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.