OLR Bill Analysis

sHB 7182 (as amended by House “A” and “C”)*

AN ACT CONCERNING CERTIFIED COMPETITIVE VIDEO SERVICE.

SUMMARY:

This bill requires companies, other than cable TV companies and their affiliates, that provide video programming to be certified by the Department of Public Utility Control (DPUC). It subjects the companies that provide these competitive video services (“providers”) to some of the requirements that apply to cable TV companies, notably requirements regarding community access and customer information. But the providers are not subject to other requirements that currently apply to cable TV companies, including obtaining and renewing a franchise for a specified number of years and being subject to rate regulation.

Once a provider enters the territory of a cable TV company, the bill allows the cable TV company to apply for a new certificate in lieu of its existing franchise certificate. The cable TV company is generally subject to the same application requirements and DPUC review as a provider. Once DPUC grants the new certificate, the cable TV company becomes subject to a similar type of regulation as the provider. Among other things, this means that it will no longer need to have its franchise renewed and its rates will apparently not be subject to DPUC regulation. The bill also makes minor changes in the laws concerning cable TV advisory councils.

The bill subjects providers to the 5% gross earnings tax that currently applies to cable TV companies and direct broadcast satellite companies. It provides that this tax is in lieu of the property tax for the company's tangible personal property. It subjects the services sold by the providers to the sales tax, and modifies how the sales tax applies to other telecommunication services.

The bill establishes two nonlapsing accounts in the General Fund, one to provide property tax relief for municipalities and the other to provide funding for community access and for education technology. It funds the first account with up to $ 5 million per fiscal year from the gross earnings tax. It funds the second account with a new tax on the gross earnings of cable TV, direct broadcast satellite, and the providers.

The bill establishes a statewide video advisory council and a statewide cable TV advisory council.

By law, DPUC determines whether a cable TV company or a nonprofit organization will administer community access programming in the company's franchise area. If a nonprofit organization has this responsibility, this bill allows the DPUC to extend the company's franchise by two years if the company agrees with the organization to provide funds solely to upgrade or replace capital equipment. The bill makes a number of minor related changes.

The bill requires the Finance, Revenue and Bonding Committee to review and analyze the state and local taxes that apply to telecommunications services, cable TV services, video programming services by satellite and certified competitive video service providers for the committee to consider during the 2008 regular session.

*House Amendment “A” adds the tax provisions, the new accounts, the cable TV advisory council, the minor changes, and the Finance Committee study.

*House Amendment “C” makes a minor change in the sales tax provisions.

EFFECTIVE DATE: October 1, 2007, except that the gross earnings tax provisions are effective July 1, 2007

COMPETITIVE VIDEO SERVICE PROVIDERS

The bill excludes from the definitions that apply to cable TV companies, and many of the laws that apply to them, “certified competitive video service providers. ” It defines such providers as entities that provide video service under a certificate granted by DPUC. Video services, for these purposes, include those provided by wireline facilities, part of which must be in the public right-of-way. These services can be provided by any technology, including Internet protocol technology. On the other hand, they do not include any services provided by commercial mobile service providers such as personal communications services (PCS) companies, any programming provided by a cable TV company, or services that allow users to access content, information, e-mail, or other services over the Internet.

Application Requirements

The bill requires any entity, other than a cable TV company or its affiliates, that seeks to provide video services to file a certificate application with DPUC. The application must be accompanied by a $ 1,000 fee. A company that is already providing video services by October 1, 2007 (e. g. , AT&T) must file its application by October 31, 2007, but can continue to offer video services while its application is pending.

The application must be signed by an officer or general partner of the applicant. It must

1. identify the applicant's principal place of business and the names of its principal executive officers;

2. affirm that it has filed or will timely file with the Federal Communications Commission all forms the commission requires before offering video service in the state;

3. affirm that it agrees to comply with all applicable federal and state statutes and regulations and with all applicable DPUC orders, including those regarding the provision of video service and the use and occupation of public rights-of-way in delivering video service; and

4. affirm that it will comply with the bill's requirements.

