U.S. Judge Voids Chicago Modem Fees


Chicago may not impose franchise fees on revenue local cable companies derive from high-speed-data customers, a federal judge ruled Sept. 4 in the second such decision this year to go against a local government.

In a short ruling, U.S. Judge David H. Coar agreed with eight operators sued by the Windy City that under a Federal Communications Commission ruling, cable companies are not required to contribute any cable-modem revenue in the form of franchise fees.

The judge also dismissed Chicago's arguments that its inability to collect cable-modem fees violated the 5th Amendment's ban on uncompensated takings and the 10th Amendment's prohibition on commandeering local resources to fund a federal regulatory program.

"The city's argument that it is entitled to more money simply because the defendants provide a new kind of service over existing lines is neither logical nor fair," Coar said in the 10-page opinion.

Among the cable companies sued was the former AT&T Broadband, now Comcast Corp.

In July, a federal judge in Louisiana ruled against Jefferson Parish, which tried to collect cable-modem fees from Cox Communications Inc., said Bob Scott, an attorney with Cole, Raywid & Braverman, whose firm defended the Chicago cable companies.

Under federal law, cities may demand up to 5% of a cable company's gross revenue from cable services — an annual take exceeding $2 billion, according to the National Cable & Telecommunications Association. Cities expect to lose hundreds of millions of dollars if denied 5% of revenue from cable-modem service, one of cable's fastest-growing products.

In March 2002, many operators stopped paying franchise fees on cable-modem revenue after the FCC ruled that cable-modem service was not a "cable service" as defined in federal law.

Many cable companies said they feared being sued by data subscribers if they continued to collect franchise fees on a non-cable service after the FCC ruling.

The U.S. Court of Appeals for the 9th Circuit is reviewing the FCC's March 2002 decision, and the FCC is continuing to study whether cities have authority outside traditional cable statutes to tax cable-modem service.