ARTICLES

IPTV PRIMER: What is IPTV and is it Regulated as a Traditional Cable Service?

All Internet Protocol Television ("IPTV") is digitally delivered. But not all digital TV is Internet Protocol ("IP"). IPTV's interactivity makes its regulation and its potential as a premier telecommunications and entertainment service far different.

What exactly is IPTV? Is IPTV just traditional cable television service delivered over the Internet, or is it something more? What is the difference between IPTV and "digital" cable service? Is IPTV a regulated telecommunications service or not? How does IPTV's unique attributes benefit telecommunications services providers, entertainment and programming content providers and consumers?

This article defines IPTV, compares it to traditional cable television services, and concludes that it should not be regulated as traditional cable service. The lack of regulation reduces IPTV's cost. Non-regulation also creates an opportunity for telecommunications and program and entertainment service providers outside the traditional cable industry to deliver video services to consumers. Many such companies are already operating. Others are considering expansion into video services. The latest TV receivers can access these providers and traditional cable companies interchangeably, with little extra effort on the part of consumers — if the bandwidth supplied to consumers is great enough.

This article also describes some of the applications of IPTV, and suggests that telecommunications and program and entertainment service providers are quickly embracing it.

What Is IPTV?

The concept is simple. IPTV is the process of delivering video signals over a data network, as data. If the video signal is in an analog form (as is traditional television signals), the video signals and audio signals associated with the video signals are first converted to a digital form before they are transmitted. Typically, routing equipment then adds packet routing information to the digital content so that it can be routed through the Internet to consumers.

Thus, instead of receiving video or television signals broadcast over radio waves or coaxial cable, a consumer's television is connected directly to a broadband Internet router and receives the digitized video or television signal, including the audio, directly over the Internet. An IPTV system requires the following key components:

  • A device or adapter that converts video and audio signals into a form that enables consumers to watch such signals on their television set. This device bridges a consumer's computer with television. There are a multitude of such devices available through IPTV providers, and some TV receivers have such capabilities built-in.
  • A broadband access provider, which transmits high-speed data to end users by means of a broadband connection. Broadband access providers include local exchange telephone companies, Internet access providers, cable television companies, infrastructure providers, and wireless service providers.
  • An IPTV provider, connecting a subscriber's home computer to the Internet through a bridging device and providing software to operate the IPTV system. The system keeps track of which customers are active and viewing IPTV, and which features and services are authorized. When a customer requests a specific television channel or program to be viewed, the IPTV service provider's equipment sends messages to a media gateway via the Internet, allowing the requested content to be connected to a selected media gateway source. There are a number of IPTV providers in the marketplace. A broadband access provider and an IPTV provider can be the same entity.
  • Program and content providers, including entities that offer movies, sports channels, news services, and other sources of programming. There is an abundance of content in the video marketplace that can be delivered to subscribers over an IPTV system. Consumers could also become content providers of "broadcast quality" video; thousands are already posting to YouTube and similar on-line services.

IPTV can be delivered over a fiber to the home ("FTTH") network, a fiber to the curb ("FTTC") network, or enhanced traditional copper wire. IPTV allows a consumer to obtain video programming whenever the subscriber decides to view it. Put simply, IPTV is not just a distribution or playback method for video programming. It can and does serve to eliminate a fixed video programming schedule, and provide a multitude of program offerings similar to how information on the Internet can be accessed by any person at any time.

What Is Cable Television Service and a Cable Television System?

Cable television service and IPTV are confusing concepts. This confusion causes a misunderstanding as to each. Moreover, legislation has not kept up with the technology of delivering video programming to consumers. When that happens, confusion carries through the courts and administrative regulatory systems, which attempt to make policy work but only in one case at a time.

The Federal Communications Commission ("FCC") defines traditional a cable television system as a facility, consisting of a set of closed transmission paths and associated signaling generation, reception and control equipment that is designed to provide "cable service".1 Cable service means a one-way transmission to subscribers of video programming or other programming service, and subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service.2 The key characteristic of cable service is one-way transmission.

What Are the Differences Between IPTV and Cable Service?

First and foremost, an IPTV system employs a two-way interactive network, as opposed to a one-way transmission system. IPTV is an Internet service, even when it looks exactly the same as other TV programming. A subscriber to an IPTV service uses a set-top box to request specific individual video signals from the IPTV service provider. Thus, the subscriber controls the video signals he or she wishes to access.

The two-way interactive network differs significantly in functionality from the one-way transmission network of a cable television system. A one-way network transmits a complete set of video channels to a subscriber's set-top box all at the same time. In a one-way system, a subscriber receives video signals on a fixed schedule, except for Video on Demand ("VOD"). In contrast, in an IPTV system, a subscriber can obtain video programming whenever he or she decides to view it.

