Cable Franchise Fee Compromise Probably Not in the Cards

Don't expect major changes soon in the cable franchise fees regime, former cable lawyer Burt Cohen said during a Broadband Breakfast webinar Wednesday. During the event, localities lawyer Cheryl Leanza of Best Best argued localities still must maintain public infrastructure while revenue from cable franchise fees dries up and thus need to target broadband service. Conversely, Jenner & Block's Jessica Ring Amunson, who has represented NCTA, said the law is clear that those franchise fees can be levied on cable service only. Cohen, now Connecticut Office of Consumer Counsel broadband policy coordinator, said that while a collaborative understanding of cable local franchise authority regarding fees is needed, "I'm not sure we are there yet."

The Communications Act is clear about protecting fair and reasonable compensation for private use of public rights of way, Leanza said. But the FCC's interpretation of applicable federal law is producing "regulatory arbitrage," and some companies pay more than other, similarly situated ones, she said.

Amunson said Congress was well aware cable systems would be offering information services over their networks when it expressly limited cable franchise fees to revenue from delivery of cable service over those networks. She said the 6th U.S. Circuit Court of Appeals decision on a challenge to parts of the FCC's 2019 cable local franchise authority (LFA) order (see 2105260035) came well before the U.S. Supreme Court ditched its Chevron doctrine of deference to expert agencies and relied on the plain text of the statute rather than deference to the FCC. That points to the best reading of the law being that LFAs are precluded from charging twice for access to the same right of way (ROW).

Leanza and Amunson disagreed about whether cable operators being charged franchise fees for cable service and broadband service would be paying twice. “No cable operator is paying twice,” Leanza said. Local governments may charge a broadband-only provider for using the public ROW, but it's unclear why cable operators are obviated from having to pay for that same use, she said.

Companies' use of ROWs is taxed differently based on which legacy technology silo they originally received their authorization to use the ROW, Cohen said. The status quo system “is simply not sustainable” and a neutral tax structure for providers of all communications services is needed, he added. Cohen called efforts to charge streaming services such as Netflix and Hulu franchise fees "a distraction from [that] main issue." LFA and cable interests, he said, can hash out a compromise position via state or national working groups or litigation will continue regarding those attempts to charge streaming services franchise fees. An increasing number of states have exempted streamers from franchise fees (see 2305190048).

Asked about Chicago's amusement tax on streaming services, Leanza said it circumvents some of the debate, but still unaddressed is the FCC "running roughshod" over local authorities. Amunson said the Chicago tax is an example of cities trying to skirt the law saying cable operators must pay only once on their cable revenue.