JRN 930 Fall 2003 Multichannel Policy Part I Industry organization Industry Organization In 2001 88 3 million households subscribed to MVPS 86 4 of TV 1 2 1 18 SMATV MMDS 78 Cable TV dominant HSD and OVS declining High DBS growth OVS MVPS households source FCC 2001 78 of all MVPS DBS HSD households Cable 0 4 2 price increase Limited LEC entry c 2003 J M Bauer 3 1 Growth of MVPS 1 000 HH 100000 OVS 80000 MMDS 60000 SMATV 40000 DBS 20000 Cable 0 1997 1998 1999 2000 2001 Source FCC 2002 c 2003 J M Bauer 4 Cable industry structure of total cable HH 2001 AT T TW 18 23 Comcast Charter 4 8 Cox 17 9 Adelphia 12 9 Cablevision Others Source NCTA c 2003 J M Bauer 5 Multichannel options Market entry Operation Franchise fee PEG Franchise from local Cable TV franchise authority leased access some broadcasting rules VDT Sec 214 certification as a common carrier OVS FCC certification MMDS LMDS DBS FCC license awarded via auctions Legal Basis Title VI Comm Act No franchise fee no content control OVS fee control over 1 3 of channels only Title II Comm Act Title VI Part V No franchise fee no PEG or leased access some broadcasting rules Title III Comm Act c 2003 J M Bauer 6 2 U S cable prices Unregulated Regulated 300 250 200 Cable 150 CPI Tel 100 50 c 2003 J M Bauer 2001 1999 1997 1995 1993 1991 1989 1987 1985 1983 0 7 Part II Cable System Franchising Franchising authority A franchise is an authorization to construct a cable system using public rights of way and easements A franchising authority is any government entity empowered by federal state or local law to grant a franchise typically a city council or a county commission c 2003 J M Bauer 9 3 Initial franchising Cable systems are franchised by local governments However the Cable Act 1992 sets ground rules for FAs Initial franchises in most of the U S have already been awarded In new areas the process typically starts with a request for proposal RFP Prohibition of exclusive franchises c 2003 J M Bauer 10 Initial franchising Prohibition of redlining Operation only after filing of a registration statement at the FCC Requirements Requirementsunder underthe thecontrol controlof ofaaFA FA Assurance Assurancethat thatthe theoperator operatorhas hasfinancial financial technical technical and and legal legalqualifications qualificationstotoprovide providethe theservice service Adherence Adherencetotoschedule schedulefor forcompletion completionofofconstruction construction Adherence Adherencetotocustomer customerservice servicerequirements requirements which which may mayexceed exceedthose thoseestablished establishedby bythe theFCC FCC Payment Paymentofofaafranchise franchisefee feenot nottotoexceed exceed5 5 ofofthe the system s system sgross grossrevenues revenuesper peryear year Specified Specifiedequipment equipmentand andfacilities facilities Channels Channels for forpublic public educational educational and andgovernmental governmental PEG PEG use use Assurance Assuranceofofadequate adequatesupport supportfor forPEG PEGchannels channels Agreement Agreementthat thatsome somecable cableservices serviceswill willbe becarried carried only onlyunder undercertain certainconditions conditionsor ornot notatatall allififsuch such services are obscene or otherwise not protected services are obscene or otherwise not protectedby by the theConstitution Constitutionofofthe theUnited UnitedStates States 30 30day dayadvance advancewritten writtennotice noticeofofchanges changesininchannel channel ofofvideo videoprogram programservices services c 2003 J M Bauer 11 Franchise renewal sales Franchises are typically awarded for 5 7 years Renewal process can be started as early as three years before the expiration date by the cable system or the franchising authority Newly constructed or purchased cable systems may not be sold for three years c 2003 J M Bauer 12 4 Franchise renewal Main Mainstages stagesof ofthe thefranchise franchiserenewal renewalprocess process 1 1 Public Publicproceeding proceeding allowing allowingthe thepublic publictotocomment commenton onthe theoperator s operator sperformance performance and andthe thecommunity s community scable cableneeds needsfor forthe thefuture future 2 2 Submission Submissionofofproposal proposalfor forrenewing renewingthe thelicense licenseby bythe thecable cableoperator operator 3 3 Franchising Franchisingauthority authoritymay mayeither eitherrenew renewor orissue issueaapreliminary preliminaryassessment assessment that thatthe thefranchise franchiseshould shouldnot notbe berenewed renewed InInthe thelatter lattercase case an anadministrative administrative proceeding is commenced considering the following proceeding is commenced considering the followingfactors factors a a Has Hasthe theoperator operatorsubstantially substantiallycomplied compliedwith withthe theterms termsofofthe the existing existingfranchise franchiseand andthe thelaw law b b Has Hasthe thequality qualityofofthe theoperator s operator sservice service other otherthan thanprogramming programming been beenreasonable reasonableininthe thelight lightofofcommunity communityneeds needs c c Can Canthe theoperator operatorprovide providethe thefacilities facilitiesand andservices servicesininthe the renewal renewalproposal proposal d Will the proposal meet future cable related community d Will the proposal meet future cable related communityneeds needs 4 4 Upon Uponconclusion conclusionofofthe theproceeding proceeding the thefranchising franchisingauthority authorityissues issuesaadecision decisiontotorenew renew or ordeny denythe theproposal proposal AAdenial denialmust mustbe bebased basedon onthe the four fourfactors factorsspecified specifiedabove above 5 5 IfIfaafranchise franchiseisisnot notrenewed renewed the thecable cableoperator operatorhas hastotosell sellatataa fair fairmarket marketvalue value 6 6 IfIfaafranchise franchiseisisrevoked revoked the thesale saleisistotobe beatatan an adequate adequateprice price c 2003 J M Bauer 13 Part III Price and Operational Regulation Cable rate regulation Subscriber rates are unregulated if the FA decides to refrain or if the system faces effective competition z z the cable system serves less than 30 percent of the households in the franchise area or the system competes at least with one other multichannel provider available to at least 50 of the households in the area and subscribed by over 15 of these households Small systems not price regulated c 2003 J M Bauer 15 5 Cable rate regulation Few rates