Cable Franchise FNPRM Argument Escalates; NCTA IDs Billions in Possible Costs

Those representing cities and PEG providers told us they disagree with some assumptions in the study. Some on the pay-TV side backed it. Democratic legislators continue to oppose the Further NPRM on subjecting PEG fees to the national cap.

"The total additional tax burden" could be $5 billion at a 7 percent additional-tax rate this year, rising to $8.3 billion in 2023, wrote Compass Lexecon economists Jonathan Orszag and Allan Shampine. "Even modest reductions in network improvements as a result of reduced incentives to invest can easily result in consumer welfare losses in excess of $40 billion over that same period." Incumbent cable operators pay about $3 billion annually in state and local franchise fees, NCTA has said (see 1811150027). The association, Orszag and Shampine didn't comment Monday on whether the report includes that spending or the estimates would be additional money beyond what's paid now.

LFA initial comments in docket 05-311 "ignore this clear congressional intent" of subjecting PEG costs to the 5 percent threshold, NCTA replied, "in favor of a strained reading of the Cable Act that they contend should protect municipal budget revenue by allowing them to burden cable operators and their subscribers with cable-related (and in some cases unrelated) in-kind exactions unconstrained by the limits imposed by Congress." The American Cable Association said "local government stakeholders are off the mark in claiming that the authors" of the 1984 Cable Act "intended for them to both collect a franchise fee up to the five percent cap and impose any cable-related regulatory obligations without such costs being included as franchise fees." Verizon initial comments backed parts of the FNPRM. Any reply from the company hadn't been posted, and it didn't comment. Reply filings were posted through Monday.

Frontier Communications, which backs the FNPRM, considers NCTA's study consistent with the telco-TV provider's local experiences, emailed Vice President-Regulatory Affairs AJ Burton. Many LFAs "continue to squeeze video providers for additional revenues and in-kind contributions," which he called "a direct drain on resources for network and broadband deployment." Amid online video and satellite rivals that are "exempt from 5% franchise fees, facilities-based video providers cannot continue to effectively compete,” he said. Including in-kind contributions in the 5 percent limit would promote the commission’s broadband-deployment commitment, the company replied. "As Chairman [Ajit] Pai has explained, halting unreasonable local cable franchise practices 'accelerate[s] the deployment of high-speed broadband.'"

Longstanding Practices

These fees aren't new, so some question why the quest now to trim them.

Fees on non-cable services often apply across the board regardless of provider, said filings, NATOA General Counsel Nancy Werner, Next Century Cities Executive Director Deb Socia, other local officials and allies. The officials noted PEG obligations, fees on operators for connecting public buildings to networks and other requirements have existed in some cases for a few decades. Some municipalities' filings note their total charges to MVPDs are below 5 percent, Werner recounted.

Many local in-kind contributions for things like institutional networks "were paid for years ago either by cable operators or more likely by subscribers," sometimes in a separate charge on customer bills, Werner said. If what's sought in the FNPRM becomes a rule, the FCC would let cable operators debit the value of such things from the 5 percent cap, local officials note. "When it’s already been paid for by subscribers in particular, to now charge LFAs for the market value, to use something like that, just seems absurd to me," said Werner. Others also called parts of the FNPRM absurd.

Rep. Eliot Engel, D-N.Y., worries the commission's proposal "could jeopardize critical" PEG funding, he wrote Pai, asking he "avoid actions that could threaten the sustainability of PEG stations or their ability to provide meaningful and important" local content.

Most Oppose FNPRM

Pro-PEG filers noted most comments opposed the FNPRM.

"Cable operators and franchising authorities have long understood that cable franchise requirements" like PEG channels "are commitments that are separate from, and not included in, the calculation of franchise fees," wrote groups including NATOA, the National League of Cities and U.S. Conference of Mayors. "This understanding is rooted in the plain language of the Cable Act and bolstered by its legislative history." Next Century Cities opposes the FNPRM's tentative conclusions and agrees with NATOA comments. The Cable Act "makes it clear contributions to PEG channels were intended as a public benefit, not as a fee," Next Century Cities said.

The FCC "will thoroughly review" all comments before "any final actions," a spokesperson said. He noted the FNPRM tentatively concluded that franchising deal requirements of cable-related in-kind contributions would be under the 5 percent cap, "'with limited exceptions.'" The agency continues to decline to comment on criticism of the proposals.

PEG allies disagree ISPs would use any franchise-fee savings for additional broadband deployment. "It's not like there is magic money lying out there for broadband development that could only be released if you were not doing cable drops to classrooms to promote your own services. It’s an absurd argument," said Alliance for Community Media CEO Mike Wassenaar, as he laughed. "If local governments were so all-powerful, why do you not see PEG channels in HD?" He worries an MVPD could come up with an "unreasonable" estimate for the value of PEG or other services, paying little or no money to a city.

Instead of passing on any local fee savings to customers in the form of lower bills or reducing future rate increases, local officials said, cable companies would likely pocket the savings. Spiegel & McDiarmid's Tillman Lay said he "can think of no reason" savings would be passed on, and has never seen that occur. Industry claiming broadband deployment would accelerate with lower fees is belied by robust web service in urban areas, which generally have "stronger PEG requirements," he said. "What more deployment would you have done in this particular market where you are complaining?"

Groups Lay represents noted that "only three commenters support" the FNPRM-proposed treatment of cable-related nonmonetary franchise requirements: ACA, NCTA and Verizon. Their arguments mostly "repeat or embellish the same flawed reasoning behind the tentative conclusions of the Second FNPRM and should be rejected," said the Alliance for Communications Democracy, Alliance for Community and municipalities including Bowie, Maryland; Palo Alto; Portland, Maine; and San Antonio.