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HomeMy WebLinkAboutMINUTES - 04252006 - C.62 • I S6. J e i TO: BOARD OF SUPERVISORSCONTRA ;5. dd COSTA FROM: John Cullen, CountyAdministrator �''� _ �j� COUNTY DATE: April 25, 2006 SUBJECT: AB 2987 STATEWIDE VIDEO AND CABLE FRANCHISING •� SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION(S): OPPOSE AB 2987 (Nunez and Levine) which would provide for statewide franchising of video and cable services UNLESS AMENDED to include the protections and benefits currentlyavailable to consumers and communities under local government cable television franchises. FISCAL IMPACT: Potential impact on cable television franchise fees (approximately $1.5 million per year) and Public, Education and Government Access benefits to the County. BACKGROUND: Speaker Nunez has introduced a bill, AB 2987 which would provide for statewide franchising of video and cable services subject to meeting certain limited requirements to pay fees and provide community benefits while preempting local government franchises. CSAC and the League of CA Cities have sent letters of"oppose unless amended' and have requested that counties and cities do the same. Reasons for opposition of the bill as it is currently drafted are as follows: AB 2987 promotes discrimination by preempting buildout requirements. Currently most local cable franchises require cable companies to have service available to all residents without regard to income. AB 2987 preempts these service requirements, allowing AT&T to proceed with its publicly stated plans to provide its new services in 90% of high-income neighborhoods, but only 5% of the lower income neighborhoods. CONTINUED ON ATTACHMENT: 4 YES SIGNATURE: \ r9k 11-11 RECOMMENDATION OF COUNTY ADMINISTRATOR_RECOMMENDATION OF B OMMITTEE /APPROVE OTHER SIGNATURE(S): r ACTION OF BO ON APPROVED AS RECOMMENDEV OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A UNANIMOUS(ABSENT ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ABSENT: ABSTAIN: ON MINUTES OF THE BOARD OF SUPERVISORS L ON THE DATE SHOWN. ATTESTED 0 T/2b(- CONTACT: Pat Burke 313-1183 JOHN CULLEN,CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR cc:CAO Pat Burke,Director,Office of Communications and Media Cathy Christian, Nielsen Merksamer(via CAO) BY UTY I AB 2987 will roll back many consumer protections. Customer service has historically been a common problem with cable and telephone service. Currently most local cable franchises establish consumer protection standards that are enforced locally, which has served the public well. AB 2987 would preempt these standards and local enforcement, leaving subscribers on their own to resolve service or billing problems. Only a few state consumer protection standards will remain in place, enforceable by the State Department of Corporations in Sacramento. The Department of Corporations is located far from our local residents, has no expertise in this area and will be required to create a new State bureaucracy to handle the workload. AB 2987 would preempt local emergency notification requirements. Many local cable franchises require the cable system to carry emergency messages in the event of local emergencies, the need for which was highlighted by 9-11 and Hurricane Katrina. AB 2987 would preempt these requirements, leaving State residents with even less access to emergency information. AB 2987 would reduce technology currently available to schools. Many local cable franchises require the cable company to provide telecommunications lines (Institutional Networks) to serve public schools as well as free cable service. AB 2987 would preempt these requirements, eliminating this source of vital technology needed to help educate our children. AB 2987 would reduce or eliminate public, educational and government (PEG) access channels. Currently many local cable franchises require cable companies to help fund and carry PEG access channels, which provide educational programming, coverage of local government meetings and important public safety information. AB 2987 would limit funding and require local governments to bear the costs acquiring facilities and equipment necessary to deliver the channel signals, sometimes many miles away from the telephone companies' regional video hub sites. AB 2987 would harm local public safety and other vital functions by reducing local government revenues. AB 2987 would reduce franchise fees and preempt other fees and most local taxes currently paid by cable companies that support the General Fund. Contra Costa County currently receives approximately $1.5 million per year in cable franchise fees. AB 2987 would eliminate local government's authority to enforce the use of its rights of way. Local governments are the landlords of the public rights of way, arguably the most valuable real estate held by government, and take that responsibility by enforcing public safety provisions and equitable use of those rights of way. AB 2987 would eliminate that authority. AB 2987 is anti-competitive. AB 2987 is not necessary in order for the telephone companies to begin to provide competitive cable services: AT&T and Verizon announced their plans to construct cable systems in many areas of California over a year ago without the benefit of this bill, and both are currently constructing cable systems in California. Instead, this bill allows the telephone companies to provide cable service in an anti-competitive manner. It allows AT&T and Verizon to provide cable only in higher-income areas, thus eliminating the prospect of competition in lower-income areas. It also allows the telephone companies to provide service under more favorable terms than the incumbent cable companies, creating an unlevel financial playing field, inconsistent with the principles of fair competition. The above provisions in this bill are also inconsistent with the Board's adopted 2006 Federal Legislative platform on the Telecommunications Act of 1996 Revisions. Therefore, staff requests the Board take a position to oppose AB 2987 unless significantly amended. i California State Association of Counties April 17, 2006 The Honorable Fabian Nunez The Honorable Lloyd Levine Speaker, California State Assembly California State Assembly 1100 K Street State Capitol State Capitol Suite 101 Sacramento, CA 95814 Sacramento, CA 95814 Sacramento {alifornio Re: AB 2987 (Nunez/Levine) As amended 4/06/06 -OPPOSE UNLESS AMENDED 95814 Set for hearing 4/24/06 - Assembly Utilities and Commerce Committee l lephm 916.327.7500 Dear Speaker Nunez and Assembly Member Levine: forsimile 916.441.5507 On behalf of the California State Association of Counties (CSAC), I write to regretfully inform that we have taken a position of 'oppose unless amended' on your Assembly Bill 2987, a measure that would provide a new process for the granting of video franchises in California. As you are aware cities and counties currently serve as the local franchising authorities for cable television services in California's communities. While we dispute the notion that our franchising practices are the reason for delayed implementation of the highest technology in video services, we assert thati any statewide franchising model should place first priority on providing the best quality services to all California neighborhoods at fair prices. AB 2987 fails to achieve this good public policy goal. AB 2987 would reduce local government revenues, thus impacting local services. Local governments currently receive locally negotiated franchise fees from cable operators based on the gross revenues of the cable company. Under AB 2987, franchise fees would be lower due to the considerable definition of gross revenues and other fees and taxes that are currently paid by cable companies are preempted, such as building permit fees, encroachment permit fees, and business license taxes. AB 2987 fails to require technology investment in all California communities, resulting in higher prices and fewer services for those who need them most. There is no incentive in the measure for telephone companies to provide their high-speed service to rural or lower income neighborhoods. Instead, telephone companies wilt be allowed to provide their high-speed services in higher-income, dense communities and bypass communities with middle and low incomes and fewer people, communities that already have limited access to technology. Further, AB 2987 provides no distinction between high-speed video over fiber and direct-to- home satellite services or "other alternative technologies," thus allowing some neighborhoods access to the newest, fastest(technology and relegating other neighborhoods to slower services. The satellite packages will also impact local government revenues, as satellite services are not subject to franchise fees. AB 2987 does not adequately provide for Public, Educational, and Government (PEG) channels. Cable companies currently help fund and carry PEG channels, which provide educational programming, coverage of local government meetings, and important public safety information. AB 2987 would limit this funding and require local governments to bear the costs of acquiring facilities and equipment necessary to deliver such programming. AB 2987 provides no mechanism for local government enforcement of use of the rights of way. Local governments are the landlords of the public rights of way, arguably the most valuable real estate held by government, and take that responsibility seriously by enforcing public safety provisions and equitable use of those rights of way. AB 2987 eliminates that authority. i AB 2987 undermines existing consumer protections. It's no secret that customer service has been a common problem with cable and telephone services. Most local cable franchises establish consumer protection standards that are enforced locally. AB 2987 would preempt local standards and local enforcement, leaving customers to deal with problems on their own. A few state consumer protection standards will remain in place, with the Department of Corporations responsible for enforcement. This means a new state bureaucracy with no experience in dealing with these issues. AB 2987 would eliminate the re quirement to provide institutional networks, telecommunications lines to public schools, police and fire departments, and other public buildings. Cable operators today provide free cable service to many of those agencies. AB 2987 would preempt these requirements. AB 2987 would preempt local i mergency notification requirements. Many local cable franchises require the cable system to carry emergency alerts in the event of local emergencies. When Californians experience natural disasters, terrorist attacks, or some other Local emergency, public safety officials should have more access to emergency alerts, not less. AB 2987 would preempt these requirements, eliminating an important communications tool in the event of an emergency. In summary, counties are extremely concerned about the provisions of AB 2987. While the bill offers significant benefits for telephone companies that want to provide video services, there are few benefits for California 1consumers and the local governments who serve them. CSAC has been encouraged by your recent statements pledging to work with local governments and other stakeholders on these and other important issues. We look forward to those conversations and remain available for discussions at your pleasure. However, until this measure is significantly amended to address our concerns, we must remain opposed. Sincerely, Je n inn y H r t gslative Representative cc: Members, Assembly Utilities and Commerce Committee Ed Randolph, Consultant, Assembly Utilities and Commerce Committee Consultant, Assembly Republican Caucus The Honorable Martha Escutia, California State Senate i I Text of letter