Modem-Fee Fight: Wild, Wild West

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Western cities are considering means to compel Cox Communications Inc. and
AT&T Broadband to continue collecting franchise fees for cable-modem
service, while looking for ways to replace the revenue should those efforts
fail.

Although city officials said they hope the Federal Communications Commission
will step in, they are making moves to protect their own interests.

Renegotiated franchises could contain new language that clearly defines
cable-modem revenue as an assessable item, along with home shopping income and
advertising sales.

Los Angeles officials are examining the possibility of extending a utility
user tax to cable-modem service. Because that user tax is assessed as 10 percent
of gross revenue, and not the 5 percent fee cable operators pay, cable rates
would go up, and operators -- including local companies still collecting modem
fees -- could lose customers to direct-broadcast satellite providers.

If the tax is applied only to cable-modem users, operators could lose data
customers to digital-subscriber-line providers.

The modem-fee debate springs from U.S. Court of Appeals for the Ninth Circuit
decision that held that high-speed-data delivery is a telecommunications service
and not a cable service.

Cox and AT&T Broadband cited that language when they warned cities of
possible class-action lawsuits should operators continue to collect cable fees
for a noncable service.

Cox has stopped collecting the fees. AT&T Broadband delayed implementing
such a policy until Feb. 15 while executives continue to attempt to mollify city
officials.

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