The decision reduces the amount cities can charge for cable franchise fees.
(Published Aug 19, 2019)
The Federal Communications Commission (FCC) voted 3-2 on Aug. 1 to approve a report and order making dramatic changes to cable franchises, many of which are managed by cities.
The order is very similar to the draft order the FCC released in July. It will have serious negative implications for cities and other local franchising authorities that collect franchise fees from cable operators.
The order will become effective 30 days following publication in the Federal Register. It is expected to be published in the next 10 to 30 days, meaning the effective date could be mid- to late-September.
The FCC order classifies “in-kind exactions” as franchise fees subject to the 5% franchise fee cap. Only capital costs associated with public, educational, and governmental (PEG) access facilities, including PEG channel capacity, buildout requirements, and PEG transmissions, are exempt from being classified as a franchise fee subject to the cap.
This means that the fair market value of non-monetary provisions, including institutional networks and complimentary or discounted cable service to public buildings, must be calculated in the 5% franchise fee cap.
The order specifies that fair market value will be determined by the cable operators based on rate cards utilized to set rates they charge customers for services.
With these changes, cities and other local franchising authorities could take a substantial financial hit.
In the initial draft order, the FCC required cities and other local franchising authorities to use the process outlined in Section 625 of the Cable Act to make modifications to existing cable franchise agreements to comply with the order. The process would have allowed modifications to be initiated at the local level with the cable operator having the opportunity to seek judicial review.
However, the approved order eliminated that provision and instead ruled that cable operators and local franchising authorities must negotiate modifications within a reasonable amount of time to comply with the order.
The order also preempts any provision in a franchise agreement that is inconsistent with the order that a franchising authority refuses to modify.
In addition to the proposed changes to the calculation of franchise fees, the FCC order also preempts state and local governments from requiring a franchise or license for non-cable services provided over a cable system. This includes internet services.
It is important to note that the provisions in the order are not retroactive and can only be applied to “ongoing and future in-kind contributions toward the 5% franchise fee cap after the order is effective.”
In response to the order, here are few actions cities may take:
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