from League of California Cities April 13, 2006 Assembly Member Fabian Nunez Speaker of the Assembly State of California State Capitol—Room Sacramento, California 958,14 RE: Cable and Video Service. AB 2987 (Nunez/Levine). Notice of Opposition Dear Speaker Nunez: This is to communicate the opposition of the League of California Cities to AB 2987 in its current form. This legislation is extremely important to the communities of this state because action taken by the' state and/or federal government will set the playing field for the deployment of communications services in this state and nation for years to come. These are not small stakes,lbut are essential for the economic development and quality of life in California cities. Leti me assure you that the League is committed to being a constructive part of the dialogue on this legislation. The League has participated in the dialogue on telecommunications since last session when Assembly Member Levine conducted a series of meetings with interested parties. Throughout the dialogue the League critically reexamined its own policy on telecommunications to determine if it was keeping pace with the rapidly changing technology in communications services. The conclusion was the adoption of a League policy statement on telecommunications to guide League efforts and responses on proposed legislation. A copy is attached for your review. Comparing League policy with the provisions of AB 2987, we have several issues that are the basis of the League's opposition to the bill. Those issues are as follows: State Franchise Authority One of the cries of the telephone industry in this debate has been the so-called "speed to market" issue. As they describe the problem, the traditional local franchise process is an impediment to the telephone companies(new entrants) deploying these new communications services in a timely manner that makes sense in the context of their business plan. However, few persuasive arguments have been made by telephone companies to support these claims. In spite of the telephone industry's claim that speed to market is critical, the model offered in AB 2987 makes little sense. The bill establishes a statewide franchise system that will be administered bye the state Department of Corporations. It expands the Department's responsibilities considerably and sets up a new bureaucracy to dispense franchise applications by companies interested in providing telecommunications services in local communities. The Department, as with all state departments or agencies has had no experience in what has been to date a local franchising process. The Department is designated in the bill as the authority in charge of activities that are occurring at the local level, primarily on local streets and roads. If the legislature enacts a new, expedited statewide franchise process, our recommendation is to enact a state franchise law that is executed at the local level. Under this proposal, all or most of the elements of the current local franchises would be placed in state law. This eliminates or reduces the amount of time spent negotiating the franchise with local and therefore provides the speed to market that the telephone industry is seeking. The local government's authority would be a"ministerial"act and could be subject to a deadline for approval, once the new entrant video provider submits its application. The state law would put clear parameters around the franchise agreement and would remove most items from local negotiations. A statewide model executed at the local level achieves the "speed to market" demand of video providers, eliminates the need for a new state bureaucracy and maintains a local government role in what is still essentially a local issue. There may be some situations where a city and a new entrant or and incumbent provider may want to negotiate an is where it is in the mutual interest of both to do so. We recommend that any law also allow local franchise negotiations, if/when both parties aaeree to negotiations. Franchises/Franchise Fees It is our recommendation that a definition of"gross revenues"upon which franchise fees are calculated be written as broadly as possible. Since the start of the Levine working groups,all interested parties have agreed that cities should remain whole financially under any new franchise system. Federal law has enforcement provisions that allow franchising agencies to not renew a franchise if a cable operator is out of compliance with the terms of the franchise. We request that AB 2987 be amended to permit this same authority locally. Also, local franchise law typically includes provisions to deal with problems of late payments by a provider, including interest and late payment charges. Provisions should be included in AB 2897 to cover these operational issues. Last, language in AB 2987 implies that the franchise fee is imposed on and paid by the subscriber rather than the company holding the franchise. Under current cable franchises the cable operator pays the franchise fee, this bill should be corrected to ensure that the new entrant is also responsible for paying the franchise fee. Preemption of Local Tax Authority The language of 53085.4(c) is too broad and preempts local tax and fee authority. In its current version the bill preempts local taxes and fees such as encroachment and fees, and business license taxes. This should be corrected. Richt of Way Manaeement There are two key issues that involve management of the public right of way. The first is the stated intent of at least one "new entrant"to place large boxes(5'to 61tall with a 3' to 4' square base) in the public right of way. There needs to be some authority to deal with the aesthetics of this large "lawn furniture."Under this law, citizens will now voice their opinion about the aesthetics of their community with their state legislators in their district offices instead of locally. Second, current right of way management under local franchises contains a set of procedural rules to follow when issues arise during the deployment of communications infrastructure. Procedural rules include who is responsible when a water main is accidentally broken, who isl responsible for clean up and removal of grafitti and other safety or repair issues. Local franchises include procedures with several models to use to cover these incidents and therefore appropriate language should be amended into the bill. Consumer Protection/Customer Service There is considerable inter est among cities to continue as the enforcement agency for consumer protection and customer service standards. From the perspective of the consumer it would make more sense to place this authority at the local level than with a state agency or department or certainly the Federal Communications Commission. Under current law, cities have the option to assume the authority to enforce consumer protection and customer service standards. AB 2987 should be amended to permit those cities with the desire and experience to assume this enforcement authority. Federal law now permits local agencies to enforce the FCC adopted customer service standards and also allows the flexibility to enact local customer service standards in addition to the FCC standards. AB 2987 should be amended to permit this local option and flexibility using FCC standards as a base for customer service and consumer protection. Emerzency Notification Current federal law requires cable operators to cooperate with the federal Emergency Alert System. This requirement does not cover local emergencies. As a result, many local franchises now require the cable operator to provide an emergency notification system. This is the text"crawler"at the bottom of the screen on every channel to warn local residents. AB 2987 should be amended to require the use of this notification system by all video service providers. Outstanding Issues There are two outstanding issues that are critical to a successful state rewrite of the franchise laws for telecommunications services. Those issues are: Public, Education and Government(PEG) Channels/Institutional Networks (INET). The provisions of AB 2987 preempt local authority when it comes to the issue of public, education and government channels as well as the institutional network(INET) services currently provided in some communities. The INET is a network of telecommunications lines connecting schools, libraries, nonprofit organizations and/or,other governmental facilities. These services are critical in many communities. I he immediate problem under AB 2987 is that there is no provision to continue these services after certain dates. It is not specified how a local community without INET services currently can acquire these services in the future. AB 2987 does provide some standards for PEG services, but these standards may not be flexible enough to meet growing needs in California. In our discussions with your staff, we asked to for more time to vet this issue of PEG channels and INET services and come back with an improved proposal. We have a meeting scheduled this Friday to try and accomplish this task. I Build Out/Discrimination Issues. After a discussion with your staff, it is understood that the build out/discrimination issue is still a"work in progress" in the legislation. This is another critical issue in local communities. Under the current law for video services, local governments have the authority to demand build out of cable systems to ensure that all parts of a community receive these services. Local governments have been successful in ensuring that our local communities receive cable services in California. The bottom line is that new entrants should not be given complete free-reign to pick and choose the parts of a community that receive these new telecommunications services. There has to be some reasonable standard to permit the deployment of these services in an equitable manner. We pledge our cooperation in working toward such a solution. We believe that this clearly,outlines the basis of our opposition to AB 2987. We look forward to working with you and your staff to develop a telecommunications regulatory scheme that makes sense for all Californians. Sincerely, Dwight R. Stenbakken Deputy Executive Director ANALYSIS OF AB 2987 (NUNEZ AND LEVINE) "THE DIGITAL INFRASTRUCTURE AND VIDEO COMPETITION ACT OF 2006" Prepared by Paul Valle-Riestra _ Senior Assistant City Attorney City of Walnut Creek AB 2987 (Nunez and Levine) as amended on March 30, 2006,would provide for statewide franchising of video and cable services subject to meeting certain limited requirements to pay fees and provide community benefits while preempting local government franchises. Back rg ound Prior to 1996, telephone companies were preempted by federal law from providing cable television service. In 1996, Congress enacted the Telecommunications Act of 1996 which authorized telephone companies to provide cable service. Ameritech, one of the original Bell telephone companies, quickly began providing cable service in some areas outside of California and Pacific Bell briefly provided cable service in San Jose. However, SBC subsequently acquired these companies and pulled the plug on their cable service. In late 2004, SBC (which later acquired and changed its name to AT&T) announced the launch of Project Lightspeed, a$5 billion project to upgrade parts of its network in order to deliveri new IP-enabled services, including cable television, to parts of its service territory. These services will be provided over a new proprietary network, not over the public Internet. AT&T plans to install new high-capacity optical fibers to large node boxes located in neighborhoods, from which the new services will be provided over AT&T's existing lowi capacity twisted pair copper wires to subscriber homes. The video