The application must also include (1) a description of the area the company will serve in the state, which the applicant must update before it can expand to a previously undesignated service area and (2) a general description of the types of technologies the applicant will use to provide video programming in its service area, which may include wire line, satellite, or any other technologies.

DPUC must notify the applicant whether the application is complete within 15 days after the applicant submits it. DPUC's failure to do so is considered to be an issuance of the certificate. If DPUC finds that an application is incomplete, it must specify the items that are incomplete and allow the applicant to amend the application. DPUC must issue a certificate within 30 calendar days of receiving an amended and completed application.

DPUC Review of the Application

DPUC must limit its review of the application to whether it provides the information required by the bill. DPUC may not conduct a contested case but may submit written questions to the applicant and require written answers regarding the information provided. DPUC may accept written comments and reply comments from the applicant, the Office of Consumer Counsel, the attorney general, and other interested companies, organizations, and individuals. The comments must be limited solely to the issue of whether the application complies with the filing requirements described above.

DPUC must issue a certificate within 30 days after notifying the applicant that its application is complete. The certificate must provide: a grant of authority to (1) provide video service as requested in the application and (2) use and occupy the public rights-of-way to deliver this service, subject to state law. The certificate must also include a statement that the grant of authority is subject to lawful operation of the video service by the applicant or its successor.

The certificate allows the provider to own, lease, maintain, operate, manage, or control facilities in, under, or over a public highway to offer video service to its customers in the state. The certificate is fully transferable to any successor of the applicant. A notice of transfer must be filed with DPUC within 14 business days after the completion of such a transfer. The certificate holder can terminate it by submitting notice to DPUC.

Restrictions on DPUC's Regulatory Authority

DPUC cannot require the provider to build out its facilities on a set schedule or to provide video service to any customer using any specific technology. Nor can DPUC regulate the provider's rates, except as provided in the bill. (The bill does not have any provisions regarding regulating the provider's rates, other than requiring it to provide a credit if its service is interrupted for 24 hours or more. ) DPUC must begin a contested case three years after issuing the certificate to the provider to investigate the availability of its services and report its findings to the Energy and Technology Committee.

Obligations of Providers

Community Access. Within 120 days after a provider begins offering service in an area under its certificate, it must provide capacity over its video service to allow community access programming in its basic service package. The provider must provide (1) the same number of community access channels as the incumbent cable TV company in the area currently offers; (2) funds for community access operations in the same way as cable TV companies; and (3) for the transmission of community access programming with connectivity up to at least 200 feet from its activated wireline distribution facility and must do so without imposing additional requirements for the creation of any content. The community access programming must be submitted to the provider in a form compatible with the technology or protocol it uses to deliver video services over its network, and must be capable of being accepted and transmitted by the provider, without requirement for additional alteration or change in the content by the provider.

A provider and a cable TV company or nonprofit organization providing community access operations must negotiate in good faith regarding interconnection of community access operations where technically feasible or necessary. Interconnection may be accomplished by direct cable, microwave link, satellite, or other reasonable method. At the request of a provider, cable TV company, or provider of community access operations, DPUC may facilitate the negotiation for such an interconnection.

Customer Information. When a customer initially subscribes to the provider's service, and annually thereafter or upon request, each provider must give each customer a description of (1) its video service offerings and current rates; (2) the provider's credit policies, including any finance charges or late payment charges; and (3) its billing practices and complaint procedures.

The bill requires providers to inform a customer, when he enters an agreement for video service, of the provider's practices regarding the collection and use of personally identifiable information. Consistent with federal law, the provider must inform the customer of its practices regarding (1) the type of information collected, (2) the purposes for which it is used, (3) the extent and manner in which it is shared with unaffiliated third parties for purposes of enabling delivery of video service, and (4) the provider's procedures to ensure the customer's right to privacy. A provider may not disclose personally identifiable customer information other than anonymous or aggregate data to unaffiliated third parties for their own marketing purposes without the customer's consent.

