News

Ruling Lends Cable Hand Vs. Rivals

6/28/1998 8:00 PM Eastern

A procedural victory for Jones Intercable Inc. in an
Illinois federal court may make it easier for other MSOs to obtain modified franchises
when faced with competition.

In a recent ruling, the U.S. District Court for the
Northern District of Illinois said it will conduct a de novo review of a case where
the city of Naperville, Ill., rejected Jones' bid for a modified franchise, then
granted a presumably better deal to rival Ameritech New Media.

Simply put, the ruling means that the court will take a
wide-ranging look at the case, rather than limiting the scope of its review to the
"administrative record," as the city had requested.

Moreover, the court said it will allow discovery in the
case, which permits lawyers for Jones to build a case from "scratch." This means
that Jones can introduce evidence supporting its position that the MSO was economically
disadvantaged by the decision to grant ANM a second cable franchise in Naperville.

As a result, the court will have extensive evidence to
review, rather than just the administrative record. The latter amounts to little more than
the correspondence between the two sides and the operator's modified franchise
proposal.

"Essentially, it [the court] will be looking to see if
the city abused its rights when it rejected Jones' request," said Burt
Braverman, a partner with Cole, Raywid & Braverman, the Washington, D.C.-based law
firm representing the MSO.

Braverman said ANM's Naperville franchise did not
require the same PEG-access (public, educational and government) commitments as
Jones' franchise did, and it established a different payment schedule than what the
incumbent was required to meet.

Under the 1984 Cable Act, an operator facing competition
may claim that it has become "commercially impracticable" to comply with its
existing franchise, and it may seek a modified deal. If the city rejects the request, the
operator may petition the court for relief.

That's important, considering the increasing frequency
with which cities are granting second franchises to companies like ANM, or even choosing
to overbuild incumbents themselves.

Although it is just a procedural victory in an ongoing
case, the ruling, if allowed to stand, means that other cable operators seeking modified
franchises because of competition will be guaranteed full and fair hearings on their
requests, cable's legal experts said.

"The issue is not what are the community's needs,
but what are the cable operator's needs," said Frank Lloyd, a partner with law
firm Mintz, Levin, Cohn, Ferris Glovsky & Popeo P.C. "What are the company's
capabilities to perform under the existing franchise, given these changed
circumstances?"

Lloyd said the decision indicates that the court feels that
it should not defer to the administrative record, and that the cable operator has the
right to "virtually a new hearing."

In ruling for Jones, Magistrate Judge Martin C. Ashman
"wholeheartedly" agreed with a similar Kentucky district court ruling, which
found that Congress provided cable operators with the right to seek full federal judicial
review in cases where the administrative process had broken down.

He also agreed that city officials have little incentive to
look favorably on requests for modified franchises, because to grant them means having to
explain to local taxpayers why they weren't holding the incumbents to their existing
franchises.

"This has been a closely watched case by the entire
cable community," Lloyd said. "It has major implications on negotiations for
second franchises."

John Mansell, regulatory analyst with Paul Kagan Associates
Inc., agreed, noting that apart from "elongating" the process, the decision will
encourage municipalities to conduct "fair and impartial" reviews of
operators' requests for modified franchises.

"It may even cause some cities to think twice before
granting a second franchise," Mansell said.

Naperville officials said Jones' request had been
"premature." The company requested a new deal before the town had granted a
franchise to ANM, which meant that the operator's analysis of the impact on the MSO
was "based on speculation."

"Ameritech still wasn't competing, so we still
didn't know what the effect would be," said assistant city attorney Paul
Stephanides. "We had no hard numbers."

Stephanides also questioned whether operators should begin
celebrating Jones' victory.

The city currently has a motion before the court asking for
a "summary judgment" dismissing the case. If granted, the court's earlier
ruling would become "irrelevant," Stephanides said.

Even if the procedural victory is allowed to stand, others
wondered how valuable it will be industrywide.

One legal expert said most cable operators facing
competition have not sought modified franchises, preferring to settle the issue in court
when they believe that the competition was getting a better deal.

Moreover, few companies have the same
"contentious" relations with city officials that operators have historically
encountered in Naperville, he added.

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