programming that will be provided is essentially the same as is available on most current cable systems, although the delivery technology will be slightly different in ways that are transparent to the subscriber. AT&T plans to build the infrastructure and provide the new services to 90% of its "high-value customers" (i.e. those that can afford to spend $160-200 per month on telecommunications services), but only to 5% of its "low-value customers" (i.e. those that can afford to spend less than $110 per month). At about the same time, the other major telephone company in California, O Verizon, announced its FIS project, a plan to construct a new network with high- capacity optical fibers running all the way into subscriber homes. Verizon also plans to offer cable television over this network. Cable television companies have historically been required to obtain franchises from local governments prior to using public streets to construct cable systems. The federal Cable Act prohibits any entity, including telephone companies, from providing cable service without obtaining a state or local franchise. (47 U.S.C. section 541.) California law requires cable companies to obtain a franchise from the applicable city or county prior to constructing a cable system. (Government Code section 53066.) Federal and state law limit the requirements that can be included in local franchise agreements. Local franchise agreements have typically included: (1) requirements that the cable operator provide service to all residents regardless of income (or"universal service" requirements); (2) customer service/consumer protection standards that are locally enforced; (3)payment of a franchise fee of 5% of gross revenues; (4)public, educational and government ("PEG") access requirements, including dedication of channels, provision of equipment and facilities and capital funding; (5) "Institutional Networks", i.e. requirements that the cable operator dedicate telecommunications lines to connect schools, libraries and other public buildings; (6) free cable service for schools, libraries and other public buildings;'(7) right-of-way management regulations, i.e. regulations concerning the manner in which cable companies construct and maintain lines along public rights-of-way; (8) regulations relating to the transfer, renewal and termination of franchises; and (9) enforcement mechanisms, such as security funds and liquidated damages for violations. AT&T has argued that it cannot be required to obtain local cable franchises because it already has a franchise to install telephone lines pursuant to Public Utilities Code section 7901. AT&TI has entered into agreements (albeit not"franchise agreements") with the cities of San Ramon and Anaheim to begin construction and may have commenced construction in other cities as well. Verizon has acknowledged that it is required to obtain local cable franchises, has obtained franchises and begun construction in the cities of Hermosa Beach, Murrieta, Beaumont, Apple Valley and Lake Elsinore, and is seeking franchises in a number of other cities. AT&T is also sponsoring federal legislation carried by Congressman Barton that would provide for national franchises that would preempt AB 2987 and local franchising. AT&T has also filed a petition with the FCC seeking preemption of local franchising. In addition, AT&T has sued the City of Walnut Creek in federal court, arguing that it cannot be required to obtain a local franchise under state and federal law. On April 7, 2006, the court indicated that it would likely granted the City's motion to dismiss the lawsuit while allowing AT&T to file an amended complaint. AB 2987 Video Service. AB 2987 would establish a new category of service, "video service", defined as video programming services provide through wireline facilities located within public rights of way without regard to technology. Video service appears to be slightly broader than[,cable service". It appears to be a term designed to cover AT&T's proposed video service while avoiding the need to determine whether that video service is a"cable service"I. However, AB 2987 treats cable service and video service in the same way, making the distinction a matter of semantics rather than substance. State authorization. AB 2987 would authorize the Department of Corporations to grant a"state-issued authorization"to provide cable service or video service. The Department would be required to issue the authorization within 14 days of receipt of a complete application containing basic information from the applicant together with statements that the applicant will abide by the various regulatory requirements contained in the bill. (53058.3) The applicant is not required to notify the local agencies that it has applied for the state-issued)authorization. The state-issued authorization includes a grant of authority to provide cable and/or video service in the area requested and a grant of authority to use public rights -of-way in the delivery of that service. (53058.3(f).) The provider is required to notify all applicable local agencies that it has obtained the state- issued authorization not later than 10 days before it begins to provide service. (53058.30).) Preemption of local franchising. Local agencies would be prohibited from requiring any holder of a state-issued authorization to obtain a local franchise or impose "any fee or requirement . . I except as expressly provided" in the bill. (53058.3(a).) Application of bill to incumbent cable operators. Any person, including incumbent cable operators with existing franchises, seeking to provide cable service after the effective date of the bill is required to obtain a state-issued authorization. (53058.3.) Incumbent cable operators are required to continue to provide the following services (if they are currently being provided) until January 1, 2008, or until the term of their franchise expires, whichever is later: (1) PEG production or studio facilities; (2) institutional network capacity; and (3) cable services to public buildings. (53058.5(k).) Apparently all other provisions of existing franchise agreements would be preempted. This raises questions of whether the bill would violate the Contracts Clauses of the federal and state Constitutions, which prohibit the impairment of contracts by government action. To the extent that the foregoing requirements result in a greater burden on the incumbent cable operators than on new entrants, it also raises questions of fairness and a lack of a level playing field—questions which led the cable industry to file a lawsuit challenging statewide franchising legislation in Texas. Further, federal law mandates a process for the renewal of cable franchises. (47 U.S.C. section 546.) To the extent that this bill establishes a process whereby cable franchises will be renewed upon expiration of the incumbents' franchises that is different than the federal process, the bill may violate federal law. Franchise fees - percentage. Under current federal and state law, a cable operator is required to pay the franchising agency not more than 5% of the operator's gross revenues, with the exact percentage established by the franchising agency. Most agencies have set the franchise fee at the full 5%. Under AB 2987,the holder of a state-issued authorization ("Holder") providing service within a local jurisdiction is required to remit a"state-issued authorizati o In fee" to the local agency. If there is an incumbent cable operator, the fee is 5% of the Holder's gross revenues or the percentage paid by the incumbent, whichever is less. If there is no incumbent cable operator or, upon expiration of the incumbent's franchise, a local agency may set the percentage to be paid by all cable and video service providers at an amount not to exceed 5% of gross revenues. (53058.4(a), (b).) Franchise fees— gross revenues. Currently under federal and state law, the franchise fee is calculated as a percentage of the cable operator's gross revenues. A federal court in City of Dallas v. FCC has ruled that"gross revenues" is construed broadly to include all revenues, without deduction. AB 2987 provides for a more limited definition of gross revenues. It allows the Holder to determine what constitutes revenues in accordance with generally accepted accounting principles ("GAAP"). Revenues can be treated in various ways while still complying with GAAP, such as allowing certain revenues to instead be treated as "contra-expenses", with the result being that the bill would allow Holders to effectively decrease the amount of gross revenues that are subject to franchise fees. Similarly, where a Holder"bundles"video/cable service with other services and charges a single price, the bill allows the Holder to account for that revenue in such a way that a less than pro rata share is allocated to video/cable, thereby reducing gross revenues subject to franchise fees. (53058.4(d), (e).) Failure to pay franchise fees. Typically local franchises provide for late payment charges or interest if a cable operator fails to pay franchise fees on time. AB 2987 authorizes audits of fee payments, but does not provide for any late payment charges or interest. (53058.4(h).) Entity subject to franchise fee. Currently federal law authorizes cable operators to include a line item on subscriber bills showing the cable operator's cost of paying franchise fees. However, federal law provides that the franchise fee is imposed on the cable operator, not on the subscriber. AB 2987 provides that a Holder may identify and collect the fee as a separate line item on subscriber bills. This implies that the franchise fee is actually imposed on and paid by the subscriber rather than the Holder. (53058.4(i).) A similar provision would apply to PEG capital payments. (53058.5(1).) Preemption of other local fees. AB 2987 provides that no local agency"may demand any additional fees or charges or other remuneration of any kind" from a Holder other than the state-issued authorization fee. However, this prohibition does not limit a local agency's ability to impose utility user taxes. Apparently AB 2987 would preempt all other local fees and charges applied to a holder, including encroachment permit fees, inspection fees, business license taxes and all other local fees, charges and taxes. (53085.4(c).) Public, educational and government ("PEG") access channels. Federal law permits a local agency to require as part of a franchise that a cable operator dedicate capacity for PEG channels on the cable system. State law provides that if a local agency grants a second cable franchise, the franchise "shall contain the same public, educational, and governmental access requirements that are set forth in the existing franchise." (53066.3(d).) AB 2987 requires that a Holder designate sufficient capacity "to allow the provision of a comparable number of PEG channels or hours of programming, at the holder's discretion,"that the incumbent cable operator has provided. This would apparently allow a Holder tIo decide not to dedicate entire channels for PEG use, but to instead carry the PEG programming on various channels, e.g. on commercial channels during early morning hours when the channels would otherwise not be programmed. If no PEG channels are provided by the incumbent, upon request of the local agency, the Holder would be required to designate not more than three PEG channels in a jurisdiction with a population of more than 50,000 and not more than two PEG channels in a jurisdiction with a population of less than 50,000. In either event, the Holder would be required to provide the channel capacity within 12 months of a request from the local agency. The 12-month period would be tolled during any period that provision of PEG channel capacity is technically infeasible. (53058.5.) PEG