FCC Ruling Likely to Reduce Municipal Cable Television Franchise Fee Receipts and Local Control Over Rights-of-Way

by Jim Katsiaficas, Senior Staff Attorney, MMA


A recent Federal Communications Commission (FCC) ruling likely will result in a reduction of the franchise fee amounts paid by cable television operators to the municipalities in which they operate. This ruling also likely will hamper the ability of municipalities to control cable operators’ access to and use of the public rights-of-way. 

On March 14, 2002, the FCC issued a Declaratory Ruling that classifies cable modem service (internet access service offered by cable television operators, such as Time Warner’s Road Runner and Adelphia’s Powerlink) as an “information service,” and not a “cable service,” under the federal Telecommunications Act. Because federal law permits municipalities to assess a franchise fee of up to 5% on cable service gross revenues, this order means that municipalities cannot include cable modem revenues in the calculation of franchise fees, since this service no longer is considered to be “cable service”. An attorney who is a member of FCC’s Local and State Government Advisory Committee estimates that municipalities nationally could lose $200 million annually as a result of this ruling. 

The FCC Commissioners approved this ruling by a vote of 2-1. In support of this ruling, the FCC notice observes that Congress’ goal in passing the Telecommunications Act of 1996 was to encourage the timely deployment of advanced telecommunications capability (including high-speed internet access such as that provided by cable modem service) by “regulatory forbearance, measures that promote competition … , or other regulating methods that remove barriers to infrastructure investment.”  

Several parties have filed a lawsuit in the District of Columbia Circuit Court of Appeals contesting the Declaratory Ruling. Along with the Declaratory Ruling, the FCC also issued a Notice of Proposed Rulemaking regarding the implications of the ruling, and has asked for responses. 

Some cable operators are waiting for rulemaking and/or a court decision before they stop collecting and paying franchise fees based upon cable modem revenue. However, one cable operator in Maine has announced to the municipalities that have franchise agreements with it that later this month, it no longer will collect the portion of franchise fees calculated on the basis of cable modem service revenues. This means that some Maine municipalities will see immediate revenue losses as a result of the FCC’s action. 

This issue is not just about money. As important as the potential loss of franchise fee revenues resulting from this ruling is the issue of municipal control of the public rights-of-way. Congress has authorized municipalities to issue franchises to cable operators and to assess a franchise fee upon them because their systems use the public rights-of-way. It is not the nature of the material being transmitted through the cables -- television programming versus data -- that results in municipalities being able to regulate cable operators, but the fact that their facilities have access to and use a public resource -- the public-right-of-way. Therefore, even if the FCC is correct that cable modem services should be classified as “information service” rather than “cable services,” municipalities still should be able to regulate the cable operators’ use of the public rights-of-way for the provision of the information services and to assess a fair fee for the cost of that regulation.  

As part of the Notice of Proposed Rulemaking, the FCC has asked for comments from local governments regarding whether the FCC should preclude local governments from regulating cable modem service and facilities in rights-of-way. In particular, the FCC asks for comments on: (1) any regulatory authority state and local governments may have to impose requirements to that multiple internet services providers have access to cable modem services and to otherwise “prohibit, limit, restrict or condition the provision of cable modem service”; (2) how the classification of these services as “information services” impacts right-of-way and franchising issues, and franchise fees; and (3) the status of franchise fees previously paid to local governments on the basis of cable modem service revenues. Comments are due within 60 days after publication in the Federal Register. 

MMA is taking several actions in response to this matter. We are helping affected Maine municipalities to coordinate their responses on this issue. Our Legal Services Department is consulting with municipal attorneys whose cities and towns have cable television operators that provide cable modem service. MMA is keeping in close contact with the National League of Cities (NLC). MMA also will be informing Maine’s Congressional delegation of this issue. 

To better serve municipalities in this matter, MMA needs your help. If your municipality has a franchise agreement with a cable operator that provides cable modem service in your municipality, please call Theresa Chavarie at 1-800-452-8786 to tell us, for each year since cable modem service began in your municipality: the cable operator’s gross revenues, the amount of gross revenues attributable to cable modem services, your municipality’s franchise fee, the amount of franchise fees collected and the amount of franchise fees attributable to cable modem services. This data will be important in our discussions with the Congressional delegation and to NLC’s efforts. Thank you for your assistance.  

If you have any questions regarding the FCC ruling and the legal issues in this matter, please call MMA Legal Services at 1-800 452-8786.