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Top Ten Tips for Franchise Renewal

This article was edited and reviewed by FindLaw Attorney Writers | Last reviewed March 26, 2008

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Franchise renewal, if done properly, provides local franchising authorities unique opportunities to ensure that the cable system serving the community will help to meet the community's reasonable future telecommunication needs and interests. Here are my 10 top tips for a successful renewal, followed by a review of how they have been followed by the City of Brunswick and Brunswick Hills Township, Ohio in a renewal where the City and Township have had to preliminary deny renewal to an intransigent cable operator and hold an on-the-record administrative proceeding.
  • Begin preparation today (or yesterday)
  • Assemble a renewal team
  • Be prepared for the worst
  • Learn your community's cable-related and other telecommunications needs and interests
  • Establish renewal goals that take the future into account
  • Don't underestimate, or overestimate, the cable operator
  • Don't accept "no" for an answer
  • Be flexible
  • Persevere, and take the time necessary to reach a successful conclusion
  • Enjoy yourself; never lose your sense of humor
  2. THE RENEWAL PROCESS
The franchise renewal process is in essence a negotiation between the local franchising authority and the cable operator concerning valuable property and services. Renewal should be approached no less seriously than any other major negotiation by the local government. Therefore, the city or county needs to assemble a skilled team that comes to the negotiating table fully prepared. The negotiators need to know their facts, rights and objectives, and they must be prepared for what is often a war of attrition. Rarely will a cable operator open negotiations with a renewal proposal that is sufficiently generous that, as presented, will be adequate to meet the community's future needs and interests. It is often tempting, however, for a city or county to accept a proposal either (1) to avoid the time, cost and hassle of a potentially difficult negotiation or (2) on the mistaken assumption that the federal Cable Act leaves the local government with no negotiating power. The great majority of franchise renewals are resolved through the informal renewal process contemplated by subsection (h) of section 626 of the federal Cable Act, without resort to the full formal process set forth in subsections (a) - (g). Nonetheless, franchising authorities need to approach renewal as if it will be necessary to go through the full formal process. The key to a successful renewal is the ascertainment process required by Section 626(a)(1): "a proceeding which affords the public in the franchise area appropriate notice and participation for the purpose of (A) identifying the future cable-related community needs and interests, and (B) reviewing the performance of the cable operator under the franchise during the then current franchise term." Aside from the need for a reliable ascertainment if full formal renewal becomes necessary, the ascertainment process informs the local government and its negotiators about the community's needs and interests. Such information assists them in determining their goals and objectives and can more effectively and credibly present their position at the bargaining table. The Cable Act does not prescribe the way in which future community needs are to be determined; among the research tools used are focus group workshops, telephone surveys, mail surveys, meetings (and/or interviews) with community leaders, and public hearings. It is a good practice, and essential if litigation ensues, to maintain good records of the research. It is also important that the research be conducted in a reliable, valid, and verifiable manner. An important focus, which is usually ignored by cable operators in their research (if any), is that the ascertainment is to be of future cable-related community — and not just subscriber — interests. The second prong of the ascertainment process — the review of the cable operator's performance — is a key element in renewal. In some circumstances, noncompliance with material terms of the franchise can form a basis for denial of renewal. Areas of noncompliance detected and discovered during the review of the operator's performance can also be used as a basis for franchise terms to be included in a renewal franchise to assure that corrective measures are taken. A compliance review should be comprised of: an audit of compliance with the terms of the franchise agreement; a technical evaluation of the cable plant, headend, and plant maintenance; a financial review; a survey of customer service and satisfaction; and a review of PEG access and any institutional network requirements. The information gathered during the ascertainment process, plus other information learned about the cable operator (such as what the operator has agreed to in other recent franchises), should provide a solid basis for negotiations. Franchise negotiations are necessarily an adversarial process inasmuch as the cost of meeting community needs will adversely affect the operator's bottom line. That doesn't mean that the negotiating atmosphere has to be or should be hostile, but negotiators need to have a thick skin and resolve. Cable operators often overstate, and at times misrepresent, what rights the franchising authority has under federal law or the franchise. The negotiators for the franchising authority need to know and understand what their rights are and not accept at face value what the operator may claim. Negotiators should learn not accept "no" for an answer. It doesn't take much effort for an operator to say no to a request; if the franchising authority accepts that answer, the operator has "won" the issue. On the other hand, it is important to be flexible and to understand the cable company's needs and motivations. A successful negotiation is one where there is give and take by both sides, understanding and accommodating each other's legitimate needs and concerns. At times, however, the operator attempts to, and often does, wear out the franchising authority by dragging out the negotiations. Thus, the franchising authority needs to be prepared to perservere and take the time necessary to reach a successful conclusion. My final tip — and one not always easy to achieve — is to enjoy yourself and keep your sense of humor. Don't take disagreements or criticisms personally, but recognize that you and the cable operator's negotiators each has a job to do. Remember that, after the renewal process is over, and the franchise has been renewed (except in the rare case where renewal is denied), the operator will be a member of the business community providing service to subscribers and to the government, schools, libraries, and other institutions in the community.