Except when otherwise required by federal law, a provider must inform DPUC, each customer, the chairpersons of the Energy and Technology Committee, and the chairperson of the statewide video advisory council of any planned rate changes at least 30 days before implementing the changes unless (1) the law requires the changes to made in less than 30 days or (2) DPUC prescribes a longer or shorter notice period in appropriate circumstances when in the best interest of customers. The same notice provisions apply when the provider plans to eliminate or reduce programming, except that notice does not have to be sent to DPUC. In the latter case, the council may hold an advisory public hearing concerning the planned changes and may then make a recommendation to the company prior to the planned implementation date.

Most of these requirements currently apply to cable TV companies.

Customer Complaints. A provider must implement an informal process for handling DPUC and customer inquiries, billing issues, service issues, and other complaints. If an issue is not resolved through this process, a customer may request DPUC provide a confidential, nonbinding mediation with the provider with a designated DPUC staff member serving as the mediator. If the mediation is unsuccessful, the customer may file a formal complaint with DPUC. DPUC's sole jurisdiction over the complaint is to determine if the provider is complying with the bill's requirements. If the provider is not complying, DPUC must order it to cure the noncompliance within a reasonable period of time. Failure to comply may subject the provider to civil penalties and revocation of the certificate.

The provider must comply with the customer service requirements of federal law for its video services, but is not subject to any state laws, regulations, or DPUC orders that impose more stringent requirements.

Redlining. The provider may not deny access to service to any group of potential residential customers based solely upon the income of the residents in the area where they live. An affected person or the affected municipality may seek to enforce this requirement by filing a complaint with DPUC.

Other Obligations. Within 120 days after the provider begins offering service in a designated area, it must transmit the Connecticut Television Network (CTN) to all its customers, including real-time transmission as technically feasible, provided (1) these transmissions are supplied in a way that is consistent with the provider's technology or delivery protocol and (2) CTN's connection is within 200 feet of the providers activated facilities.

A provider must provide any public library and any school system, college, or university located in a part of its franchise area where service is available with one outlet for basic video service at no charge if the institution participates in educational or public access programming offered throughout the area. DPUC may exempt a provider from providing this service at no charge if it would harm the provider. A provider is not required to provide this free service if the library or school is receiving cable TV or video service from another provider.

If video service provided by a provider to a customer is interrupted for more than 24 continuous hours, the provider must give the customer a credit or refund in an amount that represents the proportionate share of the service not received in a billing period, so long as the interruption was not caused by the customer.

A provider must make closed captioning available when simultaneously broadcast with video signals carried by the provider. A provider must also offer the concurrent rebroadcast of local television broadcast channels, or use another economically or technically feasible process, in order to provide an appropriate message through its video service when a public safety emergency alert is issued over the emergency broadcast system.

A provider and its officers, agents, and employees must comply with the relevant portions of the bill and each applicable DPUC order made under the bill. DPUC may fine any provider that DPUC finds has failed to comply with these provisions up to $ 10,000 per offense. Each distinct violation of an order is a separate offense and, in the case of a continued violation, each day is a separate offense. DPUC must follow the procedures specified in existing law in imposing such penalties. If the penalty is imposed, it is the sole remedy for such violations. DPUC can also revoke the provider's certificate if the DPUC finds, after notifying all interested parties and holding a hearing, that the provider is in substantial noncompliance with law or DPUC orders.

Most of these requirements currently apply to cable TV companies. The bill also subjects providers to law, that currently applies to cable TV companies, that governs wiring of multi-family housing. Among other things, this law bars cable TV companies from entering into agreements with the building owners that affect the ability of the occupants to use individual or master antennas.

CABLE TV COMPANIES

Under the bill, 30 days after a certified competitive video service provider offers video service in a cable TV company's franchise area, the company may seek a certificate of cable franchise authority from DPUC. A company may also apply for a certificate (1) for its existing franchise area 30 days after a municipal electric utility, its affiliate, or subsidiary begins offering video service there under a certificate of video franchise authority and (2) for any area that was outside of its franchise areas on or before October 1, 2007 (it appears that the cable TV company can apply for the certificate at any time under this provision). The application fee is $ 1,000. The application requirements are the same as for the certificate granted to a video provider. The DPUC application review requirements are similar, although in this case the Office of Consumer Counsel and other interested parties can submit comments that go beyond whether the application complies with the bill's requirements.

