Cable Heist

Local governments want their cable revenue back after the FCC's reclassification of cable modems has them seeing red -- red ink, that is.

by / September 5, 2002
As if local governments didn't have enough to worry about these days, officials now must deal with the fallout of the recent decision on the definition of cable modems from the Federal Communications Commission.

That decision - which defined Internet services delivered by a cable modem as an interstate information service - has caused six of the nation's largest cable companies to send letters to local franchise authorities informing them that the companies will no longer pay cable-franchise fees on cable-modem revenues, said the Alliance of Local Organizations Against Preemption (ALOAP).

That could cost cities and counties millions of dollars annually, according to ALOAP, which is made up of the National League of Cities (NLC), the U.S. Conference of Mayors, the National Association of Counties, the International Municipal Lawyers Association and the National Association of Telecommunications Officers and Advisors.

The ALOAP is fighting the FCC's decision on two fronts, said Juan Otero, principle legislative counsel for the NLC.

The ALOAP, like other groups, has filed a lawsuit against the FCC in the 9th U.S. Circuit Court of Appeals alleging that the FCC overstepped its bounds in its Declaratory Ruling. A decision in that lawsuit may not happen until the end of this year or the beginning of 2003 because, at press time, Dec. 2, 2002, is the scheduled due date for the last round of legal briefs in the suit.

Otero said the group also is going through the regulatory process to respond to the FCC's Notice of Proposed Rulemaking. According to the FCC, the rulemaking process will examine several issues related to its ruling on cable modems, including the scope of the FCC's jurisdiction to regulate cable-modem service, whether there are any constitutional limitations on the exercise of that jurisdiction, and the role of state and local franchising authorities in regulating cable modem service.

FCC representatives declined to comment for this story, saying the agency doesn't comment on ongoing proceedings.

Cutting the Revenue Stream
ALOAP members are concerned about the decision's impact on local government revenue streams, and the organization is addressing that impact in its comments.

"Like many other federal agencies, there's a disconnect between what's happening in America's cities and what people in Washington think is happening in America's cities," Otero said. "We're currently doing a study across the country, working with our colleagues, to try and figure out how this will play out throughout the country."

Local governments stand to lose approximately $284 million in revenues in 2002 if cable-modem fees are not collected as part of the governments' franchise agreements with cable companies, according to the ALOAP's comments filed with the FCC.

By 2006, the ALOAP said local governments could lose even more - between $500 million and $800 million in revenue annually.

"Ten years from now, the rate of growth of cable-modem usage is going to be absolutely amazing," Otero said. "Is the FCC saying that this is basically untouchable tax-wise, fees-wise? From the need for local governments to actually maintain their abilities to repair their rights of way and get a revenue base, has this been taken off the table? We plan to litigate this for as long as it takes and as high as we have to go.

"Taking monies out of cities' budgets and counties' budgets at this time, when states are screaming that they've got no resources, I'm not sure what cities are supposed to do," he added.

Besides the loss of revenue facing cities and counties, the FCC also is arguing that it has the power to preempt certain powers held by local governments.

Erosion of Authority
The ALOAP plans to argue in court that the FCC's interpretation of who has authority over cable-modem services is incorrect, said Libby Beaty, executive director of the National Association of Telecommunications Officers and Advisors.

"We believe the FCC was wrong in its determination that cable-modem service is a purely information service outside the scope of Title VI of the Telecommunications Act," Beaty said.

The ALOAP's comments to the FCC argue that local governments hold significant authority over cable-modem services - despite the commission's declaration of those services as information services - so long as the infrastructure behind the services is in public rights of way and delivered over public property that is held under trusteeship of local governments.

"The FCC's interpretation of Title VI is that it is preemptive of local government, and I believe they're reading that statute incorrectly," Beaty said. "Upon review, one would find that what the statute did was codify the current practices of local government that had historically been in place and limited the FCC's jurisdiction."

This fight could be complicated by customer-service matters and even privacy concerns, because Congress was explicit in its intent that local governments can implement and enforce customer-service and privacy standards that exceed those set by the FCC.

The NLC's Otero predicts a battle over rights-of-way issues in the future.

"We're heading for a huge throw down on this particular issue," he said. "If industry had its druthers, we'd be taken out of the mix altogether. Local elected officials often get depicted as the Luddites who are trying to hold back technology; [but] it's just the opposite."

An About Face
A curious facet of this fight is how the cable companies themselves feel, according to Beaty.

"Up until just a few months before the FCC issued its decision, the cable industry was agreeing with us - that this is a cable service," she said. "All of their initial comments to the FCC's Notice of Inquiry, all of their on-the-record comments were that this is cable service. They agreed with us."

The cable companies were happy with their agreements with state and local governments, even with paying the fees, said Beaty. They had explicit guidelines about the costs and requirements for rolling out broadband, and the agreements were long term - 10 to 15 years.

"But, given the opportunity not to have to pay at all -- they're a business; of course, they're going to say, 'Oh, that's great,'" Beaty added.

She said the FCC's decision has caused a rift between local governments and the feds. However, local governments have a mutually beneficial relationship with cable companies, and the decision won't derail that relationship. It also won't stop the push for broadband.

"There's no greater economic-development tool available to a local government than broadband," she said. "Everybody wants it. Everybody needs it. We all want it in our communities. At the same time, it can't be there at any cost. It's a fine line."