[Federal Register Volume 80, Number 44 (Friday, March 6, 2015)]
[Rules and Regulations]
[Pages 12088-12091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05180]



[[Page 12088]]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 05-311; FCC 15-3]


Implementation of Section 621(a)(1) of the Cable Communications 
Policy Act of 1984 as Amended by the Cable Television Consumer 
Protection and Competition Act of 1992

AGENCY: Federal Communications Commission.

ACTION: Final rule; petition for reconsideration.

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SUMMARY: In this document, the Federal Communications Commission 
(``Commission'' or ``we'') respond to Petitions for Reconsideration of 
the Second Report and Order, interpreting Section 621 of the 
Communications Act of 1934, which deals with local franchising of cable 
companies. We clarify the applicability of the Second Report and Order 
in states that have state-level franchising, grant the request that we 
reconsider our Final Regulatory Flexibility Analysis to align with the 
text of the Second Report and Order, and deny the petitions in all 
other respects.

DATES: Effective April 6, 2015.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Brendan Murray, [email protected], of the 
Media Bureau, Policy Division, (202) 418-1573 or Holly Saurer, 
[email protected], of the Media Bureau, (202) 418-7283.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
on Reconsideration, FCC 15-3, adopted on January 20, 2015 and released 
on January 21, 2015. The full text of these documents is available for 
public inspection and copying during regular business hours in the FCC 
Reference Center, Federal Communications Commission, 445 12th Street 
SW., CY-A257, Washington, DC, 20554. These documents will also be 
available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents will be 
available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The 
complete text may be purchased from the Commission's copy contractor, 
445 12th Street SW., Room CY-B402, Washington, DC 20554. To request 
these documents in accessible formats (computer diskettes, large print, 
audio recording, and Braille), send an email to [email protected] or call 
the Commission's Consumer and Governmental Affairs Bureau at (202) 418-
0530 (voice), (202) 418-0432 (TTY).

Summary of the Order on Reconsideration

    1. In the Order on Reconsideration (``Order''), we respond to 
several Petitions for Reconsideration. Petitioners sought 
reconsideration of our rulings regarding most favored nation (MFN) 
clauses, in-kind payments, mixed-use networks, and the applicability of 
the Second Report and Order, 72 FR 65670, November 23, 2007, to state 
level franchising. They also brought to our attention an inconsistency 
between the rules adopted and the rules analyzed in the accompanying 
Final Regulatory Flexibility Analysis (``FRFA''). We reaffirm that (1) 
prior rulings were intended to apply only to the local franchising 
process, and not to franchising laws or decisions at the state level; 
(2) MFN clauses are contractual terms that are not affected by any of 
the Commission's prior findings; and (3) ``in-kind'' payments--non-cash 
payments, such as goods, or services--count toward the five percent 
franchise fee cap for incumbent operators and new entrants. We decline 
to modify our conclusions regarding mixed-use networks. We grant 
Petitioner's request that we depart from our Regulatory Flexibility 
Analysis and submit a revised FRFA in order to comply with the mandates 
of the Regulatory Flexibility Act.

I. Background

    2. In the Cable Communications Policy Act of 1984, Congress added 
section 621(a)(1) to the Communications Act. That section requires a 
local franchise for the provision of cable service. A local franchising 
authority (``LFA'') may not grant an exclusive franchise and may not 
unreasonably refuse to award an additional competitive franchise. 
Section 621 prohibits a cable franchise authority from prohibiting, 
limiting, or restricting the provision of telecommunications service by 
a cable operator. Congress, in enacting this section, sought to enhance 
cable competition and accelerate broadband deployment.
    3. In 2007, the Commission adopted the First Report and Order and 
Further Notice of Proposed Rulemaking, 72 FR 13189, March 21, 2007, to 
implement section 621(a)(1). The order adopted rules and provided 
guidance to ensure that LFAs do not unreasonably refuse to award 
competitive franchises for the provision of cable services. The First 
Report and Order found that certain LFA practices violated section 
621(a)(1) by: (1) Failing to issue a decision on a competitive 
application within the order's specified timeframes; (2) failing to 
grant a franchise when an applicant did not agree to unreasonable 
build-out mandates; (3) refusing to grant a competitive franchise when 
an applicant did not agree to impermissible franchise fee requirements; 
(4) denying applications based on a new entrant's refusal to undertake 
certain obligations relating to public, educational, and government 
channels (``PEG''), and institutional networks (``I-Nets''); and (5) 
refusing to grant a franchise based on issues related to non-cable 
services or facilities. The Commission issued a Further Notice of 
Proposed Rulemaking (``FNPRM'') for comment on whether or not these 
findings should be made applicable to incumbent providers and how that 
should be done.
    4. In the Second Report and Order, the Commission determined that 
the prior findings involving franchise fees relied on statutory 
provisions that did not distinguish between incumbents and new 
entrants, and therefore should be applicable to incumbent operators. 
The Commission also determined that most favored nation clauses would 
provide some franchisees the option and ability to adjust their 
existing obligations if and when a competing provider obtains more 
favorable franchise provisions. Petitioners sought reconsideration of 
these rulings and brought to our attention an inconsistency between the 
rules adopted and the rules analyzed in the accompanying Final 
Regulatory Flexibility Analysis (``FRFA''). We respond to those 
petitions in the Order.