A certificate of cable franchise authority becomes effective immediately upon being issued. The certificate must provide:

1. authority to provide cable TV or video services as requested in the application;

2. authority to own, lease, maintain, operate, manage or control facilities in, under or over any public highway in the delivery of such service, subject to state law; and

3. a statement that the grant of authority is subject to lawful operation of the cable TV or video service by the company or its “interest” (apparently its successor in interest).

Certificate holders are subject to the same taxes as cable TV companies.

Once the company obtains a certificate of cable franchise authority, it is subject to the same general requirements that apply to video providers. However, the company continues to be subject to most of the current law's requirements regarding community access. Among other things, these provisions require cable TV companies that are responsible for community access to:

1. provide facilities, equipment, and technical and managerial support to enable the production of meaningful community access programming;

2. carry all of the community access channels on its basic service tier;

3. conduct various outreach programs;

4. adopt scheduling policies that promote program diversity;

5. comply with DPUC standards regarding community access equipment; and

6. pay an annual charge set by DPUC to support community access.

Like a video provider, the company would not be subject to franchising and build-out requirements. However, if DPUC approved the transfer of an existing franchise, the transferee's franchise term would be the remainder of the original franchise term unless DPUC grants a different term. A company would no longer have to (1) fund the cost of community needs assessment, which currently takes place in connection with franchising; (2) provide financial and infrastructure information to DPUC upon request; or (3) comply with DPUC customer services regulations, including those dealing with responding to customer complaints and inquiries that subject companies to civil penalties if they did not meet DPUC standards in these areas. Nor would a company be subject to rate regulation except as “set forth in federal law. ” Federal law allows but does not require franchising authorities (in Connecticut, the DPUC) to regulate basic service rates. Thus, the bill appears to terminate DPUC's ability to regulate a cable TV company's basic service rates once it obtains a new certificate.

Under the bill, once the company receives its new certificate, it must continue to meet with its existing advisory council at least twice per year. Under current law, members of the council cannot be cable TV company employees or contractors, and cannot receive free or discounted cable TV service. The bill extends these provisions to prohibit council members from being employees or contractors of a video service provider or receiving free or discounted video services.

Under current law, the cable TV company must provide at least $ 2,000 in funding to the council each year, which can take the form of in-kind contributions at the council's option. The bill instead requires the company to provide $ 2,000 in funding per year. The bill eliminates provisions that (1) allow a council to file a written petition with DPUC if a company fails to provide adequate service to a customer, (2) require DPUC to hold a hearing on the petition and issue a written decision, and (3) require the company to provide service as prescribed by DPUC in the decision.

Except as provided by the bill, the company would continue to be subject to the current requirements of federal and state cable TV laws and relevant DPUC orders.

TAX PROVISIONS

Gross Earnings Tax and Property Tax

The bill subjects providers to the 5% gross earnings tax that currently applies to cable TV companies and direct broadcast satellite companies. For providers, the amount of revenues allocated to Connecticut and thus subject to the tax is proportional to the share of the provider's subscribers who are in the state compared to the average number of its subscribers in both Connecticut and everywhere else.

By law, the gross earnings tax is in lieu of the property tax on tangible property used solely and exclusively to provide the services subject to the gross earnings tax. The bill extends this provision to tangible personal property acquired in the 2007, 2008, and 2009 assessment years to upgrade a telecommunications network, even if the property is used only in part for competitive video services. By law, the gross earnings tax is in lieu of the property tax on personal property used to provide both cable TV and telecommunications services, e. g. , fiber optic lines that carry both types of signals. The bill extends this provision to property used to provide competitive video and telecommunications services.

