Implementation of the Cable Communications Policy Act of 1984 as Amended by the Cable Television Consumer Protection and Competition Act of 1992, 51911-51922 [2018-22356]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 83, Number 199 (Monday, October 15, 2018)]
[Proposed Rules]
[Pages 51911-51922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22356]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 05-311; FCC 18-131]


Implementation 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: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: In this document, the Commission seeks comment on two cable 
franchising issues raised by the remand from the U.S. Court of Appeals 
for the Sixth Circuit in Montgomery County, Md. et al. v. FCC. The 
Commission tentatively concludes that, with limited exceptions, 
``cable-related, in-kind contributions'' required by a franchising 
agreement should be treated as ``franchise fees'' subject to the 
statutory five percent cap on franchise fees set forth in 
Communications Act. It also tentatively concludes that the mixed-use 
network ruling should be applied to incumbent cable operators to 
prohibit LFAs from using their video franchising authority to regulate 
the provision of most non-cable services, including telecommunications 
services and information services such as broadband internet access 
service, offered over a cable system by an incumbent cable operator. 
These tentative conclusions are intended to promote competition by 
fostering parity between incumbents and new entrants and helping to 
ensure that local franchising requirements do not discourage cable 
operators from investing in new facilities and services.

DATES: Comments for this proceeding are due on or before November 14, 
2018; reply comments are due on or before December 14, 2018.

ADDRESSES: You may submit comments, identified by MB Docket No. 05-311, 
by any of the following methods:
    [ssquf] Federal Communications Commission's Website: https://

[[Page 51912]]

www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
    [ssquf] Mail: Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although the Commission continues to experience 
delays in receiving U.S. Postal Service mail). All filings must be 
addressed to the Commission's Secretary, Office of the Secretary, 
Federal Communications Commission.
    [ssquf] People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: [email protected] or phone: (202) 418-
0530 or TTY: (202) 418-0432.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: For additional information, contact 
Kathy Berthot, [email protected], of the Media Bureau, Policy 
Division, (202) 418-7454.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Further Notice of Proposed Rulemaking, FCC 18-131, adopted on September 
24, 2018 and released on September 25, 2018. The full text 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. This document will also be 
available via ECFS (https://www.fcc.gov/cgb/ecfs/). Documents will be 
available electronically in ASCII, Word 97, and/or Adobe Acrobat. 
Alternative formats are available for people with disabilities 
(Braille, large print, electronic files, audio format), by sending an 
email to [email protected] or calling the Commission's Consumer and 
Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 
(TTY).
    This Second Further Notice of Proposed Rulemaking does not contain 
any proposed information collections subject to the Paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does 
not contain any new or modified information collection burden for small 
business concerns with fewer than 25 employees, pursuant to the Small 
Business Paperwork Relief Act of 2002.

Synopsis

I. Introduction

    1. In this Second Further Notice of Proposed Rulemaking (Second 
FNPRM), we address two issues raised by the remand from the United 
States Court of Appeals for the Sixth Circuit in Montgomery County, Md. 
et al. v. FCC, which addressed challenges to rules and guidance adopted 
by the Commission governing how local franchising authorities (LFAs) 
may regulate incumbent cable operators and cable television services. 
Specifically, we tentatively conclude that we should treat cable-
related, ``in-kind'' contributions required by a franchising agreement 
as ``franchise fees'' subject to the statutory five percent cap on 
franchise fees set forth in section 622 of the Communications Act of 
1934, as amended (the Act), with limited exceptions. We also 
tentatively conclude that we should apply our prior mixed-use network 
ruling to incumbent cable operators, thus prohibiting LFAs from using 
their video franchising authority to regulate the provision of most 
non-cable services, such as broadband internet access service, offered 
over a cable system by an incumbent cable operator. We seek comment on 
these tentative conclusions, which we believe faithfully interpret 
relevant statutory provisions and will promote competition by fostering 
parity between incumbents and new entrants and helping to ensure that 
local franchising requirements do not discourage cable operators from 
investing in new facilities and services. We also seek comment on 
whether the proposals and tentative conclusions discussed in this 
Second FNPRM, as well as prior Commission decisions in this proceeding 
addressing LFA regulation of cable operators, should be applied to 
state-level franchising actions and state regulations that impose 
requirements on local franchising.

II. Background

    2. Any entity seeking to offer ``cable service'' as a ``cable 
operator'' must comply with the cable franchising provisions of Title 
VI of the Communications Act. Section 621(b)(1) of the Act prohibits a 
cable operator from providing cable service without first obtaining a 
cable franchise. Section 621(a)(1) circumscribes the power of LFAs to 
award or deny such franchises. As originally enacted by Congress as 
part of the 1984 Cable Act, section 621(a)(1) simply stated that ``[a] 
franchising authority may award, in accordance with the provisions of 
this title, 1 or more franchises within its jurisdiction.'' In a 1990 
Report to Congress, however, the Commission concluded that in order 
``[t]o encourage more robust competition in the local video 
marketplace, the Congress should . . . forbid local franchising 
authorities from unreasonably denying a franchise to potential 
competitors who are ready and able to provide service.'' In response to 
this Report, Congress revised section 621(a)(1) in 1992 to provide that 
``[a] franchising authority may award, in accordance with the 
provisions of this title, 1 or more franchises within its jurisdiction; 
except that a franchising authority may not grant an exclusive 
franchise and may not unreasonably refuse to award an additional 
competitive franchise.''
    3. In 2007, finding that the existing operation of the local 
franchising process constituted an unreasonable barrier to new entrants 
in the marketplace for cable services and to their deployment of 
broadband, the Commission issued the First Report and Order, which 
adopted new rules and guidance to implement section 621(a)(1). The 
Commission concluded that section 621(a)(1) prohibits not only the 
ultimate unreasonable denial of a competitive franchise application, 
but also the establishment by LFAs of procedures and other requirements 
that have the effect of unreasonably interfering with the ability of a 
would-be competitor to obtain a competitive franchise. To eliminate 
unreasonable barriers to entry into the marketplace for cable services 
and to encourage investment by new video entrants in broadband 
facilities, the Commission adopted rules and guidance construing the 
meaning of ``unreasonable'' for purposes of section 621(a)(1), 
including rules and guidance governing the treatment of certain costs 
and fees charged to new entrants into the marketplace for cable 
services and the regulation of new entrants' ``mixed-use'' networks 
(i.e., facilities used to provide both cable services and non-cable 
services).
    4. With respect to costs and fees, the Commission determined that 
unless certain specified costs, fees, and other compensation required 
by LFAs are counted toward the statutory five percent cap on franchise 
fees, an LFA's demand for such fees could result in an unreasonable 
refusal to award a competitive franchise to a new entrant. Under 
section 622(b) of the Act, the amount of franchise fees that an LFA may 
collect from a cable operator for any twelve-month period is limited to 
five percent of the cable operator's gross revenues derived in such 
period from the operation of the cable system to