channels—technical requirements for getting signals onto network. PEG programming is typically produced at a local government facility and transmitted over lines provided by the cable operator to the operator's "headend", where the signals are placed onto the cable system. When the PEG programming is carried on two different cable systems, the programming is either transmitted separately to each of the operators' headends, or the two systems are "interconnected" (i.e. a line is constructed connecting the two cable systems so that the PEG programming carried on one system can be transmitted to the other system). Cable operators typically strongly resist any requirement that they interconnect with another operator's system. AT&T's programming will originate from regional Video Hub Offices rather than"headends". For example, in the San Francisco Bay Area, AT&T has indicated that it will likely have two Video Hub Offices from which all of the video programming throughout the Bay Area will be distributed. Accordingly, a central issue is how PEG programming will be transmitted from the local government production facility to a Video Hub Office that may be located many miles away. AB 2987 provides that a Holder and an incumbent cable operator must negotiate in good faith to provide for interconnection. If they are not able to reach an agreement, the only obligation of a Holder is to make "interconnection available to the channel originator at a technically feasible point on the holder's network." In such a case,the local agency may therefore be required to bear the cost of obtaining or constructing equipment and facilities necessary to transport the PEG channels for many miles. Even if the Holder and the incumbent cable operator do reach an agreement on interconnection, nothing in the bill states that the Holder must transport the signal from the point o6riterconnection to the Video Hub Office. Further, the local agency is required to ensure that the PEG channels are provided in a form that is capable of being accepted and transmitted by the holder. Thus, apparently even if the local agency transmits the channel in a standard analog or digital format, if the Holder will transmit the signal in a different format, it is up to the local agency to bear the cost of acquiring equipment to convert the signal into the Holder's format. (53058.5(e), (f).) PEG capital payments prior to expiration of incumbent franchise. As authorized by federal law, local cable franchises typically require the cable operator to provide PEG equipment, facilities, and services, and/or funds to pay for such equipment and facilities. When funds are provided, typically a lump sum is paid in advance to allow for purchase of equipment and facilities. Additional amounts for replacements are sometimes also provided, usually based on either a set amount per subscriber per month, or on the basis of a percentage of gross revenues. AB 2987 would provide that if the incumbent cable operator has existing unsatisfied obligations for cash payments, the local agency shall divide those cash obligations among all of the video and cable providers on a pro rata basis based upon the proportion that each provider's number of subscribers bears to the total number of subscribers at the end of the "period" (which is apparently each quarter). It is unclear how this would be calculated if the PEG fees due from the incumbent are based on a percentage of thIe incumbent's gross revenues. If the incumbent only provided PEG equipment, facilities and services, and/or paid all PEG funding in advance, the Holder would have no obligation to provide any PEG facilities or funding. It is unclear how this provision would apply when there are more than one incumbent cable operators. (53058.5(h), (i).) PEG capital payments following expiration of incumbent franchise. AB 2987 provides that upon expiration of the incumbent cable operator's franchise, the Holder shall pay a fee to support PEG and Institutional Network facilities equal to 1% of the Holder's gross revenues or at the Holder's election, the per subscriber fee that was paid by the Holder pursuant to section 53058.5(h) (discussed above), which in some cases would be nothing. (53058.50).) Continuation of Incumbent PEG obligations. AB 2987 provides that an incumbent cable operator must continue to provide the following services until January 1, 2008, or until the franchise expires, whichever is later: (1) PEG production or studio facilities; (2) Institutional network capacity; (3) Cable services to community public buildings. (53058.5(1).) Enforcement of PEG obligations. AB 2987 provides that the exclusive remedy for a violation of the PEG requirements is to file a lawsuit. No provider may be barred from providing service as a result of the violation. (53058.5(m).) Right-of-way mana eg_ment. Local cable franchise agreements typically include extensive terms governing the design of the system and the time and manner in which construction may occur. State law relating to telephone companies limits local authority over the construction of telephone lines to the time, place and manner in which the lines are constructed. (Public Utilities Code section 7901, 7901.1) A court recently ruled in Sprint v. City of La Canada Flintridge that a local agency may not regulate telephone facilities based on aesthetics. (This case may be reheard and in any event is a federal decision that is not bindinglon California courts.) AT&T plans to install, among other facilities, "52-13"boxes within the public right-of-way, which are 5-6 feet tall and several feet wide. AB 2987 would provide that a Holder may install facilities "within public rights-of-way under the same terms and conditions as applicable to telephone corporations." It is unclear whether this limits current authority to regulate cable construction, including whether cable facilities can be regulated based on aesthetics. (53058.6.) Discrimination/buildout/redlining. Federal law provides, "In awarding a franchise or franchises, a franchising authority shall assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local areas in which such group resides." (47 U.S.C. section 541(a)(3).) State law provides that in awarding a cable franchise, a local agency "shall assure that access to cable service is not denied to any group of potential residential cable subscribers because of the 1ncome of the residents of the local area in which the group resides." (Government Code section 53066.2.) State law also provides that if a local agency grants a second cable franchise, the agency "shall require the franchisee to wire and serve the same geographical area within a reasonable time and in a sequence which does not discriminate against lower income or minority residents." (Government Code section 53066.3.) AT&T only plans to deploy Project Lightspeed in selected areas of California. In AT&T's November 11, 2004 "Investor Update", which was essentially a conference call to Wall Street investors, AT&T provided a PowerPoint presentation showing their plans for deployment of Project Lightspeed. In that PowerPoint presentation, they broke down households within their service territory into "High Value Customers" representing 25% of all households, "Medium Value Customers" representing 40% of all households and "Low Value Customers" representing 35% of all households. They then indicated that Project Lightspeed services would be made available to 90% of"High Value Customers", 70% of"Medium Value Customers" and only 5% of"Low Value Customers". AT&T defined"High Value Customers" as those able to afford $160-200 per month for telecommunications services, whereas "Low Value Customers" were those that can only afford less than $110 per month for telecommunications services. Accordingly, there is a direct correlation between I`Value"and income, with AT&T planning to largely bypass neighborhoods with residents falling in the lower 35% of income levels. AT&T has also formed a partnership with Echostar("The Dish Network") to provide AT&T-branded satellite television service over The Dish Network. AT&T has indicated that these services will be made available in the low income neighborhoods that will be bypassed by Project Lightspeed. AB 2987 provides that a Holder"may not discriminate against or deny access to service to any group of potential residential subscribers because of the income of the residents in the local area in which the group resides." It further provides that a Holder shall have a"reasonable period of time to become capable of providing cable service or video service"within the area that the Holder designated in its application that it intends to service. It further provides that it may satisfy these requirements "through the use of (1) direct-to-home satellite service or(2) another alternative technology that provides comparable content, service, and functionality." As discussed above, AT&T plans to provide service through use of direct-to-home satellite service (i.e. The Dish Network), which is available throughout California, so AT&T will have satisfied the requirements of this provision. Thus under this bill, AT&T will be free to implement its plans to largely bypass neighborhoods where income levels are in the lowest 35% of the population. It is unclear whether this bill would violate federal law which, as discussed above, affirmatively requires the State to assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local areas in which such group resides. Federal law does not allow this obligation to be satisfied through the provision of direct-to-home satellite service. Consumer Protection/Customer Service. Currently California law establishes some customer service standards applicable to all video service providers. (Government Code section 53088.2.) Local agencies are authorized to establish a schedule of penalties for breach of the standards. (Government Code section 53088.2(q)—(s).) California law also requires all video providers to establish their own customer service standards, but does not specify what those standards must be. (Government Code section 53055 et seq.) Under federal law,the Federal Communications Commission establishes customer service standards for cable operators that are more extensive than the California standards, although the FCC,has no jurisdiction to enforce the standards. Federal law authorizes franchising authorities to enforce the FCC standards and to adopt additional regulations that exceed the FCC standards or cover additional matters. (47 U.S.C. section 552; 47 CFR section 76.30911) Most local agencies have adopted and enforce the FCC standards and/or more extensive standards. AB 2987 provides that a Holder must comply with the provisions of Government Code sections 53088.2 and 53055 et seq. However, local agencies are preempted from adopting any other standards. Local agencies are also preempted from enforcing the FCC standards or the California standards. The Department of Corporations would be authorized to enforce the California standards, but would not have authority to adopt other standards or enforce the FCC standards. It is unclear whether state funds would be appropriated to fund these new enforcement responsibilities of the Department of Corporations. Employment issues. AB 2987 would require Holders to perform background checks of applicants for employment and to file certain annual reports regarding employees. (53058.9, 5305,8.10.) Local emeraencv notification. Federal law requires cable operators to cooperate with the federal Emergency�Alert System, which provides that emergency messages must be carried on all channels in the event of an emergency. (47 U.S.C. section 544(g).) The EAS is not designed to address local emergencies and is generally not accessible directly by local agencies in the event of a local