FCC adopts video franchise rules and overrules states that allow rural phone companies to block VoIP

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FCC adopts video franchise rules and overrules states that allow rural phone companies to block VoIP

Some interesting news from the FCC with regards to net neutrality, as well as VoIP. The FCC today adopted a Report and Order and Further Notice of Proposed Rulemaking that establishes rules and provides guidance to implement Section 621(a)(1) of the Communications Act of 1934, which prohibits franchising authorities from unreasonably refusing to award competitive franchises for the provision of cable services.

In the Order, the Commission concludes that the current operation of the franchising process constitutes an unreasonable barrier to entry that impedes the achievement of the interrelated federal goals of enhanced cable competition and accelerated broadband deployment. 

The Order addresses several ways by which local franchising authorities are unreasonably refusing to award competitive franchises.  These include drawn-out local negotiations with no time limits; unreasonable build-out requirements; unreasonable requests for “in-kind” payments that attempt to subvert the five percent cap on franchise fees; and unreasonable demands with respect to public, educational and government access (or “PEG”).

To eliminate the unreasonable barriers to entry into the cable market, and to encourage investment in broadband facilities, the Commission: 
- Found that franchising negotiations that extend beyond certain time frames amount to an unreasonable refusal to award a competitive franchise within the meaning of Section 621(a)(1);
- Found that requiring an applicant to agree to unreasonable build-out requirements constitutes an unreasonable refusal to award a competitive franchise;
- Found that, unless certain specified costs, fees, and other compensation required by local franchising authorities are counted toward the statutory five percent cap on franchise fees, demanding them could result in an unreasonable refusal to award a competitive franchise;
- Found that it would be an unreasonable refusal to award a competitive franchise if the local franchising authority denied an application based on a new entrant’s refusal to undertake certain unreasonable obligations relating to public, educational, and governmental (“PEG”) and institutional networks (“I-Nets”); and
- Preempted local laws, regulations, and requirements, including local level-playing-field provisions, to the extent they impose greater restrictions on market entry than the rules adopted herein. 
- The Commission concluded that although the record allows it to determine generally what constitutes an “unreasonable refusal to award an additional competitive franchise” at the local level, the Commission does not have sufficient information to make such determinations with respect to franchising decisions made at the state level or in compliance with state statutory directives, such as statewide franchising decisions.  As a result, the Order addresses only decisions made by county- or municipal-level franchising authorities.

The Commission also adopted a Further Notice of Proposed Rulemaking in which it seeks comment on how its findings in the Order should affect existing franchisees, tentatively concludes that the findings should apply to existing franchisees at the time of their next franchise renewal process, and seeks comment on the Commission’s statutory authority to take this action.  The Commission will conclude this rulemaking and release an order no later than six months after the release of the Order.

In addition, the FCC ruled late last week that rural telephone companies must allow VoIP calls from other carriers to connect to their local lines. Regulators in Nebraska and South Carolina had ruled that VoIP calls could be blocked from connecting to local ILECs. The state regulators claimed that traffic from some VoIP service providers wasn't considered a "telecommunications service" and could therefore be blocked.

Time Warner Cable filed a petition with the FCC in March of last year, asking the FCC to rule that wholesale telecommunications carriers were also entitled to connect to rural networks and force the ILECs to carry their VoIP traffic. Time Warner Cable won their petition and the FCC responded with the following:

"The Commission must promote competition in every sector it oversees and create a level playing field among service providers," said FCC Chairman Kevin Martin in a statement announcing the decision. "Our decision will enhance consumers' choice for phone service by making clear that cable and other VoIP providers must be able to use local phone numbers and be allowed to put calls through to other phone networks." The FCC wrote that allowing the rural carriers to block traffic "would impede the important development of wholesale telecommunications and facilities-based VoIP competition".

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