Cities Losing Nearly $500M in Modem Fees


America’s cities are losing nearly $500 million yearly in the wake of a decision by federal regulators to block local regulation of cable-modem service.

Cities across the country complained about the revenue drain in a Sept. 30 petition that asked the U.S. Supreme Court to overturn the Federal Communications Commission and re-establish their right to tax cable’s high-speed-data service, just as they do cable's video-programming revenue.

In the filing, the cities said cable-operator annual revenue from cable-modem service is about $9.4 billion. Their inability to impose a 5% franchise fee meant that cities were losing $470 million, some of which would be used to maintain rights-of-way used by cable companies to deploy their networks.

"Clearly, revenue losses of that magnitude have enormous adverse financial consequences for the nation’s local governments," the cities said. "These revenues would be available for any number of projects and services that make communities safer and more livable, and [they would] provide high-quality education services to allow citizens to make full use of the rapid changes in technology."

Among the groups that filed were the National League of Cities, the National Association of Telecommunications Officers and Advisors and the United Conference of Mayors in a pending case called Brand X Internet Services Inc. vs. the Federal Communications Commission.

In March 2002, the FCC ruled that cable-modem service was an interstate information service. Because the FCC said cable’s high-speed product was not a cable service, cities were barred from collecting franchise fees and cable companies stopped paying.

The U.S. Court of Appeals for the Ninth Circuit affirmed the FCC’s classification that cable-modem service was not a cable service within federal law. The cities asked the Supreme Court to hold that cable-modem service is both an information service and a cable service, or at least to order the Ninth Circuit to reconsider the case with cities’ arguments given full consideration.

"The sheer importance of the issue calls for a speedy resolution," the cities told the high court.

In 2003, cable operators paid $2.4 billion in franchise fees on video-programming revenue, according to the National Cable & Telecommunications Association.