[[Page 51913]]

provide cable services. Section 622(g)(2) sets forth certain exclusions 
from the term ``franchise fee.'' In particular, section 622(g)(2)(D) 
excludes ``requirements or charges incidental to the awarding or 
enforcing of the franchise, including payments for bonds, security 
funds, letters of credit, insurance, indemnification, penalties, or 
liquidated damages.'' Such ``incidental'' requirements or charges may 
be assessed by an LFA without counting toward the five percent cap. The 
Commission concluded that, with respect to franchise agreements for new 
entrants, non-incidental franchise-related costs required by LFAs must 
count toward the five percent franchise fee cap and provided guidance 
as to what constitutes such non-incidental franchise-related costs. The 
Commission found that non-incidental costs include attorney fees and 
consultant fees, application or processing fees that exceed the 
reasonable cost of processing the application, acceptance fees, free or 
discounted services provided to an LFA, any requirement to lease or 
purchase equipment from an LFA at prices higher than market value, and 
in-kind payments.
    5. The Commission further found that in the context of some 
franchise negotiations, LFAs have required from new entrants ``in-
kind'' payments or contributions that are unrelated to the provision of 
cable services. The Commission clarified that any requests for in-kind 
contributions made by LFAs unrelated to the provision of cable services 
by a new competitive entrant are subject to the statutory five percent 
franchise fee cap.
    6. Additionally, the Commission clarified that a cable operator may 
not be required to pay franchise fees on revenues from non-cable 
services. As noted above, section 622(b) provides that the ``franchise 
fees paid by a cable operator with respect to any cable system shall 
not exceed 5 percent of such cable operator's gross revenues derived in 
such period from the operation of the cable system to provide cable 
services.'' The Commission noted that it had determined in the Cable 
Modem Declaratory Ruling that an LFA may not assess franchise fees on 
non-cable services, such as cable modem service, stating that ``revenue 
from cable modem service would not be included in the calculation of 
gross revenues from which the franchise fee ceiling is determined.'' 
Although that decision related specifically to internet access service 
revenues, the Commission concluded that the same would be true for 
other ``non-cable'' service revenues.
    7. Regarding mixed-use networks (i.e., networks that provide 
broadband, voice services, and other non-cable services in addition to 
video programming services), the Commission clarified that LFAs' 
jurisdiction applies only to the provision of video programming 
services over new entrants' cable systems. To the extent that a new 
entrant provides non-cable services and/or operates facilities that do 
not qualify as a cable system, the Commission concluded that it is 
unreasonable for an LFA to refuse to award a franchise based on issues 
related to such services or facilities. The Commission further 
clarified that an LFA may not use its video franchising authority to 
attempt to regulate a new entrant's entire network beyond the provision 
of cable services. The Commission found that ``the provision of video 
services pursuant to a cable franchise does not provide a basis for 
customer service regulation by local law or franchise agreement of a 
cable operator's entire network, or any services beyond cable 
services.'' The Commission based its decision on the common carrier 
exception to the definition of ``cable system'' in section 602(7)(C) of 
the Act, which explicitly states that a common carrier facility subject 
to Title II is considered a cable system only ``to the extent such 
facility is used in the transmission of video programming. . . .'' The 
Commission preempted local regulations that attempt to regulate any 
non-cable services offered by new entrants, finding that such 
regulations are beyond the scope of LFAs' authority and inconsistent 
with section 602(7)(C).
    8. The rules adopted in the First Report and Order applied only to 
new entrants applying for cable franchises. Concurrently with its 
adoption of those rules, the Commission issued a Further Notice of 
Proposed Rulemaking seeking comment on whether to apply the findings in 
the First Report and Order to incumbent cable operators as they 
negotiate renewal of their existing franchise agreements, noting that 
many of these findings also appeared germane to existing franchisees.
    9. In the Second Report and Order, the Commission extended a number 
of the rules adopted in the First Report and Order to incumbent cable 
operators. The Commission concluded that the findings in the First 
Report and Order interpreting section 622 should apply equally to 
incumbents and new entrants because Section 622 ``does not distinguish 
between incumbent providers and new entrants.'' Thus, the Commission 
found that in-kind contributions are not to be regarded as 
``incidental'' and therefore must count toward the five percent 
franchise fee cap for incumbent cable operators. The Commission further 
found that the clarification that a cable operator is not required to 
pay franchise fees on revenues from non-cable services applies to 
incumbent cable operators. The Commission also determined that its 
findings on mixed-use networks provided in the First Report and Order 
should apply equally to incumbents and new entrants, noting that these 
findings relied on its statutory interpretation of ``cable system'' in 
section 602(7)(C), which ``does not distinguish between incumbent 
providers and new entrants.'' The Commission thus clarified that LFAs' 
jurisdiction over incumbent cable operators applies only to the 
provision of cable services over cable systems and that an LFA may not 
use its franchising authority to regulate non-cable services offered by 
incumbent cable operators.
    10. The Sixth Circuit Court of Appeals subsequently issued a 
decision rejecting LFA challenges to the First Report and Order. With 
respect to franchise fees charged to new entrants, the court upheld the 
Commission's listing of the non-incidental charges that fall within the 
purview of the statutory five percent franchise fee cap, which includes 
in-kind payments. The court found that the Commission's interpretation 
of the phrase ``incidental to'' in section 622(g)(2)(D) of the Act was 
reasonable and therefore was entitled to deference under Chevron.
    11. In 2015, the Commission issued an order responding to several 
LFA petitions for reconsideration of the Second Report and Order. LFAs 
challenged the inclusion of in-kind payments in calculating the 
franchise fee cap for incumbent cable operators, arguing that the 
Commission's findings in the Second Report and Order give an overly 
expansive scope to section 622(g)(2)(D) and expanded the definition of 
in-kind payments set forth in the First Report and Order. The 
Commission disagreed, finding that the Second Report and Order merely 
extended the First Report and Order's conclusions regarding application 
of the term ``incidental'' in section 622(g)(2)(D) to incumbent cable 
operators. The Commission also rejected LFAs' arguments that the First 
Report and Order included in the franchise fee cap only in-kind 
payments that are unrelated to cable service, not in-kind payments that 
are related to cable service. The Commission observed that in a section 
entitled ``Charges incidental to the awarding or enforcing of a 
franchise,'' the First Report and Order identified ``free or discounted 
services provided to an LFA'' as one type of

[[Page 51914]]

