BROADBAND COMMUNITIES SUMMIT 2014 APRIL10, 2014

1. BROADBAND COMMUNITIES SUMMIT 2014 APRIL10, 2014 KEY LEGAL AND REGULATORY ISSUES AFFECTING COMMUNITY BROADBAND PROJECTS Sean Stokes (sstokes@baller.com) Casey Lide (casey@baller.com) The Baller Herbst Law Group, PCWashington, DC (202) 833-5300 www.baller.com

2. Disclaimer This presentation does not constitute legal advice and should not be interpreted as such. For advice on federal, state or local law, please consult qualified legal counsel.

3. Overview Focus today: Legal and regulatory issues affecting service providers, as such: I. Community Broadband II. Federal Universal Service Program III. Poles & Infrastructure IV. MDU Access V. Access to Programming VI. Federal Compliance Review VII. CAF/RUS: Rural Broadband Experiments

4. I. Community Broadband:State Barriers To Public Entry Nixon v. Missouri Municipal League (2004): • “No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide anyinterstate or intrastate telecommunications service.” Telecom Act § 253(a) • “any entity” in § 253(a) not clear enough to preempt state barriers with regard to political subdivisions, but • Not a ruling on the merits of public entry • Municipalities have “respectable position” • FCC “minced no words” in “denouncing” MO law • Does not apply to private entities, including coops

5. Barriers To Public Entry State “barriers” today (not necessarily “prohibitions”): AL, AR, CA,CO, FL, LA, MI, MN, MO, NC, NE, NV, PA, SC, TN, TX, UT, VA, WA, WI Broad based public-private sector support has helped recast the debate away from public v private From 2005-2010 most efforts at barriers defeated, 2011-2013 laws in NC and SC but defeated in GA 2014 new efforts KS, IN, UT, but pro bill in TN Section 706 – Verizon “net-neutrality decision has opened up possible new opportunity at federal preemption

6. Community Broadband: Authority Issues Barriers v. Authority • Federal law encourages, but does not authorize • National Broadband Plan – encourages community broadband • Public entities must have state/local authority • State laws, interpretations, procedures differ widely • Dillion’sRule v. Home Rule • Service-by-service (cuts both ways) • Charters, ordinances, finance laws and instruments, pole agreements, franchises, contracts, tax issues, etc.

7. Service Specific Regulations • Communications Act and State counterparts • Separate “silos” for telecom, cable, wireless, and “enhanced” or “information services” • Each has its own history, policies, definitions, benefits, burdens, FCC rulings, court decisions, constituencies • Convergence: Technological + Corporate + Market For authority and compliance, it’s critical to know how an activity is classified for regulatory purposes.

8. Business Models Range of business models extends from infrastructure provider to retail service provider, each with escalating costs/ rewards and regulatory compliance obligations • Pure infrastructure -- Poles, street lights, towers and dark fiber • Governmental entities • Private carriage • Broadband • Wholesale carriage (private or common carrier) • Video Services • Telecommunications Services • Public/Private ventures both insolate and create more challenges

9. Incumbent Challenges • Whatever services/model is chosen, anticipate a challenge • Cases Bristol, VA (telecom) -- Victory Bristol, VA (cable) -- Loss (but then corrective state law) Lafayette, LA – Victory Portland, OR -- Victory North Kansas City, MO -- Victory Truckee-Donner PUD, CA – Victory Chattanooga, TN -- Victory UTOPIA, UT – Settled • Anticipate anticompetitive practices

10. II. Federal Universal Service Program Why You Should Care: • ~17% (!) of gross revenues • Private carriage vs. common carriage • Exemptions may be available, some depend on customer base • Counterintuitive and sometimes illogical • FCC enforcement

11. USP: The Basics • Providers of “interstate” and “international” “telecommunications,” “telecommunications service,” or “interconnected VoIP” must pay a universal service “contribution” based on % of assessable gross revenues from the provision of such services to “end users.” • Contribution factor announced each quarter, ranging from 12% - 17%.