II. Discussion

A. State Level Franchising

    5. Petitioners request clarification regarding whether the Second 
Report and Order applies to state level franchises. We clarify that the 
prior rulings were intended to apply only to the local franchising 
process, and not to franchising laws or decisions at the state level. 
The First Report and Order stated that its rulings were limited to 
competitive franchises ``at the local level,'' as the Commission did 
not have a sufficient record to determine what constitutes an 
``unreasonable refusal to award an additional competitive franchise'' 
with respect to franchising decisions where a state is involved versus 
a local franchising authority. The United States Court of Appeals for 
the Sixth Circuit agreed, holding that the Commission, in the First 
Report and Order, did not to preempt state law, state-level franchising 
decisions, or local franchising decisions authorized by state law 
because the Commission

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lacked the information necessary to evaluate state-level franchising 
laws.
    6. In both the FNPRM and the Second Report and Order, the 
Commission expressed its intent to extend the First Report and Order's 
rulings to incumbent cable operators, but said nothing about extending 
those rulings to state-level franchising laws. The State of Hawaii 
argues that because the Commission did not address this issue in the 
Second Report and Order, it did not apply its findings to state-level 
franchising. Both NCTA and Verizon argue that the Commission 
unambiguously applied the Second Report and Order's findings to state-
level franchising because it stated that the statutory interpretations 
at issue in the proceeding are ``valid throughout the nation.'' The 
Commission reaffirms that it did not extend those rulings in the Second 
Report and Order to state-level franchising laws or decisions.

B. Most Favored Nation Clauses and Disruption of Existing Contracts

    7. Petitioners argue that the Commission's conclusions on MFN 
clauses are inconsistent with our preemption of level playing field 
regulations in the First Report and Order. NCTA counters that the 
decisions on MFN clauses should not be reconsidered because of their 
pro-competitive and public policy purposes. NATOA disagrees with that 
assertion because both the Department of Justice and the Federal Trade 
Commission have labeled MFN clauses as ``anti-competitive'' in certain 
instances. We decline to modify the conclusions concerning MFN clauses 
and disruption of existing contracts. In the Second Report and Order 
the Commission concluded that the determinations in the First Report 
and Order may allow competitive providers to enter markets with 
franchise provisions more favorable than those of the incumbent 
provider, and expected that MFN clauses, ``pursuant to the operation of 
their own design, will provide some franchisees the option and ability 
to change provisions of their existing agreements.'' We reaffirm the 
prior conclusion that MFN clauses are contractual terms that are not 
affected by any of the Commission's findings in the First Report and 
Order.