``non-incidental'' cost that counted toward the franchise fee cap. The 
Commission explained that in that context, the First Report and Order 
was referring to free or discounted cable services. The Commission 
further found that consistent with the First Report and Order, the 
Second Report and Order noted that non-incidental in-kind payments must 
count toward the five percent franchise fee cap for incumbent cable 
operators and did not expressly limit this requirement to in-kind 
payments that are unrelated to cable service.
    12. The Order on Reconsideration also declined to modify the 
conclusions in the Second Report and Order regarding mixed-use 
networks. The Commission observed that the Second Report and Order 
extended the Commission's findings on mixed-use networks to incumbent 
cable operators, clarifying that LFAs' jurisdiction over incumbent 
cable operators is limited to the provision of cable services over 
cable systems and that LFAs may not use their franchising authority to 
regulate non-cable services provided by incumbent cable operators. The 
Commission rejected the LFAs' argument that the legislative history of 
the 1984 Cable Act indicates that they have authority over cable 
systems in their provision of non-cable services, explaining that while 
the legislative history discusses what constitutes a cable service, it 
does not address whether localities may regulate non-cable services 
provided over cable systems.
    13. In Montgomery County, the Sixth Circuit Court of Appeals 
addressed challenges by LFAs to the Second Report and Order and the 
Order on Reconsideration. The court rejected LFA arguments that non-
cash exactions are not ``franchise fees'' as defined by section 
622(g)(1), noting that section 622(g)(1) defines ``franchise fee'' to 
include ``any tax, fee, or assessment of any kind'' and that the terms 
``tax'' and ``assessment'' can include nonmonetary exactions. The court 
found, however, that the fact that the term ``franchise fee'' can 
include in-kind contributions ``does not mean that it necessarily does 
include every one of them.'' The court concluded that the Commission 
failed to offer any explanation in the Second Report and Order or in 
the Order on Reconsideration as to why section 622(g)(1) allows it to 
treat cable-related, ``in-kind'' exactions as franchise fees. LFAs had 
claimed that the Commission's interpretation would limit their ability 
to enforce statutory requirements for PEG channel capacity and for 
build-out obligations in low-income areas, and the court noted that the 
Commission's orders did not reflect any consideration of this LFA 
concern. The court also stated that the FCC failed to define what ``in-
kind'' means. The court therefore vacated as arbitrary and capricious 
the Second Report and Order and the Order on Reconsideration to the 
extent that they treat cable-related, ``in-kind'' exactions as 
``franchise fees'' under section 622(g)(1). The court directed the 
Commission to determine and explain on remand to what extent cable-
related, in-kind contributions are ``franchise fees'' under the Act.
    14. The court in Montgomery County also agreed with LFAs that 
neither the Second Report and Order nor the Order on Reconsideration 
offer a valid statutory basis for the application of the mixed-use 
ruling to bar LFAs from regulating the provision of non-
telecommunications services by incumbent cable operators. (The court 
noted that the LFAs' primary concern with the mixed-use ruling is that 
it would prevent them from regulating ``institutional networks'' or 
``I-Nets''--communication networks which are constructed or operated by 
the cable operator and which are generally available only to 
subscribers who are not residential customers--even though the Act 
makes clear that LFAs may regulate I-Nets. The court observed, however, 
that the Commission acknowledged that its mixed-use ruling was not 
meant to prevent LFAs from regulating I-Nets.) The court stated that 
the Commission's decision in the First Report and Order to apply the 
mixed-use ruling to new entrants had been defensible because section 
602(7)(C) of the Act expressly states that LFAs may regulate Title II 
carriers only to the extent that they provide cable services and the 
Commission found that new entrants generally are Title II carriers. The 
court observed that in extending the mixed-use ruling to incumbent 
cable operators in the Second Report and Order, the Commission merely 
relied on the First Report and Order's interpretation of section 
602(7)(C), noting that section 602(7)(C) ``does not distinguish between 
incumbent providers and new entrants.'' The court found, however, that 
this reasoning is not an affirmative basis for the Commission's 
decision in the Second Report and Order to apply the mixed-use ruling 
to incumbent cable operators because section 602(7)(C) by its terms 
applies only to Title II carriers and ``many incumbent cable operators 
are not Title II carriers.'' The court further found that the Order on 
Reconsideration did not offer any statutory explanation for the 
Commission's decision to extend the mixed-use ruling to incumbent cable 
operators. Accordingly, the court concluded that the Commission's 
extension of the mixed-use ruling to incumbent cable operators that are 
not common carriers was arbitrary and capricious. The court vacated the 
mixed-use ruling as applied to those incumbent cable operators and 
remanded for the Commission ``to set forth a valid statutory basis, if 
there is one, for the rule as so applied.''
    15. As we address the court's remand in this proceeding, we view 
the proposals discussed below as part of the Commission's larger, 
ongoing effort to reduce regulatory barriers to infrastructure 
investment. For example, the Commission's open wireline and wireless 
infrastructure proceedings have advanced a number of regulatory reforms 
to spur wireline and wireless service deployment, and additional 
reforms remain under consideration for future Commission action. In the 
wireline proceeding, the Commission has already enacted numerous 
reforms to our rules and procedures regarding pole attachments, copper 
retirement, and discontinuances of legacy services that will better 
enable providers to invest in next-generation networks. In the wireless 
proceeding, to enable and to speed the deployment of advanced wireless 
services throughout the United States, we revised the rules and 
procedures for deployments subject to the National Historic 
Preservation Act and National Environmental Policy Act. We also made 
changes to the historic preservation review requirement for replacement 
utility poles, and have sought comment on a proposal that would make 
existing infrastructure available for additional wireless deployments 
on towers that previously have been unavailable. Similarly, with this 
item, we seek to faithfully interpret the statutory provisions at issue 
in a way that preserves incentives for all cable operators to deploy 
infrastructure that can be used to provide numerous services, including 
video, voice, and broadband internet access service, to consumers.

III. Discussion

A. Cable-Related, In-Kind Contributions

    16. We tentatively conclude that we should treat cable-related, in-
kind contributions required by LFAs from cable operators as a condition 
or requirement of a franchise agreement as ``franchise fees'' subject 
to the statutory five percent franchise fee cap set forth in section 
622 of the Act, with limited exceptions as described below. We 
tentatively conclude that this

[[Page 51915]]

