BROADBAND COMMUNITIES ECONOMIC DEVELOPMENT SUMMIT 2014 SEPTEMBER 16, 2014 Sean Stokes...

BROADBAND COMMUNITIES BROADBAND COMMUNITIES ECONOMIC DEVELOPMENT SUMMIT 2014 ECONOMIC DEVELOPMENT SUMMIT 2014

SEPTEMBER 16, 2014SEPTEMBER 16, 2014

Sean Stokes ([email protected])Sean Stokes ([email protected])Casey Lide ([email protected])Casey Lide ([email protected])The Baller Herbst Law Group, PCThe Baller Herbst Law Group, PCWashington, DCWashington, DC(202) 833-5300(202) 833-5300www.baller.com

KEY LEGAL AND REGULATORY ISSUES KEY LEGAL AND REGULATORY ISSUES AFFECTING COMMUNITY BROADBAND PROJECTSAFFECTING COMMUNITY BROADBAND PROJECTS

http://www.baller.com/

DisclaimerDisclaimer

This presentation does not constitute legal advice and This presentation does not constitute legal advice and should not be interpreted as such. should not be interpreted as such.

For advice on federal, state or local law, please consult For advice on federal, state or local law, please consult qualified legal counsel.qualified legal counsel.

OverviewOverviewFocus today: Legal and regulatory issues affecting service Focus today: Legal and regulatory issues affecting service providersproviders, as , as such:such:

I.I. Community BroadbandCommunity Broadband

II.II. Federal Universal Service Program Federal Universal Service Program

III.III. Poles & InfrastructurePoles & Infrastructure

IV.IV. Access to ProgrammingAccess to Programming

V.V. E-RateE-Rate

VI.VI. CAF/RUS: Rural Broadband ExperimentsCAF/RUS: Rural Broadband Experiments

I.I. Community Broadband:Community Broadband:State Barriers To Public EntryState Barriers To Public Entry

Nixon v. Missouri Municipal LeagueNixon v. Missouri Municipal League (2004): (2004):• ““No State or local statute or regulation, or other State or local legal No State or local statute or regulation, or other State or local legal

requirement, may prohibit or have the effect of prohibiting the ability requirement, may prohibit or have the effect of prohibiting the ability of of any entityany entity to provide to provide any any interstate or intrastate telecommunications interstate or intrastate telecommunications service.” Telecom Act § 253(a) service.” Telecom Act § 253(a)

• ““any entity” in § 253(a) not clear enough to preempt state barriers any entity” in § 253(a) not clear enough to preempt state barriers with regard to political subdivisions, butwith regard to political subdivisions, but

• Not a ruling on the merits of public entryNot a ruling on the merits of public entry

• Municipalities have “respectable position” Municipalities have “respectable position”

• FCC “minced no words” in “denouncing” MO law FCC “minced no words” in “denouncing” MO law

• Does not apply to private entities, including coops Does not apply to private entities, including coops

Barriers To Public EntryBarriers To Public Entry

State “barriers” today (not necessarily “prohibitions”): State “barriers” today (not necessarily “prohibitions”): ALAL, , ARAR, ,

CACA,, COCO, , FLFL, , LALA, , MIMI,, MN MN, , MOMO, , NC, NE, NV, PANC, NE, NV, PA, , SCSC, , TNTN, , TXTX, ,

UTUT, , VAVA, , WAWA, , WIWI

• Broad based public-private sector support has helped recast the Broad based public-private sector support has helped recast the

debate away from public v privatedebate away from public v private

• From 2005-2010 most efforts at barriers defeated, 2011-2013 From 2005-2010 most efforts at barriers defeated, 2011-2013

laws in NC and SC but defeated in GAlaws in NC and SC but defeated in GA

• 2014 new efforts KS, IN, UT, but pro bill in TN2014 new efforts KS, IN, UT, but pro bill in TN

SECTION 706 -- PETITIONSSECTION 706 -- PETITIONS

• 706(b) requires the FCC to determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion.

• If not the FCC “shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”

• Verizon Corp. v. Federal Communications Commission, 740 F.3d 623 (D.C. Cir. 2014) – Dissenting Judge raises possibility of Section 706 removing barriers to municipal broadband

• FCC Chairman Wheeler makes speech stating that he will use Section 706 to remove barriers to municipal broadband

• Chattanooga, TN and Wilson, NC have filed 706 petitions to preempt state barriers.

