Since the mid-1980s, municipalities have collected franchise fees from cable operators providing video entertainment services, as cable operators use municipal rights of way. Those fees traditionally are set on a “percent of gross revenue basis.”
The new issue is whether the “percent of revenues” formula applies solely to video services or also includes communication services. The other issue is whether the statutory five-percent maximum franchise fee includes both cash and other in-kind payments.
The U.S. Federal Communications Commission plans to address those issues at its August 2019 meeting.
The new rules would prohibit franchising authorities from using their video franchising authority to regulate most non-cable services, including broadband Internet service, offered over cable systems by incumbent cable operators.
New rules would treat video-related, in-kind contributions required by franchises as well as cash payments as part of the statutory five-percent franchise fee cap.
The new rules also would preempt any imposition of fees on a franchised cable operator that exceeds the formula set forth in section 622(b) of the Cable Television Consumer Protection and Competition Act of 1992, and the rulings contained in the Third Report and Order, whether called as a “franchise” fee, “right-of-access” fee, or a fee on non-cable (telecommunications or broadband) services.
The new rules would also bar additional franchise requirements for providing communications services once a cable operator already has a franchise agreement for video.
The thinking here is broadly that incentives to invest in internet access and other communications services are discouraged when new taxes on gross revenue up to five percent are levied--in the form of franchise fees--on the additional gross revenues from those services.
The background is that franchising agreements often include requirements that cable operators provide free cable and broadband service to government or educational entities, construction of special fiber networks to government buildings, and payments for public access channels that seldom are watched.
The issue now is whether that franchise fee applies to all services cable operators deliver over their cable systems--including internet access, voice services, public Wi-Fi, mobile service or other enterprise special access connections-- even if the operator has already paid for access to the right of way.
Some franchise authorities, such as Los Angeles, are piling up surpluses because the city is not sure how to spend the franchise fee collections, some note.
As often is the case, financial interests collide. U.S. cable TV revenues peaked in 2010 or 2011 at about $54 billion and are predicted to fall to $36.75 billion by 2023, by some estimates.
Regulators naturally want to replace that lost revenue (a percentage of gross revenue) by tapping communications services covered by other regulatory rules (Communications Act of 1934, as amended).
Cable operators in turn argue they already have paid for use of rights of way for a single network that now provides multiple services.
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