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March 11, 2011

RE: S-2664 “Market Competition Consumer Choice Act”

Dear Mayor:

The League opposes S-2664 and it Assembly companion A-3766 which seek, among other things, to modify the system wide cable franchise that was established in 2007.

This legislation is of concern to municipalities because it would eliminate commitments made to municipalities as part of that original legislation establishing the systemwide cable franchise.

This legislation may be up for a final vote in the Senate shortly.  For this reason, the League is now reaching out to the bills’ proponents to discuss the municipal concerns and seek to remedy the shortcomings of the legislation. 

Many of you have received correspondence from Verizon suggesting this legislation is innocuous for municipalities.  While we are waiting to have discussions about those issues, we also want you to understand just where there are causes for concern.  For a summary of issues with Verizon’s explanations and the League analysis of where concerns still exist see the letter below or go to:

Very truly yours,

Brian Wahler, Mayor                                                  William G. Dressel, Jr.
Piscataway                                                                  Executive Director
Chair, NJLM Telecommunications Task Force


Franchise Fee Payments
Verizon - The League of Municipalities has claimed that A-3766/S-2664, the “Marketplace Competition and Consumer Choice Act,” will reduce franchise fee payments to municipalities.  This is simply not true.   Under this bill, not one town will see a decrease in their existing franchise fee payments.  The League has also argued that the bill unduly restricts the ability of a municipality operating under a municipal-consent based franchise to petition for higher franchise fees, and that CATV companies should automatically pay the higher 4% franchise fee upon conversion to a systemwide franchise.

Current law mandates that (a) all customers served by Verizon's video franchise are subject to the 4% franchise fee; (b) incumbent cable operators with municipal franchises continue to pay a 2% franchise fee until Verizon can certify that they are able to provide service to at least 60% of a particular town, in which case the incumbent cable operator will also pay 4% in that town; and (c) cable operators that convert to a systemwide franchise are subject to the increased franchise fee.  To date, the BPU has certified 223 towns in which Verizon is able to serve at least 60% of the residents.  In those towns, both Verizon and the incumbent cable provider have been paying 4% franchise fees, and will continue to do so after S-2664/A-3766 is enacted.  Presently, Cablevision has 99 towns in a systemwide franchise; Verizon was certified at 60% coverage in each of those towns so Cablevision pays the increased 4% franchise fee in all of those towns and would continue to do so after the bill is enacted  

This bill would permit incumbent cable operators to convert existing towns to a systemwide franchise and continue to pay the 2% franchise fee unless Verizon is certified at 60% or more coverage in those towns -- essentially maintaining the current structure that ensures that a town is truly competitive before everyone has to pay the increased fee.

League - Who decides if competition really exists?
Franchise fee for new system-wide operators.  The issue is simply this: should a cable company that converts to a system-wide franchise automatically be required to pay 4% franchise fee, as required by current law, or should it only have to pay the 4% franchise fee if it is in a competitive market?  Our position supports the current law.  The higher franchise fee was a trade off for the system-wide franchise, and should be automatically required when a cable company converts to a system-wide franchise.

Verizon - Municipalities also argue that they want to still be able to petition the BPU for even higher franchise fees than the 4% mandated in competitive areas.  That suggestion is misguided.  To date, no municipality has successfully petitioned for higher franchise fees, and the petition process itself has rarely been attempted.  Additionally, the FCC currently sets a ceiling for franchise fees at 5%.  Given the increasing number of towns that are receiving 4% franchise fee payments, there is no reason for a municipality to be able to petition the BPU for a higher franchise fee that would deviate from a uniform fee structure applied to all companies.  This also runs counter to the overall purpose of the current franchise fee structure, which is to incentivize build-out and ensure that consumers have choice before paying a higher fee.    

League - With the speed of innovation, municipalities must have recourse to recoup franchise costs that exceed franchise fees.  Such costs, if they occur, can not be shifted to property taxes.

Public, Educational and Governmental (PEG) Channels and Return Feeds
Verizon - The League initially opposed this bill because, in its introduced form, it would have eliminated the mandate that holders of a new systemwide video franchise provide each town in that franchise with a minimum of two PEG channels.  In the interest of preserving public access programming, and ensuring that communities will continue to provide their residents with vital information about their government, municipal services and other local activities, this bill was amended to restore the PEG channel mandate. 

League - We wonder why were those PEG channels initially eliminated in the original bill and added by amendment?  It is an example of how this legislation must be subject to a fuller vetting to be sure any change to the systemwide franchise honestly takes into account the legitimate cable related needs of the communities. 