interpretation is most consistent with the statutory language and 
legislative history and seek comment on our analysis.
    17. Section 622(b) directs that ``the franchise fees paid by a 
cable operator'' for any 12-month period ``shall not exceed 5 percent 
of such cable operator's gross revenues.'' Section 622(g)(1) defines 
``franchise fee'' broadly to include ``any tax, fee, or assessment of 
any kind imposed by a franchising authority or other governmental 
entity on a cable operator . . . solely because of their status as 
such.'' The court in Montgomery County acknowledged that the term 
``franchise fee'' can include in-kind contributions, but stated that 
further explanation was necessary in order for the Commission to 
conclude that cable-related, in-kind contributions are covered within 
the definition. We note that the broad definition of ``franchise fee'' 
in the statute covers ``any kind'' of tax, fee, or assessment, without 
distinguishing between whether it is related or unrelated to the 
provision of cable service. The legislative history, in discussing the 
definition of ``franchise fee,'' likewise suggests no such distinction 
was intended by Congress. The court's decision in Montgomery County did 
not disturb the Commission's treatment of in-kind contributions 
unrelated to the provision of cable services as franchise fees subject 
to the statutory five percent cap. We see no basis in the statute or 
legislative history for distinguishing between in-kind contributions 
unrelated to the provision of cable services and cable-related, in-kind 
contributions for purposes of the five percent franchise fee cap. If 
in-kind contributions unrelated to the provision of cable services were 
not treated as franchise fees, LFAs could easily evade the five percent 
cap by requiring any manner of in-kind contributions, rather than a 
monetary fee. Likewise, if cable-related, in-kind contributions are not 
counted as franchise fees, LFAs could circumvent the five percent cap 
by requiring, for example, unlimited free or discounted cable services 
and facilities for LFAs, in addition to a five percent franchise fee. 
We believe this result would be contrary to Congress's intent as 
reflected in the broad definition of ``franchise fee'' in the statute. 
We seek comment on this analysis.
    18. Section 622(g)(2) sets forth five exclusions from the term 
``franchise fee.'' To begin with, section 622(g)(2)(A) excludes ``any 
tax, fee, or assessment of general applicability.'' The legislative 
history explains that a tax, fee, or assessment of general 
applicability includes ``such payments as a general sales tax, an 
entertainment tax imposed on other entertainment businesses as well as 
the cable operator, and utility taxes or utility user taxes.'' By 
definition, a tax, fee, or assessment of general applicability does not 
cover cable-related, in-kind contributions. Thus, we tentatively 
conclude the exclusion set forth in subsection (A) is not applicable 
here. Additionally, section 622(g)(2)(E) excludes fees imposed under 
the Copyright Act under title 17, United States Code, and thus does not 
appear to apply to cable-related, in-kind contributions. Furthermore, 
section 622(g)(2)(D) excludes ``requirements or charges incidental to 
the awarding or enforcing of the franchise, including payments for 
bonds, security funds, letters of credit, insurance, indemnification, 
penalties, or liquidated damages.'' Although the statute does not 
define the term ``incidental,'' based on the interpretive canon of 
noscitur a sociis, the exemplary list delineated within the text of the 
provision--i.e., ``bonds,'' ``security funds,'' ``letters of credit, 
``insurance,'' ``indemnification,'' ``penalties,'' and ``liquidated 
damages''--suggests that the term refers to costs or requirements 
related to assuring that a cable operator is financially and legally 
qualified to operate a cable system, not to cable-related, in-kind 
contributions. The legislative history similarly explains that a 
``franchise fee is defined so as not to include any bonds, security 
funds, or other incidental requirements for costs necessary to the 
enforcement of the franchise.'' The court in Alliance upheld the 
Commission's determination that under section 622(g)(2)(D), the term 
``incidental'' is ``limited to the list of incidentals in the statutory 
provision, as well as other minor expenses.'' The Commission has 
determined that non-incidental costs required by LFAs must count toward 
the five percent franchise fee cap. The First Report and Order listed 
various examples of non-incidental costs, including in-kind payments 
unrelated to provision of cable service. For the reasons stated above, 
we tentatively conclude that cable-related, in-kind contributions, such 
as free or discounted cable services demanded by an LFA, likewise do 
not qualify as ``incidental'' charges under the exclusion in subsection 
(D). We seek comment on this analysis.
    19. Additionally, section 622(g)(2)(B) contains an exclusion for 
PEG support payments, but only with respect to franchises granted prior 
to 1984. To the extent that any such franchises are still in effect, we 
tentatively conclude that under section 622(g)(2)(B), PEG support 
payments made pursuant to such franchises are cable-related, in-kind 
contributions excluded from the five percent franchise fee cap. We seek 
comment on this tentative conclusion. Finally, for any franchise 
granted after 1984, section 622(g)(2)(C) contains a narrow exclusion 
covering PEG ``capital costs which are required by the franchise.'' The 
legislative history explains that with ``regard[ ] [to] PEG access in 
new franchises, payments for capital costs required by the franchise to 
be made by the cable operator are not defined as fees under this 
provision.'' The court in Alliance affirmed the Commission's 
interpretation of the exemption in section 622(g)(2)(C) as being 
limited to ``those costs incurred in or associated with the 
construction of PEG access facilities.'' Accordingly, under the 
statute, for purposes of franchises granted after 1984, we tentatively 
conclude that PEG capital costs required by the franchise are in-kind, 
cable-related contributions excluded from the five percent cap. We seek 
comment on the above analysis. We also understand that costs for studio 
equipment are treated as capital costs for purposes of section 
622(g)(2)(C) by both cable operators and LFAs given that most PEG 
facilities are already constructed. We seek comment on this practice.
    20. We tentatively conclude that treating cable-related, in-kind 
contributions as ``franchise fees'' would not undermine provisions in 
the Act that authorize or require LFAs to impose cable-related 
obligations on franchisees. We note, in this regard, that the Act 
authorizes LFAs to require that channel capacity be designated for PEG 
use and that channel capacity on I-Nets be designated for educational 
and governmental use. The fact that the Act authorizes LFAs to impose 
such obligations does not, however, mean that the value of these 
obligations should be excluded from the five percent cap on franchise 
fees. Indeed, the statute suggests otherwise. Section 622(g)(2) carves 
out only limited exclusions for PEG-related costs--i.e., PEG support 
payments required by any franchise granted prior to 1984 and PEG 
capital costs required by any franchise granted after 1984. Section 
622(g)(2) makes no mention of an I-Net-related exclusion, nor does it 
contain a general exclusion for all PEG related costs. Since Congress 
enacted the PEG and I-Net provisions at the same time it added the 
franchise fee provisions, it could have explicitly excluded those costs 
in addressing the scope of the PEG-related

[[Page 51916]]

costs in that subsection if it had intended they not count toward the 
cap. Based on this, we tentatively find that treating all cable-
related, in-kind contributions as ``franchise fees,'' unless expressly 
excluded by the statute, would best effectuate the statutory purpose. 
To the extent that an LFA wishes to impose such obligations, the LFA 
can count the value of the services or facilities towards the cable 
operator's franchise fee payment, if the services or facilities are not 
exempt from the franchise fee cap in section 622(g)(2). In our view, an 
LFA should not be permitted to make an end run around the statutory cap 
by requiring a cable operator to pay franchise fees equal to five 
percent of its gross revenues for cable services and also assume the 
costs of cable-related, in-kind contributions. We seek comment on this 
view.
    21. LFAs have previously suggested that our proposed interpretation 
would treat as franchise fees all costs related to franchise 
requirements, even those allowed under the Cable Act. We disagree. For 
example, the Act directs LFAs ``to assure that access to cable service 
is not denied to any group of potential residential cable subscribers 
because of the income of the residents of the local area in which such 
group resides,'' a mandate which may cause LFAs to impose build-out 
obligations on cable operators. Although these obligations are not free 
for cable operators, we do not propose to interpret build-out 
obligations as contributions to the LFA. Because build-out obligations 
(unlike I-Net facilities) involve the construction of facilities that 
are not specifically for the use or benefit of the LFA or any other 
entity designated by the LFA, but rather are part of the provision of 
cable service in the franchise area and the facilities ultimately may 
result in profit to the cable operator, we do not think they should be 
considered contributions to an LFA. Under this approach, the cost that 
these obligations impose on cable operators would not count toward the 
five-percent franchise fee cap. We seek comment on this proposed 
interpretation. We also seek comment on whether there are other 
requirements besides build-out obligations that are not specifically 
for the use or benefit of the LFA or an entity designated the LFA and 
therefore should not be considered contributions to an LFA.
    22. Additionally, we tentatively conclude that this treatment of 
cable-related, in-kind contributions should be applied to both new 
entrants and incumbent cable operators. As discussed above, in adopting 
rules and guidance implementing section 621(a)(1), including rules 
governing the treatment of certain costs and fees charged by LFAs, the 
Commission found that the existing operation of the local franchising 
process constituted an unreasonable barrier to new entrants in the 
marketplace for cable services and to their deployment of broadband. 
Specifically, the Commission found that the local franchising process 
unreasonably delays new entrants from upgrading their networks to 
provide video services, which discourages investment in the fiber-based 
infrastructure necessary for the provision of broadband services by 
depriving new entrants of revenues needed to offset the costs of such 
deployment. We acknowledge that this distinguishes new entrants from 
incumbent cable operators, who have already deployed their 
infrastructure for both video and broadband. Nevertheless, we believe 
that applying the same treatment of cable-related, in-kind 
contributions to both new entrants and incumbent cable operators would 
ensure a more level playing field and that the Commission should not 
place its thumb on the scale to give a regulatory advantage to any 
competitor. Moreover, as the Commission has previously observed, 
Section 622 ``does not distinguish between incumbent providers and new 
entrants.'' We seek comment on this proposal.
    23. We seek comment on the effect, if any, that our statutory 
interpretation would have on LFAs' ability to impose cable-related, in-
kind obligations on new entrants and incumbents consistent with the 
statutory provisions described above. To the extent that commenters 
assert that it would unreasonably hamper LFAs' ability to impose such 
obligations, we request that they provide specific cost data or other 
information to support their position. Conversely, what effect, if any, 
would excluding cable-related, in-kind contributions from ``franchise 
fees'' (i.e., allowing LFAs to seek unlimited cable-related, in-kind 
contributions on top of the five percent franchise fee permitted by 
section 622) have on new entrants and incumbents? Would such exclusion 
likely delay or deter infrastructure investment by new competitors? 
Would it affect incumbent cable operators' ability to invest in new 
facilities and services, including improving broadband services? We 
also seek comment on the costs and benefits to consumers of our 
proposed treatment of cable-related, in-kind contributions.
    24. We propose to define ``cable-related, in-kind contributions'' 
to include ``any non-monetary contributions related to the provision of 
cable services provided by cable operators as a condition or 
requirement of a local franchise agreement, including but not limited 
to free or discounted cable services and the use of cable facilities or 
equipment. It does not include the cost of build-out requirements.'' 
Under this proposed definition, cable-related, in-kind contributions 
would not have to be provided directly to the LFA to be subject to the 
statutory five percent cap; rather, any cable-related, in-kind 
contributions provided to the LFA or any other entity designated by the 
LFA as a condition or requirement of a franchise agreement would be 
subject to the cap, if not expressly exempt under section 622(g)(2). We 
seek comment on this proposed definition. We request commenters to 
provide examples of the types of cable-related, ``in-kind'' 
contributions that have been or are being required by LFAs. We further 
propose that cable-related, in-kind contributions be valued for 
purposes of the franchise fee cap at their fair market value. We seek 
comment on this proposal, and how such a market valuation should be 
performed. Alternatively, we seek comment on whether cable-related, in-
kind contributions should be valued at the cost to the cable operator.

