FCC Proposes to Keep Localities from Exceeding Taxing and Regulatory Limits

On August 1, the FCC will hold a vote on its proposed order to clarify the legal limits on the power of states and local franchising authorities (LFAs) to impose fees on cable operators and to regulate non-cable services. The Commission deserves credit for its proposed order, which is solidly backed by the Communications Act. The Commission's action will keep states and LFAs from weighing down cable operators with multiple, unjustified taxes and charges. And its proposed order also will ensure that broadband Internet services and other information services will be free from state and local state regulatory restrictions. 

To briefly recap, Section 621(a)(1) of the Communications Act recognizes that LFAs may require cable TV service operators to obtain franchises, but subject to limits.Section 622(b), for instance, caps franchise fees on cable operators at 5% of its cable service gross revenues during any 12-month period. And under Section 624(b), LFAs "may not ... establish requirements for video programming or other information services." However, some LFAs have imposed costs that appear to exceed those statutory limits, potentially diverting cable operator resources away from investment in next-generation broadband Internet services. And some uncertainty surrounded whether LFAs might exceed their cable franchising authority to regulate broadband Internet services.   

The Commission's proposed order implements the statutory limits on LFAs in four key respects:

1. By including "in-kind" contributions charged by LFAs in exchange for video franchises within the 5% cap on franchise fees;
2. By concluding that the regulatory jurisdiction of LFAs over video franchising cannot be used to regulate most non-cable services provided over "mixed-use" cable networks, including broadband Internet access services;
3. By preempting any LFA-imposed fees or taxes on cable operators that exceed the Section 622(b) cap as well as any franchising requirements for providing non-cable services through cable networks; and
4. By applying limits regarding LFAactions at the state level and to state regulatory requirements on local franchising.

Free State Foundation President Randolph May and I have previously written about the Commission's Section 621 proceeding and its proposed order in reply comments submitted to the FCC, which the agency cites in its draft order, and also in a pair of blog posts. We urged the Commission to shore up its "in-kind" contribution and "mixed-use" rules and to expressly apply limits on LFAs to the state-level franchising authorities. 

The Commission's proposed Section 621 order is important, and it is commendable. It is faithful to the law, it will keep LFA and state-level franchising actions within proper boundaries, and it's hospitable to encouraging investment and deployment of next-generation broadband services.