Precision-Guided Munitions: Background and Issues for Congress

Summary: Over the years, the U.S. military has become reliant on precision-guided munitions (PGMs) to execute military operations. PGMs are used in ground, air, and naval operations. Defined by the Department of Defense (DOD) as "[a] guided weapon intended to destroy a point target and minimize collateral damage," PGMs can include air- and ship-launched missiles, multiple launched rockets, and guided bombs. These munitions typically use radio signals from the global positioning system (GPS), laser guidance, and inertial navigation systems (INS)âusing gyroscopesâto improve a weapon's accuracy to reportedly less than 3 meters (approximately 10 feet).

Summary: Precision munitions were introduced to military operations during World War II; however, they first demonstrated their utility operationally during the Vietnam War and gained prominence in Operation Desert Storm in 1991. Since the 1990s, due in part to their ability to minimize collateral damage, PGMs have become critical components in U.S. operations, particularly in Afghanistan, Iraq, and Syria. The proliferation of anti-access/area denial (A2/AD) systems is likely to increase the operational utility of PGMs. In particular, peer competitors like China and Russia have developed sophisticated air defenses and anti-ship missiles that increase the risk to U.S. forces entering and operating in these regions. Using advanced guidance systems, PGMs can be launched at long ranges to attack an enemy without risking U.S. forces. As a result, DOD has argued it requires longer range munitions to meet these new threats.

Summary: The Air Force, Army, Navy, and Marine Corps all use PGMs. In FY2021, the Department of Defense (DOD) requested approximately $4.1 billion for more than 41,337 weapons in 15 munitions programs. DOD projects requesting approximately $3.3 billion for 20,456 weapons in FY2022, $3.9 billion for 23,306 weapons in FY2023, $3.9 billion for 18,376 weapons in FY2024, and $3.6 billion for 16,325 weapons in FY2025. Previously DOD obligated $1.96 billion for 13,985 weapons in FY2015, $2.98 billion for 35,067 weapons in FY2016, $3.63 billion for 44,446 weapons in FY2017, $5.05 billion for 68,988 weapons in FY2018, and $4.3 billion in FY2019 for 60,62 munitions. In FY2020, Congress authorized $5.30 billion for 56,067 weapons.

Summary: Current PGM programs can be categorized as air-launched, ground-launched, or naval-launched.

Summary: Air-Launched: Paveway Laser Guided Bomb, Joint Direct Attack Munition (JDAM), Small Diameter Bomb, Small Diameter Bomb II, Hellfire Missile, Joint Air-to-Ground Missile, Joint Air-to-Surface Strike Missile (JASSM), Long Range Anti-Ship Missile (LRASM), and Advanced Anti-Radiation Guided Missile. Ground - Launched: Guided Multiple Launch Rocket System (GMLRS), Army Tactical Missile System (ATACMS), and Precision Strike Missile (PrSM); Naval PGMs: Tomahawk Cruise Missile, Standard Missile-6 (SM-6), and Naval Strike Missile.

Summary: Congress may consider several issues regarding PGMs, including

Summary: planned procurement quantities and stockpile assessments, defense industrial base production capacity, development timelines, supply chain security, affordability and cost-effectiveness, and emerging factors that may affect PGM programs.

This report focuses on selected precision-guided munitions (PGMs) fielded by the Air Force, Army, Navy, and Marine Corps. Over the years, the U.S. military has relied on PGMs to execute ground, air, and naval military operations. PGMs have become ubiquitous in U.S. military operations; funding for these weapons has increased dramatically from FY1998 to the present as depicted in. In FY2021, the Department of Defense (DOD) requested approximately $4.1 billion for more than 41,337 weapons in 15 munitions programs. DOD projects requesting approximately $3.3 billion for 20,456 weapons in FY2022, $3.9 billion for 23,306 weapons in FY2023, $3.9 billion for 18,376 weapons in FY2024, and $3.6 billion for 16,325 weapons in FY2025.

