance between the two statutory terms.
    115. Ad Hoc Telecom Manufacturers argue that it is unreasonable to 
require the payment of ongoing costs to operate PEG channels, because a 
requirement is unrelated to right-of-way management, the fundamental 
policy rationale for an LFA's franchising authority. In response, 
Cablevision asserts that exempting incumbent LECs from PEG support 
requirements would undermine the key localism features of franchise 
requirements, and could undermine the ability of incumbent cable 
operators to provide robust community access. We disagree with Ad Hoc 
Telecom Manufacturers that it is per se unreasonable for LFAs to 
require the payment of ongoing costs to support PEG. Such a ruling 
would be contrary to Section 621(a)(4)(B) and public policy. We note, 
however, that any ongoing LFA-required PEG support costs are subject to 
the franchise fee cap, as discussed above.
    116. FTTH Council, Verizon, and AT&T asked us to affirm that PEG or 
I-Net requirements imposed on a new entrant that are wholly duplicative 
of existing requirements imposed on the incumbent cable operator are 
per se unreasonable. AT&T and Verizon argue that Section 621(a)(4)(B) 
requires adequate facilities, not duplicative facilities. FTTH Council 
contends that if LFAs can require duplicative facilities, they can 
burden new entrants with inefficient obligations without increasing the 
benefit to the public. FTTH Council thus suggests that LFAs be 
precluded from imposing completely duplicative requirements, and that 
we require new entrants to contribute a pro rata share of the incumbent 
cable operator's PEG obligations. For example, if an incumbent cable 
operator funds a PEG studio, the new entrant should be required to 
contribute a pro rata share of the ongoing financial obligation for 
such studio, based on the new entrant's number of subscribers.
    117. In addition to advocating a pro rata contribution rule, FTTH 
Council requests that we require incumbents to permit new entrants to 
connect with the incumbent's pre-existing PEG channel feeds. FTTH 
Council proposes that the incumbent cable operator and new entrant 
decide how to accomplish this connection, with LFA involvement if 
necessary, and that the costs of the connection should be deducted from 
the new entrant's PEG-related financial obligations to the LFA. Others 
agree that PEG interconnection is necessary to maximize the value of 
local access channels when more than one video provider operates in a 
community. New entrants seek a pro rata contribution rule based on 
practical constraints as well. AT&T asserts that, although incumbent 
cable operators can provide space for PEG in local headend buildings, 
LEC new entrants' facilities are not designed to accommodate those 
needs. Thus, if duplicative facilities are demanded, new entrants would 
have to build or rent facilities solely for this purpose, which AT&T 
contends would be unreasonable under the statute. NATOA counters that 
AT&T's complaint regarding space mischaracterizes PEG studio 
requirements that exist in some franchises. Specifically, NATOA claims 
that LFAs generally are not concerned with a PEG studio's location, and 
that PEG studios are usually located near cable headends simply because 
those locations reduce the cable operators' costs.
    118. We agree with AT&T, FTTH Council, Verizon, and others that 
completely duplicative PEG and I-Net requirements imposed by LFAs would 
be unreasonable. If a new entrant, for technical, financial, or other 
reasons, is unable to interconnect with the incumbent cable operator's 
facilities, it would not be unreasonable for an LFA to require the new 
entrant to assume the responsibility of providing comparable 
facilities, subject to the limitations discussed herein. Such 
duplication generally would be inefficient and would provide minimal 
additional benefits to the public, unless it was required to address an 
LFA's particular concern regarding redundancy needed for, for example, 
public safety. We clarify that an I-Net requirement is not duplicative 
if it would provide additional capability or functionality, beyond that 
provided by existing I-Net facilities. We note, however, that we would 
expect an LFA to consider whether a competitive franchisee can provide 
such additional functionality by providing financial support or actual 
equipment to supplement existing I-Net facilities, rather than by 
constructing new I-Net facilities. Finally, we find that it is 
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. Payment for I-Nets that ultimately are not 
constructed are unreasonable as they do not serve their intended 
purpose.
    119. While we prefer that LFAs and new entrants negotiate 
reasonable PEG obligations, we find that under Section 621 it is 
unreasonable for an LFA to require a new entrant to provide PEG support 
that is in excess of the incumbent cable operator's obligations. We 
also agree that a pro rata cost sharing approach is one reasonable 
means of meeting the statutory requirement of the provision of adequate 
PEG facilities. To the extent that a new entrant agrees to share pro 
rata costs with the incumbent cable operator, such an arrangement is 
per se reasonable. To determine a new entrant's per se reasonable PEG 
support payment, the new entrant should determine the incumbent cable 
operator's per subscriber payment at the time the competitive applicant 
applies for a franchise or submits its informational filing, and then 
calculate the proportionate fee based on its subscriber base. A new 
entrant may agree to provide PEG support over and above the incumbent 
cable operator's existing obligations, but such support is at the 
entrant's discretion. If the new entrant agrees to share the pro rata 
costs with the incumbent cable operator, the PEG programming provider, 
be it the incumbent cable operator, the LFA, or a third-party 
programmer, must allow the new entrant to interconnect with the 
existing PEG feeds. The costs of such interconnection should be borne 
by the new entrant. We note that we previously have required cost-
sharing and interconnection for PEG channels and facilities in another 
context. Section 75.1505(d) of the Commission's rules

