Many of you have expressed frustration that the local cable providers will not extend their network into areas that seem to be within easy reach of their existing networks. Why won’t they build and why won’t the county enforce the franchise agreements? If the franchise agreements don’t support building into those areas, then why wouldn’t the county modify the agreements to force the build into those areas?
The TLDR version
The franchise agreements apply to cable television and, by federal law, cannot regulate Internet access. Further, these agreements are written to favor the cable operator and state and federal law gives the county no leverage to change the terms of an existing cable franchise agreement, even during the renewal process.
The longer version
Unfortunately the law, regulations, and math are not so simple. BMI#16 Issue #6 requested Loudoun County staff to report back to the Board of Supervisors regarding the status of franchise renewal and the options Loudoun County has to modify these agreements to better serve the rural portions of Loudoun County.
County staff did a commendable job of explaining the situation and their response is quoted below. In the text, LBA has added links to pertinent law and regulations.
In a follow up article, we will fill in some gaps and explore this topic a bit deeper.
Staff’s response to BMI#16 Issue #6
Editorial Note: The below text is verbatim from the report delivered to the Loudoun County Board of Supervisors on 17 November, 2020. Hyperlinks to relevant web sites have been added by LBA.
Issue 6. Existing Cable Franchise Agreements
The County has the authority to regulate cable TV service through either an ordinance cable franchise (OCF) or a cable franchise agreement. The County has granted Verizon and Comcast franchise agreements rather than implement an OCF because more favorable terms were achieved through franchise agreements.
The Verizon Franchise will expire on June 25, 2021, and the Comcast Franchise will expire on February 21, 2022. The County is currently engaged in the Cable TV renewal process.
Cable TV Renewal Process
Federal law allows franchises to be renewed through “informal negotiation”, but a locality cannot deny an operator’s request for renewal without going through the “formal” process described below. Virginia law permits renewal under the federal informal process, but also creates the “ordinance cable franchise.” Although federal and state law both limit the County’s authority, the Virginia statute imposes additional restrictions that would likely deprive the County of important benefits provided in the existing franchise agreements.
If the parties cannot agree on franchise terms in informal discussions, the County cannot simply deny either cable operator’s request for renewal. The County must follow a detailed “formal process” and any denial can only be based on specifically identified standards.
If followed to its conclusion, the formal process consists of seven steps:
1) The franchising authority conducts a proceeding to determine the community’s cable-related needs and interests and to evaluate the operator’s past performance.
2) The franchising authority issues a “Request for Renewal Proposal” (“RFRP”) to the operator.
3) The operator submits a proposal.
4) After evaluating the proposal, the franchising authority either accepts the proposal or issues a preliminary denial based on the standards listed above.
5) If a preliminary denial was issued, the operator may request an administrative hearing, at which it can introduce evidence and cross-examine witnesses.
6) At the completion of the administrative hearing, the franchising authority issues a written decision granting or denying renewal, again based only on the four statutory factors.
7) If the franchising authority’s decision affirms the preliminary denial, the operator may appeal in federal court.
The formal process is rarely pursued beyond the second or third stage, and the parties can negotiate an “informal renewal” at any time outside that process. In practice, the two procedures follow parallel tracks and work in tandem.
The County is currently conducting the needs assessment step of the renewal process and will proceed with informal negotiations in the coming months. Depending on how this process unfolds, it is anticipated that the Board would be presented with a proposed Franchise Agreement in the second quarter of 2021
Legal Options Available to Negotiate Contracts that Will Improve Broadband Access
The County’s primary goal in negotiating the renewal of the cable TV Franchise agreements is to expand the service areas to underserved areas of Western Loudoun, and thereby, through the expansion of cable TV service, also expand Broadband access. It must be acknowledged, however, that while the County can regulate cable TV service, its ability to regulate cable service does not extend to broadband and other non-cable services. It is also important to consider that the ultimate driver of network expansion is return on investment. In a competitive environment, with two wireline cable/broadband providers and various wireless options splitting potential customers, it is much harder for a provider to financially justify the cost of extending networks outside of urban and very dense suburban environments.
Further, franchise agreements, are subject to many restrictions and limitation established by the Federal Communications Commission (FCC) and by Virginia State Code. For example, the FCC has ruled that all “in-kind, cable-related contributions” made by a cable franchisee are subject to the franchise fee cap of five percent of gross revenues. The purpose of this order is to limit in-kind contributions from cable providers in excess of the five percent fee. Another example is that state law provides cable operators with the unilateral right to request an ordinance cable franchise or OCF incorporating terms set by statute; these terms address twelve topics, encompassing the most common issues addressed in cable franchises, in a way that is more restrictive on localities than the terms allowed by federal law.
Most importantly, the OCF provides that a cable operator shall not be required to make cable service available “in areas where the average occupied residential household density is less than 30 occupied residential dwelling units per mile…(or such higher average density number as may be contained in an existing cable operator’s cable franchise”). See Virginia Code 15.2- 2018.22(12). The current Franchise Agreements require a service area of 20 occupied residential dwelling units per mile, subject to certain restrictions. Therefore, rather than agree to a service area greater than 20 units per mile, the cable operator could simply elect to request an OCF.Since cable operators assert their unilateral right4 to follow the OCF, the County is extremely limited in its ability to negotiate contract terms that are significantly different from the OCF. In negotiating the current franchises, the incumbent cable operators used the OCF terms as a template for a negotiated franchise. Because the General Assembly could adopt legislation altering the OCF terms, the cable operators have historically agreed to modest deviations from the OCF terms, in return for the certainty of a negotiated contract. Considering both the legal framework and the competitive business environment, we have no reason to believe that either Cable TV provider’s position has changed. Therefore, they may be willing to agree to terms comparable to those in place today, but reluctant to make significant further concessions.