65670 Federal Register / Vol. 72, No. 225 / Friday, November 23, 2007 / Rules and Regulations 

Dated: November 16, 2007. 

Lawrence A. Lang, 

Deputy, Operations, Directorate of Civil 

Works. 

[FR Doc. E7–22876 Filed 11–21–07; 8:45 am] 

BILLING CODE 3710–92–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 76 

[MB Docket No. 05–311; FCC 07–190] 

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. 

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 

that to promote the federal goals of 

enhanced cable competition and 

accelerated broadband development, the 

Commission’s rules regarding the local 

franchising process should be extended 

to incumbent cable operators. 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 enhanced cable competition 

and accelerated broadband 

development. 

DATES: The rules contained in this 

Second Report and Order (Second 

Report and Order) will become effective 

December 24, 2007. 

FOR FURTHER INFORMATION CONTACT: For 

additional information on this 

proceeding, contact Holly Saurer, 

Holly.Saurer@fcc.gov or Brendan 

Murray, Brendan.Murray@fcc.gov of the 

Media Bureau, Policy Division, (202) 

418–2120. 

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Second 

Report and Order, FCC 07–190, adopted 

on October 31, 2007, and released on 

November 6, 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 fcc504@fcc.gov or call the 

Commission’s Consumer and 

Governmental Affairs Bureau at (202) 

418–0530 (voice), (202) 418–0432 

(TTY). 

Summary of the Report and Order 

I. Introduction 

1. In this Second Report and Order, 

we provide further guidance on the 

operation of the local franchising 

process. To promote the federal goals of 

enhanced cable competition and 

accelerated broadband development, we 

extend a number of the rules 

promulgated in this docket’s preceding 

First Report and Order (First Report and 

Order), 72 FR 13189, March 21, 2007, to 

incumbents as well as new entrants. We 

also decline to preempt state or local 

customer service laws that exceed the 

Commission’s standards. 

II. Background 

2. New competitors are entering 

markets for the delivery of services 

historically offered by monopolists: 

traditional phone companies are 

entering the multichannel video market, 

while traditional cable companies are 

competing in the telephone 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. These entities also 

face competition from other new 

providers of bundled services, including 

overbuilders and utility companies. We 

believe this competition for the delivery 

of bundled services will benefit 

consumers by reducing prices and 

improving the quality of service 

offerings. In the First Report and Order, 

we stated our concerns that competitive 

applicants seeking to enter the video 

market faced unreasonable regulatory 

obstacles, to the detriment of 

competition generally and cable 

subscribers in particular. 

3. Specifically, in the First Report and 

Order, we adopted rules and provided 

guidance to implement section 621(a)(1) 

of the Communications Act of 1934, as 

amended (the Act), which prohibits 

franchising authorities from 

unreasonably refusing to award 

competitive franchises for the provision 

of cable services. The record in the First 

Report and Order showed that new 

entrants eager to provide video service 

are often delayed, and in some cases 

derailed, by the unreasonable demands 

made by local franchising authorities 

(LFAs) during the franchising process. 

The First Report and Order found that 

these delays contravened the dual 

congressional goals of enhancing cable 

competition and accelerating broadband 

deployment. As such, the Commission 

found that the operation of the local 

franchising process in many 

jurisdictions constituted an 

unreasonable barrier to entry. 

4. To eliminate unreasonable barriers 

to entry into the cable market, and to 

encourage investment in broadband 

facilities, we found in the First Report 

and Order that: (1) An LFA’s failure to 

issue a decision on a competitive 

application within the timeframes 

specified in the order constitutes an 

unreasonable refusal to award a 

competitive franchise within the 

meaning of section 621(a)(1); (2) 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) an 

LFA’s refusal to grant a competitive 

franchise because of an applicant’s 

unwillingness to agree to a variety of 

franchise fee requirements that are 

impermissible under section 622 of the 

Act constitutes an unreasonable refusal 

to award a competitive franchise within 

the meaning of section 621(a)(1); (4) 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 channels 

(PEG) and institutional networks 

(I–Nets); and (5) 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. 

5. Some of the Commission’s findings 

in the First Report and Order relied, in 

part, on statutory provisions that do not 

distinguish between incumbent 

providers and new entrants; however, in 

light of the fact that the NPRM in this 

proceeding focused on competitive 

entrants, the findings were made 

applicable only to new entrants. At the 

same time that we adopted the First 

Report and Order, we therefore issued a 

Further Notice of Proposed Rulemaking 

(FNPRM), 72 FR 13230, March 21, 2007, 

to provide interested parties with the 

opportunity to provide comment on 


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which of those findings should be made 

applicable to incumbent providers and 

how that should be done. 

6. This FNPRM tentatively concluded 

that the findings in the First Report and 

Order should apply to incumbent cable 

operators as they negotiate renewal of 

their existing agreements with LFAs. We 

noted that two of the statutory 

provisions that we discussed in the First 

Report and Order, sections 611(a) and 

622(a), do not distinguish between 

incumbents and new entrants or 

franchises issued to incumbents versus 

franchises issued to new entrants. We 

sought comment on that tentative 

conclusion, and also on the 

Commission’s authority to implement 

this finding. We also sought comment 

on what effect, if any, the findings in the 

First Report and Order have on most 

favored nation (MFN) clauses that may 

be included in existing franchises. 

Finally, we asked about the 

Commission’s authority to preempt state 

or local customer service laws that 

exceed the Commission’s standards. We 

examined the statutory language of 

section 632(d)(2) and tentatively 

concluded that we can neither preempt 

state or local customer service laws that 

exceed the Commission’s standards, nor 

prevent LFAs and cable operators from 

agreeing to more stringent standards. 