Community Broadband: Authority IssuesCommunity Broadband: Authority Issues

Barriers v. AuthorityBarriers v. Authority

•Federal law encourages, but does not authorizeFederal law encourages, but does not authorize

• National Broadband Plan – encourages community broadband National Broadband Plan – encourages community broadband

•Public entities must have state/local authority Public entities must have state/local authority

• State laws, interpretations, procedures differ widelyState laws, interpretations, procedures differ widely

• Dillion’s Rule v. Home RuleDillion’s Rule v. Home Rule

• Service-by-service (cuts both ways)Service-by-service (cuts both ways)

• Charters, ordinances, finance laws and instruments, pole Charters, ordinances, finance laws and instruments, pole

agreements, franchises, contracts, tax issues, etc.agreements, franchises, contracts, tax issues, etc.

Service Specific RegulationsService Specific Regulations

• Communications Act and State counterpartsCommunications Act and State counterparts

• Separate “silos” for telecom, cable, wireless, and Separate “silos” for telecom, cable, wireless, and “enhanced” or “information services” “enhanced” or “information services”

• Each has its own history, policies, definitions, benefits, Each has its own history, policies, definitions, benefits, burdens, FCC rulings, court decisions, constituenciesburdens, FCC rulings, court decisions, constituencies

• Convergence: Technological + Corporate + MarketConvergence: Technological + Corporate + Market

For authority and compliance, it’s critical to know how an For authority and compliance, it’s critical to know how an activity is classified for regulatory purposes.activity is classified for regulatory purposes.

Business ModelsBusiness Models

Range of business models extends from infrastructure provider to retail Range of business models extends from infrastructure provider to retail

service provider, each with escalating costs/ rewards and regulatory service provider, each with escalating costs/ rewards and regulatory

compliance obligationscompliance obligations• Pure infrastructure -- Poles, street lights, towers and dark fiber Pure infrastructure -- Poles, street lights, towers and dark fiber • Governmental entitiesGovernmental entities• Private carriagePrivate carriage• BroadbandBroadband• Wholesale carriage (private or common carrier)Wholesale carriage (private or common carrier)• Video ServicesVideo Services• Telecommunications Services Telecommunications Services • Public/Private ventures both insolate and create more challenges Public/Private ventures both insolate and create more challenges

Incumbent ChallengesIncumbent Challenges

• Whatever services/model is chosen, anticipate a challenge Whatever services/model is chosen, anticipate a challenge

• CasesCases

Bristol, VA (telecom) -- VictoryBristol, VA (telecom) -- Victory

Bristol, VA (cable) -- Bristol, VA (cable) -- LossLoss (but then corrective state law) (but then corrective state law)

Lafayette, LA – VictoryLafayette, LA – Victory

Portland, OR -- VictoryPortland, OR -- Victory

North Kansas City, MO -- VictoryNorth Kansas City, MO -- Victory

Truckee-Donner PUD, CA – Victory Truckee-Donner PUD, CA – Victory

Chattanooga, TN -- Victory Chattanooga, TN -- Victory

UTOPIA, UT – SettledUTOPIA, UT – Settled

• Anticipate anticompetitive practices Anticipate anticompetitive practices

II.II. Federal Universal Service ProgramFederal Universal Service Program

Why The Details REALLY Matter:Why The Details REALLY Matter:

• ~17% (!) of gross revenues~17% (!) of gross revenues• Private carriage vs. common carriagePrivate carriage vs. common carriage• Exemptions may be available, some depend on what your Exemptions may be available, some depend on what your

customers are doingcustomers are doing• Counterintuitive and sometimes illogicalCounterintuitive and sometimes illogical• FCC enforcementFCC enforcement

USP: The BasicsUSP: The Basics

• Providers of “interstate” and “international” Providers of “interstate” and “international” “telecommunications,” “telecommunications service,” or “telecommunications,” “telecommunications service,” or “interconnected VoIP” may need to file reports and pay a “interconnected VoIP” may need to file reports and pay a universal service “contribution” based on % of assessable universal service “contribution” based on % of assessable gross revenues from the provision of such services to “end gross revenues from the provision of such services to “end users.”users.”

• Contribution factor announced each quarter, ranging from Contribution factor announced each quarter, ranging from 12% - 17%.12% - 17%.

USP: The BasicsUSP: The Basics

• Based on the Forms 499A and 499Q, the Universal Service Based on the Forms 499A and 499Q, the Universal Service Administrative Company (USAC) then bills the filers for the Administrative Company (USAC) then bills the filers for the amounts they owe, including for LNP/NANPA/TRS if amounts they owe, including for LNP/NANPA/TRS if provider of “telecommunication service”provider of “telecommunication service”

• Providers that project contribution obligations exceeding Providers that project contribution obligations exceeding de de minimisminimis levels for the year in question must file quarterly levels for the year in question must file quarterly Forms 499-Q by February 1, May 1, August 1, and Forms 499-Q by February 1, May 1, August 1, and November 1November 1

• Providers can pass all or a portion of their USP payments Providers can pass all or a portion of their USP payments through to their customers (if contracts permit)through to their customers (if contracts permit)

““Telecommunications” & Telecommunications” & “Telecommunications Service”“Telecommunications Service”

“The term “telecommunications” means the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received.”

