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1997 NATOA Conference Summary
Editor's Note: NATOA stands for the National Association of Telecommunications Officers & Advisors.
Recent court victories by municipalities and ROW issues dominated much of the discussion at this year's annual NATOA Conference. Highly regarded attorney, Nick Miller, who has represented municipal telecommunication interests, said that he was optimistic about the future of cities in the telecommunications arena for the first time in ten years. He had reason to glow as cities basked in the light of victory as a result of the Baltimore/Laredo Rate Case Appeal. That case saw the FCC's decision overturned regarding the exclusion of franchise fees as part of a cable industry's overall calculations of gross revenues.
Attorney Tillman Lay, who represented city interests in the case speculated that it will mean an extra $45-70 million dollars a year in revenue for municipalities. Miller did add that the $50,000 raised by cities to pay for attorney fees that resulted in this capturing of additional revenues, was inadequate. Indianapolis was one of a handful of cities that contributed to the Baltimore Rate Case. Miller's implication was that more cities must participate and money be raised in order to continue these court battles. The courts evidently are much more open-minded and objective to the arguments of cities than the Cable Services Bureau of the FCC which almost always sides with the cable industry.
Comcast and Ameritech New Media (Ameritech's cable tv division), had a strong presence at the conference as both served as corporate underwriters and sponsors of the NATOA conference. During a breakout session with Time Warner, where cities with Time Warner systems got to meet Time Warner brass, a variety of matters were discussed including the Time Warner Social Contract. We brought up the Time Warner appeal as it pertained to Indianapolis' 329 CPST filing for TW January 1, 1997 increase. We explained how the FCC, who is being asked to render a decision for a party that they have a contractual arrangement with, had the appearance of a conflict of interest. The other cities participating in this session seemed to agree and the TW representatives offered no explanation but were rather sheepish in their attitude on this matter.
TCI President, Leo Hindery, gave a keynote speech at a luncheon. There he spoke about the Baltimore Rate Case decision and encouraged cities not to ask TCI for the extra amount that would be due. He cited competitive reasons and that it could turn TCI cable subscribers away to DBS where no franchise fees are paid at all. Earlier in the conference, Tillman Lay had addressed the cable industry response to the Baltimore decision along the lines that Leo Hindery had set out. Lay's response was that this extra amount in franchise fees to be paid by the operators is 1/4 of one percent and when one looks at the overall annual increases that the industry seeks in a year at 12-13%, this amount looks pretty minute.
Regarding Rights-of-Way (ROW) matters
Tillman Lay notes than when weighing recovery costs vs. Fair market value: most of us expect to receive more than our out of pocket expenses. The industries in the ROW certainly expect and receive that, he noted.
-In seeking authority to manage and receive compensation, municipalities have been successful about 80% of the time in doing this with state legislation.
- More and more, we are starting to see ROW agreements whereby the compensatory language speaks to fair market value.
-Other Post 96 Act ROW ordinances completed include Eugene, OR, Anchorage, KY and Burlington, VT. Anchorage used Arlington Heights, ILL model.
-Raleigh, NC charges 48 cents a linear foot for ROW. Bob Sepe, cable administrator noted that based on that and the 5% franchise fees the cable operator pays, that the cable operator pays 22 cents a linear foot.
-Costs to repair streets is not the same as rental compensation.
-Gary, IN mayor working with consultant Rita Stull (who performed work for Indianapolis during franchise renewal). Gary, IN has put in place ROW ordinance that speaks to need of the City and fair market value.
-9 pre-emptive decisions against cities @ the FCC last month.
-the 10th Amendment should be raised (the taking of municipal land) regarding federal pre-emption of local ROW agreements.
-FCC is forcing cities to price themselves under where they should be in terms of compensation which leads to the subsidization of private, for-profit industry.
-Bruce Larkin of Ft. Laurdale, FLA notes that he does not believe that a city can require, say dark fiber, of a potential provider for entrance into the ROW. However, that request can be granted if a trade approach is taken into giving something that the operator wants such as a longer term to operate in the ROW.
- Ft. Lauderdale requires:
Annual registration.
Annual construction plan.
GIS map format.
Sunsurface engineering studies (wants to know who's in ROW)
Larkin thinks that feds pre-empt state legislation. They use a linear foot formula that is tied to fair market based on assesed value. He worked with realtors on asessed and fair market value. Used conservative values that eventually pared down figures to 15% of the land valkue and then broke it down to square footage after that. Property in downtown and beach worth more. Finally established rent at 10% of the value of the ROW. He also worked with engineering consultants, whom determined the width of use of ROW at three feet. 33 cents a linear foot was least expensive ranging up to $3.00 a linear foot.
