Legal Alerts Nov 12, 2019

FCC Denies Cable Franchise Order Stay Request But Provides Implementation Guidance

Deadline for Appeal Coming Soon

FCC Denies Cable Franchise Order Stay Request But Provides Implementation Guidance

When the FCC’s Cable Franchise Order became effective on Sept. 26, it upended 35 years of common understanding on what a local government could obtain in cable franchise negotiations, which could cost local governments hundreds of millions of dollars. The Order, also known as the Section 621 Order, states that a cable operator may reduce franchise fees in an amount equivalent to the fair market value, or FMV, of franchise obligations, such as free cable services to schools, libraries and government buildings and I-Nets. The FCC has also promised to open a new docket to consider expanding the franchise fee offset authority to include the FMV of channel capacity needed to carry Public, Educational and Governmental Access channels.
 
Stay Request Denied, But Valuable Clarifications Provided
A group of local government organizations requested, with the assistance of Best Best & Krieger LLP, that the FCC stay the Order’s effective date until a court challenge could be conducted. On Nov. 6, the FCC denied the request. This was not unexpected. But, what was unexpected and welcome news, were some very beneficial explanations of how to implement the Cable Franchise Order.
 
The Denial Order makes clear that, before taking as an offset the FMV of what the FCC calls in-kind benefits:

  1. The cable operator must ask for an amendment to the franchise and then negotiate for up to 120 days before offsetting franchise fees and
  2. The cable operator has the burden to prove the existing franchise violates the Cable Franchise Order.

 
These insights are most helpful. The Cable Franchise Order was not clear as to how it was to be implemented. Specifically, questions remained regarding how the FMV of franchise obligations would be established and if a cable operator could conduct a program of self-help (i.e. unilaterally reducing franchise fees in an amount they felt approximated the FMV of franchise obligations).
 
While BB&K had generally advised that it made sense to wait for the cable operator to take the first step in suggesting the FMV, we were concerned about the operator’s ability to conduct self-help. The self-help concern was amplified when it was realized that, in some cases, without notice, the operator could reduce franchise fees by in-kind FMV for as much as half the calendar year, as most franchise fee payments are not made until 30 to 90 days following the quarter in which they were earned. That is no longer a fear.
 
Appeal of the Order
BB&K is representing a collection of local governments and local government organizations in challenging the Order in the Ninth Circuit U.S. Court of Appeals. Parties that wish to join this challenge have until Nov. 25 to intervene.
 
Additional Resources:

 

If you have any questions about how this decision or the recent FCC orders impact your community, or you want to learn more about participating in the appeal, contact the author of this Legal Alert listed to the right in the firm’s Telecommunications Law practice group, or your BB&K attorney.
 
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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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