is local franchising on a sinking ship? macta’s 22 nd annual conference setting sail for the...

Is Local Franchising on aIs Local Franchising on aSinking Ship? Sinking Ship?

MACTA’s 22MACTA’s 22ndnd Annual Conference Annual ConferenceSetting Sail for the FutureSetting Sail for the Future

October 27, 2005October 27, 2005

Michael R. BradleyBradley & Guzzetta, LLC

950 Piper Jaffray Plaza444 Cedar Street

Saint Paul, MN 55101P/(651) 379-0900 ext. 2

F/(651) [email protected]

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October 27, 2005 Slide # 2

Is Local Franchising on a Sinking Ship?

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Background – Cable FranchisingBackground – Cable Franchising

Dual Regulatory Model– Federal– State/Local

FCC Adopted in 1972 Congress 1984/1992/1996 FCC

– Develops National and Uniform Telecommunications Policy

Local Governments– Decides who, what, why, where and how cable service is

delivered



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Background – Early Franchising Background – Early Franchising ConceptsConcepts The Cable System will be a Community Asset Public Access will be a valuable communications

medium– Colleges and Universities– Public and in some cases private schools– Art societies– Theater Groups

Great interactive Uses– Education– Medicine– Security– Meter Reading– Gaming



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Early Franchising ConceptsEarly Franchising Concepts Institutional Networks

– Connecting all government buildings– Voice, video, data (information/computer)– Security– Reliable– High capacity– 2-way interactive

Public-Private Partnership New Network Construction

– PROW management issues– Multi-year process– Concern over fair access

Rate Regulation Unknown Business Model for Industry



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Early Roles for Local GovernmentEarly Roles for Local GovernmentPROW MgtFees for use of PROWRate RegulationProgramming InputI-Net Mgt–design, equipment and usePEG – organization, use, equipmentIndustry Oversight – Financial HealthService Territories



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What Has Changed?What Has Changed?Massive Industry Consolidation

– In MN from 100s down to 3 major MSOsSerious competition from Telephone

Industry– Verizon and SBC

Lobbying Power of Industry– Telephone and Cable



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What Has Changed?What Has Changed? Commitment of Many Cities

– Frustrated/deterred by time and Expense of managing franchise contract

Late 70s/early 80s perception of cable system being a valuable community asset largely gone

Unwilling to commit resources to make quality PEG programming

General dissatisfaction with PEG Programming– Public Officials

Early I-Net Technical issues– Led to diverting resources for other networking options



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Current Role of Local GovernmentsCurrent Role of Local Governments PROW - Mgt PROW - Fees Rate Regulation

– Effective Competition– Congress has severely limited LFA authority– Expensive Proposition with large industry oponent

• Virtual guarantee of FCC litigation Cable Programming

– Congress has nearly eliminated any LFA authority– Exception – Broad Category of Programming

Construction– Most LFA areas are built out– Some minor repair and replacement issues

I-Nets– Larger Companies increasingly unwilling to construct/upgrade

Industry Oversight– Cable Industry seemingly very strong (despite Adelphia)

• Ability to offer the Triple Play and roll out of HD and On-Demand services– Phone Company Competition

Service Territories– In place for cable– In play for Telephone

PEG – capital and operational support Customer Service



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Future Roles for Local Gov’tFuture Roles for Local Gov’tPROW – MgtPROW - FeesPEG

– Management– Funding – Capital and Operational

I-Net migration– From Cable Ops to City

owned/maintained



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Man the Lifeboats!Man the Lifeboats!Federal and State LegislationFederal and State Legislation

State Legislation– Led by Minnesota Telephone Alliance– LMC agreements with MTA – 2 yrs

• MACTA efforts made deal better in ‘05

– Push to Amend 238.08 – Level Playing Field• Allow different service territories

– No real benefits for cities– Working with an industry whose goal is to eliminate

local franchising authority• As shown by Texas Legislation and Federal Legislation

– Alienating Cable Industry– Should Direct Resources toward Federal Legislation



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Man the Lifeboats!Man the Lifeboats!Federal and State LegislationFederal and State Legislation

Federal Legislation S 1349/HR 3146 Video Choice Act S. 1504 Broadband Investment and Consumer

Choice Act– National Franchising– Elimination of Existing Franchises

• Immediate impact on Franchise Fees, PEG Fees, PEG Channel Capacity, Institutional Networks

– Limits on Franchise Fees• Limited to Management Costs up to 5% of G.R.• Significant exceptions to Gross Revenues

– Limitations on PEG Channels and Funding– I-Nets probably eliminated– Restrictions on Permit Fees



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Do Cities Still Want Franchising Do Cities Still Want Franchising Authority?Authority?

PROW Mgt– ability to unilaterally enact PROW ordinances applicable

to all users PROW Fees

– Should not go backwards PEG

– Adequate Channel Capacity– Funding for Operational and Capital Support

Out of Phone/Cable Fights Out of Customer Service Business

– FCC to take all complaints on service and rates I-Nets – hand over the keys



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What do the Telecos want?What do the Telecos want? National or State Franchising No PEG Limited PROW Mgt authority

– Have been suing Cities for the past 9 years

To Serve the most affluent– SBC Project Lightspeed (p13-14 SBC Investor Update)

• Serve 90% of High Value Customers• Serve 5% of Low Value Customers (35% of Total

Customer Households – OVER 1/3 of ALL HH!)

Use litigation to escape all obligations



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What Does Cable Want?What Does Cable Want? Local Franchising

– As long as it slows the Telecos from coming to market• Every month delay is extra padding to the bottom line

Same or similar Territory for all Providers– Unfair for Telecos to serve only the wealthy when cable

has to serve all areas Use litigation to impose obligation on Telecos Once Franchising does not serve to protect cable

interests they will also want to eliminate franchising authority



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Message in a BottleMessage in a BottleSending out an S.O.S.Sending out an S.O.S.

Decide as a City What about Franchising video providers is important

Decide Level of Regulatory involvement is necessary or desirable– Doing Nothing indicates you want no Franchising Role

Convey your Decision to City Organizations– NATOA

• MACTA– NLC

• LMC– National Conference of Mayors, etc.

Urge your Organizations to dedicate significant resources to obtain your goals– A Sea of Change is Coming– There will be a Tidal Wave of Industry Lobbying– Don’t get lost at Sea!

The End The End Is Local Franchising on a Sinking Ship?Is Local Franchising on a Sinking Ship?

October 27, 2005October 27, 2005

Michael R. BradleyBradley & Guzzetta, LLC

950 Piper Jaffray Plaza444 Cedar Street

Saint Paul, MN 55101P/(651) 379-0900 ext. 2

F/(651) [email protected]

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is local franchising on a sinking ship? macta’s 22 nd annual conference setting sail for the...

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