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109th Congress Rept. 109-470
HOUSE OF REPRESENTATIVES
2d Session Part 2
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COMMUNICATIONS OPPORTUNITY, PROMOTION, AND ENHANCEMENT ACT OF 2006
_______
June 6, 2006.--Ordered to be printed
_______
Mr. Barton of Texas, from the Committee on Energy and Commerce,
submitted the following
SUPPLEMENTAL REPORT
[To accompany H.R. 5252]
[Including cost estimate of the Congressional Budget Office]
This supplemental report shows the cost estimate of the
Congressional Budget Office with respect to the bill (H.R.
5252), as reported, which was not included in part 1 of the
report submitted by the Committee on Energy and Commerce on May
17, 2006 (H. Rept. 109-470, pt. 1).
This supplemental report is submitted in accordance with
clause 3(a)(2) of rule XIII of the Rules of the House of
Representatives.
CONTENTS
Page
Committee Cost Estimate.......................................... 1
Congressional Budget Office Estimate............................. 1
Federal Mandates Statement....................................... 7
COMMITTEE COST ESTIMATE
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
CONGRESSIONAL BUDGET OFFICE ESTIMATE
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
H.R. 5252--Communications Opportunity, Promotion, and Enhancement Act
of 2006
Summary: H.R. 5252 would allow providers of cable service
to apply to the Federal Communications Commission (FCC) for a
national franchise. National franchises would be substitutes
for separate, negotiated agreements with states and localities
regarding the provision of cable service to a local area. The
bill also would require providers of Internet-based telephone
service known as Voice-over-Internet-Protocol (VOIP) to provide
access to emergency 911 telephone service. Finally, H.R. 5252
would require the FCC to conduct several studies related to
telecommunications services.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing H.R. 5252 would cost less than
$500,000 in 2006 and about $7 million over the 2006-2011
period. Enacting the bill would not have a significant effect
on direct spending or revenues.
H.R. 5252 contains several intergovernmental mandates, as
defined in the Unfunded Mandates Reform Act (UMRA). In
particular, it would prohibit intergovernmental entities--
primarily municipal governments--from charging certain fees to
providers of cable service. The bill also would impose a
variety of requirements and limitations on public safety access
points (PSAPs). Further, the bill would preempt state laws that
prohibit municipal governments from providing Internet access
services and, if area cable providers receive a national
franchise, would preempt state and local laws that address
consumer protection, cable franchises, and the use of municipal
rights-of-way. CBO estimates that the net direct costs of these
mandates on state and local governments would grow over time,
and would likely fall between $100 million and $350 million by
2011. Such losses would exceed the threshold established in
UMRA in at least one of the first five years the mandates are
in effect (the threshold is $64 million in 2006 and is adjusted
annually for inflation).
Other impacts of the bill include potential losses to
intergovernmental entities of in-kind support from cable
franchisees.
H.R. 5252 also would impose private-sector mandates as
defined by UMRA on broadband service providers, and on private
entities that own 911 components necessary to transmit VOIP
emergency 911 services over their networks. Based on
information from government and industry sources CBO estimates
that the costs of complying with those mandates would fall
below the annual threshold established by UMRA for private-
sector mandates ($128 million in 2006, adjusted annually for
inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 5252 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2006 2007 2008 2009 2010 2011
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CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\
Estimated authorization level....................... * 2 2 1 1 1
Estimated outlays................................... * 2 2 1 1 1
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\1\Enacting H.R. 5252 also would have small effects on direct spending and revenues, but CBO estimates that
those effects would be less than $500,000 a year.
NOTE: * = less than $500,000.
Basis of Estimate
CBO estimates that implementing H.R. 5252 would cost less
than $500,000 in 2006 and about $7 million over the 2006-2011
period to issue regulations, write reports and studies, and
enforce the bill's provisions regarding new cable franchises
and VOIP. For this estimate, CBO assumes that the bill will be
enacted before the end of 2006, that the estimated amounts will
be appropriated for each year, and that outlays will follow
historical spending patterns for similar activities. Enacting
the legislation would not have a significant effect on direct
spending or revenues.
Spending subject to appropriation
H.R. 5252 would allow providers of cable service to apply
to the FCC for a national franchise in lieu of negotiating
separate franchise agreements with states and localities for
providing cable service to a local area. The bill also would
require VOIP providers to connect users to emergency 911
telephone service. Under the bill, the FCC would certify the
new national franchises, conduct annual audits of the new
franchises, and create regulations regarding the new
franchising structure and VOIP emergency services. Finally,
H.R. 5252 would require the FCC to conduct several studies
regarding telecommunications services, including VOIP,
municipal provision of telecommunications services, and
broadband Internet service.
Based on the level of effort required for previous major
rulemaking efforts by other agencies, CBO estimates that
implementing H.R. 5252 would cost less than $500,000 in 2006
and about $7 million over the 2006-2011 period for the FCC to
develop and issue regulations, write reports, and enforce the
bill's provisions related to cable franchises and VOIP. Those
costs would be subject to the availability of appropriated
funds.
