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Big Cities Turn To FCC To Tap Cable Broadband Fees

Under current Federal Communications Commission rules, cable’s broadband revenue is off limits to local taxing authorities.

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Photo of Best Best & Krieger Attorney Cheryl Leanza from the law firm

WASHINGTON, D.C., January 9, 2024 – Some major U.S. cities are targeting a federal rule that likely stands between them and a gusher of broadband gold.

Under current Federal Communications Commission rules, cable’s broadband revenue is off limits to local taxing authorities. Cable’s pay-TV revenue, however, has traditionally been subject to a 5% fee on gross revenue, helping to support municipal balance sheets all over the country.

Several big cities are making an effort to abolish that tax barrier enshrined in the FCC’s “mixed use” rule, an effort which could end up allowing cities to tap into cable’s billions in broadband revenue. The mixed-use rule, reaffirmed by the FCC in 2019, prevents cities from adding telecommunications or information service fees on cable operators.

The FCC was upheld in court in specifically disallowing the Oregon Supreme Court’s decision in 2016 that allowed the city of Eugene “to apply a separate telecommunications license fee on revenues derived from the provision of broadband services over a franchised cable system,” according to the Davis Wright Tremaine law firm.

Cities, ‘fees’ and ‘taxes’

As matter of legal precision, cities that receive compensation for granting cable operators access to their rights of way prefer the term “fees” rather than “taxes.” That’s because the Internet Tax Freedom Act includes a ban on the taxation of internet access services.

When the FCC established the mixed-use rule, Democratic FCC Chair Jessica Rosenworcel (who was a regular Commissioner at the time) dissented, but her statement focused on areas concerning how to calculate cable franchise fees owed when a cable operator provides in-kind services, such as free or discounted cable service to public buildings.

Since gaining a one-vote majority last September, Rosenworcel has unveiled several regulations directly aimed at the cable industry, including: Net Neutrality, digital discrimination, a ban on early termination and billing cycle fees, all-in pricing mandates, retransmission consent blackout reporting requirements, and pay-TV subscriber rebates related to TV blackouts.

Revisions to the mixed-use rule that tilt in favor of cities would not exactly clash with the thrust of Rosenworcel’s cable industry policy agenda in 2024, which could be her swansong year as head of the agency.

Mixed-use rule is not a money grab, says attorney

An attorney representing several major cities insists that the mixed-use rule issue does not simply boil down to a money grab.

“I think it’s more complicated than that,” said Cheryl A. Leanza, an attorney at Best Best & Krieger in Washington. “I definitely believe our client cities are interested in making sure that they can manage their rights of way and have the opportunity to treat regulatees equally.”

Leanza’s clients include Boston, Dallas, Washington, D.C., Los Angeles, Portland, Ore., and Eugene, Ore.

Last month, NCTA – The Internet & Television Association urged the FCC to disregard requests to revamp the mixed-use rule. NCTA represents the country’s largest cable operators, including Comcast and Charter.

NCTA also stressed the FCC can’t suddenly announce that the mixed-use rule is no longer good law.

“Even if the [FCC] were to conclude that it had the authority to repeal the mixed-use rule, it would first need to conduct a notice and comment rulemaking,” NCTA said.

According to S&P Global, broadband ISPs took in $111.73 billion in 2022. Based on current market shares, cable ISPs likely divided about $75 billion of that total. Five percent of cable broadband revenue would yield $3.75 billion in franchise fees for the cities in the first year.

Cities involved in the issue argue that the mixed-use rule needs reform because it “results in regulatory arbitrage.” They note that pure broadband providers that don’t offer cable TV can be required to obtain a local franchise and pay fees.

“But a cable operator offering both cable and broadband services may not be required to pay a fee based on its broadband revenue – no matter the ratio of cable to broadband revenue,” Leanza said in a Jan. 5 letter to the FCC after meeting with aides to Democratic FCC Commissioner Anna Gomez two days earlier.

Her letter added, “FCC policy should eliminate, not promote, uneven treatment of competitors, not grant cable operators a unique, preferential advantage over broadband providers that are not cable operators.”

