Overview India is a federal parliamentary republic and the world's most populous democracy, with more than 1.3 billion citizens. In the spring of 2019 the country held elections to seat its 17 th Lok Sabha (House of the People), the 545-seat lower chamber of parliament and locus of Indian political power. Results were announced on May 23, with the incumbent Bharatiya Janata Party (BJP, or Indian Peoples Party) winning a sweeping and repeat victory under Prime Minister Narendra Modi. Having in 2014 become the first party to attain a parliamentary majority (52%) in 30 years, the BJP was able to expand that majority to 56% in 2019, becoming the first party to win consecutive majorities since 1971. The dynastic Indian National Congress (hereinafter, Congress Party)âwhich had dominated the country's politics from 1947 to 1977 and led a national coalition government from 2004 to 2014âagain failed to win the 10% minimum of seats required to officially lead the Lok Sabha opposition. Powerful regional and caste-based parties likewise posed no meaningful obstacles to the latest "BJP wave." The Administration of President Donald Trump is seeking to expand upon a "strategic partnership" with India formally launched in 2005. Progress is ongoing, most notably in the area of defense and security cooperation. The U.S. Congress has been supportive of efforts to expand and deepen the bilateral partnership, formally designating India as a "Major Defense Partner" of the United States in 2016. Areas of engagement are broad and include an array of economic and security initiatives. Recent bilateral frictions have arisen over trade practices, religious freedom, and India's relations with Russia and Iran. A State Department release congratulated Prime Minister Modi and his ruling National Democratic Alliance (NDA) coalition for their "decisive victory," and it applauded the Indian people for turning out in historic numbers and the Indian government for "exceptional execution of this massive undertaking." It went on to declare that The United States and India enjoy a strong strategic partnership that stands on a foundation of shared values, extensive people-to-people ties, and a commitment to a secure and prosperous Indo-Pacific region. We look forward to working with the newly elected government on a range of important issuesâ¦. We are confident that the strong and upward trajectory of our partnership will continue. The Chairman of the House Foreign Affairs Committee also issued a laudatory statement and, in June, several Members of Congress penned an open letter to President Trump to "highlight the continuing strategic importance of the U.S.-India relationship." Secretary of State Michael Pompeo met with Modi and other top Indian officials in New Delhi in June to express enthusiasm about America's "natural strategic partner." President Trump has yet to visit India, and high-level engagement occurs under the rubric of a "2+2 Ministerial Dialogue" inaugurated in September 2018. Nevertheless, many independent observers express concern about emergent frictions and indications that the partnership is becoming dissonant. A recent substantive overview of the relationship concluded that it "would benefit from some realism about its limitations." Officials in governments across the Indo-Pacific region expect the election results to bring general continuity in Indian policies. Given the instability and uncertainty that can accompany coalition governance, many likely regarded Prime Minister Modi's convincing reelection with some relief. Modi's internationalist orientation can be seen in his energetic pursuit of diplomacy with numerous major powers and regional governments. This includes though continued development of the U.S.-India strategic partnership, which is widely seen to be rooted in an array of mutually-held values and increasingly convergent visions for global order, lately conceived by Washington as a "shared vision for a free, open, and rules-based Indo-Pacific region." On the economic front, Modi's reputation as a reformer and liberalizer has met with mixed reviews. Five years in office realized no major land or labor reforms or meaningful efforts to address bad bank debt that were widely anticipated. The BJP leader's assumed electoral vulnerabilitiesârelatively lackluster economic expansion (averaging below 7% annually), joblessness, rising prices, and a widely panned 2016 "demonetization" initiativeâdid not end up degrading his impressive political support. Most market-oriented analysts are hopeful, but not entirely confident, that a "Modi 2.0" government will redouble efforts to implement the kinds of economic reforms sought by the U.S. and other governments and business interests. Election and Outcome India possesses a robust and competitive multiparty democratic system. Yet its politics also are described as "beset by corruption" by Freedom House, a think tank that ranks world countries on levels of political and civil liberties. In 2017, India had fallen 10 places on the Economic Intelligence Unit Democracy Index to 42 nd in the world, due in part to "a rise of vigilantism and violence against minority communities, particularly Muslims, as well as other dissenting voices." For 2018, India was ranked 41 st worldwide, but its overall score was unchanged, and it maintained its designation as a "flawed democracy" (as did the United States). The scale of India's national election presents daunting logistical challenges, and voting was completed in seven phases. As with each iteration, the event was history's largest democratic exercise: About 880 million peopleâone-ninth of the world's populationâwere eligible to cast ballots in the country's 29 states and 7 Union Territories, including some 84 million first-time voters. More than 600 million Indians participated, for a turnout rate of 67.4%. More than 8,400 candidates and a record 669 parties vied for the Lok Sabha's 543 elected seats; 36 parties won at least one seat, as did 4 independent candidates. In addition to being history's largest democratic undertaking, India's 2019 national election was also history's most expensive: participating parties and candidates spent an estimated $8.7 billion on the campaign, more than double the 2014 spending. The BJP reportedly received nearly three-quarters of all political donations. Such massive outlays raise concerns among many about fairness: there is little transparency in India's campaign finance system, the Modi government had lifted caps on corporate donations, and the Election Commission's oversight is criticized for ineffectiveness. In the lead-up to the 2019 voting, analysts debated whether the BJP's 2014 sweep was an anomaly in a decades-long era of coalition politics in New Delhi, or marked the beginning of a new period of single-party domination as was seen under the Congress Party prior to 1989. The BJP's unexpected and even stronger showing in 2019 suggests that India's national political stage has undergone qualitative change back toward a hegemonic national party. The BJP won by securing 303 seats with more than 37% of the aggregate vote, significantly exceeding the 272 seats required for majority status, and increasing the party's seat total from 282 in the previous Lok Sabha. Their closest competitors, the Congress Party, took 52 seats with 19.5% of the national vote, a net gain of 8 seats (see Table 1 ). According to Election Commission of India data, the BJP won a majority of votes cast in 10 states, as well as in the Delhi National Capital Territory. It also took 49.6% of the votes cast in Uttar Pradesh (UP), India's most populous state. No other party was able to garner a majority of votes in any single state. While the BJP's core support in India's western and north-central "Hindi belt" states remained strong, and the party succeeded in expanding its appeal in the country's east, it was shut out completely in seven states, including the major southern states of Andhra Pradesh and Tamil Nadu, where regional parties prevailed. In a sign of the Congress Party's historic collapse nationally, the party failed to win a single seat in 14 states, and nearly half of the seats the party did win (23) came from India's two southernmost states, Kerala and Tamil Nadu (see Figure 1 , "Map of Indian States"). The newly seated Lok Sabha is, on average, younger, wealthier, and better educated than its predecessor, and the number of female members has increased to 15% (see Text Box ). Upper-caste Hindus and political families continue to enjoy disproportionately high representation, and India's large and relatively marginalized Muslim minority community of about 190 million (about 14% of the total) suffers from a declining voice in Parliament: Muslim representation in the Lok Sabha peaked at 10% in 1980 and lingered at about 6% until dropping to 4% in 2014. A net gain of three Muslim members in 2019 only slightly raised that percentage. India's parliamentarians are also notable for the numbers who face formal criminal allegations. Notable Changes in Union Ministers The "Modi 2.0" cabinet includes some significant changes to the leadership of key Indian ministries. For the first time ever, a career diplomat, Subramanyam Jaishankar, is now External Affairs Minister, replacing BJP stalwart Sushma Swaraj. Jaishankar, until recently Foreign Secretary, is a former ambassador to both the United States and China, and is widely known in Washington as proponent and facilitator of closer U.S.