emergency. As a result, many local franchises require the cable operator to also provide a local emergency notification system, e.g. so that in the event of a local disaster such as a flood or terrorist attack, a text"crawler" at the bottom of the screen on every channel can warn local residents. By preempting all requirements not expressly provided for in the bill, AB 2987 would preempt local emergency notification requirements. Apparently AT&T would also not comply with the federal Emergency Alert System because it argues that it is not a"cable" system. (53058.3(a).) Service to schools and libraries. Currently most local franchises require the cable operator to provide free service to government buildings, including schools and libraries. AB 2987 only requires incumbent cable operators to continue such services until January 1, 2008, or until the term of the incumbent's franchise expires, whichever is later. (53058.5(k)(3).) By preempting all requirements not expressly provided for in the bill, AB 2987 would prohibit all other requirements that Holders provide free service to schools, libraries or other government buildings. (53058.3(a).) Institutional networks. An"institutional network" is essentially a network of telecommunications lines connecting schools, libraries, nonprofit organizations and/or other government facilities Federal law authorizes franchising agencies to require cable operators to construct and dedicate capacity on institutional networks as part of a franchise. (47 U.S.C. sections 531(f), 54 1(b)(3)(D), 544(b)(1).) AB 2987 only requires an incumbent cable operator to continue to provide institutional networks until January 1, 2008, or until the term of the incumbent's franchise expires, whichever is later. (53058(k)(2).) By preempting all requirements not expressly provided for in the bill, AB 2987 would prohibit any requirement that Holders provide an institutional network. (53058.3(a).) Enforcement. Local franchises typically include a variety of enforcement mechanisms to ensure that cable operators comply with various requirements, including penalties for violations, security funds or bonds that can be drawn against, provisions for obtaining injunctive relief, and provisions for shortening or terminating franchises. Local franchises are typically for a limited term, such as 15 years. Federal law authorizes franchising agencies not to renew a franchise if the cable operator has not substantially complies with the material terms of the franchise. (47 U.S.C. section 546(c)(1)(A).) AB 2987 only provides for enforcement of certain terms of the bill by filing a lawsuit. Specifically, AB 2987 authorizes lawsuits if a Holder(1) fails to pay the state-issued authorization fee (53058.4); (2)violates the PEG channel requirements (53058.5); or(3) violates the nondiscrimination provision (53058.7). Preemption by_proposed federal legislation. Congressman Joe Barton has introduced legislation in Congress (commonly referred to as BITS III)that would provide for nationwide franchising of video and cable service. If the federal legislation is adopted, it may raise complex questions of whether all or part of AB 2987 would be preempted and how any remaining provisions of AB 2987 would continue to apply. Net neutrality. A major issue that some members of Congress are seeking to have addressed in the federal legislation, but Congressman Barton has declined to include in his bill, is a net neutrality provision. AT&T has indicated it's intention to make third parties that provide serviceover portions of the Internet owned by AT&T to pay AT&T, at least in order to receive priority in the transmission of their services. For example, if Google decides it wants to sell video streamed over the Internet, AT&T apparently wants to charge Google in order to receive priority in the transmission to the extent that the transmission run over lines owned by AT&T. This could lead to AT&T completely blocking the transmission of content over the Internet to the extent that the services compete with AT&T's services. AB 2987 does not address this issue. q AMENDED IN ASSEMBLY APRIL 6, 2006 AMENDED IN ASSEMBLY MARCH 30, 2006 CALIFORNIA LEGISLATURE 12005-06 REGULAR SESSION ASSEMBLY BILL No. 2987 i Introduced by Assembly Members Nunez and Levine February124, 2006 An act to add Article 3.7 (commencing with Section 53058) to Chapter 1 of Part 1 of Division 2 of Title 5 of the Government Code, relating to cable and video service. LEGISLATIVE COUNSEL'S DIGEST AB 2987, as amended,Nunez. Cable and video service. Existing law provides that any city, county, or city and county may authorize by franchise or license the construction and operation of a community antenna television system and prescribe rules and regulations to protect the subscribers.Existing law provides that cable and video service providers comply with specified customer service standards and performance standards. This bill would state ep intent. Aff the Legislature to efeate the w, 2006 and Would define the term ,> This bill would establish a procedure for state-issued authorizations for the provision of cable service or video service that would be administered by the Department of Corporations. The department would be the sole franchising authority of state-issued authorizations to provide cable or video services. The bill would require any person who seeks to provide cable service or video service in this state to file an application with the department for a state-issued authorization. 97 1 AB 2987 —2— Current 2—Current franchise holders would be I eligible to apply for state-issued authorizations on the expiration of their current franchise agreements. Cities, counties, or cities and counties would receive fees far cable or video services provided within their jurisdictions, based on gross revenues, pursuant to specified procedures. The bill would require these local agencies to permit the installation of networks by holders of state-issued authorizations and would preclude enforcement of standards by the local agencies. Vote: majority. Appropriation: no. Fiscal committee: dyes. State-mandated local program: no. The people of the State of Cali+fornia do enact as follows: 1 SECTION 1. Article 3.7 (commencing with Section 53058) is 2 added to Chapter I of Part 1 of Division 2 of Title 5 of the 3 Government Code, to read: 4 5 Article 3.7. The Digital Infrastructure and Video Competition 6 Act of 2006 7 8 53058. This act shall be known and may be cited as the 9 Digital Infrastructure and Video Competition Act of 2006. 10 53058.1. (a) This article shall be known and maybe cited as 11 the Digital Infrastructure and Video Competition Act of 2006 12 (b) The Legislature finds and declares all of the following: 13 (1) Video and cable services provide numerous benefits to all 14 Californians including access to a variety of news, public 15 information, education, and entertainment programming. 16 (2) Increased competition in the cable and video service sector 17 provides consumers with more choice, lowers prices, speeds the 18 deployment of new communication and broadband technologies, 19 creates jobs, and benefits the California economy. 20 (3) To promote competition, the state should establish a 21 state-issued franchise authorization process that allows market 22 participants to use their networks and systems to provide video, 23 voice, and broadband services to all residents of the state. 24 (4) Legislation to develop this new process should adhere to 25 the following principles. 97 i —3— AB 2987 1 (i) Create a fair and level playing field for all market 2 competitors that does not disadvantage or advantage one service 3 provider or technology over another. 4 (ii) Promote the widespread access to the most technologically 5 advanced cable and video services to all California communities 6 in a nondiscriminatory manner regardless of socioeconomic 7 status. 8 (iii) Protect local government revenues and their control of 9 public rights of way. 10 (iv) Require market participl nts to comply with all applicable 11 consumer protection laws. 12 (v) Complement efforts to increase investment in broadband 13 infrastructure and close the digital divide. 14 (vi) Continue access to and maintenance of the public, 15 education, and government (PEG) channels. 16 53058.2. For purposes of this article, the following words 17 have the following meanings: 18 (a) "Cable operator" means any person or group of persons 19 that either provides cable service over a cable system and 20 directly, or through one or more affiliates, owns a significant 21 interest in a cable system; or that otherwise controls or is 22 responsible for, through any arrangement, the management and 23 operation of a cable system, as set forth in Section 522(5) of Title 24 47o the United States Code. 25 (b) "Cable service" is defined as the one-way transmission to 26 subscribers of either video programming, or other programming 27 service, and subscriber interaction, if any, that is required for the 28 selection or use of video programming or other programming 29 service, as set forth in Section 522(6) of Title 47 of the United 30 States Code. 31 (c) "Cable system" is defined as set forth in Section 522(7) of 32 Title 47 of the United States Code. 33 (d) "Department"means the Department of Corporations. 34 (e) "Franchise" means an initial authorization, or renewal of 35 an authorization, issued by a franchising entity, regardless of 36 whether the authorization is designated as a franchise, permit, 37 license, resolution, contract, certificate, agreement, or otherwise, 38 that authorizes the construction and operation of a cable system 39 in public rights-of-way. 97 AB 2987 —4 1 ()9 `Franchising entity" mens the city, county, or city and 2 county entitled to require franchises and impose fees on cable 3 operators, as set forth in Section 53066. 4 (g) "Incumbent cable operator" means the cable operator 5 serving the largest number of cable subscribers in a particular 6 city, county, or city and county franchise area on the effective 7 date of this article. 8 (h) "Local entity" means any city, county, or city and county 9 within the state within whose jurisdiction a holder of a 10 state-issued authorization under this article may provide cable 11 service or video service. 12 (i) "Network" means a component of a facility that is wholly 13 or partly physically located within a public right-of-way and that 14 is used to provide video service, cable service, or voice or data 15 services. 16 (j) "Public right-of-way" means the area along and upon any 17 public road or highway, or along or across any of the waters or 18 lands within the state. 19 (k) "Subscriber" means a person who lawfully receives cable 20 service or video service from the holder of a state-issued 21 authorization or franchise for a fee. 22 (1) "Video programming" means programming provided by, 23 or generally considered comparable to programming provided 24 by, a television broadcast station, as set forth in Section 522(20) 25 of Title 47 of the United States Code. 26 (m) "video service" means video programming services 27 provided through wireline facilities located at least in part in 28 public rights-of-way without regard to delivery technology, 29 including Internet protocol technology This definition does not 30 include any video programming provided by a commercial 31 mobile service provider define in Section 322(d) of Title 47 of 32 the United States Code. 33 (n) "Video service provider�' means an entity providing video 34 service. This term does not include a cable operator. 