  1. BRUNSWICK AND BRUNSWICK HILLS TOWNSHIP: A CASE OF PRELIMINARY DENIAL
The renewal proceeding in Brunswick is a rarity — a case in which renewal has been denied (preliminarily thus far). Brunswick is an example of how a local government conducted the renewal process properly, thoroughly and responsibly, but found itself up against a cable operator that was inflexible, refused to comply with important franchise obligations, and was unwilling to acknowledge and adapt to the community's cable-related needs and interests. Under the federal Cable Act, a franchising authority may deny renewal on one (or more) of four grounds. In Brunswick, the City and Township made preliminary findings on two of these grounds: (1) that the operator, Cablevision of the Midwest, Inc., had not complied with the material terms and conditions of its franchise and (2) that Cablevision's renewal proposal was not reasonable to meet the community's future cable-related needs and interests, taking into account the cost of meeting such needs and interests. Following the preliminary denial of renewal, Brunswick provided for a formal on-the-record administrative proceeding, as required by the Cable Act, before an appointed hearing officer (a retired judge). Brunswick and Cablevision presented testimony by 16 witnesses during six days of hearings at which the witnesses were examined and cross-examined. The case is now before the hearing officer awaiting decision after the completion of briefing by Brunswick and Cablevision. After his decision, the City and Township will "issue a written decision granting or denying the proposal for renewal based upon the record of [the administrative] proceeding...." Cable Act, Section 626(c)(3). If renewal is denied, Cablevision will have a right to a court appeal.
  1. Background
T he City of Brunswick and Brunswick Hills Township have a combined population of about 38,000; Cablevision has approximately 9,900 cable subscribers in Brunswick. The City and Township established a Joint Cable Board in 1980 for the purpose of acting together with respect to the granting of a cable franchise, which was issued to Brunswick Cable Communications Associates in 1981. The franchise was transferred to Cablevision in 1988 following an intermediate transfer in 1986 to Shamrock Cable Corporation. At the time of the transfer, Cablevision agreed to abide by the terms of the franchise. The renewal process was triggered by a formal request by Cablevision in January, 1994 for renewal of the franchise, which was due to expire in November, 1996 (the franchise has since been extended pending completion of the renewal process). In June, 1994, Brunswick contracted with the Buske Group of Sacramento, California to assist it in the renewal process.
  1. The Franchise Renewal Process
The principal activities on behalf of Brunswick in the franchise renewal process were to review past performance of the cable operator and to identify future cable-related needs and interests of subscribers and residents in Brunswick. Brunswick established an Ad Hoc Advisory Committee of Brunswick community leaders to assist the consultant and City staff. Beginning in the spring of 1995, and continuing through early 1996, the Buske Group, with the assistance of City staff and the Ad Hoc Advisory Committee, undertook the following activities and studies:
  • conducted a contract compliance review of the current franchise;

  • conducted a technical/engineering review of the cable system to determine the condition of current cable plant and how well the system has been maintained;

  • conducted a financial review of Cablevision to determine:
    • the overall financial performance of the cable system; and

    • whether correct franchise fees payments had been made to the City by Cablevision;


  • conducted a series of six community focus group workshops to identify community cable-related needs and interests;

  • distributed a survey to representatives of community groups, organizations, institutions, and government agencies to identify community cable-related needs and interests;

  • distributed a survey designed to ascertain current institutional communications uses and to identify future cable-related needs and interest specific to telecommunications;

  • reviewed and analyzed letters and other documents provided by K-12 schools, local government agencies, community organizations, and libraries;

  • conducted a review of current public, educational and governmental ("PEG") access equipment, facilities, and services;