The cities’ reference to arbitrage is starting to diminish. A few cable TV companies are terminating cable TV service and just offering broadband. DUO Broadband in Kentucky is exiting cable at the end of year, and Colorado-based WOW! Internet, Cable & Phone is transitioning its cable TV customers to YouTube TV. Cable One in Phoenix has been engaged in a multiyear effort to shut down its cable TV business.

Last month, MyBundleTV co-founder and CEO Jason Cohen said he expects hundreds of smaller cable companies to shut down cable TV over the next 36 months.

The exact legal status of cable companies that have abandoned cable TV but continue to offer broadband Internet seems to be an open question and could become the next legal battleground between cable and cities in the fight over right-of-way fees.

Because of cord cutting, cities have seen an accompanying decline in cable franchise fee revenue. Baltimore Budget director Laura Larsen last month reported that the city’s loss of 46,000 cable subscribers since 2020 contributed to her department’s $1.3 million deficit in the first quarter of 2023.

Ted Hearn is the Editor of Policyband, a new website dedicated to comprehensive coverage of the broadband communications market. This piece was published on Policyband on January 9, 2024, and is reprinted with permission.

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Broadband's Impact

CES 2024: Industry Wants Federal Data Privacy Law

The current patchwork of state laws makes compliance difficult, said representatives from T-Mobile and Meta.

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Photo of the panel by Jake Neenan

LAS VEGAS, January 12, 2024 – Industry stakeholders called for federal data privacy legislation at CES on Thursday.

“I think oftentimes companies can be in the position of opposing additional regulation at the federal level,” said Melanie Tiano, director of federal regulatory affairs at T-Mobile. “But this is probably one of those areas where that’s not the case, in part because of the flurry of activity going on at the state level, which makes compliance in the U.S. marketplace extraordinarily confusing and difficult.”

The New Jersey legislature cleared one such bill on Monday. If that’s signed into law by the state’s governor, it would bring the number up to 13. Federal efforts, notably the American Data Privacy and Protection Act, have stalled in recent years.

“We will continue to be seriously committed to getting legislation done in a bipartisan way. That’s not always easy right now, but we’re continuing to work on that” said Tim Kurth, chief counsel for the House Innovation, Data and Commerce Subcommittee.

Simone Hall Wood, privacy and public policy manager at Meta, said “privacy regulation should not inhibit beneficial uses of data.” The company has argued it has a legitimate interest in data use practices that the European Union has found to be out of compliance with its data privacy law, the GDPR.

Industry groups, including the Consumer Technology Association, which runs the CES conference, have advocated for a light-touch privacy law in the United States, in contrast with the more comprehensive European standard.

Kurth had similar thoughts Thursday, saying the GDPR “really hurt startups and really hurt innovations.”

Still, Woods said establishing a uniform standard is something the law does well.

“It sets certainty across the marketplace for what privacy protections look like for consumers. And so that aspect of it is positive,” she said.

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Broadband's Impact

CES 2024: NTIA and House Commerce Weigh in on Spectrum Policy

Reinstating FCC auction authority is the ‘number one priority’ of the Energy and Commerce Committee Chair.

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Photo of the panel by Jake Neenan

LAS VEGAS, January 12, 2024 – A senior National Telecommunications and Information Administration advisor and the chief lawyers for both Democratic and Republican sides of the House Subcommittee on Communications and Technology talked about their spectrum policy priorities on Thursday at CES.

The group touted U.S. wins at the World Radiocommunication Conference in Dubai, as well as lawmakers’ goals for spectrum auction authority heading into 2024.

World Radio Congress

Going into the conference, in which representatives from around the world meet to coordinate spectrum usage, “the 6 GigaHertz (GHz) issue was the top priority of the U.S. government,” said Phil Murphy, a senior advisor at the NTIA.

The band was set aside in 2020 by the Federal Communications Commission for unlicensed use in the United States, but some countries like China wanted to see some of the band tapped for 5G mobile use, Murphy said.

The U.S. delegation was ultimately able to deliver in December: the conference decision set aside 700 MegaHertz (MHz) for mobile, but left the door open for regulatory agencies to approve unlicensed use throughout the band.

