Time Warner Wins on Fees

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Washington— A federal judge has ruled that Time Warner Cable may refuse to pay franchise fees on cable-modem service revenue, handing the cable company a legal victory over the city of Minneapolis, Minn.

The ruling, handed down Nov. 10 by U.S. District Judge Ann D. Montgomery, accorded with other modem-fee court rulings and key rulings by the Federal Communications Commission. A spokeswoman for the Minneapolis government was not immediately available to comment on a possible appeal.

Montgomery agreed with Time Warner that franchise fees may be collected only on cable services. She noted after the FCC classified cable modem service as an information service in 2002, cities lost authority to impose the typical 5% fee on cable data revenue.

Montgomery said the FCC’s classification was a reasonable decision.

“The FCC and numerous courts have found that under the Telecommunications Act, Congress intended that cable-modem service revenues are not to be included in the assessment of franchise fees,” Montgomery said.

Minneapolis argued that despite the FCC’s ruling, it still had ample authority under federal and state law to collect modem fees. Montgomery disagreed.

“Essentially, Minneapolis’s argument is an end run around pre-emption,” she said.

In June, the U.S. Supreme Court, in a closely watched decision, ruled that the FCC was permitted to classify cable-modem service as an information service. In court pleadings, city organizations revealed that localities’ inability to collect fees on modem service represented a loss of about $500 million nationally.

Before the FCC decision in 2002, cable companies had been paying fees on modem revenue, on a belief shared with cities that high-speed data over cable was a cable service under federal law.

In August, the FCC declared digital subscriber line (DSL) service an information service after years of being classified as a telecommunications service. Phone companies that offered DSL never paid local franchise feels; instead, they were forced to pay into the FCC subsidy fund to keep voice services affordable in rural America.

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