“The term “telecommunications service” means the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.”

47 C.F.R. 54.5

““Telecommunications” & Telecommunications” & “Telecommunications Service” (continued)“Telecommunications Service” (continued)

• Dark fiber, by definition, does not include the transmission Dark fiber, by definition, does not include the transmission of information, which is an essential part of the definition of information, which is an essential part of the definition of “telecommunications”of “telecommunications”

• Key implications for providers of “telecommunications Key implications for providers of “telecommunications service”:service”:

• Must file 499-A when begin service, even if Must file 499-A when begin service, even if de minimisde minimis revenues, so potential retroactive penalties, etc. revenues, so potential retroactive penalties, etc.

• Telecommunications Service providers not eligible for Telecommunications Service providers not eligible for some important exemptionssome important exemptions

Internet Access and “Information Services”Internet Access and “Information Services”

• ““Information services” are exempt from USPInformation services” are exempt from USP

• Internet access service = “telecommunications” + Internet access service = “telecommunications” + “information service”“information service”

• Therefore, Internet access service = exempt from Therefore, Internet access service = exempt from USP USP

• Internet Internet transport transport may may not not be exempt…be exempt…

Internet Access vs. Internet TransportInternet Access vs. Internet Transport

• Internet Internet transporttransport = “telecommunications” = “telecommunications”• Providing only “telecommunications” or also Providing only “telecommunications” or also

“information service” along with it?“information service” along with it?• DNS lookup? Managing IP addresses? DNS lookup? Managing IP addresses?

• Who is the “ISP,” from the customer’s perspective?Who is the “ISP,” from the customer’s perspective?

Internet TransportInternet Transport

• Internet transport = “telecommunications,” BUT:Internet transport = “telecommunications,” BUT:

• Assessable under USP Assessable under USP only if offered on a only if offered on a “common carrier” basis.“common carrier” basis. Internet transport Internet transport provided on a private carriage basis is not subject provided on a private carriage basis is not subject to assessment.to assessment.

• An illogical relic.An illogical relic.

Interconnected VoIPInterconnected VoIP

• Not regulated under Title II, but treated much like Not regulated under Title II, but treated much like “telecommunications service.”“telecommunications service.”

• Providers must file Form 499-A, even if would Providers must file Form 499-A, even if would otherwise be exempt (otherwise be exempt (de minimis, etc.)de minimis, etc.)

• 64.9% “interstate” (or traffic study)64.9% “interstate” (or traffic study)

““End User”End User”

• USP contributions assessed on revenues from “end users”USP contributions assessed on revenues from “end users”

• ““End user” is not necessarily the last purchaser in a chain End user” is not necessarily the last purchaser in a chain of distribution.of distribution.

• ““End user” includes purchasers of covered service (i.e., End user” includes purchasers of covered service (i.e., telecom, telecom service, VoIP) that does not itself make telecom, telecom service, VoIP) that does not itself make USP contribution, because it is exempt or has failed to USP contribution, because it is exempt or has failed to comply.comply.

• A contributing reseller is not an “end user” (more later)A contributing reseller is not an “end user” (more later)

““End User” (cont.)End User” (cont.)

Examples:Examples:

•““Telecommunications” sold to a Telecommunications” sold to a de minimisde minimis provider that is exempt provider that is exempt from USP because it owes less than $10,000 contributions. Seller must from USP because it owes less than $10,000 contributions. Seller must treat treat de minimisde minimis provider as an “end user” and count sales in USP provider as an “end user” and count sales in USP contribution base.contribution base.

•““Telecommunications” sold to telephone company to provide Telecommunications” sold to telephone company to provide telephone service: telco is telephone service: telco is not not “end user,” as telco must pay into USP. “end user,” as telco must pay into USP. Special conditions discussed later.Special conditions discussed later.

