FCC Clarifies That Competitive Cable Franchising Rules Do Not Preempt State Franchising Laws, And Affirms Application Of Its 621 Order To Incumbent Cable Operators

Nearly eight years after issuing its so-called “621 Order” limiting local governments’ actions and authority over competitive cable franchising, and its 2007 Second Report and Order which extended to incumbent cable operators many of those same findings, the Federal Communications Commission issued an Order on Reconsideration of the Second Report and Order on Jan. 21, 2015.  The Commission clarified that the franchising rules and findings it extended to incumbent cable operators in the Second Report and Order do not apply to any state laws governing cable television operators, or to any state-level cable franchising process. 

The primary effect of the Second Report and Order since its release has been to reinforce statutory limits on local franchising authority that were explained in the 621 Order.  For example, the Commission clarified that various demands in franchises are to be considered franchise fees and thus counted against the statutory 5 percent cap set by Section 622 of the Communications Act.  These include demands for consultant’s and attorney’s fees, and the provision of free or discounted services.  Likewise, payments for support of PEG programming—as opposed to payments for capex—are to be counted as franchise fees.

The Order on Reconsideration removes any lingering uncertainty over the applicability of the Commission’s findings on franchise limitations to incumbent cable operators.  The Commission clarified that the Second Report and Order was not intended to limit or govern any state level franchising process or laws.  It is clear now that the laws of the twenty states that issue state-level cable franchises, and the laws of many additional states that otherwise limit the authority of local governments over cable franchising, are not directly affected by the findings contained in the Second Report and Order. 

Nevertheless, the Commission added that interested parties can request the Commission to revisit this issue in the future, and are “free to present evidence that the findings in [either the 621 Order or the Second Report and Order] are of practical relevance to the franchising process at the state-level and therefore should be applied or extended accordingly.”  The Commission also emphasized that “in litigation involving a cable operator and a franchising authority, a court anywhere in the nation would be required to apply the FCC’s interpretation of any provision of the Communications Act,” including those interpretations in the 621 Order and the Second Report and Order.

The Commission also agreed to a procedural change to comply with the Regulatory Flexibility Act, but rejected requests for more meaningful procedural relief from that analysis.

Finally, the Commission rejected a number of other requests to modify its Second Report and Order with respect to existing cable franchises, most-favored nation clauses, free services, other in-kind payments, and local jurisdiction over mixed-use networks.  The law on these issues remains as it has been since the Commission’s release of the Second Report and Order.

Municipal and access programming interests challenged the Second Report and Order in the U.S. Court of Appeals for the Sixth Circuit in 2008, where it remained on hold ever since awaiting the Commission’s disposition of petitions for reconsideration.  Shortly after those challenges to the Second Report and Order were filed, the Sixth Circuit affirmed the 621 Order in a highly deferential 2008 opinion.  The court’s decision affirming the 621 Order is a significant deterrent to further litigation. 

The Commission has informed the court that it will confer with challengers to the Second Report and Order about “whether and how” the case should proceed, and report to the court by Feb. 22, 2015.  The case may well be dismissed voluntarily in light of the high deference the court gave the FCC in affirming the 621 Order.