NJLM - ACS-804 Authorizing a System-Wide Franchise for Certain Providers of Cable Television Service

REMARKS OF PETER CANTU
MAYOR OF PLAINSBORO AND NEW JERSEY LEAGUE OF MUNICIPALITIES IMMEDIATE PAST PRESIDENT

Before The Assembly Telecommunications and Utilities Committee
10:00 A.M., Thursday May 11, 2006
Committee Room 9, First Floor, State House Annex, Trenton, New Jersey

Re: ACS-804
Authorizing a System-Wide Franchise for
Certain Providers of Cable Television Service

For more than a year, the League has been meeting and working with the Cable Telecommunications Association, Verizon, and municipal officials to explore the implications of a system-wide franchise such as the one embodied in the bill before us.

All sides agree that New Jersey should benefit from more competition in the area of cable television. In the past, the League has vigorously supported legislation which would help bring about cable competition or at least foster more productive cable franchise negotiations.

BALANCING HOME RULE

Although on the face of it, systemwide franchising seems to reduce home rule by reducing the individual municipality's administration during franchising, on balance the League finds important local benefits unique to New Jersey, which must be taken into account.
The League believes this type of franchise will create competition to the ultimate benefit of the consumer, and it may benefit municipalities by enumerating specific franchise commitments which would otherwise be subject to negotiation.

Most important is the creation, now, of a competitive cable TV environment. The benefits of creating wireline competition today include lower rates (FCC report released February 4, 2005 Docket No. 92-266) and incentive to respond to consumer demands regarding programming and service. These are perennial cable issues that we are all familiar with.

Municipalities could benefit through statutory commitments the bill includes in the systemwide franchise such as Public, Educational, Government (PEG) access stations, access equipment and assistance, and cable service for municipal buildings. These, and other, basic commitments are enforceable by the BPU. In addition, this bill establishes a municipal franchise fee which, at three and a half percent (3.5%) of gross revenue, is closer to the national benchmark. However, it is still well below the Federal ceiling of 5%. The League appreciates the increase in both the base on which the fee is determined (all cable revenue), and the percentage of the fee. These changes would help municipalities control property taxes at a time when budgets are under significant pressure.

THE BILL IS NOT WITHOUT ITS FLAWS

There are sections of this bill which need further review and development.

Dealing with Existing Franchise Agreements

In new section 19, incumbent cable operators are given the option of converting to the systemwide franchise without the consent of the municipality or BPU. Existing local franchise agreements can include installments of equipment, assistance, funding and other benefits which would be lost if operators convert to systemwide franchises. To avoid unnecessary disruptions, municipalities must be given the option of retaining existing franchise agreements until those agreements expire.

Franchise Fee Rate Should be Based on Competition

The League can agree to the provision imposing the 3 ½ percent franchise fee on incumbent CATV providers only where there is a competitive cable television market. However, we would like to see the bill use the Federal threshold for determining a competitive market.

The current bill states that the 3 ½% franchise fee only applies to the systemwide franchisee, until they certify that they are capable of serving 55% or more of the municipality. Over that threshold, the 3 ½% franchise fee applies to both the incumbent cable company and the systemwide franchisee. We think the 55% threshold is too high and would like to use the Federal competition threshold - one subscriber. In other words, as soon as the systemwide franchisee starts to provide service, both they and the incumbent cable company have the same franchise fee.

FURTHER REFINMENTS

In order to assure the benefits of systemwide franchises are achieved, we will need to assess the real effects on consumers. After 36 months, the BPU will conduct a study and document the effects. We will carefully review that study to assure consumer benefits are being maximized.

The League is anxious to continue working on the important issue of developing competition in video franchises. Local officials understand that changing technology requires changing statutes and regulations to manage the demands it places on our municipalities and maximize its benefits to our residents.