As stated above, the only apparent exception to a cable system's one-way functionality is when a cable television system provider offers VOD. VOD allows a subscriber to view a video program when the subscriber decides to view it. The FCC has essentially ruled, however, that, in a VOD offering, the cable provider is still in control of the programming.3

In any event, most programs delivered by cable systems are not on demand, but are transmitted based upon the fixed schedule of a television cable network or program source. The cable network or program source is the content provider. The television networks (as well as other cable program content providers), that provide content, generally set their programming at specific times for delivery by a cable system.

Moreover, in a cable system, the cable operator is in control of selecting and distributing programming content to subscribers, and the content is usually available to all subscribers at the same time. As stated above, in an IPTV system, the subscriber has complete control of the selection of the programming which he or she intends to view.

This point brings us to the second differentiator. IPTV systems offer a greater choice of programming content than subscribers to a cable system can ever hope to receive. Thus, an IPTV system can offer hundreds of channels of programming, all on demand, because of the IPTV system's use of digital bandwidth. The number of channels an IPTV system can offer is limited only by the amount of bandwidth that a subscriber has available through the subscriber's broadband access provider.

Third, an IPTV system uses a packet-switched Internet Protocol ("IP") network rather than a broadcast network. In an IPTV system, all of the video programming is held in a central location, and only the programming that the subscriber chooses is actually delivered. Moreover, because an IPTV system allows for more bandwidth per program "channel," a subscriber will likely receive better-quality video signals. The IPTV provider also has the ability to add much more programming or data choices than can a cable system provider which is not using IPTV.

Fourth, IPTV allows every subscriber's television set, desk-top or laptop personal computer ("PC"), music player or other portable device to be connected to the Internet, all together and all at the same time. Doing that with a PC-centric system such as a Windows Media tuner-equipped PC connected to a cable box is cumbersome. Thus, IPTV subscribers can more easily use their television to play media files that are stored on their PCs. Such files may include digital photos, videos, or music.

Fifth, IPTV can generally produce better video images than conventional analog or even digital TV (all satellite TV signals are digital, although they may not be delivered to individual dwelling units in digital form) because of the compression techniques IPTV employs. These techniques, most commonly MPEG4, are better than the current television standard. Thus, file sizes sent to a subscriber's television set over an IPTV system can be smaller in size, with a higher quality picture image.

Sixth, IPTV allows for integration of a variety of telecommunications services. Thus, IPTV can be easily bundled with a high-speed broadband Internet data service, as well as Voice over Internet Protocol ("VoIP") telephone service.

Ideally, bandwidth allows for all these bundled services delivered using FTTH or at least FTTC. As an interim measure, some providers, such as incumbent local exchange carriers ("ILECs"), are using variants of Digital Subscriber Lines ("DSLs"), which employ fiber to within a few thousand feet of a subscriber's household, and copper wire to travel the final leg between the fiber and the homeowner. This technology has come to be known as "FTTN" which stands for fiber to the node. This term covers a wide range of capabilities, however, ranging from speeds of 1.5 Mbps to about 30 Mbps. Cable providers are also bundling cable, Internet and VoIP services over their cable networks as well, using versions of Data over Cable Service Interface Specification ("DOCSIS") higher than 2.0, such as Version 3.0 that was released in the summer of 2006. DOCSIS is an international standard developed by Cable Television Laboratories, Inc. ("CableLabs"), with assistance from a number of a number of equipment suppliers from the cable television industry, that defines the communications and operations support interface requirements for data over cable system. DOCSIS permits the addition of high speed data transfer to an existing cable television system. This standard is employed by cable television systems to provide Internet access over their existing Hybrid Fiber Coaxial ("HFC") infrastructure.

Finally, IPTV allows for a higher level of alarm and security services, particularly video surveillance for commercial buildings receiving IPTV integrated with other telecommunications services.

What if IPTV is Delivered by a Telephone Company?

If IPTV is delivered by an ILEC, there are other significant differences between IPTV and a cable system. The first distinguishing factor is that a telephone company's IPTV network is generally based on the architecture of its telephone network. This network does not necessarily conform to municipal boundaries. In contrast, a cable system has specific boundaries that are usually set forth in its franchise granted by a local franchising authority. Thus, the network of a telephone company providing local exchange service can be, and likely is, larger than a cable franchise service area, often covering a metropolitan region or an even larger geographical territory.

An example would be Qwest Communication Corporation's local exchange service to the Denver, Colorado metropolitan area which extends to five counties that surround the City and County of Denver.

Additionally, if an ILEC provides IPTV, it is probably delivered over facilities that are already authorized to be located in public or private rights-of-way. In most cases, ILECs have previously been granted use of such rights-of-way for placement of telephone facilities and equipment including an upgrade to fiber, that will be used, in part, to deliver IPTV.

Assuming a ILEC's rights-of-way are not restricted to use for telephone local exchange and long distance service, and assuming the ILEC is not required to get a franchise to provide IPTV, a question which this article addresses below, the ILEC would incur no additional franchise fees for its continued use of such rights-of-way to deliver IPTV. In contrast, a cable television provider must pay a franchise fee of up to five percent (5%) of its cable revenues when delivering cable video service pursuant to its local franchise.4 These fees are significantly higher than those a ILEC will pay for the use of public rights-of-way.

