Bridge Span 19-3: Time for the FCC to End the Franchise Tax End-Around

Tomorrow the FCC will hold a vote on the legal limits of the power of states and localities to impose fees on cable operators and to regulate non-cable services. The need for a new vote to affirm the limitations is because recently some localities have chosen to “reimagine” the law first formed in the 1990s when Congress stepped in to regulate cable television.

A deal was struck in Congress years ago that allowed local communities to continue regulating television by awarding “franchises” to local cable television operators but a cap was placed on the amount that a locality could charge for the franchise. Currently that cap is set at five percent of the operator’s cable television service revenues.  This has been an economic boom for municipalities around the country, delivering over $3 billion a year in new revenues.  The five percent cap has provided predictability and, from the localities point of view, ensured that cable television operators paid a tax that more than covers any costs associated with their operations.

But a great deal is not enough for some. Over the years, a handful of communities have ignored the intent of the law and sought ways to circumvent the franchise fee cap to boost their municipal coffers. In some localities this has meant attempting to extract franchise fees from other services that flow over cable infrastructure, such as broadband internet access. This means they have moved to tax anything that flows through the lines, not just video. They also do so in direct defiance of federal law.

Other communities have demanded “in kind” donations of valuable goods and services as a condition of awarding a cable television franchise, increasing the total “tax” paid by the providers above the five percent cap. This is something that also clearly breaks the Congressional agreement. While appearing to be something of a shakedown, those engaged in such behavior try to explain it away by saying that demanding gifts in return for access is not the same as a tax or fee. Such rationalizing would be laughable but for the negative direct effect on consumers. Taxes are still taxes whether they are exacted in cash or “in kind” contributions with the exact same economic value.

The franchise fee cap end-around schemes are bad for cable operators, but they are even worse for customers who end up footing the bill for spiraling taxes on cable television and broadband.  Already franchise fees including the “in kind” component are nearly double the statutory cap, and the longer it goes unaddressed the worse the problem will become.

The FCC’s current Section 621 proceeding provides a valuable opportunity to re-affirm the basic logic of the Cable Act, putting an end to these outrageous local efforts to skirt the law that undermine the basic tradeoff that has seen cable television and consumer choice skyrocket. The vote would simply count in-kind contributions required by the local franchise authority to be counted toward the cap, prohibit the localities from using their video franchise to regulate non-cable services, and end any fees or charges that exceed the cap.

The FCC has the opportunity to stand up for consumers and stop a practice that threatens to spike cable television and internet bills. Here is the opportunity to restore and honor the Congressionally crafted a solution that has withstood time, not least because the solution was bipartisan and imbued with the notion that the marketplace can best address market challenges. Consumers should look forward to FCC action when they again will be protected from overzealous local tax raisers trying to end run the system.

Bridge Span 19-2: Severe Storm Warning for 5G, Inaccuracies Flood Watch

Government often seems quite adept at solving yesterday’s problems, building or protecting systems that are irrelevant today. Sometimes, to protect these inventions of yesteryear, government can hoard our spectrum resources, the building block for communications. Rather than abandon projects where spectrum is lying fallow or pursuing means to share the spectrum in such a way that more use can be made of this precious resource, sometimes government just holds on being unwilling to let go.

Communications traffic of all sorts continue to skyrocket, with consumers finding increased value in the inventions of entrepreneurs. As ever more interesting uses of spectrum are introduced into the marketplace ever more spectrum is needed. An exciting innovation-fueled future faces a significant challenge as it depends on a current and continued pipeline of available spectrum.  While various efforts are underway to free more of our spectrum for uses that consumers demand, still more needs to be done just to keep up with the exponential use of this precious resource. Broadband is too important for too much of economy to not be a priority issue in Washington. And far too important to waste.

Yet, the federal government has wasted 20 years and more than $1 billion in taxpayer money in a quest to create DRSC (Dedicated Short-Range Communications) technology, a system for vehicle to vehicle communications. During that time, precious spectrum bandwidth, the 5.9 GHz band, was locked up and made unavailable for the American people, even though it was, and is, critical to expansion of faster broadband. Government decided that automated vehicles would best be served by connective technology. The marketplace thought otherwise, heading down a different road to the technologies being deployed today. The federal government still will not let go.