Congress, through the defense authorization and appropriations bills, has historically exercised its role in the decision to approve, reject, or modify DOD's proposals for PGMs. In addition, these programs pose a number of potential oversight issues for Congress. Congress's decisions on these issues could affect future U.S. military capabilities and funding requirements. Potential issues for Congress include

DOD defines a PGM as "[a] guided weapon intended to destroy a point target and minimize collateral damage." In addition to these virtues, PGMs also offer other advantages over unguided weapons, namely range and the reduction in numbers of combat sorties required to deliver the desired effects on the battle field. The main disadvantage of these weapons is cost; particularly long range missiles. PGMs include air- and ship-launched missiles, multiple launched rockets, and guided bombs. Current munitions typically use a combination of radio signals from the global positioning system (GPS), laser guidance, and inertial navigation systems (INS)âusing gyroscopesâto improve a weapon's accuracy to reportedly less than 3 meters (approximately 10 feet). PGMs have transformed attack operations from the air; instead of using hundreds of bomber sorties to attack a single target, a single sortie from a PGM-carrying platform can attack multiple targets while minimizing collateral damage.

Guided munitions were first developed in the 1940s, when the U.S. Army Air Corps tested radio guidance to glide bombs onto a target. Prior to precision guidance, bomber missions reported an accuracy of 1,200 feet; 16% of munitions dropped by crews landed within 1,000 feet of their intended target. According to defense analyst Barry Watts, guidance systems showed promise in improving weapon accuracy; however, these systems were not fully fielded during the Second World War. This can partly be attributed to technological challenges in developing guidance systems, as well as relatively large unit costs per munition used. Guidance systems during this era used television signals, and required a chase aircraft to provide command and control for the weapon to strike its target.

DOD continued to develop PGMs through the 1950s and 1960s, where they gained prominence during the Vietnam War with the introduction of the laser-guided bomb. Laser-guided bombs became a preferred munition for bombing operations; an Air Force study in 1973 found that the U.S. military used more than 10,500 laser-guided bombs the previous year, with 5,107 weapons achieving a direct hit and another 4,000 achieving a circular error probable of 25 feet. During the 1970s and 1980s, all of the military services developed guided missiles capable of attacking fixed and moving targets. Laser-guided bombs gained prominence during Operation Desert Storm in 1991. Although PGMs represented only 6% of the total munitions used during the campaign, they struck a number of critical targets, reduced the number of combat sorties required, and limited collateral damage to civilian structures.

Operations over the past decade in Afghanistan, Iraq, and Syria have demonstrated DOD's increasing reliance on PGMs and how important they have become for modern military operations. The Air Force reports that nearly 139,000 weapons have been used in combat operations in the Middle East since 2014. Counter-Islamic State (IS) operations in Iraq and Syria have used numerous weapons: in 2015, coalition air forces used more than 28,000 weapons; in 2016, the campaign used an additional 30,700 weapons; and in 2017 (the height of operations), the campaign used 39,500 weapons (see Figure 2 for a graphical representation of operational usage compared to DOD procurement). Nearly all of the weapons employed were PGMs, particularly Joint Direct Attack Munitions (JDAMs) and Hellfire Missiles.

In addition to PGM use in current operations, the proliferation of anti-access/area denial (A2/AD) systems is likely to increase the operational utility of PGMs. Anti-access systems can be defined as capabilities "associated with denying access to major fixed-point targets, especially large forward bases." Area denial systems can be defined as capabilities "that threaten mobile targets over an area of operations, principally maritime forces, to include those beyond the littorals." Peer competitors like China and Russia have developed sophisticated air defenses, such as the S-300PMU (SA-20) and S-400 (SA-21), the HQ-9 surface-to-air missile (China), the DF-21D and DF-26 anti-ship ballistic missiles (China), and the 3M-54 Kaliber anti-ship cruise missile (Russia). Figure 3 illustrates ranges of potential A2/AD systems. These systems outrange U.S. weapons systems at what experts assess as unacceptable riskâsome of these weapons have reported ranges in excess of 1,000 nautical miles. As a result, U.S. ships and aircraft would need to engage targets at long ranges in order to not put themselves in danger. For instance, naval ships could be threatened at ranges of 809 nautical miles from bases that field DF-21D anti-ship ballistic missiles.

The effectiveness of these missiles is often debated, as is the amount of risk an anti-ship ballistic missile presents to naval forces. Some analysts argue that in a combat situation, aircraft carriers would not enter these weapons' engagement zones because of the threat. Others argue that while there is some risk posed to naval forces, aircraft carriers and major surface combatants would nonetheless be able to operate effectively. Similarly, an S-400 (SA-21) presents risks to aircraft at ranges of up to 215 nautical miles. Many weapons in the U.S. inventory have relatively short ranges. Figure 4 illustrates the impact that A2/AD systems have on potential military operations. Some analysts argue that U.S. forces would substantially increase their operational risk at ranges in excess of 500 nautical miles (NM).