B. Mixed-Use Networks

    25. We tentatively conclude that the mixed-use network ruling 
should be applied to incumbent cable operators to the extent that they 
offer or begin offering non-cable services. Thus, we propose to 
prohibit LFAs from using their video franchising authority to regulate 
most non-cable services offered over cable systems by incumbent cable 
operators. Non-cable services offered by incumbent cable operators 
include telecommunications services and non-telecommunications 
services. Telecommunications services offered by incumbent cable 
operators may include, for example, some business data services. Non-
telecommunications services offered by incumbent cable operators may 
include information services, such as broadband internet access 
services, and private carrier services, such as certain types of 
business data services. Incumbent cable operators may also offer 
facilities-based interconnected Voice over internet Protocol (VoIP) 
service, which has not been classified by the Commission as either a 
telecommunications service or an information service but is clearly not 
a cable service. We seek comment on whether there are other services 
offered by incumbent cable operators that are

[[Page 51917]]

not listed above that are relevant to our analysis.
    26. As an initial matter, we note that the court in Montgomery 
County vacated the mixed-use rule only as applied to incumbent cable 
operators that are not common carriers. The court, however, appears to 
have left undisturbed application of the mixed-use ruling to incumbent 
cable operators that are also common carriers. As explained above, some 
incumbent cable operators provide telecommunications services over 
their facilities. Under section 3(51) of the Act, a ``provider of 
telecommunications services'' is a ``telecommunications carrier,'' 
which the statute directs ``shall be treated as a common carrier under 
this Act only to the extent that it is engaged in providing 
telecommunications services.'' Thus, an incumbent cable operator, to 
the extent it offers telecommunications service, would be treated as a 
common carrier subject to Title II of the Act. Section 602(7)(C) of the 
Act, in turn, excludes from the term ``cable system'' ``a facility of a 
common carrier which is subject, in whole or in part, to the provisions 
of title II of this Act, except that such facility shall be considered 
a cable system . . . to the extent such facility is used in the 
transmission of [cable service].'' Accordingly, to the extent that any 
incumbent cable operators offer any telecommunications services, we 
tentatively conclude that they are covered under the common carrier 
exception in section 602(7)(C), and thus can be regulated by LFAs only 
to the extent they provide cable service. Although we recognize that 
there are distinctions between the obstacles faced by new entrants and 
incumbent cable operators, we see no basis in the statute to treat 
differently incumbent cable operators that are common carriers and new 
entrants that are common carriers for purposes of application of the 
common carrier exception. We thus tentatively conclude that the mixed-
use network ruling prohibits LFAs from regulating the provision of any 
services other than cable services offered over the cable systems of 
incumbent cable operators that are common carriers, or from regulating 
any facilities and equipment used in the provision of any services 
other than cable services offered over the cable systems of incumbent 
cable operators that are common carriers (with the exception of I-Nets, 
as noted above). We seek comment on this analysis and the tentative 
conclusions.
    27. In addition, we seek comment on LFAs' authority to regulate the 
provision of non-cable services by incumbent cable operators that are 
not also common carriers. We also seek comment on LFAs' authority to 
regulate a non-common carrier new entrant's provision of information 
services. We request information on the extent to which incumbent cable 
operators are not also common carriers. Are the incumbent cable 
operators that are also common carriers mostly the largest incumbent 
cable operators? Regarding non-cable services provided by incumbent 
cable operators that are not common carriers, we tentatively conclude 
that section 624(b) of the Act prohibits LFAs from using their 
franchising authority to regulate the provision of information 
services, including broadband internet access service. Under section 
624(b), LFAs ``may not . . . establish requirements for video 
programming or other information services.'' Section 624 does not 
define the term ``information services,'' but the ``definitions'' 
section of the legislative history distinguishes ``information 
service'' from ``cable service.'' The House Report states that ``[a]ll 
services offered by a cable system that go beyond providing generally-
available video programming or other programming are not cable 
services'' and ``a cable service may not include `active information 
services' such as at-home shopping and banking that allow transactions 
between subscribers and cable operators or third parties.'' We also 
find significant that the description of ``information services'' 
contained in the 1984 Cable Act's legislative history--i.e., ``services 
providing subscribers with the capacity to engage in transactions or to 
store, transfer, forward, manipulate, or otherwise process information 
or data [which] would not be cable services''--corresponds closely to 
the 1996 Telecommunications Act's definition of ``information service'' 
contained in section 3(24) of the Act--i.e., ``the offering of a 
capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via 
telecommunications.'' For all the reasons stated above, we believe that 
for purposes of section 624(b), interpreting ``information services'' 
to have the meaning set forth in section 3(24) of the Act would best 
reflect Congressional intent. We further note that the Commission 
recently reinstated the ``information service'' classification of 
broadband internet access service. We seek comment on this analysis.
    28. Based on the above analysis, we tentatively conclude that the 
statute also bars LFAs from regulating the provision of broadband 
internet access and other information services by incumbent cable 
operators that are not common carriers. Although section 624(b)(2)(B) 
allows franchising authorities to enforce requirements for ``broad 
categories of video programming or other services,'' when read in light 
of Section 624(b)(1) and the legislative history, we believe that 
Congress intended to bar LFAs from regulating information services. We 
further note that under section 624(b), ``the franchising authority, to 
the extent related to the establishment or operation of a cable system 
. . . may establish requirements for facilities and equipment.'' In 
light of our tentative finding that section 624(b)(1) bars LFAs from 
regulating information services, we do not believe this provision 
authorizes LFAs to regulate facilities or equipment to the extent they 
are used to provide such services, including broadband internet access 
service. We seek comment on this interpretation and our tentative 
conclusion. Would such an interpretation best effectuate the statutory 
purpose? We also seek comment on the extent to which LFAs currently 
attempt to regulate the provision of information services by incumbent 
cable operators or the facilities and equipment used in the provision 
of such services. Do LFAs require incumbent cable operators to obtain a 
separate franchise or pay franchise fees in connection with their 
provision of broadband internet access or other information services, 
and if so, what are the circumstances and rationale for such 
requirements? What other franchise requirements do LFAs impose on 
information services provided by incumbent cable operators? What 
effect, if any, do such franchise requirements have on the deployment 
of new information services, including broadband internet access 
service?
    29. In any event, we believe that LFA regulation of such services 
would be inconsistent with longstanding federal policy. The Commission 
has previously concluded that broadband internet access service is ``a 
jurisdictionally interstate service because `a substantial portion of 
internet traffic involves accessing interstate or foreign websites.''' 
Therefore, we tentatively conclude that LFAs may not regulate such 
interstate services and that doing so would frustrate the light-touch 
information service framework established by Congress that the 
Commission has previously found necessary to promote investment and 
innovation. In the Restoring internet Freedom Order, the Commission 
concluded that ``regulation of broadband internet access service