Is IPTV Subject to the Same Regulation as Traditional Cable Services?

Video services delivered solely by IP present the question of whether IPTV should be subject to the same regulation as traditional cable television services. This question is the subject of at least two lawsuits filed by municipal governments, seeking to enforce franchising requirements on providers of IPTV. IPTV has also been the subject of debate in Congress, which has considered, and may consider in the future, legislation that will affect traditional video services.

The Richmond, Virginia Case
On December 6, 2006, the City of Richmond, Virginia ("Richmond"), filed a complaint against Cavalier Telephone, LLC, et al. ("Cavalier"), in the Circuit Court for the City of Richmond, alleging that Cavalier was providing cable television services within the city, but had not obtained a franchise to provide such service.5

Case Chronology
The events that prompted Richmond's complaint against Cavalier began in May 2006, when Cavalier informed Richmond of its intent to provide "IPTV services" within Richmond within 30 days. In June, Richmond acknowledged receipt of Cavalier's letter, and informed Cavalier that, in the absence of a negotiated cable franchise agreement, Richmond could not consent to Cavalier's provision of IPTV as it would violate federal law.

That October, Richmond learned that city residents were using Cavalier as their IPTV provider. Later that month Richmond's mayor advised the President and CEO of Cavalier that Richmond had become aware that Cavalier was providing what the City described as "cable television services" to city residents and noted the Richmond's June communication to Cavalier advising it that Cavalier's provision of cable services absent a franchise agreement was illegal. Also, Richmond's mayor advised Cavalier that Richmond expected Cavalier would immediately cease its unauthorized activities.

Cavalier continued to provide what Richmond described as "cable television services" to at least 1000 residences in Richmond. Cavalier, however, did inform Richmond on several occasions that Cavalier was collecting and holding in escrow franchise fees and taxes related to the provision of video services in Richmond since June 2006. Additionally, in mid-November 2006, Cavalier informed Richmond that Cavalier was holding franchise fees and related taxes owed to the Richmond in escrow. Richmond responded that it never authorized Cavalier to withhold any funds in escrow from any source at any time. Instead, Richmond gave Cavalier until late November 2006 to pay all such fees. When that date passed without Cavalier's payment, Richmond requested remittance of the required fees, taxes, penalties and interest by letter to Cavalier.

In early December 2006, Cavalier paid the City $2,457.23 to cover the second and third quarters of 2006 franchise fees, and $5,507.26 for the City's cable utility tax for June 2006 through October 2006. Richmond maintained that the payment of these taxes and fees was required by Richmond's Code, and that it was difficult if not impossible for Richmond to discern from Cavalier's payments whether any amounts paid to Richmond were based on the correct criteria. Richmond claimed Cavalier was violating the law by failing to pay all of the required taxes, fees, penalties and interest.

Additionally, Richmond requested that Cavalier provide information about its customers, customer payments for cable television services, gross revenues from the provision of cable television services, and an accounting of taxes, fees, penalties and interest. Richmond also requested that Cavalier provide a description of or map of the area in Richmond where Cavalier provided cable television services. Cavalier did not provide the requested information.

Accordingly, Richmond sued in the Richmond Circuit Court described above. In the court papers, Richmond contended that Cavalier was providing "cable television services," while Cavalier claimed that it was providing "IPTV services". Furthermore, Cavalier maintained it was making payments to Richmond in good faith while Richmond and Cavalier resolved their disagreement over franchise issues.

Cavalier removed the case to the federal District Court for the Eastern District of Virginia and then filed a motion to dismiss the complaint on grounds that Cavalier was not providing "cable service" as it is defined under the Cable Policy Act. Alternatively, Cavalier requested the court to refer the case to the FCC for a decision on the ground of primary jurisdiction. The court granted Cavalier's request to refer, and sent the case to the FCC for a determination. The FCC has not yet acted on the Court's referral.

The Milwaukee, Wisconsin Case
On December 20, 2006, the City of Milwaukee ("Milwaukee") sued Wisconsin Bell, Inc., d/b/a AT&T Wisconsin and AT&T Teleholdings, Inc. ("AT&T"), alleging that, among other things, AT&T was providing video programming services without a Milwaukee franchise. AT&T has contended in the past that it is providing IPTV service, and not cable service. AT&T filed a motion to dismiss this complaint. Milwaukee and AT&T have reached a tentative agreements that permit AT&T to provide IPTV in Milwaukee, although the ultimate legal question of whether AT&T needs a franchise to do so has not yet been resolved. The federal district judge stayed the case, cancelled all previously scheduled procedural matters, and ordered a status conference to be held on May 25, 2007. In the meantime, the City of Waukesha, Wisconsin and the Regional Telecommunications Commission filed motions to intervene. The Milwaukee case is still pending before the FCC.