-India ties. Another key new figure in the Modi cabinet is Home Minister Amit Shah, who succeeds senior BJP official Rajnath Singh, himself now holding the Defense Ministry portfolio. Also under new leadership is the Finance Ministry, where former Defense Minister Nirmala Sitharaman has become India's first female finance minister. Additionally, National Security Advisor Ajit Doval, a former intelligence chief in office since 2014 and considered a hardliner on Pakistan, was elevated to cabinet rank in 2019. Other Parties and Figures The Indian National Congress India's Congress Party had hoped in 2019 to reverse its general decline after 2014. It had led a United Progressive Alliance coalition government under Prime Minister Manmohan Singh from 2004 to 2014. Party president Rahul Gandhiâson of former Prime Minister Rajiv Gandhi and grandson of Indira Gandhiâhad entered politics with apparent reluctance, winning the "family seat" in Amethi, UP, in 2004. Ten years later, Rahul oversaw Congress's worst electoral performance in history when the party took only 44 Lok Sabha seats, down from 206 previously. Gandhi's lackluster reputation took a new shine after the party's unexpectedly strong showing in the 2017 Gujarat state elections, and December 2018 Congress victories in three north-central states were a huge morale boost for the party, heartening potential Congress allies. During the 2019 campaign, Gandhi impressed many observers with what were described as creative policy proposals and a newly assured public speaking style. Still, going into the 2019 campaign, Congress had no significant presence in any of India's six most populous states and had shown an inability to recover in states where it had faltered. The party continued to struggle to both consolidate old alliances and to establish new ones. As put by one official from a BJP-allied regional party, the opposition had "neither a program, nor a leader, nor a narrative." Gandhi suffered an embarrassing upset loss in his family's Amethi district, and the party's 2019 defeat has led to new leadership crises. Regional and Caste-based Parties The BJP and Congress are India's only truly national partiesâthey together won roughly half of all votes cast in 2009 and 2014, and their combined share rose to 57% in 2019 (attributable to a 6-point boost for the BJP). The influence of regional and caste-based partiesâalthough blunted by the BJP's outright majority victoriesâremains a crucial variable in Indian politics. Such parties now hold about one-third of Lok Sabha seats, but many of the most influential met with significant reversals in 2019. By early 2019, Narendra Modi had become the primary, if not sole target of his many electoral opponents, but no single challenger emerged. Still, the opposition's zeal to dislodge the incumbents had them ready to make unusual alliances, especially in Uttar Pradesh, where the effort failed conclusively. Other powerful regional parties experienced setbacks, most notably West Bengal's Trinamool Congress, led by Chief Minister Mamata Banerjee, which barely survived a surprise BJP surge in the key eastern state, winning 22 of 42 Lok Sabha seats to the BJP's 18 (up from 2 in 2014). Only in Odisha was a major regional partyâin this case the Biju Janata Dal of popular Chief Minister Naveen Patnaikâable to withstand the BJP onslaught. Implications for U.S. Interests Because the BJP campaign was run largely on Narendra Modi's personal popularity rather than an explicit policy platform, it is unclear how Modi will use his mandate going forward. Since 2014, the Modi government arguably has realized some foreign policy successes compatible with U.S. interests: sustaining the partnership with the United States, solidifying the partnership with Japan, strengthening ties with Israel while making new outreach to key Persian Gulf states such as Saudi Arabia and the UAE, and articulating a vision for the Indo-Pacific region that tracks well with that of the United States. Modi has successfully projected India as the world's next big economic opportunity after China, but critics argue that he has mostly squandered an opportunity to move India into great power status, with a lack of strategic vision harming India's position vis-Ã -vis major powers and smaller neighbors, alike. Given India's myriad domestic problems, and still-limited capacity to project power, some American observers are skeptical about its near-term potential to play the role sought for it by the U.S. Congress and successive Administrations. The Modi/BJP victory has empowered the Indian leader domestically and this may provide Modi and India new opportunities on the global stage. Given Modi's reputation for favoring a "muscular" foreign policy, he may now be more willing to resist Chinese assertiveness and move closer to the United States. Yet troubles with the United States also could loom: Many Indian strategic thinkers say their country's national interests are well served by engaging not just with the United States but also with Russia and Iran, which could limit to New Delhi's willingness to abide what some Indian observers describe as "America's short-term impulses." While New Delhi generally welcomes the U.S. "free and open Indo-Pacific" (FOIP) strategy, Indian leaders continue to demur from confronting China. The United States and India also seek to cooperate on energy, climate change, and space issues, and have sometimes clashing views on immigration. Bilateral Trade and Economic Relations26 Trade and economic ties, an important and growing part of bilateral relations, have faced recent challenges. Prime Minister Modi's strong electoral mandate suggests India's mixed economic performance did not hurt his standing with the public, and the results may embolden the BJP to press ahead with its reform agenda with greater vigor (see Text Box , below). The Trump Administration takes issue with the U.S. trade deficit with India and "unfair" trade practices that restrict U.S. exports to and investment in India. Some U.S. policymakers and businesses have been disappointed that, during Modi's first term, India did not move forward with market-opening reforms as they had hoped, and instead increased tariffs and trade restrictions. For example, recent tariff hikes by New Delhi on cell phones and other products have elevated long-standing U.S. concerns about India's tariff regime, and President Trump has called India the "tariff king." Other U.S. concerns include inadequate intellectual property protection and enforcement, and restrictive new rules on e-commerce and localization of certain financial data flowsâwhich affect major U.S. companies, such as Amazon, Walmart-owned Flipkart, Visa, and MasterCard. The United States and India also often have opposing stances on multilateral trade issues in the World Trade Organization. The outlook for bilateral trade relations is unclear. Both sides have taken decisive actions on simmering issues. President Trump terminated India's eligibility for the Generalized System of Preferences (GSP), effective on June 5, 2019, after determining that "India has not assured the United States that India will provide equitable and reasonable access to its markets." This decision followed a U.S. investigation into India's market access practices and petitions by U.S. dairy and medical technology industries. In 2018, India was the largest beneficiary of GSP, with over one-tenth ($6.3 billion) of U.S. goods imports from India entering duty-free under the program. India, which called the eligibility termination "unfortunate," announced soon after that it would impose higher retaliatory tariffs on 28 U.S. products, including almonds, apples, and walnuts, in response to U.S. Section 232 (national-security-based) steel and aluminum tariffs. During 2018, India repeatedly delayed applying retaliatory tariffs, in hopes of negotiating a resolution of bilateral trade issues. In late June, President Trump called India's 2019 imposition of retaliatory tariffs "unacceptable" and said they "must be withdrawn." At the June 2019 G-20 Summit, the two sides appeared to strike a more conciliatory tone. President Trump said a "very big" trade deal would be coming with India. According to India's foreign secretary, the "trade ministers of both countries would meet at an early date and would try to sort out these issues." Yet lack of progress in recent months reportedly is prompting the Administration to consider launching a Section 301 investigation of India's trade practicesâthis would make India the focus of the next major, in-depth investigation of unfair trade practices after China. On one hand, Section 301 could be a new way to address long-standing issues of U.S. concern with respect to India. On the other hand, it could raise the risk of protracted bilateral trade tensions and tit-for-tat escalation of tariffs across many economic sectors. Defense and Security Relations Continuity in India's leadership may lead to continued rapid development of U.S.