[[Page 51918]]

should be governed principally by a uniform set of federal regulations, 
rather than by a patchwork that includes separate state and local 
requirements.'' The Commission found that allowing state and local 
governments to regulate broadband internet access service could disrupt 
the procompetitive, deregulatory goals of the federal regulatory regime 
and impair the provision of broadband internet access service by 
requiring each provider to comply with a patchwork of separate and 
potentially conflicting requirements across all of the different 
jurisdictions in which it operates. The Commission therefore preempted 
any state or local measures that would impose rules or requirements 
that it had repealed or decided to refrain from imposing in that order 
or that would impose more stringent requirements for any aspect of 
broadband service addressed in that order. Among other things, the 
Commission expressly preempted any ``economic'' or ``public utility-
type'' regulations, including entry and exit restrictions. For similar 
reasons, we tentatively conclude that entry and exit restrictions 
include a requirement that an incumbent cable operator obtain a 
franchise to provide broadband internet access service and that LFAs 
therefore are expressly preempted from requiring incumbent cable 
operators to obtain franchises to provide broadband internet access 
service. We seek comment on this tentative conclusion. We also seek 
comment on whether there are other regulations imposed by LFAs on 
incumbent cable operators' provision of broadband internet access 
service that should be considered entry and exit restrictions, or other 
types of economic or public utility-type regulations, preempted by the 
Commission.
    30. Moreover, we tentatively conclude that it would be contrary to 
the goals of the Communications Act to permit LFAs to treat incumbent 
cable operators that are not also common carriers differently than 
incumbent cable operators and new entrants that are also common 
carriers in their provision of information services, including 
broadband internet access services. Incumbent cable operators and new 
entrants (whether they are common carriers or non-common carriers) 
often compete against each other in the same markets, and often provide 
nearly identical services to consumers. Thus, to regulate incumbent 
cable operators that are not also common carriers more strictly, by 
permitting LFAs to place franchise requirements on their non-cable 
services and assess fees on these services, could put these incumbents 
at a competitive disadvantage that section 621 was intended to avoid. 
This competitive disadvantage could impact not only the incumbents' 
provision of broadband internet access and other information services, 
but also their provision of cable services. Such a result could 
ultimately have a negative impact on consumers, thereby undermining the 
goal of the Telecommunications Act of 1996 Act to ``promote 
competition'' across communications providers and ``to secure lower 
prices and higher quality services for American telecommunications 
consumers'' by reducing regulation. We seek comment on this analysis. 
We believe these same concerns would apply to new entrants that are not 
common carriers and seek comment on this analysis with respect to such 
entities.
    31. Finally, we seek comment on whether there are any other 
statutory provisions that relate to the authority of LFAs to regulate 
the provision of non-cable services offered over a cable system by an 
incumbent cable operator or the facilities and equipment used in the 
provision of such services. For example, NCTA cites several additional 
provisions in support of its assertion that the Commission should apply 
the mixed-use network ruling to incumbent cable operators: Section 
621(a)(2) of the Act; Section 622 of the Act; Section 624(e) of the 
Act; Section 230(b) of the Act; and Section 253 of the Act. We seek 
comment on the extent to which these and any other relevant statutory 
provisions relate to the authority of LFAs to regulate the provision of 
non-cable services offered over a cable system by an incumbent cable 
operator.

C. State Franchising Regulations

    32. We seek comment on whether to apply the proposals and tentative 
conclusions set forth herein, as well as the Commission's decisions in 
the First Report and Order and Second Report and Order, as clarified in 
the Order on Reconsideration, to franchising actions taken at the state 
level and state regulations that impose requirements on local 
franchising. In the First Report and Order, the Commission adopted time 
limits for LFAs to render a final decision on a new entrant's franchise 
application and established a remedy for applicants that do not receive 
a decision within the applicable time frame; concluded that it was 
unlawful for LFAs to refuse to grant a franchise to a new entrant on 
the basis of unreasonable build-out mandates; clarified which revenue-
generating services should be included in a new entrant's franchise fee 
revenue base and which franchise-related costs should and should not be 
included within the statutory five percent franchise fee cap; concluded 
that LFAs may not make unreasonable demands of new entrants relating to 
PEG channels and I-Nets; adopted the mixed-use network ruling for new 
entrants; and preempted local franchising laws, regulations, and 
agreements to the extent they conflict with the rules adopted in that 
order. In the Second Report and Order, the Commission extended to 
incumbent cable operators the rulings in the First Report and Order 
relating to franchise fees and mixed-use networks and the PEG and I-Net 
rulings that were deemed applicable to incumbent cable operators, i.e., 
the findings that the non-capital costs of PEG requirements must be 
offset from the cable operator's franchise fee payments, that it is not 
necessary to adopt standard terms for PEG channels, and that it is not 
per se unreasonable for LFAs to require the payment of ongoing costs to 
support PEG, so long as such support costs as applicable are subject to 
the franchise fee cap. As explained above, the Commission limited its 
decisions in the First Report and Order and Second Report and Order to 
actions or inactions at the local level where a state has not 
specifically circumscribed the LFA's authority, finding that many of 
the state franchising laws had been in effect for only a short period 
of time and that it did not have a sufficient record to apply these 
decisions to franchising decisions where a state is involved. The 
Commission, however, indicated that it would revisit this issue in the 
future if it received evidence that the findings in the First Report 
and Order and/or the Second Report and Order were of practical 
relevance to the franchising process at the state level. More than ten 
years has passed since the Commission first considered whether to apply 
its decisions interpreting section 621(a)(1) to state-level franchising 
actions and state regulations that impose requirements on local 
franchising. Accordingly, we invite comment on whether we should apply 
the proposals and tentative conclusions discussed above, as well as any 
or all aspects of the Commission's decisions in the First Report and 
Order and Second Report and Order, to state level franchising actions 
and state regulations that impose requirements on local franchising. Is 
there any statutory basis to maintain the distinction between state-
level franchising actions and local franchising actions? Do state level 
franchising actions or state regulations governing the local franchise 
process today impede competition or discourage investment in 
infrastructure that can be

[[Page 51919]]

used to provide services, including video, voice, and broadband 
internet access service, to consumers?

IV. Procedural Matters

A. Initial Regulatory Flexibility Act Analysis

    1. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Initial Regulatory 
Flexibility Act Analysis (IRFA) of the possible significant economic 
impact on a substantial number of small entities by the policies and 
rules proposed in this Second Further Notice of Proposed Rulemaking 
(Second FNPRM). Written public comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments provided on the first page of the Second 
FNPRM. The Commission will send a copy of the Second FNPRM, including 
this IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration (SBA). In addition, the Second FNPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.

