News

Court Nixes Cox Fees on Data, Telephony

8/10/2003 8:00 PM Eastern

A federal court in Louisiana has struck down Jefferson Parish, La.'s, attempt to charge franchise fees on Cox Communications Inc.'s Internet and telephone products.

The decision is a blow to local authorities that place forward-looking language in franchise documents in hopes it will help them regulate technological advances that arise during the life of long-term franchises. The parish based its fee demand on such contract language in the franchise agreement Cox signed with regulators back in 1990.

In anticipation of the development of new products, the franchise requires that the cable operator pay 5% of gross on "all receipts, directly and indirectly derived by the operation of the cable system."

But Judge Sarah Vance of the U.S. District Court for the Eastern District of Louisiana ruled last month that although the franchise language does contemplate fees from cable modem and telephone service, it is pre-empted by federal policy.

"This important decision is a significant victory for local consumers, protecting Cox customers from higher bills and ensuring that Jefferson Parish residents have access to a competitively priced choice for high-speed Internet and local phone service," Greg Bicket, vice president and general manager of Cox Communications Louisiana LLC, said in a prepared statement.

The parish hoped its contract language would trump a March, 2002 declaratory ruling by the Federal Communications Commission, which struck down fees on products that are not legally defined as "cable service." Modems and telephony are interstate information services, the FCC has declared.

Following that ruling, Cox stopped paying franchise fees on data service in its systems, including Jefferson Parish near New Orleans, where the company has about 100,000 subscribers in various unincorporated areas of the county. The parish demanded the operator continue to pay, citing the local contract.

When Cox didn't comply, the parish filed suit in state court in October 2002, alleging breach of contract. Cox got the suit moved to federal court the next month.

The judge agreed the forward-looking language was meant to capture modem and telephony revenue, but the parish's ability to execute that clause was doomed by other language in the contract. The parish also said it would regulate to the extent permissible by state and federal law and would abide by changes in that law.

The court ruling was only a partial dismissal of the lawsuit. Deano Bonano, deputy chief administrative assistant to the parish president, said the parish believes Cox is still in breach of its local contract.

For instance, the franchise demands prior notice of a change of ownership. That includes any restructuring of local corporate partnerships, he said.

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