FCC draft Third Report and Order

In its draft Third Report and Order released yesterday, the FCC decided to NOT include PEG access channels (Section 44), transmission costs (Section 49), and any other PEG-related capital costs (Section 39) in the 5% cap on "fees, taxes, or assessments of any kind." However, the FCC left the door open to revisit the idea of including the cost of cable access channels in the future. 

Bottom line, the FCC R&O is GOOD NEWS for Wisconsin.

PEG Capital Costs


Providing Access Channels


One of the key provisions in the Cable Act that the FCC is interpreting is 622(g)(2)(C) which says, 

"The term "franchise fee" does not include in the case of any franchise granted after such date of enactment [of the Cable Act], capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities." 

PEG facilities are defined in law as "(A) channel capacity designated for public, educational, or governmental use; and (B) facilities and equipment for the use of such channel capacity."

The FCC found that PEG capital costs are not subject to the 5% franchise fee cap and it backed off on trying to limit "capital costs" for PEG to "construction costs" given that the statute simply refers to "capital costs."

"Based on this statutory language and legislative history, we clarify that the definition of "capital costs" in section 622(g)(2)(C) may include equipment purchased in connection with PEG access facilities, even if it is not purchased in conjunction with the construction of such facilities. "(Section 39)

In coming to this conclusion the FCC quote Black's Law Dictionary and an accounting textbook on the definition of capital costs.

Despite the fact that the FCC found that "capital costs" for PEG "facilities" are not subject to the 5% franchise fee cap and despite the fact that "facilities" are defined in the Cable Act as including the channels, and despite the fact that channels certainly seem to be a capital cost under the definitions it cited, the FCC was STILL not willing to close the door on excluding access channels from the franchise fee cap at some point in the future. 

"...we find that the questions raised by channel capacity are complex, and that the record is not developed enough to allow us to answer them. We therefore defer this issue for further consideration.  In the meantime, we find that the status quo should be maintained, and that channel capacity costs should not be offset against the franchise fee cap. This approach will minimize disruption and provide predictability to both local franchise authorities and cable operators."

While the cable industry pushed hard for including the value of channels in the cap, it could not come up with a viable way to value these channels. This problem, coupled with the statutory language and capital cost definitions quoted in the Report and Order lead me to believe that the FCC will not be eager to revisit the access channel issue any time soon. The FCC declined to come up with a specific number of access channels that would be considered "adequate," saying that it depends on community needs.

FCC sees benefits in PEG




The FCC also admitted there was value in the services PEG access facilities were providing:

We acknowledge the benefits of PEG programming and find that our interpretations adopted above are faithful to the policy objectives of the Cable Act. A significant number of comments in the record stressed these benefits, which include providing access to the legislative process of the local governments, reporting on local issues, providing a forum for local candidates for office, and providing a platform for local communities-including minority communities.Of course, Congress itself similarly recognized the importance of PEG programming by authorizing LFAs to require the provision of PEG channel capacity in the Cable Act,and by carving out certain costs of such programming from the five percent cap on franchise fees.Nothing in this proceeding disturbs the Commission's longstanding view that PEG programming serves an important role in local communities.  (Section 50)

And it also acknowledged that there the Cable Act envisioned joint responsibility between municipalities and cable operators for the support of PEG television.

The Cable Act itself, as interpreted in this Order, balances these costs and benefits. By excluding PEG-related capital costs from the five percent cap on franchise fees, but leaving other PEG- related exactions subject to that cap, the Cable Act divides the financial burden of supporting PEG programming between LFAs [Local Franchising Authorities] and cable operators. By counting a portion of these costs against the statutory cap on franchise fees that LFAs may collect, the Cable Act allows LFAs to seek support for PEG programming from cable operators, while guarding against the possibility that LFAs will make demands for such programming without regard to cost. (Section 52)

The Report and Order is not good news for communities in other states who want to rely on PEG fees for operating costs, have I-Nets or require cable service to schools. PEG fees cannot be used for operating, and I-Nets and cable service must be deducted from franchise fees according to this Report and Order.

But Wisconsin lost the ability to ask for these things when the state franchise law passed in 2007 — 12 years ago. For Wisconsin, the Report and Order affirms that the State of Wisconsin could allow communities to ask for more from our Video Service Provides and we hope it does.