[[Page 13209]]

requires that if an LFA and OVS operator cannot reach an agreement on 
the OVS operator's PEG obligations, the operator is required to match 
the incumbent cable operator's PEG obligations and the incumbent cable 
operator is required to permit the OVS operator to connect with the 
existing PEG feeds, with such costs borne by the OVS operator.
5. Regulation of Mixed-Use Networks
    120. We clarify 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. For example, we find it unreasonable for an LFA to refuse 
to grant a cable franchise to an applicant for resisting an LFA's 
demands for regulatory control over non-cable services or facilities. 
Similarly, an LFA has no authority to insist on an entity obtaining a 
separate cable franchise in order to upgrade non-cable facilities. For 
example, assuming an entity (e.g., a LEC) already possesses authority 
to access the public rights-of-way, an LFA may not require the LEC to 
obtain a franchise solely for the purpose of upgrading its network. So 
long as there is a non-cable purpose associated with the network 
upgrade, the LEC is not required to obtain a franchise until and unless 
it proposes to offer cable services. For example, if a LEC deploys 
fiber optic cable that can be used for cable and non-cable services, 
this deployment alone does not trigger the obligation to obtain a cable 
franchise. The same is true for boxes housing infrastructure to be used 
for cable and non-cable services.
    121. We further clarify that an LFA may not use its video 
franchising authority to attempt to regulate a LEC's entire network 
beyond the provision of cable services. We agree with Verizon that the 
``entirety of a telecommunications/data network is not automatically 
converted to a `cable system' once subscribers start receiving video 
programming.'' For instance, we find that the provision of video 
services pursuant to a cable franchise 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. 
Local regulations that attempt to regulate any non-cable services 
offered by video providers are preempted because such regulation is 
beyond the scope of local franchising authority and is inconsistent 
with the definition of ``cable system'' in Section 602(7)(C). This 
provision explicitly states that a common carrier facility subject to 
Title II is considered a cable system ``to the extent such facility is 
used in the transmission of video programming * * * .'' As discussed 
above, revenues from non-cable services are not included in the base 
for calculation of franchise fees.
    122. In response to requests that we address LFA authority to 
regulate ``interactive on-demand services,'' we note that Section 
602(7)(C) excludes from the definition of ``cable system'' a facility 
of a common carrier that is used solely to provide interactive on-
demand services. ``Interactive on-demand services'' are defined as 
``service[s] providing video programming to subscribers over switched 
networks on an on-demand, point-to-point basis, but does not include 
services providing video programming prescheduled by the programming 
provider.'' We do not address at this time what particular services may 
fall within the definition.
    123. We note that this discussion does not address the regulatory 
classification of any particular video services being offered. We do 
not address in this Order whether video services provided over Internet 
Protocol are or are not ``cable services.''

D. Preemption of Local Laws, Regulations and Requirements

    124. Having established rules and guidance to implement Section 
621(a)(1), we turn now to the question of local laws that may be 
inconsistent with our decision today. Because the rules we adopt 
represent a reasonable interpretation of relevant provisions in Title 
VI as well as a reasonable accommodation of the various policy 
interests that Congress entrusted to the Commission, they have 
preemptive effect pursuant to Section 636(c). Alternatively, local laws 
are impliedly preempted to the extent that they conflict with this 
Order or stand as an obstacle to the accomplishment and execution of 
the full purposes and objectives of Congress.
    125. At that outset of this discussion, it is important to 
reiterate that we do not preempt State law or State level franchising 
decisions in this Order. Instead, we preempt only local laws, 
regulations, practices, and requirements to the extent that: (1) 
Provisions in those laws, regulations, practices, and agreements 
conflict with the rules or guidance adopted in this Order; and (2) such 
provisions are not specifically authorized by State law. As noted 
above, we conclude that the record before us does not provide 
sufficient information to make determinations with respect to 
franchising decisions where a State is involved, issuing franchises at 
the State level or enacting laws governing specific aspects of the 
franchising process. We expressly limit our findings and regulations in 
this Order to actions or inactions at the local level where a State has 
not circumscribed the LFA's authority. For example, in light of 
differences between the scope of franchises issued at the State level 
and those issued at the local level, it may be necessary to use 
different criteria for determining what may be unreasonable with 
respect to the key franchising issues addressed herein. We also 
recognize that many States only recently have enacted comprehensive 
franchise reform laws designed to facilitate competitive entry. In 
light of these facts, we lack a sufficient record to evaluate whether 
and how such State laws may lead to unreasonable refusals to award 
additional competitive franchises.
    126. Section 636(c) of the Communications Act provides that ``any 
provision of law of any State, political subdivision, or agency 
thereof, or franchising authority, or any provision of any franchise 
granted by such authority, which is inconsistent with this Act shall be 
deemed to be preempted and superseded.'' In the Local Franchising NPRM, 
the Commission tentatively concluded that, pursuant to the authority 
granted under Sections 621 and 636(c), and under the Supremacy Clause, 
the Commission may deem to be preempted any State or local law that 
stands as an obstacle to the accomplishment and execution of the full 
purposes and objectives of Title VI. For example, we may deem preempted 
any local law that causes an unreasonable refusal to award a 
competitive franchise in violation of Section 621(a)(1). Accordingly, 
the Commission sought comment on whether it would be appropriate to 
preempt State and local legislation to the extent we find that it 
serves as an unreasonable barrier to the grant of competitive 
franchises.
    127. The doctrine of Federal preemption arises from the Supremacy 
Clause, which provides that Federal law is the ``supreme Law of the 
Land.'' Preemption analysis requires a statute-specific inquiry. There 
are various avenues by which State law may be superseded by Federal 
law. We focus on the two which are most relevant here. First, 
preemption can occur where Congress expressly preempts State law. When 
a Federal statute contains an express preemption provision, the 
preemption analysis consists of

