1. Telecommunications: Preemption and How it Impacts You!
Good morning everyone. My name is Negheen Sanjar and I am the Director of Legal Research at the International Municipal Lawyers Association.
For those of you who don’t know, IMLA is s a non-profit, professional organization that serves as an advocate and resource for local government attorneys. Our mission is to serve local government lawyers and to advance the interests of local government law.

2. Overview Small Cells Cable Franchising Background
Third Report and Order
Cable-related in-kind are franchise fees
Mixed-Use Rule
State and Local Preemption
Next Steps
Small Cells
The Order(s)

3. FCC’s Changes to Cable Franchising
Our first topic for today will be the FCC’s changes to cable franchising.

4. Cable Franchising: Background
Montgomery County, et al. v. FCC, 863 F.3d 485 (6th Cir. 2017)
Challenge to FCC Second Report and Order and Order on Reconsideration
Issues on remand from Sixth Circuit:
Whether cable-related in-kind contributions to a Local Franchise Authority may be treated as a franchise fee subject to the five percent statutory cap
Whether a Local Franchise Authority can be prohibited from using its regulatory authority to regulate mixed- use networks of non-common carrier incumbent operators
The Third Report and Order stems from Montgomery County v. FCC. Montgomery County challenged a 2007 FCC Order extending rules to incumbent cable operators to apply to competitive entrants. The Sixth Circuit reversed and remanded two of the FCC’s decisions in the 2007 Order:
(1) The FCC’s decision to treat cable-related in-kind contributions to a local franchise authority as a franchise fee subject to the five percent statutory cap; AND
(2) The FCC’s decision to prohibit a local franchise authority from using its regulatory power to regulate mixed-use network of a non-common carrier incumbent operator
The Sixth Circuit found the FCC failed to explain the extent to which a cable-related in-kind contribution may be treated as a franchise fee and found that there was no valid statutory basis for the mixed-use rule.
The Third Report and Order is the FCC’s second bite at the apple.

5. Third Report and Order MB Docket No. 05-311; FCC 19-80
Effective Date: September 26, 2019
Areas Covered:
Cable-related in-kind contributions as franchise fees
Valuation of in-kind contributions and the status of existing franchise agreements
The mixed-use rule and its implications
State franchising, preemption, and miscellaneous provisions
The FCC initiated a proceeding in response to the Sixth Circuit’s remand on both cable-related in-kind and on the status of the mixed-use rule. The proceeding resulted in the Third Report and Order, which went into effect on September 26th.
The Order covers four items which are particularly relevant to local governments: (1) cable-related in-kind, (2) the valuation of in-kind contributions and the status of existing franchise agreements, (3) the mixed-use rule, and (4) state franchising, preemption, and miscellaneous provisions.

6. Cable-Related In-Kind Contributions
Cable-related in-kind contributions are franchise fees subject to a five percent statutory cap
“In-kind” is defined as “any nonmonetary contributions related to the provision of cable services provided by cable operators as a condition or requirement of a local franchise agreement, including but not limited to free or discounted cable services and the use of cable facilities or equipment”
Note: 5% statutory cap on franchise fees may only be taken from revenue obtained from cable services, not non-cable services (e.g. broadband) (¶ 89)
Cable-related in-kind contributions are franchise fees, the significance of which is that they are subject to a five percent statutory cap.
This means that fees imposed on a cable operator cannot exceed five percent of gross revenue from cable service
What is In-Kind?
I’ve included the definition of cable-related in-kind on the slide. I won’t read the entire definition, but it’s important to note just how broad that definition is. Almost any non-monetary requirements imposed on a cable operator can qualify as an in-kind contribution.

