Court Backs Franchise-Fee Pass-Through


A federal appeals court last week upheld a Federal Communications Commission
rule that permits cable operators to recover all government-imposed franchise
fees from their subscribers.

The unanimous decision was handed down March 27 by a three-judge panel of the
U.S. Court of Appeals for the Fifth Circuit, upholding an October 2001 FCC
decision involving a franchise-fee dispute between Charter Communications Inc.
and Pasadena, Calif.

At issue in the case was whether the FCC acted properly by ruling that
franchise fees imposed on advertising, home shopping splits, launch support and
leased-access revenue could be recovered from subscribers. Local governments
argued that subscribers should pay fees based only on charges appearing on their

In a 15-page opinion, Judge Emilio M. Garza said the FCC did not act in an
arbitrary and capricious manner in allowing the pass-through of the entire
amount of the franchise fee. Garza noted that because Congress was less than
clear on the treatment of franchise-fee pass-throughs, federal courts are
required to defer to the FCC so long as the agency's ruling was a reasonable
interpretation of the statute.

The Texas Coalition of Cities for Utility Issues and the National Association
of Telecommunications Officers and Advisors appealed the FCC decision.

NATOA executive director Libby Beaty indicated that local governments would
need Congress to pass a new law to overturn the FCC's policy.

"The court has provided Congress with a blueprint on how to fix what is
clearly an offensive practice of having subscribers cross-subsidize cable's
advertising rates," Beaty said.

The FCC has noted that the controversy would go away if cities stopped
collecting franchise fees on nonsubscriber revenue.