PEG and I-NET Requirements Under FCC Local Franchising Order

Originally published on September 27, 2010.

The recently affirmed FCC order on local franchising concludes that “LFAs may not make unreasonable demands of competitive applicants for PEG and I-Net” and that doing so constitutes an unreasonable refusal to award a franchise.

Reasonable and Adequate Support

With regard to PEG channel capacity, the FCC determined that it would be unreasonable “to impose on a new entrant more burdensome PEG carriage obligations that it has imposed on the incumbent cable operator.” The FCC found that PEG support must be both “adequate and reasonable.” Adequacy is defined by the FCC as “satisfactory or sufficient.” The order does provide some examples of unreasonable PEG support obligations, including:

· completely duplicative PEG and I-Net requirements;
· payment of the face value of an I-Net that will not be constructed; and
· requirements that are in excess of the incumbent cable operator’s obligations.

Pro Rata Cost Sharing is Per Se Reasonable

According to the FCC, pro rata cost sharing of current (as opposed to future) PEG access obligations is per se reasonable. Unfortunately, the FCC did not provide additional guidance on how to properly and accurately calculate what the appropriate per subscriber payment should be made. Questions remain about situations where lump sum PEG grants and in-kind contributions are included in an existing franchise agreement.

In the event that pro rata cost sharing is utilized, PEG programming providers must permit a new entrant to interconnect with existing PEG video fees. The new entrant must bear the cost of interconnection. The order is silent on where interconnection must take place, or what type of transmission medium (e.g., fiber or coaxial cable) must be used.

Regulation of Mixed-Use Networks

The order states that “LFAs’ jurisdiction applies only to the provision of cable services over cable systems. To the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities.” In other words, cable franchising decisions can only be made based on issues related to cable service.