Case Chronology
The circumstances that gave rise to the Milwaukee case are similar to those that spawned the one in Richmond. In September 2005, AT&T filed with Milwaukee a request for a zoning variance in order to construct a 140 foot tower on a 26-foot-square concrete pad to hold eight antennas to capture over-the-air television signals on private property.

In connection with the request, AT&T stated that the local TV signals would be fed into video processing equipment in AT&T's building, where they would be combined with video feeds coming in over AT&T's fiber network. The combined video would then be disseminated back over AT&T's network to the community. Milwaukee granted AT&T's request for a zoning variance in early February 2006, subject to various conditions including the following:

  • AT&T must obtain all permits, licenses, franchise and permissions required under federal, state or local law prior to AT&T's commencement of the use of the tower to provide any video programming or other programming services as those terms are defined in Section 522 of the Communications Act, to subscribers in Milwaukee;
  • AT&T not will use the tower as part of the network occupying Milwaukee public right-of-way for the provision to subscribers in Milwaukee of video programming or other programming services as those services are defined in Section 522 of the Communications Act, unless AT&T provides Milwaukee 30 days prior written notice; and
  • The approval of the zoning variance shall not constitute nor be construed as a grant of any permit, franchise, license or any other permission otherwise required under federal, state or local law.

In 2006, AT&T began submitting applications to Milwaukee for permits to excavate for installation of underground cable and cabinets. AT&T advised Milwaukee that the underground cable and cabinets were necessary for the upgrade of its telecommunication services.

When Milwaukee questioned AT&T about the size of the cabinets, AT&T informed Milwaukee that the cabinets were necessary for the provision of telecommunication services. AT&T made no mention that the cabinets were to be used for the provision of video services. Subsequently, AT&T represented to Milwaukee that the cabinets were to be installed for the provision of telecommunication services and video service.

By December 2006, Milwaukee had granted AT&T 52 permits authorizing AT&T to install the cabinets in public rights-of-way conditioned upon AT&T obtaining all permits, licenses, franchise and permissions required under federal, state and local law prior to AT&T's use of the tower to provide any video or other programming services, as those terms are defined under Section 522 of the Communications Act, 47 U.S.C. § 522. Moreover, the permits were conditioned upon AT&T's commitment that it would not use the facilities as part of a network occupying Milwaukee's public right-of-way to deliver that video or other programming, unless AT&T provided Milwaukee 30 days prior written notice. Finally, the permits were conditioned upon the disclaimer that the permits would not constitute nor be construed as a grant of any permit, franchise, license or permission otherwise required under federal, state or local law. Milwaukee contended that AT&T's placement of the fiber and the cabinets in Milwaukee's rights-of-way were necessary for AT&T to provide telecommunication services, rather than for purposes of providing AT&T's U-verse TV service. AT&T began offering U-verse to subscribers in Milwaukee on December 16, 2006, asserting that AT&T was not an operator of a cable system, would not be operating a cable system, would not be offering cable service, and therefore was not subject to Milwaukee's cable franchising requirements.

AT&T did not apply to Milwaukee for a cable franchise, and informed Milwaukee that it would not do so unless a court issues a final ruling that AT&T is required to. As a consequence of these developments, Milwaukee filed its complaint in the U.S. District for the Eastern District of Wisconsin.

AT&T filed a motion to dismiss Milwaukee's complaint arguing that AT&T is providing "IPTV service" and not "cable service." The court stayed the case because Milwaukee and AT&T reached a tentative agreement that allows AT&T to provide IPTV service in Milwaukee although the ultimate legal question of whether AT&T requires a franchise from Milwaukee before operating its IPTV service in Milwaukee was not been decided. AT&T and Milwaukee ended up settling this dispute. Thus, the legal questions about IPTV that this case presented were not answered.

The AT&T California-Walnut Creek Case — Whether IPTV is Cable Service Was Not Fully Addressed

Milwaukee's complaint against AT&T is similar to legal action that Pacific Bell Telephone, d/b/a AT&T California, initiated against the City of Walnut Creek ("Walnut Creek") in late 2005, seeking a declaratory judgment that, among other things, AT&T's planned video programming in Walnut Creek did not constitute cable service, and therefore, did not require a franchise. AT&T argued that a cable operator providing cable service over a cable system controls a cable system, whereas AT&T's planned video service did not fit this requirement. AT&T also contended that the definition of the cable system includes the facilities of a common carrier only to the extent such facility is used in the transmission of video programming directed to subscribers, unless the extent of such use is solely to provide interactive, on demand services. AT&T argued that its programming would provide such interactive services.

The court ruled that it did not need to resolve this dispute, because the issue of whether AT&T's video programming was, in fact, a two-way interactive service was a matter for an evidentiary hearing, and further, the Cable Act did not preclude local governments from imposing franchise requirements on providers of video programming where such regulation is not expressly forbidden by the Cable Act. Therefore, the court refused to dismiss the case as the Walnut Creek requested.