C. In-Kind Payments

    8. LFAs petitioned for reconsideration of the inclusion of in-kind 
payments in calculating the franchise fee cap, arguing that the 
Commission's determinations give an overly expansive scope of section 
622(g)(2)(D), which exempts ``charges incidental to the awarding or 
enforcing of the franchise'' from the five percent franchise fee cap 
and also expand the definition of in-kind payments in the First Report 
and Order. We disagree with Petitioners and adhere to our previous 
conclusions in the Second Report and Order. In the First Report and 
Order, the Commission interpreted Section 622, which limits the amount 
of franchise fees that an LFA may collect from a cable operator to five 
percent of the cable operator's gross revenues, subject to certain 
exceptions in subsection (g). The Commission concluded that in-kind 
payments count toward the five percent franchise fee cap. In the Second 
Report and Order, the Commission concluded that its interpretation of 
Section 622 ``applies to both incumbent operators and new entrants.''
    9. We disagree with the Petitioners that the Commission's 
interpretation of the phrase ``incidental to'' in section 622(g)(2)(D) 
goes beyond or is inconsistent with our interpretation in the First 
Report and Order. The Commission concluded in the first order that that 
the term ``incidental'' in section 622(g)(2)(D) should be limited to 
the list of incidental charges provided in the statute, as well as 
other minor expenses. The Commission examined the existing case law 
under section 622(g)(2)(D) and determined that certain fees are not 
necessarily to be regarded as ``incidental'' and thus exempt from the 
five percent franchise fee cap. The Sixth Circuit Court of Appeals 
upheld this interpretation. The Commission's interpretation of section 
622(g)(2)(D) in the Second Report and Order mirrors, and does not 
expand, the interpretation in the First Report and Order.
    10. Further, we disagree with Petitioners that the First Report and 
Order limited the exemption of in-kind payments only when such in-kind 
payments are unrelated to cable service. The First Report and Order 
identified ``free or discounted services provided to an LFA'' as one 
type of ``non-incidental'' cost that counted toward the franchise fee 
cap. In that context, the Commission was referring to free or 
discounted cable services. The Sixth Circuit also referenced these 
different types of in-kind payments separately when it upheld the FCC's 
interpretation of the five percent cap on fees. For these reasons, we 
reaffirm our conclusion that in-kind payments count toward the five 
percent franchise fee cap.

D. Mixed Use Networks

    11. Petitioners argue that the Second Report and Order's findings 
that LFA jurisdiction is limited to cable service is incorrect, as the 
Act ``recognizes local authority with respect to `cable systems' or 
`cable operators' without restriction to `cable service.' '' We adhere 
to our previous determination on this issue. The Commission's First 
Report and Order and the Second Report and Order make clear that LFAs 
may not use their franchising authority to regulate non-cable services 
provided by either an incumbent or new entrant. As petitioners have not 
raised any new arguments, we reaffirm the prior conclusion.

E. Conclusion

    12. We reaffirm that (1) prior rulings were intended to apply only 
to the local franchising process, and not to franchising laws or 
decisions at the state level; (2) MFN clauses are contractual terms 
that are not affected by any of the Commission's prior findings; and 
(3) ``in-kind'' payments--non-cash payments, such as goods, or 
services--count toward the five percent franchise fee cap for incumbent 
operators and new entrants. We decline to modify our conclusions 
regarding mixed-use networks. We grant Petitioner's request that we 
depart from our Regulatory Flexibility Analysis and submit a revised 
FRFA in order to comply with the mandates of the Regulatory Flexibility 
Act.

III. Procedural Matters

A. Paperwork Reduction Act Analysis

    13. The Order does not contain new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(``PRA''), Public Law 104-13. In addition, we note there is no new or 
modified ``information burden for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

B. Final Regulatory Flexibility Analysis

    14. As required by the Regulatory Flexibility Act, the Commission 
has prepared a Final Regulatory Flexibility Analysis (``FRFA'') 
relating to the Report and Order.

C. Congressional Review Act

    15. The Commission will send a copy of this Order on 
Reconsideration in a report to be send to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, see 5 
U.S.C. 801(a)(1)(A).

IV. Final Regulatory Flexibility Analysis

    16. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the

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FNPRM. The Commission sought written public comment on the proposals in 
the FNPRM, including comment on the IRFA. The Commission received one 
comment on the IRFA. Subsequently, the Commission adopted a Final 
Regulatory Flexibility Analysis (``FRFA'') in the Second Report and 
Order in this proceeding. Following the release of the Second Report 
and Order, petitioners sought reconsideration of the FRFA based on an 
inconsistency between the rules adopted and the rules analyzed in the 
accompanying FRFA. As explained in the Order, we submit this 
Supplemental Final Regulatory Flexibility Analysis to reflect the rules 
adopted in the Second Report and Order and to conform to the RFA.

