Protecting the Golden Internet Goose

High-speed internet is one of the greatest success stories in the history of innovation – with mobile broadband celebrated as the fastest-spreading technology ever invented. In just a couple of decades the internet has revolutionized some of the most fundamental aspects of human life, including education, work, government, and even love.

Fearful that government bureaucrats would kill the goose that has laid so much gold, Congress has worked diligently and aggressively to promote the internet’s continued expansion and growth – with bipartisan policies designed to limit the anchor of overregulation and an iron-clad policy against any kind national or local “internet access tax” that would drive up prices and suck up funds needed to build, maintain, and continuously improve America’s broadband miracle.

Unsurprisingly, however, even that clearly stated bar against internet taxation hasn’t stopped some states and municipalities from trying to tap the internet to balance their local books. These shakedown artists are usually the same city managers who have drowned their communities in a river of red ink and are now trying to paper over their mistakes with a misguided money grab aimed at broadband internet.

The worst problem is the effort by some city governments to use their power over local cable television networks to impose new fees or obligations on the broadband service many cable television providers also offer to their customers. This backdoor effort to tax internet service simply because it is offered by cable television providers is a direct assault on the congressional policy against local broadband taxes and must not be allowed to stand.

Fortunately, the Federal Communications Commission is working to address this and ensure that local power to regulate cable television isn’t allowed to improperly suck the life’s blood out of America’s internet.

This proceeding should restate the obvious point – that federal law allowing local franchise fees based on cable television revenues do not permit any fees to be charged based on non-cable-television-revenues, including internet revenues earned by companies that also operate cable television networks.

In addition, it should reaffirm that local municipalities may not circumvent that basic legal limit by demanding non-cash “contributions” from broadband companies through the franchise process. Federal law caps franchise fees at 5 percent of cable television revenues – and the value of any “in kind” service local communities demand must be counted against that cap. If the community wants free internet for municipal buildings, rehabilitation of public properties, or any other kind of “donation,” the cash value of those activities clearly must count against the federal 5 percent cap. Any other rule would turn the carefully circumscribed franchise power into an unlimited roving power to tax and destroy.

Local tax authorities will argue that, because cable internet service uses much of the same infrastructure as cable television service, their power to tax television revenues also reaches broadband revenues. But that’s absurd. The 5 percent maximum franchise fee is already carefully calibrated to cover the local costs of allowing cable television providers to operate – such as their use of telephone poles, sewer ducts, and other civic property. Allowing additional taxation of internet service that imposes no additional burden on those “rights of way” would be a massive windfall to municipalities whose costs are already fully covered by the cable television franchise fees they charge. Meanwhile, allowing communities to shakedown broadband operators in this way will undermine the national goal of expanding high speed broadband, closing the digital divide, and boosting our international competitiveness.

Some communities also argue that the “in kind” donations they demand are needed to support public, educational, and governmental (or “PEG”) television programming. But that’s just a red herring. The Cable Act already provides massive resources for PEG by delivering a $3 billion annual revenue stream that can fund these operations and separately requiring cable operators to pay the cost of building PEG studios and broadcast facilities – obligations the FCC is committed to leaving in place. And communities that want to invest more in PEG can still do so – even by asking for “in kind” services from cable companies; the value of that support simply must be counted against the 5 percent total cap on fees.

The FCC’s Section 621 proceeding is needed to prevent backdoor taxes and local shakedown of broadband, while leaving PEG programming on a sound and sustainable footing for the long term.

 Matthew Kandrach is president of Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.

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