A federal court in Louisiana has struck down an attempt by Jefferson Parish,
La., to charge franchise fees on Cox Communications Inc.’s Internet and
The decision is a blow to local authorities that place forward-looking
language in franchise documents in hopes that 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
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 that 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 that 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
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