  • reviewed testimony and documents submitted during the public hearings; and

  • analyzed all data gathered.
The consultants prepared four reports that were submitted to the City: a Cablevision Franchise Compliance Review preliminary report; a Financial Performance and Franchise Fee Report; a cable system technical evaluation; and a preliminary report on Ascertainment and Recommendations Regarding Public, Educational, and Governmental Access for Brunswick, Ohio Public hearings to hear the consultant's report and obtain public comment were held by the Joint Cable Board in October, 1995 and January, 1996.
  1. Noncompliance
In September, 1996, Brunswick adopted a resolution (1) accepting the recommendations in the Buske Group's Franchise Compliance Report finding that Cablevision was not in compliance with the cable franchise agreement in a number of respects and (2) directing Cablevision to provide a detailed listing of remedies to address all areas of non-compliance within 30 days of the adoption of the Resolution. The Buske Group's recommendations consisted of an Overview and Summary of 14 items of apparent non-compliance and an attached tabulation summary of obligations and level of compliance of Cablevision under the Franchise. In November, 1996, Brunswick received a two-page response from Cablevision which took exception to the alleged violations and indicated Cablevision's position that Brunswick had waived its rights with regard to a number of the violations when Cablevision acquired ownership of the cable system in Brunswick in 1998. Despite having been requested to document its position, Cablevision did not produce any documents to support its position.
  1. Enabling Ordinance
In April, 1996, Brunswick developed a proposed enabling ordinance that would establish cable communication franchise procedures, terms and enforcement measures for all potential cable franchises in Brunswick. A copy of the draft was sent to Cablevision for its comments. Cablevision submitted comments which were considered and accepted in part prior to adoption of the ordinance in July, 1996.
  1. Issuance of Request for Renewal Proposals
There were several informal franchise renewal negotiations between Cablevision and Brunswick before and after enactment of the Enabling Ordinances. Once it became clear that agreement could not be reached between Cablevision and Brunswick on issues of non-compliance and community needs, Brunswick in July, 1997 closed the proceeding to identify community cable-related needs and interests and issued a request for proposals for a cable communications franchise. The RFP described the renewal process that had been undertaken by Brunswick, identified principles embodied in the request, set forth the required format for proposals, and included forms to be completed as part of any proposal.
  1. Cablevision's Response to the RFP
Cablevision submitted its response to the RFP in October, 1997. Cablevision's response was reviewed by the City Administration, the consultant and the Joint Cable Board which deemed the response to be woefully inadequate to meet the current and future needs of cable subscribers in the City and Township, and placed Cablevision on notice of a preliminary formal denial of renewal of the cable franchise in February, 1998, unless informal negotiations resulted in an agreement before then. The Joint Cable Board's determination was made at a meeting in December, 1997. The City adopted a resolution supporting the actions of the Joint Cable Board and urging Cablevision to resume informal negotiations.
  1. Preliminary Denial of Renewal
The City and Township adopted resolutions in February, 1998, supporting action taken by the Joint Cable Board, to accept the Recommendation of the Buske Group to preliminarily deny Cablevision's renewal proposal because of Cablevision's failure to substantially comply with the material terms of the existing franchise, and because Cablevision's renewal proposal failed to meet Brunswick's future cable-related needs and interests, taking into account the cost of meeting such needs and interests.
  1. The Administrative Hearing

1. The Principal Issues in Dispute The principal issues in dispute involve PEG access, the I-Net and Cablevision's failure to provide local programming as required by the franchise. Cablevision proposed an upgrade of its system that is reasonable under today's technology. Therefore, unlike many other renewals, there was no issue with respect to the upgrade except as related to Cablevision's failure to address PEG and I-Net requirements adequately. The outstanding issues with respect to past non-compliance are:

  • Cablevision's failure to provide a production facility to be used for public access and local origination purposes located in Brunswick as required by the franchise;

  • Cablevision's refusal to provide a separate channel for public access, as required by the franchise (a shared public/local origination channel has been provided instead);

  • Cablevision's failure to provide 20 hours per week of locally produced programming as required by the franchise;

  • Cablevision's failure to provide and maintain the system so that it is two-way activated (i.e., capable of sending a signal from headend to subscriber and from subscriber to headend) as required by the franchise (Cablevision cannibalized the system and removed equipment necessary to accomplish two-way activation); and

  • Cablevision's failure to make a local access production specialist available in Brunswick as required by the franchise.
The issues related to whether Cablevision's renewal proposal meets the future cable-related needs and interests with respect to PEG and I-Net needs concern the facts that the proposal:
  • does not propose a PEG access facility to be located in Brunswick as required by the RFP;

  • proposes substantially fewer resources for PEG access equipment and facilities than required by the RFP;

  • does not propose a separate channel dedicated to public access, but instead proposes to continue a channel to be shared with local origination programming;

  • does not propose to supply staff for anything other than training to support PEG access until a separate PEG access management entity is operational; and

  • provides only the fiber optics for the I-Net, but not the electronics necessary to use the fiber optic lines, linking selected government buildings.

