Nevada, Iowa Shift Franchising to State

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Iowa and Nevada have ended their legislative sessions, placing franchise reform in the “done” column. Meanwhile, the process is just heating up in Massachusetts, where the first public hearing on a bill hotly contested by municipal authorities is slated for this week.

The Iowa bill “is as good as we were going to get after weeks of negotiations,” said Iowa Cable & Telecommunications Association executive vice president Tom Graves.

The group would have preferred that the bill include a tax on direct-broadcast satellite service, but that issue didn’t gain traction, he said.

“Parts of the law we’re not crazy about, but it’s a regulatory framework we can live with,” Graves noted. For instance, incumbent providers would have preferred some buildout provisions for newcomers.

IOWA AUTHORITY

Franchising authority has been placed in the hands of the Iowa Utilities Board.

Beginning July 1, new providers and incumbents with expired franchises may apply for state authorization. New providers must provide advanced notice to the communities they intend to serve. When that notice is given, the incumbent can decide whether to apply for state authorization, too.

Graves said his members are examining their franchises and local markets to see if state authorization makes sense.

The bill will also have a side benefit for cities and incumbent providers. The legislation now specifically states that cities have the right to collect up to 5% of gross revenues as franchise fees, and that amount does not need to reflect the actual cost of regulation.

Those fees may be appropriately placed into general funds, according to the bill. That bill language is intended to forestall future lawsuits about use of that revenue.

Currently, cable subscribers in seven Iowa cities, including Des Moines, Davenport and Dubuque, have suits pending challenging the municipal use of franchise fees. The suits allege that since 2000, the cities have improperly used franchise fees, collecting amounts from consumers in excess of what it costs to actually oversee cable providers and placing the extra money into general funds.

SIX-MONTH WINDOW

The Nevada bill was signed May 29 by Gov. Jim Gibbons. The bill was the result of 11 months of negotiations between the state’s largest telecommunications providers including AT&T, Embarq, Cox Communications and Charter Communications, according to Bob Gastonguay, executive director of the Nevada State Cable Telecommunications Association. All recognized that “in the end, we must compromise,” he said.

The Nevada Secretary of State’s Office will now handle franchising. Incumbents can either operate under existing local franchises or opt into state regulation, but either way companies will have six months to decide which regime to adopt. The state office will have 20 days after to approve state operating authority after receiving a completed application.

Officials were concerned that regulation would create a financial burden on the state government, so the bill includes filing fees from providers — on a sliding scale from $250 to $25,000 — to be paid by the applicant based on the number of customers served.

Incumbents expect competition from AT&T within a year: the phone company already has a memorandum of understanding with the communities of Reno and Sparks that would allow for the launch of its Internet Protocol-based U-Verse TV service in those markets.

While most of the terms were negotiated by providers, a legislator added one unique provision: the bill requires that larger providers offer products for parents to use to block or restrict their children’s use of the Internet.

Though legislators were concerned about this issue, Gastonguay said, Cox and Charter already offer filtering products and the bill was written to exempt smaller operators.

MASSACHUSETTS MELEE

Across the country, a Verizon-backed bill will have its first public hearing in Boston on June 5, a meeting that’s expected to be extremely vocal. The state’s municipal lobby, the Massachusetts Municipal Association, is distributing cable franchising campaign kits, urging cities and towns to pass resolutions against reform bills in the state House and Senate.

The association says the bill ignores the fact that communities are already banned from issuing monopoly franchises and that they have a duty to protect public rights-of-way.

Verizon has successfully negotiated 50 local franchises and is on track to complete 20 more, which the trade group cites as illustration that the current system works.

But Phil Santoro, senior staff consultant for media relations for Verizon in Massachusetts, counters that the average length of negotiations for those franchises was 15 months, with some talks extending two years. By comparison, in Texas — the first state to reform franchise rules — a competitor is authorized to enter a local market just days after application is made.

“It’s clear to us there needs to be a better way. The world has changed and we’re not keeping up,” Santoro said. “Companies like ours, with money for new development will look to states where the process is streamlined, like New Jersey or California, where it’s easy to do business.”

Without the bill simplifying franchising, Massachusetts could lose out, he added.

The Massachusetts bill is crafted to keep cities whole, Santoro said. Municipalities would continue to collect 5% in franchise fees and another 1% of gross revenues as support for public, educational and government channels, he said. Cities will decide how to use those funds, he said.

OTHER STATES

Elsewhere, Connecticut has until the close of the legislative session on June 6 to complete its franchising reform bill.

Most points have been negotiated, but there remains a sticking item: Legislators are ironing out language addressing Groton Utilities, deciding whether the municipally owned utility can expand beyond city boundaries.

In Columbus, the Ohio House is expected to vote on a reform bill within the next two weeks. The measure has already been approved by the state Senate and the state’s cable lobby supports the bill as passed by that chamber.

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