Cable operators and local governments have been sparring over how the Federal Communications Commission regulates the relationship between cable/broadband service providers and local franchising authorities (LFAs). Specifically, they’re at odds over what cable operators can charge local governments for services rendered under franchise agreements and whether LFAs can charge fees on the broadband portion of mixed-use — cable and broadband — providers.

Cable operators clearly don't want the FCC to start taking a bite out of their broadband revenue as they transition away from traditional video service and as those broadband revenues start representing a greater piece of the total pie.

But with a new Democratic FCC majority, local governments are looking to roll back some of the franchise-fee deregulation instituted in 2019 during the Republican administration of former President Donald Trump. 

Buoying the LFA effort was a court decision remanding that fee-deregulation decision back to the FCC with instructions to fix some things the agency has yet to take action on. It doesn't hurt that the current FCC chair, Democrat Jessica Rosenworcel, dissented from that 2019 decision, saying it was a way to cut local authorities out of the picture when it comes to infrastructure. Current Democratic commissioner Geoffrey Starks was also a "no" vote in 2019.

In meetings with FCC officials last week, according to commission documents, attorneys for a bunch of local franchising authorities called for the commission to quickly launch a rulemaking responding to the remand by:

1. repealing the mixed-use rule;
2. “clarify[ing]” that an LFA should only have to pay for the marginal cost of its use of an institutional network and not the construction cost for a network that serves small businesses and other nonresidential users.

The mixed-use rule states, “A franchising authority may not regulate the provision of any services other than cable services offered over the cable system of a cable operator, with the exception of channel capacity on institutional networks.”

That means no broadband-related fees.

Attorneys for franchisors said such a prohibition impedes the congressional and FCC goal of promoting "widespread and non-discriminatory broadband deployment."

They pointed out that local governments can require broadband-only providers to obtain a franchise and pay a fee based on revenue, but a cable operator supplying both traditional video and broadband is not required to pay a fee on its broadband revenue no matter what share of those monies come from internet service.

Responding to LFA calls to ax the mixed-use rule, NCTA-The Internet & Television Association said the charge that the rule impedes closing the digital divide is “groundless,” as is the suggestion that it needs to be axed to satisfy the court remand.

In the 2017 Montgomery County (Maryland) v. FCC decision, the 6th U.S. Circuit Court of Appeals found the FCC could not use its mixed-use rule to bar LFAs from requiring franchisees to provide noncable services because that would appear to prevent LFAs from regulating institutional networks, which statute clearly allows them to do.

The court also concluded that the FCC had not sufficiently justified why it had expanded its definition of franchise fees to include non-cash (in-kind) requirements by LFAs, thus counting such arrangements toward the 5% cap on franchise fees. The court vacated those portions and remanded them back to the FCC for action, if necessary.

The FCC, under Republican chair Ajit Pai, responded with a further notice of proposed rulemaking telling the court that the “mixed-use network ruling should be applied to prohibit LFAs from using their video franchising authority to regulate non-cable services offered over cable systems by incumbent cable operators,” which includes internet access services, and clarifying that localities can still regulate institutional networks.

NCTA said the remand can be resolved simply by amending the rule to “strike the phrase ’at their fair market value’ and substitute ’marginal cost.’ ”

Contrary to the LFAs’ claims, there is no need or basis to reopen the [FCC’s decision] with respect to the mixed-use rule,” NCTA told the commission.

Rep. Adam Kinzinger (R-Ill.) has introduced a bill, the No Rate Regulation of Broadband Internet Access Act (H.R. 3346), that would prevent the FCC from regulating broadband access rates.

Kinzinger introduced the bill four Congresses ago, where it passed the House.

This time around, the bill comes as Republicans are preparing a counter offer bill to President Joe Biden's $1.7 trillion infrastructure package, which includes more than $100 billion for broadband deployment. The Biden plan funds municipal networks and makes price and competition part of the calculus for where broadband is considered to be available.

