The FCC Should Curb Cap-Busting Fees Levied on Cable Operators

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From the FSF Blog

May 2, 2019

Seth Cooper

The FCC is considering a proposal to clarify the legal limits on the amount of local franchising fees that can be charged to cable operators. Some local governments have evaded the limits by charging fees for access to public rights-of-way on top of the five percent franchise fee they are permitted to charge cable operators.

The Commission should stop such wrongful duplication of fees – which ultimately redound to the detriment of residential and business consumers in the locality.

The Commission should declare that rights-of-way fees are within the scope of the Cable Act's five percent cap on franchising fees that may be imposed on cable operators. This is important because cable operators are also broadband Internet service providers. Limiting excessive cable franchise fees will free up financial resources for investment in deployment of next-generation networks.

Section 621 of the Cable Act recognizes state or local franchising authorities (LFAs) may charge cable operators a franchising fee for constructing and operating a cable system. But Section 621 also includes limits that state and LFAs must follow. The statute caps the franchising fee at five percent of the cable operator's annual gross revenue. ( Prior blog posts as well as the Free State Foundation's reply comments in the cable LFA reform proceeding explain why the Commission should adopt its proposed "mixed-use" and "in-kind" contribution rules.)

In addition to adopting its proposed rules clarifying Section 621, the Commission should ensure that LFAs do not stack public rights-of-way fees on top of five percent franchising fees, thereby evading the statutory cap. Inherent in the concept of cable franchises is the authority to access public rights-of-way for distributing video content to subscribers within franchise territories. This is evident from the text of Section 621(a)(2): "Any franchise shall be construed to authorize the construction of a cable system over public rights-of-way , and through easements, which is within the area to be served by the cable system and which have been dedicated for compatible uses" (emphasis added).

To be sure, states and local governments possess authority to charge fees or taxes on service providers that access public rights-of-ways. And the Cable Act Section 622(g)(2)(A) excludes from the definition of a "franchise fee" "any tax, fee, or assessment of general applicability." But the Cable Act recognizes broad franchising authority and the exceptions should be construed narrowly – particularly when it would avoid an absurd result such as duplications of fees. There is an overlap between cable franchise fees and public rights-of-way fees. An April 19 ex parte filing by NCTA, for example, cites California's simultaneous taxing of cable operators right to access public rights-of-way and imposing of five percent franchise fees for that same right. States and LFAs ought to be prohibited from imposing two or more sets of fees, however they denominate the ways, as a means of evading the franchise fee limits set by Congress.

The Commission should declare that fees or taxes for public rights-of-way access by cable operators must be included within the scope of the total franchise fee amount – and therefore subject to the five percent statutory cap. This commonsense interpretation of Section 621 would prevent the statutory cap on franchise fees from being undermined.

The Commission previously has highlighted its actions "reducing regulatory barriers to the deployment of wireline and wireless infrastructure." Fees that exceed the statutory cap constitute a regulatory barrier to broadband infrastructure deployment. If the Commission curbs duplicate fee charges, this will allow cable operators to use the freed-up funds for deployment of next-generation broadband networks.

In case you missed it…please see:

The Metaphysics of Video Competition , by Free State Foundation President Randolph May

Trade Agreements Should Include Stronger Online Copyright Protections, by Seth Cooper, Senior Fellow, Free State Foundation

SpaceX's Curious Request for 'Special Temporary Authority', by Free State Foundation President Randolph May

The Strange and Fascinating Save the Internet Act, by Daniel Deacon, Member of the Free State Foundation's Board of Academic Advisors

TRACED Act Would Help Protect Consumers from Illegal Robocalls, by Free State Foundation Senior Fellow Seth Cooper

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