[[Page 13210]]

identifying the scope of the subject matter expressly preempted and 
determining if a State's law falls within its scope. Second, preemption 
can be implied and can occur where Federal law conflicts with State 
law. Courts have found implied ``conflict preemption'' where compliance 
with both State and Federal law is impossible or where State law 
``stands as an obstacle to the accomplishment and execution of the full 
purposes and objectives of Congress.''
    128. Applying these principles to this proceeding, we find that 
local franchising laws, regulations, and agreements are preempted to 
the extent they conflict with the rules we adopt in this Order. Section 
636(c) expressly preempts State and local laws that are inconsistent 
with the Communications Act. This provision precludes States and 
localities from acting in a manner inconsistent with the Commission's 
interpretations of Title VI so long as those interpretations are valid. 
It is the Commission's job, in the first instance, to determine the 
scope of the subject matter expressly preempted by Section 636. As 
noted elsewhere, we adopt the rules in this Order pursuant to our 
interpretation of Section 621(a)(1) and other relevant Title VI 
provisions in light of the twin congressional goals of promoting 
competition in the multichannel video marketplace and promoting 
broadband deployment. These rules represent a reasonable interpretation 
of relevant provisions in Title VI as well as a reasonable 
accommodation of the various policy interests that Congress entrusted 
to the Commission. They therefore have preemptive effect pursuant to 
Section 636(c).
    129. Alternatively, we find that such local laws, regulations, and 
agreements are impliedly preempted to the extent that they conflict 
with this Order or stand as an obstacle to the accomplishment and 
execution of the full purposes and objectives of Congress. Among the 
stated purposes of Title VI is to (1) ``Establish a national policy 
concerning cable communications,'' (2) ``establish franchise procedures 
and standards which encourage the growth and development of cable 
systems and which assure that cable systems are responsive to the needs 
and interests of the local community,'' and (3) ``promote competition 
in cable communications and minimize unnecessary regulation that would 
impose an undue economic burden on cable systems.'' The legislative 
history to both the 1984 and 1992 Cable Acts identifies a national 
policy of encouraging competition in the multichannel video marketplace 
and recognizes the national implications that the local franchising 
process can have on that policy. The national policy of promoting a 
competitive multichannel video marketplace has been repeatedly 
reemphasized by Congress, the Commission, and the courts. The record 
here shows that the current operation of the franchising process at the 
local level conflicts with this national multichannel video policy by 
imposing substantial delays on competitive entry and requiring unduly 
burdensome conditions that deter entry. And to the extent that local 
requirements result in LFAs unreasonably refusing to award competitive 
franchises, such mandates frustrate the policy goals underlying Title 
VI. The rules we adopt today, e.g., limits on the time period for LFA 
action on competitive franchise applications, limits on LFA's ability 
to impose build-out requirements, and limits on LFA collection of 
franchise fees, are designed to ensure efficiency and fairness in the 
local franchising process and to provide certainty to prospective 
marketplace participants. This, in turn, will allow us to effectuate 
Congress' twin goals of promoting cable competition and minimizing 
unnecessary and unduly burdensome regulation on cable systems. Thus, 
not only are Section 636(c)'s requirements for preemption satisfied, 
but preemption in these circumstances is proper pursuant to the 
Commission's judicially recognized ability, when acting pursuant to its 
delegated authority, to preempt local regulations that conflict with or 
stand as an obstacle to the accomplishment of Federal objectives.
    130. We reject the claim by incumbent cable operators and 
franchising authorities that the Commission lacks authority to preempt 
local requirements because Congress has not explicitly granted the 
Commission the authority to preempt. These commenters suggest that 
because the Commission seeks to preempt a power traditionally exercised 
by a State or local Government (i.e., local franchising), under the 
Fifth Circuit's decision in City of Dallas, the Commission can only 
preempt where it is given express statutory authority to do so. 
However, this argument ignores the plain language of Section 636(c), 
which states that ``any provision of law of any State, political 
subdivision, or agency therefore, or franchising authority * * * which 
is inconsistent with this chapter shall be deemed to be preempted and 
superseded.'' Moreover, Section 621 expressly limits the authority of 
franchising authorities by prohibiting exclusive franchises and 
unreasonable refusals to award additional competitive franchises. 
Congress could not have stated its intent to limit local franchising 
authority more clearly. These provisions therefore satisfy any express 
preemption requirement.
    131. Furthermore, as long as the Commission acts within the scope 
of its delegated authority in adopting rules that implement Title VI, 
including the prohibition of Section 621(a)(1), its rules have 
preemptive effect. Courts assess whether an agency acted within the 
scope of its authority ``without any presumption one way or the 
other''; there is no presumption against preemption in this context. As 
noted above, Congress charged the Commission with the task of 
administering the Communications Act, including Title VI, and the 
Commission has clear authority to adopt rules implementing provisions 
such as Section 621. Consequently, our rules preempt any contrary local 
regulations.
    132. We also find no merit in incumbent cable operators' and local 
franchising authorities' argument that the scope of the Commission's 
preemption authority under Section 636(c) is limited by the terms of 
Section 636(a) of the Act. Section 636(a) provides that nothing in 
Title VI ``shall be construed to affect any authority of any State, 
political subdivision, or agency thereof, or franchising authority, 
regarding matters of public health, safety, and welfare, to the extent 
consistent with the express provisions of this title.'' The very reason 
for preemption in these circumstances is that many local franchising 
laws and practices are at odds with the express provisions of Title VI, 
as interpreted in this Order. Consequently, Section 636(a) presents no 
obstacle to preemption here. We therefore need not decide whether the 
State and local laws at issue relate to ``matters of public health, 
safety, and welfare'' within the meaning of Section 636(a).
    133. We also reject the franchising authorities' argument that any 
attempt to preempt lawful local government control of public rights-of-
way by interfering with local franchising requirements, procedures and 
processes could constitute an unconstitutional taking under the Fifth 
Amendment of the United States Constitution. The ``takings'' clause of 
the Fifth Amendment provides: ``[N]or shall private property be taken 
for public use, without just compensation.'' We conclude that our 
actions here do not run afoul of the Fifth Amendment for several 
reasons. To begin with, our