Verizon - However, the League continues to oppose the bill due to the fact that specific language mandating “return feeds” for PEG channel usage was not restored.  This is actually an archaic term, dating back to the earliest days of cable television, when public access was provided through a one-way signal, and a second line, known as the “return feed,” was necessary to provide a live signal due to the limitations of the technology at that time.  The current systems used by CATV companies and Verizon, which are either a hybrid of coaxial cable and fiber or all fiber, make return feeds unnecessary because today’s technology can already send the signal both ways.  Verizon currently does this via our FiOS service, or through interconnection agreements with cable providers, and would continue to do so after the bill is passed.  Some also argue that the return feed is necessary to monitor the public access channel, but this can actually be accomplished through one or more of the free drops provided by the operators. 

League - Municipalities seek to preserve live cablecasting of the events of their choice, a legitimate community cable related need.  Terms may be irrelevant here as long as the live cablecasting is preserved at no cost.

Free Basic Cable and Internet Service (“Free Drops”)
Verizon - The League also opposed this bill in its original form because it would have eliminated the mandate that systemwide video franchisees provide basic cable and internet service, free of charge, to all municipal buildings.  As currently applied, the law is extremely broad, and has led to some municipalities making excessive requests for free drops – in one case, a town requested 177 of these connections – and for facilities never intended to be covered by the original bill, e.g., manhole covers and pumping stations.  In response to these concerns, the bill was amended to restore free drops for (1) all public schools, (2) all municipal public libraries, (3) the municipal fire headquarters, (4) the municipal police headquarters, and (5) one municipal building designated by the municipality.

League - This concern has no basis in practice.  NJLM research indicates municipalities are NOT currently taking full advantage of the drops available to them.  In the one case cited above what was the outcome and how was it achieved?   This is an attempt to avoid legitimate responsibilities associated with a community’s cable related needs.

Line Extension Policy
Verizon - The League has stated that this bill does not sufficiently maintain cable companies’ requirement to meet or surpass any existing line extension policy or to meet any applicable consumer protection requirements.  The concept of a line extension policy also dates to the earliest days of cable television, when towns were concerned that providers would not build out in all areas.  The amendments to S-2664/A-3766 expressly preserve Verizon's build out obligations under N.J.S.A. 48:5A-25.2, which already require us to provide service "throughout the residential areas" of the specified municipalities, and render line extension policies moot.
League - The “specified municipalities” in the cited statute only covers county seats and more densely populated municipalities.  The line extension requirement in current law is important to sparsely populated communities and must be retained.
Certification and Renewal of Franchises
Verizon - With respect to the renewal of systemwide franchises, the League asserts that the current process set forth in Section 4 of the bill must be amended to require that the renewal be under the same terms and conditions as the original franchise, and preserve BPU authority when the company is seeking renewal in a competitive franchise area.  They further argue that the BPU should have oversight of determining whether a company is, in fact, operating in a competitive franchise area. 
It is counter to the stated goals of this legislation to specify an additional bureaucratic process, through the Board, to determine whether an area is competitive, and also raises an obvious conflict of interest in such a proceeding.  Indeed, at present the BPU has not even granted relief contemplated under its own rules for competitive areas.  The test for whether a franchise area is competitive is simple and clear under the bill, and the provider would be required to certify that it is met.   
League - Municipalities have not been party to the stated goals of this legislation.  Municipalities were party to the original systemwide franchise legislation and believe that should be retained.  The same paragraph that claims the BPU would have a conflict of interest in settling issues, states the private sector should instead be taken at its word on such matters.  Between the two, BPU appears to be the more neutral party in settling issues.
Verizon - Finally, this bill does not alter the terms of existing municipal or systemwide franchises.  To the extent that franchises are renewed, the reforms in the legislation should apply to such renewal or they would have no effect in many areas.  Preserving authority for the BPU in renewals would be counterproductive for the same reasons described above. 
League Verizon says that the bill has been amended to satisfy the main concerns of the municipalities, but because the amendments are scattered throughout the bill it is not at all clear that this is true.  The current bill is very difficult to follow.  Verizon should sit down and explain how its bill would work in practice and show how municipalities’ concerns are addressed. 
The League hopes that the proponent of changing the Systemwide cable franchise law will see that municipalities have always been, and remain, primary partners in New Jersey’s cable franchises.  Any inquiry into changing such franchises must include honest conversations with New Jersey’s municipalities about communities’ cable related needs.




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