III. Discussion 

A. Incumbent Treatment 

7. Based on the comments filed in 

response to this Second Report and 

Order, we agree, as detailed below, that 

many of the findings in the sections of 

the First Report and Order addressing 

franchise fees, PEG and I–Net 

obligations, and non-cable related 

services and facilities should be 

applicable to incumbent operators. We 

also conclude, however, that the 

findings in the First Report and Order 

involving timing and build-out should 

not be applicable to incumbent 

operators. Accordingly, we extend the 

applicable findings from the First Report 

and Order to incumbents as discussed 

below. 

8. Time Limits. The ‘‘Time Limit for 

Franchise Negotiations’’ section of the 

First Report and Order is not applicable 

to incumbents. Many commenters argue 

that this section of the First Report and 

Order should not be applicable to 

incumbents. They point out that section 

626 of the Act, which concerns 

renewals, clearly delineates the process 

and timeline for renewal negotiations. 

We agree. The time limits established in 

the First Report and Order for 

negotiating initial agreements cannot 

apply to incumbent renewals because 

those limits are not consistent with the 

36-month renewal procedure set forth in 

section 626 of the Act. Moreover, the 

underlying rationale for the time 

limits—that is, preventing unreasonable 

entry delays—is inapplicable to 

incumbents. Although new entrants are 

barred from providing service until they 

obtain a franchise, incumbents are able 

to continue providing service during 

renewal negotiations. Accordingly, the 

rationale for the time limits set forth in 

the First Report and Order does not 

apply to the renewal context. 

9. Build-Out. The ‘‘Build-Out’’ section 

of the First Report and Order is also not 

applicable to incumbents. Again, many 

commenters argue that the findings in 

this section of the First Report and 

Order should not be applicable to 

incumbents. In particular, they contend 

that eliminating build-out requirements 

has no relevance for incumbents (and 

might prompt efforts to shrink existing 

service areas). We agree that the 

findings in the First Report and Order 

concerning build-out should not apply 

to incumbents. Our findings regarding 

build-out requirements were squarely 

based on section 621(a)(1) of the Act, a 

provision that plainly does not apply to 

incumbent providers. While we did 

indicate in the First Report and Order 

that section 621(a)(4)(A) of the Act did 

not limit our authority to restrict 

unreasonable build-out demands made 

on competitive applicants pursuant to 

section 621(a)(1), our findings clearly 

were not based on that provision. As we 

stated at the time, ‘‘[s]ection 

621(a)(4)(A) does not address the central 

question here.’’ We also find there is no 

basis for applying the build-out 

rationale in the First Report and Order 

to incumbents, because the underlying 

rationale—that build-out requirements 

can serve as a barrier to new entrants—

is inapplicable to incumbents. 

Incumbents by definition are not barred 

from entry, and allowing incumbents to 

retract the boundaries of their own 

franchise areas may create disruptions 

that would hinder the statutory goal of 

broadband deployment. Moreover, the 

First Report and Order discussed the 

differential impact of build-out 

requirements on incumbents and new 

entrants. 

10. Franchise Fees. The ‘‘Franchise 

Fees’’ section of the First Report and 

Order applies equally to incumbents 

and new entrants. Most commenters 

agree that our findings regarding 

franchise fees from the First Report and 

Order should apply to incumbents. In 

that section of the First Report and 

Order, we determined that an LFA’s 

refusal to grant a competitive franchise 

because of an applicant’s unwillingness 

to agree to a variety of franchise fee 

requirements that are impermissible 

under section 622 of the Act constitutes 

an unreasonable refusal to award a 

competitive franchise within the 

meaning of section 621(a)(1). 

Commenters argue that section 622 of 

the Act does not differentiate between 

new entrants and incumbents, and that 

when Congress intended to treat various 

providers differently, it was explicit 

when doing so. NCTA argues that absent 

a Congressional mandate otherwise, the 

Commission has defined its role as 

establishing a uniform franchising 

regime, and uniformity requires equal 

treatment. Some LFAs argue that the 

Commission was incorrect in its 

interpretation of section 622, and it 

should not extend its interpretation. 

NATOA states that incumbents have 

been renewing franchises for years with 

full knowledge of the Cable Act, and the 

FNRPM’s proposal to extend the 

franchise fee aspects of the First Report 

and Order to incumbents is a solution 

in search of a problem. 

11. We agree that our findings 

interpreting section 622 should apply 

equally to incumbent operators and new 

entrants. Section 622 does not 

distinguish between incumbent 

providers and new entrants. As a result, 

to the extent that a franchise-fee 

requirement is found to be 

impermissible under section 622, that 

statutory interpretation applies to both 

incumbent operators and new entrants. 

The relevant findings from the First 

Report and Order that apply to 

incumbent providers include the 

following: (1) Our clarification that a 

cable operator is not required to pay 

cable franchise fees on revenues from 

non-cable services; (2) our finding 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, and 

that certain fees are not to be regarded 

as ‘‘incidental’’ and therefore must 

count toward the 5 percent franchise fee 

cap; (3) our clarification that any 

municipal projects requested by LFAs 

unrelated to the provision of cable 

services that do not fall within the 

exempted categories in section 622(g)(2) 

are subject to the statutory 5 percent 

franchise fee cap; and (4) our finding 

that payments made to support the 

operation of PEG access facilities are 

considered franchise fees and are 

subject to the 5 percent cap, unless they 

are capital costs, which are excluded 

from franchise fees under section 

622(g)(2)(C). 