Something similar is now happening with another band of spectrum, the 24GHz band, and the Commerce Department does not want developed for broadband use. This band is close to the band used by the National Oceanic and Atmospheric Administration (NOAA) to observe changes in the weather. They claim use of the 24 GHz band could interfere with weather prediction because of interference with a certain sensor. While the Administration is claiming that the sky is falling, turns out that prediction well misses the mark.

NOAA has based their claims on a certain sensor technology that was never used, and ultimately scrapped thirteen years ago. Thirteen year old unused technology as the basis for a claim today? Newer, less sensitive technology is already being used. This is a 3G analysis in a 4G world of what could happen because of 5G. Given that their speculative claims are about technology never used, one would think the debate would end there. But even assuming those errant claims were true, NOAA was provided a 5-year process at the FCC with multiple opportunities to consult and comment to defend their claims. Throughout those many years no objections or even concerns were raised on the public docket, not even when the FCC formally established rules two years ago, and then announced its plan to auction the band last year.  But now, instead of being prepared for the predicted change, NOAA is drumming up a storm of objections at the last moment, based on their unused, antiquated system.

During massive storm events we are warned to be prepared for what is coming, to not take the predictions lightly. After a hurricane strikes and the floods begin, we are often made aware of stranded people on their rooftops flagging down rescuers at the last minute because they did not appropriately prepare. NOAA has apparently missed its own lessons.

Bridge Span 19-1: Finish Franchise Fee Fudging

In the early 1990s cable television began to reach more households and become a true alternative to broadcast. Seemingly overnight, the four-channel world became a universe of 400 channels. Consumers were benefitting for the massive growth in cable and the subsequent explosion in competitive video options and alternatives for consumers.

At the same time local communities were layering on rules, requests and regulations. Congress, not to be outdone, stepped in with the Cable Act to regulate from the federal perspective. The federal law allowed local communities to continue regulating television by awarding “franchises” to local cable television operators, but a cap was placed on franchise fees. Under the federal law these could be up to five percent of the operator’s cable television service revenues. The result was economic boom for municipalities around the country, delivering over $3 billion a year in new revenues. The five percent cap provided predictability and ensured that cable television operators paid a fair, not excessive, tax that more than covering any costs associated with their operations.

But over time a handful of communities ignored the intent of the law and have tried to find new ways to circumvent the franchise fee cap to boost their municipal coffers. In some localities this has meant attempting to extract franchise fees from other services that flow over cable infrastructure, such as broadband internet access. This is merely a form of backdoor double taxation that the Cable Act clearly does not allow. Congress has repeatedly and clearly stated a strong federal policy banning any local taxes on the internet in order to encourage deployment and development of faster and farther-reaching broadband, something a new internet access tax would completely undercut.

Other communities have demanded “in kind” donations of valuable goods and services as a condition of awarding a cable television franchise, something that also clearly breaks the cap. Taxes are still taxes whether they are exacted in cash or “in kind” contributions with the exact same economic value.

Local franchise authorities are of course free to request or demand “in kind” services such as television service for municipal buildings or wi-fi hotspots in a public park, but the value of those contributions must count against the five percent cable television franchise fee cap. If not, the cap becomes completely meaningless something Congress never intended and would not accept.

The franchise fee cap end around schemes are bad for cable operators, but they are even worse for customers who end up footing the bill for spiraling taxes on cable television and broadband. Already franchise fees including the “in kind” component are nearly double the statutory cap, and the longer it goes unaddressed the worse the problem will become.

The FCC’s current Section 621 proceeding provides a valuable opportunity to re-affirm the basic logic of the Cable Act, and to put an end to these outrageous local efforts to skirt the law that undermine the basic tradeoff that has seen cable television and consumer choice skyrocket. The FCC has the opportunity to stand up for consumers and stop a practice that threatens to spike cable television and internet bills.

The FCC has the opportunity to restore and honor the Congressionally crafted a solution that has withstood time because that solution was bipartisan and imbued with the notion that the marketplace can best address market challenges. Consumers should look forward to FCC action when they again will protected from overzealous local tax raisers.