The Paveway is a family of guidance kits that attach to unguided bombs. The assembly includes a guidance seeker on the nose of the bomb, which looks for a laser to mark a target, and a tail kit to guide the bomb onto the target. The Paveway series was originally developed during the Vietnam War to enable tactical aircraftâlike the F-4 Phantom and the A-6 Intruderâto deliver precise munitions onto a target. Paveway has received several upgrades, with the development of Paveway III (in the 1990s), which improves low-altitude guidance, and Paveway IV (in the late 1990s), which adds satellite guidance to improve accuracy. The U.S. military predominately uses Paveway II (see Figure 5 and Figure 6 ) and Paveway III kits; Paveway IV is used exclusively by foreign militaries.

According to IHS Janes, Raytheon has produced more than 350,000 Paveway kits, with Lockheed Martin producing an additional 200,000 kits. Funding for Paveway procurement appears in the Air Force's General Purpose Bomb line item; however, the Air Force does not report procurement quantities in its budget justification documentation. DOD has exported Paveway II kits to more than 30 countries, and exported Paveway III kits to at least 9 countries. Paveway IV is used by the United Kingdom, the Philippines, Saudi Arabia, and Qatar.

JDAM modifies unguided bombsâsuch as the 500-pound Mk-82, the 1,000-pound Mk-83, and the 2,000-pound Mk-84âwith GPS guidance. (For a fully assembled JDAM, see Figure 7 ; for a JDAM tail kit, see Figure 8 .) When a JDAM kit is attached, the weapon is designated as GBU-31/32/38 depending on the weight of the bomb. These weapons have a reported range of 13 nautical miles. The Air Force and Navy began studying how to deliver such weapons in a program known as the Advanced Bomb Family during the 1980s. The first JDAMs were delivered in 1997, and underwent operational testing between 1998 and 1999. JDAM kits are reported to have an accuracy to within 3 meters (approximately 10 feet). The first operational use of a JDAM was during Operation Allied Freedom in Kosovo by a B-2 Spirit bomber. Since their development, JDAMs have been integrated with all U.S. fixed-wing strike platforms.

JDAMs have received several upgrades since their introduction into service. One of the major developments has been developing a laser guidance system in addition to receiving GPS guidance. Adding laser guidance enables JDAMs to strike both moving and fixed targets. In February 2020, Boeing announced its intention to develop a "powered" JDAM to provide a low-cost alternative to cruise missiles. According to Air Force Magazine, this new JDAM would use a 500-pound bomb, and would be the size of a 2,000-pound bomb. Boeing has not stated a unit cost for this new development.

DOD has procured more than 371,000 JDAM kits since 1998, and it plans to procure an additional 75,000 between FY2020 and FY2024. According to IHS Janes, the Air Force originally projected procuring 270,000 JDAM kits. Production peaked at 30,000 kits prior to 2007 before declining until 2015. Increased operational use in Iraq and Syria, in particular, resulted in a reduction in JDAM stockpiles, leading to increased procurement from FY2016 through FY2020. Table 1 outlines the FY2020 request, along with the programmed force between FY2021 through FY2024. The DOD projects to reduce JDAM procurement in the future years defense program (FYDP); the current programmed force for FY2021 reduces procurement from more than 40,000 tailkits in FY2020 to approximately 10,000 tailkits in FY2021 and ends the FYDP with approxmately 3,700 tailkits in FY2024. In addition to U.S. military use, JDAMs have been exported to 26 countries, including Australia, Bahrain, Denmark, Finland, Israel, Italy, Japan, Kuwait, Pakistan, Saudi Arabia, Singapore, South Korea, Taiwan, Turkey, and the United Arab Emirates.

Small Diameter Bomb (SDB) and Small Diameter Bomb II

The Small Diameter Bomb, designated as GBU-39 ( Figure 9 ), is a 250-pound guided bomb. The SDB can use both GPS and laser guidance, enabling it to strike both fixed and moving targets. In 1997, responding to improvements in accuracy due to GPS, the Air Force stated a need to develop a smaller bomb to reduce collateral damage. The SDB reached initial operating capability in 2006. According to the Air Force, the SDB has a range of approximately 40 nautical miles. The SDB was specifically designed around space constraints in both the F-22 Raptor and F-35 Lightning II aircraft to enable these fighter aircraft to carry SDBs internally, while protecting their low observable signature.

