CITIES CONTEST CABLE DECISION TO STOP MODEM FRANCHISE FEES

Reacting to cable operators’ decision to stop collecting and remitting franchise fees on cable modem service in light of FCC ruling that it was interstate information service, many cities have told MSOs that it’s “premature” move that could find them in breach of local franchising agreements. Cities that have contested cable modem franchise fees decision of MSOs are basing claims on franchise agreements that require cable operators to pay percentage of gross revenue of all services provided on cable system. Some other cities such as Portland (Ore.), wary of costs of likely legal battle, are choosing not to fight MSOs on issue, preferring to have National Assn. of Telecom Officers & Advisors (NATOA) and other local govt. organizations take up legal challenge on their behalf.

City of De Pere, one of handful of Wis. communities contesting decision, wrote Time Warner that FCC ruling merely found cable modem services weren’t cable services. “This does not mean that the Communications Act prohibits assessing franchise fees on cable modem service,” City Attorney Judith Schmidt-Lehman said. This was one of issues on which comments were sought by FCC in rulemaking, she said. City’s cable ordinance defines gross revenue as “any and all revenues derived directly or indirectly by [franchise] grantee, its affiliates, subsidiaries, parents from or in connection with operation of the cable system,” she wrote, and “we believe that continued collection and remittance” of franchise fees is required. If FCC determined that cable modem revenue shouldn’t be included in franchise fees, “we may need to negotiate an amendment” to franchise agreement, she said: “Any change in the current collection practices at this time is, however, premature.”

In Ill., Urbana Asst. City Attorney Steve Holz told Insight Communications that its decision on cable modem franchise fees was premature and that company “risks violating material provisions of its franchise agreement” if it refused to collect and pay fees “that are expressly required by the agreement and the ordinance.” FCC ruling didn’t address “propriety” of collecting cable modem franchise fees, he said, and agency pointed out that it didn’t yet “know the answers to that question and related questions of regulation of cable modem service by local authorities.” Saying FCC ruling had given rise to “extraordinary regulatory uncertainty,” Holz gave notice to company to reverse its position within 30 days. City wasn’t threatening to revoke franchise, he said, but demanded “full performance of the terms of the franchise.” He said franchise fees on cable modem revenue paid by company would be segregated and held for possible refund. Oshkosh (Wis.) City Attorney Warren Kraft said city was proposing that TW keep separate account of franchise fees on cable modem service and pay city if FCC decision were reversed by court. City was going by FCC definition of gross revenue, which was “broad and all encompassing,” he said.

Ron Mallard, dir. of Fairfax Co. (Va.) Dept. of Telecom & Consumer Services and former NATOA pres., said Cox and Comcast had notified county of decision to stop modem franchise fee collection. County won’t contest action, he said, because franchise agreements provide that cable modem service will be treated as cable service until FCC or courts ruled otherwise. In light of that, “we think it was reasonable for the MSOs to take action,” he said. Denying reports that TW had reversed decision on modem franchise fees, company spokesman said it was holding internal discussions on whether it should collect fees and hold them in escrow. But no decision has been made yet, he said. Company was following industry standard on issue and wasn’t going on its own, he said. AT&T spokeswoman said company had received letters contesting its position on cable modem fees, but was telling cities that it was obliged to stop collection in light of FCC ruling.

Meanwhile, NATOA is exploring prospect of jointly mounting legal challenge to FCC ruling with National League of Cities (NLC) and U.S. Conference of Mayors, Pres. Denise Brady said. In letter to cities, NLC Policy & Federal Relations Dir. Cameron Whitman urged them to refrain from “taking immediate action” because NLC was working with members and other local govt. groups to “speak with one voice on this very important issue.” She said NLC was collecting data on amount and ramifications of revenue loss to cities. FCC’s Local & State Govt. Advisory Committee (LSGAC) will continue to press concerns of local govts. with FCC commissioners and other agency staff, said LSGAC Vice Chmn. Marilyn Praisner, who also is Montgomery County (Md.) Council member. FCC decision will result in loss of “significant revenue” for localities, she said.