Thursday, September 20, 2018

FCC Proposal Would Protect Internet Services from Local Government Regulations

Under the leadership of Chairman Ajit Pai, the Federal Communications Commission already has compiled a record of clearing away barriers to the deployment of next-generation broadband services to all Americans. At its September 28 public meeting, the Commission can build on that record by keeping broadband Internet networks free from local government regulations. 

The Commission will vote on a proposal that would expressly prohibit local governments from misusing their cable franchising authority to regulate "information services" such as broadband Internet services. Its proposal also would limit in-kind payments from new entrants and cable incumbents seeking to offer video services in local markets. There are solid statutory bases for the Commission’s worthy proposal. And its adoption would further Congressional policies favoring free market competition and innovation in advanced communications services.

Section 621(a)(1) of the Communications Act recognizes that states and their local governments may require cable operators to obtain franchises in order to provide cable TV service within their respective states or localities. However, "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." Other statutory provisions place further limits on local franchising authorities (LFAs). For instance, Section 622(b) caps the amount of franchise fees a LFA may collect from a cable operator for any 12-month period to 5% of the cable operator’s gross revenues for providing cable services during that period.

In a 2007 order, the Commission found that some local government franchising processes imposed barriers to entry that inhibited competition. The agency also found that local franchising processes could unnecessarily burden and disadvantage incumbent cable operators in competing with entrants. Accordingly, the Commission issued rules and guidelines for implementing Sections 621 and 622. 

The Commission determined that the regulatory jurisdiction of LFAs extends only to video services provided over cable networks, and not to non-cable services provided over "mixed-use" networks. Refusals to award a video franchise based on matters involving such non-cable services were deemed unreasonable and therefore impermissible. Additionally, the Commission determined that "in-kind" contributions charged by LFAs in exchange for video franchises are included within the 5% cap on franchise fees. Importantly, a second 2007 order extended those rules to incumbent cable operators. The Commission recognized that the term "cable system" in Section 602(7)(C) "does not distinguish between incumbent providers and new entrants" and that incumbents could be put at a competitive disadvantage if subject to different rules. 

In Montgomery County v. FCC(2017), the U.S. Court of Appeals for the Sixth Circuit concluded that the Commission failed adequately to explain the scope and statutory basis for its "mixed-use" network and "in-kind" contribution rules. The Sixth Circuit effectively narrowed the application of those rules and remanded the matter to the Commission. To its credit, the Commission is now proposing to shore up the previous "mixed-use" network and "in-kind" contribution rules with clearer definitions and fuller explanation of their statutory bases.

With respect to "mixed-use" networks, the Commission's proposal would in all cases prohibit LFAs from regulating information services offered by cable operators, including broadband Internet access services. Under Section 624(b), LFAs "may not ... establish requirements for video programming or other information services." Significantly, the Commission's proposal includes a persuasive analysis indicating "information services" in Section 624(b) is equivalent to Title I's definition of the term and that "Congress intended to bar LFAs from regulating information services." 

Rightly, the Commission's proposal recognizes that LFA regulation of broadband services "would frustrate the light-touch information service framework established by Congress that the Commission previously has found necessary to promote investment and innovation." The Restoring Internet Freedom Order(2017) reclassified broadband Internet access services as lightly-regulated Title I "information services." And the order expressly preempted any "economic" or "public utility-type" regulation of broadband services by state and local governments, including entry and exit restrictions, because such regulation would disrupt federal deregulatory policy goals. Consistent with this federal light-touch policy, the Commission’s proposal expressly would preempt LFAs "from requiring incumbent cable operators to obtain franchises to provide broadband Internet access service." 

Further, the Commission's proposal would clarify that in-kind contributions would count toward the 5% cap on how much LFAs can require cable operators to pay to obtain cable franchises. The 5% cap would apply regardless of whether the in-kind contributions required were cable related or non-cable related, keeping LFAs from overextending their limited authority. Also, the Commission's proposal delineates categories of expenses that are excluded from the 5% cap on contributions, such as capital cost payments for providing public, educational, and government (PEG) access. Those exclusions carefully track with statutory provisions and should satisfy any reviewing court of law.

In all, the Commission's cable LFA proposal is legally solid. And it would protect Internet services from regulatory overreach. By keeping local regulators in check consistent with the Communications Act, the Commission can help ensure a market-oriented environment favorable to the deployment of next-generation broadband services.  The ultimate beneficiaries of such an environment are the nation's consumers.