Sales Tax

The bill subjects certified competitive video services to the sales tax starting October 1, 2007. Under the bill, these are video services provided by wireline facilities, part of which must be in the public right of way, that use the Internet and other technologies. These services do not include cable TV service, audio and video programming services delivered by commercial mobile radio service providers, such as personal communications services (PCS) companies, and video programming provided as part of a service that allows users to access e-mail and other services over the internet.

The bill modifies the definition of “telecommunications services” for purposes of the sales tax. It broadens the tax exemption fee radio and TV services. Current law exempts any one-way radio or television broadcasting transmission. The bill instead exempts radio and television audio and video programming services, regardless of the medium, including the furnishing of transmission, conveyance, or routing of such services by the programming service provider.

The bill also explicitly exempts the following from the definition of “telecommunications services” and thus the sales tax:

1. digital products delivered electronically, such as music, videos, and ring tones;

2. Internet access services;

3. certain advertising services; and

4. several other types of related services and products.

Some of these items may already be exempt from the sales tax.

On the other hand, it subjects directory assistance and vertical services to the sales tax. The latter include such things as caller ID and conference calling features.

The bill has apparently contradictory provisions on whether installation or maintenance of wiring on a customer's premises is subject to the sales tax.

NEW ACCOUNTS

Municipal Video Competition Trust Account

The bill establishes a nonlapsing "municipal video competition trust account" in the General Fund. The money in the account must be distributed as property tax relief to municipalities. . The comptroller must deposit into the account up to $ 5 million per fiscal year from the gross earnings tax imposed on certified competitive video service providers under the bill.

The amount to be distributed to each town is proportional to its share of the total number of subscribers to certified competitive video service. An unconsolidated city or borough receive a part of the town's allocation that is proportional to its share of the property taxes levied in the town in the fiscal year. The city or borough may, by vote of its legislative body, direct the Secretary of the Office of Policy and Management (OPM) to reallocate all or a portion of its share to the town in which it is located.

Beginning September 15, 2008, the secretary must certify annually to the comptroller the percentage of the amount in the account to be paid to each municipality and the comptroller must draw the comptroller's order on the treasurer by September 25th. The treasurer must pay the municipalities by September 30th.

By July 30, 2008, and annually thereafter, each certified competitive video service provider must file with OPM the total number certified competitive video service subscribers in each town and the total subscribers to certified competitive video service in all towns in this state as of the last day of the immediately preceding fiscal year.

Account for Community Access and Educational Technology

The bill establishes a nonlapsing “public, educational and governmental programming and education technology investment account" in the General Fund. The account must be supported solely from 0. 5% of the gross earnings tax from rendering cable TV service (including services rendered by a cable TV company under the new type of certificate authorized by the bill), video programming service by satellite and certified competitive video service in this state beginning October 1, 2007. Starting October 1, 2009, the proportion drops to 0. 25%. The tax for each fiscal year must be remitted to the Department of Revenue Services, on a form it prescribes, by August 30th following the close of the fiscal year. Gross earnings in this state must be determined in the same way as the gross earnings tax. The comptroller must deposit this money into the account.

DPUC must make half of the money in the account available to local cable TV and video advisory councils; state-wide cable TV and video advisory councils; public, educational and governmental programmers and public, educational and governmental studio operators to subsidize capital and equipment costs related to producing and procuring this programming. DPUC must allocate the other half of the money to boards of education and other education entities for education technology initiatives.

By October 1, 2007, DPUC must begin a contested case proceeding to establish eligibility requirements and procedures for applying for the allocations. By April 1, 2008, DPUC must issue a final decision, which must include any recommendations to the governor and the legislature that DPUC considers necessary with regard to the account's ongoing operation.

ADVISORY COUNCILS

Video Advisory Council

The bill establishes a statewide video advisory council, whose membership consists of one representative from each of the existing cable TV advisory councils. A provider must biannually convene a meeting of the council. No member of the council can be an employee of a cable TV company, i. e. , anyone working full-time or part-time or performing any subcontracting or consulting services for a cable TV company. Members of the council must serve without compensation, including free or discounted video service.