-India security cooperation, with U.S. leaders hoping that increased Indian capabilities will provide greater net security regionally and worldwide (in spite of some U.S. concerns about New Delhi's ties with Moscow). President Obama and Congress recognized India as a "major defense partner" (MDP) in 2016, a unique designation allowing India to receive license-free access to dual-use American technologies. The MDP designation was created in large part to carry over a presumption of license approvals into the new U.S. administration. It was linked to India's joining the four major multilateral export control regimes to become eligible to receive licensing for the most advanced defense systems the United States exports. In mid-2018, India received Strategic Trade Authorization Tier-1 status, putting it on par with NATO allies, and the two countries concluded a long-sought Communications, Compatibility, and Security Agreement (COMCASA), a military-to-military "enabling agreement." The two governments also seek expanded collaboration via the Defense Technology and Trade Initiative, launched in 2012, which aims to facilitate greater defense trade and technology sharing. India participates in formalized "quadrilateral consultations" with the United States, Japan, and Australia while downplaying prospects that the "Quad" may become a security-related architecture. Defense trade is a leading facet of the bilateral partnership. India is now a major purchaser in the global arms market and a lucrative potential customer for U.S. companies. The two nations have signed defense contracts worth about $15 billion since 2008, up from $500 million in all previous years combined. Washington seeks to identify sales that can proceed under the technology-sharing and co-production model sought by New Delhi while also urging reform in India's defense offsets policy. Since 2002, the United States and India have held a series of increasingly complex combined bilateral exercises involving all military servicesâIndia now conducts more exercises and personnel exchanges with the United States than with any other country. A first-ever tri-service exercise is set for later in 2019. Bilateral intelligence and counterterrorism cooperation has accelerated over the past decade. In addition to intelligence sharing, homeland security cooperation has included growing engagement between respective law enforcement agencies, especially in the areas of mutual legal assistance and extradition, and on cyberterrorism and cybersecurity. Terrorist groups operating from Pakistani territory are of special interest. India broadly endorses the FOIP strategy pursued by Washington, and it benefits from the higher visibility this strategy provides for India's global role and for its immediate region. Yet India has not fully relinquished the "nonalignment" posture it maintained for most of the Cold War (more recently pursuing "strategic autonomy" or a "pragmatic and outcome-oriented foreign policy" ). Thus, Modi has articulated a vision of a free, open, and inclusive Indo-Pacific, and India remains wary of joining any nascent or potential security architectures that could antagonize Beijing. India's Other Foreign Relations India-China . Modi's win likely means a continuation of New Delhi's multilateralist/multipolar approach to international politics in Asia, as well as efforts to resist Chinese "assertiveness" in South Asia. India's relations with China have been fraught for decades, with signs of increasing enmity in recent years. Areas of contention include major border and territorial disputes, China's role as Pakistan's primary international benefactor, the presence in India of the Dalai Lama and a self-described Tibetan "government," and China's growing presence in the Indian Ocean region, which many Indians view as an encroachment in their neighborhood. New Delhi is ever watchful for signs that Beijing seeks to "contain" Indian influence both regionally and globally. China's BRIâwith "flagship" projects in Pakistanâis taken by many in India (and elsewhere) as an expression of Beijing's hegemonic intentions. India-Pakistan . The United States has long sought to assist in reducing India-Pakistan conflict and its impact on developments in Afghanistan. A surge of Indian nationalism grew out of a February 2019 international crisis involving Pakistan. Coming just weeks before voting began in India, the confrontation was widely seen to have boosted Modi's electoral prospects. In contrast to his 2014 inauguration, when Pakistan's then-prime minister was an invited guest, Modi in 2019 omitted Pakistani Prime Minister Imran Khan from swearing-in festivities. It is unclear if the Indian leader will seek to use his political capital to launch a new peace initiative with Islamabad or will continue pursuing punitive policies that aim to isolate Pakistan internationally. Some analysts contend that Modi now has sufficient standing to change tack. Others, however, suggest that his reelection "will be projected as a vindication of his belligerent policy toward Pakistan." India-Russia . India maintained close ties with Russia throughout much of the Cold War and continues to rely on Moscow for the bulk of its defense imports. With the 2017 enactment of the Countering America's Adversaries Through Sanctions Act ( CAATSA, P.L. 115-44 ) in U.S. law , India's continued major arms purchases from Russiaâmost prominently a current multi-billion-dollar deal to purchase the Russian-made S-400 air defense systemâcould trigger U.S. sanctions. Although Congress subsequently provided for a national security waiver of these sanctions, the Administration has consistently counseled India to cancel the purchase and consider U.S.-supplied alternatives , while New Delhi insists that it will go forward in pursuit of its own national interest , a position possibly hardened with the BJP mandate . India-Iran . India has historically friendly relations with Iran, a country that lately has supplied about 30% of India's energy imports. It also opposes any potential acquisition of nuclear weapons by Iran and supports the Joint Comprehensive Plan of Action. Historically averse to unilateral (non-U.N.) sanctions, New Delhi until recently enjoyed exemption from U.S. efforts targeting Iran's energy sector. In April 2019, the Trump Administration ended such exemptions, and New Delhi has issued conflicting statements about its cessation of Iranian oil purchases while informing Washington that such cessation "comes at a cost." Continued tensions in the Persian Gulf and/or a longer-term boycott of Iranian oil could be disruptive to the Indian economy; Modi's strong mandate could place limits on his willingness to abide such disruption. Other Notable Relations . The Trump Administration's South Asia strategy has included calls for greater Indian involvement in Afghanistan, even as such engagement vexes Pakistan (New Delhi has committed about $3 billion to Afghan reconstruction to date). Islamabad is wary of the Indian presence in Afghanistan and accuses New Delhi of supporting anti-Pakistan groups there, a dynamic that can in turn affect U.S. efforts to sustain Pakistan's help in facilitating Afghanistan reconciliation. Many analysts expect India-Afghanistan ties to grow stronger with Modi's reelection, and New Delhi appears wary of any precipitous U.S. withdrawal from Afghanistan. Meanwhile, India's deepening "strategic partnership" with Japan is a major aspect of New Delhi's broader "Act East" policy and a key axis in the greater FOIP strategies broadly pursued by all three governments participating in a newly established U.S.