35 53058.3. (a) The Department of Corporations is the sole 36 franchising authority for a state-issued authorization to provide 37 cable service or video service under this article. Neither the 38 department nor any franchising entity or other local entity of the 39 state may require the holder bf a state-issued authorization to 40 obtain a separate franchise or otherwise impose any fee or 97 -5— AB 2987 1 requirement on any holder of astate-issued authorization except 2 as expressly provided in this article. Sections 53066, 53066.01, 3 53066.2, and 53066.3 shall not apply to holders of a state-issued 4 authorization. 5 (b) The application process described in subdivisions (d) and 6 (e)and the authority granted to the department under this section 7 shall not exceed the provisions set forth in this section. 8 (c) Any person who seeks to provide cable service or video 9 service in this state after the effective date of this article shall file 10 an application for a state-issued authorization with the 11 department. The department may impose a fee on the applicant 12 that shall not exceed the actual and reasonable costs of 13 processing the application and shall not be levied for general 14 revenue purposes. 15 (d) The application for a state-issued authorization shall be 16 made on a form prescribed by the department and shall include 17 all of the following: 1 18 (1) A sworn affidavit, signed by an officer or another person 19 authorized to bind the applicant, that affirms all of the following: 20 (A) That the applicant has filed or will timely file with the 21 Federal Communications Commission all forms required by the 22 Federal Communications Commission before offering cable 23 service or video service in this state. 24 (B) That the applicant agrees to comply with all federal and 25 state statutes, rules, and regulations, including, but not limited 26 to, the following: 27 (i) A statement that the applicant will not discriminate in the 28 provision of video or cable services as provided in Section 29 53058.7. I 30 (ii) A statement that the applicant will abide by all applicable 31 consumer protection laws and rules as provided in Section 32 53058.8. 33 (iii) A statement that the applicant will remit the fee required 34 by Section 53058.4 to the local entity. 35 (iv) A statement that the applicant will provide PEG channels 36 as required by Section 53058.5. 37 (C) That the applicant agrees to comply with all lawful city, 38 county, or city and county regulations regarding the time,place, 39 and manner of using the public rights-of-way. 97 AB 2987 —6- 1 6-1 (2) The applicant's legal na�e and any name under which the 2 applicant does or will do business in this state. 3 (3) The address and telephone number of the applicant's 4 principal place of business, along with contact information for 5 the person responsible for ongoing communications with the 6 department. 7 (4) The names and titles of the applicant's principal officers. 8 (5) The legal name, address, and telephone number of the 9 applicant's parent company, if any. 10 (6) A description of the service area footprint to be served 11 including the social economic information of all residents within 12 the service area footprint. 13 (7) If the applicant is a telephone corporation, as defined in 14 Section 234 of the Public Utilities Code, a description of the 15 territory in which the company provides telephone service. The 16 description shall include social economic information of all 17 residents within in the telephone corporation's service territory. 18 (8) The expected date for the deployment of video service in 19 each of the areas identified in paragraph (6). 20 (e) (1) The department shall notes an applicant for a 21 state-issued authorization whether the applicant's affidavit 22 described by subdivision (d) is complete or incomplete before the 23 30th calendar day after the applicant submits the affidavit. 24 (2) If the department finds Zhe affidavit is complete, it shall 25 issue a certificate of state-issued authorization before the 14th 26 calendar day after that finding. 27 (3) If the department finds that the application is incomplete, it 28 shall specify with particularity the items in the application that 29 are incomplete and permit the applicant to amend the application 30 to cure any deficiency. The department shall have 30 calendar 31 days from the date the application is amended to determine its 32 completeness. 33 (4) The failure of the department to notes the applicant of the 34 completeness or incompleteness of the applicant's affidavit 35 before the 44th calendar day after receipt of an affidavit shall be 36 deemed to constitute issuance of the certificate applied for 37 without further action on behalf of the applicant. 38 ()q The state-issued authorization issued by the department 39 shall contain all of the following: 97 —7— AB 2987 1 (1) A grant of authority to 1provide cable service or video 2 service, or both, in the service area footprint as requested in the 3 application. 4 (2) A grant of authority to use the public rights-of-way in the 5 delivery of that service, subject to the laws of this state. 6 (3) A statement that the grant of authority is subject to lawful 7 operation of the cable service or video service by the applicant 8 or its successor in interest. 9 (g) The state-issued authorization issued by the department 10 may be terminated by the cable operator or video service 11 provider by submitting notice to the department. 12 (h) Subject to the notice requirements of this article, a 13 state-issued authorization may be transferred to any successor in 14 interest of the holder to which the certificate is originally 15 granted. 16 (i) In connection with, or as a condition of, receiving a 17 state-issued authorization, the department shall require a holder 18 to notify the department and any applicable local entity within 14 19 business days of any of the following changes involving the 20 holder or the state-issued authorization: 21 (1) Any transaction involving a change in the ownership, 22 operation, control, or corporate organization of the holder, 23 including a merger, an acquisition, or a reorganization. 24 (2) A change in the holder's legal name or the adoption of, or 25 change to, an assumed business name. The holder shall submit to 26 the department a certified copy,of either of the following: 27 (A) The amended state-issued authorization. 28 (B) The certificate of assumed business name. 29 (3) A change in the holders principal business address or in 30 the name of the person authorized to receive notice on behalf of 31 the holder. 32 (4) Any transfer of the state-issued authorization to a 33 successor in interest of the holder. The holder shall idents the 34 successor in interest to which the transfer is made. 35 (5) The termination of any state-issued authorization issued 36 under this article. The holder shall identify both of thefollowing: 37 (A) The number of customers in the service area covered by 38 the state-issued authorization being terminated. 39 (B) The method by which the holder's customers were notified 40 of the termination. 97 AB 2987 1 (6) A change in one or more of the service areas of this article 2 that would increase or decrease the territory within the service 3 area. The holder shall describe the new boundaries of the 4 affected service areas after the proposed change is made. 5 0) Asa condition of receiving a state-issued authorization, the 6 holder shall notify all applicable local entities that the local 7 entity is included in the holder's service area under the 8 state-issued authorization being issued and that the holder 9 intends to provide video or cable service in the local entity's 10 jurisdiction. The holder shall give the notice required under this 11 subdivision not later than 10 days before the holder begins 12 providing video or cable service in the local entity's jurisdiction. 13 (k) The department shall develop information guides and other 14 tools to help educate local entities and other interested parties 15 about the various provisions of this article. 16 53058.4. (a) The holder of a state-issued authorization that 17 offers cable service or video service within the jurisdiction of the 18 local entity shall calculate and remit to the local entity a 19 state-issued authorization fee, as provided in this section. The 20 obligation to remit the state-issued authorization fee to a local 21 entity begins immediately upon provision of cable or video 22 service within that local entity's jurisdiction. However, the 23 remittance shall not be due until the time of the first quarterly 24 payment required under subdivision (g) that is at least 180 days 25 after the provision of service began. The fee remitted to a city or 26 city and county shall be based on gross revenues earned within 27 thatjurisdiction. The fee remitted to a county shall be based on 28 gross revenues earned within the unincorporated area of the 29 county. No fee under this section shall become due unless the 30 local entity provides documentation to the holder of the 31 state-issued authorization supporting the percentage paid by the 32 incumbent cable operator serving the area within the local 33 entity's jurisdiction, as pro I vided below. The fee shall be 34 calculated as a percentage of the holder's gross revenues, as 35 defined in subdivision (d). 36 (b) The state-issued authorization fee shall be a percentage of 37 the holder's gross revenues, as defined in subdivision (d), as 38 follows: 39 (1) If there is an incumbent cable operator, 5 percent of the 40 holder's gross revenues or the percentage applied by the local 97 tl -9= AB 2987 1 entity to the gross revenue of the incumbent cable operator, 2 whichever is lesser. 3 (2) If there is no incumbent cable operator or upon the 4 expiration of the incumbent cable operator's franchise, a local 5 entity may, by ordinance, set the percentage applied to the gross 6 revenues of all cable operators and video service providers, 7 provided that the fee shall not exceed 5 percent of gross revenues 8 and shall be applied equally to all cable operators and video 9 service providers in the local en'ntity's jurisdiction. 10 (c) No local entity or any other political subdivision of this 11 state may demand any additional fees or charges or other 12 remuneration of any kind from the holder of a state-issued 13 authorization other than as seti forth in this section and may not 14 demand the use of any other calculation method or definition of 15 gross revenues. However, nothing in this section shall be 16 construed to limit a local entity s ability to impose utility user 17 taxes under other applicable provisions of state law. 18 (d) For purposes of this section, the term "gross revenues" 19 means all revenue actually received by the holder of a 20 state-issued authorization, as determined in accordance with 21 generally accepted accounting principles, that is derived from 22 the operation of the holder's network to provide cable or video 23 service within the jurisdiction of the local entity, including all of 24 the following: 25 (1) All charges billed to subscribers for any and all cable 26 service or video service provided by the holder of a state-issued 27 authorization. 28 (2) Any fees imposed on the holder of a state-issued 29 authorization by this section that are passed through to, and paid 30 by, the subscribers. 31 (3) Compensation received by the holder of a state-issued 32 authorization that is derived from the operation of the holder's 33 network to provide cable service or video service with respect to 34 commissions that are paid to the holder of a state-issued 35 authorization as compensation for promotion or exhibition of any 36 products or services on the holder's network, such as a "home 37 shopping" or similar channel, subject to paragraph (4) of 38 subdivision (e). 