7. Cable-Related In-Kind Contributions
Implications?
Monetary value must now be assigned to contributions from cable providers/operators
How is value determined? Fair Market Value or Cost of Service
What valuation is “reasonable”? Depends on whether the product is on the market
Once the Order is effective, cable operators may credit the fair market value of in-kind contributions against the cable franchise fee
Existing cable franchise agreements must be renegotiated within a “reasonable time” (i.e. 120 days). Unmodified conflicting provisions will be preempted
There are various implications from that change
For services that were originally contributions from cable operators and therefore did not have a set monetary value, they now must be assigned a value which will be considered as part of the franchise fees your local franchising authority may charge
How is value determined?
It can be based on either the cost of providing that service, or the service’s fair market value. The FCC’s guidance provides that when there is a product already on the market, the most reasonable valuation is the fair market value.
Rates that cable operators charge customers for the services they offer can now be applied to local governments
Once the Order is effective, cable operators may credit the market value of all in-kind contributions (both ongoing and future) against the cable franchise fee.
What about existing agreements?
If your existing cable franchise agreements conflict with the Order once it is effective, local governments and cable operators must negotiate modifications to the agreement within 120 days.
Any inconsistent provisions that remain unmodified are subject to preemption

8. Examples of In-Kind Contributions
Service to public buildings
Institutional Networks (I-Nets)
Video on demand
Discounted enterprise services
PEG costs except for capital costs
Installation of transport facilities = capital cost
Maintenance of such facilities = operating cost
On this slide I’ve listed examples of in-kind contributions subject that are not franchise fees under the terms of the Third Report and Order. This is by no means an exhaustive list, but it is a good starting point.
In-Kind Contributions now subject to the five percent statutory cap include:
Free or discounted cable services to public buildings
Costs related to institutional networks (or I-Nets) including construction, maintenance, and service costs
Costs in support of public, educational, and governmental channels (known as PEG) EXCEPT for capital costs
Video on demand services
Discounted Enterprise services
At this point you may be asking what are capital costs?
According to the FCC, the term capital cost should be given its ordinary meaning found in section 622(g)(2)(c), which is a cost incurred in acquiring or improving a capital asset
The FCC went further to provide the following examples:
It is unclear whether even offering PEG channel capacity is a capital cost; AND
Installation of PEG transport facilities is a capital cost subject to the exemption, BUT maintenance of the same facilities is an operating cost subject to the five percent statutory cap
Given that the FCC didn’t go into much detail regarding PEG and cable in kind, I anticipate that within the next year the FCC will likely release another order specifically addressing PEG so please be on the lookout for any changes

9. Cable In-Kind Expressed as a Formula
(Franchise Fees + PEG Grants) + Full Market Value of In-Kind Contributions
MINUS
(PEG Capital costs + Cost of complying with build out, incidentals, customer service, etc.)
MUST BE LESS THAN OR EQUAL TO
5% of Gross Revenue from Cable Services**
**Note: 5% of Gross Revenue is the Cable Act’s definition and may be higher than what your state provides for as a franchise fee. Some state laws only capture subscriber revenue, but Federal law captures both subscriber and ancillary revenue
To help make the picture clearer, I’ve provided this slide expressing the cable in kind rules as a formula. I’d like to thank Best, Best and Krieger for allowing me to use this slide.
In using that formula, please take into account that 5% of Gross Revenue is the Cable Act’s definition and may be higher than what your state provides for as a franchise fee. Some state laws only capture subscriber revenue, but Federal law captures both subscriber and ancillary revenue.

10. Mixed-Use Rule & Preemption
Local franchise authorities are prohibited from regulating non- cable services offered over cable systems, except for channel capacity on institutional networks which may be regulated
Preemption
The FCC specifically preempts:
Imposition of any fees on franchised cable operators or affiliates using the same facilities that exceeds the cap
Requirements that a franchised cable operator obtain an additional franchise or authorization to provide non-cable services over its cable system
Rules that apply to local governments in cable franchising now also apply to the states
Mixed Use Rule
Local governments cannot regulate non-cable services offered over cable systems, with the exception of channel capacity on institutional networks.
An example of the mixed-use rule is the attempt by a local government to regulate broadband services offered over a cable system.
The rule also prohibits the regulation of any facilities and equipment used in the provision of non-cable services.
Preemption
Rules applicable to local government authority on cable franchising now also apply to the states
The FCC specifically preempts:
The imposition of any fees on franchised cable operators or any affiliate using the same facilities franchised to the cable operator that exceeds the formula in section 622(b) and the order. This includes franchise fees, right of way access fees, and fees on non-cable services (e.g. broadband); AND
Requirements that a franchised cable operator obtain an additional franchise or authorization to provide non-cable services over its cable system