12. PEG/I–Nets. Much of the ‘‘PEG/I–

Nets’’ section of the First Report and 

Order applies equally to incumbents 


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and new entrants. Many commenters 

argue that our findings regarding PEG 

and I–Net issues from the First Report 

and Order should apply equally to 

incumbents because the statutory 

provisions discussed do not distinguish 

among differing providers. LFAs, on the 

other hand, argue that the findings 

regarding PEG and I–Nets should not be 

extended to incumbents. They contend 

that doing so would freeze PEG support 

at current contribution levels without 

the possibility for future modification, 

which would result in either 

substantially reduced PEG access 

facility support or decreased general 

fund monies. They also contend that 

they would lose the ability to benefit 

from an affordable I–Net, which cable 

operators can offer for no net costs. 

LFAs also assert that I–Nets provide 

numerous benefits to the community 

and are vital to government functions, 

and the Commission may not take any 

action that would inhibit an LFA’s 

ability to require a cable operator to 

build an I–Net. LFAs further argue that 

some PEG and I–Net obligations are 

undertaken as part of a settlement 

agreement against an operator, and these 

contracts cannot be invalidated. 

13. We determine that some of the 

findings related to PEG and I–Nets 

should apply to incumbent providers 

while others should not. Specifically, 

the finding, discussed above, that the 

non-capital costs of PEG requirements 

must be offset from the cable operator’s 

franchise fee payments is applicable to 

incumbents because it was based upon 

our statutory interpretation of section 

622 of the Act. Again, nothing in the 

language or structure of that provision 

distinguishes between different classes 

of providers, and thus our interpretation 

applies to all providers. Similarly, both 

our refusal to adopt standard terms for 

PEG channels for new entrants as well 

as our refusal to hold that it is per se 

unreasonable for LFAs to require the 

payment of ongoing costs to support 

PEG by new entrants (so long as such 

support costs as applicable are subject 

to the franchise fee cap) apply to 

incumbents as well. 

14. We conclude, however, that other 

findings pertaining to PEG and I–Nets 

should not apply to incumbents. In 

particular, our findings that it would be 

unreasonable for an LFA to impose on 

a new entrant more burdensome PEG 

carriage obligations than it has imposed 

upon the incumbent cable operator and 

that it would be unreasonable for an 

LFA to require a new entrant to provide 

PEG support that is in excess of the 

incumbent cable operator’s obligations, 

by their terms, do not provide relief for 

incumbents. Neither do we believe that 

we can similarly conclude that it would 

be per se unreasonable for an LFA to 

impose less burdensome PEG carriage 

obligations on a new entrant than it has 

imposed on an incumbent cable 

operator or per se unreasonable for an 

LFA to require a new entrant to provide 

less PEG support than the incumbent 

cable provider. Requiring an established 

incumbent operator to have a greater 

PEG carriage obligation or provide 

greater PEG support than a fledgling 

new entrant may very well be 

reasonable under the circumstances, 

and we see no statutory provision that 

categorically precludes such an 

approach. We note that in the First 

Report and Order we found that a pro 

rata cost sharing approach between 

incumbents and new entrants is per se 

reasonable. In doing so, we also cited 

§ 76.1505 of the Commission’s rules, 

which requires an open video system 

operator to match an incumbent cable 

operator’s PEG obligations. Under a 

matching approach, the open video 

system operator and incumbent cable 

operator make equal contributions. In a 

pro rata cost sharing approach, the new 

entrant would make PEG contributions 

based on the ratio of its subscribership 

as compared to the incumbent 

operator’s subscribership. While we did 

not find a matching arrangement per se 

reasonable, we did not find it per se 

unreasonable either. Section 

653(c)(2)(A) of the Act requires that 

open video system PEG obligations be 

‘‘no greater or lesser’’ than obligations 

imposed on incumbent operators, but 

the Act makes no such requirement with 

respect to new cable operator entrants. 

Finally, in the First Report and Order, 

we found that ‘‘completely duplicative 

PEG and I-Net requirements imposed by 

LFAs would be unreasonable,’’ and that 

it was 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. The problems that these 

two determinations were designed to 

address—the required construction of 

duplicative networks and required 

payments in lieu of the construction of 

a duplicative network—are issues that 

face competitive entrants, and it is not 

clear to us how these findings would be 

of practical relevance to incumbents. 

We therefore do not apply them to 

incumbents at this time. However, 

incumbent providers are free in the 

future to present the Commission with 

evidence that these findings are of 

practical relevance to incumbents and 

therefore should be applied to them in 

an appropriate form. When doing so, 

incumbent providers should identify the 

particular problems that applying some 

variation of these findings to them 

would address. 

15. We disagree with comments 

arguing that any changes to the PEG 

structure means that PEG support would 

be frozen at current contribution levels 

without the possibility for future 

modification to reflect the community’s 

needs at that time. Sections 611 and 626 

provide a process for requiring PEG 

carriage and determining a community’s 

future cable-related needs and interests. 

Section 626 requires that an LFA 

identify ‘‘future cable-related 

community needs and interests’’ prior to 

the consideration of a franchise renewal 

proposal. Therefore, LFAs are to 

evaluate their current and future PEG 

needs at the time of an incumbent 

provider’s renewal, and are allowed to 

request such PEG support from their 

providers, within the limits of the Act 

and the Commission’s statutory 

interpretation. Our findings here and in 

the First Report and Order have no 

bearing on these renewal requirements. 

16. Mixed-Use Networks. The ‘‘MixedUse Networks’’ section of the First 

Report and Order also applies equally to 

incumbents and new entrants. 

Consistent with their position on other 

provisions, a number of commenters 

argue that the Commission’s mixed-use 

network findings in the First Report and 

Order are based upon a statutory 

interpretation of section 602(7)(C), and 

the statute’s failure to distinguish 

among differing providers requires that 

it applies uniformly to all. LFAs argue 

that the mixed-use findings presume the 

competitor is a telecommunications 

provider, and that the findings do not 

speak to an incumbent cable provider 

that already is using its network to 

provide cable services. 