The Air Force developed a second small diameter bomb, the GBU-53 laser-guided smaller diameter bomb, or SDB II (see Figure 10 ). The added laser guidance enables the SDB II to strike both fixed and moving targets. SDB II uses Link 16 and ultra-high frequency datalinks, along with infrared guidance, to provide course corrections. Development for the SDB II began in 2005, and the Air Force declared initial operating capability in 2019. The U.S. exports SDB II to Australia and South Korea as of 2019.

The Air Force procures SDBs as of 2019. From FY2005 through FY2019, the Air Force purchased more than 28,000 SDBs for more than $1.7 billion. Both the Air Force and the Navy requested more than 7,000 SDBs in FY2020 (the second-largest procurement on the line) for $275 million, and plan to procure an additional 8,400 SDBs from FY2021 through FY2024. In addition both services are procuring SDB IIs. Procurement of the SDB II began in FY2018 with 80 bombs, increasing to 1,200 bombs in FY2019. DOD requested 1,900 bombs in FY2020 for approximately $331 million, and it plans to purchase more than 10,500 SDB IIs from FY2021 through FY2024 for $1.6 billion (see Table 2 ).

In the early 1970s, the Army developed a requirement for an anti-tank missile, which resulted in the AGM-114 Hellfire (see Figure 11 ). The first Hellfire was introduced into service in 1982 on the Army's AH-64 Apache, using laser guidance to target tanks, bunkers, and structures. Hellfire missiles have a maximum effective range of 4.3 nautical miles. By the mid-1980s, the Marine Corps had introduced Hellfire missiles to its attack helicopter fleet. Hellfire missiles have received continual upgrades over the past decades, including integrating infrared sensors, warheads to target small boats, and integration with the Apache's Longbow radar. During the late 1990s and early 2000s, Hellfire missiles were introduced to the MQ-1 Predator, and later to the MQ-9 Reaper, enabling unmanned aerial vehicles to provide a strike capability.

Hellfire missiles have become a preferred munition for operations in the Middle East, particularly with increased utilization of unmanned aircraft like MQ-1s and MQ-9s. Hellfire missiles have been exported to a number of countries, including Australia, Bahrain, Egypt, India, Iraq, South Korea, Kuwait, Qatar, Saudi Arabia, Taiwan, Turkey, United Arab Emirates, and the United Kingdom.

The Army and the Marine Corps identified the need to replace the Hellfire missile. During the mid-2000s, the two services started a new development project called the Joint Air-to-Ground Missile (JAGM), which entered testing in 2012. Both services plan to replace the Hellfire with the JAGM; however, it is unclear when they plan to make the transition.

All three military departments procure Hellfire missiles. From 1998 through 2018, DOD procured more than 71,500 missiles at a cost of $7.2 billion. Congress appropriated nearly $484 million for approximately 6,000 missiles in FY2019. For FY2020, DOD requested approximately $730 million for 9,000 Hellfire missiles, and it plans to purchase 13,100 missiles at a cost of $1.2 billion between FY2021 and FY2024 ( Table 3 ). In its FY2020 recent budget request, DOD states that it is requesting to procure the maximum production of Hellfire missiles.

AGM-169 Joint Air-to-Ground Missile (JAGM)

The Joint Air-to-Ground Missile is designed to replace the Hellfire, TOW, and Maverick missiles. JAGM uses a new warhead/seeker paired with an existing AGM-114R rocket motorâwhich is the latest modelâto provide improved target acquisition and discrimination (see Figure 12 ). The JAGM has a maximum effective range of 8.6 nautical miles when launched from a helicopter and 15.1 nautical miles when launched from fixed-wing aircraft.

JAGM underwent testing starting in 2010, and the missile entered initial operating capability in 2019, having been successfully integrated on the AH-64E Apache and AH-1Z Super Cobra attack helicopters. JAGM is expected to be integrated on other platforms as well, including the FA-18E/F Super Hornet, MQ-1C Grey Eagle, MH-60M Defensive Air Penetrator, MH-60S Seahawk, F-35 Lightning II, and P-8 Poseidon. In addition, the Air Force has begun procuring JAGMs but has not announced publicly what platforms will employ the missile.

