1. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 1 DIGITAL INFRASTRUCTURE AND VIDEO COMPETITION ACT OF 2006 (AB 2987) William M. Marticorena “Brave New Worlds”

2. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 2 OVERVIEW Creates parallel franchising scheme at state level Local franchising not preempted as to any entity which holds a franchise as of January 1, 2008 Empowers Public Utilities Commission as franchising authority

3. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 3 GOALS Promote video and broadband competition Level playing field Protect local government revenues and control of PROW Compliance with “applicable” customer service laws “Continue” access to and “maintenance” of PEG channels

4. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 4 WHAT IT ISN’T No Creation of “vested right” – Legislature may amend (§5820) No impairment of environmental laws – City/County lead agency No impairment of local ability to mitigate environmental impacts upon PROW Not a “public utility” – no PUC authority over “rates, terms and conditions” of video service

5. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 5 KEY DEFINITIONS “Cable Service:” defers to federal definition “Franchise:” Any authorization for any network in PROW capable of providing Video Service “Incumbent Cable Operator:” Cable Operator of OUS serving subscribers under franchise on January 1, 2007

6. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 6 KEY DEFINITIONS (cont.) “Video Programming:” Generally comparable to broadcast programming “Video Service:” Video programming + cable service + OUS using facilities “at least in part” in PROW irrespective of technology and delivery protocol

7. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 7 STATE FRANCHISING SCHEME PUC sole franchising authority for State franchise State franchise exclusive for entities not franchised as of January 1, 2008 May or may not be preemptive thereafter

8. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 8 APPLICATION PROCESS PUC must accept applications by April 1, 2007 Cost-based fee Basic and minimal provision of information Description of “video service area and footprint” “Adequate Assurance” of financial, legal and technical qualifications May require bond – LOC?

9. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 9 STATE FRANCHISE TIME LINES Commence by April 1, 2007 PUC to notify applicant as to completeness within 30 days PUC to issue (ministerial?) State franchise within 14 calendar days of complete application

10. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 10 TRANSFERS OF STATE FRANCHISE Ministerial transfer – no legislative discretion Notification of local entities Holder of State franchise may terminate at its discretion

11. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 11 TERM OF STATE FRANCHISE 10 years Renewal ministerial – apply §5840 criteria Renewal “consistent with federal law” – what dues that mean? No grant or renewal if violation of specified customer protection states and “this division.”

12. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 12 FRANCHISE FEE “State Franchise Fee” Characterized as “rent” Paid to local entity quarterly Amount tied to “Incumbent Cable Operator” up to 5% No additional fees and charges other than utility user taxes and “generally applicable” taxes, fees and charges applied in nondiscriminatory and competitively neutral manner

13. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 13 FRANCHISE FEE (cont.) Definition of “Gross Revenues” –Generally accepted accounting principles –Includes franchise fees –Ancillary revenues –Excludes “reimbursements … of identifiable marketing costs” Pro rata allocation of “bundled discounts”

14. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 14 FRANCHISE FEE (cont.) Annual audits – paid by Video Service Provided if more than 5% under payment 3 year 45 days statute of limitation

15. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 15 PEG CHANNELS Existing PEG channels as of January 1, 2007, protected if programmed 8 hours per day If you have less than 3 channels, 3 channels can be required in State franchise 4 th channel if programmed with more than 56 hours/week of “locally produced and non-duplicative” measured quarterly

16. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 16 PEG CHANNELS (cont.) PEG channels on lowest tier with same channel numbers State franchising responsible for protocol conversions using “most economic” conversion technology Quality consistent with commercial channels Interconnection may be required

17. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 17 PEG FUNDING PEG support grandfathered for later of term of existing franchise or January 1, 2009 Upon expiration, local entity by ordinance can impose fee of 1%-3% to match existing contribution No formula for conversion to percentage of gross revenues Advertising, underwriting or sponsoring allowed if revenues go to PEG

18. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 18 PEG FUNDING (cont.) Allocation of preexisting continuing financial obligation All video service providers and incumbent cable operator subject to same recurring obligations – appear to be measured by existing franchise Only fees in effect on December 31, 2006 may be imposed if they exceed 1%

19. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 19 I-NETS AND IN-KIND PAYMENTS Grandfathered for existing franchise term I-nets, free drops, etc. unenforceable after expiration of franchise Unclear if enforceable if contained in separate agreements Free insertion points and transmission from PEG studio to head-end may be lost

20. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 20 CABLE OPERATOR ABROGATION Cable operator may “abrogate” existing franchise and obtain State upon earliest of: –Franchise expiration –Mutually agreed date –“Notification” of intent of State franchisee to provide service in all or part of jurisdiction State franchise not available until January 2, 2008

21. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 21 CABLE OPERATOR ABROGATION (cont.) Local entity “may” extend existing franchise until 2008 PEG, I-Net, In-Kind services, emergency alert grandfathered until expiration of franchise

22. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 22 CONSTRUCTION Must comply with time, place manner regulations Must pay applicable encroachments, permit and inspection fees Must approve or deny permits within 60 days of “completed application” Failure to approve or deny within 60 days will not result in automatic approval “Completed application” means complies with all statutory requirements including CEQA

23. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 23 CONSTRUCTION (cont.) Must provide “detailed explanation” for denial Right of appeal to governing body Not “deemed approved” – applicant remedy? Impact of California Supreme Court grant of review in Sprint v. San Diego County

24. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 24 CONSTRUCTION STRATEGIES Establish process which complies with 60-day rule Establish information requirements Establish concrete construction standards Undergrounding of street furniture

25. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 25 CONSTRUCTION STRATEGIES (cont.) Public notice and participation Aesthetic controls Continuing maintenance obligations

26. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 26 LOW-INCOME BUILD-OUT REQUIREMENTS No discrimination based upon income Low income construction milestones –3 years: 25% with access must be “low income” –5 years: 30% with access must be “low income” PUC to enforce

27. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 27 TOTAL BUILD-OUT REQUIREMENTS Dominant construction technique is FTTP - 25% in 2 years and 40% in 5 years Dominant construction technique in not FTTP - 35% in 3 years + 50% in 5 years

28. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 28 TOTAL BUILD-OUT REQUIREMENTS (cont.) 5 year requirements “tolled” until 30% penetration for 6 consecutive months May request extensions after 2 years

29. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 29 CUSTOMER SERVICE REQUIREMENTS Shall comply with Gov. Code Sections 53055, 53055.1, 53055.2 and 53088.2 Shall comply with video service standards “established by federal law” Must “accommodate” newer or different techniques

30. Rutan & Tucker, LLP 611 Anton Blvd., Suite 1400, Costa Mesa, CA 92626 | 714-641-5100 | www.rutan.com 30 CUSTOMER SERVICE REQUIREMENTS (cont.) Local entities shall “enforce” but may not adopt or enforce any “additional or different” customer service or performance standards Penalties may be enforced Progressive penalties starting at $500 per day ½ of penalties to Digital Divide Account De novo review