BILL ANALYSIS
AB 2987
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2987 (Nunez & Levine)
As Amended August 28, 2006
Majority vote
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|ASSEMBLY: |77-0 |(May 31, 2006) |SENATE: |33-4 |(August 30, |
| | | | | |2006) |
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Original Committee Reference: U. & C.
SUMMARY : Creates a mechanism for a state-issued franchise for
the provision of cable and video service in California.
The Senate amendments :
1)Move the franchising authority from the Department of Consumer
Affairs to the California Public Utilities Commission (PUC)
and make other changes relating to the application for and
renewal of state-issued franchises.
2)Allow incumbent cable operators to opt-in to a state franchise
when a holder of a state franchise begins offering service in
the incumbent's territory, but the incumbent provider must
continue to offer specified services until the date the
franchise would have otherwise terminated.
3)Increase the amount of information video service providers
must provide to PUC concerning their video and broadband
deployment.
4)Make changes to the definitions of gross revenue.
5)Make changes to the requirements to provide Public,
Educational, and Government (PEG) programs to clarify the
video service providers' obligation to provide and fund PEG.
6)Freeze rates for basic residential telephone service at
current levels until 2009, with PUC authorized to raise those
rates to reflect inflation increases.
7)Add specific requirements to prevent discrimination in the
provision of video service.
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This bill :
1)Provides that PUC is the sole franchising authority for the
state-issued authorization to provide cable and video service
(video service). Provides that PUC may fund its regulatory
costs only through a charge on video subscribers that is
imposed in an identical manner as the charge collected from
other utilities for this purpose. PUC must begin accepting
applications for state-issued franchises by April 1, 2007. As
of January 1, 2008, all video service providers must seek a
state franchise instead of a local franchise.
2)Provides that the application shall contain specified
information and statements, signed under penalty of perjury.
3)Provides for a 44-day timeline in which PUC must complete an
application for a state franchise.
4)Provides that a state franchise shall be valid for 10 years,
at which point the holder must renew the franchise if it
chooses to continue to offer video service in this state.
5)Provides that an incumbent cable operator may seek a state
franchise to serve an area where it has a local franchise
prior to the termination of the existing local franchise if a
different company that holds a state franchise begins to offer
video service in the same area. If the incumbent cable
operator does opt-in to the state franchise, it must continue
to provide video service to all areas it is required to serve
under the local franchise until the date that franchise would
have expired.
6)Requires the holder of a state franchise to pay rent to each
local entity where it provides video service a franchise fee
based on the gross revenue, as defined in the statute, for the
use of the public right-of-way. If there is an incumbent
cable operator in that jurisdiction the fee shall be 5% of the
holder's gross revenue or the percentage applied to the
incumbent's gross revenue, whichever is less. If there is no
local franchises or after all local franchise have expired,
the franchise fee will be 5% of gross revenue or a lower level
set by the local government thru ordinance.
7)Provides that the holder shall designate a sufficient amount
of capacity on its network to provide the same number of PEG
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channels that the incumbent cable operator currently provides
within the local entity jurisdiction. If less than three PEG
channels are currently provided within that local entity, a
local entity may request the holder to provide up to three PEG
channels. The local entity may request additional PEG channels
if they produce more than 56 hours a week of original, locally
produced programming on the current channels.
8)Requires all incumbent cable operators to continue to offer
the same level of PEG support and I-net support as they do
under their franchise agreements today thru January 1, 2009,
or until their franchise expires, or would have expired had it
not been terminated abrogated, whichever is later. Requires
all holders of state franchises to contribute a pro rata share
of the ongoing cash obligations of the incumbent cable
operator for PEG and I-net support.
9)Provides that after the expiration of current franchise
agreements, local entities can require all video providers pay
a fee that is up to 1% of gross revenue to support PEG
operations. If the franchise agreement that is in place today
requires the incumbent cable operator to pay a fee greater
than 1%, the local entity can set the fee at that higher
level, never to exceed 3%.
10)Requires video service providers to offer PEG programming to
all subscribers, and to provide the PEG programming at a
similar quality and functionality as it offers for its basic
tier of service.
11)Requires all video service providers to make one channel
available for carriage of state public affairs programming
administered by the state.
12)Provides that the local government shall control the time,
place, and manner in which video service providers access the
public right-of-way under the same terms and conditions as
they control the telephone companies' access to the
right-of-way today and that existing laws regarding the
permitting process and compliance with the California
Environmental Quality Act (CEQA) shall remain unchanged,
except that the local government shall be the lead agency for
CEQA purposes.
13)Provides that local government has 60 days from the date a
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completed application for an encroachment permit is received
to either approve or deny that request. An application is not
complete until the applicant has complied with all statutory
requirements, including all requirements of CEQA.