Also Read: GOP Unveils $20 Billion Broadband Bill

That means that if there is insufficient competition or the service is deemed too costly, it might not qualify as "available" broadband so that either the FCC could regulate rates or the government could allow broadband deployment money to be used for overbuilding existing service, something cable and other ISPs are strongly against.

"While the federal government can and should continue to provide resources to help with the build-out of broadband in those hard to reach areas, regulating service rates will only destroy this investment model—one that has brought access to over 90% of Americans and, frankly, helped prevent a devastating blow to our economy during the pandemic," said Kinzinger of the bill. "If we want to build upon this progress, we must ensure that the government is not setting the rates Americans pay to use the internet."

In promoting the infrastructure package, the White House has been painting a glass-half-empty portrait of broadband availability, including speed and competition and price in the definition of broadband issues that need $100 billion in subsidy money to address.

For example, in talking points, the Administration said that in New York, almost a third of people who live where "there is only one broadband provider" offering at least "minimally acceptable speeds." And even where broadband is available, the White House said, it "may be too expensive to be within reach." Then it talks about 13% of New York households without an internet subscription, though it does not say whether that is because they can't get it or can't afford it or don't want it.

The FCC is asking whether it should deregulate rates for small cable systems owned by small operators, in part because it isn't sure three are any such systems currently rate regulated.

It is also seeking comment on whether it should simplify the rate reg framework for everyone, eliminate rate regs by local franchise authorities on equipment used to receive cable service beyond basic, and tentatively concludes it should deregulate rates for commercial customers including bars and restaurants, pointing out that it has never applied its rate regs to cable business customers anyway.

That is part of a cable dereg item--a Notice of Proposed Rulemaking (NPRM) combined with a Report and Order, teed up for an Oct. 23 vote. It is just the latest potential regulatory underbrush-clearing in FCC Chairman Ajit Pai's Media Modernization efforts.

In the NPRM, the FCC signaled it was time to rethink cable rate regs given that rate regs beyond the basic tier were deregulated a couple of decades ago, most basic service is deregulated because the FCC now presumes a market is competitive given the presence of satellite TV and other options.

"We seek comment on whether to exempt from rate regulation those small cable systems, defined by our rules as cable systems serving 15,000 or fewer subscribers, that are owned by small cable companies, defined by our rules as cable television operators serving 400,000 or fewer subscribers," the FCC said.

The Report and Order (R&O's) takes the regulatory whacker into the weeks, getting rid of rules the FCC says are obsolete, like ones linked to non-basic service no longer regulated; or are unnecessary given current industry practices, or for other reasons; it also sunsets some obsolete forms.

Among the R&O's other housecleaning measures is to codify that where an operator offers its equipment for sale and lease, the sale price is unregulated.

Senate Democratic leader Chuck Schumer (D-N.Y.), said the internet is a necessity and the government may not be able to let providers charge whatever they want for the use of what is an essential service, like a utility or road.

That came in his floor argument for a Congressional Review Act resolution that would nullify the FCC's reclassification of ISPs out from under the Title II, utlility-style regulatory regime that allows for rate regulation, either before or after the fact.

Related: Sen. Thune Backs Prohibiting Paid Prioritization

FCC chair Tom Wheeler made forbearing from rate regulation one of the elements of the 2015 Open Internet Order, but Schumer talked, in the context of not allowing paid prioritization at least, about internet access as an essential good whose price the government may need to insure is kept within reach of "average folks," though he did not say what specific mechanisms should be used to insure affordability.

Democrats generally argue that broadband access is about price as well as available plant, But Schumer's evocation of it in the context of returning to a Title II regime set off some alarm bells with those who have argued that Title II was a potential path to rate regulation and it would not be hard to un-forbear from rate regs if a new FCC or Congress wanted to do so.

That was the concern that led Republican FCC Commissioner Michael O'Rielly to label Wheeler's approach "fauxbearance."

Related: Rate Regulation By Any Other Name

"Public schools, rural Americans, communities of color or anyone in a remote area or without substantial resources could be at a significant disadvantage if the ISPs start charging more for decent internet," Schumer said.