Regarding the Troy, Michigan case
(TCI filed suit challenging Troy that it couldn't franchise company beyond cable services) the supposition is that the FCC may decide what is prohibition and what is not and what is authority over ROW and what is not and what is fair and reasonable compensation. Additionally, under the 96 Telecommunications Act, it gives jurisdiction to cities and states on ROW. NATOA legal advisors wondered out loud why the Troy matter is before the FCC at all?
Observations from NATOA advisor, attorney Nick Miller:
- telcos other than Ameritech, are backing out of video entry.
-cable is a natural monopoly and DBS is a niche business for rural areas.
-Clinton administration is convinced that the telecomm industry is driving the future of the economy (Dept. Of Commerce & the White House/ 5th floor of the FCC).
-although dealing with the FCC's Cable Services Bureau seems to be a total waste of time, Miller says to stay with it and increase filings as well as broaden the areas from where the filings come from. Filing comments at least creates a paper trail if the matter should continue over into a court of law.
-PCS is leasing lines from the local exchange company (ie. Ameritech). Therfore, PCS should have to get franchises.
-franchise fees are not a tax as decided by the courts. FCC has always maintained it was a tax. It is rental that goes into the figuring of gross revenues. Rent is a part of doing business.
Ken Fellman of the FCC State & Local Government Advisory Committee notes that the likely successor of FCC Chairman Reed Hundt, who is Bill Kennard, has attended the committee meetings, which is seen as a very positive sign.
Ameritech notes:
-at any one time, Ameritech is in negotiations with 20-30 cities for cable services.
-Ameritech uses a model franchise or will look at any existing franchise and attempt to modify it.
-Tom Cohan (New Media negotiating attorney), claims that consumers might not want incumbent operators to overbuild, insomuch that these consumers are already dissatisfied with the cable companies and have more trust in their locla telephone company.
-Ameritech wants to back out advertising revenues and revenues derived from any home shopping network as part of any franchise agreement for cable TV. As they are 'courted' by many a city seeking competition, they feel as if they are in the catbird seat to more readily dictate the rules of agreement. This includes not providing any PEG access facilities, as well.
-Cohan said that at 25% penetartion, Ameritech would start showing a profit. He claims that they are averaging 35% penetration thus far in their cable TV offerings and that 10% of that are new subscribers and not converts.
-15 years are the normal franchise terms.
Regarding OVS:
-OVS (open video systems based on common carrier models) threatens to unravel all agreements since they are not required to seek a franchise under the 96 Telecommunications Act. FCC has made ROW management rights adverse to cities in the OVS arena.
-Can cable operators convert over to OVS models? If so, it would harm cities because cable could abandon facilities and franchise obligations.
-FCC clarified obligation to manage the Public ROW in a nondiscriminatory and competitively neutral manner. This does not necessarily mean "equal treatment" according to NATOA advisor, attorney Bill Cook of Washington, D.C..
San Francisco ROW Notes
-24 Telecomm companies in their ROW.
-Reason to regulate: not only disruptive to traffic and business but disruption to utilities.
Street study in San Francisco revealed the following in terms of depreciation to streets:
-street with 0-3 cuts will last 26 years.
-street with 3-9 cuts will last 18 years.
-street with 9 or more cuts will last 13 years or less.
Other studies by public works departments on ROW valuation and depreciation include San Diego, Seattle and Burlington, VT.
Trench cuts cause damage to the area being cut three feet beyond the edges of the trench. Patched pavements require resurfacing sooner than unpatched pavements. San Francisco has a three year moratorium to street cuts on newly paved streets.
San Francisco has established a Trenching Coordination Participation Committee that has met more than 700 times. San Francisco Public Works Director highly recommends such a committee to other cities.
Rick Maultra of Indianapolis spoke participated on one panel and moderated a general session. He spoke to the state of competition in the multi-channel video marketplace. He made available over 300 hundred handouts generated by the Cable Communications Agency that pertained to the Agency's filing with the FCC on the status of competition in the multi-channel video marketplace as well as cable industry social contracts with the FCC. All handouts were taken.
Mr. Maultra suggested that DBS was not effective competition to the cable industry and a niche player in the marketplace, at best. He noted that those on Wall Street who have highly touted cable stocks lately noted too, that DBS was no competition to cable. The cable industry has argued to the contrary in their filings with the FCC on that Status of Competition in the Multi-Channel Video Marketplace. Mr. Maultra also debated the lack of cable overbuilds with cable industry attorney Frank Lloyd. Maultra suggested that if Ameritech was overbuilding, practically starting from scratch, that it seemed feasible for neighboring cable operators to simply extend their plant into each other's territories and compete.
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