17. Because our findings on mixeduse networks in the First Report and 

Order depended upon our statutory 

interpretation of section 602, which 

does not distinguish between incumbent 

providers and new entrants, we agree 

that the findings in this section should 

be applicable to incumbent providers. 

Specifically, we clarify that LFAs’

jurisdiction under Title VI over 

incumbents applies only to the 

provision of cable services over cable 

systems and that an LFA may not use its 

franchising authority to attempt to 

regulate non-cable services offered by 

incumbent video providers. For 

example, the provision of video services 

pursuant to a cable franchise agreement 

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. 


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18. Timing. The Commission 

tentatively concluded that the findings 

in the First Report and Order should 

apply to cable operators at the time of 

renewal: 

[t]he findings in [the First Report and Order] 

should apply to cable operators that have 

existing franchise agreements as they 

negotiate renewal of those agreements with 

LFAs. We note that section 611(a) states ‘‘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’’

and section 622(a) provides ‘‘any cable 

operator may be required under the terms of 

any franchise to pay a franchise fee.’’ These 

statutory provisions do not distinguish 

between incumbents and new entrants or 

franchises issued to incumbents versus 

franchises issued to new entrants. 

Many commenters agreed with our 

tentative conclusion. However, some 

incumbent providers argue that 

regulatory parity requires that the 

Commission extend the First Report and 

Order immediately to incumbent 

providers, and not wait until renewal. 

Specifically, incumbent providers argue 

that some of the findings in the First 

Report and Order, including franchise 

fees, PEG/I–Nets, and mixed use 

networks, were not made solely 

pursuant to section 621, but also other 

sections of the Act that are applicable to 

all operators, not just new entrants, and 

that those provisions should be 

immediately applicable to all providers. 

Further, a small number of incumbent 

competitive providers argue that to 

avoid penalizing them for being the first 

to risk competitive entry, the Second 

Report and Order should be applicable 

to such ‘‘legacy’’ competitive providers 

immediately or upon entrance of a new 

competitive provider. They argue that if 

the Commission adopts the tentative 

conclusion to apply the decisions in the 

First Report and Order at renewal, it is 

conceivable, where an incumbent’s 

franchise is up for renewal before a 

competitive entrant’s franchise, that a 

new competitive entrant and an 

incumbent would receive the regulatory 

relief of the First Report and Order 

before the incumbent competitive 

provider. LFAs, by contrast, argue that 

if findings from the First Report and 

Order are found to be applicable to 

incumbents, they should be effective 

only at the time of renewal. These 

commenters argue that the Commission 

does not have the authority to void 

existing agreements, and that to do so 

would violate LFAs’ contractual rights. 

19. We believe that neither of the 

principal views expressed by 

commenters is entirely correct. The 

statutory interpretations set forth above 

represent the Commission’s view as to 

the meaning of various statutory 

provisions, such as section 622, and 

these interpretations are valid 

immediately. We do not see, for 

example, how section 622 could mean 

different things in different sections of 

the country depending on when various 

incumbents’ franchise agreements come 

up for renewal. We recognize, however, 

that franchise agreements involve 

contractual obligations and also note 

that some terms may have been 

implemented as part of a settlement 

agreement regarding rate disputes or 

past performance by the franchisee. As 

a result, we believe that the facts and 

circumstances of each situation must be 

assessed on a case-by-case basis under 

applicable law to determine whether 

our statutory interpretation should alter 

the incumbent’s existing franchise 

agreement. This Second Report and 

Order should in no way be interpreted 

as giving incumbents a unilateral right 

to breach their existing contractual 

obligations. Instead, if an incumbent 

asserts that the terms of its franchise 

should be amended as a result of this 

Second Report and Order, we encourage 

LFAs and incumbents to work 

cooperatively to address those issues. 

Should such efforts fail, we recognize 

that particular disputes eventually may 

make their way to court but note that 

there are other means of addressing 

existing contract provisions. As further 

described below, incumbent providers 

may pursue avenues for pre-renewal 

modifications, including contractual 

most favored nation clauses, which may 

allow franchisees to take advantage of 

the franchise provisions of new 

competitive entrants. Parties may also 

make adjustments to franchise terms 

pursuant to compliance with law 

provisions within the franchise or 

contract. Statutory relief is also 

available in the form of the franchise 

modification provision in section 625 of 

the Act. 

20. Most Favored Nations (MFN) 

Clauses. The First Report and Order 

does not have any effect on existing 

MFN clauses. In the FNPRM, we sought 

comment on ‘‘what effect, if any, the 

findings in this Second Report and 

Order have on MFN clauses that may be 

included in existing franchises.’’ While 

provisions differ, MFN clauses generally 

allow franchisees to adjust their 

obligations if and when an LFA grants 

a competing provider any franchise 

provisions that are more favorable than 

the provisions in the incumbent’s 

franchise agreement. Some providers 

state that an incumbent with existing 

MFN provisions should be able to 

amend its franchise to reflect the 

requirements applicable to the new 

entrant, in order to encourage regulatory 

parity. Others state that the proceeding 

should have no effect on MFN clauses, 

as they do not impose any barriers to 

entry. They also argue that MFN clauses 

are negotiated in order to adjust 

obligations when a new competitor 

enters the market, and the Commission 

has no basis to interfere with these 

contractual provisions. To the extent 

that the First Report and Order allows 

competitive providers to enter markets 

with franchise provisions more 

favorable than those of the incumbent 

provider, we expect that MFN clauses, 

pursuant to the operation of their own 

design, will provide some franchisees 

the option and ability to change 

provisions of their existing agreements. 

Otherwise, we do not believe that our 

First Report and Order has any effect on 

MFN clauses. 