2. Brunswick's Reasons for Preliminary Denial With limited exceptions, the provisions of the 1981 cable franchise were honored and observed by the original franchisee and by the first transferee (Shamrock Cable Corporation). When the franchise was transferred to Cablevision in 1988, the company agreed to abide by the terms of the franchise. Subsequently, Cablevision reneged on several important obligations in the franchise, apparently because they required the provision of local facilities and services that did not fit within Cablevision's approach of a regional system for the Northern Ohio (including Cleveland) area. Cablevision's failure to honor and observe these material terms of the franchise dealing with local matters important to Brunswick constitute what Brunswick considered to be material noncompliance with the terms of the franchise. Cablevision's disregard for the Brunswick community's cable-related needs and interests carried over to its renewal proposal submitted in response to Brunswick's RFP, where Cablevision refused to provide the services and resources determined by Brunswick during the ascertainment process to be appropriate. There is a substantial overlap and relationship between Cablevision's past noncompliance and what Brunswick considered to be Cablevision's "woefully inadequate" renewal proposal in that the issues relate (almost entirely) to the requirement that adequate capacity and support be provided for PEG access and an I-Net. When Cablevision began operating in Brunswick there was a production facility located in Brunswick that was used for public access and local origination programming. Cablevision sought permission to relocate the staff for the Brunswick studio to Strongsville, the city immediately to the north, and was granted a six-month trial period of variance which expired by its own terms unless the parties agreed to amend the franchise. That provision was not amended following the six-month trial (although there were amendments with regard to other variances). Nonetheless, Cablevision never reinstated the staff to Brunswick and instead stripped the studio in Brunswick of equipment in 1989 or the early 1990's based on its unilateral decision that it was no longer necessary to provide the equipment in Brunswick. Cablevision never operated the local studio, and required those seeking to produce public access programming to travel to Cleveland Heights or Brook Park for necessary training and to obtain equipment. Those cities are a 45 to 60 minute or 20 to 30 minute drive from Brunswick. These actions, together with other actions by Cablevision, reflected a corporate hostility to public access that is inconsistent with Brunswick's determination of its needs and interests. For example, although Cablevision pays lip service to the principle that it may not exercise editorial control over PEG access, it has insisted on pre-screening public access programming and controlling access to equipment in order to exercise such program content control. This attitude was embodied in the Company's refusal to permit Brunswick to establish a separate management entity to run public access, a role that Cablevision insists on retaining for itself. Cablevision never provided a separate dedicated public access channel as required by the franchise. The franchise Cablevision accepted in 1988 requires it to provide 20 hours per week of locally produced programming, an obligation Cablevision never met or attempted to meet. Also significant to Brunswick was Cablevision's failure to provide and maintain a two-way activated subscriber system as a result of its cannibalization of the system by removing equipment. When Brunswick adopted a resolution notifying Cablevision of areas of noncompliance, Cablevision's first response was that it had no obligation to provide a studio in Brunswick and that it had no obligation to provide 20 hours a week of local programming. At hearing, Cablevision claimed that Brunswick waived these provisions of the franchise. However, it has provided no documentation of any waiver as required by Section 626(d) of the Cable Act. Instead, it presented multiple different and contradictory recountings of Brunswick's purported waivers, each of which is contradicted by contemporaneous documents, the parties' contemporaneous behavior, testimony by Brunswick's witnesses, and by the testimony