FCC Issues New Rules for Cable Franchising

Published May 1, 2007

The Federal Communications Commission (FCC), looking to step up competition in cable and video markets, has issued a new set of rules and guidelines for local franchise authorities that regulate cable operations within their specified jurisdictions. The rules became effective March 5, the date the FCC released the order.

The FCC’s move comes amid increasing state-level legislation to create statewide franchising authorities to replace the local franchising process, which a growing number of lawmakers and regulators see as a barrier to competitive entry.

“Telephone companies are investing billions of dollars to upgrade their networks to provide video,” FCC Chairman Kevin Martin said in a statement. “As new providers began actively seeking entry into video markets, we began to hear that some local authorities were making the process of getting franchises unreasonably difficult, despite clear statutory language.

“The record collected by the commission in this proceeding cited instances where [local franchise authorities] sat on applications for more than a year or required extraordinary in-kind contributions such as the building of public swimming pools and recreation centers,” Martin continued.

Clarifies Cable Laws

The FCC rules, contained in the March 5 Report and Order and Further Notice of Proposed Rulemaking, are designed to strengthen the existing provisions of Section 621(a)(1) of the Communications Act of 1934, as updated over the years, which prohibits franchising authorities from unreasonably refusing to award competitive franchises for the provision of cable services.

The new rules require local authorities to decide on a franchise application within 90 days or the license will be deemed granted. In addition, local authorities can no longer make extraordinary requests from applicants for the deployment of hardware or for requests unrelated to the provision of video service.

The FCC also listed several other practices as an “unreasonable refusal to award a competitive franchise,” including:


  • requiring an applicant to agree to unreasonable build-out requirements,



  • demanding additional fees and compensation that are not counted toward the statutory 5 percent cap on franchise fees, and



  • demanding unreasonable obligations relating to public, educational, and government (PEG) channel and institutional networks.


Competition Needed

“Such unreasonable requirements are especially troubling because competition is desperately needed in the video market,” Martin said. “As we just found, from 1995 to 2005, cable rates have risen 93%. In 1995 cable cost $22.37 per month. Last year, cable cost $43.04 per month.

“The trend in pricing of cable services is of particular importance to consumers,” Martin continued. “Since 1996 the prices of every other communications service have declined while cable rates have risen year after year after year.”

The FCC approved the new rules by a 3-2 vote that broke along party lines, with Democratic Commissioners Michael Copps and Jonathan Adelstein dissenting.

Although agreeing with the goal of promoting competition, Adelstein said in a statement, “today’s item goes out on a limb in asserting federal authority to preempt local governments, and then saws off the limb with a highly dubious legal scheme. It substitutes our judgment as to what is reasonable–or unreasonable–for that of local officials. …”

Consumer Groups Support Change

The ruling drew support from free-market advocacy groups, which see it as a boost for consumers.

“By streamlining the local franchising process, the FCC’s order will reduce regulatory entry barriers, which will encourage competitors to enter and compete for cable TV and video customers,” said Stephen Pociask, president of the American Consumer Institute.

“As confirmed by numerous studies, the increase in competition will significantly lower cable TV prices, as well as improve service quality,” Pociask continued. “Along with these consumer benefits, the economy will see increased investment and the creation of new jobs, as incumbents and competitors build next-generation IP networks.”

Steven Titch ([email protected]) is senior fellow for IT and telecom policy at The Heartland Institute and managing editor of IT&T News.

For more information …

The Report and Order and Further Notice of Proposed Rulemaking issued on March 5, 2007 by the Federal Communications Commission is available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to http://www.policybot.org and search for document #20848.