Texas Cities Head to Court


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

The cities, in an alliance called 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 TCCFUI's Washington,
D.C.-based lawyer.

Last month, the FCC settled a franchise fee dispute that erupted between
Pasadena, Calif., and Charter Communications Inc. when Charter sought to pass
through the city's fee assessed not only on equipment and video-programming
revenue, but also on advertising and home-shopping revenue.

Pasadena and other cities told the FCC subscribers were being held
responsible for paying franchise fees on services for which they did not pay and
that cable operators should collect the franchise fee from advertisers and home
shopping channels instead of passing it on to subscribers.

The cable industry countered by saying cities were trying to shield their
taxing 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 fees on monthly

Two FCC members -- Republicans Kathleen Abernathy and Kevin Martin --
indicated that maybe the time was 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.

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

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

Such a move might make the cable modem more competitive with
digital-subscriber-line service 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.