Revenues and direct spending
Enacting H.R. 5252 would affect revenues and direct
spending because enacting the bill would affect civil penalties
and copyright royalties. CBO estimates that any such effects
would not be significant.
Civil Penalties. Enacting H.R. 5252 could increase federal
revenues by increasing collections of additional civil
penalties assessed for violations of laws related to providing
telecommunications services. Collections of civil penalties are
recorded in the budget as revenues. CBO estimates, however,
that any additional revenues that would result from enacting
the bill would not be significant because of the relatively
small number of cases likely to be involved.
Enacting the bill could increase direct spending because
section 101 would require the FCC to distribute certain
penalties collected from cable companies to state or local
franchising authorities. CBO estimates that any distributions
of penalties to state or local franchising authorities would
not be significant because of the relatively small number of
cases likely to be involved.
Copyright Royalties. Under current law, the users of
certain copyrighted material must pay royalties and abide by
certain conditions when using the material. The Copyright
Office collects royalties from users of certain copyrighted
material and then distributes the royalties to owners of
copyrighted works. The receipt of royalties from users of
copyrighted material are recorded in the budget as federal
revenues, and the distributions to copyright owners are
recorded as federal spending. Under current law, cable
operators pay royalties to transmit distant broadcast signals
to cable viewers, and satellite carriers pay royalties to
retransmit distant network and superstation signals by
satellite.
The national franchising provisions included in H.R. 5252
would allow new entrants into the market for providing cable
service to connect to households faster than would otherwise be
expected. CBO expects that enacting the bill could affect the
collection and distribution of copyright royalties. Total
copyright royalties paid for services provided to existing
subscribers could increase or decrease as subscribers switch
from existing satellite or cable service to cable service
provided by new entrants. Copyright royalties would increase as
subscribers who currently do not subscribe to either satellite
or cable service opt to subscribe to cable services provided by
new entrants. Based on information provided by the Copyright
Office and cable and telecommunication firms, CBO estimates
that the net effect of enacting this legislation on copyright
royalties in any year over the 2006-2016 period would not be
significant.
Estimated impact on state, local, and tribal governments
Intergovernmental mandates contained in the bill
H.R. 5252 contains several intergovernmental mandates as
defined in the Unfunded Mandates Reform Act. Specifically, the
bill would:
Eliminate the authority, in certain
circumstances, of local entities to issue franchises
for cable providers;
Prohibit intergovernmental entities--
primarily municipal governments--from imposing certain
fees on providers of cable services;
Require public safety access points to make
their systems accessible to the providers of a type of
telephone service known as Voice-over-Internet-Protocol
and to make certain information available to the FCC;
Limit the fees that local governments can
charge VOIP providers for access to emergency 911
services;
Preempt state and local consumer protection
laws;
Preempt local government authority over
municipal rights of way; and
Preempt state laws prohibiting local
governments from offering certain services to provide
Internet access.
The bill would require there to be competition for video
services other than satellite in any franchise area before
providers of such services could apply for a national
franchise. Such competition would likely come from those
companies that have traditionally provided telephone service.
While the speed with which new providers would offer such
service is uncertain, industry sources suggest that these
companies would offer cable services under the bill in at least
10 percent to 20 percent of franchise areas by 2011. Based on
this information and the large number of franchises nationwide
(about 30,000), CBO estimates that the net costs of complying
with the intergovernmental mandates in the bill would, in
aggregate, exceed the threshold established in UMRA in at least
one of the first five years that the mandates are in effect
(the threshold is $64 million in 2006 and is adjusted annually
for inflation).
CBO estimates that prohibiting intergovernmental entities--
primarily municipal governments--from raising certain revenues
from providers of cable services that have a national franchise
would impose the most significant costs resulting from the
mandates. By increasing competition in some markets, enacting
the bill would likely lead to more people subscribing to cable
services that are subject to local franchise fees. Thus, local
governments would gain new revenues that partially offset those
costs.
CBO further estimates that the requirements on PSAPs, the
limitations on the ability of state and local governments to
charge fees to VOIP providers, and the other preemptions in the
bill would probably not impose significant costs on
intergovernmental entities.
Estimated direct cost of mandates to state and local
governments
Under current law, Local Franchise Authorities (LFAs) in
most states negotiate compensation with cable providers seeking
to serve their franchise area. (In at least three states, the
law provides for a statewide franchise). Each agreement is
different, and the amount of forgone revenue from the bill's
prohibition would depend on the specifics of each franchise
agreement preempted by a national franchise. Current federal
law caps fees for the franchise at 5 percent of gross
revenues--a fee maintained in H.R. 5252. However, local
governments also negotiate fees for public, educational, and
governmental (PEG) programming--some in cash and some in-kind--
totaling, on average, between 1 percent and 3 percent of the
gross revenues of the provider. In general, urban and suburban
areas have a higher percentage of PEG contributions than do
nonurban areas. The bill would limit charges by LFAs to 1
percent of gross revenues of cable providers.