"You know, people say, well, let a private company do whatever it wants, let them charge whatever they want," he continued. "But in certain goods which are essential we don't do that. Utilities, highways. The same thing now applies to the internet. It's a necessity and we have to have protections for average folks, for small businesses, for working families."

He said that concern is behind Democrats' effort to restore the old rules against blocking, throttling and paid prioritization.

His vision is of an internet "free and open like our highways, accessible and affordable to every American, regardless of your ability to pay."

There are already programs to subsidize broadband to low income residents, including billions of dollars in Universal Service funds, billions of dollars already spent on stimulus fund broadband buildout efforts, and ISP programs to get affordable broadband to families with school-age children, he said.

But Democrats and Republicans agree that more needs to be done to close the digital divide and get more folks online, both by reaching more homes and making it more affordable to the underprivileged and more attractive to those who have yet to go online for reasons other than availability or price.

Schumer signaled he is not looking to hand out free internet, but that there was a public interest in making sure that good service was affordable. 

"It's not that you don't pay, it's that if you're a little guy or gal you shouldn't pay a lot more than the big shots," he said. "We don't do that on highways, we don't do that with utilities and we shouldn't do it with the internet, another modern 21st century highway that is a necessity." 

Schumer urged his listeners to "call, write, or visit" their senator or House member. "Your wallets and well-being, in ways far more significant than most things we do here, depend on it," he said. 

“Tom Wheeler always claimed that the Title II public utility regulatory regime was not put in place to regulate the rates of ISPs," said Free State President Randolph May in response to Shcumer's floor speech. "This was not entirely true even then, for example, witness his investigation of zero-rated or free data plans. No surprise after all, because the regulation of rates is at the very core of Title II. You need go no further than Sections 201 and 202! But now Senator Schumer has let the cat out of the bag in a display, at least, of unusual candor. He is arguing for reimposing Title II regulation explicitly on the basis that it can be used to regulate ISPs’ rates to end user customers."This should certainly help clarify the ongoing ‘net neutrality’ debate — on the one side you have those who make no bones about wanting to regulate Internet providers like Ma Bell was regulated. On the other you have those, like me, who want to employ light touch regulation appropriate for service providers in a dynamic, increasingly competitive market. The future is with my side." 

The National Cable & Telecommunications Association has taken aim at FCC chairman Tom Wheeler's support for a proposal by Verizon and INCOMPAS that the FCC potentially regulate cable special access (business broadband) rates.

In meetings with FCC officials, according to an ex parte filing, NCTA executives said they had significant concern with "the possibility that the rates charged by cable operators and other facilities-based competitors in the market for business data services could be subject to 'ex ante rate regulation.'"

Rather than considering the incumbent telcos (LECs) as the de facto dominant carriers and regulating them, the proposal, which Wheeler has echoed in his own special access reforms proposed last week, would potentially regulate ILECs or their telco competitors (CLECS) or cable operators in the interests of competition.

Wheeler has called that a tech-neutral approach. The NCTA called it off base.

"[A]ny finding that competitive entry has been insufficient to affect the prices offered to consumers (e.g., because competitors do not offer the same range of services or their networks have limited geographic reach) necessarily means that the incumbent LEC remains dominant and should be regulated accordingly."

Verizon, INCOMPAS and Wheeler all propose moving away from a dominant/nondominant model of determining where regs are appropriate.

The NCTA said it is not endorsing routine rate regs on anyone, saying the market for business broadband had never been more competitive, thanks in part to cable, whose share has grown "substantially." But it said that where prices are not responding to completive pressures, it makes more sense to continue regulating incumbent rates rather than impose rate regs on new entrants.

Wheeler recently defended the "tech-neutral" approach as a way to spur 5G build-outs, but the NCTA said that theory is "backwards."

"If 5G services will need denser and more robust backhaul starting a few years from now," NCTA told the FCC officials, "the Commission should be taking steps now to encourage the construction of those facilities. But what provider is going to pursue this market opportunity if the 'reward' for taking the risk of building new fiber facilities is an obligation to provide access to wireless carriers at rates established by the Commission?"