NJLM - ACS-804 Authorizing a System-Wide Franchise for Certain Providers of Cable Television Service

407 West State Street, Trenton, NJ 08618 (609)695-3481 NJLM logo
William G. Dressel Jr, Executive Director - Michael J. Darcey, CAE, Asst Executive Director

REMARKS OF PETER CANTU
MAYOR OF PLAINSBORO AND NEW JERSEY LEAGUE OF MUNICIPALITIES IMMEDIATE PAST PRESIDENT

Before The Assembly Telecommunications and Utilities Committee
10:00 A.M., Thursday May 11, 2006
Committee Room 9, First Floor, State House Annex, Trenton, New Jersey

Re: ACS-804
Authorizing a System-Wide Franchise for
Certain Providers of Cable Television Service

For more than a year, the League has been meeting and working with the Cable Telecommunications Association, Verizon, and municipal officials to explore the implications of a system-wide franchise such as the one embodied in the bill before us.

All sides agree that New Jersey should benefit from more competition in the area of cable television. In the past, the League has vigorously supported legislation which would help bring about cable competition or at least foster more productive cable franchise negotiations.

BALANCING HOME RULE

Although on the face of it, systemwide franchising seems to reduce home rule by reducing the individual municipality's administration during franchising, on balance the League finds important local benefits unique to New Jersey, which must be taken into account.
The League believes this type of franchise will create competition to the ultimate benefit of the consumer, and it may benefit municipalities by enumerating specific franchise commitments which would otherwise be subject to negotiation.

Most important is the creation, now, of a competitive cable TV environment. The benefits of creating wireline competition today include lower rates (FCC report released February 4, 2005 Docket No. 92-266) and incentive to respond to consumer demands regarding programming and service. These are perennial cable issues that we are all familiar with.

Municipalities could benefit through statutory commitments the bill includes in the systemwide franchise such as Public, Educational, Government (PEG) access stations, access equipment and assistance, and cable service for municipal buildings. These, and other, basic commitments are enforceable by the BPU. In addition, this bill establishes a municipal franchise fee which, at three and a half percent (3.5%) of gross revenue, is closer to the national benchmark. However, it is still well below the Federal ceiling of 5%. The League appreciates the increase in both the base on which the fee is determined (all cable revenue), and the percentage of the fee. These changes would help municipalities control property taxes at a time when budgets are under significant pressure.

THE BILL IS NOT WITHOUT ITS FLAWS

There are sections of this bill which need further review and development.

Dealing with Existing Franchise Agreements

In new section 19, incumbent cable operators are given the option of converting to the systemwide franchise without the consent of the municipality or BPU. Existing local franchise agreements can include installments of equipment, assistance, funding and other benefits which would be lost if operators convert to systemwide franchises. To avoid unnecessary disruptions, municipalities must be given the option of retaining existing franchise agreements until those agreements expire.

Franchise Fee Rate Should be Based on Competition

The League can agree to the provision imposing the 3 ½ percent franchise fee on incumbent CATV providers only where there is a competitive cable television market. However, we would like to see the bill use the Federal threshold for determining a competitive market.

The current bill states that the 3 ½% franchise fee only applies to the systemwide franchisee, until they certify that they are capable of serving 55% or more of the municipality. Over that threshold, the 3 ½% franchise fee applies to both the incumbent cable company and the systemwide franchisee. We think the 55% threshold is too high and would like to use the Federal competition threshold - one subscriber. In other words, as soon as the systemwide franchisee starts to provide service, both they and the incumbent cable company have the same franchise fee.

FURTHER REFINMENTS

In order to assure the benefits of systemwide franchises are achieved, we will need to assess the real effects on consumers. After 36 months, the BPU will conduct a study and document the effects. We will carefully review that study to assure consumer benefits are being maximized.

The League is anxious to continue working on the important issue of developing competition in video franchises. Local officials understand that changing technology requires changing statutes and regulations to manage the demands it places on our municipalities and maximize its benefits to our residents.