B. Other Issues 

21. Franchise Modification. We agree 

with commenters that the modification 

provision of the Cable Act will provide 

some franchisees the option and ability 

to change their existing agreements. 

Section 625 of the Act provides that a 

cable operator may obtain a franchise 

modification from an LFA: (1) In the 

case of any requirements for facilities or 

equipment (including PEG access) 

where the provider can show that it is 

‘‘commercially impracticable’’ to 

comply with a requirement; or (2) in the 

case of any requirements for services, if 

the cable operator demonstrates that the 

mix, quality, and level of services 

required by the franchise at the time it 

was granted will be maintained after 

any proposed modification. 

22. Commenters argue that 

incumbents without an MFN provision 

should be allowed to seek modification 

through section 625 when a competitor 

enters the franchise area. They assert 

that the Commission should find an 

incumbent’s compliance with more 

burdensome franchise provisions than a 

new competitor ‘‘commercially 

impracticable’’ because of the 

possibility of higher costs. Some LFAs 

and Verizon agree that section 625 may 

be applicable in some circumstances, 

provided that the incumbent can meet 

the commercially impracticable test, but 

contend that there should not be an 

assumption that all providers can meet 

this test. NATOA argues that the 

Commission does not have jurisdiction 

to construe or enforce this provision 

under section 625(b)(1), which provides 

for review of modification decisions in 

state or federal district court under 

section 635, and that the Commission 


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cannot issue any blanket statements 

about modifications, as any 

determinations are fact specific, and 

cannot be shown merely by the presence 

of a new competitor. We agree that the 

First Report and Order and this Second 

Report and Order, to the extent 

applicable, can be taken into 

consideration if an incumbent seeks 

modification of a franchise when a 

competitor enters the franchise area, 

within the processes set forth under 

section 625. However, it is up to the 

incumbent to make to the relevant 

franchising authority the requisite 

showing of ‘‘commercial 

impracticability.’’

23. Generally Accepted Accounting 

Principles. We decline to adopt a 

requirement that an operator’s gross 

income be determined under Generally 

Accepted Accounting Principles 

(GAAP). Time Warner asks the 

Commission to mandate that the 

calculation of an operator’s gross 

income under section 622 be 

determined in accordance with GAAP. 

Time Warner argues that the 

Commission has authority from 

Congress to mandate that uniform 

federal standards be used to govern 

franchise fee calculations. Some 

franchising authorities reject this 

assertion and argue that GAAP will not 

produce the clarity and uniformity Time 

Warner is seeking, because GAAP does 

not create rules but rather functions as 

a set of guidelines interpreted by 

professionals. They also state that GAAP 

was established by the financial 

community to govern disclosures to 

investors and stockholders, not to 

determine franchise fee payments, and 

these differing purposes may result in 

characterization of revenues that are not 

applicable to cable operations. Finally, 

they argue this has nothing to do with 

competitive entry, and a separate NPRM 

must be issued to consider it. Given the 

paucity of comments on the matter, and 

conflicting information of the 

applicability of GAAP to the franchising 

process, we do not believe that there is 

a sufficient record supporting the 

requested regulation. We therefore 

decline to adopt such a requirement 

here. 

24. Fresh Look. We reject RCN’s 

request that we invoke the fresh look 

doctrine. The fresh look doctrine is used 

to re-open contracts. The Commission 

utilizes it sparingly, when it is 

‘‘necessary to promote consumer choice 

and eliminate barriers to competition.’’

RCN urges the Commission to invoke its 

‘‘fresh look’’ doctrine to require that 

LFAs reconsider existing franchises 

when a new entrant enters the franchise 

area and, in markets where there is more 

than one franchised operator, when the 

first existing franchise comes up for 

renewal. RCN suggests that when a new 

provider files an application to provide 

service, the LFA should provide notice 

to existing franchisees and allow them 

to terminate their franchise and 

negotiate a new one reflecting the rules 

in the First Report and Order. Similarly, 

the Broadband Service Providers 

Association asks that if one cable 

operator in a competitive market is able 

to eliminate franchise requirements 

deemed unlawful by the First Report 

and Order, other operators in that LFA 

should be able to submit a renewal 

proposal at any time that would allow 

that operator to conform its franchise to 

the rules in the First Report and Order. 

RCN argues that this proceeding is 

consistent with other contexts where the 

Commission adopted the fresh look 

doctrine, because the entity holding the 

long-term contracts has market power, 

that entity has exercised that power to 

create long-term contracts to ‘‘lock up’’

the market in a way that creates 

unreasonable barriers to competition, 

and the contractual obligations can be 

nullified without harm to the public 

interest. 

25. We do not believe that it is 

necessary to invoke the fresh look 

doctrine here. As indicated above, we 

believe that any contractual issues 

arising from today’s Second Report and 

Order should be decided on a case-bycase basis. The fresh look doctrine was 

developed to allow customers to take 

advantage of competition, not to protect 

incumbent service providers when 

competitors enter the market. The case 

precedent is thus distinguishable from 

the circumstances addressed here. 

C. Customer Service 

26. We find that the explicit statutory 

language of section 632 of the Act 

prohibits the Commission’s preemption 

of state or local cable customer service 

laws that exceed the Commission’s 

standards. The Commission previously 

sought comment on whether customer 

service requirements should be allowed 

to vary greatly between jurisdictions. 

Commenters urged the Commission to 

adopt a number of rules limiting LFA 

authority to adopt local customer 

service regulations. After reviewing 

those comments, we sought additional 

comment on our tentative conclusion 

that section 632(d)(2) of the Act 

prevents us from preempting state or 

local customer service laws exceeding 

Commission standards, and allows 

LFAs and cable operators to agree to 

more extensive customer service 

requirements. 