A. Need for, and Objectives of, the Second Report and Order

    17. The need for FCC regulation in this area derives from 
eliminating barriers to competitive entry of cable operators into local 
markets. This Order extends a number of the rules and findings 
promulgated in the First Report and Order dealing with Section 611 and 
Section 622 of the Communications Act of 1934. The objectives of the 
rules we adopt are to support a competitive market for both new and 
incumbent cable operators to further the interrelated goals of enhanced 
cable competition and broadband deployment.
    18. Specifically, we reaffirm that (1) prior rulings were intended 
to apply only to the local franchising process, and not to franchising 
laws or decisions at the state level; (2) most favored nation (``MFN'') 
clauses are contractual terms that are not affected by any of the 
Commission's prior findings; and (3) ``in-kind'' payments--non-cash 
payments, such as goods, or services--count toward the five percent 
franchise fee cap for incumbent operators and new entrants. We decline 
to modify our conclusions regarding mixed-use networks. We grant 
Petitioner's request that we depart from our Regulatory Flexibility 
Analysis and submit a revised FRFA in order to comply with the mandates 
of the Regulatory Flexibility Act.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    19. Only one commenter, the Local Government Lawyer's Roundtable, 
submitted a comment that specifically responded to the IRFA. The Local 
Government Lawyer's Roundtable contends that the Commission should 
issue a revised IRFA because of the erroneous determination that the 
proposed rules would have a de minimus effect on small governments, 
specifically engendering additional training and hiring.
    20. We disagree with the Local Government Lawyer's Roundtable's 
assertion that our rules will have any more than a de minimus effect on 
small governments. LFAs will continue to review and decide upon 
competitive and renewal cable franchise applications. Additional 
training and hiring of additional personnel is not necessary to 
understand these actions. The Order simply extends existing, limited 
requirements, and therefore should not need additional training or 
personnel to implement.
    21. After issuing the FRFA in the Second Report and Order, the 
Commission received a Petition for Reconsideration and Clarification 
from the National Association of Telecommunications Officers and 
Advisors (``NATOA'') et al. regarding the Regulatory Flexibility 
Analysis. The petition repeated the Local Government Lawyer's 
Roundtable's arguments, and also argued that the Commission failed to 
consider actual alternatives, failed to include small organizations in 
the IRFA, and that the FRFA provided an analysis of the tentative 
conclusions set forth in the IRFA rather than the rules adopted.
    22. The Commission determined that since the findings in the Second 
Report and Order were matters of statutory interpretation, the result 
was statutorily mandated regardless of the RFA analysis, and that, 
therefore, no meaningful alternatives existed. Additionally, we find 
that the IRFA and FRFA discuss the economic impact on small entities. 
No commenter suggested that further entities should be additionally 
considered in the analysis. However, the Commission does agree with the 
analysis was inadvertently based on the tentative conclusions presented 
in the IRFA. In order to comply with the mandates of the RFA, we are 
submitting this Supplemental Final Regulatory Flexibility Analysis to 
correctly reflect the rules adopted in the Second Report and Order.

C. Description and Estimate of the Number of Small Entities to Which 
the Rules Will Apply

    23.The RFA directs the Commission to provide a description of and, 
where feasible, an estimate of the number of small entities that will 
be affected by the proposed rules. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental entity'' 
under Section 3 of the Small Business Act. In addition, the term 
``small business'' has the same meaning as the term ``small business 
concern'' under the Small Business Act. A small business concern is one 
which: (1) Is independently owned and operated; (2) is not dominant in 
its field of operation; and (3) satisfies any additional criteria 
established by the Small Business Administration (``SBA'').
    24. The rules adopted by the Order will streamline the local 
franchising process by adopting rules that provide guidance as to the 
applicability or prior findings in this procedure to incumbents and the 
limitations on the Commission's authority regarding customer service 
regulations. The Commission has determined that the group of small 
entities directly affected by the rules adopted herein consists of 
small governmental entities (which, in some cases may be represented in 
the local franchising process by not-for-profit enterprises). 
Therefore, in this SFRFA, we consider the impact of the rules on small 
governmental organizations.

D. Small Businesses, Small Organizations, and Small Governmental 
Jurisdictions

    25.Our action may, over time, affect small entities that are not 
easily categorized at present. Small businesses represented 99.9% of 
the 27.5 million businesses in the United States in 2009. There were 
1,621,315 small organizations nationwide in 2007, which are defined as 
independently owned and operated not-for-profit enterprises that are 
not dominant in their perspective fields. Finally, there were 89,527 
small governmental jurisdictions in 2007, which are defined as 
governments of cities, towns and other entities with a population of 
less than fifty thousand.

E. Cable and Other Subscription Programming

    26. This category includes establishments primarily engaged in 
operating studios and facilities for the broadcasting of programs on a 
subscription or fee basis. Census data for 2007 shows that there were 
396 such firms that operated for the entire year. Of that number, 349 
operated with annual revenues below $25 million and 47 operated with 
annual revenues of $25 million or more. Therefore, under this size 
standard, the majority of such businesses can be considered small.