of a Cablevision witness. Cablevision's principal defenses to Brunswick's findings that the renewal proposal failed to meet future community-related needs and interests are that Brunswick did not consider the costs of the PEG access and I-Net obligations in the RFP and that Brunswick's determination of needs and interest was biased and failed to adequately consider subscriber needs and interests. The only reliable and valid evidence in the record, however, is that the PEG access and I-Net obligations in the RFP would not impose any cost obligations above those already embedded in Cablevision's rates in Brunswick. Although Cablevision offered testimony intended to show a substantial cost burden, its witness failed to recognize any offset for costs in the current franchise that were embedded in rates, although he conceded that such offsets are appropriate. Brunswick undertook numerous measures to identify community needs and interests, including: the formation of an Ad Hoc Advisory Committee of Brunswick community leaders; several public hearings; six community focus group meetings; a community programming questionnaire and analysis; an institutional telecommunications survey and analysis; a review of customer service and complaints; an inspection of current PEG access equipment, facilities, and services; a review and analysis of position papers and letters submitted by Brunswick residents and representatives of local agencies, educational institutions, and community groups; a cable television subscriber survey; and the hiring of Sue Buske, an expert consultant familiar with the Brunswick community, to assist in the analysis and to make recommendations concerning future community cable needs. Cablevision criticized Brunswick's ascertainment as allegedly being based on its consultant's bias. Contrary to Cablevision's claims, however, the community was the source of the PEG access and I-Net needs identified in the RFP. Skip Trimble, Brunswick's City Manager since the mid 1970s, explained in testimony that Brunswick's objective in the renewal process, in substantial part, was to recoup the PEG and local benefits it was entitled to, but denied, under the existing franchise. A substantial source of very valuable information was obtained through informal contacts and communication with community members. The focus groups, questionnaire responses and relevant letters demonstrate the Brunswick community's interest in PEG access and I-Net resources. Much of this information was in response to Brunswick's and Ms. Buske's efforts to educate the community as to the technological advances and communication possibilities associated with the advent of fiber optics. By focusing on key institutions, decisionmakers, persons "potentially ... interested in the technology and services possible with the technology," and persons intimately familiar with the Brunswick PEG access community, Brunswick gained a wealth of information concerning community needs and interests. In contrast to Brunswick's extensive ascertainment process, Cablevision did virtually nothing to ascertain community cable-related needs and interests in Brunswick. Brunswick attempted to elicit from Cablevision in response to the RFP information as to why Cablevision believed its proposal would be reasonable to meet the community's cable-related needs and interests; it received a response asserting, without support, that "Cablevision maintains that the items identified in the RFP do not accurately reflect the community needs of Brunswick with respect to Access programming ..." At hearing, and for the first time, Cablevision presented testimony that the basis for Cablevision's assessment was nothing more than oral discussions between the official who prepared the response and other Cablevision personnel as to their "sense of what public access demand is ... in the City of Brunswick based upon its prior use ...." Subsequently, and for purposes of the administrative hearing, Cablevision had a subscriber survey conducted. That survey, which was conducted by an independent firm using questions developed by Cablevision's public relations firm and by Cablevision's governmental affairs department, does not pass muster as valid survey evidence. There were no validation criteria, the questions were improper, the respondent base was problematic, and the survey was designed improperly.

