Forum: TCI Must Seek Local Approval

9/27/1998 8:00 PM Eastern

Tele-Communications Inc.'s position of seeking consent
for its transfer to AT&T Corp. in only a relatively small number of locales has been
accorded headline status, and it has been the subject of rancor at the recent National
Association of Telecommunications Officers and Advisors conference in San Diego.

There, AT&T Corp. president John Zeglis was pummeled
with questions about the subject.

TCI is making the distinction between a
"transfer" of the franchise itself and a "transfer of control" of the
franchise. If the franchise agreement requires consent of only the former, TCI apparently
will seek a thumbs-up from the franchising authority.

But if a franchise agreement does not specifically contain
transfer-of-control language, it appears that TCI will not seek approval from the
franchising authority.

TCI apparently is arguing that the franchise itself is not
being transferred -- only control of the franchised entity is changing.

Unfortunately for TCI, it is ignoring principles of federal
law that require local approval, regardless of whether the proposed TCI/AT&T deal is
an actual transfer of the franchise itself, or merely a change in control of the entity
holding the franchise.

The federal law on this subject is well-known to both TCI
and AT&T, which certainly are not newcomers to the federal Communications Act.

Section 621 of the act lays out several criteria that a
franchising authority can legitimately use to decide whether a particular entity is
deserving of a cable-television franchise. Among those criteria are the financial,
technical and legal attributes of the entity seeking the franchise.

This theme of meeting rigorous criteria is carried over in
the franchise-renewal context, as well. There, in deciding whether a cable operator is
worthy of a renewed franchise, the act allows a franchising authority to consider the same
three criteria.

A similar theme is echoed in other sections of the act,
too. In the broadcast-station context, the act says that in awarding licenses, the Federal
Communications Commission can take into account financial, technical and "other"
qualifications; and in awarding construction permits for broadcast stations, the act
directs the FCC to take into account financial, technical and "other abilities"
of a wanna-be broadcaster.

The FCC quite jealously guards its discretionary
prerogative to award broadcast-station licenses and permits. This is because such awards
are made on the basis of the very specific and individualized attributes and qualities of
the entity seeking the award. The same is true when a broadcast station is sold to a new
party. The FCC simply will not allow the sale to occur if it is denied the opportunity to
pass upon the very specific and individualized profile of the new owner.

It is well to note here that the notion of
"control" over the new entity has been expanded through the years. Control,
within the meaning of the Communications Act, is not limited to only legal control in the
formal sense, but it may consist of actual control by virtue of the special circumstances

The FCC has ruled that this concept encompasses every form
of control -- actual or legal; direct or indirect; negative or affirmative -- over basic
operational policies. Actual control is determined by no set formula, but instead, the
totality of circumstances must be considered.

Courts consider multiple factors in determining whether the
principal indicia of control have changed hands.

The first of these factors is control of policies
concerning finances, which includes billing responsibilities, management of bank accounts
and payroll and payment of creditors.

The second factor is control of personnel matters, which
includes the power to hire and fire, along with the implementation of training programs.

The third factor courts consider is control over
programming. This may include choosing and changing program providers and channel lineups.

A fourth factor is the implementation of operating

The FCC derives its oversight authority not from language
contained in a franchise agreement or ordinance, but from the language of the act itself.
The act is written quite broadly. It says, "No construction permit or station
license, or any right thereunder, shall be transferred , assigned, or disposed of in any
manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of
any corporation holding such permit or license ... except upon application to the

While this provision specifically includes
"transfer-of-control" language, the import of law is the same, whether or not
such specific language is there or has been omitted. This is because the FCC has the
right, using criteria set forth in the statute, to determine on an individualized basis
who is to be awarded a license or permit.

It is my contention that the same holds true in a
cable-franchise context, as well. As in the case of the FCC awarding licenses and permits,
the act grants to the franchising authorities the right to award or to withhold award of a
franchise based upon the criteria enumerated in the federal statute.

Just as the FCC makes its decisions on a very specific and
individualized basis, so, too, do franchising authorities make their decisions. To now
deprive the franchising authorities of their inherent right to do so flies in the face of
law and logic.

Frederick A. Polner is a partner in Pittsburgh-based law
firm Rothman Gordon, where he practices communications law. He was formerly on the staff
of the FCC in Washington, D.C.

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