•““Telecommunications” sold to ISP that uses them to provide exempt Telecommunications” sold to ISP that uses them to provide exempt “information service.” ISP is an “end user,” but sales may be exempt “information service.” ISP is an “end user,” but sales may be exempt on other grounds (more later)on other grounds (more later)

““Interstate” vs. “Intrastate”Interstate” vs. “Intrastate”

• Nature of the traffic, Nature of the traffic, not just the location of the linenot just the location of the line

• ““End to end” principleEnd to end” principle

• Internet, cable traffic inherently “interstate”Internet, cable traffic inherently “interstate”

• Interconnected VoIP: 64.9%Interconnected VoIP: 64.9%

• ““10 Percent Rule”: “If over 10 percent of the traffic over a 10 Percent Rule”: “If over 10 percent of the traffic over a … line is interstate, then the revenues and costs generated … line is interstate, then the revenues and costs generated by the entire line are classified as “interstate.”by the entire line are classified as “interstate.”

• USAC’s presumption (currently on appeal) = traffic is USAC’s presumption (currently on appeal) = traffic is interstate in absence of certifications or traffic studiesinterstate in absence of certifications or traffic studies

Revenue from ResellersRevenue from Resellers

• Wholesale providers’ revenue from services sold to Wholesale providers’ revenue from services sold to resellers is exempt from USP, resellers is exempt from USP, if if wholesaler collects wholesaler collects and maintains information (specified in FCC and maintains information (specified in FCC instructions) that support instructions) that support ““affirmative knowledge” affirmative knowledge” or “reasonable expectation” that the reseller or its or “reasonable expectation” that the reseller or its customers make contributions to USP.customers make contributions to USP.

• Reseller revenue must still be reported on Form 499-Reseller revenue must still be reported on Form 499-A (Block 3) (if provider needs to file) but not used to A (Block 3) (if provider needs to file) but not used to calculate contribution.calculate contribution.

Private Carriage vs. Common CarriagePrivate Carriage vs. Common Carriage

Relevant Factors:Relevant Factors:

•““Manner in which the provider holds itself out to the public” Manner in which the provider holds itself out to the public” (advertising?)(advertising?)

• Does not need to be the public at large to qualify as a common carrier. Does not need to be the public at large to qualify as a common carrier. See State of Iowa v. FCC; Virgin Islands Tel. Corp.See State of Iowa v. FCC; Virgin Islands Tel. Corp.

•Services offered indiscriminately on same terms and conditions Services offered indiscriminately on same terms and conditions (like a tariff), or individually negotiated?(like a tariff), or individually negotiated?

•Small set of customers, with little/no turnover?Small set of customers, with little/no turnover?

Private Carriage vs. Common CarriagePrivate Carriage vs. Common Carriage

• Remember, private carriers that provide Remember, private carriers that provide “telecommunications” or interconnected VoIP are “telecommunications” or interconnected VoIP are still subject to USP.still subject to USP.

• Common carrier / private carrier inquiry is Common carrier / private carrier inquiry is relevant for Internet relevant for Internet transporttransport revenues. revenues.

ExemptionsExemptions

• De minimisDe minimis exemption: exemption:

• If projected contribution to the USP from end-user If projected contribution to the USP from end-user revenues for the coming year < $10,000 (~$65,000 gross revenues for the coming year < $10,000 (~$65,000 gross revenue), a provider of “telecommunications” is exempt revenue), a provider of “telecommunications” is exempt from USP reporting and contribution requirements.from USP reporting and contribution requirements.

• A A de minimis pde minimis provider of “telecommunications service” rovider of “telecommunications service” and VoIP must still file Form 499-A to comply with and VoIP must still file Form 499-A to comply with TRS/NANPA/LNP obligations.TRS/NANPA/LNP obligations.

ExemptionsExemptions

• Service to Service to only only government entities or public government entities or public safety organizations:safety organizations:

• Entirely exempt from contribution and reporting Entirely exempt from contribution and reporting obligations.obligations.

• Exemption unavailable if serve even a single non-Exemption unavailable if serve even a single non-governmental entity (including private non-profits)governmental entity (including private non-profits)

• Creation of separate entities to handle exempt and non-Creation of separate entities to handle exempt and non-exempt sales may be an option.exempt sales may be an option.

Exemptions (continued)Exemptions (continued)

• Service Service by by non-profit schools, libraries, health non-profit schools, libraries, health care providers and broadcasterscare providers and broadcasters

• All are exempt from USP reporting and contribution All are exempt from USP reporting and contribution obligations. Not available to outside providers that obligations. Not available to outside providers that serve such entities.serve such entities.

Exemptions (continued)Exemptions (continued)

• Self-service, system integratorsSelf-service, system integrators

• A provider whose only customer is itself is exempt A provider whose only customer is itself is exempt

• This includes buying cooperatives for schools, libraries, This includes buying cooperatives for schools, libraries, etc. etc.