JAGM entered low-rate initial production in FY2017. All three services are procuring JAGM, though the Air Force is requesting only 60 missiles in FY2020, with no projections of additional procurement. DOD requested more than $339 million and 1,000 missiles for FY2020, and it projects procuring approximately 4,600 additional missiles through FY2024 for about $1.5 billion (see Table 4 ).

AGM-158A/B Joint Air-to-Surface Strike Missile (JASSM) and AGM-158C Long-Range Anti-Ship Missile (LRASM)

The Joint Air-to-Surface Strike Missile was conceived in the mid-1990s as a stealthy cruise missile designed to strike targets in heavily defended airspace. The JASSM is a 14-foot-long, 2,250-pound missile that can be carried internally on B-1B Lancer and B-52 Stratofortress aircraft and carried externally on a number of tactical fighters, including the F-16 Falcon, F-15E Strike Eagle, F/A-18 Hornet, F/A-18E/F Super Hornet, and F-35 Lightning II (see Figure 13 ). The AGM-158A JASSM has a stated range of more than 200 nautical miles. Initial operating capability was declared in 2005 (see Figure 14 ). AGM-158As have been exported to Australia, Finland, and Poland.

In 2004, the Air Force decided that it required additional range on the JASSM and developed an extended range version, the AGM-158B JASSM-ER. The JASSM-ER uses the same body as the previous version with an improved infrared seeker, a two-way datalink, and enhanced anti-jam GPS receiver. The range of the JASSM-ER increased from more than 200 nautical miles to 500 nautical miles. This munition reached initial operating capability in 2014 on the B-1B Lancer. It reached full operating capability in 2018 with integration onto the F-15E Strike Eagle, and it is in full-rate production. The Air Force originally planned to procure 2,866 JASSMs and JASSM-ERs, but it has since changed the requirement to 7,200 missiles; as of 2019 the Air Force has procured more than 4,000 JASSMs. Japan has expressed interest in procuring JASSM-ERs, and Poland was approved to receive 70 missiles in 2016. The Air Force announced plans in September 2019 to increase JASSM production to a maximum rate of 550 missiles per year. The Service intends to grow the total JASSM inventory to approximately 10,000 missiles. In February 2020, the Air Force announced an $818 million contract to produce the latest version of the JASSM-Extreme Range Missile. According to Inside Defense, this new contract will produce 790 JASSM-ER missiles over two production lots. The new production contract includes 40 JASSM missiles to support foreign military sales; however, it is unclear which country will receive these missiles.

The Long Range Anti-Ship Missile (LRASM) was conceived by the Defense Advanced Research Projects Agency (DARPA) as a concept to use a JASSM body to replace the AGM-88 Harpoon. Flight testing for LRASM began in 2012 on board a B-1B, and the missile was tested on an F/A-18E/F Super Hornet. LRASM uses a combination of passive radio-frequency sensors, and electro-optical/infrared seekers for terminal guidance. Japan has expressed interest in procuring the LRASM. In September 2019, the Air Force announced its intent to procure up to 410 LRASM missiles, changing its plan from an original estimate of 110 missiles.

The JASSM-ER and the LRASM are produced in the same facility. According to budget documents, DOD states that JASSM and LRASM procurement in FY2020 is at maximum production rate. The Air Force and Navy are procuring JASSM-ER and LRASM as of 2019. In FY2020, DOD requested to procure 430 JASSM-ER missiles and an additional 48 LRASMs (see Table 5 ). In September 2019, the Air Force announced plans to increased JASSM production to 500 missiles per year, with additional capacity to up produce 96 LRASMs. DOD projects reduced procurement quantities of JASSM-ER, while maintaining procurement quantities of LRASM through FY2024.

AGM-88E Advanced Anti-Radiation Guided Missile (AARGM)

The Advanced Anti-Radiation Guided Missile is designed to target enemy integrated air defenses, specifically guidance radars (see Figure 15 ). AARGM was conceived in 2001 to replace the High-Speed Anti-Radiation Missile (HARM). DOD identified several deficiencies in the HARM that limited its operational effectiveness during Operation Iraqi Freedom. Thus, AARGM incorporated a new solid-propellant rocket motor that improved its range over the HARM, along with new guidance and seeker systemsâusing GPS inertial navigation for guidance and millimeter wave and W-band (higher than 40 GHz) sensors.