12. USP: The Basics • Must file Form 499-A by April 1 each year • Also used for LNP/NANPA/TRS (“telecom. service” and VoIP only) • Providers that owe contributions must file quarterly 499-Q • Providers can pass through USP payments to customers

13. Key Concepts: “Interstate” vs. “Intrastate” • Nature of the traffic, not the location of the line • “End to end” principle • Internet traffic = “interstate” • Interconnected VoIP: 64.9% • “10 Percent Rule” • USAC’s “interstate” presumption

14. “Telecommunications” & “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

15. “End User” • USP contributions assessed on revenues from “end users” • In USP-land, “end user” is not necessarily the last purchaser in a chain of distribution. • “End user” includes purchasers of covered service (i.e., telecom, telecom service, VoIP) that does not itself make USP contribution, because they are exempt or have failed to comply.

16. “End User” (cont.) Examples: • “Telecommunications” sold to cable company to provide exempt cable service: cable company is “end user” • “Telecommunications” sold to ISP to provide exempt Internet access service: ISP is “end user” • “Telecommunications” sold to telephone company to provide telephone service: telco is not “end user” b/c telco itself must pay into USP.

17. Revenue from Resellers • Wholesale providers’ revenue from services sold to resellers is exempt from USP, if “affirmative knowledge” or “reasonable expectation” that the reseller or its customers are subject to USP. • “reasonable expectation” demonstrated by obtaining annual certification from reseller customers • Revenue must still be reported on Form 499-A (Block 3), but not used to calculation contribution.

18. Internet Access and “Information Services” • Brand X; Wireline Broadband Order • Internet access service = “telecommunications” + “information service” • “Information service = exempt from USP • Internet access service = exempt from USP

19. Internet Access vs. Internet Transport • Internet transport = “telecommunications” • Ask whether providing “telecommunications” only, or if also providing “information service” along with it. • DNS lookup? IP addresses? • Who is the “ISP,” from the customer’s perspective?

20. Internet Transport • Internet transport = “telecommunications,” BUT: • Assessable under USP only if offered on a “common carrier” basis. • An illogical relic.

21. Private Carriage vs. Common Carriage Relevant Factors: • “Manner in which the provider holds itself out to the public” (advertising?) • 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. • Services offered indiscriminately on same terms and conditions (like a tariff), or individually negotiated? • Small set of customers, with little/no turnover?

22. Private Carriage vs. Common Carriage • Remember, private carriers that provide “telecommunications” or interconnected VoIP are still subject to USP. • Common carrier / private carrier inquiry is relevant for Internet transport revenues.

23. Interconnected VoIP • Not regulated under Title II, but treated much like “telecommunications service.” • Providers must file Form 499-A, even if would otherwise be exempt (de minimis, etc.) • 64.9% “interstate” (or traffic study)

24. Exemptions • De minimis exemption: Providers need not make payments if contribution < $10,000 (~$70,000 assessable gross revenue) • Provider of only “telecommunications” need not file Form 499-A at all. • Provider of “telecommunications service” and VoIP must still file Form 499-A (TRS/NANPA/LNP)

25. Exemptions • Government/public safety exemption: • Provider that sells service only to government and public safety entities is entirely exempt. • Separate entity is an option.

26. Exemptions • Service by non-profit schools, libraries, health care providers and broadcasters • Self-service and system integrators (“entities that provide telecommunications only to themselves or to commonly owned affiliates”)

28. Break time!

29. III. Pole Attachments: Federal Pole Attachment Regulations -- 47 U.S.C. § 224 • Regulate rates, terms and conditions of access for wired and wireless attachments to utility poles by telecommunications carriers and cable operators • Rules apply to poles, ducts, conduits and ROW owned by investor-owned (private) utilities • Rates – Two formulas: Cable only (not really); and Telecom. In 2011 the FCC revised Telecom formula to yield essentially same rate as Cable formula • Access – Prescribed timelines for access to poles • Cost causer pays

30. Yup Yup Nope

31. What the Federal Attachment Rules Don’t Do • Federal rules don’t apply in 21 states that have “reverse” preempted the FCC and regulate at the state level. • Federal rules don’t apply to municipal or cooperatively owned utilities -- 47 U.S.C. § 224(a)(1) • Federal rules don’t provide attachment rights to stand-alone broadband or dark fiber services • Federal rules don’t apply to utility fiber

