How to Prevent Local Governments from Abusing Cable Franchise Fees

Over the past decade, consumers have been able to access more content at lower cost across many platforms. That may change if local governments continue to mandate massive franchise fees for “contributions” that are completely unrelated to the offerings from cable providers.

When cable operators were first providing television to communities around the country, it made sense for local franchise authorities to charge fees and regulate television content for their jurisdictions. That authority was not unlimited, as the Federal Communications Commission imposed a cap of no more than 5 percent of the gross revenues generated to provide cable services.

Since governments always show creativity in the collection of revenue, local officials have come up with a myriad of “in-kind contributions” to increase their take from the cable companies, and as offerings expand beyond television, these same officials are attempting to charge fees for video and broadband internet services provided by cable operators. The most popular “contribution” has been to require free cable TV service to schools and government offices and/or providing public, educational, and government channels.

However, some localities have demanded other non-cable related in-kind contributions over and above the 5 percent franchise limits, including “traffic light control systems; prepaying $1 million in franchise fees and to fund a $50,000 scholarship; a $13 million ‘wish list’ in Tampa Florida; a request for video hookup for a Christmas celebration and money for wildflower seeds in New York; and a request for fiber on traffic lights to monitor traffic in Virginia.”

On September 25, 2018, the FCC sought to clarify whether local franchise authorities can impose in-kind contributions from video service providers beyond its statutorily allowed cable franchise fee, as well as charge new fees for non-cable services. The notice tentatively concluded that in-kind contributions should be included in the five percent cap on franchise fees, with limited exceptions, and that their video franchising authority does not permit them to regulate non-cable services, such as broadband internet access.

The proposed rule clarifies that cable-related, in-kind contributions should be included in the statutory 5 percent franchise fee cap, other than capital costs for public, educational, and government channels. Local governments are not allowed to use their video franchising authority to regulate non-cable services offered over cable systems by incumbent cable operators, like broadband internet services and voice over IP, except where they regulate an Intergovernmental Network or I-Net.

The communications ecosystem continues to converge and evolve, with diverse stakeholders offering similar services, including broadband internet access services, video programming distribution, and voice services (including voice over IP). But, only cable operators are subject to local franchise fees, and are therefore seen as “deep pockets” to solve unrelated local financial issues. The city of Eugene, Oregon is a prime example of this problem. After a court decision confirmed the municipality’s ability to impose licensing fees and other taxes on cable right-of-way use, the city began using these new revenues to pay down its public pension debt.

These additional fees, forced in-kind contributions, and taxes are not just borne by companies striving to deploy new networks and improved services across the country, they are also passed along to customers in their monthly bills to offset the increased cost of providing services.

In order to keep consumers’ cable bills lower, local officials should be prevented from charging exorbitant, unwarranted, and unnecessary fees and “in-kind contributions” beyond the 5 percent cap to cable operators as a condition of providing services to their residents.

Deborah Collier is the director of tech policy for Citizens Against Government Waste.

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