By Larry Jones
November 12, 2007

The Federal Communications Commission recently approved a Second Report and Order providing new regulations and guidance on local video franchising for both traditional video providers such as Comcast Corp. and Time Warner Cable, and for new entrants in the video market such as AT&T Inc. and Verizon Communications Inc. The Second report extends a number of the rules issued in the First Report and Order earlier this year for new entrants to traditional cable providers.

The First Report and Order dealt with new competitors entering the video market. The new rules set a limit on the time local governments have to consider new franchise applications, a limit on the fees local governments may charge, and prohibit local governments from making extravagant build-out demands on companies. The Conference and other local groups consider these rules as an egregious preemption of local franchising authority and are challenging them in federal court.

With traditional phone companies entering the multi-channel video market and traditional cable companies competing in the telephony market, competition has heated up significantly. So when the First Report and Order was issued last March, traditional cable companies claimed the rules gave their competitors, the telephone companies, an unfair advantage since the same rules did not apply to them. To address this concern, the FCC decided to issue the Second Report and Order.

While many of the same rules in the First Report and Order will apply to traditional cable companies, the FCC made clear in the Second Report and Order that the build out rulings and the “shot clock” rule (which establishes a limit on the time local governments will have to approve franchise agreements) will not apply. However, rulings on franchise fees, PEG (public education and government channels), and most but not all of the rules related I-Nets will apply to cable companies.

In the Second Order for traditional companies with existing franchise agreements, the FCC recognized that “franchise agreements involve contractual obligations and that some terms may have been implemented as part of a settlement agreement regarding rate disputes or past performance by the franchisee. As a result we believe that the facts and circumstances of each situation must be assessed on a case by case basis under applicable law to determine whether our statutory interpretation should alter the incumbent’s franchise agreement.” The FCC also states that the Second order “should in no way be interpreted as giving incumbents a unilateral right to breach their existing contractual obligations.” Nor should it “be used as an independent basis for obtaining retrospective relief.”