B. Need for, and Objectives of, the Proposed Rules

    2. Section 621(a)(1) of the Communications Act of 1934, as amended, 
(Act) prohibits local franchising authorities (LFAs) from unreasonably 
refusing to award competitive franchises for the provision of cable 
television services. The Commission has adopted rules implementing 
section 621(a)(1), including rules governing the treatment of certain 
costs and fees charged to cable operators by LFAs and LFAs' regulation 
of cable operators' ``mixed-use'' networks (i.e., facilities used to 
provide both cable services and non-cable services). In Montgomery 
County, Md. et al. v. FCC, the United States Court of Appeals for the 
Sixth Circuit addressed challenges to these rules. The court directed 
the Commission on remand to provide an explanation for its decision to 
treat cable-related, in-kind contributions charged to cable operators 
by LFAs as ``franchise fees'' subject to the statutory five percent cap 
on franchise fees set forth in section 622(g) of the Act. The court 
also directed the Commission to provide a statutory basis for its 
decision to extend its ``mixed-use'' ruling--which prohibits LFAs from 
regulating the provision of services other than cable services offered 
over cable systems used to provide both cable services and non-cable 
services--to incumbent cable operators that are not common carriers.
    3. The Second FNPRM tentatively concludes that cable-related, in-
kind contributions required by LFAs from cable operators as a condition 
or requirement of a franchise agreement should be treated as 
``franchise fees'' subject to the statutory five percent franchise fee 
cap set forth in section 622 of the Act, with limited exceptions. For 
any franchise granted prior to 1984, section 622(g)(2)(B) contains an 
exclusion for PEG support payments. For any franchise granted after 
1984, section 622(g)(2)(C) contains a narrow exclusion covering in-
kind, cable related payments for ``capital costs which are required by 
the franchise to be incurred by the cable operator for public, 
educational, or governmental [PEG] access facilities.'' Accordingly, 
the Second FNPRM tentatively concludes that PEG support payments 
required by franchises granted prior to 1984 and PEG capital costs 
required by franchises granted after 1984 are cable-related, in-kind 
contributions excluded from the five percent cap. The Second FNPRM also 
tentatively concludes that this treatment of cable-related, in-kind 
contributions should be applied to both new entrants and incumbent 
cable operators. The Second FNPRM tentatively concludes that doing so 
would ensure a more level playing field and that the FCC should not 
place its thumb on the scale to give a regulatory advantage to any 
competitor.
    4. The Second FNPRM proposes to define ``cable-related, in-kind 
contributions'' to include ``any non-monetary contributions related to 
the provision of cable services provided by cable operators as a 
condition or requirement of a local franchise agreement, such as free 
or discounted cable services, and the use of cable facilities or 
equipment. It does not include the cost of franchise obligations that 
do not directly benefit the LFA, including, but not limited to, build-
out requirements.'' The Second FNPRM further proposes that cable-
related, in-kind contributions be valued for purposes of the franchise 
fee cap at their fair market value.
    5. Additionally, the Second FNPRM tentatively concludes that the 
mixed-use network ruling should be applied to incumbent cable operators 
to the extent that they offer or begin offering non-cable services, 
prohibiting LFAs from using their video franchising authority to 
regulate certain non-cable services offered over cable systems by 
incumbent cable operators. The Second FNPRM tentatively concludes that 
the mixed-use network ruling prohibits LFAs from regulating the 
provision of any services other than cable services offered over the 
cable systems of incumbent cable operators that are common carriers. 
Further, the Second FNPRM tentatively concludes that LFAs may not use 
their franchising authority to regulate incumbent cable operators' 
provision of information services, including broadband internet access 
service. The Second FNPRM also tentatively concludes that consistent 
with the Commission's decision in the Restoring internet Freedom Order, 
which preempted any state or local measures that would impose rules or 
requirements that the Commission repealed or decided to refrain from 
imposing in that order or that would impose more stringent requirements 
for any aspect of broadband service addressed in that order, LFAs are 
expressly preempted from requiring incumbent cable operators to obtain 
franchises to provide broadband internet access service.
    6. The Second FNPRM also seeks comment on whether to apply the 
proposals and tentative conclusions discussed in the instant 
proceeding, as well as the Commission's decisions in the First Report 
and Order and Second Report and Order, as clarified in the Order on 
Reconsideration, to franchising actions taken at the state level and 
state regulations imposing requirements on local franchising.

C. Legal Basis

    7. The proposed action is authorized pursuant to sections 1, 4(i), 
303. 602, 621, 622, and 624 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 154(i), 303, 522, 541, 542, and 544.

D. Description and Estimates of the Number of Small Entities to Which 
the Proposed Rules Will Apply

    8. The RFA directs agencies to provide a description of, and where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' 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 SBA. Below, we 
provide a description of such small entities, as well as an estimate of 
the number of such small entities, where feasible.

[[Page 51920]]

    9. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. We therefore describe here, at 
the outset, three broad groups of small entities that could be directly 
affected herein. First, while there are industry specific size 
standards for small businesses that are used in the regulatory 
flexibility analysis, according to data from the SBA's Office of 
Advocacy, in general a small business is an independent business having 
fewer than 500 employees. These types of small businesses represent 
99.9% of all businesses in the United States which translates to 28.8 
million businesses.
    10. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of Aug 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    11. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data from the 2012 Census of Governments indicates that there 
were 90,056 local governmental jurisdictions consisting of general 
purpose governments and special purpose governments in the United 
States. Of this number there were 37,132 General purpose governments 
(county, municipal and town or township) with populations of less than 
50,000 and 12,184 Special purpose governments (independent school 
districts and special districts) with populations of less than 50,000. 
The 2012 U.S. Census Bureau data for most types of governments in the 
local government category shows that the majority of these governments 
have populations of less than 50,000. Based on this data we estimate 
that at least 49,316 local government jurisdictions fall in the 
category of ``small governmental jurisdictions.''
    12. Wired Telecommunications Carriers. The U.S. Census Bureau 
defines this industry as ``establishments primarily engaged in 
operating and/or providing access to transmission facilities and 
infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired communications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies. Establishments in this industry use 
the wired telecommunications network facilities that they operate to 
provide a variety of services, such as wired telephony services, 
including VoIP services, wired (cable) audio and video programming 
distribution, and wired broadband internet services. By exception, 
establishments providing satellite television distribution services 
using facilities and infrastructure that they operate are included in 
this industry.'' The SBA has developed a small business size standard 
for Wired Telecommunications Carriers, which consists of all such 
companies having 1,500 or fewer employees. U.S. Census data for 2012 
shows that there were 3,117 firms that operated that year. Of this 
total, 3,083 operated with fewer than 1,000 employees. Thus, under this 
size standard, the majority of firms in this industry can be considered 
small.
    13. Cable Companies and Systems (Rate Regulation Standard). The 
Commission has developed its own small business size standards, for the 
purpose of cable rate regulation. Under the Commission's rules, a 
``small cable company'' is one serving 400,000 or fewer subscribers, 
nationwide. Industry data indicate that, of 4,600 cable operators 
nationwide, all but 9 are small under this size standard. In addition, 
under the Commission's rules, a ``small system'' is a cable system 
serving 15,000 or fewer subscribers. Industry data indicate that, of 
4,600 systems nationwide, 3,900 have fewer than 15,000 subscribers, 
based on the same records. Thus, under this second size standard, the 
Commission believes that most cable systems are small.
    14. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``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.'' There are approximately 52,403,705 
cable subscribers in the United States today. Accordingly, an operator 
serving fewer than 524,037 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total revenues 
of all its affiliates, do not exceed $250 million in the aggregate. 
Based on the available data, we find that all but nine independent 
cable operators are affiliated with entities whose gross annual 
revenues exceed $250 million. Although it seems certain that some of 
these cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, we note that the Commission 
neither requests nor collects information on whether cable system 
operators are affiliated with entities whose gross annual revenues 
exceed $250 million, and therefore we are unable to estimate more 
accurately the number of cable system operators that would qualify as 
small under the definition in the Communications Act.
    15. Open Video Services. Open Video Service (OVS) systems provide 
subscription services. The open video system framework was established 
in 1996, and is one of four statutorily recognized options for the 
provision of video programming services by local exchange carriers. 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.'' The SBA has developed a small business 
size standard for this category, which is: All such firms having 1,500 
or fewer employees. To gauge small business prevalence for the OVS 
service, the Commission relies on data currently available from the 
U.S. Census for the year 2012. According to that source, there were 
3,117 firms that in 2012 were Wired Telecommunications Carriers. Of 
these, 3,083 operated with less than 1,000 employees. Based on this 
data, the majority of these firms can be considered small. In addition, 
we note that the Commission has certified some OVS operators, with some 
now providing service. Broadband service providers (BSPs) are currently 
the only significant holders of OVS certifications or local OVS 
franchises. The Commission does not have financial or employment 
information regarding the entities authorized to provide OVS, some of 
which may not yet be operational. Thus, at least some of the OVS 
operators may qualify as small entities. The Commission further notes 
that it has certified approximately 45 OVS operators to serve 116 
areas, and some of these are currently providing service. Affiliates of 
Residential Communications Network, Inc. (RCN) received approval to 
operate OVS systems in New York City, Boston, Washington, DC, and other 
areas. RCN has sufficient revenues to assure that they do not qualify 
as a small business entity. Little financial information is available 
for the other entities that are authorized to provide OVS and are not

