Fee Ruling Riles Texas Cities

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A group of Texas cities wants a federal court to reverse a recent Federal Communications Commission decision that affirmed cable operators' rights to collect all franchise fees assessed by local governments from their subscribers.

The cities — joining forces as the Texas Coalition of Cities on Franchised Utility Issues — filed a petition for review in the U.S. Court of Appeals for the Fifth Circuit in Dallas last week, said Nick Miller, the coalition's Washington, D.C.-based lawyer.

Miller said it was necessary to go to court because a request for additional FCC review was not expected to produce the result the cities wanted.

"They made their decision, so there's not much point in going back to them because there are not additional arguments to be made," Miller said. "It's time to go to court and to figure out who is right on the law, whether the commission is right or whether the cities are right."

Last month, the FCC settled a franchise-fee dispute between Pasadena, Calif., and Charter Communications Inc. Charter had sought to pass through fees the city assessed on advertising and home-shopping revenue, as well as equipment and video-programming revenues.

Pasadena and other cities told the FCC that subscribers were being held responsible for paying franchise fees for services that they do not buy. Cable operators should collect the franchise fee from advertisers and home shopping channels instead of passing it on to subscribers, the localities argued.

The cable industry countered, saying that cities were trying to shield their tax policies from consumers and urged the FCC to allow the entire burden of franchise fees to be passed through to subscribers.

In a unanimous decision, the FCC ruled in favor of the cable industry, saying operators could pass through all franchise fees and itemize the levies on monthly bills.

Two FCC members — Republicans Kathleen Abernathy and Kevin Martin — indicated that the time now might be right for cities and cable operators to sit down and discuss whether franchise fees should be assessed on revenue derived from sources other than customer equipment and video-programming services.

Cox Communications Inc., Comcast Corp. and Charter have been passing through advertising and home-shopping franchise fees, according to Miller, but AT&T Broadband, Adelphia Communications Corp. and Time Warner Cable have refrained from doing so.

In theory, the FCC's decision might allow cable operators to distribute the franchise fee on cable-modem service revenue among all subscribers, and not just the minority who take the high-speed-data service.

Such a move might make the cable modem more competitive with digital subscriber line products offered by local phone companies.

At the time of the FCC's decision, Miller said cable operators could use the ruling to cross-subsidize cable-modem service.

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