Tuesday, March 12, 2019

The FCC Should Limit Local Franchise Fees to Remove Investment Obstacles

The rule of law applies just as much to government as it does to citizens and corporations. The FCC is considering a proposal to hold local governments accountable to the legal limits on fees they can charge to cable TV providers. Under the Commission's proposal, in-kind payments frequently demanded by local governments would be subject to the statutory cap on cable provider franchise fees. This would ensure that local governments do not evade Congress's intent by demanding in-kind payments instead of cash. 

The Commission should follow through with its proposal. If adopted, local governments would still have control over whether they wish to receive cash, in-kind payments, or a mix of the two. But consistent strict application of Congress's cap will help avoid diversions of cable provider capital resources that would harm investment in next-generation networks and even lead to higher consumer prices.

Section 621 of the Communications Act recognizes local franchising authorities (LFAs) may impose certain requirements on local cable TV providers. But the law also puts limits on LFAs. Section 622(b) caps fee amounts that LFAs may charge a cable provider at 5% of the provider's gross revenues from providing cable TV services during any one-year period. Historically, some LFAs have required cable providers to deliver free cable services or other amenities as conditions for receiving or renewing video franchises. When added to required cash payments, in-kind costs can exceed 5% of the provider's gross revenues. In this way LFAs thwart the statutory cap by: (1) requiring cash payments up to the 5% threshold; and then (2) requiring in-kind payments that LFAs deem to be outside the cap's purview. The Commission's proposal would prevent such abuse. 

Free State Foundation President Randolph May and I filed reply comments in support of the Commission's proposal. And I also pointed out the proposal's merits in a prior blog post. Not surprisingly, local governments and their lobbyists have fiercely resisted including in-kind payments under Section 622(b)'s cap on franchise fees. But the Commission's proposed rule for in-kind contributions is fully in line with Congress's intent in placing limits on how much LFAs can charge for video franchises. The proposal would ensure that congressional policy is applied as intended. 

Importantly, the Commission's proposal would not interfere with LFA decisionmaking over whether or not to receive in-kind payments. LFAs typically negotiate with cable providers over terms for awarding or renewing video franchises. Under the proposal, LFAs can continue to negotiate over and receive in-kind payments, including delivery of cable TV services to city offices, community centers, and the like. Thus, LFAs would remain free to decide if they wish to receive cash payments, in-kind payments, or some mix of both. Also, the Commission's proposal would exclude certain expenses required by LFAs from the 5% cap, like capital costs for public, educational, and government (PEG) channel access.

Furthermore, by ensuring that statutory limits on franchise payments are followed consistently, the Commission's in-kind proposal will help avoid harm to investment and deployment of next-generation networks. Cable providers are also broadband Internet service providers. Federal policy rightly favors acceleration of future investment and deployment of next-generation high-speed broadband and Wi-Fi networks. But excessive video franchising fees reduce returns on investment and disincentivize future investment that could be better spent deploying broadband access to all Americans. And when LFAs charge cash and in-kind payments for video franchises that are excessive, aside from the depressive effect on investment it's important to remember at least some of those costs will be passed on to consumers.

The Commission should adopt its proposal to hold local governments accountable and ensure that they follow the law.