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

33. …OH

34. Public Power Utilities View safety, security and reliability of their electric system as top priority View poles and conduit as a community asset Want to encourage broadband deployment Want (and have an obligation) on behalf of their consumer owners to obtain cost recovery Provide access to all types of service providers – voice, video and data on similar terms and conditions

35. Leveraging Consumer Owned Utility Assets • Bring the utility in to the planning process early • Don’t assume that utility and municipality have identical interests • Don’t confuse access to ROW with access to assets • Allow for in-kind consideration and where possible monetize the value of such services • Don’t get tripped up by non-discrimination or level playing field clauses

36. IV. MDU Access Unlawful for a cable operator…to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers. -- 47 U.S.C. §§ 548 (a)-(b). • FCC 2007 Exclusivity Order • Granting cable operators exclusive access to MDUs is prohibited • The FCC has argued that the prohibition extends to exclusive easements. Lansdowne on the Potomac HOA v. OpenBand at Lansdowne, (4th Cir 2013) • Exclusive marketing agreements not prohibited. • Bulk purchase agreements not prohibited.

37. V. Access to Programming • The Basics • Retransmission Consent • FCC Program Access Proceedings • The Future: New Modes, New Models, and What Is an “MVPD” Anyway?

38. The Basics • “Cable service”: “[T]he term “cable service” means—(A) the one-way transmission to subscribers of (i) video programming, or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service”

39. The Basics • “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 …”

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

41. The Basics • “Cable operator” must register with FCC • Obtain “community unit ID” (cuid), corresponding to headend • Designation triggers most program access rights and obligations under federal law.

42. Retransmission Consent and Must-Carry • Broadcast stations elect to be carried on local cable system(s) in one of two ways: • “Must carry”: operator must carry, station receives no $ • “Retransmission consent”: operator under no obligation to carry, but station demands $ • Three year election cycle. Election must be uniform throughout broadcast DMA.

43. Retransmission Consent: $$$ 2006: $215 million 2012: $2.4 billion 2018: $6 billion. Source: SNL Kagan

44. Retransmission Consent • “Good Faith Negotiation” • The Plight of Small Operators: • Gouged for essential programming • Subject to aggressive “channel tying” demands • Less favorable terms than big MSOs, but no way to prove it due to aggressively enforced NDA terms • “Good faith negotiation” means little when parties have disparate bargaining power.

45. Retransmission Consent • Recent FCC action: • March 2014: FCC vote to limit cooperation among broadcasters in retrans consent negotiations. (Might be blocked by STELA reauthorization.) • No reasonable prognosis of meaningful FCC action in the near term.

46. Retransmission Consent Some cable operators adding “broadcast TV fee” to subscriber bills • Proceed with caution…

47. FCC Program Access Rules • 2012: FCC allowed sunset of 1992 Cable Act rules requiring cable operators that own programming to make it available to competitors. • Now considered only on a case-by-case basis, with reference to Section 628(b) (alleging competitive harm) or Section 628(c) (alleging undue influence or discrimination) • Comcast/NBCU merger condition requires Comcast to make available its ~30 satellite delivered national networks and 14 satellite-delivered RSNs to competitors until January 2018.

48. FCC Proceedings • Open rulemaking proceeding on program access rules, ability of “buying group” (such as NCTC) to file program access complaints, etc. • Open rulemaking (since March 2012) on meaning of “Multichannel Video Programming Distributor” (MVPD) and “channel”

49. The Future (???) • New modes of video delivery, new partnerships: • Aereo (local broadcast, pure OTT) • Verizon/Intel (“virtual MVPD”, managed service) • Comcast/Apple • Amazon • others… • Not clear what a cable operator of the future will look like, nor whether it will be a “cable operator” as currently defined.

50. Sports • L.A. Dodgers / TWC – SportsNet LA • $7B, 25 year deal • Dodger games no longer on free broadcast channels. • Charging other operators $5+ per sub. • ESPN: $5+ per sub • Fox Sports 1, Sports 2 . . . Cable rates have skyrocketed over the past 5 years.