AARGM entered operational testing in 2010 and initial operational capability in 2012. AARGM has been integrated on the F/A-18C/D Hornet, F/A-18E/F Super Hornet, E/A-18G Growler, F-16C/D Falcon, and the F-35 Lightning II.

Both the Navy and the Air Force have procured the AARGM or its predecessor the HARM; however, neither service is procuring additional missiles as of FY2020. The Navy, however, has requested $183 million of procurement appropriations to modify its current stockpile of AARGMs. The Air Force has not requested appropriations to modify its stockpile of HARMs since FY2016. Table 6 describes the total DOD request for AARGM. AARGM has been exported to a number of countries, including Australia, Italy, Finland, Germany, and Poland.

GMLRS (see Figure 16 ) is a GPS-guided 227-millimeter rocket that was jointly developed by the United States, France, Germany, Italy, and the United Kingdom. Development began in 1999, and the U.S. military began procuring GMLRS in FY2003. GMLRS is capable of being launched from the M270 multiple launch rocket system (MLRS) and the M142 High Mobility Artillery Rocket System (HIMARS). GMLRS has a 200-pound unitary warhead and a maximum range of 70 kilometers.

Both the Army and the Marine Corps have procured GMLRS. Since 1998, DOD has spent nearly $5.4 billion to procure more than 42,000 rockets. DOD has requested more than $1.2 billion for approximately 9,900 rockets in FY2020, and it plans to spend an additional $4.3 billion for nearly 29,000 GMLRS between FY2021 and FY2024. In addition, GMLRS is being exported: Bahrain, United Arab Emirates, Poland, and Romania are procuring GMLRS, as are the development partners (France, Germany, Italy, and the United Kingdom). See Table 7 for an overview of the current DOD request for GMLRS.

ATACMS (see Figure 17 ) is a 610-millimeter rocket that can be launched from either the M270 MLRS (two rockets) or the M142 HIMARS (a single rocket). This rocket was originally developed in the 1980s and was later updated to provide GPS guidance. ATAMCS underwent a second upgrade in 1991, which allowed ATACMS warheads to seek and attack armored targets. Other upgrades have improved target discrimination and new penetrating warheads for hardened targets. In 2016, then-Secretary of Defense Ash Carter announced that the Strategic Capabilities Office had developed a new seeker that allowed the ATACMS rocket to target ships. The Army has stated that it intends to retire the ATACMS and replace it with the new Precision Strike Missile.

The Army is procuring ATACMS in FY2020, though this procurement will curtail as the Precision Strike Missile enters service. DOD requested to procure 240 missiles for $340 million in FY2020; it plans to procure 492 missiles for $611 million between FY2021 and FY2024. Table 8 provides an overview of the most recent request for ATACMS. Five hundred and six ATACMS have been exported to a number of countries, including the United Arab Emirates and Romania.

The PrSM is a new development program intended to replace ATACMS. PrSM is designed to be launched from the M270 and the M142 HIMARS multiple rocket launcher system. The Army states that PrSM is designed to launch two missiles in a launcher pod compared to ATACMS single missile, has a range in excess of 400 kilometers, and has an anti-jam GPS antenna. PrSM is in development and is planned to enter early operational service in FY2023. The Army has not stated when it intends to begin testing the PrSM. The Army states that although this missile might be sold to foreign militaries in the future, there are no purchase commitments from foreign governments as of 2019. The Army tested the PrSM at White Sands, NM, in its first flight test in December 2019. In its second test in March 2019, the Army successfully tested the PrSMs short-range capabilities.

The Tomahawk cruise missile was originally developed during the early- to mid-1970s. It was designed to be launched by submarines and from surface combatants. Designed to fly at 570 miles per hour (Mach 0.74, or 74% of the speed of sound) for up to 870 nautical miles, the Tomahawk has received a number of upgrades since it entered service. The Tomahawk Block IV is the current cruise missile in production and comes in two versionsâone for surface ships and another for submarines (see Figure 19 ). Upgrades have included improvements to GPS guidance, satellite datalink communications, and propulsion. The first operational use of the Tomahawk was during Operation Desert Storm, where the Navy launched 290 missiles from 12 submarines. Since then, IHS Janes reports that the Navy has used more than 1,600 missiles in Iraq, Bosnia, Serbia, Afghanistan, and Syria. The United Kingdom is the only export customer of the Tomahawk Block IV.