By prohibiting intergovernmental entities from charging
certain cable providers more than 1 percent of gross revenues
to provide PEG programing, enacting the bill would lead to a
loss in state and local revenues. CBO estimates that the gross
costs of this prohibition--that is, the amount of the revenues
that state and local governments would no longer be able to
collect--would grow to between $150 million and $450 million by
2011.
UMRA includes in its definition of the direct costs of a
mandate the amounts that state and local governments would be
prohibited from raising in revenues to comply with the mandate.
Thus, CBO counts as direct costs the cash portion of what state
and local governments would be prohibited from charging under
the bill.
At the same time, however, the bill would likely increase
competition for cable service, decreasing the average price for
such service. As a result, more people would likely subscribe
to cable services, and they would pay additional franchise fees
to local governments that would offset some of the state and
local government losses described above. CBO estimates that
these new revenues would total about 25 percent of aggregate
losses. On balance, we estimate that the net costs of this
mandate would likely fall between $100 million and $350 million
by 2011.
Under H.R. 5252, it is likely that competitors would
increase the speed with which they enter the cable market
because costly barriers to entry would be removed. Under
current law, there is competition in fewer than 5 percent of
local franchise areas. Under the provisions of the bill, new
entrants would likely increase the areas to which they provide
cable service, reaching into at least 10 percent to 20 percent
of franchise areas by 2011. As competition increases, more
cable providers would likely apply for national franchises, and
as national franchises increase, forgone revenues to state and
local governments also would increase. While losses would
depend on the specifics of the franchise agreements in the
areas with new entrants and industry business plans, average
PEG rates in such areas suggest that forgone revenues would
likely total at least 1 percent to 2 percent of the gross
revenues for cable providers in areas with a national
franchise.
Other impacts on state and local governments
The bill also would impose a significant impact on state
and local governments not covered under direct costs or direct
savings in UMRA. Specifically, such entities would incur some
in-kind losses from enactment of the bill.
In franchise agreements, cable providers often agree to
complete and maintain a variety of in-kind contributions to
public entities including schools, police and fire stations,
libraries, and other municipal buildings. These are called
institutional networks (INETs). Providers often will also
supply studios and equipment for public access television
stations to support PEG programming. Depending on the
interpretation of the bill's provision concerning maintenance
of INETs, anecdotal information from several local governments
suggest they could lose in-kind contributions totaling several
million dollars. Most communities in areas where cable
providers receive a national franchise would forgo some in-kind
benefits for PEG programming.
Estimated impact on the private sector
H.R. 5252 would impose mandates as defined by UMRA on
broadband service providers, and on private entities that own
911 components necessary to transmit VOIP emergency 911
services over their networks. Based on information from
government and industry sources CBO estimates that the costs of
complying with those mandates would fall below the annual
threshold established by UMRA for private-sector mandates ($128
million in 2006, adjusted annually for inflation).
The bill would impose mandates by:
Prohibiting broadband service providers from
requiring subscribers to purchase other services as a
bundle; and
Requiring certain entities that own 911
components to allow VOIP providers access to their
infrastructure.
Unbundling of broadband services
Section 501 would prohibit any provider of broadband
services from requiring a subscriber to purchase other services
offered by the provider (including cable service,
telecommunications service, or VOIP) as a condition of
purchasing broadband service.
The costs of the mandate would be the expenditures
necessary for converting systems to offer stand-alone service
and the ongoing loss of net income from the direct lost sales.
According to industry sources most of the industry already
offers stand-alone broadband services. The cost of compliance
for the remaining providers of converting their systems would
be small.
Broadband service providers also could lose income as some
consumers chose to subscribe only to the broadband service,
forgoing any bundled services. Assuming the providers of
broadband service who currently provide stand-alone service
continue to do so independent of the mandate, the net loss of
income should be small relative to the threshold.
Making 911 components accessible to VOIP providers
Section 301 would clarify FCC regulations relating to VOIP
access to 911 and E911 infrastructure. The language in section
301 would impose a new mandate on all private entities that own
911 components necessary to transmit VOIP emergency 911
services over their networks. Section 301 would require such
entities to allow VOIP providers to have full access to the
necessary 911 components. Owners of 911 components would be
able to charge VOIP providers a fee for using their network
components, but would be mandated to enter into such agreements
with those providers. Large private entities that own 911
components have most of the infrastructure in place to comply
with the mandate. Some smaller owners of 911 components may not
have such capacity and would incur costs to comply with the
mandate. Based on information provided by industry and
government sources, CBO expects that the direct costs of
complying with this mandate would be minimal.
Estimate prepared by: Federal costs: Melissa Z. Petersen;
impact on state, local, and tribal governments: Sarah Puro;
impact on the private sector: Philip Webre and Fatimot Ladipo
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
FEDERAL MANDATES STATEMENT
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