[[Page 13211]]

actions do not result in a Fifth Amendment taking. Courts have held 
that municipalities generally do not have a compensable ``ownership'' 
interest in public rights-of-way, but rather hold the public streets 
and sidewalks in trust for the public. As one court explained, 
``municipalities generally possess no rights to profit from their 
streets unless specifically authorized by the State.'' Also, we note 
that telecommunications carriers that seek to offer video service 
already have an independent right under State law to occupy rights-of-
way. States have granted franchises to telecommunications carriers, 
pursuant to which the carriers lawfully occupy public rights-of-way for 
the purpose of providing telecommunications service. Because all 
municipal power is derived from the State, courts have held that ``a 
State can take public rights-of-way without compensating the 
municipality within which they are located.'' Given the municipality is 
not entitled to compensation when its interest in the streets are taken 
pursuant to State law, it is difficult to see how the transmission of 
additional video signals along those same lines results in any physical 
occupation of public rights-of-way beyond that already permitted by the 
States.
    134. Moreover, even if there was a taking, Congress provided for 
``just compensation'' to the local franchising authorities. Section 
622(h)(2) of the Act provides that a local franchising authority may 
recover a franchise fee of up to 5 percent of a cable operator's annual 
gross revenue. Congress enacted the cable franchise fee as the 
consideration given in exchange for the right to use the public ways. 
In passing the 1984 Cable Act, Congress recognized local government's 
entitlement to ``assess the cable operator a fee for the operator's use 
of public ways,'' and established ``the authority of a city to collect 
a franchise fee of up to 5 percent of an operator's annual gross 
revenues.'' The implementing regulations we adopt today do not 
eviscerate the ability of local authorities to impose a franchise fee. 
Rather, our actions here simply ensure that the local franchising 
authority does not impose an excessive fee or other unreasonable costs 
in violation of the express statutory provisions and policy goals 
encompassed in Title VI. For the reasons stated above, we need not 
reach the issue of whether a ``taking'' has occurred with respect to a 
competitive applicant providing cable service over the same network it 
uses to provide telephone service, for which it is already authorized 
by the local government to use the public rights-of-way
    135. Finally, LFAs maintain that the Commission's preemption of 
local governmental powers offends the Tenth Amendment of the U.S. 
Constitution. The Tenth Amendment provides that ``[t]he powers not 
delegated to the United States by the Constitution, nor prohibited by 
it to the States, are reserved to the States respectively, or to the 
people.'' In support of their position, commenters argue that the 
Commission is improperly attempting to override local government's duty 
to ``maximize the value of local property for the greater good'' by 
imposing a Federal regulatory scheme onto the States and/or local 
governments. Contrary to the local franchising authorities' claim, 
however, they have failed to demonstrate any violation of the Tenth 
Amendment. ``If a power is delegated to Congress in the Constitution, 
the Tenth Amendment expressly disclaims any reservation of that power 
to the States.'' Thus, when Congress acts within the scope of its 
authority under the Commerce Clause, no Tenth Amendment issue arises. 
Regulation of cable services is well within Congress' authority under 
the Commerce Clause. Thus, because our authority in this area derives 
from a proper exercise of congressional power, the Tenth Amendment 
poses no obstacle to our preemption of State and local franchise law or 
practices. Likewise, there is no merit to LFA commenters' suggestion 
that Commission regulation of the franchising process would constitute 
an improper ``commandeering'' of State governmental power. The Supreme 
Court has recognized that ``where Congress has the authority to 
regulate private activity under the Commerce Clause,'' Congress has the 
``power to offer States the choice of regulating that activity 
according to Federal standards or having State law preempted by Federal 
regulation.'' And here, we are simply requiring local franchising 
authorities to exercise their regulatory authority according to Federal 
standards, or else local requirements will be preempted. For all of 
these reasons, our actions today do not offend the Tenth Amendment.
    136. We do not purport to identify every local requirement that 
this Order preempts. Rather, in accordance with Section 636(c), we 
merely find that local laws, regulations and, agreements are preempted 
to the extent they conflict with this Order and the rules adopted 
herein. For example, local laws would be preempted if they: (1) 
Authorize a local franchising authority to take longer than 90 days to 
act on a competitive franchise application concerning entities with 
