The Cable Act establishes "an orderly process for franchise renewal" designed to protect operators from "unfair denials of renewal" (Section 601(5); 47 U.S.C. §521 (5).) The Cable Act does not guarantee the operator renewal. A city that follows Cable Act procedures and develops an appropriate record may deny renewal if the operator’s past performance has been unsatisfactory, or if the operator is unwilling (or unable) to promise to provide the services, facilities and equipment necessary to meet the future cable-related "needs and interests" of the community. (Section 626; 47 U.S.C. § 546.)

The Cable Act contains some very important provisions that allow local governments that pay attention to what they are doing the right to say no to renewals, or to invite competition in the form of additional operators or a replacement for the incumbent. The following is an outline of the steps that need to be taken to preserve that option for the franchising authority, as well as the procedural and substantive requirements that the Cable Act sets up for franchise renewals.

In the specific area of renewals, the Cable Act addresses two basic issues:

• Procedure – the time frames and procedures that franchising authorities must follow in deciding whether or not to renew an existing franchise; and

• Substance – (1) the factors upon which a franchising authority may base a decision not to renew and (2) the kinds of requirements and obligations a franchising authority may impose on a renewal applicant and the requirements it may not impose.

The Cable Act sets forth two distinct renewal processes. The Cable Act provides for an elaborate formal renewal process. (Section 626(a)-(g); 47 U.S.C. §546(a)-(g).) It also provides that the cable operator and franchising authority can, in effect, ignore the elaborate formal process and opt for an informal negotiated renewal. (Section 626(h); 47 U.S.C. § 546 (h)). However, a municipality that may want to consider denial of renewal should be prepared to initiate the formal process if the operator asks for it during the six-month window.

A. The informal process. The Cable Act (Section 626(h); 47 U.S.C. § 546(h)) states that renewal can be requested by a cable operator at any time. The franchising authority may grant or deny this renewal request for any legitimate reason (consistent with state and local law). The only requirement under the Cable Act is that a City can only grant or deny the proposal "after affording the public adequate notice and opportunity for comment."

The § 546(h) procedures were included in the Cable Act to make it clear that a cable operator and a City could attempt to resolve renewal issues through informal negotiations.

B. The formal process. Section 626(a)-(9) (47 U.S.C. § 546 (a)-(g)) sets forth the "formal" renewal provisions of the Cable Act. Either the City (on its own initiative) or the cable operator (by submitting a request to the City) can activate the formal renewal process during the six-month period which begins on the 36^th month before franchise expiration and ends on the 30^th month before franchise expiration. IF THE OPERATOR DOES NOT SUBMIT A REQUEST TO THE CITY DURING THIS SIX-MONTH WINDOW, A MUNICIPALITY IS WELL ADVISED NOT TO INITIATE THE FORMAL PROCESS ON ITS OWN BUT TO INSTEAD FOLLOW THE INFORMAL PROCESS.

The "window" for the formal renewal process opens two and a half to three years before the expiration of a franchise. Communities that have taken the time to think through what they want and need in advance of that time period are in a better position to bring about a successful conclusion to the renewal process. In addition, the current franchise requires on-going attention since the operator’s past performance and franchise violations that the community has ignored may not be adequate grounds for denying a renewal to an incumbent operator. Thus, municipalities are well advised not to "franchise and forget."

The formal renewal process is complex and, at times, confusing, and even the informal process requires close attention. However, there are essentially four basic steps in the renewal process:

1. Determine what the community will need in the future in the way of cable service.
2. Evaluate the past performance of the incumbent cable operator.
3. Evaluate the incumbent cable operator’s proposal for a new franchise, and the operator’s financial, technical and legal qualifications to satisfy its proposal.
4. Decide whether or not to renew the existing cable company and, if so, on what terms and conditions.

The Cable Communications Policy Act of 1984 (P.L. 98-549), 47 U.S.C. §§ 521-611, was passed in the last days of the 98^th Congress. It was the result of several years of intensive efforts on the part of the cable television industry, the local government community, and the Congress to establish a national policy for the regulation of cable television. Like most major pieces of legislation involving controversial issues and competing ideologies and approaches, the Cable Act is a compromise that attempts to strike a balance between the desires of the cable industry and the right of local governments to regulate cable television operators who occupy public property.

The basic compromise that the cities made in the Cable Act was giving up most rate regulation in return for the grandfathering of existing franchises and the right to carry over most franchise provisions to new or renewal franchising. The provision that cable operators fought for very strongly was a bias in favor of renewal of the incumbent operator. The final version of the Act gives the incumbent cable operator the "first bite" at renewal, but does not grant an expectancy of renewal.

One of the firm bases on which the Act stands is the right of a local government to "award…one or more franchises within its jurisdiction." (Section 621(a)(1) of the Cable Act, codified at 47 U.S.C. § 541 (b)(1).)