[[Page 51921]]

yet operational. Given that some entities authorized to provide OVS 
service have not yet begun to generate revenues, the Commission 
concludes that up to 44 OVS operators (those remaining) might qualify 
as small businesses that may be affected by the rules and policies 
adopted herein.

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

    16. The rules proposed in the Second FNPRM would not impose any 
additional reporting or recordkeeping requirements and any compliance 
requirements imposed by the proposed rules are expected to have only a 
de minimis effect on small governmental jurisdictions. LFAs would 
continue to perform their role of reviewing and making decisions on 
applications for cable franchises and any modifications to the local 
franchising process resulting from the proposed rules would further 
streamline that process. The proposed rules would streamline the local 
franchising process by providing guidance as to the appropriate 
treatment of cable-related, in-kind contributions demanded by LFAs for 
purposes of the statutory five percent franchise fee cap, what 
constitutes ``cable-related, in-kind contributions,'' and how such 
contributions are to be valued. In addition, the proposed rules would 
streamline the local franchising process by making clear that LFAs may 
not use their video franchising authority to regulate the provision of 
certain non-cable services offered over cable systems by incumbent 
cable operators.

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

    1. The RFA requires an agency to describe any significant, 
specifically small business, 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 and 
reporting requirements under the rule for such 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.
    2. To the extent that the proposed rules are matters of statutory 
interpretation, we tentatively find that the proposed rules are 
statutorily mandated and therefore no meaningful alternatives exist. 
Moreover, as noted above, the proposed rules are expected to have only 
a de minimis effect on small governmental jurisdictions. The proposed 
rules would streamline the local franchising process by providing 
additional guidance to LFAs.
    3. In addition, the proposal to treat cable-related, in-kind 
contributions as ``franchise fees'' subject the statutory five percent 
franchise fee cap, with one limited exception, would benefit small 
cable operators by ensuring that LFAs do not circumvent the statutory 
five percent cap by demanding, for example, unlimited free or 
discounted services. This in turn would help to ensure that local 
franchising requirements do not deter small cable operators from 
investing in new services and facilities.

G. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rule

    4. None.

H. Initial Paperwork Reduction Act of 1995 Analysis

    5. This document does not contain any proposed information 
collections subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. In addition, therefore, it does not contain any new 
or modified information collection burden for small business concerns 
with fewer than 25 employees, pursuant to the Small Business Paperwork 
Relief Act of 2002.

I. Ex Parte Rules

    6. Permit-But-Disclose. This proceeding shall be treated as a 
``permit-but-disclose'' proceeding in accordance with the Commission's 
ex parte rules. Persons making ex parte presentations must file a copy 
of any written presentation or a memorandum summarizing any oral 
presentation within two business days after the presentation (unless a 
different deadline applicable to the Sunshine period applies). Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentation must (1) list all persons attending or 
otherwise participating in the meeting at which the ex parte 
presentation was made, and (2) summarize all data presented and 
arguments made during the presentation. If the presentation consisted 
in whole or in part of the presentation of data or arguments already 
reflected in the presenter's written comments, memoranda, or other 
filings in the proceeding, the presenter may provide citations to such 
data or arguments in his or her prior comments, memoranda, or other 
filings (specifying the relevant page and/or paragraph numbers where 
such data or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with section 1.1206(b) of the rules. In proceedings 
governed by section 1.49(f) of the rules or for which the Commission 
has made available a method of electronic filing, written ex parte 
presentations and memoranda summarizing oral ex parte presentations, 
and all attachments thereto, must be filed through the electronic 
comment filing system available for that proceeding, and must be filed 
in their native format (e.g., .doc, .xml, .ppt, searchable .pdf). 
Participants in this proceeding should familiarize themselves with the 
Commission's ex parte rules.

J. Filing Procedures

    7. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or before the dates indicated on the first page of this 
document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS).
    [ssquf] Electronic Filers: Comments may be filed electronically 
using the internet by accessing the ECFS: https://apps.fcc.gov/ecfs/.
    [ssquf] Paper Filers: Parties who choose to file by paper must file 
an original and one copy of each filing. If more than one docket or 
rulemaking number appears in the caption of this proceeding, filers 
must submit two additional copies for each additional docket or 
rulemaking number.
    [ssquf] Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail. All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
    [ssquf] All hand-delivered or messenger-delivered paper filings for 
the Commission's Secretary must be delivered to FCC Headquarters at 445 
12th Street SW, TW-A325, Washington, DC 20554. The filing hours are 
8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes and boxes must be disposed of 
before entering the building.
    [ssquf] Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9050

[[Page 51922]]

Junction Drive, Annapolis Junction, MD 20701.
    [ssquf] U.S. Postal Service first-class, Express, and Priority mail 
must be addressed to 445 12th Street SW, Washington, DC 20554.
    8. Availability of Documents. Comments, reply comments, and ex 
parte submissions will be available for public inspection 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. Documents will 
be available electronically in ASCII, Microsoft Word, and/or Adobe 
Acrobat.
    9. People with Disabilities. To request materials in accessible 
formats for people with disabilities (Braille, large print, electronic 
files, audio format), send an email to [email protected] or call the FCC's 
Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), 
(202) 418-0432 (TTY).
    10. Additional Information. For additional information on this 
proceeding, contact Kathy Berthot, [email protected], of the Media 
Bureau, Policy Division, (202) 418-7454.

V. Ordering Clauses

    11. Accordingly, It is ordered that, pursuant to the authority 
found in Sections 1, 4(i), 303, 602, 621, 622, and 624 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 303, 
522, 541, 542, and 544, this Second Further Notice of Proposed 
Rulemaking is adopted.
    12. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Second Further Notice of Proposed Rulemaking, including 
the Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2018-22356 Filed 10-12-18; 8:45 am]
 BILLING CODE 6712-01-P