existing authority to access public rights-of-way, and six months 
concerning entities that do not have authority to access public rights-
of-way; (2) allow an LFA to impose unreasonable build-out requirements 
on competitive franchise applicants; or (3) authorize or require a 
local franchising authority to collect franchise fees in excess of the 
fees authorized by law.
    137. One specific example of the type of local laws that this Order 
preempts are so-called ``level-playing-field'' requirements that have 
been adopted by a number of local authorities. We find that these 
mandates unreasonably impede competitive entry into the multichannel 
video marketplace by requiring LFAs to grant franchises to competitors 
on substantially the same terms imposed on the incumbent cable 
operators. As an initial matter, just because an incumbent cable 
operator may agree to franchise terms that are inconsistent with 
provisions in Title VI, LFAs may not require new entrants to agree to 
such unlawful terms pursuant to level-playing-field mandates because 
any such requirement would conflict with Title VI. Moreover, the record 
demonstrates that aside from this specific scenario, level-playing-
field mandates imposed at the local level deter competition in a more 
fundamental manner. The record indicates that in today's market, new 
entrants face ``steep economic challenges'' in an ``industry 
characterized by large fixed and sunk costs,'' without the resulting 
benefits incumbent cable operators enjoyed for years as monopolists in 
the video services marketplace. According to commenters, ``a 
competitive video provider who enters the market today is in a 
fundamentally different situation'' from that of the incumbent cable 
operator: ``[w]hen incumbents installed their systems, they had a 
captive market,'' whereas new entrants ``have to `win' every customer 
from the incumbent'' and thus do not have ``anywhere near the number of 
subscribers over which to spread the costs.'' Commenters explain that 
``unlike the incumbents who were able to pay for any of the concessions 
that they grant an LFA out of the supra-competitive revenue from their 
on-going operations,'' ``new entrants have no assured market 
position.'' Based on the record before us, we thus find that an LFAs 
refusal to award an additional competitive franchise unless the 
competitive applicant meets substantially all the terms and

[[Page 13212]]

conditions imposed on the incumbent cable operator may be unreasonable, 
and inconsistent with the ``unreasonable refusal'' prohibition of 
Section 621(a)(1). Accordingly, to the extent a locally-mandated level-
playing-field requirement is inconsistent with the rules, guidance, and 
findings adopted in this Order, such requirement is deemed preempted. 
We also find troubling the record evidence that suggests incumbent 
cable operators use ``level-playing-field'' requirements to frustrate 
negotiations between LFAs and competitive providers, causing delay and 
preventing competitive entry.

IV. Procedural Matters

    138. Paperwork Reduction Act Analysis. This document contains new 
information collection requirements subject to the Paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. It will be submitted to the 
Office of Management and Budget (OMB) for review under Section 3507(d) 
of the PRA. OMB, the general public, and other Federal agencies will be 
invited to comment on the new information collection requirements 
contained in this proceeding. The Commission will publish a separate 
document in the Federal Register at a later date seeking these 
comments. In addition, we note that pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4), we will seek specific comment on how the Commission might 
``further reduce the information collection burden for small business 
concerns with fewer than 25 employees.''
    139. In this present document, we have assessed the effects of the 
application filing requirements used to calculate the time frame in 
which a local franchising authority shall make a decision, and find 
that those requirements will benefit companies with fewer than 25 
employees by providing such companies with specific application 
requirements of a reasonable length. We anticipate this specificity 
will streamline this process for companies with fewer than 25 
employees, and that these requirements will not burden those companies.
    140. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act, the Commission has prepared a Final 
Regulatory Flexibility Analysis (``FRFA'') relating to this Report and 
Order.
    141. Congressional Review Act. The Commission will send a copy of 
this Report and Order in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    142. Additional Information. For additional information concerning 
the PRA proposed information collection requirements contained in this 
Report and Order, contact Cathy Williams at 202-418-2918, or via the 
Internet to <a href="/cdn-cgi/l/email-protection#1b587a6f7362354c727777727a76685b7d7878357c746d"><span class="__cf_email__" data-cfemail="733012071b0a5d241a1f1f1a121e00331510105d141c05">[email protected]</span></a>.