The Cable Act has six basic public policy purposes:

1. establish a national policy concerning cable communications;
2. establish franchise procedures and standards that encourage the growth and development of cable systems and that assure that cable systems are responsive to the needs and interests of the local community;
3. establish guidelines for the exercise of Federal, state and local authority with respect to the regulation of cable systems;
4. assure that cable systems provide and are encouraged to provide the widest possible diversity of information sources and services to the public;
5. establish an orderly process for franchise renewal that protects cable operators against unfair denials of renewals where the operator’s past performance and proposal for future performance meet the standards established by the Act; and
6. promote competition in cable communications and minimize unnecessary regulation that would impose an undue economic burden on cable systems.

The last two purposes were added in the Senate after the House had reported the bill out of committee. They are vivid illustrations of the difficult balancing act that the law attempts to perform.

A fundamental aspect of the franchising and regulation of cable television is that they have always been principally the responsibility of local governments. This is in contrast to the regulation of broadcast television, which is nearly exclusively controlled by the Federal Communications Commission ("FCC").

The rationale for this approach stems from the technology and nature of cable television operation. Unlike any other private business except perhaps public utilities, cable systems inevitably involve extensive construction in, and permanent occupation of, public property: the local streets and rights-of-way. Moreover, most communities are served by a single cable system. This means that most cable operators enjoy sole control over multiple channels of communication by operating what is usually the only conduit for delivery of video programming to the home in a particular community.

Management of the public streets and rights-of-way in the public interest is the responsibility of local governments. As the representative of the public, local governments have a responsibility to their citizens to protect public property and to assure that it is used in the public interest, rather than in the purely private commercial interest of the cable operator.

Local governments also have long been recognized as the entities most knowledgeable about local community needs and interests, and therefore most able to help cable reach its full potential by tailoring its service to a particular locality. A stated purpose of the Cable Act is to "…assure that cable systems are responsive to the needs and interest of the local community." (Section 601(2); 47 U.S.C. §521(2)).

Most communities are served by a single cable operator, meaning that citizens lack a competitive choice. In these circumstances, local officials may be motivated to promote First Amendment values in the community by assuring that citizens may receive information from a diversity of sources, rather than being restricted solely to the gatekeeper control exercisable by the cable operator.

These policy concerns, balanced against the goal of minimizing regulation to the extent possible, underlie the Cable Act. The Cable Act carries out his balance by restricting certain local regulatory powers and confirming pre-existing local authority over cable in other areas. For example, the Act empowers local governments to issue "one or more" cable franchises in their jurisdictions, and prohibits the operation of a cable system without a local franchise in almost all cases. The Act also requires local authorities to follow specific procedures in determining whether to renew franchises.

In a few states, including Vermont, Connecticut, Rhode island and New Jersey, the franchise is granted by a state level utility commission. A few other states, such as New York and Massachusetts, set some standards and procedures and assist local governments through a state cable commission. Even in these state schemes, however, the advice and often the consent of local governments is a significant part of the franchise process.

Local governments, then, have fundamental interest regarding cable television, and those interest are reflected in the Cable Act in the form of statutory empowerment and responsibilities. These fundamental interests may be enumerated as:

• FAIR COMPENSATION FOR COMMERCIAL USE OF PUBLIC PROPERTY

Public rights-of-way are created through the expenditure of public funds and are often obtained through government exercise of the power of eminent domain. Like any property owner, the public is entitled to fair compensation for the private use of its property for commercial gain. Franchise fees of up to 5% of an operator’s gross revenues are authorized by the Cable Act as fair rent for this use.

• PUBLIC SAFETY AND COORDINATED USE OF THE RIGHT-OF-WAY

Local governments must ensure that facilities constructed and maintained in the right-of-way do not endanger the public, and that applicable safety codes are followed in cable system installation and operation. In addition, since the rights-of-way and utility infrastructure used by cable systems are scarce and valuable public resources, local governments have a responsibility to manage and allocate the use of these vital resources. This means local governments must ensure that public rights-of-way and utility infrastructures are managed in a way to conserve sufficient capacity for current and potential future uses, including cable television and utilities and transportation services.

• NONDISCRIMINATORY ACCESS TO CABLE TELEVISION SERVICE

A primary goal of local officials is to ensure that all citizens, regardless of their income or location, have the opportunity to subscribe to cable television service without discrimination. This is carried out in franchises and confirmed in the Cable Act through prohibitions against "red-lining" and "cream skimming," universal service requirements, outlawing discrimination in rates, and protection of tenants’ rights to service. The policy rationale is that democracy is diminished if there are "haves" and "have nots" in the "Information Age." In light of skyrocketing cable rates, "lifeline service" is desired by many as an additional way to accomplish this goal. "Lifeline service" is a limited tier of service usually composed of local off-air broadcast service and cable system access channels.