-Japan-India Trilateral Dialogue. Prime Minister Modi appears to have a convivial personal relationship with his Japanese counterpart and bilateral ties are seen as likely to strengthen going forward. Human Rights Issues While Prime Minister Modi and his party have long sought to emphasize development and good governance, the 2019 election cycle revolved around nationalism and other emotive issues, with many observers arguing that Hindu majoritarianism is a threat both to India's religious minorities and to the country's syncretic traditions. According to the U.S. State Department and independent watchdogs, India is the site of numerous human rights violations, many of them serious and some perpetrated, or at least tolerated, by state actors. Many observers are concerned about the impact of growing religious bigotry and Hindu nationalism on human rights. The BJP is an openly Hindu nationalist party and Prime Minister Modi is a self-avowed Hindu nationalist. In 2005, Modi was denied a U.S. visa over concerns about his role in government during lethal anti-Muslim violence in 2002. Modi hit conciliatory notes in a national address three days after the 2019 election results were announced, vowing to seek the trust of minority groups and to work for the good of all Indians. Human rights nongovernmental organizations and social service groups have seen their Indian operations constrained in recent years, and observers are watching closely for signs that the Modi/BJP mandate will lead to renewed efforts toward Hindu nationalist goals. Some of theseâincluding laws preventing religious conversions and cow slaughterâcontinue to cause sparks in U.S.-India relations, including explicit BJP criticism of the U.S. government for alleged "bias" against Modi. Future moves by the Modi government on other "Hindutva" policies could increase national divisions and lead to further international opprobrium.


Overview Local governments have traditionally played an important role in regulating cable television systems. Operators required municipal permission to place their cables above or beneath streets and other publicly owned land and to mount the cables on telephone/and or utility poles. Cities negotiated with cable operators over the services their systems would provide, including channels dedicated to public, educational, or government programming (PEG), and the payment of franchise fees. In exchange, the cable operators often received de facto exclusive local franchises to offer video distribution services. That changed in 1984, when Congress required local governments to allow competition. In the mid-2000s, as telephone companies (known as " telcos ") sought to obtain their own video services franchises, state governments got involved to streamline the franchising process, in several instances preempting municipalities' authority. The states applied these laws to incumbent cable operators as well as to new entrants, to ensure legal parity. As technological developments and changes in business strategies and consumer behavior have reshaped the telecommunications industry, the Federal Communications Commission (FCC) has taken several steps to limit local regulatory authority over cable and telco video service providers. Many of these regulatory changes have caused controversy. Some local governments assert that, among other things, the FCC's actions will limit their ability to protect the public interest and deprive them of revenue. This report examines the evolving relationship between federal, state, and local regulators and identifies related policy issues that may be of interest to Congress. Regulation of Video Services Cable television began operating in the 1940s as a means to receive broadcast signals in areas with trees or mountains that interfered with over-the-air signal transmission. Initially, municipalities, rather than states, made most decisions related to awarding cable franchises. As cable television developed, some states began to regulate the terms included in a cable franchise, or required state review or approval of a franchise agreement. The term local franchising authorities (LFAs) refers to municipal and/or state government entities that offer and negotiate video franchises. Today, agreements between LFAs and video service providers typically include provisions concerning the availability of channels for PEG programming; the amount of money due to the LFA in franchise fees, including in-kind contributions; and the rates charged to subscribers. Developments Prior to 1984 The Communications Act of 1934 (referred to in this report as the Communications Act) created the FCC, but did not specifically set forth the FCC's authority to regulate cable. However, the U.S. Supreme Court found in 1968 that the agency's authority was sufficiently broad to do so. The FCC issued comprehensive regulations governing cable systems and cable franchising authorities in 1972. The FCC's rules directed cable operators to offer PEG services and LFAs to cap franchise fees. Franchise Agreement Terms and Conditions In the early days of cable television, a municipal government seeking to bring cable to its residents would, through a request for proposals, spell out the requirements that a cable operator would have to meet to win the franchise. Cable companies would bid against one another for the chance to wire the municipality. Renewal of an existing franchise might entail additional requirements. PEGs In 1972, the FCC directed cable operators to dedicate one channel for public access, one channel for educational use, and one channel for local government use by a certain date, and to add channel capacity if necessary to meet the requirement. Two years later, however, the commission reconsidered its stance, stating, Demands are being made not only for excessive amounts of free equipment but also free programming and engineering personnel to man the equipment. Cable subscribers are being asked to subsidize the local school system, government, and access groups. This was not our intent and may, in fact, hamper our efforts at fostering cable technology on a nationwide scale. Too often these extra equipment and personnel demands become franchise bargaining chips rather than serious community access efforts. We are very hopeful that our access experiment will work.... We do not think, however, that simply putting more demands on the cable operator will make public access a success. Access will only work, we suspect, when the rest of the community assumes its responsibility to use the opportunity it has been provided. Although the U.S. Supreme Court later struck down the FCC's rules requiring cable operators to set aside channels for PEGs, PEG access requirements became commonplace in local franchise agreements by the early 1980s. Congress encouraged this development. According to a 1984 report from the House Committee on Energy and Commerce Public access channels are often the video equivalent of the speaker's soapbox or the electronic parallel to the printed leaflet. They provide groups and individuals who generally have not had access to the electronic media with the opportunity to become sources of information in the electronic marketplace of ideas. PEG channels also contribute to an informed citizenry by bringing local schools into the home, and by showing the public local government at work. Franchise Fees In addition to requiring cable system owners to obtain a franchise before operating, municipalities also required cable system owners to pay a franchise fee . In its 1972 Cable Order, the FCC stated, [M]any local authorities appear to have extracted high franchise fees more for revenue-raising than for regulatory purposes. Most fees are about five or six percent, but some have been known to run as high as 36 percent. The ultimate effect of any revenue-raising fee is to levy an indirect and regressive tax on cable subscribers. Second, and of great importance to the Commission, high local franchise fees may burden cable television to the extent that it will be unable to carry out its part in our national communications policy.... We are seeking to strike a balance that permits the achievement of federal goals and at the same time allows adequate revenues to defray the costs of local regulation. To accomplish this balance, the FCC capped the franchise fees at 3%-5% of a cable operator's revenues from subscribers. For fees greater than 3% of an operator's subscriber revenues, the FCC required a franchising authority to submit a showing that the specified fee was "appropriate in light of the planned local regulatory program." Rates Charged to Subscribers When cable television first developed as essentially an antenna service to improve over-the-air broadcast television signal reception in rural and suburban areas, many municipalities regulated the rates charged to subscribers. The municipalities viewed rate regulation, tied to the systems' use of public streets, as a means of preventing cable operators from charging unreasonably high rates for what they viewed as an essential service. In the 1972 Cable Order, the FCC required franchising authorities to specify or approve initial rates for cable television services regularly furnished to all subscribers and to institute a program for the review and, as necessary, adjustment of rates. In 1976, the