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Falling Franchise Revenue

Streaming Raises Right-of-Way Issues for NATOA: General Counsel

DENVER -- Over-the-top streaming is a rising concern for local governments, said National Association of Telecommunications Officers and Advisers General Counsel Nancy Werner in an interview at the association’s annual conference. Local governments could be losing cable franchise revenue as customers cut the cord for the OTT services that don’t pay local fees, said a panel Wednesday.

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This is a right-of-way management issue,” Werner told us: Streaming TV companies “are entities using the rights of way for profit, and the right of way is a public asset, so there should be compensation to the public for the use of that asset.”

Cable franchise revenue is declining and that's likely to continue, especially as people move to over-the-top services, said Werner. There are legal questions about whether OTT services count as cable, she said. “If they’re not, is there anything that can be done about that in terms of trying to make sure that use of the rights of way to provide [OTT] services is treated comparably to a cable provider that is providing basically the same service?” Local governments want to know if OTT is subject to a cable franchise, or is already covered under a current franchise when it’s the cable operator providing them, she said.

When cable companies provide Netflix and other OTT services through their set-top boxes, they put the services on customers’ bills but don’t include it in the gross revenue subject to franchise fees, said Garth Ashpaugh of local government consultants Ashpaugh & Sculco. Peacock especially raises concern because Comcast owns the NBC streaming service, he said: Comcast directs customer traffic off of its cable network to Peacock but the OTT service’s ad revenue isn’t shared with local government.

The trouble with regulating OTT is that companies like Netflix don’t “actually own anything in the right of way,” said Moss & Barnett local government attorney Brian Grogan. Adding to the complexity, a Netflix customer could be buying the service through the cable company or separately from the cable company, said Grogan: Customers would be accessing the same content, but it’s harder to make a case in the second instance that OTT can be counted as part of cable revenue because the customer would be paying Netflix directly, the lawyer said.

Grogan is “wary” of asking Congress to update the Cable Act to clarify OTT legal issues, he said, since local governments are “outgunned” on lobbying by industry. The end result might not be “better than what we have today,” and it “might get worse,” the lawyer said. Asking the FCC to get involved isn’t a sure bet, either, since the commission has a 2-2 split, and it’s not clear where municipal interests lie, he said.

Congress historically has preserved local rights to manage the ROW and receive compensation, said Werner on the OTT panel: She’s “hopeful” local interests would be preserved in any possible future rewrite to communications law.

The U.S. must achieve equity for the internet, a service that's important for critical thought and connecting families, said One Colorado Executive Director Nadine Bridges on another panel Wednesday. She at first focused on inner city matters but now sees rural communities face similar issues with internet access, she said.

It falls to local governments to identify who in their communities needs the internet and then to get them connected, said Mike Lynch, Boston director-broadband and digital equity. Broadband adoption may be an issue three-times the size of expanding the networks themselves, said NCTA State Legislative Counsel Alex Minard.