Subsequently in 2006, the California legislature passed a statewide franchising law that grants authority to the California Public Utilities Commission to grant statewide franchises for video programming. Because this law transfers the authority to grant franchises from local authorities to the California Public Utilities Commission, it superseded the court's decision in the AT&T v. City of Walnut Creek case.

The FCC's decision in the Richmond case should initially decide the question of whether IPTV is a cable service requiring a franchise. Whatever the FCC's decision, an appeal of its decision will likely ensue to one of the U.S. Courts of Appeal, and possibly to the U.S. Supreme Court. It is probable that a federal court decision on this issue will not be forthcoming for some time.

Legislation
In June 2006, the U.S. House of Representatives passed the Communications Opportunity Promotion and Enhancement Act of 2006, H.R. 5252. That bill, if enacted into law, would have created a new national franchising process for entities intending to provide video programming, and for cable television providers subject to competition in their franchise areas. This Act would have allowed a franchising authority to impose franchise fees of up to five percent of a cable system provider's gross revenue, and would require national franchise holders to pay additional fees for public, educational, and governmental access to cable systems. In the United States Senate, in September, 2006, the Senate Commerce Committee marked up a companion bill, but did not vote on it. In legislative revisions in 2007 and 2008, Congress did not give further consideration to this issue. Congress may address this issue again in 2009.

What the FCC and the Courts Have Ruled on IPTV

FCC and U.S. Supreme Court rulings addressing the classification of certain cable services have already concluded that high-speed Internet access by cable is not "cable services," even though they are provided over the same cable system as video signals. These decisions are highly instructive on the answer to the question of whether IPTV should be regulated as cable service.

In March, 2002, the FCC issued its Cable Modem Declaratory Ruling8 concerning the appropriate regulatory treatment for broadband access to the Internet over cable facilities. In this decision, the FCC declared that cable modem service in which cable providers offer broadband or Internet access, is an interstate information service, not a cable service, and that there is no separate offering of telecommunications service when the cable operator offers cable modem service.

The FCC's Cable Modem Order resulted in cable modem service not being subject to regulation under the Cable Policy Act. In Nat'l Cable Television Ass'n v. Brand X Internet Service ("Brand X"), the U.S. Supreme Court upheld the FCC's Cable Modem Order.9

In Brand X, the Supreme Court held that the FCC had lawfully concluded that cable companies selling broadband Internet services do not provide telecommunications service as that term is defined under the Communications Act, and that such services are exempt from mandatory, common carrier regulation under Title II of the Communications Act.

The Supreme Court further held that the FCC had properly concluded that the Internet access offered by a cable system using a cable modem is an interstate information service, because it provides the capability for manipulating or storing information. The Supreme Court also affirmed the FCC's determination that, when offering cable modem service, a cable system provider lacks the required control over the selection of information by the user, and that the element of control of the information lies with the cable modem subscriber.

As pointed out above, IPTV is a two-way interactive service that is controlled by the subscriber. Thus, for the reasons given by the FCC in its Cable Modem Declaratory Ruling and the Supreme Court in Brand X, and due to the differences described above between traditional cable service and IPTV, particularly IPTV's two-way interactive features, one can conclude that IPTV is not a "cable service" within the meaning of the Cable Act, and therefore, is not subject to cable franchising requirements under that Act. There is a recent lower federal court decision in Connecticut, however, that reached a contrary conclusion.

The Connecticut Case
In this case, the Connecticut Department of Utility Control ("DPUC") issued a decision on June 7, 2006 concluding that AT&T's offering of IP video service through its "U-Verse" service is not a cable service within the meaning of the Cable Act, and therefore was not subject to state cable franchising requirements. The DPUC found that AT&T's IPTV services were merely another form of data stream transmitted like other data over the Internet, and is not subject to traditional cable franchising requirements. In its decision, the DPUC stressed the significance of the subscriber's interactivity in IP video, the particularized nature of each subscriber's IP video service, and the similarities between IP video service and information services, including data and voice services that use IP technology over telephone networks.

The Connecticut Cable TV Association and others appealed this decision to the U.S. District Court for the District of Connecticut. This federal district court delivered an opinion on July 26, 2007, granting summary judgment in favor of appellants and against the DPUC, and against Southern New England Telephone Company doing business as AT&T Connecticut, Inc. ("AT&T") by holding that the AT&T's "U-Verse" service, constitutes a "cable service" being offered over a "cable system" by a "cable operator", as those terms are defined in the federal Cable Act. 47 U.S.C. § 522(b)(6) and (7), et. seq.

In its opinion, the federal district court held that the DPUC's conclusions were contrary to these federally-defined terms and the DUPC's determination that AT&T need not comply with the franchising requirements set forth in Section 541 of the Communications Act of 1934, as amended, 47 U.S.C. § 541, and the regulations promulgated by the FCC thereunder were preempted by federal law.