FCC repealed those rules and instead made LFA regulation of rates for cable television services optional. In 1974, the FCC preempted LFAs from regulating rates for other so-called "specialized services," including "advertising, pay services, digital services, [and] alarm systems." Federal Regulatory Actions 1984 Cable Act In the Cable Communications Policy Act of 1984 ( P.L. 98-549 , referred to in this report as the 1984 Cable Act), Congress added Title VI to the Communications Act to give the FCC explicit authority to regulate cable television. The 1984 Cable Act established the local franchising process as the primary means of cable television regulation. The act did not diminish state and local authority to regulate matters of public health, safety, and welfare; system construction; and consumer protection for cable subscribers. Congress enacted the 1984 Cable Act the same year that American Telephone and Telegraph Company (AT&T), which had an effective monopoly over most telecommunications services, spun off its regional operating companies as part of the settlement of a federal antitrust suit. The 1984 Cable Act generally prohibited telcos from providing video services in the same regions where they provided voice services. This prohibition prevented the former AT&T companies from competing with cable operators in communities where they controlled the local telephone system. Franchise Fees and PEGs The 1984 Cable Act confirmed the power of state and municipal governments to include requirements for PEGs, facilities and equipment, and certain aspects of program content within franchise agreements. It delineated federal limits on franchise fees, and restricted the FCC's power to regulate the amount of franchise fees or the use of funds derived from those fees. The law permits franchising authorities to charge franchise fees, but limits such fees to no more than 5% of the cable operators' gross revenues from "cable services." For the purposes of calculating gross revenues, the FCC included revenues from advertising and home shopping commissions, in addition to revenues from video service subscriptions. Subsequently, as described in " FCC Actions Affecting State and Local Video Service Franchising Terms and Conditions ," defining the costs that are subject to the 5% statutory limit on franchise fees became a point of repeated controversy. The 1984 Cable Act allows local franchising authorities to enforce any PEG access requirements in a franchise agreement. Such terms and conditions can include providing video production facilities and equipment, paying capital costs related to PEG facilities beyond the 5% franchise fee cap, and paying costs associated with support of PEG channel use. In addition, the 1984 Cable Act permitted LFAs to require cable operators to designate channels for PEGs on institutional networks (I-Nets) provided for public buildings and other nonresidential subscribers. Rate Regulation Section 623 of the 1984 Cable Act (47 U.S.C. Â§543) prohibits federal, state, or local franchising authorities from regulating the rates of cable operators that are "subject to effective competition," as defined by the FCC. The 1984 Cable Act directs the FCC to review its standards for determining effective competition periodically, taking into account developments in technology. Redefining Effective Competition In 1985, the FCC determined that cable systems generally were subject to "effective competition" if they operated in an areas where three or more broadcast television signals were either "significantly viewed" by residents or transmitted with acceptable signal quality (as defined by the FCC) to the cable systems' franchise areas. In accordance with the timetable set by the 1984 Cable Act, the "effective competition" rule became effective on December 29, 1986. This rule effectively deregulated cable prices in most communities. In 1991, the FCC adopted a new definition of "effective competition." The FCC deemed effective competition to exist if either: 1. six unduplicated broadcast signals were available to the cable operator's franchise area via over-the-air reception, or 2. another multichannel video service, such as a satellite service, was available to at least 50% of homes to which cable services were available (homes passed), and was subscribed to by 10% of the cable operator's homes passed. Under this more restrictive definition, most systems were still subject to effective competition and therefore not subject to rate regulation. 1992 Cable Act In the Cable Television Consumer Protection and Competition Act of 1992 ( P.L. 102-385 , referred to here as the 1992 Cable Act), Congress stated the policy goal of relying on market forces, to the maximum extent feasible, to promote the availability of a diversity of views and information through cable television and other video distribution media. Congress emphasized the importance of protecting consumer interests where cable systems are not subject to effective competition, and of ensuring that cable operators do not have undue market power vis-Ã -vis video programmers and consumers. New Entrants in Video Programming Distribution Markets The 1992 Cable Act revised Section 621(a)(1) of the Communications Act to codify restraints on local franchise authorities' licensing activities. While local authorities retained the power to grant cable franchises, the law provided that "a franchising authority may not grant an exclusive franchise and may not unreasonably refuse to award an additional competitive franchise." Congress gave potential entrants a judicial remedy by enabling them to commence an action in a federal or state court within 120 days after a local authority refused to grant them a franchise. Rate Regulation In addition, Congress made it easier for local authorities to regulate cable rates by adopting a more restrictive definition of "effective competition" than the FCC's. Pursuant to these changes, local authorities may not regulate cable rates if at least one of the following four conditions is met: 1. fewer than 30% of the households in the franchise area subscribe to a particular cable service; 2. within the franchise area, a. at least two unaffiliated multichannel video programming distributors (MVPDs) each offer comparable video programming to at least 50% of the households in the franchise area, and b. at least 15% of households subscribe to an MVPD other than the largest one; 3. an MVPD owned by the franchising authority offers video programming to at least 50% of the households in the franchise area; or 4. a telephone company offering local voice services (known as a "local exchange carrier" [LEC]) or its affiliate, "(or any multichannel video programming distributor using the facility of such carrier or its affiliate)" carries comparable video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator that is providing video service in that franchise area. Congress directed the FCC to publish a survey of cable rates annually. 1996 Telecommunications Act Even as the 1992 Cable Act took effect, a combination of technological, economic, and legal factors was enabling the convergence of the previously separate telephone, cable, and satellite broadcasting industries. Digital technology, particularly the ability to compress digital signals, enabled both direct broadcast satellite (DBS) services and cable operators to offer dozens of channels. In 1993, the telephone company Bell Atlantic successfully challenged, on First Amendment grounds, the 1984 ban on cross-ownership of telephone and cable companies in the same local market. In the meantime, several cable operators sought to gain economies of scale by consolidating local systems into regional systems. In the Telecommunications Act of 1996 ( P.L. 104-104 ), Congress permitted LECs to offer video services and cable operators to offer voice services. Because laws and regulations pertaining to cable systems were quite different from those pertaining to LECs, the prospect of greater competition between those two types of providers led Congress to revisit video market regulation. Moreover, Section 601 rescinded the 1982 consent decree that required the breakup of AT&T, thereby allowing LECs to consolidate further by subsequently merging with long-distance service providers and each other. The act stipulated that cable operators do not need to obtain approval of local authorities that regulate their video services in order to offer "telecommunications services," such as voice services. The Senate Commerce Committee noted that these changes did not affect existing federal or state authority with respect to telecommunications services. It stated that the committee intended that local governments, when exercising their authority to manage their public rights of way, regulate telecommunications services provided by cable companies in