In a decision that local governments promised to appeal, the Federal
Communications Commission ruled Thursday that cable operators may collect local
franchise fees assessed on non-video-programming revenue from their
The cable industry fought for the ruling after the city of Pasadena, Calif.,
asked the FCC in 1999 to prohibit cable operators from requiring their
subscribers to cover the 5 percent franchise fee on non-video-programming
revenue, such as advertising revenue and home shopping commissions.
Cities claimed that cable operators that passed through the fee were
requiring subscribers to shoulder a cost for which they were not responsible.
The cable industry countered by saying the cities were trying to use cable
operators to hide the real impact of their taxation policies from consumers.
Cable's victory came in a 4-0 vote by the FCC members, an agency source
Nick Miller, a Washington, D.C.-based lawyer who represents local governments
on cable issues, claimed that the federal cable-regulation rules do not permit
cable operators to recover all franchise fees from subscribers. He said
operators should recover advertising and home shopping fees from those
'We'll beat [the FCC] on this. We'll take them on appeal. They are dead wrong
on the rules and the law,' Miller said.
The commission's decision, he added, could distort competition in the
high-speed Internet-access market. If the agency decides that cable-modem
service is a cable service and revenue from that service is subject to the
franchise fee, cable operators may collect cable-modem franchise fees from the
majority of subscribers that do not take the high-speed service.
That scenario, he said, could give cable operators a pricing advantage over
competing high-speed Internet-access providers.
'That's a cross-subsidy issue,' Miller said. 'That's what [cable is] looking
According to Miller, Cox Communications Inc., Comcast Corp. and Charter
Communications Inc. have been passing through ad and home shopping franchise
fees to subscribers, but AT&T Broadband, Adelphia Communications Corp. and
Time Warner Cable have not.