11. Recommended Next Steps
Review your existing franchise agreements
What are you existing in-kind contributions?
What is the fair market value of those contributions? Have a consulting firm or law firm conduct a study so you have evidence on both the cost-based price and the fair market value BEFORE you need to negotiate
Consider whether services will need to be cut to avoid budget problems. Which services will you cut?
Determine which provisions will be preempted
If you have provisions that will be preempted, you MUST renegotiate with the cable operators within a “reasonable period” i.e. 120 days after enactment or face preemption.
Take Legal Action
Appeal – available until Oct. 28, 2019
Intervene
In light of this information, there are a few things you can do:
Review your franchise agreements and evaluate the budgetary impact as well as any reduction in services that may be necessary to prevent budgetary issues. Take care to determine what in-kind arrangements you have in place as cable operators will be allowed to deduct the value of those in-kind arrangements from the fees it must pay. If after such a deduction a cable operator is still entitled to compensation, the local government may be on the hook for that compensation
Additionally, determine whether your franchise agreements have provisions that are preempted by the Order as you may need to renegotiate with franchised cable operators within a “reasonable” period of time (i.e. 120 days).
When you are reviewing your existing franchise agreements, talk with the local franchise authority and other related departments. This is the time to have inter-departmental meetings to pool your collective knowledge.
3. There are a few coalitions that have formed in an attempt to take down the Order. If you have the ability, I highly recommend supporting one of these coalitions and am happy to provide more information on the subject. To be frank, this order is going to cost you a lot of revenue, so it is in your best interest to try to take this down while it is possible.

12. Small Cells in the Right of Way
Last year, the FCC released a series of Orders that significantly limit local management and regulation of small cell facilities in the public right of way.
I will provide an overview of the Federal rules, however it is important to consider that more than half of the states have their own small cell law that likely have greater constraints than the FCC’s rules.
I recommend you first consult your state rules, then review the federal rules for elements that are not covered by the state rules.
Note that if your state rules conflict with the Federal rules, it is the federal rules that remain valid. For example, if your state grants you a longer shot clock than the federal rule, it is likely that your state rule is invalid and you must comply with the shorter federal shot clock. However, if your state shot clock grants you less time than the federal shot clock, it is advisable that you follow your state’s shot clock since that rule is compliant with the federal rule.

13. What is a Small Wireless Facility?
Facilities that are:
Mounted on structures 50 feet or less in height including their antennas; OR
Mounted on structures no more than 10% taller than other adjacent structures; OR
Do not extend existing structures on which they are located to a height of more than 50 feet or by more than 10%, whichever is greater
Each antenna associated with the deployment is no more than 3 cubic feet in volume, excluding associated antenna equipment
All other wireless equipment associated with the structure, including wireless equipment associated with the antenna and any pre-existing associated equipment on the structure is no more than 28 cubic feet in volume
What is a Small Cell?
I’ve included the Order’s definition of a small wireless facility on this slide. Many of us have heard these facilities be compared to a pizza box. Deployments may fit into a pizza box, but the Order’s limit on size (i.e. the 28 cubic feet) is obviously much larger than that. How large is 28 cubic feet?

14. That white frame is 28 cubic feet.
Note that the antennas are NOT count3ed against the 28 cubic foot small cell volumetric calculation, AND there is no limit to the number of 3 cubic foot antennas.
In the next few slides, I’ve included some examples of what these deployments can look like.
Source:

