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FCC Deregulates Cable Franchise Fees

The FCC said local 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% cap on franchise fees.

That came in a politically divided 3-2 vote at the FCC's public meeting Thursday (Aug. 1). The vote was on a Report and Order (R&O) responding to a court remained of an earlier deregulatory decision the court said had been insufficiently explained.

There is an exception from the in-kind counting for some, but not all, capital costs of providing public, educational and government (PEG) channels, whose public interest value the FCC said it continues to recognize.

FCC chair Ajit Pai said counting in-kind "exactions" from LFAs was necessary "to prevent local authorities from unlawfully evading the 5% statutory cap on franchise fees" via those non-monetary conditions.

NCTA-The Internet & Television Association has pointed out those exactions can include "courtesy equipment, I-Net construction, network capacity, channels, grants, sponsorships, specially created programming, local retail facilities, cash 'contributions,' free advertising" and more.

Cable ops also say LFAs double tax them via separate franchise fees or rights-of-way fees on non-cable services offered on those already franchise-fee levied systems.

Cable operators had sought the regulatory relief, while cities and towns had strongly opposed it.

Pai has said that "excessive fees and inappropriate regulations imposed by local governments deter broadband deployment and discourage investment in next-generation facilities and services. But mayors from across the country told the FCC that counting in-kind franchise asks toward the cap would "undermine local authority, turn public property over to private interests and remove longstanding community benefits, resulting in consumer harm and impact to basic municipal services."

Related: Markey & Co. Ask FCC to Rethink Franchise Fee Item

The Report & Order (R&0) adopted at Thursday's (Aug. 1) public meeting also finds that FCC requirements on LFA regulations "should apply to state-level franchising actions and state regulations that impose requirements on local franchising."

The FCC had sought comment on a Further Notice of Proposed Rulemaking (FNRPM), adopted last fall, that sought input on whether the FCC should prohibit cable franchising authorities from regulating non-cable services and whether in-kind "exactions" as part of the price of securing a franchise should be counted toward the FCC's 5% cap on franchise fees, fees that total about $3 billion annually. Cable operators' answers were, not surprisingly, "yes" and "yes."

The court remand the FCC was also responding to was in Montgomery County, Md., v. FCC, in which the Sixth Circuit Court of Appeals found that the FCC could not use its "mixed-use" rule to bar LFAs from requiring franchisees to provide non-cable services because that would appear to prevent LFAs from regulating institutional networks, which the 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 requirements by LFAs and thus counted toward the 5% cap on franchise fees.

The court vacated those portions and remanded them back to the FCC for action, which the FCC has taken.

The FCC responded in the Sept. 25, 2018, FNPRM 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 they can still regulate institutional networks (I-nets).

Pai said that reading law is like stirring concrete with your eyelashes, but that such exercises were necessary, as in this case. He said the item was the inevitable result of reading the statute.

He said that the law does not include a general exemption for cable-related in-kind contributions. He said Congress could have done so, but didn't. The law also says that capital costs are the only PEG costs that can count toward franchise fees. The statute only applies a broader exemption for systems in existence pre-1984. This is statutory interpretation 101.

He said the statute also makes clear that LFA's can't regulate broadband services. He said some local governments who want to keep biting at the regulatory apple disagree, but that again, the eyelash stirring produced the FCC's conclusion, which is the right one.

Pai said his job was not to rewrite laws, but to implement them.

He also pointed out that any dollars MVPDs have to pay for in-kind services will not be going to next-gen buildouts, and will be passed on to their subs.

Saying that some LFAs "have taken advantage of their roles as regulators to force providers to offer free service to municipal liquor stores and government-owned golf courses," FCC commissioner Brendan Carr said Thursday he was "glad we take these steps today to crack down on bad actors who seek to tax broadband and thus provide less access and competition for all of us. I’m also glad my colleagues agreed to some edits that have strengthened this item to further protect consumers from harm."

One is that the item now makes clear that illegal franchise terms are "are per" se preempted and that wireless and WiFi services are not subject to duplicative fees, and that LFA's can't ask MVPDs to waive the fee reforms as a negotiating tactic and an end-run around the FCC.

Commissioner Jessica Rosenworcel, who dissented from the decision said that it "cuts at public, educational, and governmental channels across the country" because it "goes beyond placing reasonable limits on contributions subject to the statutory franchise fee and jeopardizes the day-to-day costs, like staff and overhead, required to run such stations." She also suggested that PEG might be the last bastion of local journalism with its decline on other platforms.

Rosenworcel also called the deregulatory move part of the FCC's effort to "cut local authorities out of the picture when it comes to infrastructure"--she has registered the same concern about FCC efforts to streamline cell tower citing, including by preempting local citing restrictions or processes.

Commissioner Brendan Carr, who championed the cell tower citing streamlining, made it clear he was all for this deregulatory move as well.

"[P]oliticians around the country have been treating Americans’ cable and broadband bills as a piggy bank to line government coffers," Carr said. "Those illegal taxes only raise our costs, make it harder to access the Internet, and curb competition. Today, we vote to end this outlier conduct."

Commissioner Michael O'Rielly agreed, but said he would have preferred a more limited definition of PEG capital costs and to resolve the issue of valuing the capacity MVPDS give up to PEG.

Commissioner Geoffrey Starks also dissented. He called it an inappropriate line-drawing exercise that will diminish the value of local rights of way, and thus funding for important local efforts, including PEG channels that do investigative journalism, candidate forums, and provide emergency information.

He said the move risks "grave harms" to local communities, and will wind up back in court.

“This decision ignores the clear language of the law and threatens valuable community resources," said Free Press policy manager Dana Floberg. "FCC chairman Ajit Pai chose to radically redefine franchise fees so that local governments will be forced to choose among critically important priorities and sacrifice community needs.

“By voting to arbitrarily and over-broadly redefine franchise fees, the Commission’s GOP majority has ignored clear statutory language, legislative history and vehement public opposition. Franchise agreements allow local governments to ensure that cable operators serve communities in exchange for using valuable public rights of way."

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.