Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | 1 DIGITAL...

Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com

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DIGITAL INFRASTRUCTURE AND VIDEO COMPETITION ACT OF 2006 (AB 2987)

William M. Marticorena

““Brave New Worlds”Brave New Worlds”

Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 2

OVERVIEW

• Creates parallel franchising scheme at state level

• Local franchising not preempted as to any entity which holds a franchise as of January 1, 2008

• Empowers Public Utilities Commission as franchising authority


GOALS

• Promote video and broadband competition

• Level playing field

• Protect local government revenues and control of PROW

• Compliance with “applicable” customer service laws

• “Continue” access to and “maintenance” of PEG channels


WHAT IT ISN’T

• No Creation of “vested right” – Legislature may amend (§5820)

• No impairment of environmental laws – City/County lead agency

• No impairment of local ability to mitigate environmental impacts upon PROW

• Not a “public utility” – no PUC authority over “rates, terms and conditions” of video service


KEY DEFINITIONS

• “Cable Service:” defers to federal definition

• “Franchise:” Any authorization for any network in PROW capable of providing Video Service

• “Incumbent Cable Operator:” Cable Operator of OUS serving subscribers under franchise on January 1, 2007


KEY DEFINITIONS (cont.)

• “Video Programming:” Generally comparable to broadcast programming

• “Video Service:” Video programming + cable service + OUS using facilities “at least in part” in PROW irrespective of technology and delivery protocol


STATE FRANCHISING SCHEME

• PUC sole franchising authority for State franchise

• State franchise exclusive for entities not franchised as of January 1, 2008

• May or may not be preemptive thereafter


APPLICATION PROCESS

• PUC must accept applications by April 1, 2007

• Cost-based fee

• Basic and minimal provision of information

• Description of “video service area and footprint”

• “Adequate Assurance” of financial, legal and technical qualifications

• May require bond – LOC?


STATE FRANCHISE TIME LINES

• Commence by April 1, 2007

• PUC to notify applicant as to completeness within 30 days

• PUC to issue (ministerial?) State franchise within 14 calendar days of complete application


TRANSFERS OF STATE FRANCHISE

• Ministerial transfer – no legislative discretion

• Notification of local entities

• Holder of State franchise may terminate at its discretion


TERM OF STATE FRANCHISE

• 10 years

• Renewal ministerial – apply §5840 criteria

• Renewal “consistent with federal law” – what dues that mean?

• No grant or renewal if violation of specified customer protection states and “this division.”


FRANCHISE FEE

• “State Franchise Fee”

• Characterized as “rent”

• Paid to local entity quarterly

• Amount tied to “Incumbent Cable Operator” up to 5%

• No additional fees and charges other than utility user taxes and “generally applicable” taxes, fees and charges applied in nondiscriminatory and competitively neutral manner


FRANCHISE FEE (cont.)

• Definition of “Gross Revenues”

– Generally accepted accounting principles

– Includes franchise fees

– Ancillary revenues

– Excludes “reimbursements … of identifiable marketing costs”

• Pro rata allocation of “bundled discounts”


FRANCHISE FEE (cont.)

• Annual audits – paid by Video Service Provided if more than 5% under payment

• 3 year 45 days statute of limitation


PEG CHANNELS

• Existing PEG channels as of January 1, 2007, protected if programmed 8 hours per day

• If you have less than 3 channels, 3 channels can be required in State franchise

• 4th channel if programmed with more than 56 hours/week of “locally produced and non-duplicative” measured quarterly


PEG CHANNELS (cont.)

• PEG channels on lowest tier with same channel numbers

• State franchising responsible for protocol conversions using “most economic” conversion technology

• Quality consistent with commercial channels

• Interconnection may be required


PEG FUNDING

• PEG support grandfathered for later of term of existing franchise or January 1, 2009

• Upon expiration, local entity by ordinance can impose fee of 1%-3% to match existing contribution

• No formula for conversion to percentage of gross revenues

• Advertising, underwriting or sponsoring allowed if revenues go to PEG


PEG FUNDING (cont.)

• Allocation of preexisting continuing financial obligation

• All video service providers and incumbent cable operator subject to same recurring obligations – appear to be measured by existing franchise

• Only fees in effect on December 31, 2006 may be imposed if they exceed 1%


I-NETS AND IN-KIND PAYMENTS

• Grandfathered for existing franchise term

• I-nets, free drops, etc. unenforceable after expiration of franchise

• Unclear if enforceable if contained in separate agreements

• Free insertion points and transmission from PEG studio to head-end may be lost


CABLE OPERATOR ABROGATION

• Cable operator may “abrogate” existing franchise and obtain State upon earliest of:

– Franchise expiration

– Mutually agreed date

– “Notification” of intent of State franchisee to provide service in all or part of jurisdiction

• State franchise not available until January 2, 2008


CABLE OPERATOR ABROGATION (cont.)

• Local entity “may” extend existing franchise until 2008

• PEG, I-Net, In-Kind services, emergency alert grandfathered until expiration of franchise


CONSTRUCTION

• Must comply with time, place manner regulations

• Must pay applicable encroachments, permit and inspection fees

• Must approve or deny permits within 60 days of “completed application”

• Failure to approve or deny within 60 days will not result in automatic approval

• “Completed application” means complies with all statutory requirements including CEQA


CONSTRUCTION (cont.)

• Must provide “detailed explanation” for denial

• Right of appeal to governing body

• Not “deemed approved” – applicant remedy?

• Impact of California Supreme Court grant of review in Sprint v. San Diego County


CONSTRUCTION STRATEGIES

• Establish process which complies with 60-day rule

• Establish information requirements

• Establish concrete construction standards

• Undergrounding of street furniture


CONSTRUCTION STRATEGIES (cont.)

• Public notice and participation

• Aesthetic controls

• Continuing maintenance obligations


LOW-INCOME BUILD-OUT REQUIREMENTS

• No discrimination based upon income

• Low income construction milestones

– 3 years: 25% with access must be “low income”

– 5 years: 30% with access must be “low income”

• PUC to enforce


TOTAL BUILD-OUT REQUIREMENTS

• Dominant construction technique is FTTP - 25% in 2 years and 40% in 5 years

• Dominant construction technique in not FTTP - 35% in 3 years + 50% in 5 years


TOTAL BUILD-OUT REQUIREMENTS (cont.)

• 5 year requirements “tolled” until 30% penetration for 6 consecutive months

• May request extensions after 2 years


CUSTOMER SERVICE REQUIREMENTS

• Shall comply with Gov. Code Sections 53055, 53055.1, 53055.2 and 53088.2

• Shall comply with video service standards “established by federal law”

• Must “accommodate” newer or different techniques


CUSTOMER SERVICE REQUIREMENTS (cont.)

• Local entities shall “enforce” but may not adopt or enforce any “additional or different” customer service or performance standards

• Penalties may be enforced

• Progressive penalties starting at $500 per day

• ½ of penalties to Digital Divide Account

• De novo review

Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | 1 DIGITAL...

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