• System integrators who receive no more than 5 percent System integrators who receive no more than 5 percent of revenue from resale of telecommunications are of revenue from resale of telecommunications are exempt.exempt.

EnforcementEnforcement

• FCC’s enforcement authorityFCC’s enforcement authority• Principal and interestPrincipal and interest• Fines and forfeituresFines and forfeitures

• RetroactivityRetroactivity• Asymmetric periods of limitationAsymmetric periods of limitation• Appeals before FCC Appeals before FCC

• Options for addressing past liabilitiesOptions for addressing past liabilities

• Recent developmentsRecent developments• USP “Strike Force”USP “Strike Force”

III. Pole Attachments: III. Pole Attachments: Federal Pole Attachment Regulations -- 47 Federal Pole Attachment Regulations -- 47

U.S.C. § 224U.S.C. § 224

• Regulate rates, terms and conditions of access for Regulate rates, terms and conditions of access for wiredwired and and wirelesswireless attachments to utility poles by attachments to utility poles by telecommunications telecommunications carriers carriers and and cable operatorscable operators

• Rules apply to poles, ducts, conduits and ROW owned by Rules apply to poles, ducts, conduits and ROW owned by investor-owned (private) utilitiesinvestor-owned (private) utilities

• Rates – Two formulas: Cable only (not really); and Telecom. Rates – Two formulas: Cable only (not really); and Telecom. In 2011 the FCC revised Telecom formula to yield essentially In 2011 the FCC revised Telecom formula to yield essentially same rate as Cable formula same rate as Cable formula

• Access – Prescribed timelines for access to polesAccess – Prescribed timelines for access to poles

• Cost causer paysCost causer pays

YupYup YupYup NopeNope

What the Federal Attachment Rules Don’t DoWhat the Federal Attachment Rules Don’t Do

• Federal rules don’t apply in 21 states that have Federal rules don’t apply in 21 states that have “reverse” preempted the FCC and regulate at the state “reverse” preempted the FCC and regulate at the state level. level.

• Federal rules don’t apply to municipal or Federal rules don’t apply to municipal or cooperatively owned utilities -- 47 U.S.C. § 224(a)(1)cooperatively owned utilities -- 47 U.S.C. § 224(a)(1)

• Federal rules don’t provide attachment rights to stand-Federal rules don’t provide attachment rights to stand-alone broadband or dark fiber servicesalone broadband or dark fiber services

• Federal rules don’t apply to utility fiberFederal rules don’t apply to utility fiber

If they want broadband so If they want broadband so bad why don’t the bad why don’t the municipals just get out of municipals just get out of the way and let us build?the way and let us build?

……OHOH

Public Power UtilitiesPublic Power Utilities• View safety, security and reliability of their View safety, security and reliability of their

electric system as top priority electric system as top priority • View poles and conduit as a community asset View poles and conduit as a community asset • Want to encourage broadband deploymentWant to encourage broadband deployment• Want (and have an obligation) on behalf of Want (and have an obligation) on behalf of

their consumer owners to obtain cost recovery their consumer owners to obtain cost recovery • Provide access to all types of service providers Provide access to all types of service providers

– voice, video and data on similar terms and – voice, video and data on similar terms and conditionsconditions

Leveraging Consumer Owned Utility AssetsLeveraging Consumer Owned Utility Assets

• Bring the utility in to the planning process early Bring the utility in to the planning process early

• Don’t assume that utility and municipality have identical Don’t assume that utility and municipality have identical interestsinterests

• Don’t confuse access to ROW with access to assetsDon’t confuse access to ROW with access to assets

• Allow for in-kind consideration and where possible monetize Allow for in-kind consideration and where possible monetize the value of such services the value of such services

• Don’t get tripped up by non-discrimination or level playing Don’t get tripped up by non-discrimination or level playing field clausesfield clauses

IV. Access to ProgrammingIV. Access to Programming

• The BasicsThe Basics• Retransmission ConsentRetransmission Consent• The Future: New Modes, New Models, and What The Future: New Modes, New Models, and What

Is an “MVPD” Anyway?Is an “MVPD” Anyway?

