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Appeals Court Upholds FCC Franchise Fee Order

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(Image credit: Witthaya Prasongsin via Getty Images)

A federal appeals court has upheld the FCC's conclusion that non-cash exactions from cable operators by franchising authorities are subject to the 5% cap (of gross revenues) on franchise fees.

The FCC voted along party lines back in August 2019 to hold that cable franchising authorities (LFAs) cannot regulate a cable operator's broadband service and that in-kind services or equipment they require those cable operators to provide must count toward the FCC's 5% (of cable revenues) cap on franchise fees charged by the LFAs. It also preempted state or local franchise regs that conflicted with those conclusions and extended its rules to state as well as local franchises. 

Franchising authorities had challenged a 2019 FCC order, with NCTA-The Internet & Television Association, which pushed for the FCC order, weighing in on the side of the FCC.

Read Also: FCC, DOJ, Defend Franchise Fee Decisions

"We reject Petitioners’ challenge to the FCC’s determination that noncash cable-related exactions are franchise fees," said the court in denying franchise authorities' challenge to the FCC's most recent decision about how cable franchises can be regulated.

As an example of one of those non-cash exactions that needed to count toward the fee, the court noted, was "a demand by St. Louis that a cable operator contribute 20 percent of its stock to the city."

The 2019 order concluded that most cable-related non-cash elements of a franchise agreement are franchise fees subject to the cap. The court said the FCC sufficiently explained why it came to that conclusion, as well as why it concluded that franchise authorities can't regulate the non-cable services of cable operations who are not common carriers.

"We agree with the FCC that, under the statutory text and structure, noncash (or 'in-kind') cable-related obligations mandated by the Act are not franchise fees, but noncash cable-related exactions (including I-Net exactions) that the Act merely permits a franchising authority to impose are franchise fees under § 542(g) and thus count toward the five-percent cap."

Read Also: Dems Seek to Re-Regulate Franchise Fees

The court summarily rejected the argument that the FCC decision was arbitrary and capricious. FCC commissioner Brendan Carr, who was among the Republican majority that approved the 2019 order under then chairman Ajit Pai, praised the decision.

“Today’s Sixth Circuit decision is a good win for every American that wants better, faster, and cheaper Internet service,” said Carr. “For too long, franchising authorities needlessly drove up the cost of building and maintaining the infrastructure needed to eliminate the digital divide. As part of a series of steps to accelerate infrastructure builds and increase competition, the Commission in 2019 cracked down on the outlier conduct that had been slowing down these construction projects and raising the costs of Internet service.

"I am grateful that today’s appellate court decision upholds the key reforms that the 2019 FCC majority put in place. Now is the time to double down on those successful infrastructure reforms, which allowed providers to increase speeds, lower consumers’ monthly bills for broadband, and extend their networks to more Americans."

Carr was Pai's point person on a number of infrastructure buildout issues.