On October 2, 2007, the court also denied AT&T's Motion for Reconsideration of the Court's July 26, 2007 decision. As discussed below, shortly after the court issued its decision, AT&T requested the Court to determine its decision as moot, in light of a new Connecticut statute that allowed AT&T to obtain a statewide cable franchise.

This federal court decision is the first federal court opinion that concluded AT&T's "U-Verse" service constitutes a "cable service" being offered over a "cable system" by a "cable operator", as those terms are defined in the federal Cable Act. See, 47 U.S.C. §§ 522(6), 522(7) and 522(5).

A review of the DPUC's June 7, 2006 decision will be helpful in understanding the federal district court's opinion. The DPUC specifically found that, since AT&T's U-Verse service was not a cable service being offered over a cable system by a cable operator, AT&T was not subject to franchising and other regulatory requirements promulgated by state regulatory authorities pursuant to the federal Cable Act. The DPUC also specifically determined that AT&T's U-Verse service, which utilizes Internet Protocol ("IP"), is fundamentally a two-way service in nature, and as such, did not meet the federal or state definition of cable service despite the apparent similarities and images that may appear on end user's screens. The DPUC observed that the FCC considered the phrase "one-way transmission" described in the Cable Act to reflect the traditional view of cable primarily as a medium of mass communication, with the same package or packages of video programming transmitted from the cable operator and available to all subscribers. Further, the DPUC's decision recognized that modern cable systems may offer some two-way video capabilities; that is, VOD, but stated that these capabilities are limited when compared to AT&T's IPTV service. Additionally, in AT&T's IPTV service, two-way capability and interaction is ever present, always requiring a dynamic interaction between the customer and the network. In AT&T's IPTV service, the two-way interactions occurs between each customer set-top box and AT&T's servers. The DPUC found that AT&T's network is unique in comparison to cable operators, such that it entails a switched two-way client server IP-based architecture designed to send subscribers only the programming the subscriber chooses, and entails a high level of subscriber interaction so that the subscriber will be able to tailor and integrate several different offerings over the network. The DPUC's decision described the constant communications between AT&T's servers and consumers as "processing information and interacting through its subscriber set-top boxes to insure they are authorized to receive the programming" AT&T offered in its U-Verse service. Thus, the DPUC held that AT&T's IPTV service was merely another form of information transmitted like any other data over the Internet, and accordingly, was not subject to legacy franchising requirements. The NECTA court analyzed the statutory definitions of cable service definition in Section in 522(6) of the Communications Act, 47 U.S.C. § 522(6), and the legislative history of the 1984 Cable Act as amended by Congress in 1992, and in 1996. The court held that the statutory language in Section 522 requires the conclusion that AT&T's video programming service constitutes a "cable service" as defined by that section of the Act. The definition of "cable service" in Section 522 requires the "one-way transmission to subscribers of video programming or other programming service and subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service". In the case of AT&T's IPTV service, the court noted that AT&T had acknowledged that the flow of its video programming will be one-way, downstream from its network to subscribers, and that video programming will not be transmitted upstream from the customer's premises. The court observed that the way AT&T's technology worked, involving two-way transmission of data/signals between the subscriber set-top boxes and the network, is not excluded by the statutory definition of cable service in Section 522(6) that references only one-way transmission to subscribers of video programming. Thus, the court also found that although an AT&T subscriber's set-top box would be engaged in signaling back and forth with AT&T network to retrieve programming content and engage in error correction, the subscriber will do no more than "turn the box on or off", and "select channels or pay-per-view/VOD programming", just as a subscriber would in traditional cable television service. The court stated that this level of required subscriber interaction did not enable a particular subscriber to engage in off-premises creation and retrieval of a category of information.

The court also found unpersuasive AT&T's reliance on the FCC's Cable Modem Declaratory Ruling, which held that high speed access to the Internet over cable and other facilities did not constitute a cable service under the Cable Act, and was thus an information service. As a result, the court determined that AT&T's U-Verse service still fell within the scope of a medium of mass communication, with the same package or packages of video programming transmitted from the cable operator and available to all subscribers. According to the court, AT&T's video programming, both prescheduled broadcast programming and video on demand, is generally available to all subscribers within a particular tier of service, and the fact that the programming is not transmitted to a particular subscriber from the network until that subscriber tunes to that channel or selects that particular VOD program did not change this fact. Therefore, the court determined that the interactivity is not of the high degree contemplated by the FCC's Cable Modem Declaratory Ruling for exempting a service from the definition of cable service in Section 522(6) of the Act as it requires no more interactivity on the part of subscribers then is involved in traditional cable service. Significantly, the court found that the Cable Act did not specify that all available programming must be delivered to all subscribers at all times in order to constitute a cable service. Instead, the court determined that the legislative history of the Act shows that programming simply must be made generally available to all subscribers, and must be limited to a specific number of options or categories delineated and created by the cable operator or programming service provider. Thus, the court concluded that AT&T's U-Verse service fit these requirements.