3. The Ascertainment Evidence at Issue Other than requiring notice and opportunity for participation, the Cable Act does not delineate the process to be used for identifying community needs and interests (or acts of non-compliance), but instead only requires that the renewal process be "orderly" and "[]fair." Section 601(5). Both Brunswick and Cablevision submitted evidence at hearing to support their respective positions. Brunswick's information, in significant part, was gathered by means of focus groups, and survey questionnaire responses submitted after the focus group sessions. Cablevision relied principally upon a telephone subscriber survey (apparently done solely for the purpose of litigation) that has not been used by the Company's marketing department.

a. The Survey Issues The identification of future cable-related needs and interests raises significant survey considerations. Brunswick retained an outside expert, Dr. Claude Martin, the Isadore and Leon Winkelman Professor of Retail Marketing at the University of Michigan School of Business, a national (and indeed, international) expert in the areas of survey research and marketing, to review the research done for Cablevision and for Brunswick. He found that:

From the perspective of survey and research methodology [the research] objective has three significant components: 1) the need to identify community needs and interests (as distinguished from only cable subscriber needs and interests); the need to identify future needs and interests (as distinguished from past or present needs and interests); and 3) the need to identify cable-related needs and interests, which involves survey and research work concerning highly technical matter and product and service innovations (as distinguished from a survey of TV viewing preferences).
It is my conclusion that the Buske Group accomplished a creative, diligent and professional evaluation of community needs and interests responsive to the task of researching such needs and interests with respect to new and evolving cable telecommunications technologies. In the seminal marketing textbook for many MBA programs Philip Kotler supports this type of approach saying "at its best, marketing research develops innovative ways to solve a problem."* This type of approach is similar to "requirements" research found in the services marketing field. Requirements research involves identifying the benefits and attributes that customers expect. It is a basic and essential type of research useful to determine the type of questions to be asked on surveys and ultimately the improvements that will be attempted by the organization. It appears that Cablevision did no requirements research preparatory to the CPAT survey, and like many companies, improperly developed its survey on the basis of intuition or company direction, rather than through customer probing.
An example of requirements research is structured brainstorming a technique developed by researchers in IBM's Advanced Business Systems unit.** In this technique a sample of customers and potential customers is assembled. A facilitator leads the group through a series of exercises on creativity and then has the customers describe the ideal provider of the service -- what the customers would want if they could have their ideal service. The facilitator asks "what" the customers want (to elicit fundamental requirements), "why" they want it (to elicit the underlying need or benefit sought), and "how" they will know when they receive it (to elicit specific service features).
The Buske Group research is also similar to future expectations research. Customer expectations are dynamic and can change very rapidly in markets that are highly competitive and volatile. As competition increases, as tastes change, and as customers become more knowledgeable, companies must continue to update their information and strategies.
____________________________________
* Philip Kotler, Marketing Management (8th ed. Prentice-Hall, 1994).
** Edith E. Lueke and Thomas W. Suther III, "Market Driven Quality: A Market Research and Product Requirements Methodology," IBM Technical Report (June, 1991).

b. The Focus Groups Brunswick showed that the focus group survey methodology is particularly well suited to the task of ascertaining future community cable related needs and interests. By focusing on key institutions, decisionmakers, persons potentially interested in the technology and services possible with the technology, and persons intimately familiar with the Brunswick PEG access community, Brunswick gained a wealth of information concerning community needs and interests. For example, the Brunswick Chief of Police wrote Jeff Neidert, the City's Cable Facilitator, an extensive policy memo explaining that "the community policing law enforcement strategy could be best served by upgraded technology and application" that could enhance, among other things, internal and regional law enforcement computer networks, permit video arraignment, and support vendor training. The major purposes of the focus group methodology include:

providing overall background information on a category;
getting impressions on new concepts for which there is little available information;
stimulating new ideas about older products and/or technologies; and
generating ideas for new creative concepts.
Other focus group standards include:
respondent groups composed of persons with fairly homogenous characteristics;
the use of highly skilled moderators to ensure that proper respondent rapport is established and that the discussion is directed along relevant lines, and the degree of probing and depth of insight are sufficient to accomplish the research objectives.
Dr. Martin reviewed video-tapes of four of the six focus group sessions and testified that they met the above standards. The use of focus groups is a survey tool that yields qualitative information. Dr. Martin observed that Brunswick and the Buske Group obtained valuable qualitative information from the decisionmakers representing likely users of a community based cable communication system and from community members in general. A significant part of Brunswick's ascertainment, as Dr. Martin testified, was "looking at ... those people who are in a leadership role in those constituencies and what are going to be the needs and interests of those constituencies over the future time period. Which seems to me ... that this is the major research question ...." The ascertainment process was "fair" and "orderly" in providing Cablevision the opportunity to provide information bearing on its assessment of future community cable needs and interests. During the informal negotiations (and during the ascertainment process) Cablevision claimed to possess survey information contradicting what the Buske Group had found. However, Cablevision failed to produce any such surveys and conceded at the hearing that it had no such surveys, other than the survey that was done for Cablevision after its renewal proposal was submitted. Cablevision employees also routinely attended Joint Cable Board meetings and City Council meetings concerning the franchise but never availed themselves of the opportunity to state their understanding of the community's future cable needs and interests. Brunswick attempted to solicit from Cablevision in response to the RFP a narrative summary of its proposal's responsiveness to local needs with "[e]mphasis ... [on] explaining why [Cablevision] believes its proposal is reasonable to meet the cable-related needs and interests of the community, taking into account the cost of meeting such needs and interests." Cablevision failed to provide the requested information and failed to explain why it did not do so other than to state at hearing that the basis for Cablevision's assessment of the level of Brunswick community cable needs in the areas of PEG access was nothing more than the oral discussions with other Cablevision personnel as to their "sense of what public access demand is ... in the City of Brunswick based upon its prior use ...."