27. Section 632 of the 

Communications Act sets out the 

regulatory framework for cable customer 

service. It authorizes LFAs to establish 

and enforce customer service 

requirements and directs the 

Commission to establish standards by 

which cable operators may fulfill these 

requirements. Specifically, section 

632(d)(1) provides that ‘‘[n]othing in 

this title shall be construed to prohibit 

any State or any franchising authority 

from enacting or enforcing any 

consumer protection law, to the extent 

not specifically preempted by this title.’’

Further, section 632(d)(2) states that: 

[n]othing in this title shall be construed to 

prevent the establishment or enforcement of 

any municipal law or regulation, or any State 

law, concerning customer service that 

imposes customer service requirements that 

exceed the standards set by the Commission 

under the section, or addresses matters not 

addressed by the standards set by the 

Commission under this section. 

The statute’s explicit language makes 

clear that Commission standards are a 

floor for customer service requirements, 

rather than a ceiling, and thus do not 

preclude LFAs from adopting stricter 

customer service requirements. 

28. In response to the FNPRM, some 

commenters ask that we clarify certain 

issues surrounding customer service. 

Verizon recognizes that while LFAs 

have some discretion in the crafting of 

customer service regulations, they argue 

that this discretion is limited by the 

language of section 632(d)(2) to cable 

customer service issues. They urge the 

Commission to plainly state that LFAs 

only have authority to regulate cable 

customer service standards and that the 

Commission has the authority to 

preempt regulations that do not concern 

customer service for cable service. They 

argue that onerous regulations, as well 

as those unrelated to the provision of 

cable services couched as customer 

service rules, should be preempted 

because they amount to an unreasonable 

burden under section 621(a)(1). They 

suggest that customer service 

requirements be limited to those general 

types of issues recognized in section 

632(b). That provision authorizes the 

Commission to ‘‘establish standards by 

which cable operators can fulfill their 

customer service requirements’’

including ‘‘(1) cable system office hours 

and telephone availability; (2) 

installations, outages, and service calls; 

and (3) communications between the 

cable operator and subscriber.’’ They 

assert that requirements beyond these 

limited categories impose unreasonable 

burdens on new entrants. 

29. Supporters of the Commission’s 

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632(d)(2) argue that the statute expressly 

authorizes the establishment and 

enforcement of local customer service 

standards that go beyond those 

delineated by the Commission. They 

assert that the unreasonable refusal 

language of section 621(a)(1) has no 

application to customer service 

standards under section 632. In fact, 

they argue that the only way to read 

these sections together is to conclude 

that Congress intended that local 

customer service standards exceeding 

Commission standards do not amount to 

an unreasonable refusal. 

30. New entrants also take issue with 

the local character of customer service 

requirements. AT&T cites difficulties 

created by disparate local standards and 

local data reporting requirements and 

suggested the Commission adopt 

uniform customer service standards 

because of the inefficiency inherent in 

varying standards. They argue that 

requiring new entrants to comply with 

these differing standards can be a 

potential barrier to entry. They further 

argue that the imposition of local data 

collection requirements also poses a 

barrier to entry. AT&T states that under 

their regional systems it is not currently 

possible to compile their data on a 

franchise area basis. At minimum, they 

ask the Commission to allow regional 

providers to demonstrate compliance 

with local standards through aggregate 

regional data. 

31. Given the explicit language of 

section 632, we conclude that the 

Commission cannot preempt local or 

state cable customer service 

requirements, nor can it prevent LFAs 

and cable operators from agreeing to 

more stringent standards. However, an 

LFA’s authority to implement customer 

service rules under section 632 is 

limited to the adoption of regulations 

that, in fact, involve customer service 

matters and impose customer service 

requirements on the provision of cable 

services. For instance, LFAs cannot 

implement a ‘‘customer service’’ rule 

requiring a six percent franchise fee 

payment. Furthermore, it would 

constitute an unreasonable refusal 

under section 621(a)(1) for an LFA to 

make the grant of a competitive 

franchise contingent upon a cable 

customer service requirement that does 

not, in fact, involve cable customer 

service. While localities may have 

independent authority to impose 

customer service requirements on a 

cable operator’s non-cable activities, 

franchising authorities may not 

condition the exercise of their video 

franchising authority on an operator’s 

agreement to such non-cable 

requirements because we interpret 

section 632 to apply only to customer 

service requirements related to cable 

service. 

32. Local franchise authorities 

maintain that Congress made a policy 

judgment when it permitted individual 

franchising authorities to adopt local 

customer service standards, despite the 

inconvenience it may pose to new 

entrant compliance. They note that 

incumbents operating regional networks 

have complied with local data reporting 

requirements and other differing local 

standards. They state that local data 

collection requirements also are 

consistent with section 626 of the Act, 

which allows LFAs to take the quality 

of an operator’s service into account 

during the franchise renewal process. 

They argue that limiting local data 

collection, as AT&T suggests, would 

make it impossible for LFAs to assess an 

operator’s performance within their 

respective communities. 

33. The language of section 632(d)(2) 

provides that, while the Commission 

may adopt standards applicable to all 

cable operators, it may not prohibit 

LFAs from imposing requirements that 

exceed those standards. We conclude, 

therefore, that we do not have authority 

to grant AT&T’s request for uniform 

local customer service standards or data 

collection requirements. In sum, we find 

that the explicit statutory language of 

section 632 prohibits the Commission’s 

preemption of state or local cable 

customer service laws that exceed the 

Commission’s standards. 

IV. Procedural Matters 

34. Paperwork Reduction Act 

Analysis. This document does not 

contain new or modified information 

collection requirements subject to the 

Paperwork Reduction Act of 1995 

(PRA), Public Law 104–13. In addition, 

we note that there is no new or modified 

‘‘information burden for small business 

concerns with fewer than 25 

employees,’’ pursuant to the Small 

Business Paperwork Relief Act of 2002, 

Public Law 107–198, see U.S.C. 