From FY1998 through FY2018, the Navy spent $5.87 billion on 4,984 Tomahawk cruise missiles. The Navy has requested nearly $387 million for 90 missiles in FY2020, and it projects to procure an additional 90 missiles for nearly $374 million in FY2021, with no plans to procure additional missiles in FY2022-FY2024. The Navy projects requesting $819 million for additional procurement appropriations. (See Table 10 for the most recent Tomahawk request.)

The Standard Missile-6 was originally designed in 2004 as an anti-aircraft missile, derived from the Navy's SM-2 Block IV (see Figure 20 ). Since its development, the SM-6 has been integrated into the Navy's Naval Integrated Fires-Counter Air (NIF-CA) program to strike enemy surface ships. The missile was designed to receive targeting information from AEGIS radars and has been upgraded to receive target information from the E-2D Advanced Hawkeye. In addition to anti-air and anti-surface missions, the SM-6 is also capable of performing anti-ballistic missile missions. SM-6 entered low-rate initial production in FY2009 and full rate production in FY2013.

The SM-6 is funded under the Navy's procurement line item 2234 Standard Missile. According to the latest Selected Acquisition Reports, DOD increased the requirement for SM-6 missiles from 1,800 to 2,331. DOD requested $488 million for 125 missiles in FY2020; it is projected that DOD will procure an additional 615 missiles between FY2021 and FY2024 at a cost of nearly $2.9 billion. Table 11 provides an overview of the current DOD request for SM-6 missiles.

The Naval Strike Missile was originally developed by the Norwegian company Kongsberg as a replacement for the Penguin anti-ship missile (see Figure 21 and Figure 22 ). This missile is an anti-ship, low-observable cruise missile capable of flying close the surface of the ocean to avoid radar detection. IHS Janes states that "[t]heÂ  NSM Â airframe materials andÂ missileÂ shape are intended to minimise its infrared (IR) and radar signatures and radar cross section." The NSM is designed to fly multiple flight profilesâdifferent altitudes and speedsâwith effective ranges of between 100 and 300 nautical miles at a cruise speed of up to 0.9 Mach. The Navy has integrated the NSM on its Littoral Combat Ship, which deployed into the Pacific region in September 2019.

The Navy began procuring the NSM in FY2019 under the Littoral Combat Ship Over-the-Horizon Missile procurement line (see Table 12 ). The Navy has requested $38 million for 18 missiles, and it plans to spend approximately $166 million for an additional 83 missile through FY2024. According to its budget justification, the Navy does not have a specific requirement for the number of missiles it plans to procure.

Planned procurement quantities and stockpile assessment. One potential issue for Congress is whether DOD's desired quantities of standoff munitions are appropriate. Current operations have demonstrated a large demand for all types of PGMs. A potential high-intensity conflict would potentially require large stockpiles of all types of weapons. Several of these types of munitionsâparticularly JASSM, LRASM, and AARGMâare being procured in relatively small quantities, given their potential use rates in a high-intensity conflict scenario, along with the time it would take for replacement spent munitions once initial inventories are exhausted. A related issue is whether DOD has adequately assessed the sufficiency of existing and planned PGM stockpiles, particularly in light of recent use rates for such weapons. Congress has from time to time required DOD to assess munitions requirements, as well as to report on combatant command munitions requirements. More recently, Congress required DOD to provide an annual report on the munitions inventory, along with an unconstrained assessment of munitions requirements. Defense industrial base production capacity. Another potential issue for Congress concerns the defense industrial base's capacity for building PGMs, particularly for meeting increased demands for such weapons during an extended-duration, high-intensity conflict. The question is part of a larger issue of whether various parts of the U.S. defense industrial base are adequate, in an era of renewed great power competition, to meet potential wartime mobilization demands. Supply chain security. Another potential issue for Congress concerns supply chain security, meaning whether U.S. PGMs incorporate components, materials, or software of foreign origin. Supply chain security could affect wartime reliability of these weapons as well as the ability of the U.S. industrial base to build replacement PGMs in a timely manner during an extended-duration, high-intensity conflict. Development timelines. Congress may be concerned about the development timeline of PGMs compared with development timelines of adversary A2/AD capabilities. China and Russia have developed sophisticated systems over the past 10 years, while DOD has developed relatively few systems. Some analysts argue that these systems can exceed DOD munitions capabilities (such as range and speed). Can and, if so, should DOD develop new systems and at a pace that can match or exceed that of Chinese or Russian weapons systems? Affordability and cost-effectiveness. Congress may also be concerned about the affordability of DOD's plans for procuring various PGMs in large numbers, and the cost-effectiveness of PGMs relative to other potential means of accomplishing certain DOD missions, particularly in a context of finite DOD resources and competing DOD program priorities. Another aspect of cost-effectiveness concerns the cost of the weapon compared to the cost of a target. For instance, in 2017 a U.S. ally used a $3 million Patriot missile to engage a $300 quadcopter drone. Emerging factors that may affect PGM programs. Another potential issue for Congress is how DOD's programs for developing and procuring PGMs might be affected by emerging factors such as the U.S. withdrawal from the Intermediate Nuclear Force (INF) treaty; new U.S. military operational concepts for countering Chinese A2/AD forces in the Indo-Pacific region, such as the Army's new Multi-Domain Operations (MDO) operational concept and the Marine Corps' new Expeditionary Advanced Base Operations (EABO) concept, both of which possibly feature the potential use of such weapons from island locations in the Pacific as a way of countering China's A2/AD forces; and emerging technologies such as hypersonics and artificial intelligence (AI).