c. The Cablevision Telephone Survey The Cablevision survey, done for litigation purposes, was fundamentally flawed. Dr. Martin, who has extensive forensic experience with respect to market research and surveys, explained that: "Cablevision's ... subscriber survey is not a proper survey for ascertaining Brunswick future community cable-related needs and interests. The problems fall into four general areas: 1) lack of validation criteria; 2) improper survey questions; 3) problematic respondent base; and 4) improper survey design." Dr. Martin's criticisms are fully supported in fact and law. The Federal Judicial Center has published a Reference Manual on Scientific Evidence intended to assist judges in managing expert evidence, primarily in cases involving issues of science or technology. The Manual contains a specific Reference Guide on Survey Research. The Reference Guide addresses in numerous places and makes clear the need for proper survey documentation. For example, "instructions [provided to interviewers] should be made available to the opposing party and to the trier of fact." The Reference Guide also states that a survey report should contain "copies of interviewer instructions, validation results and codebooks." Further, "copies of all questionnaires should be made available upon request so that the opposing party may have an opportunity to evaluate the raw data." Dr. Martin explained that Cablevision's documentation was so inadequate that it could not even provide the underlying survey responses, let alone other documentation essential for verifying the reliability and accuracy of a telephone survey. Dr. Martin observed that:

There's nothing for verification and validation in here. And quite frankly, that means we don't know whether these interviews ever were conducted. It's possible you know, they might not have been. The rule is you have to validate and verify.
The Reference Guide also addresses the need for proper Survey Questions and explains that "[w]hen unclear questions are included on a survey, they may threaten the validity of the survey by systematically distorting responses if respondents are misled in a particular direction, or by inflating random error if respondents guess because they do not understand the question." Dr. Martin explained that "[c]ertain of the questions seem heavily biased or loaded, such as the question asking subscribers whether they would be willing to 'give up' a typically very popular program such as ESPN or C-SPAN in exchange for an additional public access channel." The Reference Guide also states that "[i]dentification of the proper universe is recognized uniformly as a key element in the development of a survey." A threshold shortcoming in the Cablevision subscriber survey is that, rather than surveying the Brunswick community, the survey focuses exclusively on Cablevision's Brunswick subscribers. Also, the Reference Manual instructs that, if a survey is intended to be used as evidence, "[t]he report describing the results of a survey should include a statement describing the purpose or purposes of the survey. One indication that a survey offers probative evidence is that it was designed to collect information relevant to the legal controversy ...." Cablevision failed to produce the individuals from its public relations firm or the Cablevision employees who designed the survey, and there is no evidence that these (unknown) individuals have sufficient familiarity with fiber optics technology, PEG access or I-Nets to design a proper survey to ascertain the Brunswick community's future cable-related needs and interests. Dr. Martin explained that:
I question whether any of the ... survey questions accurately communicate or probe the complexity of issues related to future cable-related needs and interests. The telling shortcomings of the ... survey for these purposes is most evident when compared to the cable telecommunications possibilities discussed and explored in The Buske Group's community workshops. The ... survey fails to educate respondents as to the technological richness of issues they could evaluate in addressing their future cable system. It is also structured in such a way that it fails to capture any information that respondents might have voluntarily provided along these lines. Subscriber comments concerning such matters, e.g., as an institutional network, were neither solicited nor recorded. The survey appears to be backwards looking and focused on viewer preferences (or more accurately, interest) as opposed to evaluating attitudes towards future cable-related needs and interests.

4. The Issue of Cost Reasonableness

a. Embedded Costs Throughout the franchise negotiations, Cablevision objected to meeting Brunswick's identified PEG access and I-Net needs on cost grounds. At hearing, however, Cablevision failed to submit any evidence as to the extent to which these costs were above the PEG and I-Net costs already embedded in its rates. Brunswick did present such evidence, and, based upon information provided by Cablevision in the course of the ascertainment process, showed that there is forty cents more embedded in the existing rate than the amount the Buske Group determined would be required to meet PEG access and I-Net requirements of the RFP. Cablevision's cost witness conceded on cross-examination that, for purposes of determining the cost impact to Cablevision of meeting Brunswick's PEG and I-Net requests, it was appropriate to offset against the costs of the requests the amount of the existing PEG and I-Net costs incurred by Cablevision. He testified that "[i]f you could quantify the cost now to the company, which I haven't done, which could be done, that could be an offset." The acknowledgment that an offset is appropriate is in accordance with prevailing FCC ratemaking policy. That policy provides for rate adjustments to reflect changes in the costs associated with PEG under a renewal franchise that are in addition to, or a reduction in, the PEG costs already built into the rates for subscribers. Under the FCC's benchmark rate regulation scheme, rate increases calculated under the benchmark formula may not exceed general inflation except for increases in "external costs" that are beyond the cable operator's control. Under the FCC's regulations, costs associated with PEG, as well as other costs of meeting franchise requirements (other than the costs of franchise fees) qualify as external costs. External costs are considered to be embedded in rates and only changes in such costs are reflected in changed rates.