The BasicsThe Basics

• “ “Cable service”:Cable service”:

““[T]he term “cable service” means—[T]he term “cable service” means—(A)(A) the one- the one-way transmission to subscribers of way transmission to subscribers of (i)(i) video video programming, or programming, or (ii)(ii) other programming service, other programming service, andand

(B)(B) subscriber interaction, if any, which is required subscriber interaction, if any, which is required for the selection or use of such video for the selection or use of such video programming or other programming service”programming or other programming service”


• ““Cable System”:Cable System”:

• “[T]he term “cable system” means a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include (A) a facility that serves only to retransmit the television signals of 1 or more television broadcast stations; (B) a facility that serves subscribers without using any public right-of-way …”


• ““Cable operator”:Cable operator”:

““[T]he term “cable operator” means any person or group of [T]he term “cable operator” means any person or group of personspersons(A)(A) who who provides cable service over a cable system provides cable service over a cable system and directly or through one or more affiliates owns a and directly or through one or more affiliates owns a significant interest in such cable system, or significant interest in such cable system, or (B)(B) who who otherwise controls or is responsible for, through any otherwise controls or is responsible for, through any arrangement, the management and operation of such a arrangement, the management and operation of such a cable system”cable system”


• ““Cable operator” must register with FCCCable operator” must register with FCC• Obtain “community unit ID” (cuid), corresponding to Obtain “community unit ID” (cuid), corresponding to

headendheadend

• Designation triggers most program access rights Designation triggers most program access rights and obligations under federal law.and obligations under federal law.

Retransmission Consent and Must-CarryRetransmission Consent and Must-Carry

• Broadcast stations elect to be carried on local cable Broadcast stations elect to be carried on local cable system(s) in one of two ways:system(s) in one of two ways:

• ““Must carry”: operator must carry, station receives no $Must carry”: operator must carry, station receives no $• ““Retransmission consent”: operator under no obligation Retransmission consent”: operator under no obligation

to carry, but station demands $to carry, but station demands $

• Three year election cycle. Election must be Three year election cycle. Election must be uniform throughout broadcast DMA.uniform throughout broadcast DMA.

Retransmission Consent: $$$Retransmission Consent: $$$

2006: $215 million2006: $215 million

2012: $2.4 billion2012: $2.4 billion

2018: $6 billion.2018: $6 billion.

Source: Source: SNL KaganSNL Kagan

Retransmission ConsentRetransmission Consent

• ““Good Faith Negotiation”Good Faith Negotiation”

• The Plight of Small Operators:The Plight of Small Operators:• Gouged for access to essential programmingGouged for access to essential programming

• Subject to aggressive “channel tying” demandsSubject to aggressive “channel tying” demands

• Less favorable terms than big MSOs, but no way to Less favorable terms than big MSOs, but no way to prove it due to aggressively enforced NDA termsprove it due to aggressively enforced NDA terms

• ““Good faith negotiation” means little when parties have Good faith negotiation” means little when parties have disparate bargaining power.disparate bargaining power.

Retransmission ConsentRetransmission Consent

• No reasonable prognosis of meaningful FCC or No reasonable prognosis of meaningful FCC or Congressional action in the near term.Congressional action in the near term.

• Some cable operators adding “broadcast TV fee” Some cable operators adding “broadcast TV fee” to subscriber billsto subscriber bills

SportsSports

• L.A. Dodgers / TWC – SportsNet LAL.A. Dodgers / TWC – SportsNet LA

• $7B, 25 year deal$7B, 25 year deal

• Dodger games no longer on free broadcast channels.Dodger games no longer on free broadcast channels.

• TWC charging other operators $5+ per sub, operators aren’t TWC charging other operators $5+ per sub, operators aren’t buying.buying.

• ESPN: $5+ per subESPN: $5+ per sub

• Fox Sports 1, Sports 2Fox Sports 1, Sports 2

. . . Cable rates have skyrocketed over the past 5 years.. . . Cable rates have skyrocketed over the past 5 years.

The Future (???)The Future (???)

• New modes of video delivery, new partnerships:New modes of video delivery, new partnerships:• ““Virtual MVPD/headend”, managed serviceVirtual MVPD/headend”, managed service

• Many announcements / partnerships, little change so farMany announcements / partnerships, little change so far

• FCC proceeding on meaning of “MVPD,” FCC proceeding on meaning of “MVPD,” “channel”“channel”

• Not clear what a cable operator of the future will Not clear what a cable operator of the future will look like, nor whether it will be a “cable operator” look like, nor whether it will be a “cable operator” as currently defined.as currently defined.

Are Cable TV’s Days Numbered?Are Cable TV’s Days Numbered?

• OTT is great for nonlinear, nonscheduled OTT is great for nonlinear, nonscheduled programming (Netflix, etc.)programming (Netflix, etc.)

• OTT not so great for scheduled programs and events. OTT not so great for scheduled programs and events. (Internet was designed for peer-to-peer, not multicast)(Internet was designed for peer-to-peer, not multicast)

• Delivery of linear, high-demand video programming Delivery of linear, high-demand video programming might be doable as a managed service, as part of a might be doable as a managed service, as part of a subscription involving the broadband provider.subscription involving the broadband provider.