14) Provides that video service providers may not discriminate
in the provision of video service. A company has met this
requirement if:
a) For a holder of a state franchise that has more than one
million telephone customers in California within three
years after a company begins providing video service, at
least 25% of the households that have access to the
company's service are low-income households and within five
years after a company begins providing video service, at
least 30% of the households that have access to the
company's service are low-income households. These larger
telephone corporations must also provide free service to
one community center for each 10,000 video customers;
b) For holders with less than 1 million telephone customers
they must offer video service to all customers within their
telephone service area within a reasonable time, as
determined by PUC. PUC shall not require holders to offer
service in areas where cost of providing service is
substantially above the average cost of providing service
in the rest of the company's territory; and,
c) For a company that does not have a telephone service
area a company that is offering service outside of its
service area, or a company that is offering service in an
area where there is no other providers of video services
there is a rebuttable presumption that discrimination has
not occurred.
15)Creates specific buildout requirements for companies with
more than 1 million telephone customers as follows:
a) Companies that are predominantly deploying fiber optic
facilities to the customers' premises must offer service to
at least 25% of the households within its existing
telephone service area within two years and 40% of those
households within five years;
b) Companies that are not predominantly deploying fiber
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optic facilities must offer service to at least 35% of the
households in its existing telephone service area within
two years and 50% of those households within five years;
c) The five-year buildout provision can be extended if the
company shows PUC that less than 30% of the households with
access to its service have subscribed to the service; and,
d) Companies can only meet the buildout requirements
through the use of technology that provides equivalent
two-way broadband capability, and equivalent video
programming, content and functionality. Satellite based
technologies cannot be counted toward meeting the buildout
requirement.
16)A company may apply for an extension of the buildout or
redlining rules if extreme events that are out of the
company's control keep it from meeting the standards. When
evaluating a petition for a waiver, PUC can only grant a
waiver if technical, operational, or regulatory issues beyond
the company's control hindered its buildout.
17)Provides that all video service providers shall comply with
all existing video consumer service and provisions standards
in state and federal law. These rules will be enforced by the
local entities. Increase by 250% the amount of fines from
current levels the local entities can assess for violations of
these consumer protection rules.
18)Requires that a background check be performed on all
applicants for employment with the holder, for employees of
independent contractors and vendors to the holder who would
have access to the holder's network, central office, or
customer premises.
19)Requires all holders employing more than 750 employees to
annually report to PUC the number of California residents
employed by the holder and the number of employees of
independent contractors and vendors that provide service for
the holder.
20)Provides that all holders of state-issued franchises shall
annually report to PUC specified information regarding their
broadband deployment and video deployment in California.
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21)Provides that a court of competent jurisdiction shall have
exclusive jurisdiction to enforce the provisions of this bill
regarding payment of fees, provision of PEG channels and
I-nets and that both PUC and the courts may enforce all
redlining and building out requirements.
22)Provides that the telephone corporations providing video
service under this bill shall not subsidize the cost of
deploying a network that is used to provide video service and
other costs necessary to offer video service with revenue
derived from the offering of basic telephone service.
23)Provides that nothing in the bill creates a vested right in a
state-issued franchise.
EXISTING LAW :
1)Authorizes local governments to grant additional cable
television franchises in an area where a franchise has already
been granted after a public hearing to discuss specified
issues.
2)Provides that the additional franchises must serve the same
geographic area as the original franchise. Such service shall
be within a reasonable time and in a sequence which doesn't
discriminate against lower income or minority residents.
3)Provides that the additional franchises must also contain the
same PEG access requirements as the original franchise.
4)Requires all public utilities employing more than 750 total
employees to annually report the number of California
residents employed by the holder and the number of employees
of independent contractors and vendors that provide service
for the holder.
FISCAL EFFECT : Unknown
COMMENTS : The purpose of this bill is to promote competition
for broadband and video service. Current law requires companies
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seeking a new video franchise to seek a separate franchise in
each local government entity where it wants to provide video
service. A company wishing to provide service across the state
would need to seek over 400 franchise agreements. This bill
would allow a company to seek a state-issued franchise from PUC.
Supporters believes this bill will lead to a rapid deployment of
new video and broadband services across the state as new
competitors, including the existing local telephone companies,
make investments in existing and new networks needed to compete
with the existing cable companies to provide video and internet
services. This bill creates new investment opportunities in
broadband internet networks because these networks are needed to
provide competitive video services.