  2. The Naperville Decision
Brunswick's RFP requested a franchise fee of 5% of gross revenues as permitted by the Cable Act. The statute provides that "[f]or any twelve-month period, the franchise fees paid by a cable operator ... shall not exceed 5 percent of the cable operator's gross revenues derived in such period from the operation of the cable system." Section 622(b). Franchise fees do not include, and Brunswick's proposed franchise fee does not include, "capital costs which are required by the franchise to be incurred by the cable operator for public, educational, or governmental access facilities." Section 622(g). Cablevision suggested in its Pre-Hearing Brief that Brunswick's franchise fee RFP requirement exceeds the 5% ceiling, because it includes payments to be used for PEG access equipment that Brunswick has requested but treated improperly as capital costs. Cablevision argued that PEG access capital costs "relate only to bricks and mortar." Brunswick presented testimony at hearing showing that Cablevision is wrong. The Cable Act does not define "capital costs." However, "[a] fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning." Perrin v. United States, 444 U.S. 37, 42 (1979). In the context of rate regulation and regulated utilities, "capital costs" are defined functionally as costs associated with "assets that will provide service for more than one year ...." Courts have also articulated a similar one year rule for identifying capital costs (as distinguished from expenses) for tax purposes. Throughout the cable industry "capital costs" are understood to have the same functional meaning. Brunswick's financial expert, Dr. Jolin, who has been involved as a financial expert in some forty different cable franchises, testified that "[w]here it's meaningful to have to decide what are operating and what are capital costs, and what to exclude from being regarded as part of franchise fees ... a way of making some sense out of the situation is, some accounting concepts are applied to what can be regarded as something that would be capital by the IRS, it's taken as the cost of equipment that's going to be in service for more than one year." Ms. Buske testified to like effect that capital costs are typically understood to include "equipment" costs. Cablevision presented no evidence on the question of what capital costs are. Rather, the sole basis for Cablevision's contention that capital costs do not include equipment costs for purposes of determining what are franchise fees under Section 622 is the magistrate judge's opinion in Cable TV Fund 14-A, Ltd. d/b/a/ Jones Intercable v. City of Naperville, 1997 U.S. Dist. LEXIS 11511 (N.D. Ill. 1997), involving an interpretation of Section 625 (dealing with franchise modification). In Naperville, the magistrate judge held that "[c]apital costs refer to those costs incurred in or associated with the construction of PEG access facilities." Id., 1997 U.S. Dist. LEXIS 11511 * 40. The judge reasoned, based upon his reading of the legislative history, that capital costs "are distinct from payments for, or in support of the use of, PEG access facilities." Id. Naperville is wrongly decided on this point and should not be followed in other cases. First, there is no inconsistency between Sections 622 and 625. To the extent that a cable operator modifies and reduces its payments for PEG access equipment (on grounds of commercial impracticability under Section 625), this change in cost obligation has no bearing on the level of franchise fees because these capital costs are excluded from the franchise fee. Second, because the language of the statute is plain, it is unnecessary to resort to the legislative history Third, the legislative history also does not support the magistrate judge's decision, and nowhere states (or indicates) that capital costs do not include equipment costs. Fourth, Naperville is contrary to the plain language of the statute and the cable community's practical interpretation of the statute for the past fourteen years. The court's interpretation of the Naperville decision has not been adopted in any other decision of which I am aware. Indeed, Cablevision itself apparently understood equipment costs to be properly excluded from the franchise fee as evidenced by its response to the RFP where it included $107,000 for PEG access including equipment in addition to a 5% franchise fee.
  1. CONCLUSION

Franchise renewal is a time of opportunity for local franchising authorities and should not be treated lightly. Examples of recent cable franchise renewals compiled by the Buske Group are appended to this paper. They indicate the kinds of provisions that can be achieved when the local franchising authority is diligent and works hard to obtain a franchise to meet its future community needs and interests. The eventual outcome of the Brunswick renewal will provide guidance on how to obtain a reasonable franchise for a community. Hopefully, the City's and Township's judgment will prevail and Brunswick will be vindicated as was the City of Sturgis, Kentucky in its renewal denial (in a case where the cable operator had waived the administrative hearing). The U.S. Court of Appeals for the Sixth Circuit held:

The Cable Act recognizes that municipalities are best able to determine a community's cable-related needs and interests. The city council's knowledge of the community gives it an institutional advantage in identifying the community's needs and interests. It would be inappropriate for a federal court to second-guess the city in its identification of such needs and interests.
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