19. Aesthetic Requirements
Aesthetic requirements are preempted for small cell facilities UNLESS they are
Reasonable
No more burdensome than those applied to other types of infrastructure deployments
Objective; AND
Published in advance
Some undergrounding requirements are preempted
Aesthetic requirements are allowed so long as they are reasonable, no more burdensome than other infrastructure aesthetic requirements, objective, and published in advance.
Reasonable is defined as technically feasible and reasonably related to avoiding or remedying unsightly or out of character deployments
An objective standard is one that incorporates “clearly-defined and ascertainable standards”
Requirements that all wireless facilities be undergrounded are preempted. Additionally, undergrounding requirements that are found to materially inhibit wireless service are also preempted. This does not mean you can’t underground, but that your undergrounding requirements should be workable. If you’d like to underground as much of the facilities as possible, you should work with the provider to come to a solution on undergrounding.
Taking this information into account, you should already have your aesthetic requirements written and available to applicants. If you do not, don’t panic. You can still impose aesthetic standards, but you they will only apply from the date of enactment forward. They cannot retroactively apply to applications that were submitted before those standards were implemented.

20. Shot Clocks
Time period can be tolled by mutual agreement, or reset by notice from the locality that the application is complete within 10 – 30 days of filing
Shot clocks apply to every authorization a local government requires for deployment
Shot Clocks for Small Cells
Collocation on an existing structure = 60 days
Construction of a new pole with a small cell = 90 days
Batched applications are allowed
Shot Clocks
The Order codified the old shot clock requirements from 2009
For non small cell deployments, you have 90 days for collocation on an existing structure and 150 days for deployments on a new structure
It also introduced new shot clocks for small cells
If the application asks for collocation on an existing structure, you have 60 days to complete review
If the application asks for construction of a new pole to put small cells on, you have 90 days to complete your review
Batched applications (multiple applications filed at once) are allowed and follow the same shot clocks, however the FCC doesn’t go into much detail on batched applications
Time period can be tolled in two ways:
Mutual agreement; OR
Notice to the applicant by the reviewing body that the application is incomplete. This notice must be given within 10 to 30 days of filing
This will be mentioned later, but you cannot impose a moratoria on accepting, reviewing, or processing applications
What has to be done within this time period?
Zoning approvals
building permits
license or franchise agreements to access the right of way
leases for use of municipal poles or other municipal property in the right of way
Electric permits
Road closure permits
Anything else that is necessary for deployments in the right of way
Because compliance with the shot clocks apply to every authorization a local government requires for deployment, we suggest standardizing as much of this process as possible by, for example,
standardizing franchises, right of way use agreements, and licenses;
standardizing pole or structure attachment agreements;
review your applications so they are compliant with the order;
develop a process to track shot clock time lines for each application and pay close attention to the batched applications
Draft a standard extension agreement for applicants who voluntarily agree to extend the shot clock

21. Fees
Fees restricted to “a reasonable approximation of the state or local governments’ actual and reasonable costs”
The FCC’s Presumptively “Reasonable” Fees
Recurring Fees  $270 per small cell facility annually
Non-Recurring Fees  $500 for up to 5 small cell facilities with $100 per additional small cell facility; OR $1,000 per pole to support small cell facilities
Can you charge more? YES!
Fees
The imposition of fees are limited to your reasonable costs. The restriction applies to fees for the application, review of that application, right ow way use fees, fees for the use of municipal property in the right of way
The FCC provided its presumptively reasonable fees
For recurring fees, $270 per small cell annually is presumptively reasonable according to the FCC
This includes any right of way access fee or fees for attachment to municipally owned property
For non-recurring fees, $500
This includes application fees for up to five small cells with an additional $100 for each small cell facility, OR
$1000 per pole to support small cell facilities
Local governments may charge higher fees than those the FCC deems reasonable, however you must be able to show that:
The fees are a reasonable approximation of costs
The costs are reasonable; AND
That the fees are non-discriminatory
If you want to charge more, you should be prepared to defend that decision. I recommend you conduct a cost study so you have empirical evidence of how much it actually costs the municipality for deployment. Make sure the cost study includes all stages from the day the application is filed to the final day of deployment by the carrier.