F. Cable Companies and Systems

    27. The Commission defines a small cable company as one that serves 
400,000 or fewer subscribers

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nationwide. There are 1,258 cable operators--all but 10 incumbent cable 
companies are small under this size standard. In addition, the 
Commission defines a small cable system as one that serves 15,000 or 
fewer subscribers. There are 4,584 cable systems nationwide. Of this 
total, 4,012 cable systems have 20,000 subscribers or more. Thus, under 
this standard, we estimate that most cable systems are small.

G. Cable System Operators (Telecom Act Standard)

    28. The Communication Act of 1934 defines a small cable system 
operator as ``a cable operator that, directly or through an affiliate, 
serves in the aggregate fewer than 1 percent of all subscribers in the 
United States and is not affiliated with any entity or entities whose 
gross annual revenues in the aggregate exceed $250,000,000.'' The 
Commission has determined that an operator serving fewer than 677,000 
subscribers shall be deemed a small operator, if its annual revenues, 
when combined with the total annual revenues of all its affiliates, do 
not exceed $250 million in the aggregate. Industry data indicate that, 
of 1,076,934 cable operators nationwide, all but 13 are small under 
this size standard.

H. Open Video Systems (``OVS'')

    29. The OVS framework provides opportunities for the distribution 
of video programming other than through cable systems. Because OVS 
operators provide subscription services, OVS falls within the SBA small 
business size standard covering cable services, which is Wired 
Telecommunications Carriers. A small business in this category is a 
business that has 1,500 or fewer employees. Census data for 2007 shows 
that there were 3,188 firms that operated that year. Of this total, 
3,144 had fewer than 1,000 employees and 44 had 1,000 or more 
employees. Therefore, under this size standard, we estimate that a 
majority of businesses can be considered small entities.

I. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    30. The rule and guidance adopted in the Order imposes no 
additional reporting or record keeping requirements and imposes de 
minimus other compliance requirements. Because the rules limit the 
terms than an LFA may consider and impose in a franchise agreement, the 
rules will decrease the procedural burdens faced by LFAs. Therefore, 
the rules adopted will not require any additional special skills beyond 
any already needed in the cable franchising context.

J. Steps Taken To Minimize Significant Impact on Small Entities, and 
Significant Alternatives Considered

    31. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    32. In the FNPRM, the Commission sought comment on the extension of 
its findings in the First Report and Order to incumbent cable 
operators, and to comment on the basis for the Commission's authority 
to do so. The Commission tentatively concluded that the rules adopted 
in the Second Report and Order likely would have at most a de minimus 
impact on small governmental jurisdictions, and that the interrelated, 
high-priority federal communications policy goals of enhanced cable 
competition and accelerated broadband deployment necessitated the 
extension of its rules to incumbent cable providers. We agree with 
those tentative conclusions and we believe that the rules in the Second 
Report and Order will not impose a significant impact on any small 
entity.

K. Federal Rules Which Duplicate, Overlap, or Conflict With the 
Commission's Proposals

    33. None.

V. Ordering Clauses

    34. Accordingly, it is ordered that pursuant to the sections 1, 2, 
4(i), 303, 405, 602, 611, 621, 622, 625, 626, and 632 of the 
Communications Act of 1934, 47 U.S.C. 151, 152, 154(i), 303, 405, 522, 
531, 541, 542, 545, 546, and 552, and Sec.  1.429 of the Commission's 
rules, 47 CFR 1.429, the Order on Reconsideration is adopted.
    35. It is further ordered that the petitions for reconsideration 
filed by the City of Albuquerque, New Mexico et al, the City of 
Breckenridge Hills, Missouri and National Association of 
Telecommunications Officers and Advisors, et al. are hereby granted in 
part and denied in part as described above. This action is taken 
pursuant to the authority contained in sections 1, 2, 4(i), 303, 405, 
602, 611, 621, 622, 625, 626, and 632 of the Communications Act of 
1934, 47 U.S.C. 151, 152, 154(i), 303, 405, 522, 531, 541, 542, 545, 
546, and 552, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429.
    36. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Order on Reconsideration, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    37. It is further ordered that the Commission shall send a copy of 
the Order on Reconsideration in a report to be sent to Congress and the 
General Accounting Office pursuant to the Congressional Review Act, see 
5 U.S.C. 801(a)(1)(A).

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2015-05180 Filed 3-5-15; 8:45 am]
 BILLING CODE 6712-01-P