Last September in Docket 05-0311 the FCC proposed changes to cable regulations that could threaten the continued existence of PEG channels. The term PEG channel refers to Public, Educational and Government and refers to channel slots given to local governments and school systems for programming. Local governments routinely broadcast government meetings on these channels. In many areas, the channels are used during the day by the school system. PEG channels have a particularly important role during local emergencies and often become the only source of local information during floods, hurricanes, or big fires.

PEG channels came into existence during the negotiations for cable franchises in the 1970s and 1980s. Many, but not all cities asked for a channel slot to be used to present important local content to subscribers. Cities have routinely used the channels to broadcast city council meetings, while some cities go much further and broadcast a wide array of public meetings. Like most consultants who work with cities, I’ve been broadcast on local PEG channels hundreds of times (and if that didn’t break the system, I don’t know what would!)

The proposed FCC rule change would allow cable companies to put a value on in-kind contributions required by franchise agreements and deduct those from the amounts paid for franchise fees. In addition to providing PEG channels, other in-kind contributions might include things like free broadband or cable TV for city offices, and broadband connections between government locations (often referred to as an I-Net).

To be fair to the FCC, the proposed rules are considering excluding PEG channels from the list of -in-kind contributions – but that exclusion is no sure thing. Like most FCC dockets this one has not guaranteed decision date and could be decided at any time.

Numerous local and federal politicians have commented on the docket and are begging the FCC to not kill PEG channels. They figure, probably correctly, that the cable companies will place a too-high value on the local channel slot as a way to lower their costs.

One of the interesting things about this docket is that cable companies don’t pay franchise fees – these are invariably passed on to customers and added to customer bills. Cable companies have argued for many years that they are at a disadvantage because their customers pay the franchise fees – often set at levels between 3% and 5% – but these fees don’t apply to satellite broadband or to the newer online programming.

If the FCC docket passes, and if the in-kind contributions apply to PEG channels then local governments will face a dilemma. Franchise fees today go straight into general city coffers in most cities. These fees have been steadily dropping in recent years due to cord cutting, and as cable customers leave a cable company the franchise fees drop accordingly.

Cities would be faced with covering the cost of in-kind contributions, funded directly out of the franchise fees they’ve collected for the last 40-50 years. This would pit different parts of local government against each other – should a city accept lower franchise fees or else kill the PEG channels? Most cities know that PEG channels are the only way that many citizens have of following the actions of local governments. I’ve visited some cities where a significant proportion of the community watch city council meetings, particularly when there is a topic of big local interest. Cities could probably live-stream council meetings to the web – but they understand that not everybody has broadband access, particularly in rural communities. It’s much easier for citizens to follow local government if the meetings are routinely rotated on a PEG channel.

Cities also face the loss of other in-kind contributions, although those have been largely going away in recent years as franchise agreements come up for renegotiation. There was a time when the cable companies provided a free or subsidized broadband connection between city buildings as part of an I-Net. While there are many I-Nets still in existence, many have been discontinued, or no longer offered for free. In such cases, cities either pay for the broadband connections or builds fiber to connect city buildings.

In the long run, this change is probably inevitable. While nationwide cable penetrations were still at around 70% at the end of last year, the rate of cord cutting seems to be accelerating. The most current snapshot of cord cutting shows a rate of customer loss equal to 3% of market share annually. Assuming that traditional cable TV follows the path of landline voice service, the amount of franchise fees – and even the requirement to have a franchise is diminished. At some point, if Congress ever passes another telecom act, they will probably consider deregulating both cable TV and landline voice.