Final Regulatory Flexibility Act Analysis

    143. As required by the Regulatory Flexibility Act of 1980, as 
amended (``RFA'') an Initial Regulatory Flexibility Analysis (``IRFA'') 
was incorporated in the Notice of Proposed Rulemaking (``NPRM'') to 
this proceeding. The Commission sought written public comment on the 
proposals in the NPRM, including comment on the IRFA. The Commission 
received one comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (``FRFA'') conforms to the RFA.

Need for, and Objectives of, the Report and Order

    144. This Report and Order (``Order'') adopts rules and provides 
guidance to implement Section 621 of the Communications Act of 1934, as 
amended (the ``Communications Act''). Section 621 of the Communications 
Act prohibits franchising authorities from unreasonably refusing to 
award competitive franchises for the provision of cable services. The 
Commission has found that the current franchising process constitutes 
an unreasonable barrier to entry for competitive entrants that impedes 
enhanced cable competition and accelerated broadband deployment. The 
Commission also has determined that it has authority to address this 
problem. To eliminate the unreasonable barriers to entry into the cable 
market, and to encourage investment in broadband facilities, in this 
Order the Commission (1) Adopts maximum time frames within which local 
franchising authorities (``LFAs'') must grant or deny franchise 
applications (90 days for new entrants with existing access to rights-
of-way and six months for those who do not); (2) prohibits LFAs from 
imposing unreasonable build-out requirements on new entrants; (3) 
identifies certain costs, fees, and other compensation which, if 
required by LFAs, must be counted toward the statutory 5 percent cap on 
franchise fees; (4) interprets new entrants' obligations to provide 
support for PEG channels and facilities and institutional networks 
(``I-Nets''); and (5) clarifies that LFA authority is limited to 
regulation of cable services, not mixed-use services. The Commission 
also preempts local laws, regulations, and franchise agreement 
requirements, including level-playing-field provisions, to the extent 
they impose greater restrictions on market entry for competitive 
entrants than what the Order allows. The rule and guidelines are 
adopted in order to further the interrelated goals of enhanced cable 
competition and accelerated broadband deployment. For the specific 
language of the rule adopted, see Rule Changes.

Summary of Significant Issues Raised by Public Comments in Response to 
the IRFA

    145. Only one commenter, Sjoberg's, Inc. submitted a comment that 
specifically responded to the IRFA. Sjoberg's, Inc. contends that small 
cable operators are directly affected by the adoption of rules that 
treat competitive cable entrants more favorably than incumbents. 
Sjoberg's Inc. argues that small cable operators are not in a position 
to compete with large potential competitors. These arguments were 
considered and rejected as discussed below.
    146. We disagree with Sjoberg's Inc. assertion that our rules will 
treat competitive cable entrants more favorably than incumbents. While 
the actions we take in the Order will serve to increase competition in 
the multichannel video programming (``MVPD'') market, we do not believe 
that the rules we adopt in the Order will put any incumbent provider at 
a competitive disadvantage. In fact, we believe that incumbent cable 
operators are at a competitive advantage in the MVPD market; incumbent 
cable operators have the competitive advantage of an existing customer 
base and significant brand recognition in their existing markets. 
Furthermore, we ask in the Further Notice of Proposed Rulemaking 
whether the findings adopted in the Order should apply to existing 
cable operators and tentatively conclude that they should.

Description and Estimate of the Number of Small Entities to Which the 
Proposed Rules Will Apply

Entities Directly Affected By Proposed Rules

    147. 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

[[Page 13213]]

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).
    148. The rules adopted by this Order will streamline the local 
franchising process by adopting rules that provide guidance as to what 
constitutes an unreasonable refusal to grant a cable franchise. 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.
    149. Small governmental jurisdictions. Small governmental 
jurisdictions are ``governments of cities, towns, townships, villages, 
school districts, or special districts, with a population of less than 
fifty thousand.'' As of 1997, there were approximately 87,453 
governmental jurisdictions in the United States. This number includes 
39,044 county governments, municipalities, and townships, of which 
37,546 (approximately 96.2 percent) have populations of fewer than 
50,000, and of which 1,498 have populations of 50,000 or more. Thus, we 
estimate the number of small governmental jurisdictions overall to be 
84,098 or fewer.

Miscellaneous Entities

    150. The entities described in this section are affected merely 
indirectly by our current action, and therefore are not formally a part 
of this RFA analysis. We have included them, however, to broaden the 
record in this proceeding and to alert them to our conclusions.