Appendix A. Prior Year Procurement by Service

Appendix B. Prior Year Procurement by Program


Potential Effect of FCC Rules on State and Local Video Franchising Authorities

Summary: Local and state governments have traditionally played an important role in regulating cable television operators, within limits established by federal law. In a series of rulings since 2007, the Federal Communications Commission (FCC) has further limited the ability of local governments (known as local franchise authorities ) to regulate and collect fees from cable television companies and traditional telephone companies (known as telcos ) offering video services.

Summary: In August 2019, in response to a ruling by a federal court of appeals, the FCC tightened restrictions on municipalities' andâfor the first timeâon states' ability to regulate video service providers. The Communications Act of 1934, as amended, still allows local governments to require video service operators to provide public, educational, and government (PEG) channels to their subscribers. The FCC's August 2019 order, however, sets new limits on local governments' ability to collect fees from operators to support the channels. In addition, the FCC ruled that local franchise authorities could not regulate nonvideo services offered by incumbent cable operators, such as broadband internet service, business data services, and Voice over Internet Protocol (VoIP) services. In October 2019, also for the first time, the FCC concluded that a video streaming service was providing "effective competition" to certain local cable systems, thereby preempting the affected municipalities' ability to regulate local rates for basic cable service.

Summary: These rulings have caused controversy. The FCC has asserted that they fulfill a statutory mandate to promote private-sector investment in advanced telecommunications and information services and to limit government regulation when competition exists. State and local governments, however, have objected that the regulatory changes deprive them of revenue and make it harder for them to ensure that video providers meet local needs.

Summary: Against this backdrop of federal government actions limiting cable service regulation at the local level, consumer behavior continues to change. Specifically, an increasing number of consumers are substituting streaming services for video services provided by cable companies and telcos. As a result, the amount of revenue state and local governments receive from cable and telco providers subject to franchise fees is declining, which also reduces the amount cable providers can be required to spend to support PEG channels. In response, some municipalities and states have attempted to impose fees on online video services, such as Netflix and Hulu. Courts have not yet ruled on the legality of such fees.

Summary: These regulatory developments and industry trends raise several potential issues for Congress. First, Congress could consider whether the FCC's interpretation of the Communications Act with respect to local regulation of video service providers is consistent with Congress's policy goals. Specifically, Congress could explore the extent, if any, to which, if any, it encourages or permits state and local regulations designed to promote the availability of PEG programming as well as subsidized voice, data, and video services for municipal institutions.

Summary: Second, Congress could evaluate whether to create regulatory parity with respect to local regulation of cable and telcos' nonvideo services. 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.

Summary: Third, as the FCC and local governments include online video streaming services 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. Finally, given the FCC's actions to reduce local government rate regulation of cable services and the State of Maine's legislation to enable video subscribers to seek alternatives to bundled programming, Members of Congress could reconsider past proposed statutory changes to require video programming distributors to offer individual channels to consumers. Alternatively, Congress could clarify that states and local governments lack authority to enact such laws.

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.

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.

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.

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.

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."

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."

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

[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.

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.