• The more things change….The more things change….

V. E-RateV. E-Rate

• The Basics:The Basics:• One of four federal communications subsidy programs One of four federal communications subsidy programs

funded by USP, administered by Universal Service funded by USP, administered by Universal Service Administrative Company (USAC)Administrative Company (USAC)

• Federal subsidy (funded by USP) for the provision of Federal subsidy (funded by USP) for the provision of “eligible services” (telecom, Internet access and other “eligible services” (telecom, Internet access and other services) to schools and librariesservices) to schools and libraries

• Subsidy of 20%-90%, based on % of students eligible for Subsidy of 20%-90%, based on % of students eligible for National School Lunch ProgramNational School Lunch Program

• Now, available to virtually any provider (not just Now, available to virtually any provider (not just “telecommunications carriers”)“telecommunications carriers”)

E-Rate (continued)E-Rate (continued)

• Eligible Services:Eligible Services:• Connectivity to eligible locations (“Category One”):Connectivity to eligible locations (“Category One”):

• Connections to schools and libraries, including leased lit Connections to schools and libraries, including leased lit and dark fiberand dark fiber

• Internet access, regardless of technology. Internet access, regardless of technology. • Maintenance eligibleMaintenance eligible

• Internal connections (“Category Two”)Internal connections (“Category Two”)• Distribution of signal within schools, among campusDistribution of signal within schools, among campus• LAN/WLAN components, etcLAN/WLAN components, etc• Maintenance and managed services eligibleMaintenance and managed services eligible


• E-Rate Modernization Order (July 11, 2014):E-Rate Modernization Order (July 11, 2014):• Expanded support for Wi-Fi within schoolsExpanded support for Wi-Fi within schools

• Bandwidth targets: Bandwidth targets:

• Schools:Schools:

• Short term: 100Mbps/1,000 usersShort term: 100Mbps/1,000 users

• Longer term: 1Gbps/1,000 usersLonger term: 1Gbps/1,000 users

• Libraries:Libraries:

• <50k users: 100Mbps<50k users: 100Mbps

• >50k users: 1Gbps>50k users: 1Gbps

• Reorganize ESL, phase out support for legacy services (i.e., Reorganize ESL, phase out support for legacy services (i.e., voice)voice)


• Leased lit fiberLeased lit fiber: :

• ““[M]onthly charges, special construction and maintenance charges are [M]onthly charges, special construction and maintenance charges are eligible”eligible”

• ““When lit fiber is leased as a Category One service, the modulating When lit fiber is leased as a Category One service, the modulating electronics can be included as a part of that eligible service”electronics can be included as a part of that eligible service”

• Leased dark fiberLeased dark fiber: :

• Within property line: maintenance and special construction costs are Within property line: maintenance and special construction costs are eligibleeligible

• Beyond property line: special construction charges not eligible, Beyond property line: special construction charges not eligible, maintenance eligiblemaintenance eligible

• Modulating electronics generally not eligibleModulating electronics generally not eligible• IRU considered a lease of dark fiber. Upfront charges may need to be IRU considered a lease of dark fiber. Upfront charges may need to be

amortized.amortized.


• The Process:The Process:• Obtain Service Provider ID (SPIN) via Form 498Obtain Service Provider ID (SPIN) via Form 498

• Obtain Form 499 Filer IDObtain Form 499 Filer ID

• Respond to Form 470 Request for Services and RFP, if Respond to Form 470 Request for Services and RFP, if applicable (window open November-December)applicable (window open November-December)

• Contract with recipient, file Form 471 (March-April)Contract with recipient, file Form 471 (March-April)

• Receive Funding Commitment Decision LetterReceive Funding Commitment Decision Letter


WARNING:WARNING:

Service providers and recipients should be VERY Service providers and recipients should be VERY careful about communicating prior to selection. ANY careful about communicating prior to selection. ANY

service provider involvement in school’s/library’s service provider involvement in school’s/library’s process concerning service requirements and provider process concerning service requirements and provider

selection is taken very seriously, will jeopardize selection is taken very seriously, will jeopardize funding, and may lead to serious penalties, including funding, and may lead to serious penalties, including

retroactive payment of support.retroactive payment of support.

