Cable modem ruling elicits protest

• By Dibya Sarkar
• May 15, 2002

Five national associations filed suit May 13 against the Federal Communications

Commission over a recent decision exempting cable modem service from local

authority and franchise fees, which they allege could cost cities and counties

upwards to $300 million this year in lost revenues.

"On March 14 the FCC was brazen enough to rewrite existing federal law

and to issue a ruling that cable modem service is not a cable service,"

said Larry Naake, executive director of the National Association of Counties

(NACo) at a Washington, D.C. press conference, including representatives

from the other groups.

"The FCC ruling robs local government of their constitutional rights

to charge cable companies a franchise fee for the use of public property

and rights of way," he said, adding it violated the Telecommunications Act

of 1996. "No monopoly should get a federal order to subsidize their rent,

while local property taxpayers foot the bill."

NACo, the National League of Cities, the United States Conference of

Mayors (USCM), the National Association of Telecommunications Officers and

Advisors (NATOA), and the International Municipal Lawyers Association have

formed an alliance, called the Alliance of Local Organizations Against Preemption,

and retained counsel to fight the FCC ruling.

The alliance filed a petition in the U.S. Circuit Court of Appeals for

the District of Columbia — which will be consolidated with other similar

petitions filed earlier in the 9th Circuit Court of Appeals in San Francisco

— asking the court to toss out the FCC ruling.

In its decision, the FCC concluded that cable modem service is "properly

classified as an interstate information service," not a telecommunications

service. The ruling effectively denied local governments from collecting

franchise fees on cable modem service. The FCC said the ruling would help

promote broadband deployment as well as provide better and cheaper service

for customers.

But municipal representatives said the opposite would happen.

"The cable modem subscriber will be out in the cold," said NATOA executive

director Libby Beaty, adding that homeowners or small business owners will

experience increased service problems and have no where to turn. She also

said that any savings cable companies get by not paying franchise fees would

not be passed on to the consumer.

Tom Cochran, USCM executive director, said the decision would "put bigger

holes in our budgets," adversely affecting municipal services and at a time

when mayors are shifting resources toward homeland security measures.

"This is a bad decision. This is a bad policy and it's bad timing,"

he said. "This is a serious financial situation that has come from a bunch

of bureaucrats in Washington that did not watch the World Trade Center blow

up."

A preliminary survey released by the alliance showed that Las Vegas

would lose $1 million this year, while Houston would lose $624,000. In all,

the alliance estimated $300 million in lost collective franchise fees.

After the March ruling, the nation's six largest cable companies —

AT&T, AOL Time Warner Cable, Charter Communications, Adelphia Communications,

Cox Communications Inc., and Comcast Corp. — sent letters to local franchise

authorities indicating they would immediately stop paying such fees on cable

modem revenue.

Representatives said that the FCC could also rule other

cable services as "interstate information services," resulting in further

losses of revenues and rights to municipalities. They also said they would

solicit the help of congressional lawmakers.

A call to the FCC was not returned, however, the National Cable and Telecommunications Association (NCTA), the principal trade association of the cable TV industry and that had previously supported the FCC decision, released a prepared statement:

"Although municipalities view the FCC action as a lost revenue opportunity, cable companies continue to pay cities more than $2 billion annually in franchise fees, and the FCC's action will result in savings of $1.50 to $2.50 per month for cable modem customers," said Dan Brenner, NCTA's senior vice president and general counsel. "The FCC's ruling treats Internet service provided by cable operators the same as that offered by other Internet service providers for franchise fee purposes."