If your town is one of the 316 municipalities listed in the Verizon application, Verizon's engineer and external affairs officer may soon be knocking on your door.
The cable television landscape in New Jersey has changed, and all municipalities need to be aware of how the changes will affect them.
On August 4, 2006, Governor Corzine signed into law the System-Wide Cable Television Franchise Act. The law, commonly known as the “Verizon Bill,” creates a new system for cable television franchising. The law’s goal is to limit the regulatory requirements confronting new cable television providers. With fewer regulatory hurdles to jump, the thinking goes, new cable companies can enter the market more quickly, and provide competition to existing cable providers.
The old franchising system was one that was all too familiar to New Jersey’s municipal officials. The old system, which required both municipal consent and BPU approval, was a three-year process that involved work by a local cable television committee to determine a municipality’s cable-related needs, hearings before the municipal governing body to determine whether the cable company was capable of meeting its commitments, and protracted negotiations between municipal officials and the cable company to hammer out the terms of the municipal approval. Once all that was done, the cable company still had to seek permission from the Board of Public Utilities for the certificate of approval that served as its license to do business in the town.
Now, those same rules remain in place, but there is a new, alternate way for a cable company to proceed. Rather than apply, town-by-town, for permission to do business, a cable company can apply once, to the BPU, for permission to do business in all of the towns in which that company maintains plant and equipment. A company wishing to offer cable service thus has a choice: it can proceed under the old law, or the new.
The idea of a statewide, or system-wide franchise had been debated for several years. Proponents argued that the only way that new companies could enter the cable market was by lowering the regulatory barriers to entry. Opponents, on the other hand, argued that changing the rules would be unfair to cable companies that had invested time and money building franchises under the old rules. The legislation, sponsored by Assemblyman Wilfredo Caraballo and Senator Joseph Doria, eventually passed by large margins in both the Assembly and Senate.
What is the effect of the new law? The obvious beneficiary of the new law is a company like Verizon, which already maintains plant and equipment throughout New Jersey. Predictably, once the new law was signed, Verizon applied to the BPU for a system-wide franchise. Acting under the new law’s tight time frames, the BPU held hearings on November 17 and 21, and then on December 15, 2006 issued Verizon the state’s first system-wide franchise.
Interestingly, the BPU approved Verizon’s system-wide franchise even though it was still working on new regulations authorized by the Act. Although the cable companies protested that the BPU’s action was premature, the BPU reasoned that the new law required it to act on an application within 45 days, regardless of whether new regulations were in place. As of the end of January, the cable companies had not challenged the Verizon franchise in court.
The BPU granted Verizon the right to offer cable service in 316 of the state’s 566 municipalities. Of those, Verizon is obligated to begin providing service within three years in 70 municipalities that meet certain density requirements, or are county seats. In fact, Verizon announced on January 8 that it would begin marketing its cable service in 106 towns. It plans to be active in 180 towns by the end of March, and in more than 300 by the end of 2007. The BPU took pains to warn Verizon against “redlining,” or providing services only to the wealthy. Verizon has committed, and the BPU has required, that service be made available on a non-discriminatory basis.
What does all this mean for municipalities? Well, if your town is one of the 316 municipalities listed in the Verizon application, Verizon’s engineer and external affairs officer may soon be knocking on your door. Municipalities should find out where Verizon is running its lines, how long it will take to build-out the town, and whether the state’s line-extension policies are being followed.
Next, municipalities should determine how Verizon will provide the extra benefits the new law obligates the company to provide. For example, the holder of a system-wide franchise, such as Verizon, must provide each town with two public, educational and governmental channels, free basic cable service to public buildings, free internet service to public buildings, equipment and training on an agreed-upon schedule, a return feed to enable live or taped broadcast, and the same consumer protection standards required of the cable companies.
If a municipality wants additional access channels, it may negotiate for them, and if denied, it can try to demonstrate to the Office of Cable Television that its cable-related needs require more channels. Also, municipalities can negotiate for a schedule under which the cable company will provide equipment and training to access users, without charge. Again, it can take any dispute to the Office of Cable Television.
The interconnection between the Verizon PEG channels and the existing PEG channels is an issue that has yet to be nailed down. Under its franchise, Verizon must negotiate interconnection agreements with the existing cable companies. If they take longer than six months to negotiate an interconnection agreement in a town, then BPU will step in to assist.
Importantly, municipalities must be aware that the franchise fee was sharply increased. Under the old law, the cable operator’s franchise fee was 2 percent of its gross revenues on basic service. Now, under the new law, the holder of a system-wide franchise must pay towns 3.5 percent of their gross revenues on all services, including premium tier and pay-per-view.
What happens to existing municipal franchise agreements? Existing agreements remain in effect, however a cable company has the right to convert its existing agreements into a system-wide franchise, with approval of the BPU. So far, no cable company has chosen that route, but municipal officials should contact their existing cable provider to find out whether the provider plans to continue under the terms of the existing franchise, or to convert to a system-wide franchise.
In sum, the cable landscape has changed, and New Jersey consumers, municipalities, cable companies and telephone companies are all affected. A company like Verizon now has easier access to the cable market, and most of the regulatory burden has shifted from municipalities to the state. Still, when Verizon comes to town, municipalities should make sure that Verizon is providing all of the services required by the new law, and find out from the existing cable provider whether it plans to continue under the terms of the existing municipal consent.
Steven P. Goodell, Esq. is a partner at Herbert, Van Ness, Cayci & Goodell, in Princeton. He represents municipalities, and serves as the League’s Special Counsel on telecommunications issues
Article published in New Jersey Municipalities Magazine, April 2007