Today only a few areas of the state have multiple video
operators. Instead, competition for video service comes
primarily from satellite services, such as DirecTV and the DISH
network, which are not required to obtain a local franchise or
pay a franchise fee to the locals. Today satellite service
accounts for approximately 27% of the video market. A few
companies are obtaining local franchise agreements to provide
competing video services, but due to the current franchising
process, this is occurring on a limited and slow basis across
the state.
The companies that wish to provide competing services claim that
part of the reason why competition is slow in coming is the time
it takes to negotiate individual franchise agreements across the
state. They also point to another provision in current state
law that requires new entrants into a video market to provide
video service to the entirety of the incumbent's service
territory. This law was is intended to prevent new entrants
from discriminating in where they decide to offer service. Some
of the potential new entrants argue that this law forces them to
build their infrastructure in a manner that is uneconomical for
them and, as a consequence, they simply opt to not compete in
certain franchise territories..
This bill addresses these problems by allowing video service
providers to go to a single entity, PUC, to get a franchise to
provide video service across the state. PUC will be required to
review and either deny or issue a franchise within a 44-day time
period. PUC will also enforce certain standards of the bill,
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including buildout and redlining requirements, but the courts
will be the final arbitrators on disputes over other provisions
such as franchise fee and PEG support obligations.
Franchise Fees : This bill requires all holders of state-issued
franchises to pay the local government a rent or toll in the
form of a "franchise fee" for the use of the public
right-of-way. The rent or toll cannot exceed the franchise fee
that is paid by the incumbent cable provider today. After the
current franchises expire, the "fee" will be set at 5% of gross
revenue, or the local entity can set the "fee" at a lower level.
Federal and state law already cap franchise fees at 5%.
Redlining : One concern when new entrants begin providing video
services is that they will choose to provide the service only to
higher income neighborhoods and thus provide these areas of the
state with the advantages of new technologies and competition
but deny the same benefits to lower income neighborhoods, a
process known as "redlining." Federal and state law prohibit
redlining by requiring the local franchise authorities to assure
that access to video service is not denied to any group of
potential residential video subscribers based on income.
To prevent redlining, the bill sets out specific targets which
different types of video service providers must meet. The
requirements differ between companies because that companies
that already have telephone customers have already built some of
the needed network and will have very different costs in making
the jump to video service and acquiring new customers than
companies that must build new networks and/or have no customers
today.
The specific redlining and buildout requirements are spelled out
in numbers 14 and 15 above.
PEG Channels : In many instances, local franchise agreements
require the video operator to offer a set number of channels to
provide PEG and to either provide monetary or in-kind support
needed to produce these shows. This bill maintains current PEG
obligations by:
1)Grandfathering-in the number of PEG channels that are offered
in each franchise today. All video providers must provide the
capacity for the same number of PEG channels as the incumbent
cable operator. If less than three PEG channels are currently
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provided within that local entity, a local entity may request
the holder to provide up to three PEG channels. The local
entity may request additional PEG channels if they produce
more than 56 hours a week of original, locally produced
programming on the current channels.
2)Grandfathering-in all obligations for financial support of PEG
that are in place today. All incumbent cable providers must
continue to offer the same level of PEG support and I-net
support as they do today under their current franchise
agreements until January 1, 2009, or until their franchise
expires or would have expired had it not been terminated under
terms of this bill, whichever is later. All holders of state
franchises must contribute a pro rata share of the ongoing
cash obligations of the incumbent cable operator for PEG and
I-net support.
After the expiration of the existing franchises all the
obligation to carry the same number of PEG channels that exist
today continues forever, unless the local entity fails to
provide at least eight hours of programming a day for that
channel measured quarterly. All video service providers will be
required to continue to provide monetary support for PEG of up
to 1% of gross revenue to support PEG operations, but if the
franchise agreement that is in place today requires the
incumbent cable operator to pay a fee greater than 1%, the local
entity can set the fee at that higher level, but never to exceed
3%.
The bill also requires video service providers to offer PEG
programming to all subscribers, and to provide the PEG program
at a similar quality and functionality as it offers for its
basic tier of service. The intent of this provision is to
prohibit a holder of a state franchise from dramatically
lowering the quality of the PEG programming or removing certain
functionality such as stereo sound from the PEG programming
while leaving it in place for other channel offerings. Some
video providers are concerned that technology constraints could
make it financially difficult for them to meet the same
standards as their commercial channels. By requiring them to
offer similar quality and functionality, these providers are
given a minimum amount of flexibility while are expected to
provide these channels at a quality level and with functionality
that is nearly identical to their commercial channels.
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Consumer Protection : State law currently contains a thorough
set of consumer service and performance standards. The local
franchising authority enforces the standards. Some franchise
agreements also adopt additional or more stringent standards.
