Current federal law generally prohibits a person from providing cable service
without a cable franchise. Under current federal and state law, cable service is
defined, in part, as the one-way transmission of "video programming," which is
defined as programming provided by, or generally considered comparable to,
programming provided by a television broadcast station. Current federal law allows
either states or municipalities to grant cable franchises to persons who provide cable
service, which are referred to as "cable operators." Under current state law,
municipalities (i.e., cities, villages, and towns) grant or revoke franchises. In
addition, current state law allows a municipality to require a cable operator to pay
a franchise fee to the municipality that is based on the operator's income or gross
revenues.

This bill repeals state law authorizing municipalities to grant cable franchises
to cable operators. Instead, the bill requires a person who provides "video service"
to obtain a video service franchise from the Department of Financial Institutions
(DFI). The bill defines "video service" as any video programming service, cable
service, or service provided by certain "open video systems," without regard to
delivery technology, but only if the service is provided through facilities that are
located, at least in part, in public rights-of-way. (An "open video system" is system
regulated under federal law that combines features of cable television and
telecommunications systems.) The bill's definitions of "video programming" and
"cable service" are comparable to the definitions under current law described above.
As a result, video service includes both the one-way and two-way transmission of
video programming. However, the following types of video programming are
excluded from the definition of "video service": 1) video programming provided by
wireless telephone companies; and 2) video programming provided solely as part of
and via a service that enables users to access content, information, electronic mail,
and other services offered over the public Internet.

Under the bill, if a person has not been issued a cable franchise under current
law, the person may not provide video service unless DFI issues a video service
franchise to the person. The bill allows a cable operator who has been issued a cable
franchise under current law to provide cable service under the cable franchise until
the cable franchise expires, or apply to DFI for a video service franchise. The bill
refers to a cable operator who elects to provide cable service until the expiration of
a cable franchise as an "interim cable operator." Upon the expiration of a cable
franchise, an interim cable operator must apply to DFI for a video service franchise
in order to continue to provide cable service. If a cable operator elects to apply for
a video service franchise before the expiration of its cable franchise, the bill provides
that the cable franchise terminates upon DFI's issuance of a video service franchise.
Also, if a cable operator's cable franchise expired before the effective date of the bill

---

and the cable operator was providing cable service immediately before the bill's
effective date, the bill allows such a cable operator to continue to provide cable
service. However, the cable operator must apply for a video service franchise by a
deadline that is approximately one month after the bill's effective date.

Application process. The bill requires an applicant for a video service
franchise to submit an application to DFI that consists of certain business
information about the applicant and an affidavit affirming that the applicant will
comply with federal filing requirements, as well as state and federal laws regarding
video service. In addition, the applicant must describe the areas of the state in which
the applicant intends to provide video service, which the bill defines as the "video
franchise area," as well as the dates on which the applicant intends to begin
providing service in such areas.

At the time an applicant submits an application, the applicant must serve a
copy of the application on each municipality in the video franchise area. If such a
municipality has granted a cable franchise to a cable operator under current law, the
municipality must, not later than ten business days after receipt of the copy, notify
the applicant of the following: 1) the percentage of revenues that cable operators are
required to pay the municipality as franchise fees under current law; and 2) the
number of "PEG channels" for which cable operators are required by the
municipality to provide channel capacity. The bill defines "PEG channel" as a
channel designated for noncommercial public, educational, or governmental use.

No later than ten business days after receipt of an application, DFI must notify
the applicant as to whether the application is complete. No later than ten business
days after receipt of an application that DFI determines is complete, DFI must issue
a video service franchise to the applicant. If DFI fails to meet this deadline, the bill
provides that DFI is considered to have issued a video service franchise to the
applicant, unless the applicant withdraws the application or agrees with DFI for an
extension of time. The bill refers to a person to whom DFI issues, or is considered
to have issued, a video service franchise as a "video service provider."

Video service franchises. A video service franchise under the bill authorizes
a video service provider to occupy public rights-of-way and construct, operate,
maintain, and repair a video service network in the video franchise area. A video
service franchise does not expire, unless a video service provider gives 30 days'
advance notice to DFI that the video service provider intends to terminate the video
service franchise. A video service provider may transfer a video service franchise to
any successor-in-interest, including a successor-in-interest that arises through
merger, sale, assignment, restructuring, change of control, or any other transaction.
A video service provider and a transferee must notify DFI and affected
municipalities about the transfer, but the bill prohibits DFI and municipalities from
reviewing or approving the transfer.

