Brian T. Grogan
(612) 347-0340
E-Mail:
GroganB@moss-barnett.com
www.municipalcommunicationslaw.com
To: Moss &
Barnett Clients and Interested Parties
From: Brian T. Grogan,
Esq.
Date: March 22, 2002
FCC RULING MAY REDUCE CABLE FRANCHISE FEES TO MUNICIPALITIES
On March 14, 2002 the FCC adopted a Declaratory Ruling (6N
Docket No. 00-185) concluding that cable modem service is to be classified as
an “interstate information service” as opposed to a “cable service.” This ruling is likely to have a significant
impact on franchise fee revenue for municipalities across the country.
Background of Proceeding
The FCC began its “Inquiry Concerning High-Speed
Access to the Internet Over Cable and Other Facilities” in 2000 and has since
received over 250 filings. The FCC
stated that its primary policy goal is to “encourage the ubiquitous
availability of broadband to all Americans.”
The FCC also indicated its intention to “preserve the vibrant and
competitive free market that presently exists for the Internet and other
interactive computer services, unfettered by federal or state regulation.” Therefore the FCC seeks to “remove regulatory
uncertainty that in itself may discourage investment and innovation.”
The FCC concluded that as of September 2001 just
over 50% of U.S. households had Internet connections. Although only about 11% of those households
subscribed to high-speed Internet access delivered via cable modem service or
digital subscriber line service (“DSL”) offered by local telephone
companies. This is despite the fact that
nearly 80% of all homes in the U.S. have either cable modem service or DSL
service available. Among the 11% of
households which subscribe to these high-speed services, 68% are cable modem
subscribers, 29% are DSL subscribers and about 3% use various wireless
applications.
The FCC reasoned in its Declaratory Ruling that
despite the decision in AT&T v. City of Portland, 216 F.3d 871 (9th
Cir. 2000), cable modem service as currently provided is an interstate
information service, not a cable service, and there is no separate
telecommunications service offering to subscribers or ISPs. In the Portland decision the court
concluded that use of a cable broadband facility constituted the provision of a
“telecommunications service” as defined in the Communications Act. The FCC distinguished the Portland
decision arguing that the record before the Ninth Circuit was less
comprehensive and the questions before the Ninth Circuit were much narrower.
Having determined that cable modem service is an interstate
information service the FCC issued a Notice of Proposed Rulemaking Docket No.
02-52 (NPRM) to address the regulatory implications of its determination. In particular, the FCC seeks comments to
examine the scope of its jurisdiction to regulate cable modem service,
including whether there are any constitutional limitations on the exercise of
that jurisdiction. Further, in light of
marketplace development, the FCC will consider whether it is necessary or
appropriate at this time to require cable operators to provide unaffiliated
ISPs with the right to access cable modem service customers directly. The FCC also seeks comment on the role of
state and local franchising authorities in regulating cable modem service.
Impact on Franchise Fees
Presently, many cities around the country receive up to a 5%
franchise fee from cable television operators on the operator’s gross revenues
from the provision of cable services over their systems. Over the past several years most of the major
cable television operators have included revenues from cable modem services as
part of their franchise fee calculation.
In many jurisdictions the franchise fee payments on cable modem services
may account for 10-20% or more of the city’s total franchise fee receipts. In its Declaratory Ruling, the FCC
tentatively concluded that because of its determination that cable modem
services are an “information service,” cable modem revenues should no longer be
included in the calculation of cable service franchise fees.
Paragraph
105 of the FCC's NPRM provides as follows:
Franchising authorities have expressed concern that their rights to
collect franchise fees on cable modem service for the use of public
rights-of-way would be affected if we were to find that cable modem service is
not a cable service. We note that
section 622(b) provides that “the franchise fees paid by a cable operator with
respect to any cable system shall not exceed 5 percent of such cable operator’s
gross revenues derived . . . from the operation of the cable system to provide
cable services.” Given that we have
found cable modem service to be an information service, revenue from cable
modem service would not be included in the calculation of gross revenues from
which the franchise fee ceiling is determined. Furthermore, we tentatively
conclude that Title VI does not provide an independent basis of authority for
assessing franchise fees on cable modem service. We seek comment on this issue. We also
note Congress’ concern regarding new taxes on Internet access imposed for the
purpose of generating revenues when no specific privilege, service, or benefit
is conferred and its concern regarding multiple or discriminatory taxes on
electronic commerce. (Footnotes omitted,
emphasis added)
Issues on Which Comments are Sought
The FCC’s NPRM seeks comment on its franchise fee conclusion
as well as a number of other significant issues. Among the most important issues raised in the
NPRM from a municipal perspective are the following:
1.
How does the FCC’s classification of cable modem
services as an interstate information service impact rights-of-way and
franchising issues.
2.
What regulatory authority do state and local
governments have with respect to cable modem service as an information service,
including any authority to impose multiple ISP access requirements or to
prohibit, limit, restrict or condition the provision of cable modem service.
3.
Does the FCC’s classification of cable modem service
affect the right of cable operators to access rights-of-way as necessary to
provide cable modem service or to use their previously franchised system to
provide cable modem service.
4.
Whether providing additional services over upgraded
cable facilities imposes additional burdens on the public rights-of-way such
that the existing franchise process is inadequate.
5.
Does Title VI of the Communications Act preclude
local franchising authorities from imposing additional requirements on cable
modem service.
6.
What is the scope of local franchising authority over
facilities-based providers of information services given that the FCC found
cable modem service to be an information service.
7.
Is revenue from cable modem service to be included in
the calculation of gross revenues from which the franchise fee ceiling is
determined.
8.
Does Title VI of the Communications Act provide an
independent basis of authority for assessing franchise fees on cable modem
service.
9.
Given that franchise fees have been previously paid
by cable operators on cable modem service under existing cable franchises,
should such amounts be reimbursed to affected subscribers.
10.
How does the “information service” classification of
cable modem service affect other aspects of state or local regulation, such as
consumer protection and customer service standards.
Moss & Barnett is working with jurisdictions to
provide comments to the FCC on a number of the issues raised within the
NPRM. Municipalities interested in
receiving additional information regarding the FCC’s Declaratory Ruling, NPRM
and/or comments to be submitted to the FCC in this proceeding should contact
Brian Grogan at Moss & Barnett, 4800 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, MN 55402, phone: (612)347-0340 or via email at groganb@moss-barnett.com.
New
web site: Please visit www.municipalcommunicationslaw.com
for additional updates on communications law issues of interest to
municipalities.
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Brian T. Grogan is a shareholder with the
Minneapolis law firm of Moss & Barnett practicing in the areas of
telecommunications and cable television law.
Brian represents entities throughout the country on franchise renewals,
transfers of ownership, competitive franchising, telecommunications planning,
right-of-way management, first amendment issues, tower siting, leasing and
zoning, litigation and other related communication matters. He is a frequent presenter at state and
national conferences regarding communications law and he is a member of the
American Bar Association (Forum Committee on Communications Law), National
Association of Telecommunications Officers and Advisors, International
Municipal Lawyers Association (Contracts, Franchises and Technology Section),
and is past chair of the Communications Law Section of the Minnesota State Bar
Association.
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The
materials in this Communications Law Update have been complied from a
variety of sources and address only a portion of the relevant issues contained
within hundreds of pages of regulations and decisions. We have not addressed many important points
that may apply to your situation. You
should consult with legal counsel before taking any action on matters covered
by this Communications
Law Update.