This means the consumer protection rules for video service
varies from jurisdiction to jurisdiction and can even vary
within a jurisdiction if there are multiple franchises. This
bill leaves the authority to enforce consumer protection rules
with the local governments but creates a uniform set of state
rules based on the existing state and federal consumer
protection rules. The bill also increases the amount of
penalties that the local governments can issue by 250% over
existing law.
Cross-subsidy Protection : Competition is unfair if one
competitor can use the profits of a relatively uncompetitive
business to subsidize its entry into a relatively competitive
business. This anti-competitive behavior hurts customers
because it creates an unlevel playing field, making it more
likely that competition will be neither robust nor durable.
Most telecommunications markets are competitive; competition
keeps a lid on rate increases and so provides a check against
anti-competitive cross subsidy. But the market for basic
residential telephone service is not competitive. While there
is some substitution of cellular service for basic residential
service, and there are a few competitors such as Cox Cable, by
and large there is little competition.
This bill deals with the potential for cross-subsidization by
freezing rates for basic residential telephone service at
current levels until 2009, with PUC authorized to raise those
rates to reflect inflation increases. Additionally, this bill
prohibits all telephone companies from raising the price of
basic telephone service to finance the cost of providing cable
service.
Privacy : The major telecommunications companies have been
accused by whistle-blowers of sharing customer information with
federal authorities without a warrant, raising privacy concerns.
Federal lawsuits have resulted. Heightening those concerns are
very recent press reports that AT&T keeps track of their video
customers' viewing habits and that those customer records are
business records owned by AT&T.
This bill subjects new cable competitors to the same state and
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federal privacy standards as are imposed on the existing cable
operators.
Transition : Over time this bill will result in a major change in
how video service is permitted in California. Eventually all
video providers will operate under a state-issued franchise
instead of a locally issued franchise. While new entrants into
the market can easily go to PUC for a state-issued franchise
once PUC is ready to accept applications, all incumbent cable
operators will still be operating under local franchise. In
some cases, these franchise agreements last another 20 years, in
others they have already expired and the providers are operating
under short-term extensions. To help meet the goals of the
Legislature in creating a level playing field for all video
service providers while avoiding a chaos causing rapid shift
from local to state franchises, the bill creates a specific
transition process. This transition process is also intended to
allow time for the PUC to establish the necessary resources and
processes to issue state franchises to new entrants and
incumbent cable operators.
No incumbent cable operators will be allowed to operate under a
state-issued franchise prior to January 2, 2008. If the
incumbent cable operator's franchise expires before that date,
it can request a state franchise that begins on January 2, 2008,
and it's current local franchise will be extended until that
date. All parties wishing to provide video service can continue
to negotiate a local franchise until January 1, 2008.
If a video service provider with a state franchise provides
notice that they are about to begin providing video service in a
territory served by an incumbent provider, the incumbent
provider can then seek a state franchise to replace the local
franchise. Allowing the incumbent provider to operate under a
state franchise creates a level playing field for all providers
by allowing them to compete under the same regulatory rules and
with the same financial obligations.
If the incumbent provider's local franchise expires after
January 1, 2008, and the incumbent does not opt-in to the state
franchise before the franchise expires, the incumbent provider
must seek a state franchise at the expiration of the existing
local franchise.
In all of the above circumstances, the incumbent cable operator
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will be obligated to continue to meet all PEG, I-net, and
emergency broadcast requirements under the franchise until the
franchise would have expired without the provision of this bill,
or January 1, 2009, whichever is later. New entrants will be
required to meet the same emergency broadcast requirements of
the local franchise and pay a pro rated share of any cash PEG
and I-net obligation.
While the transition period leaves local franchises in place for
a period of time, the transition period should not allow local
government to diminish the rights an incumbent cable operator
has to occupy the public rights-of-way, any protections or
rights provided under federal law, or to frustrate the
Legislature's intention in enacting this division.
No Vested Right : This bill preserves the right to amend the
statute and therefore the terms of the state-issued franchise.
Arguments in opposition : Opponents argue the bill: 1) makes
customer cherry-picking legal (they fear this will increase the
digital divide); 2) provides a one-size-fits-all approach to the
PEG/I-net issue (will cause many communities to lose their right
to activate PEG access channels that are in current franchise;
3) will make customer standards difficult to enforce (the bill
includes several provisions that undermine enforcement efforts);
4) is a public safety risk with the expiration of local
emergency service notifications; and, 5) creates a new state
bureaucracy to perform a local function (they argue the
franchise should be issued at the local level.)
For more detailed information on the current franchising process
and the provision of video service generally, please refer to
the April 24, 2006, Assembly Utilities and Commerce Committee
analysis.
Analysis Prepared by : Edward Randolph / U. & C. / (916)
319-2083
FN: 0017713