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December 26, 2018

With FCC Likely to Mostly Stick to Cable Franchising Fee Plan, Suits Probable

IPI expert referenced: Tom Giovanetti | In The News | Media Hit
  Communications Daily

By Adam Bender and Jonathan Make

Despite heightened local opposition (see 1812170043), the FCC likely won't retreat from its plan to make it harder for local franchise authorities to get cable operators to provide extra services and carry public, educational and government programming, predicted those on both sides of the LFA issue. Those obligations have been in addition to fees LFAs collect from cable, with the amount as much as 5 percent of cable-TV providers' video revenue. Stakeholders expect the commission will make it tougher for local governments to get extras from cable providers without having to deduct those perquisites from the federal 5 percent cap. No immediate action is expected and it's thought staff aren't close to any final decisions.

The three Republican commissioners are considered likely to back an eventual order that's expected to largely adopt proposals in a Further NPRM. FCC "Republicans want the communities to stop or reduce the amount they rely on cable subscribers or triple-play subscribers to balance the books," said Tom Dougherty of Fletcher Heald, which represents smaller cable operators. "The municipalities, a lot of times, I think they are very aggressive." Lawyers on all sides agree some towns use the fees to pay for general spending.

If the commission sticks with the FNPRM proposals, localities and/or their associations are expected to take the regulator to court. The agency acted in recent months to make it harder for localities and others to charge high fees for telecom purposes and speed siting, linking many of the changes to trying to make it easier for companies to improve broadband speed and availability. Such actions are "undermining local governments’ ability to manage their rights of way," said Cohen Law Group's Daniel Cohen. Industry has the FCC's "ear far more than local governments" do, he said, citing mostly corporate membership on the Broadband Deployment Advisory Committee. The FCC declined to comment.

To help prod broadband deployment by freeing up more money for such rollouts, the agency may prevent municipalities from imposing franchise fees on cable-operator products other than video, said those representing localities and industry. Operators wouldn't have to pay those up-to-5 percent community fees for broadband services. The one possible change in localities' favor might be to let cable companies deduct the incremental cost to provide any extras, not the market value, said municipal lawyers including Spiegel & McDiarmid's Tillman Lay.

The agency "will adopt something I think very close to the lines they proposed," said Lay, whose firm represents municipalities, though the rules may be "refined some." On "the basic thrust of allowing offsets for franchise requirements, the three GOP commissioners, I don’t see them moving" off the FNPRM, he said.

Some Optimistic

Some lawyers representing localities think the commission could change its tune.

Best Best muni law firm lawyer Gerald Lederer said his clients don't see "a fait accompli" in the FNPRM. They want to meet with officials "to explain why they shouldn’t take these steps," he said. They want to demonstrate "where they believe the commission is misguided and more importantly to show the harm that will result to community media," Lederer added.

Expect more congressional interest in the proceeding, which has garnered concerned letters from Democrats, who will control the House next year, said Alliance for Community Media CEO Mike Wassenaar. He hopes the FCC sees "the wisdom of not going to the extreme measures that they put forward in the FNPRM, because I think there’s a lot of evidence that there will be damage" to PEG programming, he said. Wassenaar expects to attend lobbying meetings in Washington on the subject, perhaps with other groups. One local lawyer expects to reschedule such meetings he was to have attended with NATOA, on whose board he sits, after postponement due to President George H.W. Bush's funeral.

The FCC posted letters Friday from some concerned Democratic House members about the agency's plan, plus Chairman Ajit Pai's replies. Many letters were in an earlier reply by Atlanta, Boston, Dallas, NATOA, Los Angeles, other cities and Washington and its suburbs including Fairfax County, Virginia, and Montgomery County, Maryland. Wisconsin Rep. Mark Pocan called hurting PEG "the opposite effect intended by the Cable Act." Reps. Peter Welch of Vermont and Chellie Pingree of Maine worried about public access TV and hurting efforts to wire schools and other public buildings for broadband. Reps. Tulsi Gabbard and Colleen Hanabusa of Hawaii worried about the effect in their state of PEG cutbacks.

Pai's responses to some of the lawmakers noted an appeals court had ruled “'tax' and 'assessment' can include nonmonetary exactions," and the commissioners' vote on the resulting FNPRM was unanimous. "The Commission observed that Congress broadly defined franchise fees" and for PEG channels excluded support payments only on pre-1984 franchises and capital costs for later franchises, he said. Pai sought relevant evidence from stakeholders so the agency "can make the appropriate judgment ... consistent with federal law."

Legal Concerns

Some with statewide franchising laws oppose the FCC plan, including Vermont's Public Utility Commission, the state's cable franchising authority.

Exempting Michigan would resolve its Public Service Commission's concerns, said Ryan McAnany, Telecom Division rates and financial analysis manager. The FCC overriding 1,700-some franchises based on the PSC's uniform agreement could administratively burden LFAs and cable operators and lead to litigation, he said. “If the communities in Michigan think they’re being harmed, probably … there will be some sort of legal challenge” at the federal or state level, he said. The PSC isn't aware of any planned legal action.

Much of the eventual court case may involve whether appellate judges think the FCC acted within its expert purview under the Chevron doctrine granting agencies leeway when the law doesn't clearly require a particular outcome, lawyers agreed.

Muni attorneys' reading of the 1984 Cable Act and other law is that obligations for PEG carriage and other things for which operators consent to get video franchises aren't subject to the limit. Because the FNPRM was carefully written and explains its rationale, they said it's possible the agency could try to argue Chevron allows the new interpretation that flies in the face of decades of cable franchises. Congress defines a franchise fee that's subject to a limit as a tax or assessment, but in-kind provisions on PEG, institutional networks and other things aren't monetary payments, said local lawyers. "Congress said the franchise fee is a monetary fee, and that’s the way it’s been for 34 years," said Bradley Berkland's Michael Bradley. "Allowing cable operators to reduce certain in-kind provisions" doesn't recognize "how cable franchises are actually negotiated and entered into," he said. The limit "doesn't include so-called in-kind negotiated franchise provisions," he said.

6th Circuit

Lawyers on both sides agree the 6th U.S. Circuit Court of Appeals may hear any challenge, since its partial remand of earlier rules resulted in the current FCC proceeding.

"In all likelihood, it will be appealed, and we think the 6th Circuit will reject any type of decision by the FCC that says that in-kind provisions are franchise fees," said Bradley. "The FCC has gone much further than what the actual remand was." If challengers sue elsewhere, and judicial lottery gives the case to another court, the 6th Circuit could ask for the case back, said Tillman. In such circumstances, the lottery-winning circuit could keep the case or transfer it.

Localities, their associations, backers of PEG, congressional Democrats and others made many filings in docket 05-311 during the comment period on the rulemaking. Bradley hopes the FCC, "with the thousands of filings, can see that" it shouldn't proceed.

Backing the FNPRM are the American Cable Association, Altice, Frontier Communications, NCTA, NTCA and Verizon. They didn't comment now.

The FCC seeks to “limit municipal greed” with a “pro-consumer move” that “simply enforces the intention of federal law to limit the financial demands municipalities can make of cable providers,” wrote Institute for Policy Innovation President Tom Giovanetti. Some cities place a franchise fee on internet services, prohibited by the Internet Tax Freedom Act, he said: “When government imposes on companies, they end up being passed along” to consumers “in the form of higher prices.” He didn't comment further.


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