Louisiana Opt-Out Provision in Judge’s Hands

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Local governments and video providers should find out by today (Nov. 3) if a Louisiana state court judge will accept language in the state’s new franchising law that allows incumbent operators to opt out of current local contracts.

The law was challenged in August, after it was signed into law by Gov. Bobby Jindal but two days before it was to go into effect, by municipalities and the Police Jury Association of Louisiana, the trade group for parishes there.

Parishes and municipalities argue that the bill, which moves franchising authority to the secretary of state’s office, violates the Louisiana constitution. The constitution prevents the state from passing laws that “extinguish” obligations between local governments and companies. Municipal officials argue that “obligations” means contracts, and that franchises are contracts.

The legal challenge was heard in 19th Judicial District Court in Baton Rouge on Oct. 27 by Judge Janice Clark, who called the parties back again on Oct. 29 for more questions. At that hearing, she sought information on how local franchises work and whether obligations such as local-access support are uniform from city to city.

Under the franchise law, now known as Act 433, potential telecommunications providers can apply to the secretary of state for a 15-year franchise. The measure requires less of providers than a local franchise would.

For instance, local agreements can contain language dictating that a provider staff a local office or include city-specific customer service regulations. The state law mandates the payment of franchise fees to be distributed to local governments, but does not have terms applied when incumbents entered the market, such as full build-out requirements.

Lawmakers included an opt-out provision in the bill for incumbent operators to gain industry support for the legislation, said Dan Garrett, attorney for the Police Jury Association, noting that operators opposed a 2006 draft of the law that held operators to their current contracts. If the law is applied as currently written, operators could reject their local agreements and go to the state for franchises. In California and other jurisdictions where state franchising has been approved, there has been a stampede of operators seeking lighter franchise terms.

By agreement of the parties to the litigation, no incumbents with active franchises have sought to drop their local cable-franchise agreements while the challenge is pending. The legislature anticipated a challenge to the opt-out provision and put severability language in the bill. That means that should the judge agree that the opt-out defies state law, the rest of the act could still go into effect. New providers could receive franchises from the state with less onerous operating terms than incumbent cable operators. However, extant providers operating under expired pacts, or those which lapse soon, can apply for state oversight.

Louisiana Cable & Telecommunications Association CEO Cheryl McCormick said, “We believe the legislature acted properly” on the bill. Garrett is equally confident that the local regulators convinced the judge that the opt-out provision is improper.