What is a cable franchise?

A cable franchise is an agreement between a local franchising authority (“LFA”) (e.g., a city, county, municipality, etc.) and a cable operator (e.g, Comcast, Cox, etc.) that allows the cable operator to provide television services (i.e., cable services) in the city, county, municipality etc. In exchange, cable operators will be often be required to provide assurances regarding service quality and network build-out, support for institutional networks and access channels, and a small percentage of revenue generated by the cable operator.[i] A cable franchise often lasts between five and fifteen years, depending on applicable state law, giving local franchising authorities an opportunity to periodically examine a cable franchise and renegotiate terms and conditions that may not be best serving a community’s present and future cable-related needs.[ii] For example, if a cable operator was continually constructing new cable facilities in the public right-of-way without first obtaining any necessary permits, furnishing inadequate support for access television programming, or providing insufficient customer service protections, these could be issues that a LFA could seek to have addressed in franchise renewal.

How is a cable franchise renewed?

A cable franchise can be renewed in one of two ways: (1) by following a statutory process referred to as “formal renewal,” or (2) through a more traditional contract negotiation process referred to as “informal renewal.”

How does formal renewal of a cable franchise work?

To commence the formal renewal process, a cable operator must submit a request for formal renewal to a LFA (e.g., “a reservation of rights”). This request must be submitted at least thirty (30), but no more than thirty-six (36), months before a cable franchise expires.[iii] Failure to timely submit this request will prevent a cable operator from utilizing the formal renewal process.[iv]

If a request for formal renewal is timely submitted, a LFA must thereafter conduct a review of: (a) the cable operator’s financial, technical, and legal qualifications, (b) the cable operator’s past performance, and (c) the current and future needs of the LFA (e.g., a needs assessment). This process can take up to twelve (12) months to complete. The LFA must then issue a request for renewal proposals (“RFRP”) to the cable operator.[v]

Within four (4) months of receiving a franchise renewal proposal from the cable operator, the LFA must then provide public notice of the proposal and determine whether to accept it.[vi] If the proposal is accepted, the franchise renewal process is complete. If the proposal is not accepted, the LFA must make a “preliminary assessment that the franchise should not be renewed.” As the statutory language plainly states, this is a preliminary decision and not a final appealable decision of the LFA.[vii]  If the LFA makes such a preliminary assessment, the LFA must then commence an administrative proceeding to determine whether the franchise should be renewed. [viii] Only the following issues may be considered at the administrative proceeding:

(A) the cable operator has substantially complied with the material terms of the existing franchise and with applicable law;

(B) the quality of the operator’s service, including signal quality, response to consumer complaints, and billing practices, but without regard to the mix or quality of cable services or other services provided over the system, has been reasonable in light of community needs;

(C) the operator has the financial, legal, and technical ability to provide the services, facilities, and equipment as set forth in the operator’s proposal; and

(D) the operator’s proposal is reasonable to meet the future cable-related community needs and interests, taking into account the cost of meeting such needs and interests.[ix]

It is important to note that a decision to deny a renewal proposal is not appealable to a court until after the conclusion of an administrative proceeding.[x]

How does informal renewal of a cable franchise work?

In informal renewal, a LFA and cable provider will often negotiate a cable franchise entirely outside of the formal process. Although informal and formal renewal are separate processes, they can occur simultaneously.[xi] Often, a cable operator will submit a proper, timely request for formal renewal, but the cable franchise will ultimately be renewed through informal means.

Informal renewal is only informal in the sense that there is a less strict statutory process that must be followed. To properly prepare for informal renewal, a LFA should still review the cable operator’s past performance under the current cable franchise, conduct a thorough needs assessment, and develop a negotiating strategy to address any of the LFA’s unmet needs. There are no issues that can be addressed in formal renewal that cannot be addressed in informal renewal.

Although a cable operator may submit a renewal proposal at any time in informal renewal, as a practical matter, the parties will first reach an agreement on the terms and conditions of a cable franchise before a LFA will allow for public participation.[xii] Typically, a LFA will make an agreed upon cable franchise available for public comment at a public hearing. After allowing for public participation, a LFA can take final action on a cable franchise (e.g., grant or deny the cable franchise).[xiii]

Conclusion

Cable franchise renewal is a unique opportunity for local franchising authorities to address the cable-related needs of their communities. It is important for local franchising authorities to understand these needs from a financial, technical, and legal point-of-view, regardless of whether a formal or informal renewal process is used. This article is intended to provide an overview of the process that is required for renewal of a cable franchise.

[i] A franchise fee is limited to no more than five-percent of a cable operator’s gross revenues. 47 U.S.C. § 542(b) (1996).

[ii] See, e.g., Minn. Stat. § 238.084, subd. 1(c) (2004) (limiting a franchise term to fifteen years).

[iii] 47 U.S.C. § 546(a)(1) (1992).

[iv] 47 U.S.C. § 546(a)(2)(A).

[v] 47 U.S.C. § 546(b).

[vi] 47 U.S.C. § 546(c).

[vii] 47 U.S.C. § 546 (c)(1).

[viii] 47 U.S.C. § 546(c)(1).

[ix] 47 U.S.C. § 546(c)(1)(A-D).

[x] 47 U.S.C. § 546(e)(1). It is important to note that a preliminary assessment of nonrenewal is not a “final decision” within the meaning of the statute.

[xi] See 47 U.S.C. § 546(h) (“The denial of a renewal pursuant to this subsection shall not affect action on a renewal proposal that is submitted in accordance with subsections (a) through (g).”).

[xii] 47 U.S.C. § 546(h) (“A LFA may, after affording the public adequate notice and opportunity for comment, grant or deny such proposal at any time.”)

[xiii] Id.