The FCC is basing its special access reforms on a major, years-long data-collection effort. The NCTA, which has had issues with that collection in the past, said, "[I]t would be wholly inappropriate for the commission to reach any tentative conclusions about the state of the marketplace or the appropriate course for regulation based on a non-public analysis prepared by a single entity."

The House is scheduled to vote April 15 on a Republican bill to block the FCC from using its Title II authority to regulate broadband rates, either before the fact or likely after.

Look for the vote to be contentious and the bill to be approved along party lines, as was the vote to approve the bill in the House Energy & Commerce Committee. A source says there has been no movement since that partisan, Ides of March, vote.

The bill, HR 2666, the No Rate Regulation of Broadband Internet Access Act, was sponsored by Rep. Adam Kinzinger (R-Ill.).

House Dems and FCC Chairman Tom Wheeler argue the bill is too broad and would sweep away FCC authority under its Open Internet rules to regulate blocking or degrading or paid prioritization, since they all implicate rates, essentially gutting the Open Internet order.

Republicans say they are simply trying to prevent rate regs, both before and after the fact.

Wheeler had initially said he supported the underlying theme of preventing broadband rate regulations, but had since clarified in a letter that he was talking specifically about Congress codifying the FCC's Open Internet order forbearance of ex ante (before the fact) rate regulations, not other authorities like preventing anti-competitive paid prioritization or throttling.

WASHINGTON — Federal Communications Commission chairman Tom Wheeler told a congressional panel Tuesday (March 22) that he believes the agency has the authority to regulate broadband rates after the fact.

Wheeler’s comments were made at an FCC oversight hearing in the House Communications Subcommittee.

He was asked about the matter by Rep. Adam Kinzinger (R-Ill.), whose bill preventing broadband rate regulation passed a divided House Energy & Commerce Committee last week.

Wheeler had initially said he supported the underlying theme of preventing broadband rate regulations, but had since clarified in a letter that he was talking specifically about Congress codifying the FCC's Open Internet order forbearance of ex ante (before the fact) rate regulations, not other authorities like preventing anti-competitive paid prioritization or throttling that might implicate rates.

Wheeler and House Democrats are concerned that Kinzinger's bill is not targeted enough and could sweep in various consumer protections, like those in the Open Internet order.

Following the hearing, the press office for the House Energy & Commerce Committee majority issued a release pointing to Wheeler's support for FCC ex post facto rate regulation authority via enforcement, saying it contradicts prior administration promises not to regulate broadband rates.

Democrats on the House Communications Subcommitte are introducing amendments to limit a bill that would prevent the FCC from using Title II to impose rate regs on Internet access service.

The Republican bill, H. 2666, the No Rate Regulation of Broadband Internet Access Act, is being marked up in the subcommittee today (Feb. 11).

H. 2666 simply says that "Notwithstanding any other provision of law, the Federal Communications Commission may not regulate the rates charged for broadband Internet access service..." But Democrats say that could cover a lot of ground.

Some Democrats, including ranking member Anna Eshoo (D-Calif.) are concerned it is far too broad and could eviscerate the FCC’s authority to protect consumers against truth in billing practices and discriminatory data caps; to ensure broadband availability through USF and E-Rate; to address rate-related issues in merger reviews; to ensure enforcement against paid prioritization; and other essential consumer protections."

An amendment expected to be taken up at the markup would try and assure the bill does none of those things by saying nothing in the act could be construed to affect the FCC's ability to regulate discriminatory or prevent unfair business practices, regulate billing practices (as distinguished from prices, presumably), affect Universal Service Fund subsidies, enforce its new Open Internet rules or affect its merger review authority.

Another amendment, in the form of a substitute for the Republican bill, would simply state that the FCC can't unforbear from the specific rate regulation provisions it forbore (chose not to apply) in reclassifying ISPs under Title II.

Republicans are concerned the FCC could use other authority not forborn to do some back-door rate regulating. FCC Chairman Tom Wheeler has said the new rules are not intended to include rate regs, but Republicans want to rate-reg proof the rules from future FCC and FCC chairs that might see it differently.