FCC Letter on PEG Funding Is Puzzling

A letter sent by the Federal Communications Commission to a
small Maryland community -- supposedly to clarify classifications of funds to support
public, educational and government access -- has left regulators and attorneys scratching
their heads.

Regulators said that if the FCC stands by the opinions in
its letter to the city of Bowie, fee classification would take a step back to a time
before cities, led by Baltimore, fought cable companies in court to codify what is
included in franchise fees.

Bowie has joined with neighboring Prince George's County to
renegotiate its franchise with Jones Communications of Maryland Inc. The talks are still
at an informal stage, and the parties have executed a memorandum of understanding that
would require Jones to provide grants equal to 3 percent of gross revenue to be used
exclusively for PEG capital costs.

These grants were proposed in addition to the 5 percent
franchise fee.

The grant is to be measured against gross revenue, in the
same manner as franchise fees. But the city is unsure how to treat PEG costs in the
future. In the past, Jones had included PEG costs as basic-cable-service costs.

A letter meant to answer community questions was sent by
Deborah Lathen, chief of the FCC's Cable Services Bureau.

Lathen's letter appears to redefine what is included and
excluded from the 5 percent franchise-fee cap.

The letter said the 3 percent fee is allowed under law if
it is collected only for the cost of building PEG facilities. Further, those costs are
distinct from payments for or support of PEG-access facilities.

PEG-support payments may include equipment costs, salaries
and training. Capital costs incurred by Jones for access facilities may not be included as
franchise fees for the purposes of calculating the 5 percent cap, Lathen's letter said.

Attorneys said the letter answered some of the community's
questions. But the paragraph that addresses whether the PEG-access fee is considered under
the 5 percent franchise fee is "wrong on the law."

"In 1985, the FCC said it wasn't even going to rule on
franchise-fee issues unless they applied across the board," said Nick Miller, a
Washington, D.C.-based attorney who advises municipalities.

Legal challenges earlier this decade codified a very
inclusive definition of franchise fees, requiring that even funds collected to pay the
franchise fee be included when an operator computes gross revenues.

Miller said he anticipated that the commission would
clarify the advice in the letter.