DEBATE HEATS UP OVER CITIES’ OVERSIGHT OF CABLE MODEMS

SAN FRANCISCO -- The contention by a franchisors’ lawyer that cities retain wide latitude to impose fees and customer- service requirements on cable modem offerings became a lightning rod Thurs. for vehement dispute from cable industry attorneys. They argued at a Practising Law Institute cable law seminar that the assertion of city rights by Joseph Van Eaton, who represents cable franchisors, was bad policy and incompatible with the FCC’s classification of cable modem as an interstate information service.

The FCC made clear cities couldn’t impose conventional franchise fees on cable modem service, but left open whether levies were permissible under state law or other authority, Van Eaton said. That may be decided in the Commission’s follow-on rulemaking fleshing out the otherwise vague regulatory implications of the information service pigeonhole, he said. Issuance of that decision has slipped from Feb. to July and is unlikely even then, Van Eaton said.

MSOs point to a Cable Act provision prohibiting all but specifically authorized fees, Van Eaton acknowledged. But he said other provisions, giving cities customer service and renewal approval authority, could permit imposition of charges. Rights-of-way give cities considerable leverage over cable modems, too, he said. And he said states were divided over intervening, but predicted many of their regulatory commissions would steer clear of overseeing the service.

“It is entirely an open question, not resolved by the FCC, [what is] the scope of local authority over cable modem service, no matter how it is classified,” Van Eaton said: “That is creating enormous confusion.” Any purported incompatibility between the “interstate” label and municipal regulation is a “red herring” because state and local govts. govern businesses with important interstate aspects all the time, Van Eaton said. He said cable operators’ certiorari petitions challenging a 9th U.S. Appeals Court, San Francisco, holding in favor of Santa Cruz County, Cal., regulation of Charter Communications indicate the decision supports broad, almost unreviewable local discretion over franchise renewals and transfers, Van Eaton said.

Cities can deflect arguments they should keep hands off cable modem service, such as dial-up, Van Eaton said. Broadband has qualitatively different economic development implications, as Verizon has argued in a 9th Circuit challenge to the FCC classification, he said. That position is bolstered by arguments by Intel and Microsoft that cable modems must be regulated to avoid transforming the open Internet with a proprietary “last mile to customers,” Van Eaton said, predicting cities would shy away from direct regulation of access speeds, but some would gravitate toward holding providers accountable for living up to marketing claims in such a way that consumers could make a more manageable choice among competitors than the cellular market offered.

But fragmented local regulation would be inefficient, countered lawyer Christopher Cinnamon. Van Eaton conceded the point, but said FCC regulation was no more effective, citing the “horror” of its rate regulation. Customer service issues vary widely geographically and cities are most responsive politically, he said. Challenged that state laws already banned unfair and fraudulent business practices, he said not all states would address cable modem issues and those that did didn’t offer effective remedies.

The Cable Act was meant to create national uniformity, a goal that “can’t be thwarted in the name of local legislative autonomy,” said lawyer Richard Patch. He said cities trying to overplay their right-of-way powers would “play out over and over again unless some court -- I presume the Supreme Court -- recognizes there are specific limitations.” Cal. Cable TV Assn. Vp Jeffrey Sinsheimer said broadband by its nature bore little relation to local govt. NCTA Senior Vp David Brenner said customer service wasn’t a strong local handle where providers used distant call centers He said franchise fees originally were based on municipal regulatory costs and never were supposed to resemble “a rent or a co- share or a profit participation for the cities.”

Oral argument May 9 in the 9th Circuit case should quickly reveal where the court is headed on the interstate information service classification, because judges will tip their hands whether they feel bound by their Portland, Ore., cable modem open access decision characterizing the service as “telecommunications” for regulatory purposes, Van Eaton said. That’s the classification supported by the American Civil Liberties Union and Media Access Project, but appellant cities and Verizon have positions conflicting with that and with each other, he said. Even if the appellants’ 20 min. total argument is expanded to 35 min., they will have little time to do more than state contradictory positions, Van Eaton predicted.