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FCC rule preempts municipal authority: open video systems are the issue.

The Federal Communications Commission (FCC) last week issued its final order affecting municipal authority for alternate providers of video services in cities. The final order basically affirmed the FCC's preliminary -- substantial preemption of municipal rights-of-way authority with regard to open video systems (OVS). The final order affirms most of the NLC-opposed broad guidelines to conditions for municipal franchise agreements and fees on these providers.

In response to comments from NLC, the final order provides for a number of improvements sought by city leaders, including changes to improve public, educational, and government (PEG) access, and to require OVS operators to advise communities and file a list with the FCC of communities where they intend to provide services.

Open Video Systems Provision of Cable and Video Services by Telephone Companies

The Telecommunications Act of 1996 permits local telephone companies and other local exchange carriers to provide cable-like services in their local service areas through what is called an "open video system," after receiving FCC certification. Under the FCC rule, any person or company could become an OVS provider, creating a mechanism to avoid municipal franchise agreements - especially at franchise renewal times. In effect, the final order deprives cities and towns of access to full compensation for use of public rights-of-way, and of full control over private use of public rights-of-way, where that can only be controlled through a franchise agreement.

For cities, the primary distinguishing point between OVS and traditional cable is that a Local Exchange Carrier (LEC) and its affiliates may provide no more than one-third of the programming on OVS. The other two-thirds of an OVS system is to be open for use by video programmers over which the OVS operator has no control or influence.

Under a decision by the FCC to define the term "affiliate" broadly, LEC's that operate OVS systems would be unable to expand their control over programming and circumvent the OVS rules. This is significant because OVS operators are supposed to obtain the advantage of reduced federal regulation (i.e not subject to Title VI Cable Act franchising requirements) in exchange for yielding control of two-thirds of system capacity to independent video programming providers. A policy permitting LEC's to dominate the OVS channel through their affiliates would grant valuable regulatory favors without requiring a fair return in the form of truly open access.

The final rule on OVS allows a local cable operator to become an OVS operator when the cable operator is subject to ' effective competition" in the service area. But "effective competition," as broadly defined under the 1996 Act, is likely to exist in most cities in the next three to five years. Allowing cable operators to convert so easily to OVS operators could have dramatic effects on municipalities. When the current franchising agreement of a cable operator expires, no new franchise agreement can be drafted if that cable operator has become a OVS operator. Without a cable franchise, local communities could no longer update franchise terms to match changing community needs and interests.

The FCC order admits local governments' rights to manage their rights-of-way and to impose a fee on the OVS operator. However, the FCC claims to preempt all local franchising requirements affecting OVS. not merely the federal Cable Act franchise requirements, except where state law defines permission to use public right-of-way as a "franchise." The final order clarifies a city's authority to collect a statutory fee in lieu of a franchise fee, but not with respect to unaffiliated video programming providers.

PEG Access

The final FCC order includes an important victory for cities by ensuring that OVS operators contribute to improved public, education, and government (PEG) services. It significantly modifies the initial FCC proposal, which would have allowed an OVS operator to negotiate with the local franchising authority to determine PEG obligations. Under the final order, if the parties cannot come to an agreement, the OVS operator must match the PEGs requirements of the local cable operator, so that "PEG service to the community is improved or increased."

The FCC final order provides OVS operators with significant control over access to OVS systems, but it does incorporate some changes recommended by NLC and local leaders.

Although the order does not require OVS operators to make their rates public, it does require them to provide sufficient information to unaffiliated providers so that they can calculate the average rate paid by other providers.

While the final certification procedures largely ignore the interests of local governments, the order changes the initial ruling to require OVS providers to specify the local communities in which they intend to operate. Cities would have five days in which to respond in writing to the FCC in response to such a notification.

NLC Efforts On April 1, NLC, as part of a local coalition, submitted comments to the FCC in the Matter of the Implementation of Section 302 (Open Video Systems) of the Telecommunications Act of 1996 (CS Docket 96-46) urging the FCC to adopt non discrimination provisions that prevent an OVS from becoming a cable system in disguise and rules that ensure OVS operators would meet local community needs by meeting their PEG obligations. Also NLC urged the FCC to establish a certification process that ensures that the property rights that local governments hold in public rights-of-way are protected by requiring an OVS to obtain local permissions before commencing operations.

On June 4, NLC and NATOA filed comments In the Matter of Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996 (CS Docket No. 96-85). The comments submitted dealt solely with the definition of the term "affiliate" in the context of the Open Video System (OVS). The comments urge the FCC to adopt the broadest possible interpretation of the term "affiliate."

On July 3, NLC filed a Petition for Reconsideration with the FCC objecting to the operator's fee in lieu of the cable franchise fee, as defined in the FCC's final order because it fails to provide just compensation for an OVS operator's use of the public rights-of-way and emphasized that because PEG obligations are designed to serve local needs and interests local communities must play proactive role in establishing the PEG obligations of OVS operators.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Aug 19, 1996
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