22. Misc. Moratoria Preemption Remedy
A local government may not impose a moratoria on cell siting applications
Allegations of moratoria are brought to the FCC
Preemption
Existing agreements, state small cell bills or other state laws may be preempted to the extent that they conflict with the Order
Remedy
Litigation within 30 days of any action or inaction
Moratoria  The FCC has prohibited the imposition of a de facto or express moratoria on cell siting applications (this includes small cells and other wireless or wireline facilities)
The FCC views moratoria as any local requirement or action that prevents or suspends the processing or approval of applications or permits necessary for cell siting
Examples of violating this rule includes
Preventing cuts on newly paved streets
Preventing right of way work in winter
Preventing highway work during hurricane season
Weight limits on roads during spring thaw
Preemption  The Order does not expressly exempt agreements entered into before the effective date of the order, nor does it grandfather them. The FCC deferred the matter of existing agreements to a case by case fact and circumstances-based inquiry.
Remedy  For failure to act or any action in conflict with the Order, the applicant has 30 days to go to court.

23. Recommended Next Steps
Track the ongoing litigation
Consult your legal counsel as to how you will preserve your authority should the order be vacated or modified
Review your state’s requirements for:
Conflicting provisions between state and federal law
Stringent requirements imposed at the state level that is not included in the federal rules
All other applicable laws
Conduct a cost study/analysis
Develop aesthetic requirements (must be in writing)
Keep a detailed record in the event your requirements, authority, or process is challenged
Train your staff and maintain interdepartmental communication
Consider…
There is ongoing litigation as to the status of the small cell orders. For example, the D.C. Circuit in United Keetowah v. FCC struck down portions of the order that interpreted the application of the National Historic Preservation Act and the National Environmental Policy Act, as well as other requirements related to federally recognized tribes.
Because there is litigation, it is advisable that you plan for the event that the order is vacated or modified on reconsideration. You should discuss with your legal counsel how to preserve your ability to receive payments or regulate as you would have been able to before the Order’s application.
Some examples of topics to discuss with your legal counsel include:
How to reserve the authority to collect a shortfall in fees if the Order is vacated
Should you document the fees that were in place before the Order? Fees that you would have charged but for the application of the Order?
What other means are available to preserve your authority to charge fees?
How to reserve the authority to require changes to installed facilities to comply with conflicting or changed requirements
Should you document installation requirements you would impose but for the Order?
What other means are available to preserve your authority to require changes to installed facilities?
Methods of preserving your existing agreements with the carriers/small cell providers
Should the order be vacated or modified, how to restore provisions in your agreements with the carriers/small cell providers that were altered or preempted due to the application of the Order
As mentioned earlier in this presentation, if you want to charge fees higher than the FCC’s guidelines, it is advisable that you conduct a comprehensive cost study
If you’d like to impose aesthetic requirements they must be in writing and must be available to applicants. If you follow procedures for notice available in other contexts, that would likely suffice. You could also include your aesthetic standards as part of the application packet to ensure receipt.
As far as keeping a detailed record, we’re beginning to see the carriers take legal action against local governments. Verizon filed a complaint with the FCC against Clarke County, Nevada alleging a violation of the Communications Act because of the fees they charge for small cell deployments. Speaking of which, the FCC has asked for public comment on the Clarke County case. I encourage you all to comment on the proceeding as the result of that proceeding will effect you. The deadline to file reply comments in that proceeding is October 25th. If you would like to join a comment but don’t wish to author one, please let me know and I can put you in touch with others who have drafted comments but are looking for others to sign on.
Finally, because of the additional requirements now imposed on local governments coupled with the significantly reduced timeline for processing and reviewing applications, it is imperative that you not only train staff dedicated to this process, but also ensure that all departments handling small cell deployments are communicating. Try to implement a strict timeline for when tasks must be completed by each department to ensure your compliance.

24. Negheen H. Sanjar Director of Legal Research
International Municipal Lawyers Association
51 Monroe Street, Suite 404
Rockville, MD 20850
Phone: (202) ext. 7105
Cell: (202)
Finally, I’d like to thank the Virginia Municipal League for inviting me to come speak with you all. It has been a pleasure being here this morning. I hope this presentation has provided you with some practical guidance and useful information. If you have any questions please do not hesitate to contact me.