NARUC Spring Meeting Staff Subcommittee on Accounting and Finance New Orleans, Louisiana March 31-April 3, 2008

1. NARUC Spring MeetingStaff Subcommittee on Accounting and FinanceNew Orleans, Louisiana March 31-April 3, 2008 “The New Paradigm” And Why Do I Care? Lori Panzino-Tillery San Bernardino County, CA April 1, 2008

2. Why Do I Care? • Active Attempts at State Legislation • Is Your State Next? • New Responsibilities • This could be my job? • Who Gets the Money? • Who Gets the Calls?

3. Telecom 101 • Why Are We Here? • Federal Cable Regulations • Phone Companies Diversification • Need for State or Federal Intervention • Telecos v. Cable Companies • Where Do Consumers Fit?

4. OVERVIEW of CA Legislation • 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 (federally defined as well)

5. 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

6. WHAT IT ISN’T • No impairment of environmental laws – City/County lead agency • No impairment of local ability to mitigate environmental impacts upon PROW (see photo-next slide!) • Not a “public utility” – no PUC authority over “rates, terms and conditions” of video service

7. 52B DSLM Cabinet

8. 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 serving subscribers under local franchise on January 1, 2007

9. KEY DEFINITIONS (cont.) • “Video Programming:” Generally comparable to broadcast programming • “Video Service:” Video programming + cable service + OVS using facilities “at least in part” in PROW irrespective of technology and delivery protocol

10. 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

11. APPLICATION PROCESS • PUC must accept applications by April 1, 2007 • Cost-based fee ($1 mil budget for PUC) • 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?

12. 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

13. TRANSFERS OF STATE FRANCHISE • Ministerial transfer – no legislative discretion • Notification of local entities • Holder of State franchise may terminate at its discretion

14. TERM OF STATE FRANCHISE • 10 years • Renewal ministerial • Renewal “consistent with federal law” – what does that mean? • No grant or renewal if violation of specified customer protection standards and “this division.”

15. FRANCHISE FEE • “State Franchise Fee” • Characterized as “rent” • Paid directly 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

16. 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”

17. FRANCHISE FEE (cont.) • Annual audits – paid by Video Service Provided if more than 5% under payment • No requirement of financial reporting outside of audit • 3 year 45 days statute of limitation

18. 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 • PEG, I-Net, In-Kind services, emergency alert grandfathered until expiration of franchise

19. 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- • Money for Data Collection

20. TOTAL BUILD-OUT REQUIREMENTS • Dominant construction technique is FTTP - 25% in 2 years and 40% in 5 years • Dominant construction technique is not FTTP - 35% in 3 years + 50% in 5 years • 5 year requirements “tolled” until 30% penetration for 6 consecutive months • May request extensions after 2 years

21. CUSTOMER SERVICE REQUIREMENTS • Shall comply with video service standards “established by federal law” • Who Ya’ Gonna Call? • Local entities shall “enforce” but may not adopt or enforce any “additional or different” customer service or performance standards

22. 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

23. What Was Lost? • Emergency Alert Systems (Coming?) • Reporting • Required Build-out • Ratepayer Bill Confusion • Customer Service • Who handles the complaint process on the Company Side? • I-Nets, Service Connections for Libraries and Government Buildings

24. What Should You Do? • How Do PUC’s Provide Input to Process • Protect Ratepayers from Cross Subsidies • Open Communication with Municipal Leagues/County Organizations EARLY!

25. Thank You!! And Good Luck! If you have any questions or would like an electronic copy of this presentation- please feel free to contact me at lpanzino@cao.sbcounty.gov or 909-387-9600