Cable Operators

    151. The ``Cable and Other Program Distribution'' census category 
includes cable systems operators, closed circuit television services, 
direct broadcast satellite services, multipoint distribution systems, 
satellite master antenna systems, and subscription television services. 
The SBA has developed a small business size standard for this census 
category, which includes all such companies generating $13.0 million or 
less in revenue annually. According to Census Bureau data for 1997, 
there were a total of 1,311 firms in this category, total, that had 
operated for the entire year. Of this total, 1,180 firms had annual 
receipts of under $10 million and an additional 52 firms had receipts 
of $10 million or more but less than $25 million. Consequently, the 
Commission estimates that the majority of providers in this service 
category are small businesses that may be affected by the rules and 
policies adopted herein.
    152. Cable System Operators (Rate Regulation Standard). The 
Commission has developed its own small-business-size standard for cable 
system operators, for purposes of rate regulation. Under the 
Commission's rules, a ``small cable company'' is one serving fewer than 
400,000 subscribers nationwide. The most recent estimates indicate that 
there were 1,439 cable operators who qualified as small cable system 
operators at the end of 1995. Since then, some of those companies may 
have grown to serve over 400,000 subscribers, and others may have been 
involved in transactions that caused them to be combined with other 
cable operators. Consequently, the Commission estimates that there are 
now fewer than 1,439 small entity cable system operators that may be 
affected by the rules and policies adopted herein.
    153. Cable System Operators (Telecom Act Standard). 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 
there are 67,700,000 subscribers in the United States. Therefore, 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. Based on available data, the Commission estimates that the 
number of cable operators serving 677,000 subscribers or fewer, totals 
1,450. 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 is unable, at this 
time, to estimate more accurately the number of cable system operators 
that would qualify as small cable operators under the size standard 
contained in the Communications Act of 1934.
    154. Open Video Services. Open Video Service (``OVS'') systems 
provide subscription services. As noted above, the SBA has created a 
small business size standard for Cable and Other Program Distribution. 
This standard provides that a small entity is one with $13.0 million or 
less in annual receipts. The Commission has certified approximately 25 
OVS operators to serve 75 areas, and some of these are currently 
providing service. Affiliates of Residential Communications Network, 
Inc. (RCN) received approval to operate OVS systems in New York City, 
Boston, Washington, DC, and other areas. RCN has sufficient revenues to 
assure that they do not qualify as a small business entity. Little 
financial information is available for the other entities that are 
authorized to provide OVS and are not yet operational. Given that some 
entities authorized to provide OVS service have not yet begun to 
generate revenues, the Commission concludes that up to 24 OVS operators 
(those remaining) might qualify as small businesses that may be 
affected by the rules and policies adopted herein.

Telecommunications Service Entities

    155. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent local exchange carriers are not dominant in their field of 
operation because any such dominance is not ``national'' in scope. We 
have therefore included small incumbent local exchange carriers in this 
RFA analysis, although we emphasize that this RFA action has no effect 
on Commission analyses and determinations in other, non-RFA contexts.
    156. Incumbent Local Exchange Carriers (``LECs''). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,303 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,303 
carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most

[[Page 13214]]

providers of incumbent local exchange service are small businesses that 
may be affected by our action. In addition, limited preliminary census 
data for 2002 indicate that the total number of wired communications 
carriers increased approximately 34 percent from 1997 to 2002.
    157. Competitive Local Exchange Carriers, Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 769 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 769 carriers, an 
estimated 676 have 1,500 or fewer employees and 93 have more than 1,500 
employees. In addition, 12 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and all 12 are estimated to have 
1,500 or fewer employees. In addition, 39 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 39, an estimated 38 
have 1,500 or fewer employees and one has more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, 
``Shared-Tenant Service Providers,'' and ``Other Local Service 
Providers'' are small entities that may be affected by our action. In 
addition, limited preliminary census data for 2002 indicate that the 
total number of wired communications carriers increased approximately 
34 percent from 1997 to 2002.

Description of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

    158. The rule and guidance adopted in the Order will require de 
minimus additional reporting, recordkeeping, and other compliance 
requirements. The most significant change requires potential 
franchisees to file an application to mark the beginning of the 
franchise negotiation process. This filing requires minimal 
information, and we estimate that the average burden on applicants to 
complete this application is one hour. The franchising authority will 
review this application in the normal course of its franchising 
procedures. The rule will not require any additional special skills 
beyond any already needed in the cable franchising context.

Steps Taken To Minimize Significant Impact on Small Entities, and 
Significant Alternatives Considered

    159. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which 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.
    160. In the NPRM, the Commission sought comment on the impact that 
rules interpreting Section 621(a)(1) might have on small entities, and 
on what effect alternative rules would have on those entities. The 
Commission also invited comment on ways in which the Commission might 
implement Section 621(a)(1) while at the same time impose lesser 
burdens on small entities. 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 establishment of 
specific guidelines for LFAs with respect to the process by which they 
grant competitive cable franchises. We agree with those tentative 
conclusions, and we believe that the rules adopted in the Order will 
not impose a significant impact on any small entity.
    161. In the Order, we provide that LFAs should reasonably review 
franchise applications within 90 days for entities existing authority 
to access rights-of way, and within six months for entities that do not 
have such authority. This will result in decreasing the regulatory 
burdens on cable operators. We declined to adopt shorter deadlines that 
commenters proposed (e.g., 17 days, one month) in order to provide 
small entities more flexibility in scheduling their franchise 
negotiation sessions. In the Order, we also provide guidance on whether 
an LFA may reasonably refuse to award a competitive franchise based on 
certain franchise requirements, such as build-out requirements and 
franchise fees. As an alternative, we considered providing no guidance 
on any franchising terms. 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.