3506(c)(4). 

35. Final Regulatory Flexibility 

Analysis. As required by the Regulatory 

Flexibility Act of 1980, as amended 

(RFA) an Initial Regulatory Flexibility 

Analysis (IRFA) was incorporated in the 

FNPRM to this proceeding. The 

Commission sought written public 

comment on the proposals in the 

FNPRM, including comment on the 

IRFA. The Commission received one 

comment on the IRFA. This Final 

Regulatory Flexibility Analysis (FRFA) 

conforms to the RFA. 

A. Need for, and Objectives of, the 

Second Report and Order 

36. This Second Report and Order 

adopts rules and provides guidance to 

implement the findings in the First 

Report and Order dealing with section 

611 and section 622 of the 

Communications Act of 1934, as 

amended (the Communications Act). 

The First Report and Order adopted 

rules in accordance with section 621(a) 

of the Communications Act to prevent 

Local Franchising Authorities (LFAs) 

from creating unreasonable barriers to 

competitive entry. It also provided 

clarifications of section 611, restricting 

LFAs’ authority to establish capacity 

and support requirements for PEG 

channels, and section 622, setting limits 

on the franchise fees LFAs may charge 

cable operators. Neither of these 

sections distinguishes between the 

treatment of new entrants and 

incumbent cable operators. The 

Commission extends these findings to 

incumbent cable operators to further the 

interrelated goals of enhanced cable 

competition and accelerated broadband 

deployment. The Commission also finds 

that it cannot preempt state or local 

customer service rules exceeding 

Commission standards. 

B. Summary of Significant Issues Raised 

by Public Comments in Response to the 

IRFA 

37. Only one commenter, the Local 

Government Lawyer’s Roundtable, 

submitted a comment that specifically 

responded to the IRFA. The Local 

Government Lawyer’s Roundtable 

contends that the Commission should 

issue a revised IRFA because of the 

erroneous determination that the 

proposed rules would have a de 

minimis effect on small governments. 

They argue that the Commission has not 

given weight to the economic impact the 

rules will have on small governments, 

including training and hiring concerns. 

38. We disagree with the Local 

Government Lawyer’s Roundtable’s 

assertion that our rules will have any 

more than a de minimis effect on small 

governments. LFAs today must review 

and decide upon competitive and 

renewal cable franchise applications, 

and will continue to perform that role. 

While the Local Government Lawyer’s 

Roundtable expresses concern about 

additional training that may be 

necessary to understand these actions, 

and potential hiring of additional 

personnel to accommodate the Second 

Report and Order’s requirements, we 

disagree that those steps will be 

necessary. This Second Report and 

Order simply extends existing 


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requirements to apply to incumbent 

cable providers. LFAs should be 

familiar with those existing 

requirements, and therefore should not 

need additional training or personnel to 

implement the Second Report and 

Order’s requirements. Moreover, 

modifications made to the franchising 

process that result from this proceeding 

further streamline the franchising 

process, lessening the economic 

burdens placed upon LFAs. 

C. Description and Estimate of the 

Number of Small Entities to Which the 

Rules Will Apply 

39. 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 

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). 

40. The rules adopted by this Second 

Report and Order will streamline the 

local franchising process by adopting 

rules that provide guidance as to the 

applicability of prior findings in this 

proceeding to incumbents and the 

limitations on the Commission’s 

authority regarding customer service 

regulations. 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. 

41. Small Governmental Jurisdictions. 

The term ‘‘small governmental 

jurisdiction’’ is defined generally as 

‘‘governments of cities, towns, 

townships, villages, school districts, or 

special districts, with a population of 

less than fifty thousand.’’ Census 

Bureau data for 2002 indicate that there 

were 87,525 local governmental 

jurisdictions in the United States. We 

estimate that, of this total, 84,377 

entities were ‘‘small governmental 

jurisdictions.’’ Thus, we estimate that 

most governmental jurisdictions are 

small. 

42. Cable and Other Program 

Distribution. The Census Bureau defines 

this category as follows: ‘‘This industry 

comprises establishments primarily 

engaged as third-party distribution 

systems for broadcast programming. The 

establishments of this industry deliver 

visual, aural, or textual programming 

received from cable networks, local 

television stations, or radio networks to 

consumers via cable or direct-to-home 

satellite systems on a subscription or fee 

basis. These establishments do not 

generally originate programming 

material.’’ The SBA has developed a 

small business size standard for Cable 

and Other Program Distribution, which 

is: All such firms having $13.5 million 

or less in annual receipts. According to 

Census Bureau data for 2002, there were 

a total of 1,191 firms in this category 

that operated for the entire year. Of this 

total, 1,087 firms had annual receipts of 

under $10 million, and 43 firms had 

receipts of $10 million or more but less 

than $25 million. Thus, under this size 

standard, the majority of firms can be 

considered small. 

43. Cable Companies and Systems. 

The Commission has also developed its 

own small business size standards, for 

the purpose of cable rate regulation. 

Under the Commission’s rules, a ‘‘small 

cable company’’ is one serving 400,000 

or fewer subscribers, nationwide. 

Industry data indicate that, of 1,076 

cable operators nationwide, all but 

eleven are small under this size 

standard. In addition, under the 

Commission’s rules, a ‘‘small system’’ is 

a cable system serving 15,000 or fewer 

subscribers. Industry data indicate that, 

of 7,208 systems nationwide, 6,139 

systems have under 10,000 subscribers, 

and an additional 379 systems have 

10,000–19,999 subscribers. Thus, under 

this second size standard, most cable 

systems are small. 

44. Cable System Operators. 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 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. 