Video service franchise fees. The bill requires a video service provider to pay
a fee on a quarterly calendar basis to each municipality in which the video service
provider provides video service. The bill refers to the fee as a "video service franchise
fee." The amount of the video service franchise fee is based on a percentage of the
video service service provider's "gross receipts," which is defined in the bill. If no

---

cable operator was required under current law to pay a franchise fee based on a
percentage of gross revenues to a municipality on the effective date of the bill, a video
service provider must pay a video service franchise fee to the municipality that is
equal to 5 percent of the video service provider's gross receipts, or a lesser percentage
specified by the municipality. If only one cable operator was required under current
law to pay a franchise fee based on a percentage of gross revenues to a municipality
on the effective date of the bill, a video service provider must pay a video service
franchise fee to the municipality that is equal to that percentage or 5 percent,
whichever is less. If more than one cable operator was required under current law
to pay a franchise fee based on a percentage of gross revenues to a municipality on
the effective date of the bill, a video service provider must pay a video service
franchise fee to the municipality that is equal to the lowest such percentage or 5
percent, whichever is less.

As noted above, no later than ten business days after a municipality is served
a copy of a video service provider's application for a video service franchise, the
municipality must notify the video service provider of the percentage of revenues
that cable operators are required to pay the municipality as franchise fees under
current law. If a municipality is not required to make such a notification, the video
service provider's duty to pay a video service franchise fee first applies to the quarter
in which the video service provider begins to provide video service in the
municipality. If the municipality is required to make such a notification, and makes
the notification before the deadline, the video service provider's duty first applies to
the quarter in which the video service provider begins to provide video service, or the
quarter that includes the 45th day after the video service provider receives the
notification, whichever is later. If the municipality fails to comply with the deadline,
a video service provider is not required to pay a video service provider fee until the
45th day after the end of the quarter in which the municipality ultimately provides
the notification, and no other video service provider or interim cable operator is
required to pay a video service provider fee or franchise fee until the same date.

The bill allows municipalities to review the business records of a video service
provider no more than once in any three-year period for the purpose of ensuring
proper and accurate payment of a video service provider fee. The bill prohibits a
video service provider or municipality from bringing an action in court regarding the
amount of a video service provider fee until the parties have completed good faith
settlement negotiations. In addition, an action regarding a dispute over such an
amount must be commenced within three years following the calendar quarter to
which the disputed amount relates, or is barred, unless the parties agree to an
extension of time.

PEG channels. The bill imposes limitations on the number of PEG channels
for which a municipality may require a video service provider to provide channel
capacity. If, immediately before the effective date of the bill, a municipality required
a cable operator to provide channel capacity for a specified number of PEG channels,
the municipality must require all video service providers and interim cable operators
to provide channel capacity for that specified number of PEG channels. If a
municipality did not require a cable operator to provide such channel capacity, then

---

the number of PEG channels for which a municipality may require channel capacity
depends on the population of the municipality. If the municipality's population is
50,000 or more, the municipality may require each video service provider and
interim cable operator to provide channel capacity for up to three PEG channels. If
the municipality's population is less than 50,000, the municipality may require each
video service provider and interim cable operator to provide channel capacity for up
to two PEG channels. If an interim cable operator or video service provider
distributes video programming to more than one municipality through a single
headend or video hub office, the bill requires the populations of the municipalities
to be aggregated for the purpose of applying the foregoing requirements.

The bill includes requirements for determining when the duty of a video service
provider to provide channel capacity for PEG channels first applies. As noted above,
no later than ten business days after a municipality is served a copy of a video service
provider's application for a video service franchise, the municipality must notify the
video service provider of the number of PEG channels for which cable operators are
required provide channel capacity. In general, the duty of a video service provider
begins on the date on which the video service provider begins to provide video service
in the municipality, or on the 90th day after the video service provider receives the
municipality's notice, whichever is later. However, if a municipality fails to comply
with the ten-business-day deadline, no video service provider or interim cable
operator is required to provide channel capacity for PEG channels until the 90th day
after the municipality ultimately provides the notice.

The bill also allows video service providers and interim cable operators to
reprogram channel capacity for PEG channels that is not substantially utilized, as
determined under the bill, by a municipality. Under certain circumstances, the bill
allows a municipality to require the restoration of channel capacity for PEG
channels.

The bill creates other requirements for PEG channels, including the following:
1) the bill prohibits municipalities from requiring video service providers and
interim cable operators from providing funds, services, programming, facilities, or
equipment related to public, educational, or governmental use of channel capacity;
2) the bill imposes specified duties on municipalities regarding the provision of
content and programming PEG channels; 3) the bill imposes limits on the amount
of transmission line that a video service provider or interim cable operator may be
required to provide for making a connection to the municipality's PEG channel
programming distribution point; and 4) the bill imposes requirements on video
service providers and interim cable operators regarding interconnection that is
necessary for transmitting PEG channel programming.

Discrimination and access. In general, the bill prohibits a video service
provider from denying access to video service to any group of potential residential
customers in a video franchise area because of the race or income of the residents in
the local area in which the group resides. The bill creates a defense against an
alleged violation of the prohibition regarding income for a video service provider if
either of the following are satisfied: 1) no later than three years after the video
service provider begins to provide video service, at least 25 percent of households

---

with access to the video service provider's video service are low-income households;
or 2) no later than five years after the video service provider begins to provide video
service, at least 30 percent of households with access to the video service provider's
video service are low-income households. The bill defines "low-income household"
as a household whose aggregate income is not more than $35,000, as identified by
the United States Census Bureau as of January 1, 2007. Under certain
circumstances, the bill allows DFI to grant a video service provider an extension of
the time limits specified in the defense.