39 (4) A pro rata portion of all revenue derived by the holder of a 40 state-issued authorization or its affiliates pursuant to 97 AB 2987 _10— I 1 compensation arrangements for advertising derived from the 2 operation of the holder's network to provide cable service or 3 video service within the jurisdiction of the local entity, subject to 4 paragraph (1) of subdivision (e). The allocation shall be based 5 on the number of subscribers !in the local entity divided by the 6 total number of subscribers in relation to the relevant regional or 7 national compensation arrangement. 8 (e) For purposes of this section, the term "gross revenue" set 9 forth in subdivision (d) does not include any of the following: 10 (1) Amounts not actually received, even if billed, such as bad 11 debt; refunds, rebates, or discounts to subscribers or other third 12 parties; or revenue imputed from the provision of cable services 13 or video services for free or at reduced rates to any person as 14 required or allowed by law, including, but not limited to, the 15 provision of these services to public institutions, public schools, 16 governmental agencies, or employees other than forgone revenue 17 chosen not to be received in exchange for trades, barters, 18 services, or other items of value . 19 (2) Revenues received by any affiliate or any other person in 20 exchange for supplying goods or services used by the holder of a 21 state-issued authorization to provide cable services or video 22 services. However, revenue received by an affiliate of the holder 23 from the affiliate's provision of cable or video service shall be 24 included in gross revenue as follows: 25 (A) To the extent that treating the revenue as revenue of the 26 affiliate, instead of revenue of the holder, would have the effect of 27 evading the payment of fees that would otherwise be paid to the 28 local entity. 29 (B) The revenue is not otherwise subject to fees to be paid to 30 the local entity. 31 (3) Revenue derived from services classified as noncable 32 services or nonvideo services under federal law, including, but 33 not limited to, revenue derived from telecommunications services 34 and information services, and any other revenues attributed by 35 the holder of a state-issued authorization to noncable services or 36 nonvideo services in accordance with Federal Communications 37 Commission rules, regulations, standards, or orders. 38 (4) Revenue paid by subscribers to "home shopping" or 39 similar networks directly from the sale of merchandise through 40 any home shopping channel offered as part of the cable services 97 -11— AB 2987 1 or video services. However, commissions or other compensation 2 paid to the holder of a statelissued authorization by "home 3 shopping" or similar networks for the promotion or exhibition 4 products or services shall be included in gross revenue. 5 (5) Revenue from the sale of cable services or video services 6 for resale in which the reseller is required to collect a fee similar 7 to the state-issued authorization .fee from the reseller's 8 customers. 9 (6) Amounts billed to and collected from subscribers to 10 recover any tax,fee, or surcharge imposed by any governmental 11 entity on the holder of a state-issued authorization, including, but 12 not limited to, sales and use taxes, gross receipts taxes, excise 13 taxes, utility users taxes, public service taxes, communication 14 taxes, and any other fee not imposed by this section. 15 (7) Revenue from the sale of capital assets or surplus 16 equipment not used by the purchaser to receive cable services or 17 video services from the seller of those assets or surplus 18 equipment. 19 (8) Revenue from directory or Internet advertising revenue, 20 including, but not limited to, yellow pages, white pages, banner 21 advertisement, and electronic publishing. 22 (9) Revenue received as reimbursement by programmers of 23 marketing costs incurred by the holder of a state-issued 24 authorization for the introduction of new programming. 25 (10) Security deposits received from subscribers, excluding 26 security deposits applied to' the outstanding balance of a 27 subscriber's account and thereby taken into revenue. 28 ()9 For purposes of this section, in the case of a cable service 29 or video service that may be bundled or integrated functionally 30 with other services, capabilities, or applications, the state-issued 31 authorization fee shall be applied only to the gross revenue, as 32 defined in subdivision (d), attributable to cable service or video 33 service, as reflected on the books and records of the holder kept 34 in the regular course of business in accordance with generally 35 accepted accounting principles and Federal Communications 36 Commission or Public Utilities Commission rules, regulations, 37 standards, and orders, as applicable. 38 (g) The state-issued authorization fee shall be remitted to the 39 applicable local entity quarterly, within 45 days after the end of 40 the quarter for the preceding calendar quarter. Each payment 97 I i AB 2987 —12- 1 12-1 shall be accompanied by a summary explaining the basis for the 2 calculation of the state-issued authorization fee. 3 (h) Not more than once annually, a local entity may examine 4 the business records of a holder of a state-issued authorization to 5 the extent reasonably necessary to ensure compensation in 6 accordance with subdivision (a). Each party shall bear its own 7 costs of the examination. 4ny claims by a local entity that 8 compensation is not in accordance with subdivision (a), and any 9 claims for refunds or other corrections to the remittance of the 10 holder of a state-issued authorization, shall be made within three 11 years and 45 days of the end of the quarter for which 12 compensation is remitted, or three years from the date of the 13 remittance, whichever is later. Either a local entity or the holder 14 may, in the event of a dispute concerning compensation under 15 this section, bring an action in ia court of competent jurisdiction. 16 (i) The holder of a state-issued authorization may identify and 17 collect the amount of the state-issued authorization fee as a 18 separate line item on the regular bill of each subscriber. 19 53058.5. (a) The holder of a state-issued authorization shall 20 designate a sufficient amount of capacity on its network to allow 21 the provision of a comparable number of PEG channels or hours 22 of programming, at the holder's discretion, that the incumbent 23 cable operator has activated and provided within the local entity 24 under the terms of any franchise in effect in the local entity as of 25 the effective date of this article. For the purposes of this section, 26 a PEG channel is deemed activated if it is being utilized for PEG 27 programming within the municipalityfor at least eight hours per 28 day. The holder shall have 12 months from the date the local 29 entity requests the PEG channels to designate the capacity. 30 However, the 12-month period shall be tolled by any period 31 during which the designation or provision of PEG channel 32 capacity is technically infeasible, including any failure or delay 33 of the incumbent cable operator to make adequate 34 interconnection available, as required by this subdivision. 35 (b) If no PEG channels are activated and provided within the 36 local entity as of the effective date of this article, a local entity 37 whose jurisdiction lies within the authorized service area of the 38 holder of a state-issued authorization may request the holder to 39 designate not more than a total of three PEG channels in a 40 locality with a population of more than 50,000, or not more than 97 -13— AB 2987 1 a total of two PEG channels in a locality with a population of 2 less than 50,000, as determined by the last decennial census. 3 The holder shall have 12 months from the date of the request to 4 designate the capacity. However, the 12-month period shall be 5 tolled by any period during which the designation or provision of 6 PEG channel capacity is technically infeasible, including any 7 failure or delay of the incumbent cable operator to make 8 adequate interconnection available, as required by this 9 subdivision. 10 (c) Any PEG channel provided pursuant to this section that is 11 not utilized by the local entity for at least eight hours per day 12 may no longer be made available to the local entity, and may be 13 programmed at the holder's discretion. At the time that the local 14 entity can certify to the holder a schedule for at least eight hours 15 of daily programming, the holder of the state-issued 16 authorization shall restore the channel or channels for the use of 17 the local entity. 18 (d) The content to be provided over the PEG channel capacity 19 provided pursuant to this section shall be the responsibility of the 20 local entity receiving the benefit of that capacity, and the holder 21 of a state-issued authorization bears only the responsibility for 22 the transmission of that content, subject to technological 23 restraints. 24 (e) The local entity shall ensure that all transmissions, 25 content, or programming to be transmitted by a holder of a 26 state-issued authorization are provided or submitted in a manner 27 or form that is capable of being accepted and transmitted by the 28 holder, without any requirement for additional alteration or 29 change in the content by the holder, over the holder's particular 30 network, and that is compatible with the technology or protocol 31 utilized by the holder to deliver services. The provision of those 32 transmissions, content, or programming to the holder of a 33 state-issued authorization shall constitute authorization for the 34 holder to carry those transmissions, content, or programming, 35 including, at the holder's option, beyond the jurisdictional 36 boundaries of that local entity. 37 (fl Where technically feasible, the holder of a state-issued 38 authorization and an incumbent cable operator shall negotiate in 39 good faith to interconnect their networks for the purpose of 40 providing PEG programming. Interconnection may be 97 AB 2987 _14- I accomplished by direct cable, microwave link, satellite, or other 2 reasonable method of connection. Holders of a state-issued 3 authorization and incumbent cable operators shall provide 4 interconnection of PEG channels on reasonable terms and 5 conditions and may not withhold the interconnection. If a holder 6 of a state-issued authorization and an incumbent cable operator 7 cannot reach a mutually acceptable interconnection agreement, 8 then the duty of the holder of a state-issued authorization shall be 9 discharged if the holder makes, interconnection available to the 10 channel originator at a technically feasible point on the holder's 11 network. 12 (g) A holder of a state-issued authorization shall not be 13 required to interconnect for, or otherwise to transmit, PEG 14 content that is branded with the logo, name, or other identifying 15 marks of another cable operator or video service provider. The 16 local entity may require a cable operator or video service 17 provider to remove its logo, name, or other identifying marks 18 from PEG content that is to be made available through 19 interconnection to another provider of PEG capacity. 20 (h) After the effective date of this article and until the 21 expiration of the incumbent cable operator's franchise, if the 22 incumbent cable operator has existing unsatisfied obligations 23 under the franchise to remit to the local entity any cash payments 24 for the ongoing capital costs of public educational and 25 governmental access channel facilities, the local entity shall 26 divide those cash payments among all cable or video providers 27 as provided in this section. The fee shall be the holder's pro rata 28 per subscriber share of the cash payment required to be paid by 29 the incumbent cable operator Ito the local entity for the capital 30 costs of public, educational, and governmental access channel 31 facilities. 