More MSOs Dropping Modem Fees

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Comcast Corp., AT&T Broadband and Cox Communications Inc. have notified local governments that they will no longer collect cable-modem franchise fees, in response to a recent Federal Communications Commission ruling.

City officials also said they were told that Time Warner Cable would follow the lead of Charter Communications Inc., which first confirmed it would drop modem-related fees because of the FCC's decision.

Time Warner Cable spokesman Mike Luftman said his company would communicate directly with its franchisers on this subject, and not through the press.

But late last week, AT&T Broadband spokeswoman Sarah Eder confirmed her company would neither collect the fee from customers nor pay it to cities. The MSO will also provide refunds to consumers retroactive to March 15, when the FCC issued its declaratory ruling to classify cable-modem service.

A Cox spokeswoman confirmed its letters were mailed on March 29.

Cox had already been withholding franchise fees on modem service in the West, citing a 2000 ruling by the U.S. Court of Appeals for the 9th Circuit in the case of Portland (Ore.) vs. AT&T Broadband, in which the appeals panel held that high-speed-data delivery is not a cable service.

Cox said it could be sued if it continued to collect a cable fee levied on a non-cable service, so it dropped the assessment in systems within the 9th Circuit's jurisdiction.

The latest action will benefit customers throughout the rest of the country, according to Cox, by trimming their modem charges by the 5 percent fee it had been collecting (an average of $2).

According to a draft of a Comcast letter obtained last week, cable-modem customers will be notified of that company's fee change on their next bill.

Comcast spokesman Tim Fitzpatrick confirmed that the company has begun notifying cities of its decision.

The Philadelphia-based MSO wrote that it would not ask cities to reimburse past modem-fee payments, and said it would not refund previously collected modem fees to subscribers.

On March 15, the FCC declared that cable-modem service is an interstate information service, and not a cable service. Local governments may collect franchise fees on up to 5 percent of gross cable-service revenues.

"Generally, I don't find [Comcast's] notification surprising in the least, given the FCC's decision," said National Association of Regulatory Officers and Advisors president Libby Beaty. "I understand that cable operators are concerned about their liability in this particular area."

Comcast has about 1 million high-speed-data customers. The service is available to about 10 million homes in its service territories.

In the letter, Comcast noted the FCC's classification decision. It appeared to base its decision to halt further collection of cable modem fees on a statement about franchise fees the FCC made in a notice of proposed rulemaking (NPRM) that accompanied the classification decision.

The FCC stated that "revenue from cable-modem service would not be included in the calculation of gross revenue from which the franchise fee ceiling is determined."

But the FCC is not saying whether it is appropriate for cable operators to stop paying cable-modem franchise fees now, because that issue will be considered in the NPRM.

Comcast's decision will have a huge effect on cities such as Indianapolis, where the MSO launched high-speed-data service two years ago.

CITIES PLOT RESPONSE

Indianapolis cable communications agency director Rick Maultra said he's asked Comcast for a current customer count, so he can inform the city controller's office as to the revenue shortfall.

Local regulators are burning up the phone lines, plotting strategy and mulling additional litigation. Last week, consumer groups filed lawsuits in opposition to FCC's declaratory ruling.

A suit by municipalities could hinge on the FCC's failing to study the fiscal impact of an action that could cost cities billions of dollars over time.

"There's been talk of a lawsuit, and there are lawyers out there willing to take a run at it. But how are we going to pay for it — with the franchise fees we're no longer getting?" said one regulator.

Opponents of the FCC order indicate one or two cities might sue, with supporters helping to underwrite the legal costs.

Because of the declaratory ruling, local officials are even unsure they have the authority to act on subscribers' concerns over poor high-speed-data service.

"Consumers call with legitimate complaints, and we have to tell them, 'We can't help you, and we don't know who can,' " said Sacramento Metropolitan Cable Commission director Rich Esposto.

Esposto has vowed to collect all such complaints and forward them to the FCC.

"They're inheriting a pretty big workload," he said.

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