• CONSUMER PROTECTION

Consumers look to the officials who granted the franchise for help with widespread complaints against cable companies, and to ensure fair practices in regard to rates, repair service, telephone response time, adequate picture quality, billing practices, and other consumer matters.

• ENVIRONMENTAL PROTECTION

Many communities are concerned about visual blight, preservation of historic districts, and other aesthetic considerations that may affect the manner of installation and appearance of cable television wires, pedestals, boxes, etc.

• LOCAL ECONOMIC DEVELOPMENT AND THE TELECOMMUNICATIONS INFRASTRUCTURE

A modern cable system is a unique and ubiquitous local communications network. As such, it can be an important part of the telecommunications infrastructure in a community. The Cable Act allows local officials to require upgrade of a system as a condition of renewal. Local economic development may also be fostered through franchise provisions for local involvement in ownership, local hiring and training, equal opportunity employment, and minority contracting and subcontracting provisions, and are sanctioned by the Cable Act and many local laws.

• PROMOTING A DIVERSITY OF IDEAS AND PROGRAMS

Local officials may be concerned about the power that cable can wield as a monopoly "gatekeeper" over what citizens can see and know. The Cable Act allows local governments to require a cable operator to set aside access channels for public, educational and governmental use. The Cable Act also allows franchising authorities to enforce requirements for "broad categories" of programming in franchises.

ALTERNATE RENEWAL PROCEDURE (Informal)

Timing – a cable operator may submit a renewal proposal at any time and the franchising authority may grant or deny that proposal at any time.

Process – the public must be afforded adequate notice and an opportunity to comment. This process can operate independently of or in parallel with the timetable and process described in sections 1 through 6 above. (Section 626(h); 47 U.S.C. §546(h).)

Denial of renewal under the informal process does not affect renewal carried out as a formal procedure.

Relationship of formal and informal procedures. Informal and formal procedures can be followed simultaneously. As a result, many operators are triggering formal procedures 30-36 months prior to the expiration of the franchise, and are also asking municipalities to negotiate informally. If this is done, a municipality must be careful to comply with the procedural requirements of the formal process, even if it appears that informal negotiations are going well.

Relationship of Cable Act procedures to state and local laws. Federal law supersedes local and state law with which it is in conflict, but in the absence of any conflict, a municipality must comply with both federal requirements and any applicable state and local law requirements. For example, if a local ordinance requires a city to establish franchise renewal procedures by ordinance, or establishes time limits in addition to those established by federal law, the city may have to comply with those local or state requirements.

Relationship of renewal procedures to revocation proceedings. Federal law may not control revocation proceedings. It may be possible for a city to avoid the renewal process entirely by revoking the franchise if there is an adequate basis for doing so under the franchise.

1. What can the franchising authority consider in determining whether or not to renew a franchise?

Past Performance –

1. Has the incumbent operator "substantially complied with the material terms of the existing franchise and with applicable law"?
2. Has the quality of the cable operator’s service, including signal quality, response to consumer complaints and billing practices, been reasonable in light of community needs?

Future Performance –

1. Does the operator have the financial, legal and technical ability to provide the services, facilities, and equipment it is proposing to provide?
2. Is the Operator’s renewal proposal reasonable to meet the future cable-related needs of the community, "taking into account the cost of meeting such needs and interests"?
3. Does the operator’s proposal meet the requirements that the franchising authority has asked for in its request for a renewal proposal?

(Section 626(c)(1)(A), (B), (C); 47 U.S.C. §546(c)(1)(A), (B), (C); Section 626(b)(2); 47 U.S.C. §546(b)(2)).

2. What cannot be considered in determiningg whether to renew a franchise?

Past performance –

1. The mix, quality or level of cable services or other service provided over the system if it is not required in the current franchise.
2. Any failure to comply with the material terms of the franchise or inadequate quality of services, including signal quality, consumer complaints, or billing practices if the franchising authority did not notify the cable company of the problem and give it the opportunity to cure the problem, or if the franchising authority waived its right to object to the problem, or "effectively acquiesced" to the operator’s performance. (Section 626(c)(1)(B); 47 U.S.C. § 546(c)(1)(B); Section 626(d); 47 U.S.C. § 546(d).)

3. What is the basis for a court overturning a franchising authority’s decision not to renew?

1. The franchising authority did not follow the procedural requirements of the Cable Act.
2. The franchising authority’s adverse findings against the cable company are not supported by "a preponderance of the evidence" in the record of the administrative hearing. (Section 626(e)(2); 47 U.S.C. § 546(e)(2).)

