Cities: FCC Ruling to Cost at Least $50M


Cable subscribers could pay between $50 million and $80 million more that
they should annually due to a recent Federal Communications Commission decision
on franchise-fee collection, according to a group of cities challenging the
ruling in court.

The National League of Cities and other municipal organizations are fighting
an FCC decision from this past October that expanded the rights of cable
operators to collect local franchise fees from their subscribers.

The FCC decision is now under review by the U.S. Court of Appeals for the
Fifth Circuit in a city-brought suit that claimed that the commission's action
should be overturned because it ignored its own franchise-fee policy precedents
and legal requirements established by Congress.

In the decision, the FCC ruled that cable operators could collect from
subscribers franchise fees assessed on revenue derived from nonsubscriber
sources, such as advertising and home shopping commissions.

The decision was a victory for Charter Communications Inc. over the city of
Pasadena, Calif., which had asked the FCC to ensure that subscribers paid
franchises only on the revenue derived from cable services they had

Siding with the cable industry, the FCC said the law allowed the pass-through
of all franchise fees. The agency also permitted cable operators to itemize on
bills that portion of the franchise fee not attributable to services enumerated
on a subscriber's bill.

As a result of the FCC's decision, the cities said, cable operators were
allowed to use their subscribers to subsidize their advertising and home
shopping businesses.

In a court brief filed Jan. 22, the cities said subscribers could end up
paying between $50 million to $80 million more per year.

Some FCC officials urged the cities and cable operators to eliminate the
problem by agreeing that franchise fees should apply only to subscriber-derived

But in their court brief, the cities said that proposal would shift the
franchise-fee subsidy from subscribers to cities.