Industry data indicate that, of 1,076 

cable operators nationwide, all but ten 

are small under this size standard. We 

note that 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 we are unable to estimate 

more accurately the number of cable 

system operators that would qualify as 

small under this size standard. 

45. Open Video Systems (OVS). In 

1996, Congress established the open 

video system framework, one of four 

statutorily recognized options for the 

provision of video programming 

services by local exchange carriers 

(LECs). The OVS framework provides 

opportunities for the distribution of 

video programming other than through 

cable systems. Because OVS operators 

provide subscription services, OVS falls 

within the SBA small business size 

standard of Cable and Other Program 

Distribution Services, which consists of 

such entities having $13.5 million or 

less in annual receipts. The Commission 

has certified 25 OVS operators, with 

some now providing service. Broadband 

service providers (BSPs) are currently 

the only significant holders of OVS 

certifications or local OVS franchises. 

As of June, 2005, BSPs served 

approximately 1.4 million subscribers, 

representing 1.5 percent of all MVPD 

households. Affiliates of Residential 

Communications Network, Inc. (RCN), 

which serves about 371,000 subscribers 

as of June, 2005, is currently the largest 

BSP and 14th largest MVPD. RCN 

received approval to operate OVS 

systems in New York City, Boston, 

Washington, DC and other areas. The 

Commission does not have financial 

information regarding the entities 

authorized to provide OVS, some of 

which may not yet be operational. We 

thus believe that at least some of the 

OVS operators may qualify as small 

entities. 

D. Description of Projected Reporting, 

Recordkeeping and Other Compliance 

Requirements 

46. The rule and guidance adopted in 

the Second Report and Order will 

require a de minimus additional 

reporting, record keeping, and other 

compliance requirements. LFAs will 

continue to perform its role of reviewing 

and deciding upon competitive cable 

franchise applications; the rules 

adopted in this Second Report and 

Order will decrease the procedural 

burdens faced by LFAs. Since the 

adopted rules do not apply until 

franchise renewal, there is no additional 

burden beyond what has been required 

during past renewals. Therefore, the 


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rules adopted will not require any 

additional special skills beyond any 

already needed in the cable franchising 

context. 

E. Steps Taken To Minimize Significant 

Impact on Small Entities, and 

Significant Alternative Considered 

47. The RFA requires an agency to 

describe any significant alternatives that 

it has considered in reaching its 

proposed approach, why 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. 

48. In the FNPRM, the Commission 

sought comment on the extension of its 

findings that do not distinguish between 

new entrants and incumbents in the 

First Report and Order to incumbents 

and its authority to do so. The 

Commission also invited comment on 

the effect, if any, the findings in the 

First Report and Order had on most 

favored nation clauses in existing 

franchises. Additionally, the 

Commission also sought comment on its 

tentative conclusion that it cannot 

preempt state or local customer service 

laws exceeding Commission standards, 

nor can it prevent LFAs and cable 

operators from agreeing to more 

stringent standards. 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 extension 

of its rules to incumbent cable 

providers. We agree with those tentative 

conclusions, and we believe that the 

rules adopted in the Second Report and 

Order will not impose a significant 

impact on any small entity. 

49. In the Second Report and Order, 

we provide that the First Report and 

Order’s findings resting upon statutory 

provisions that do not distinguish 

between new entrants and incumbents 

should be extended to incumbent cable 

operators at the time of franchise 

renewal. This will result in decreasing 

the regulatory burdens on incumbent 

cable operators. We declined to impose 

the findings of the First Report and 

Order immediately so that we do not 

unduly disrupt existing contracts. As an 

alternative, we considered not 

extending the First Report and Order’s 

rules to incumbent cable operators at 

all. 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. 

50. Report to Congress: The 

Commission will send a copy of the 

Second Report and Order, including 

this FRFA, in a report to be sent to 

Congress pursuant to the Congressional 

Review Act. In addition, the 

Commission will send a copy of the 

Second Report and Order, including the 

FRFA, to the Chief Counsel for 

Advocacy of the Small Business 

Administration. 

51. Congressional Review Act. The 

Commission will send a copy of this 

Second Report and Order in a report to 

be send to Congress and the 

Government Accountability Office 

pursuant to the Congressional Review 

Act, see 5 U.S.C. 801(a)(1)(A). 

52. Additional Information. For 

additional information on this 

proceeding, please contact Holly Saurer, 

Policy Division, Media Bureau at (202) 

418–2120, or Brendan Murray, Policy 

Division, Media Bureau at (202) 418–

2120. 

V. Ordering Clauses 

53. It is ordered that, pursuant to the 

authority contained in sections 1, 2, 4(i), 

303, 303r, 403, 405, 602, 611, 621, 622, 

625, 626, and 632 of the 

Communications Act of 1934, 47 U.S.C 

151, 152, 154(i), 303, 303(r), 403, 405, 

522, 531, 541, 542, 545, 546, and 552, 

this Second Report and Order is 

adopted. 

54. It is further ordered that the 

Second Report and Order shall be 

effective December 24, 2007. 

55. It is further ordered that the 

Commission’s Consumer and 

Governmental Affairs Bureau, Reference 

Information Center, shall send a copy of 

this Second Report and Order, 

including the Final Regulatory 

Flexibility Analysis, to the Chief 

Counsel for Advocacy of the Small 

Business Administration. 

56. It is further ordered that the 

Commission shall send a copy of this 

Second Report and Order in a report to 

be sent to Congress and the General 

Accounting Office pursuant to the 

Congressional Review Act, see 5 U.S.C. 

801(a)(1)(A). 

Federal Communications Commission. 

Marlene H. Dortch, 

Secretary. 

[FR Doc. 07–5802 Filed 11–21–07; 8:45 am] 

BILLING CODE 6712–01–P 


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