Each video service provider must give the council $ 2,000 in funding annually.

DPUC must designate the council as an intervenor in any contested case proceeding before it involving the provider it advises. The provider must give the council's chairperson a copy of any report, notice, or other such document it files with DPUC.

A provider must, every six months, provide on bills, bill inserts, or letters to customers, a notice indicating the name and an address of the council chairperson and describing the council's responsibilities. The council must be given an opportunity to review the notice prior to its distribution.

Cable TV Advisory Council

The bill establishes a 13-member statewide cable TV advisory council to assist local community antenna television advisory councils perform their functions and to disseminate information to local advisory councils that is relevant to the interests of cable TV customers. The council consists of:

1. three members appointed by the Governor;

2. two by the House speaker;

3. two appointed by the Senate president pro tempore;

4. one each by the House and Senate majority leaders; and

5. two each appointed by the House and Senate minority leaders.

The term of each member is coterminous with that of his or her appointing authority. By January 1, annually, the members must elect a chairperson from among the members.

EXTENSION OF CABLE FRANCHISE

The bill regulates DPUC to extend a cable company's initial or renewal franchise by two years if the company agrees with the franchise's nonprofit community access provider to provide funds to upgrade or replace capital equipment for public access. The company must agree not to pass on the contribution in subscribers' rates or community access fees.

If there is more than one community access provider in the franchise area, an agreement is reached when at least two-thirds of them independently reach an agreement with the company. Only the providers that reach an agreement with the company are eligible to receive the additional funding. The DPUC's decision must be made in a non-contested case proceeding. In the case of renewal franchises, there can only be one extension per franchise term.

MINOR CHANGES

By law, a company must conduct a needs assessment and make recommendations when it seeks a franchise certificate, unless it is subject to effective competition as defined by federal law. The bill requires DPUC to state its reason for not implementing any key recommendations in its final decision on the franchise application. It also allows DPUC to require that the company enter into good faith negotiations to facilitate community access television interconnection with its existing or potential cable competitors in the franchise area as a condition of granting the certificate.

The bill requires the company or nonprofit organization to consult with the local cable advisory council in (1) establishing community access policies, (2) adopting a community access programming budget, and (3) allocating capital equipment and community access programming resources.

By law, the company or nonprofit organization responsible for community access must conduct an outreach program. Under the bill, the program may encourage the formation and development of local community access studios operated by volunteers or nonprofit groups in multi-town franchise areas.

By law, DPUC must require a nonprofit community access organization to undergo an audit, at its expense, for good cause, if the Office of Consumer Council or the local advisory council requests the audit. The bill specifies that “good cause” includes the failure or refusal of the organization to:

1. account for and reimburse the community access programming budget for its commercial use of community access programming facilities, equipment, or staff, or for the allocation of the facilities, equipment, or staff to functions not directly related to the community access operations;

2. carry over unexpended community access programming funding at the end of each fiscal year;

3. properly maintain community access programming facilities or equipment in good repair; or

4. plan for the replacement of community access programming equipment made obsolete by technological advances.

The bill also requires DPUC to state its reasons when responding to the request for the audit.

BACKGROUND

Related DPUC Decision

In Docket 05-06-12, DPUC concluded that the Southern New England Telephone Company d/b/a AT&T Connecticut had demonstrated that, from a regulatory perspective, its planned Internet Protocol-based video product was distinguishable from cable television service. DPUC found that the service merely transmits data over the Internet, and as such is not subject to cable franchising requirements. The Office of Consumer Counsel and others have appealed the decision in federal court.

COMMITTEE ACTION

Energy and Technology Committee

Energy and Technology Committee

Joint Favorable Substitute Change of Reference

Yea

19

Nay

2

(03/13/2007)

Finance, Revenue and Bonding Committee

Joint Favorable Substitute

Yea

53

Nay

0

(04/17/2007)

Joint Committee on Legislative Management

Joint Favorable

Yea

28

Nay

0

(05/09/2007)

Judiciary Committee

Joint Favorable

Yea

37

Nay

1

(05/15/2007)