The court also rejected AT&T's argument that U-Verse service constituted an information service, and not a cable service. In rejecting this argument, the court found that AT&T's U-Verse service provides packet of video programming content from AT&T's network to subscribers set-top boxes, and that AT&T transmits the video programming one-way from its network to set-top boxes on the subscribers' premises, and did not facilitate a two-way exchange of information, content or ideas over the public Internet.

After finding that AT&T's video programming service constituted a "cable service" under Section 522(6) of the Act, the court considered whether the service was being provided by a "cable operator" or a "cable network", such that AT&T would be subject to franchising and other regulatory requirements applicable to cable operators in Connecticut. In concluding that AT&T's programming service was being provided by a "cable operator" over "cable network", the court analyzed the definition of "cable system" and "cable operator" as those terms are defined in the Act, and found that AT&T's network was a cable system, that AT&T was a cable operator because AT&T's network was used in the transmission of video programming directly to subscribers, and that AT&T's use is not solely to provide interactive on demand services, an exception to the definition of cable system under the Act. Therefore, the court ultimately concluded that AT&T was providing a cable service, over a cable system, and was a cable operator.

After the court issued its October 2007 decision and judgment, AT&T filed a motion to amend the decision, claiming that the DPUC's June 7, 2006 order was superseded by new legislation passed by the Connecticut Legislature on October 1, 2007, which rendered the court case moot. Specifically, AT&T contended that the Connecticut Video Franchising Act (the "Connecticut Act") created a new comprehensive regulatory framework governing video franchising in Connecticut, that enabled AT&T to obtain franchises to provide video service to competition within incumbent cable providers. Under the new Connecticut Act, AT&T applied for a certificate of video franchise authority which the DPUC granted on an interim basis pending its review of AT&T's complete application. Subsequently, the DPUC granted AT&T a state-wide video franchise. The Connecticut Act also gives the DPUC authority to revoke a certificate of franchise authority if the certified competitive video service provider is found, after a departmental hearing with notice to all interested parties, to be in substantial non-compliance with the requirements of law or DPUC orders, including federal law.

The court rejected AT&T's motion, basing its decision on the language in the DPUC's June 7, 2006 decision. As noted above, the DPUC's decision specifically stated that an examination of the definition of "cable service" in Section 522(6) of the Act was needed to determine whether AT&T's "U-Verse" service met the regulatory classification of cable service. Although the DPUC's analysis of this definition concluded that AT&T's "U-Verse" service was in the public interest and was not a cable service subject to traditional cable regulation, the DPUC recognized that the FCC must also be given the opportunity to decide the question of its own jurisdiction, including the issue of whether AT&T's "U-Verse" service requires a cable franchise under Section 541 of the Communications Act. The DPUC's decision also noted that the FCC had not produced any final rules or decisions that had determined AT&T's "U-Verse" was not a cable service, and therefore, AT&T would still be subject to various cable service regulations beyond franchising under federal law, such as requirements related to political broadcasting, advertising directed to children, parental controls, close-captioning and subscriber pricing.

Based on these DPUC pronouncements in its June 7, 2006 decision, the court ruled that these federal issues remain outstanding under the new Connecticut Act, which specifically requires AT&T to comply with relevant federal statutes and regulations, and the new Connecticut Act did not render the Court's decision moot.

The FCC has not Decided Whether IPTV is a Cable Service.

The question of whether IPTV service is cable service is still pending before the FCC in its IP Enabled Services10 docket, and on a referral from the U.S. District Court for the Eastern District of Connecticut in Cavalier Telephone, LLC, et al., v. The City of Richmond. As noted above, the FCC had an opportunity to address this issue recently in its Video Franchising Order, released March 5, 2007.11 In this Order, the FCC exempted "mixed-use" video systems from the franchising process under the Cable Act. The FCC did not, however, define the term "mixed-use", but gave some examples to clarify when its new rules applied. Thus, the FCC stated that the jurisdiction of a local franchising authority ("LFA") only applied to the provision of "cable services" over "cable systems.12

The FCC also decided that, to the extent a cable operator provides non-cable services or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on the issues related to such services or facilities. For example, the FCC would find it unreasonable for an LFA to refuse to grant a cable franchise to an applicant for resisting an LFA's demands for regulatory control over non-cable services or facilities. Likewise, the FCC ruled that an LFA has no authority to insist on an entity obtaining a separate cable franchise in order to upgrade non-cable facilities.

Thus, assuming an entity such as local telephone exchange carrier already has authority to access public rights-of-way, under this Order, an LFA may not require the local exchange carrier to obtain a franchise solely for the purpose of upgrading its network. If there is a non-cable purpose associated with the network upgrade, a local exchange carrier is not required to obtain a franchise until and unless it proposes to offer cable services. If a local exchange carrier deploys fiber optic cable that can be used for cable and non-cable services, this deployment alone does not trigger the obligation to obtain the cable franchise. The same is true for boxes housing infrastructure to be used for cable and non-cable services.

