News

Appeals Court Slates 'Pasadena' Case

9/08/2002 8:00 PM Eastern

A federal appeals court has set a date to hear oral arguments in a beef with the Federal Communications Commission over whether cities may continue to levy franchise fees on non-subscription revenue.

The 5th U.S. Circuit Court of Appeals in New Orleans is slated to hear arguments in the dispute — brought by Pasadena, Calif.; Virginia Beach, Va.; and Nashville and Davidson County, Tenn., and commonly known as the "Pasadena case" — during the week of Dec. 2.

The dispute began as three separate FCC proceedings in 1998 and 1999, levied by the three localities against their respective cable operators. The argument is the latest tussle over how franchise fees are computed.

Municipal governments collect 5 percent of cable operators' gross revenues, including income from nonsubscription sources such as ad sales and home-shopping splits. The cities have said it's unfair for the companies to pass through the entire cost of their franchise-fee payment to subscribers.

Attorneys for the cities have argued that the federal Cable Act specifies that franchise fees collected from a consumer can relate only to revenue from an individual subscription. The cable operator should have to pay the non-subscription franchise fee out of its own pocket, they have said.

The cities are also upset that operators that collect franchise fees on non-subscription revenue also note it as a separate line item on consumers' bills. All franchise fees should be noted in a single line item, acording to the cities.

In a filing its attorneys made to the appeals court, the FCC noted that it has made it clear from the outset that franchise fees, in their entirety, can be passed through to consumers. The agency set a benchmark for acceptable cable rates, but franchise fees have always been considered a charge separate from the benchmarks and can be levied without a cost-of-service finding, the FCC said.

The FCC issued a declaratory ruling in the consolidated case in October 2001, reaffirming the right of operators to collect the fees.

The cities, joined by the National League of Cities, the National Association of Telecommunications Officers and Advisors and the Texas Coalition of Cities for Utility Issues, filed an appeal of the FCC action.

Charter Communications Inc., Comcast Corp. and the National Cable & Telecommunications Association support the FCC.

The cities claim cable operators could overcharge consumers by as much as $80 million if they are allowed to continue to pass fees along to consumers, according to the appeals court filing. That amount could escalate as cable's share of the ad market continues to grow, the cities added.

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