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.
Though 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. Operators, including the 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 9th Circuit decision that held that high-speed data delivery is a telecommunications service and not a cable service.
Cox and AT&T cited that language when they warned cities of possible class-action lawsuits should operators continue to collect a cable fee for a non-cable service.
Cox has stopped collecting the fees. AT&T delayed implementing such a policy until Feb. 15, while executives continue to attempt to mollify city officials.
The Los Angeles City Council's information technology and general-services committee asked the city attorney for an opinion on extending the utility-tax class, assistant city attorney Ed Perez confirmed.
The city has analyzed this issue in the past, he noted. In 1991, then-chief administrative officer Keith Comrie asked the attorney's office to consider cable taxation as the city sought new revenue sources to remedy a shortfall. The attorney concluded at that time that the tax could be applied to cable.
Back then, operators responded with a public-relations campaign that ultimately resulted in cable's exemption from the utility user's tax.
Operators are taking the issue to their customers again. Time Warner Cable's Los Angeles system Web site warns Road Runner customers they face a $4 rate hike on modem service if the "Internet tax" is approved.
Modem customers are urged to call the city attorney's office and follow up with a call to their local councilman.
Eric Brown, vice president and general manager of Time Warner's West San Fernando Valley system, called the utility user tax inappropriate, especially since the referral only mentioned cable and not telco-supplied DSL service or products from other vendors.
Brown could not say how many customers had responded to the warning, but added that postings in Road Runner chat rooms were "not favorable."
Cox's move to stop collecting a 5-percent fee for cable-modem revenue upset municipalities.
"It's still our position there's nothing in the 9th Circuit decision that gives [the operators] the authority to drop the fee," said Brian Moura, assistant city manager of San Carlos, Calif., and president of a regional telecommunications authority.
Nothing in federal policy requires operators to itemize the fee and identify it as a cable charge, Moura noted. Operators can stop itemizing the charge in that way or can retain it as a line item on a bill, but identify it differently.
Though talks with local operators continue, Moura said if AT&T continues its plan to drop the fee, the company "will force us to take advantage of the franchise violation provisions available to us."
The United States Telecom Association and the National Association of Telecommunications Officers and Advisers have written to the FCC, asking it to examine a number of competitive issues, including cable's contribution to a telephony universal service fund, clarification of open- access policy and the fee issue.
The issue will also crop up in hundreds of franchise renewal talks currently under way in Western cities.
The city of Oceanside, Calif., made its position clear in a recent ordinance approving language it seeks for its next franchise with Cox. The current pact expires in June.
The city and Cox started with 83 talking points and are down to eight issues of contention, including the modem fees, assistant city manager José Aponte said. The city's resolution defines gross revenue as any and all monies derived from the use of the cable system, he noted.