1. Is Local Franchising on a Sinking Ship? MACTA’s 22 nd Annual Conference Setting Sail for the Future October 27, 2005 Michael R. Bradley Bradley & Guzzetta, LLC 950 Piper Jaffray Plaza 444 Cedar Street Saint Paul, MN 55101 P/(651) 379-0900 ext. 2 F/(651) 379-0999 bradley@bradleyguzzetta.com ______________ ______________

2. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 2 Background – Cable Franchising Dual Regulatory Model –Federal –State/Local FCC Adopted in 1972 Congress 1984/1992/1996 FCC –Develops National and Uniform Telecommunications Policy Local Governments –Decides who, what, why, where and how cable service is delivered

3. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 3 Background – Early Franchising Concepts The Cable System will be a Community Asset Public Access will be a valuable communications medium –Colleges and Universities –Public and in some cases private schools –Art societies –Theater Groups Great interactive Uses –Education –Medicine –Security –Meter Reading –Gaming

4. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 4 Early Franchising Concepts Institutional Networks –Connecting all government buildings –Voice, video, data (information/computer) –Security –Reliable –High capacity –2-way interactive Public-Private Partnership New Network Construction –PROW management issues –Multi-year process –Concern over fair access Rate Regulation Unknown Business Model for Industry

5. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 5 Early Roles for Local Government PROW Mgt Fees for use of PROW Rate Regulation Programming Input I-Net Mgt–design, equipment and use PEG – organization, use, equipment Industry Oversight – Financial Health Service Territories

6. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 6 What Has Changed? Massive Industry Consolidation –In MN from 100s down to 3 major MSOs Serious competition from Telephone Industry –Verizon and SBC Lobbying Power of Industry –Telephone and Cable

7. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 7 What Has Changed? Commitment of Many Cities –Frustrated/deterred by time and Expense of managing franchise contract Late 70s/early 80s perception of cable system being a valuable community asset largely gone Unwilling to commit resources to make quality PEG programming General dissatisfaction with PEG Programming –Public Officials Early I-Net Technical issues –Led to diverting resources for other networking options

8. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 8 Current Role of Local Governments PROW - Mgt PROW - Fees Rate Regulation –Effective Competition –Congress has severely limited LFA authority –Expensive Proposition with large industry oponent Virtual guarantee of FCC litigation Cable Programming –Congress has nearly eliminated any LFA authority –Exception – Broad Category of Programming Construction –Most LFA areas are built out –Some minor repair and replacement issues I-Nets –Larger Companies increasingly unwilling to construct/upgrade Industry Oversight –Cable Industry seemingly very strong (despite Adelphia) Ability to offer the Triple Play and roll out of HD and On-Demand services –Phone Company Competition Service Territories –In place for cable –In play for Telephone PEG – capital and operational support Customer Service

9. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 9 Future Roles for Local Gov’t PROW – Mgt PROW - Fees PEG –Management –Funding – Capital and Operational I-Net migration –From Cable Ops to City owned/maintained

10. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 10 Man the Lifeboats! Federal and State Legislation State Legislation –Led by Minnesota Telephone Alliance –LMC agreements with MTA – 2 yrs MACTA efforts made deal better in ‘05 –Push to Amend 238.08 – Level Playing Field Allow different service territories –No real benefits for cities –Working with an industry whose goal is to eliminate local franchising authority As shown by Texas Legislation and Federal Legislation –Alienating Cable Industry –Should Direct Resources toward Federal Legislation

11. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 11 Man the Lifeboats! Federal and State Legislation Federal Legislation S 1349/HR 3146 Video Choice Act S. 1504 Broadband Investment and Consumer Choice Act –National Franchising –Elimination of Existing Franchises Immediate impact on Franchise Fees, PEG Fees, PEG Channel Capacity, Institutional Networks –Limits on Franchise Fees Limited to Management Costs up to 5% of G.R. Significant exceptions to Gross Revenues –Limitations on PEG Channels and Funding –I-Nets probably eliminated –Restrictions on Permit Fees

12. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 12 Do Cities Still Want Franchising Authority? PROW Mgt –ability to unilaterally enact PROW ordinances applicable to all users PROW Fees –Should not go backwards PEG –Adequate Channel Capacity –Funding for Operational and Capital Support Out of Phone/Cable Fights Out of Customer Service Business –FCC to take all complaints on service and rates I-Nets – hand over the keys

13. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 13 What do the Telecos want? National or State Franchising No PEG Limited PROW Mgt authority –Have been suing Cities for the past 9 years To Serve the most affluent –SBC Project Lightspeed (p13-14 SBC Investor Update) Serve 90% of High Value Customers Serve 5% of Low Value Customers (35% of Total Customer Households – OVER 1/3 of ALL HH!) Use litigation to escape all obligations

14. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 14 What Does Cable Want? Local Franchising –As long as it slows the Telecos from coming to market Every month delay is extra padding to the bottom line Same or similar Territory for all Providers –Unfair for Telecos to serve only the wealthy when cable has to serve all areas Use litigation to impose obligation on Telecos Once Franchising does not serve to protect cable interests they will also want to eliminate franchising authority

15. Is Local Franchising on a Sinking Ship? _______________________________ October 27, 2005 Slide # 15 Message in a Bottle Sending out an S.O.S. Decide as a City What about Franchising video providers is important Decide Level of Regulatory involvement is necessary or desirable –Doing Nothing indicates you want no Franchising Role Convey your Decision to City Organizations –NATOA MACTA –NLC LMC –National Conference of Mayors, etc. Urge your Organizations to dedicate significant resources to obtain your goals –A Sea of Change is Coming –There will be a Tidal Wave of Industry Lobbying –Don’t get lost at Sea!

16. The End Is Local Franchising on a Sinking Ship? October 27, 2005 Michael R. Bradley Bradley & Guzzetta, LLC 950 Piper Jaffray Plaza 444 Cedar Street Saint Paul, MN 55101 P/(651) 379-0900 ext. 2 F/(651) 379-0999 bradley@bradleyguzzetta.com ______________ ______________