The bill also imposes access requirements on certain video service providers
that use telecommunications facilities to provide video service. The access
requirements apply if a video service provider has more than 500,000 basic local
exchange access lines in the state. No later than three years after such a video
service provider begins to provide video service, the video service provider must
provide access to its video service to not less than 25 percent of the households within
the video service provider's basic local exchange area that is on file with the Public
Service Commission (PSC). In addition, no later than six years after such a video
service provider begins to provide video service, or no later than two years after at
least 30 percent of households with access to such a video service provider's video
service subscribe to the service for six consecutive months, whichever occurs later,
the video service provider must provide access to its video service to not less than 50
percent of the households within the video service provider's basic local exchange
area that is on file with the PSC. Such a video service provider must file annual
reports with DFI regarding progress in complying with the access requirements.
Under certain circumstances, the bill allows DFI to grant such a video service
provider an extension of the foregoing time limits or a waiver from the need to comply
with the foregoing requirements.

Customer service standards. Except as noted below, the bill allows a
municipality, upon 90 days' advance notice, to require a video service provider to
comply with certain customer service standards set forth in regulations promulgated
by the Federal Communications Commission (FCC). The bill prohibits DFI and
municipalities from imposing any additional or different customer service
standards. In addition, the bill provides that, except for customer service standards
promulgated by rule by the Department of Agriculture, Trade and Consumer
Protection (DATCP), a video service provider in a municipality may not be subject
to any customer service standards if at least one other person offers video or cable
service in the municipality, or if the video service provider is subject to effective
competition, as determined under FCC regulations. If one of the foregoing conditions
is satisfied, a municipality may not impose the FCC customer service standards
mentioned above.

Rate regulation. The bill prohibits DFI and municipalities from regulating
video or cable service rates of video service providers or interim cable operators that
provide service in a municipality if at least one other unaffiliated video service
provider or interim cable operator serves the municipality.

Municipal authority. The bill provides that, for purposes of federal law, the
state is the exclusive franchising authority for video service providers in this state.

---

In addition, the bill prohibits municipalities from requiring a video service provider
to obtain a franchise to provide video service or imposing on video service providers
any fee or requirement relating to the construction of a video service network or the
provision of video service, except as otherwise authorized under the bill. Also, the
bill provides that, if a video service provider pays video service provider fees to a
municipality as required under the bill, the municipality may not require the video
service provider to pay any compensation allowed under current law for obstructions
or excavations, or pay any permit fee, encroachment fee, degradation fee, or any
other fee, for the occupation of or work within public rights-of-way.

Rule making and enforcement. The bill prohibits DFI from promulgating
any rules interpreting the bill's provisions, or establishing procedures for the bill's
requirements. The bill allows a municipality, video service provider, or interim cable
operator that is affected by a failure to comply with the bill to bring an action in court
to enforce the bill. (Court actions regarding disputes over video service provider fees
are subject to additional requirements discussed above.) In addition, the bill allows
the Department of Justice to bring an action to enforce the bill.

Other provisions. The bill also does all of the following:

1. The bill allows certain persons to provide video service before they are issued
a video service franchise. The persons who are allowed to do so are persons, other
than cable operators, who provide video service and who apply to DFI for a video
service franchise no later than approximately one month after the bill's effective
date.

2. The bill requires a video service provider to give at least ten days advance
notice to a municipality before providing video service in the municipality.

3. The bill requires a video service provider to notify DFI about any changes
in the information included in an application for a video service franchise, including
any expansions of a video franchise area.

4. The bill prohibits state agencies and municipalities from requiring video
service providers and interim cable operators to provide institutional networks or
equivalent capacity. The bill defines "institutional network" as a network that
connects governmental, educational, and community institutions.

5. The bill repeals requirements enforced by DATCP and district attorneys
regarding cable television subscriber rights regarding service interruptions and
disconnections, repairs, program service deletions, and rate increases.

6. The bill repeals a prohibition under current law on the provision of
electronically published news, feature and entertainment material, and electronic
advertising service by certain telecommunications utilities.

7. The bill changes other requirements under current law that apply or refer to
cable television or cable operators so that they also apply or refer to video service or
video service providers. Such requirements include the following: 1) requirements
applicable to access to cable service in multiunit dwellings, mobile home parks, and
condominiums; 2) requirements applicable to a municipality's construction,
ownership, or operation of facilities for providing cable service, telecommunications
service, or broadband service; 3) exemptions related to the telephone company tax
and the personal property tax; 4) the sales and use tax on the sale of cable television

---

system services; 5) certain requirements enforced by the PSC regarding extensions
by utilities and cable operators over the rights-of-way of other utilities and cable
operators; and 6) theft of cable service.