4. What is required to be in a renewal franchise?

1. Access to the public rights-of-way and easements that have been dedicated for compatible uses. (Section 621(a)(2); 47 U.S.C. § 541 (a)(2).)
2. Operator assurance of safety, functioning, appearance and convenience of use of rights-of-way. (Section 621(a)(2)(A); 47 U.S.C. § 541 (a)(2)(A).)
3. Operator and subscriber assumption of costs of use of rights-of-way. (Section 621(a)(2)(B),(C); 47 U.S.C. § 541 (a)(2)(B), (C).)
4. No denial of access to cable service "because of the income of the residents of the local area,"i.e., no "red-lining" or "cream-skimming." (Section 621(a)(3); 47 U.S.C. § 541 (a)(3).)
5. Offer to subscribers of device to block out undesired channels. (Section 624(d)(2)(A); 47 U.S.C. § 544(a)(2)(A).)
6. Leased access channels for commercial use by persons unaffiliated with cable operator (10 percent of channels for systems with 36 to 54 channels; 15 percent of channels for systems with 55 or more channels). (Section 612; 47 U.S.C. § 532.)

5. What may a franchising authority require in a renewal?

1. A request for renewal issued by the franchising authority "shall contain such material as the franchising authority may require (as long as it is a requirement permitted by the Cable Act), including proposals for upgrading the system."
2. Channel capacity for public, educational or governmental ("PEG") use, rules and procedures for the use of PEG channels, and channel capacity on an institutional network for educational and government use. (Section 611(a)(b); 47 U.S.C. § 531 (a)(b).)
3. Facilities and equipment related to the establishment or operation of the cable system. (Section 624(b)(1); 47 U.S.C. § 544(b)(1).)
4. Non-discrimination in basic service rates. (Section 623 (f)(1); 47 U.S.C. § 543(f)(1).)
5. Franchise fees up to 5 percent of gross revenues. (Section 622; 47 U.S.C. § 542.)
6. In addition to the franchise fee taxes and fees generally applied to other utilities or businesses (Section 622(h)(1); 47 U.S.C. § 542(h)(1)); the cost of bonds, security funds, letters of credit, and any other costs incidental to the award or enforcement of the franchise. (Section 622(g)(2)(D); 47 U.S.C. § 542(g)(2)(D)); the capital cost of public, educational and government access facilities. (Section 622(g)(2)(c); 47 U.S.C. § 542 (g)(2)(c).)
7. Regulation of the installation and rental of equipment for the hearing impaired. (Section 623(f)(1); 47 U.S.C. § 543(f)(1).)
8. Prohibition of showing obscene material. (Section 624(d)(1); 47 U.S.C. § 544(d)(1).)
9. Technical standards that are "not inconsistent with" standards the FCC may issue. (Section 624 (e); 47 U.S.C. § 544(e).)

6. What is a franchising authority prohibited from requiring in a renewed franchise?

1. Regulation of basic rates, unless the system is not subject to effective competition under FCC rules. (Section 623; 47 U.S.C. § 543.)
2. Common carrier regulation of cable services. (Section 621(3)(c); 47 U.S.C. § 541(3)(c).)
3. More leased access capacity than required in the Cable Act (but additional capacity that is offered in the cable operator’s proposal may be incorporated in the franchise and enforced.) (Section 612(b)(3); 47 U.S.C. § 532 (b)(3).)
4. Specific video programming or other information services (but "broad categories" of programming that are offered in the operator’s proposal may be incorporated in the franchise and enforced). (Section 624(b)(1); 47 U.S.C. § 544(b)(1).)
5. Facilities and equipment not related to cable services (but any that are voluntarily offered in the operator’s proposal may be incorporated in the franchise and enforced). (Section 611(c); 47 U.S.C. § 543(c); Section 624(b)(2); 47 U.S.C. § 544(b)(2).)
6. Services related to public, educational, and government channels (but any such services offered by the cable operator may be incorporated in the franchise and enforced). (Section 611(c); 47 U.S.C. § 531(c).)
7. Ownership restrictions based on the operator’s ownership of other media, such as cable, television, or newspapers (these are pre-empted by ownership restrictions established in the Act itself).

(Section 613(d); 47 U.S.C. §537(d).)

1. Determine what the community will need in the way of future cable0related services
2. Evaluate the past performance of the incumbent cable operator
3. Evaluate the incumbent operator’s proposal for a new franchise and the operator’s financial, technical and legal qualifications to fulfill its proposal
4. Decide whether or not to refranchise the existing cable operator.

Getting ready for renewal goes on all the time – you can’t "franchise and forget"

36 to 30 months before expiration, the cable operator or the government may initiate the renewal process

An informal process is usually preferable to a formal process, but a cable operator is likely to ask the franchising authority to initiate the formal process in the 36 to 30 month window to preserve its options.