a nondiscriminatory and competitively neutral manner. Congress used the term "open video systems" (OVS) in the 1996 Telecommunications Act (Â§653) to describe LECs that soughtto compete with cable operators. The act explicitly exempted OVS service from franchise fees and other 1992 Cable Act requirements, including the requirement to obtain a local franchise. In 1999, the U.S. Court of Appeals for the Fifth Circuit interpreted the provision to mean that, while the federal government could no longer require OVS operators to obtain a local franchise, state and local authorities could nevertheless do so. State vs. Local Franchising of Video Services In 2003, several telephone companies, most notably Southwestern Bell Company (now AT&T) and Verizon, began constructing fiber networks designed to bring consumers advanced digital services, including video. AT&T and Verizon branded these services as "U-Verse" and "FiOS," respectively. Neither company launched video services under the OVS rules, claiming that federal requirements and potential local franchise requirements were too costly. In 2006, a federal district court in California dismissed AT&T's claims that municipalities were violating federal law by attempting to exercise franchise authority over the company's video services. The court declined, however, to rule on whether video delivered over internet protocol, the technology used by LECs, met the federal definition of a cable service. Two bills introduced that year in the 109 th Congress, H.R. 5252 and S. 2686 , would have declared that video service enabled via internet protocol is subject only to federal regulation. Congress did not vote on either bill. State-Level Franchising Authority As the LECs sought to enter the video distribution market, they pursued statewide reforms to speed their entry, rather than seeking franchises in individual municipalities. The LECs' competitors, the incumbent cable operators, contended that state-level franchising would present new entrants with fewer obligations than cable companies had faced when they entered the market, specifically the obligation to build networks serving all parts of a community. In 2005, Texas became the first of several states to replace local franchising with a state-level regime for video service providers, with the express purpose of facilitating entry by new competitors. As Table 1 illustrates, many other states have since either replaced municipal franchising with state-level franchising or offered providers a choice. FCC Actions Affecting State and Local Video Service Franchising Terms and Conditions Since 2007, the FCC has repeatedly revisited the authority of states and LFAs to franchise and regulate video service providers. This process culminated in two orders issued in 2019. One (the "2019 LFA 3 rd R&O") sharply limits state and local authority over products offered by video service providers other than video programming. The other order (the "2019 Effective Competition Order") determined that AT&T's streaming service, AT&T TV NOW, meets the LEC test component of Congress's effective local competition definition and therefore provides effective competition to a local cable operator. 2007 Order Addressing Local Franchising of New Entrants In 2007, the FCC found that the local franchising process constituted an unreasonable barrier to new entrants in the marketplace for video services and to their deployment of high-speed internet service. The FCC adopted rules and guidance covering cities and counties that grant cable franchises. However, the agency stated that it lacked sufficient information regarding whether to apply the rules and guidance to state governments that either issued franchises at the statewide level or had enacted laws governing specific aspects of the franchising process. Consequently, the FCC stated that while it would preempt local laws, it would not preempt state laws covering video franchises. Franchise Fee Cap In-Kind Contributions Unrelated to Cable Services Included in Cap The FCC determined that unless certain specified costs, fees, and other compensation required by LFAs are counted toward the statutory 5% cap on franchise fees, an LFA's demand for such fees represents an unreasonable refusal to award a competitive franchise to a new entrant. In addition, the FCC found that some LFAs had required new entrants to make "in-kind" payments or contributions that are unrelated to the provision of cable services. The FCC stated that any requests by LFAs for in-kind contributions that are unrelated to the provision of cable services by a new competitive entrant are subject to the statutory 5% franchise fee cap. Payments Made to Support PEG Operations Included in Cap The FCC contended that disputes between LFAs and new entrants over LFA-mandated contributions in support of PEG services and equipment could lead to unreasonable refusals by LFAs to award competitive franchises. It determined that costs related to supporting the use of PEG access facilities, including but not limited to salaries and training, are subject to the 5% cap, but that capital costs "incurred in or associated with the construction of PEG access facilities" are excluded from the cap. Treatment of Nonvideo Services by LFAs The FCC stated that the LFAs' jurisdiction over LECs and other new entrants applies only to the provision of video services. Specifically, it stated that an LFA cannot use its video franchising authority to attempt to regulate a LEC's entire network beyond the provision of video services. Additional Findings Regarding "Unreasonable" LFA Actions In addition, the FCC found that the following LFA actions constitute an unreasonable refusal to award video franchises to new entrants: 1. failure to issue a decision on a competitive application within the time frames specified in the FCC's order; 2. refusal to grant a competitive franchise because of an applicant's unwillingness to agree to "unreasonable" build-out requirements; and 3. denying an application based upon a new entrant's refusal to undertake certain obligations relating to PEGs and I-Nets. Court Ruling In 2008, the U.S. Court of Appeals for the Sixth Circuit upheld the FCC's rules. 2007 and 2015 Orders Addressing Local Franchising of Incumbent Cable Operators In November 2007, the FCC issued a Second Report and Order that extended the application of several of these rules to local procedures to renew incumbent cable operators' franchises. Specifically, the FCC determined that the rules addressing LFAs' franchise fees, PEG and institutional network obligations, and non-cable-related services and facilities should apply to incumbent operators. It concluded, however, that FCC rules setting time limits on LFAs' franchising decisions and limiting LFA build-out requirements should not apply to incumbent cable operators. Several LFAs petitioned the FCC to reconsider and clarify its Second Report and Order. In 2015, the FCC issued an Order on Reconsideration in which it set forth additional details about its rules with the stated purposes of promoting competition in video services and accelerating broadband deployment. Following the 2015 Order on Reconsideration, the following policies were in place. City and County LFAs Only The FCC clarified that its rules and regulations on franchising applied to city and county LFAs only, not to state-level laws or decisions. The FCC stated that it lacked sufficient information about the state-level franchising process, and suggested that if parties wished the agency to revisit this issue in the future, they should provide evidence that doing so would achieve Congress's policy goals. Franchise Fee Cap In-Kind Contributions Unrelated to Cable Services Included in Cap The FCC included in-kind contributions from incumbent cable operators that were unrelated to the provision of video services within the statutory 5% franchise fee cap. Likewise, the FCC found that payments made by cable operators to support PEG access facilities are subject to the 5% cap, unless they fall under the FCC's definition of "capital costs" associated with the construction of PEG facilities. The FCC made in-kind contributions related to cable services subject to the cap on franchise fees for new entrants as well as for cable incumbents. Treatment of Nonvideo Services by LFAs The FCC determined that LFAs' jurisdiction to regulate incumbent cable operators' services is limited to video services, and does not include voice or data services. Findings Applicable to New Entrants, but Not Incumbents In addition, the FCC found the following LFA actions do not per se constitute an unreasonable refusal to award video franchises to cable incumbents, although they did for new entrants: 1. denying an application based upon an incumbent's refusal to undertake certain obligations relating to PEGs and institutional networks; 