Major Decision on Cable Franchise Renewals
(from Maine Townsman, April 1997)
by Patrick Scully, Esq.

Many Maine towns are now, or will soon be, facing the difficult and often controversial task of negotiating a renewal of their cable television franchise agreements with their local cable companies. Over 60 Maine towns’ franchise agreements will expire in the next two years.

On February 24, 1997 the United States Court of Appeals for the Sixth Circuit issued a major decision on cable television franchise renewals in Union CATV v. City of Sturgis, KY, ____ F.3d _____ (6th Cir. 1997). This is the most important court case to date arising out of local franchise renewal decisions. In its decision, the Court of Appeals concluded that the City of Sturgis was justified in denying Union CATV’s application for renewal of a cable television franchise agreement.

The cable franchise renewal process is governed by Section 626 of the federal Cable Communications Policy Act of 1984, 47 U.S.C. 546. Under 626, a cable operator and municipality may choose to engage in either formal or informal renewal proceedings. Formal proceedings follow a detailed process set forth in the statute, and generally serve to the benefit of the cable company by limiting a town’s discretion to deny renewal. The cable company can invoke formal renewal proceedings by issuing a written notice to the municipality. The notice must be issued in a six-month window of time beginning 36 months before the expiration of the prior franchise agreement.

If the renewal notice is issued, the municipality must, within 6 months, begin a public proceeding aimed at identifying the town’s future cable-related community needs and interests and reviewing the cable company’s performance under the prior franchise agreement. Upon completion of this needs assessment (also known as an scertainment"), which generally includes public hearings, surveys and focus groups, the municipality generally issues to the cable company a request for proposal (RFP) for a renewal agreement. The RFP incorporates services and provisions the municipality wants included in the agreement, which have been identified in the needs assessment process, such as extension of cable service to rural areas or funding for local public access channels.

Once the cable company submits its proposal, the town has four months to either renew the franchise agreement or issue a "preliminary denial" of renewal. In the latter case, the cable operator may then request that the town hold a formal administrative hearing on its renewal proposal. If, after conclusion of the hearing, the municipality decides not to renew the agreement, the cable company can appeal the denial to state or federal court.

In the Sturgis case, the city adopted an assessment report identifying its future cable related needs and interests. Union CATV then submitted a proposal for franchise renewal, which the city rejected as failing to meet its identified needs. Union CATV appealed, arguing that the city’s denial was not supported by a preponderance of the evidence. The U.S. District Court upheld the city’s decision, and Union took a further appeal to the Court of Appeals.

The real issue in the case involves the scope of the court’s review of the city’s decision. The city argued that the court’s only job on appeal is to determine whether the record supports the city’s conclusion that the cable operator’s proposal does not meet the community’s identified future cable needs. Union CATV argued that the court should second guess the city’s needs assessment report itself, and determine whether or not the evidence in the record supported the city’s determination of its future cable needs.

In upholding the city’s denial of Union CATV’s application for renewal, the court struck somewhat of a middle ground between the interpretations advanced by the two parties. The court held that in reviewing a denial, it must determine whether there is sufficient evidence to support the franchising authority’s finding that the operator’s proposal for renewal was not reasonable to meet the future cable-related community needs and interests, taking into account the cost of meeting such needs and interests.

The court held that in such an appeal, it must determine whether, based on the administrative record, the cable operator has demonstrated that its proposal is "reasonable" despite its failure to meet certain identified community needs and interests. When a proposal does not satisfy an identified need, the court must decide whether the operator has established that the cost of meeting that need so outweighs the value of the need that the proposal is nonetheless reasonable. The court rejected Union’s argument that the court should engage in a de novo review of the city’s identification of its cable-related needs and interests. The court concluded that Congress did not intend the federal courts to exert such a degree of control over franchising authorities. The court stated:

It would be inappropriate for a federal court to second-guess the city in its identification of such needs and interests. We conclude, therefore, that judicial review of a municipality’s identification of its cable-related needs and interests is very limited. A court should defer to the franchising authority’s identification of the community’s needs and interests except to the extent necessary to weigh the needs and interests against the cost of implementing them.

The Sturgis case is of great importance to Maine towns facing renewal negotiations. First, in its simplest form, it shows that municipalities can deny franchise renewals and those denials can be upheld on appeal. Secondly, it shows that the court’s job in reviewing a denial is fairly limited, and preserves substantial deference to the decisions of municipalities. If, based upon the evidence presented at the administrative hearing, the municipality can reasonably conclude that the cable operator’s renewal proposal does not meet the identified community needs and interests for future cable service, and that those unmet needs are not unreasonably costly, a decision to denial renewal will not be reversed by the courts.

The Sturgis case is certainly not the last word on this matter. The cable industry will probably seek review of the case by the U.S. Supreme Court. Other appeals probably will be taken in other parts of the country. However, for the foreseeable future, this case is the best and only law we have interpreting the Cable Act’s renewal provisions. Therefore, the Sturgis case should be very useful to Maine municipalities in renewal negotiations with their local cable companies.