VI. CAF/RUS: Rural Broadband VI. CAF/RUS: Rural Broadband ExperimentsExperiments

• National Broadband Plan recommended transitioning Universal National Broadband Plan recommended transitioning Universal Service Program from telecom to broadbandService Program from telecom to broadband

• The FCC created the Connect America Fund (CAF) to help make The FCC created the Connect America Fund (CAF) to help make broadband available in high-cost areas broadband available in high-cost areas

• CAF Phase I (interim) and Phase II (cost model) CAF Phase I (interim) and Phase II (cost model)

• CAF to be incentive-based, market-driven, and may include CAF to be incentive-based, market-driven, and may include competitive bidding to distribute unclaimed fundscompetitive bidding to distribute unclaimed funds

• In early 2014, the FCC announced rural broadband “experiments” to In early 2014, the FCC announced rural broadband “experiments” to test interest in subsidized deployments of broadband at higher than the test interest in subsidized deployments of broadband at higher than the FCC’s minimum levels FCC’s minimum levels

• Reached out to non-traditional entities, including municipalities Reached out to non-traditional entities, including municipalities and utilities and utilities

• FCC received over 1,000 expressions of interestFCC received over 1,000 expressions of interest

CAF/RUS: Rural Broadband ExperimentsCAF/RUS: Rural Broadband Experiments

• Rural Broadband Experiment Order adopted in July 2014. See Rural Broadband Experiment Order adopted in July 2014. See http://www.fcc.gov/document/rural-broadband-experiments-order

• $100 million budget for experiments in unserved census blocks in $100 million budget for experiments in unserved census blocks in “price cap” ILEC markets“price cap” ILEC markets

• Relatively modest, but lessons learned may be used for $ billions in Relatively modest, but lessons learned may be used for $ billions in subsequent rounds subsequent rounds

• Three categories of experiments, 2 in high-cost areas and 1 in extra Three categories of experiments, 2 in high-cost areas and 1 in extra high-cost areas (details next slide)high-cost areas (details next slide)

• FCC will provide support in equal monthly installments over 10 yearsFCC will provide support in equal monthly installments over 10 years

• Reverse auction – low bid winsReverse auction – low bid wins

• Auction closes October 14, 2014Auction closes October 14, 2014

http://www.fcc.gov/document/rural-broadband-experiments-order


$100 million is the total amount available to winning bidders over ten $100 million is the total amount available to winning bidders over ten years years

The FCC will distribute each winning project’s share in 120 equal The FCC will distribute each winning project’s share in 120 equal monthly installmentsmonthly installments

•Category 1 (Very High Performance): $75 million for projects proposing Category 1 (Very High Performance): $75 million for projects proposing network capable of delivering 100/25 Mbps in eligible high-cost areas network capable of delivering 100/25 Mbps in eligible high-cost areas while offering at least one service plan that provides 25 Mbps/5 Mbps to while offering at least one service plan that provides 25 Mbps/5 Mbps to all locations within the selected census blocks ($20M per-project cap)all locations within the selected census blocks ($20M per-project cap)

•Category 2 (Minimum Performance): $15 million for projects offering at Category 2 (Minimum Performance): $15 million for projects offering at least 10 Mbps/1 Mbps in high-cost areas ($7.5M per-project cap)least 10 Mbps/1 Mbps in high-cost areas ($7.5M per-project cap)

•Category 3: $10 million for projects offering at least 10 Mbps/1 Mbps in Category 3: $10 million for projects offering at least 10 Mbps/1 Mbps in extremely high-cost areas ($5M per-project cap)extremely high-cost areas ($5M per-project cap)


• Funding is available to a wide range of entities, including utilities, Funding is available to a wide range of entities, including utilities,

government entities, coops, non-profits, etcgovernment entities, coops, non-profits, etc..• FCC encourages partnerships FCC encourages partnerships

• At least one member of a selected bidder must have or obtain Eligible At least one member of a selected bidder must have or obtain Eligible Telecommunications Carrier (ETC) status from the relevant state or Telecommunications Carrier (ETC) status from the relevant state or the FCC within 90 days of selectionthe FCC within 90 days of selection

• Entities must comply with all applicable federal, state, and local lawsEntities must comply with all applicable federal, state, and local laws

• What about potential applicants from states that have barriers to What about potential applicants from states that have barriers to community broadband initiatives?community broadband initiatives?

• Chattanooga/Wilson proceeding before the FCCChattanooga/Wilson proceeding before the FCC

THE BALLER HERBST LAW GROUP, P.C.THE BALLER HERBST LAW GROUP, P.C.2014 P St NW Suite 2002014 P St NW Suite 200

Washington, D.C. 20036Washington, D.C. 20036

www.baller.com

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BROADBAND COMMUNITIES ECONOMIC DEVELOPMENT SUMMIT 2014 SEPTEMBER 16, 2014 Sean Stokes...

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