2. failure to issue a decision on a competitive application within the time frames specified in the FCC's order; and 3. refusal to grant a competitive franchise because of an applicant's unwillingness to agree to unreasonable build-out requirements. Court Ruling In 2017, the U.S. Court of Appeals for the Sixth Circuit addressed challenges by LFAs to the 2007 Second Report and Order and the 2015 Order on Reconsideration. The court found that the FCC had made sufficiently clear that its rules only apply to city and county LFAs and did not bind state franchising authorities. It determined that the FCC had correctly concluded that noncash contributions could be included in its interpretation of "franchise fee" subject to the 5% limit. However, the court held that the FCC had neither explained why the statutory text allowed inclusion of in-kind cable-related contributions within the 5% cap nor defined what "in-kind" meant. It found that the FCC offered no basis for barring local franchising authorities from regulating the provision of "non-telecommunications" services by incumbent cable providers. It directed the FCC to set forth a valid statutory basis, "if there is one," for applying its rule to the franchising of cable incumbents. The court used the term "non-telecommunications" service rather than "non-video" or "non-cable" service, differing from the distinctions the FCC made with respect to LFAs' authority. 2019 FCC Rulemaking The FCC responded to the court's directives in 2018, and once again proposed rules governing the franchising of cable incumbents. On August 1, 2019, the FCC adopted its Third Report and Order (R&O). The FCC stated that its rules would ensure a more level playing field between new entrants and incumbent cable operators and accelerate deployment of "advanced telecommunications capability" by preempting local regulations that "impose an undue economic burden" on video service providers. The FCC stated that the franchise fees rulings are prospective. That is, video operators may count only ongoing and future in-kind contributions toward the 5% franchise fee cap after September 26, 2019, the effective date of its rules. To the extent franchise agreements conflict with the FCC's rules, the agency encourages the parties to negotiate franchise modifications within a "reasonable timeframe," which it states should be120 days in most cases. Under the new regulations: The FCC oversees state franchising authorities for the first time. Cable-related in-kind contributions from both new entrants and incumbent cable operators are "franchise fees" subject to the 5% cap, with limited exceptions. Such contributions include any nonmonetary contributions related to the provision of video services by incumbent cable operators and LECs as a condition or requirement of a local franchise agreement. Examples include free and discounted cable video service to public buildings; costs in support of PEG access facilities other than capital costs; and costs associated with the construction, maintenance, and service of an I-Net. For purposes of calculating contributions toward the 5% franchise fee cap, video providers and LFAs must attach a fair market value to cable-related in-kind contributions, but the FCC declined to provide guidance on how to calculate fair market value. The definition of PEG "capital costs" subject to the 5% cap includes equipment purchases and construction costs, but does not include the cost of installing the facilities that LFAs use to deliver PEG services from locations where the programming is produced to the cable headend. Requirements that cable operators build out their systems within the franchise area and the cost of providing channel capacity for PEG channels may not be included under the 5% cap. Franchise authorities may not regulate nonvideo services offered over cable systems by incumbent cable operators. The services covered by this prohibition include broadband internet service, business data services, and Voice over Internet Protocol (VoIP) services. "[S]tates, localities, and cable franchising authorities are preempted from charging franchised cable operators more than five percent of their gross revenue from cable [video] services." Thus, LFAs may not include nonvideo service revenues when calculating the 5% cap. The communities of Los Angeles, CA, Portland, OR, and Eugene, OR, have filed a petition with the U.S. Court of Appeals for the Ninth Circuit challenging the FCC's rules. The Ninth Circuit has consolidated the various appellate court challenges, and in November 2019, granted an FCC motion to transfer the now-consolidated petition to the U.S. Court of Appeals, Sixth Circuit. Potential Impact of FCC Rules Table 1 , as well as the following two tables, illustrate how the FCC's rules could potentially affect the franchising process in several states. The FCC's decision to extend its franchising rule to state governments for the first time will subject each of the states listed in the first three columns of Table 1 (i.e., those that issue franchises at the state-level in all or some circumstances) to the FCC's rules. Moreover, the FCC's rules will cover states that oversee municipal franchises via either statute or state-level agencies. Thus, the FCC's franchising rules will affect more video service providers, viewers, and municipal governments than ever before. Trade-Offs Between In-Kind Cable-Related Contributions and General Funds Because the FCC is including cable-related in-kind contributions in its definition of franchise fees subject to the 5% cap, some states and municipalities may need to make a trade-off. Specifically, as Table 2 illustrates, several states require or allow LFAs to require video service providers to offer free and/or discounted video service to public buildings, support of PEG services (other than capital costs), and support of I-Nets. Affected states and municipalities may need to reevaluate the trade-off between in-kind cable-related contributions and general fund revenues. Note that Ohio and Wisconsin prohibit both PEG and I-Net contribution requirements, while Idaho prohibits I-Net contribution requirements. Evaluation of Provider Revenues Subject to Franchise Fee Cap Video-Related Revenues As Table 3 illustrates, some states define "gross revenues" more narrowly than the FCC, excluding, for example , revenues from advertising and home shopping commissions. In those states, as well as others in which municipal LFAs define gross revenues more narrowly than the FCC, PEGs may be able to continue to receive cable-related, in-kind contributions without reducing the monetary contributions they receive, while remaining within the 5% cap. As described in " Franchise Fees and PEGs ," the FCC has included revenues from advertising and home shopping commissions, in addition to revenues from video service subscriptions, in its definition of "gross revenues." LFAs that use similar definitions of "gross revenues," including those subject to state regulation, may already charge the maximum amount of franchise fees permitted by the FCC. Others, however, exclude these sources, and may therefore have more flexibility when evaluating whether or not to continue their cable-related in-kind contributions. Moreover, some states specifically exclude other items when calculating providers' revenue bases that are subject to the franchise fees. Several exclude government fees and/or taxes passed on to subscribers, while Missouri excludes fees and contributions for I-Nets and PEG support from its calculation. The FCC has not specifically addressed whether franchise authorities may include these items in their revenue base calculation. Thus, these states may also have more flexibility when evaluating whether to change video franchises' terms and conditions. Nonvideo Revenues Many states already exclude nonvideo revenues from the calculation of provider revenues subject to the franchise fee cap. New York, however, describes the gross revenues of a video provider subject to the franchising fees as including, among other things, "carrier service revenue." This section of the New York statute does not define "carrier service revenue." A current dispute between New York City and Charter Communications (d/b/a Spectrum) for service within Brooklyn concerns whether "carrier service revenue" received from "additional provided services" may be subject to franchise fees. The FCC's new rules may affect the outcome of this dispute. Moreover, in July 2019, the New York State Public Service Commission approved a settlement of a complaint that Charter has failed to comply with a requirement in its franchise agreement to expand high-speed service. Under the settlement, Charter may continue operating within the state, if it expands its high-speed internet service infrastructure to 145,000 residents in Upstate New York and invests $12 million in providing high-speed internet services to other areas of the state. If Charter contends that the FCC's rules preempt these provisions, it could seek to renegotiate the settlement. The FCC cited a decision by the Supreme Court of Oregon in City of Eugene v. Comcast as an example of states and localities asserting authority to impose fees and requirements beyond their authority. In the decision, the court upheld a local government's 7% license fee on revenue from broadband services provided over a franchised cable system. Thus, while states and municipalities may regulate both video and voice services of telcos, they may only regulate video services of cable operators. Outlook for State and Municipal Franchise Fees If a state or municipality may charge franchise fees to cable operators and telcos only with respect to video services, the total amount of fees received is likely to decrease over time. As Figure 1 indicates, the total number of U.S. households subscribing to cable and telco video services has declined over the past 10 years. In 2010, about 70.8 million households subscribed to either a cable operator or a telco, compared with about 60.1 million households in 2019. In place of cable, more households have elected to rely on video provided over broadband connections or broadcast transmission. For cable operators in particular, this substitution of alternative sources of programming has led to the pursuit of revenue from nonvideo services, such as voice and high-speed data. In 2010, video services represented about 63% of total cable industry revenue, whereas in 2019 video represented 46% of total industry revenue ( Figure 2 ). Pursuant to the FCC's proposed rules, these other sources of revenue are not subject to LFAs' jurisdiction. In addition, the U.S. Court of Appeals for the Eighth Circuit held that a cable operator's voice services are not a telecommunications service, and therefore not subject to state regulation. In October 2019, the U.S. Supreme Court denied the Minnesota Public Utility Commission's petition hear the case. In Missouri, the City of Creve Coeur and other municipalities filed a class action lawsuit against satellite operators DIRECTV, DISH Network, as well as online streaming services Netflix Inc., and Hulu LLC, claiming that the companies must pay a percentage of gross receipts from video services to the municipalities where they do business, pursuant to Missouri's Video Services Providers Act. The state law allows Missouri's political subdivisions to collect up to 5% of gross receipts from providers of video programming and requires providers to register before providing service in the state, according to court documents. The municipalities claim the defendants have not paid the required amounts. Other localities may follow suit. A bill before the Illinois General Assembly would impose a 5% tax (rather than a "franchise fee") on the video service revenues of direct broadcast satellite operators and online video services for the right to provide services to Illinois residents. Similarly, a bill before the Massachusetts House of Representatives would impose a 5% fee on revenues earned by streaming video services. Massachusetts would split the money collected from the fees between the state's general fund (20%), municipalities (40%), and PEG programmers (40%). If receipts from cable franchise fees continue to erode, more states and municipalities may respond by seeking alternative revenue sources. Preemption of Rate Regulation In 2014, Congress enacted the Satellite Television Extension and Localism Act Reauthorization Act (STELA Reauthorization Act; P.L. 113-200 ). Section 111 of the act directed the FCC to develop a streamlined process for the filing of "effective competition" petitions by small cable operators within 180 days of the law's enactment. A cable company filing such a petition bears the burden of proof to demonstrate that it faces effective competition for its video services. The FCC responded in 2015 by adopting a rebuttable presumption that cable operators are subject to effective competition. As a result, the FCC prohibited franchising authorities from regulating basic cable rates unless they can demonstrate that the cable system is not subject to effective competition. The FCC stated that the change in its effective competition definition was justified by the fact that direct broadcast satellite service was available as an alternative video services provider throughout the United States. Later in 2015, the FCC found that LFAs in two states, Massachusetts and Hawaii, demonstrated that cable systems in their geographic areas were not subject to effective competition, and permitted them to continue to regulate the rates of the basic tiers of cable services. However, in September 2018, Charter Communications (Charter), a cable provider, asked the FCC to find that AT&T's DIRECTV NOW, a streaming service that AT&T has since rebranded as AT&T TV NOW, provides effective competition to cable systems in Kauai, HI, and 32 Massachusetts communities. In October 2019, the FCC agreed and issued an order granting Charter's petition, finding for the first time that an online streaming service affiliated with a LEC meets the LEC test in Congress's definition of effective competition. The FCC found that [AT&T TV NOW] need not itself be a LEC and AT&T need not offer telephone exchange service in the franchise areas.... There is no requirement ... that a LEC provide telephone exchange service in the same communities as the competing video programming service. Thus, if even AT&T TV NOW's subscribers rely on internet service from Charter to receive AT&T TV NOW's programming, the FCC considers AT&T TV NOW to be a competitor to Charter with respect to the distribution of video programming. According to the FCC, Congress adopted the LEC test because LECs and their affiliates "are uniquely well-funded and well-established entities that would provide durable competition to cable," and not because [Congress was] focused on facilities-based competition. Meanwhile, some localities have enacted legislation with the goal of reducing prices consumers pay for video services. A 2019 Maine law would require video service providers to offer networks and programs on an a la carte basis instead of offering subscribers only bundles of channels. Several cable operators, broadcasters, and content providers have sued to overturn the law. In January 2020, a federal judge blocked the implementation of the law as the parties prepare for trial. Considerations for Congress These regulatory developments and industry trends raise several potential issues for Congress to consider. First, Congress could consider whether the FCC's interpretation of the Communications Act is consistent with the policy goals set forth in Section 601 of the Communications Act (47 U.S.C. Â§521) and Section 706 of the Telecommunications Act. Specifically, Congress could explore the extent, if any, to which state and local regulations designed to promote the availability of PEG programming and I-Nets. Second, Congress could evaluate whether to create regulatory parity with respect to local regulation of nonvideo services of cable and telcos. While states and municipalities may regulate both video and voice services of telcos, they may only regulate video services of cable operators. Congress could address regulatory parity by either deregulating traditional telcos' nonvideo services or regulating cable operators' nonvideo services. Third, as the FCC and local governments include online video providers in their definitions of video providers for the purposes of evaluating competition and/or imposing franchise fees, Congress could clarify whether these actions achieve its stated policy goals. For example, if, in contrast to the FCC's interpretation of the LEC test for effective competition, Congress intends to include only facilities-based video services in its definition of video service competition, it could delineate the definition in communications laws. Likewise, as online video services become more prevalent and states and municipalities target them for franchise fees, Congress could specify the authority, if any, to regulate them. Finally, while the FCC has determined that competition among video programming distribution services has eliminated the need for rate regulation of the basic tier of cable services, Maine enacted a law to enable consumers to pay only for video programming they choose, in lieu of bundles of channels. In the past, some Members of Congress have proposed statutory changes to require video programming distributors to offer individual channels to consumers in addition to bundles of channels, and Congress could consider revisiting this issue, or alternatively clarifying that states and local governments lack authority to enact such laws.