Report to Congress

    162. The Commission will send a copy of the Order, including this 
FRFA, in a report to be sent to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996. In addition, the 
Commission will send a copy of the Order, including the FRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration. A copy 
of the Order and FRFA (or summaries thereof) will also be published in 
the Federal Register.

V. Ordering Clauses

    163. It is ordered that, pursuant to the authority contained in 
Sections 1, 2, 4(i), 303, 303r, 403 and 405 of the Communications Act 
of 1934, 47 U.S.C. 151, 152, 154(i), 303, 303(r), 403, this Report and 
Order is adopted.
    164. It is further ordered that pursuant to the authority contained 
in Sections 1, 2, 4(i), 303, 303a, 303b, and 307 of the Communications 
Act of 1934, 47 U.S.C. 151, 152, 154(i), 303, 303a, 303b, and 307, the 
Commission's rules are hereby amended as set forth in the rule changes. 
It is our intention in adopting these rule changes that, if any 
provision of the rules is held invalid by any court of competent 
jurisdiction, the remaining provisions shall remain in effect to the 
fullest extent permitted by law.
    165. It is further ordered that the rules in Sec.  76.41 contains 
information collection requirements that have not been approved by OMB, 
subject to the Paperwork Reduction Act. The Federal Communications 
Commission will publish a document announcing the effective date upon 
OMB approval.

List of Subjects in 47 CFR Part 76

    Cable television, Television.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Changes

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 76 as follows:

[[Page 13215]]

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

0
1. The authority citation for part 76 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303, 
303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 503, 521, 
522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 
549, 552, 554, 556, 558, 560, 561, 571, 572 and 573.


0
2. Add Subpart C to part 76 to read as follows:

Subpart C--Cable Franchise Applications


Sec.  76.41  Franchise application process.

    (a) Definition. Competitive franchise applicant. For the purpose of 
this section, an applicant for a cable franchise in an area currently 
served by another cable operator or cable operators in accordance with 
47 U.S.C. 541(a)(1).
    (b) A competitive franchise applicant must include the following 
information in writing in its franchise application, in addition to any 
information required by applicable State and local laws:
    (1) The applicant's name;
    (2) The names of the applicant's officers and directors;
    (3) The business address of the applicant;
    (4) The name and contact information of a designated contact for 
the applicant;
    (5) A description of the geographic area that the applicant 
proposes to serve;
    (6) The PEG channel capacity and capital support proposed by the 
applicant;
    (7) The term of the agreement proposed by the applicant;
    (8) Whether the applicant holds an existing authorization to access 
the public rights-of-way in the subject franchise service area as 
described under paragraph (b)(5) of this section;
    (9) The amount of the franchise fee the applicant offers to pay; 
and
    (10) Any additional information required by applicable State or 
local laws.
    (c) A franchising authority may not require a competitive franchise 
applicant to negotiate or engage in any regulatory or administrative 
processes prior to the filing of the application.
    (d) When a competitive franchise applicant files a franchise 
application with a franchising authority and the applicant has existing 
authority to access public rights-of-way in the geographic area that 
the applicant proposes to serve, the franchising authority must grant 
or deny the application within 90 days of the date the application is 
received by the franchising authority. If a competitive franchise 
applicant does not have existing authority to access public rights-of-
way in the geographic area that the applicant proposes to serve, the 
franchising authority must grant or deny the application within 180 
days of the date the application is received by the franchising 
authority. A franchising authority and a competitive franchise 
applicant may agree in writing to extend the 90-day or 180-day 
deadline, whichever is applicable.
    (e) If a franchising authority does not grant or deny an 
application within the time limit specified in paragraph (d) of this 
section, the competitive franchise applicant will be authorized to 
offer service pursuant to an interim franchise in accordance with the 
terms of the application submitted under paragraph (b) of this section.
    (f) If after expiration of the time limit specified in paragraph 
(d) of this section a franchising authority denies an application, the 
competitive franchise applicant must discontinue operating under the 
interim franchise specified in paragraph (e) of this section unless the 
franchising authority provides consent for the interim franchise to 
continue for a limited period of time, such as during the period when 
judicial review of the franchising authority's decision is pending. The 
competitive franchise applicant may seek judicial review of the denial 
under 47 U.S.C. 555.
    (g) If after expiration of the time limit specified in paragraph 
(d) of this section a franchising authority and a competitive franchise 
applicant agree on the terms of a franchise, upon the effective date of 
that franchise, that franchise will govern and the interim franchise 
will expire.

 [FR Doc. E7-5119 Filed 3-20-07; 8:45 am]
BILLING CODE 6712-01-P >


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