Questions Seen Unanswered in LFA Order Implementation

The order will likely hit the Federal Register any day, and many jurisdictions and national associations will challenge it in court, localities lawyer Dan Cohen of Cohen Law Group said. Unless a stay is ordered, it will remain in effect, he said.

Ken Fellman of Kissinger and Fellman said the biggest issues for franchises to deal with will be institutional networks (I-Net) and free or discounted services to government buildings. "We dodged a bullet for now" regarding public, educational and government (PEG) channel capacity but can expect to have to deal with the issue in coming months, he said. The bar on regulation of non-cable services over cable networks will affect requirements for small-cell antennas and Wi-Fi and it's unclear what the reach of this pre-emption will be, Fellman said.

The cost of providing free services to government buildings is typically "minuscule" for cable operators, but the FCC's approach of instead using fair-market value will be "a windfall" for those operators, Fellman said. He said valuing I-Nets could be contentious, and cable likely will want to claim and deduct lease costs for dark fiber.

On franchise agreements that conflict with the order and need to be renegotiated, bear in mind it's a negotiation, not a unilateral imposition by the cable operator, Cohen said. It's unclear what happens if the local government and cable operator don't reach an agreement, he said.

Fairfax County, Virginia, Director-Communications Policy and Regulation Division Rick Ellrod said LFAs also should prep for implementation by ascertaining the dollar value of what they're receiving and of the 5 percent franchise fee cap. Working up the fair market value of I-Nets "is going to be a nightmare," he said. He said franchising authorities that need to prepare estimates of the order's financial impact should go through various categories of possible expenditures that might count against the fee cap and try to assign a value to them.

LFAs don't have to accept operator claims about fair-market value, Ellrod said. Ultimately, courts could decide what fair-market value is, added Cohen.

Determining the cap could be a challenge because what localities today receive under current agreements might not be the cap since because revenue might be excluded for the franchise fee calculation, though it doesn't need to be excluded, Ellrod said. He said calculating the cap will involve a data request to the cable operator.

The order also leaves numerous other issues with a hazy answers, speakers said. Cohen said determining the fair market value of a transport facility attached to a PEG operation is a challenge because there's no commercial market for that.

Cohen said LFAs shouldn't contact cable operators now but use the time afforded while they also digest the order to review the franchise and I-Net agreements. He said LFAs also should begin due diligence on in-kind benefits and start to prepare a request for information to be given cable operators to determine the rationale and calculations before beginning negotiations.

Communities in the midst of franchise renewal now will have difficulty negotiating under the current circumstances since it's not clear how much of the order will survive legal challenge, Ellrod said. He said the parties might need dual contingencies -- one agreement if the FCC order stands, and a separate one if key parts are struck down.

Cohen said PEG channels provided in HD are a channel capacity issue, not part of franchise fee calculations, at least for now. Fellman said if the issue of channel capacity value comes up in the future, cable operators likely will have to open their books to show their confidential agreements with programmers.