FCC Ruling on Franchise Fees Partially Upheld by Appeals Court

June 1, 2021

The opinion affirms the FCC’s new rule that counts “in-kind” noncash contributions toward the city’s franchise fee cap.

The 6th U.S. Circuit Court of Appeals on May 26 partially upheld the Federal Communications Commission (FCC) cable franchising order that changed what is included in the calculation of franchise fees.

Cities and other local franchising authorities can charge franchise fees up to a 5% revenue cap. The FCC order said that “in-kind” contributions of a franchise must be counted toward the 5% revenue cap.

Rule partially affirmed

The decision in the City of Eugene et al. v. Federal Communications Commission case affirmed that the FCC’s definition of franchise fees to include non-cash in-kind contributions in the 5% revenue cap for cable franchise fees, authorized in the federal Cable Act.

The court stated that the FCC’s interpretation correctly defines franchise fees to include in-kind contributions since those non-cash obligations are at the discretion of the local franchise authority. However, they do not extend to cable build out, which the court found to be required by the Cable Act.

Rule partially struck down

The court struck down a portion of the order that allowed cable operators to determine the “fair market value” of the in-kind contributions. The court instead specified that the value of the in-kind contributions must be determined based on the operator’s actual cost of providing the contributions.

Local government groups considered this a win for franchising authorities, as it could minimize the financial impact to local franchising authorities.

Mixed-use provision

The decision also included a discussion of the mixed-use provision, which constrains local authority on franchising services other than cable. The court upheld the FCC’s ruling that the City of Eugene’s 7% fee on broadband services was preempted by federal regulations because the fee was ultimately a condition of the cable franchise.

The court left unanswered the questions as to whether a state or local government (as opposed to a franchising authority) could impose a fee on telecommunications services provided by cable operators.

For more background information about this bill, read a previous Cities Bulletin article.

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