FCC User Fees Not Keeping Pace with Cable Subscriber Losses

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Cable operators have never been thrilled by the design of the user-fee program that helps fund the Federal Communications Commission’s $274 million budget.

But this year, the program will inflict even more punishment, because cable operators will pay thousands of dollars in fees based on subscribers they no longer serve.

Cable companies have until Aug. 19 to pay 70 cents per subscriber to the FCC. In the aggregate, the commission expects to receive $45.5 million from the industry. Last year, the per-sub total was 66 cents.

Here’s the catch for cable: the FCC’s financial projections are based on cable subscriber totals as of Dec. 31, 2003. As several Wall Street analysts have noted, cable operators have been losing subscribers this year, and are down about a net 250,000.

The upshot is that when cable operators write checks to the FCC in the days ahead, they will be making payments based on an FCC formula that is not keeping pace with cable’s declining subscriber base.

“It is Dec. 31 numbers, and you don’t get any interim relief,” said cable attorney John Seiver of Cole, Raywid & Braverman. “Even though subscribership has gone down, that’s kind of too bad for them this year.”

For those cable companies that have actually gained subscribers the reverse is true — they get a break. They won’t have to pay additional user fees on those new customers until the following year.

But in the tough competitive climate, MSOs that have added subscribers are the exception.

In the second quarter, Comcast Corp. Time Warner Cable, Charter Communications Inc., and Cox Communications Inc. all reported subscriber losses.

Cablevision Systems Corp. added 7,500 subscribers in the second quarter after losing 23,000 customers during the previous three quarters, according to Fulcrum Global Partners.

In years past, the cable industry has complained that its contribution to the FCC was too high because the industry’s burden on agency resources dropped off after March 31, 1999, when Congress eliminated rate-regulation of expanded basic rates.

Cable’s chief video competitor — the direct-broadcast satellite industry, which has racked up strong subscriber gains this year — does not pay per-subscriber user fees to the FCC. Instead, the agency charges DBS companies about $114,000 for each satellite.

With nine satellites, EchoStar Communications Corp., for example, owes the FCC about $1 million, compared to about $7 million if it had to pay the 70 cents per sub fee cable has to pay.

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