Furthermore, the FCC clarified that an LFA may not use its video franchising authority to attempt to regulate a local exchange carrier's entire network beyond the provision of cable services. The entirety of a telecommunication/data network does not automatically convert the network to a cable system once subscribers start receiving video programming.

The FCC found that the offering of video services pursuant to a cable franchise does not provide a basis for customer service regulation by local law or franchise agreement of a cable operator' entire network, or any services beyond cable services. The FCC ruled that local regulations that seek to regulate any non-cable services offered by video providers are preempted because such regulation is beyond the scope of local franchising authorities and is not consistent with the definition of cable system in the Cable Policy Act, as set forth above. Moreover, revenues for non-cable services are not included in the basic calculation of franchise fees.

The FCC's March 5 Order also addressed the LFA's authority to regulate "interactive on-demand services." The FCC held that a facility of a common carrier that is used solely to provide interactive on-demand services is excluded from the definition of a cable system under the Cable Policy Act. Interactive, on-demand services are defined as "services providing video programming to subscribers over switched networks on an on-demand point-to-point basis but does not include services provided by video programming prescheduled by the programming provider.

Unfortunately, the FCC did not address what particular services may fall within the definition of "interactive on-demand services", and did not address the regulatory classification of any particular video services being offered. The FCC also specifically did not address whether video services provided over an IPTV system are or are not cable services.

That issue is still being considered in the FCC's pending docket on IP Enabled Services.13 The FCC's decision in this proceeding is not expected until late 2008 or in the first quarter of 2009. The Cavalier case referred from the federal district Court to the FCC may, however, spur the FCC to issue a decision in this docket sooner.

The question of whether IPTV is a cable service may also be teed up for the FCC in the context of a dispute between a local exchange carrier and a municipality over the deployment of a fiber optic system for delivery of IPTV.

The National League of Cities and several municipalities appealed to the FCC's March 5 Video Franchising Order to various U.S. Courts of Appeals. All of the appeals were transferred to the Sixth Circuit for decision. In a decision filed June 27, 2008, the Sixth Circuit upheld the FCC's Video Franchising Order.14 The Sixth Circuit's decision, however, did not specifically address the FCC's "mixed-use" exemption.

Applications over IPTV

There are a multitude of applications for IPTV. Generally, a subscriber to IPTV can view more than 300 channels of video programming. Additionally, because an IPTV system is two-way interactive, the subscriber can participate in video conferencing, including attending homeowners association and other meetings by video, playing video games, downloading photographs and videos, and listening to favorite music. IPTV also highly complements a home theater system. One overlooked application over IPTV is alarm and security, including video surveillance. IPTV offers the opportunity for video surveillance at a higher quality level than video surveillance over a one-way transmission cable system or local exchange telephone copper network. These various applications should be of enormous interest to telecommunication service providers as well as program and entertainment companies.

About the Author

Michael L. Glaser heads the Telecommunications and New Technologies Practice at Shughart, Thompson & Kilroy, P.C., with offices in Missouri, Kansas, Colorado and Arizona. Mr. Glaser, who is based in Denver, has more than 40 years experience in the telecommunications industry, including service with the Federal Communications Commission. He has been a guest lecturer and author on a variety of subjects in the telecommunications field. He can be reached at (303) 757-1600 or through www.telecomattorneys.com.

References


1 47 U.S.C. § 153(8); 47 U.S.C. § 522(7).
2 47 U.S.C. § 153(7); 47 U.S.C. § 522(6).
3 Cable Modem Declaratory Ruling ("Cable Modem Order"), 17. F.C.C.R. 4798 (2002); 17 F.C.C.R. at 4834-36
447 U.S.C. § 542(b)
5 A. franchise for cable Service is required by the Cable Policy Act of 1984, as amended by the Consumer Protection and Competition Act of 1992 (the "Cable Policy Act"), which is set forth in Title VI of the Communications Act of 1934, as amended, 47 U.S.C. § 521, et seq.
6 AT&T v. Walnut Creek, 428 F. Supp. 2d 1037 (April 13, 2007).
7 See n. 3, supra; n. 9, infra.
8 See n. 3, supra.
9 National Cable & Television Ass'n, Inc. et al. v. Brand X, et al., 545 U.S. 967 (2005).
10 IP Enable Services, 19 FCC Rcd. 4863 (2004)
11 Report and Order and Further Notice of Proposed Rulemaking (FC 06-180), released March 5, 2007.
12 See n. 11, supra.
13 See n. 10. supra.
14 Alliance for Community Meda v. FCC, ___ F.3d ___ (Nos. 07-339113569/3570/3571/3572/ 3573/3574/3575/3576/3577/3676/3824, June 27, 2008).

For more information call Michael L. Glaser at (303) 757-1600.

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