32 (i) In determining the fee on a pro rata per subscriber basis, 33 all cable and video service providers shall report,for the period 34 in question, to the local entity the total number of subscribers 35 served with the local entity's jurisdiction, which shall be treated 36 as confidential by the local entity and shall be used only to derive 37 the per subscriber fee required by this section. The local entity 38 shall then determine the payment due from each provider based 39 on a per subscriber basis for the period by multiplying the 40 unsatisfied cash payments for the ongoing capital costs of public, 97 -15— AB 2987 1 educational, and governmental access channel facilities by a 2 ratio of the reported subscribers of each provider to the total 3 subscribers within the local entity as of the end of the period The 4 local entity shall notify the respective providers, in writing, of the 5 resulting pro rata amount. After the notice, any fees required by 6 this section shall be remitted to the applicable local entity 7 quarterly, within 45 days after the end of the quarter for the 8 preceding calendar quarter, and may only be used by the local 9 entity as authorized under federal law. 10 6) Upon the expiration of the incumbent cable operator's 11 franchise or if there is no local franchise, the holder or holders 12 of a state-issued authorization shall pay the local entity, in whose 13 jurisdiction it is offering cable or video service, a fee to support 14 the capital costs of public, educational, and governmental access 15 channel facilities and to suppo�t of institutional networkfacilities 16 equal to 1 percent of the holder's gross revenues, as defined in 17 Section 53058.4, earned in the local entity or, at the holder's 18 election, the per subscriber feel that was paid by the holder to the 19 local entitypursuant to subdivision (h). The local entity may only 20 use the fee for purposes allowed under federal law. The payment 21 required by this subdivision shall not become due and payable 22 until the expiration of the incumbent cable operator's franchise, 23 or 180 days after the local !entity nodes the holder of the 24 expiration, whichever is later. 25 (k) The following services shall continue to be provided by the 26 incumbent cable operator that was furnishing services pursuant 27 to a franchise until January 17, 2008, or until the term of the 28 franchise expires, whichever is)later: 29 (1) PEG production or studio facilities. 30 (2) Institutional network capacity, however defined or referred 31 to in the incumbent cable operator's franchise, but generally 32 referring to a private line data network capacity for use by the 33 local entityfor noncommercial purposes. 34 (3) Cable services to community public buildings, such as 35 municipal buildings and public schools. 36 (1) The holder of a state-issued authorization may recover the 37 amount of any fee remitted to a local entity under this section by 38 billing a recoveryfee as a separate line item on the regular bill 39 of each subscriber. 97 AB 2987 —16— 1 (m) A court of competent jurisdiction shall have exclusive 2 jurisdiction to enforce any requirement under this section or 3 resolve any dispute regarding the requirements set forth in this 4 section, and no provider may by barred from the provision of 5 service or be required to terminate service as a result of that 6 dispute or enforcement action. 7 53058.6. (a) The local entity shall allow the holder of a 8 state-issued authorization under this article to install, construct, 9 and maintain a network within public rights-of-way under the 10 same terms and conditions as applicable to telephone 11 corporations, as defined under Section 234 of the Public Utilities 12 Code, under applicable state and federal law. 13 (b) A local entity may not enforce against the holder of a 14 state-issued authorization any rule, regulation, or ordinance that 15 purports to allow the local entity to purchase or force the sale of 16 a network. 17 53058.7. (a) A cable operator or video service provider that 18 has been granted a state-issued authorization under this article 19 may not discriminate against or deny access to service to any 20 group of potential residential subscribers because of the income 21 of the residents in the local area in which the group resides, as 22 required by Section 541(a)(3) of Title 47 of the United States 23 Code. II 24 (b) The holder of a state-issued authorization shall have a 25 reasonable period of time to become capable of providing cable 26 service or video service to all households within the designated 27 service area footprint as defined in as defined in paragraph (6) 28 of subdivision (d) of Section 53058.2 and may satisfy the 29 requirements of this section thrj ugh the use of(1) direct-to-home 30 satellite service or (2) another alternative technology that 31 provides comparable content, service, and functionality. 32 (C) Within 36 months after issuance of the holder's first 33 state-issued authorization, and then annually for seven 34 additional years, the holder shall report the extent to which cable 35 or video service is available to potential subscribers within the 36 holder's service area, including all of thefollowing: 37 (1) The demographics of the service area. 38 (2) The percentage of homes in the service area that have 39 access to service. 97 17— AB 2987 1 (3) The demographics of the portion of the service area that 2 has access to service. 3 (4) The technology used by the holder to provide access to 4 service. 5 The report shall be filed with the Legislature, the department, 6 the Governor, and the Attorney General, and posted on the 7 holder's Web site. The holderl shall not be required to report 8 competitively sensitive information. 9 (c) If there is a violation, the exclusive remedy for enforcing 10 the provisions of this section shall be an action in a court of 11 competent jurisdiction brought by the local entity, the district 12 attorney of the county in which the local entity is located, or the 13 Attorney General on behalf oflthe department. At least 60 days 14 before bringing an action, the enforcement entity shall serve the 15 holder of the state-issued authorization under this article with a 16 notice setting out the alleged violation and stating that an action 17 may be brought unless the provider, within the 60-day notice 18 period, corrects the alleged violation or enters into a binding 19 agreement to correct the violation. The notice shall contain a 20 sufficiently detailed description of the alleged violation to enable 21 the holder of the state-issued authorization to make a speck 22 response. If the holder of the state issued franchise does not 23 timely enter into a binding agreement to correct the violation, 24 then the matter shall proceed before the court of competent 25 jurisdiction. 26 (d) If the court finds that the holder of the state issued 27 franchise is in willful violation of Section 53058.7 herein, it may, 28 in addition to any other remedies provided by law, impose a fine 29 not to exceed 1 percent of the holder's total gross revenue of its 30 entire cable and service footprint in the state in the full calendar 31 month immediately prior to the decision. 32 53058.8. The holder of a state-issued authorization shall 33 comply with the provisions of Sections 53055, 53055.1, 53055.2, 34 and 53088.2. A franchising orllocal entity may not adopt or seek- 35 eek35 to enforce any additional or different customer service or other 36 performance standards under Section 53055.3, subdivision (q), 37 (r), or (s) of Section 53088.2, or under any other authority or 38 provision of law.Any reporting or enforcement authority in those 39 sections shall instead be assigned solely to the department. 97 AB 2987 —18— 1 53058.9. (a) The holder of a state-issued authorization shall 2 perform background checks of applicants for employment, 3 according to current business practices. 4 (b) A background check equivalent to that performed by the 5 holder shall also be conducted on all of the following: 6 (1) Persons hired by a holder under a personal service 7 contract. 8 (2) Independent contractors and their employees. 9 (3) Vendors and their employees. 10 (c) Independent contractors and vendors shall certify that they 11 have obtained the background checks required pursuant to 12 subdivision (f), and shall make the background checks available 13 to the holder upon request. 14 (d) Except as otherwise provided by contract, the holder of a 15 state-issued authorization shall not be responsible for 16 administering the background Jchecks and shall not assume the 17 costs of the background checks of individuals who are not 18 applicants for employment of the holder. 19 (e) (1) Subdivision (a) only applies to applicants for 20 employment for positions that would allow the applicant to have 21 direct contact with or access to the holder's network, central 22 office, or customer premises, and perform activities that involve 23 the installation, service, or repair of the holder's network or 24 equipment. , 25 (2) Subdivision (b) only applies to person that have direct 26 contact with or access to the h'older's network, central office, or 27 customer premises, and perform activities that involve the 28 installation, service, or repair of the holder's network or 29 equipment. 30 (fl This section does not apply to temporary workers 31 performing emergency functions to restore the network of a 32 holder to its normal state in the event of a natural disaster or an 33 emergency that threatens or results in the loss of service. 34 53058.10. (a) A holder of a state-issued authorization 35 employing more than 750 total employees shall annually report 36 to the department all of the following: 37 (1) The number of California residents employed by the 38 workforce, calculated on a full-time or full-time equivalent basis. 39 (2) The percentage of the holder's total domestic workforce, 40 calculated on a full-time or full-time equivalent basis. 97 -19 AB 2987 1 (3) The number of California residents employed by 2 independent contractors and consultants hired by the holder, 3 calculated on a full-time or full-time equivalent basis, when the 4 holder has obtained this information upon requesting it from the 5 independent contractor or consultant, and the holder is not 6 contractually prohibited from disclosing the information to the 7 public. This paragraph applies only to those employees of an 8 independent contractor or consultant that are personally 9 providing services to the holder,)and does not apply to employees 10 of an independent contractor, or consultant not personally 11 performing services for the holder. 12 (b) The department shall annually report the information 13 required to be reported by holders of state-issued authorizations 14 pursuant to subdivision (a), to the Assembly Committee on 15 Utilities and Commerce and the Senate Committee on Energy, 16 Utilities and Communications, or their successor committees, 17 and within a reasonable time thereafter, shall make the 18 information available to the public on its Internet Web site. 19 53058.11. (a) The provisions of this article are intended to 20 be consistent with the Federal'Cable Act (47 U.S.C. Sec. 521 et 21 seq). 22 (b) Nothing in this section shall be interpreted to prevent a 23 voice provider, cable operator or video service provider, or local 24 entity from seeking clarification of its rights and obligations 25 under federal law or from exercising any right or authority under 26 federal or state law. 27 SEGTION 1. Seetion 63059)is 28 added to Ghapter ef Division 2 of Title 5 of the 29 n__.__._--_t to read! 30 31 32 "rzcrarzvo6 33 34 35 . 36 " means 37 38 39 designated as a ton, eeitiljeate, 97 AB 2987 1 agreement, or othe 'e eonstmetieft 2 O 97