That’s a win for the American Wi-Fi industry: the Wi-Fi alliance announced its official Wi-Fi 7 certification on Monday ahead of the tech conference. The new generation supports wider spectrum channels and multi-link operation, both of which will make use of the 1,200 MHz of real estate in the 6 GHz band.

“We’re really excited by the results,” Murphy said. “We’re really excited to see 6 GHz moving forward, not just here in the United States, but in other parts of the world as well.”

Auction authority

The Federal Communications Commission’s authority to auction and issue licenses for the commercial use of electromagnetic spectrum expired for the first time in March 2023. That’s not an issue for technologies like Wi-Fi, which don’t require such licenses to operate in bands set aside for unlicensed use, but it is important for ever-expanding 5G networks and wireless broadband.

“The Chair’s number one priority is to reauthorize the FCC spectrum auction authority that expired in March,” said Kate O’Connor, chief counsel for the Republican majority on the communications and technology subcommittee. “Even if it hasn’t been public, there’s been a lot going on behind the scenes.”

Jennifer Epperson, chief counsel for the Democratic side of the subcommittee, and Murphy, the NTIA advisor, agreed on the importance of the issue. 

“I think reauthorizing the FCC’s spectrum auction authority is a priority for the administration as well,” he said. “There’s probably spectrum that the FCC has available to auction right now, but they can’t because they don’t have the authority to do so.”

At a House oversight hearing in November, FCC Chairwoman Jessica Rosenworcel said “I have a bunch of bands sitting in the closet at the FCC,” pointing to 550 MHz in the 12.7-13.25 GHz band as spectrum the agency could go to auction with “relatively quickly.”

Efforts at blanket reauthorization have stalled publicly since a bill cleared the House Energy and Commerce Committee in May, but a stopgap measure allowing the Commission to issue licenses that had been purchased before the lapse was signed into law in December.

“With the funding bills coming up, we’re taking a look and hoping that we can turn this on as soon as possible,” O’Connor said.

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Broadband's Impact

FCC Issues Timeline for ACP Wind Down

The FCC order came a day after bipartisan legislation was introduced to extend ACP.

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Photo of hourglass via iStock.

WASHINGTON, January 12, 2024 – The Federal Communications Commission announced on Thursday that starting February 8 it will no longer accept new enrollments for the Affordable Connectivity Program, barring Congressional approval of additional funding for the low-income program.

The commission issued a 15-page order detailing its timeline and requirements to gradually phase out the program. The first in a series of deadlines is set for January 25, when providers must notify participants of the program’s anticipated end for the first time.

The FCC’s order came the day after bipartisan legislation was introduced in both the Senate and the House, proposing an additional $7 billion for the ACP program.

If passed, this funding would enable the FCC to extend the ACP until the year’s end, potentially negating some of the wind-down steps detailed in the recent FCC order.

Introduced in January 2022 to replace the Emergency Connectivity Fund that arose during the COVID-19 pandemic, the ACP offers monthly stipends of $30-75 for internet service to qualifying U.S. households.

In the recent order, the commission notes that with the Infrastructure Investment and Jobs Act, Congress enacted several changes to the ECF Program to transform it from an emergency COVID-19 program to a longer-term broadband affordability program. 

The FCC continues to change the program to address participant needs. Most recently, the commission raised the monthly ACP benefit to $75 for high-cost rural areas and directed the Universal Service Administrative Company to accept applications from interested providers.

Yet, due to concerns about potential confusion, the commission canceled the plans for USAC to process applications in a recent order. 

Absent Congressional intervention, the FCC’s Bureau will announce the last fully funded month of the program in late February, currently projected to be April 2024.

Fifteen days after that announcement, providers will be required to send a second notice to ACP participants about the program’s end. The third notice issued will coincide with the last billing cycle that the full ACP benefit is applied to. 

Providers must secure a household’s explicit agreement to continue to receive broadband services after the end of the ACP.

In the order, the commission said it will begin to inform organizations that received outreach grants to cease outreach work focused on enrollment.

On Friday, the National Digital Inclusion Alliance, alongside four community partner organizations representing the 240 outreach coordinators for the ACP, filed a letter to the FCC asking that ACP outreach grantees be able to redirect their funded work toward program wind-down activities, including “raising awareness about the potential end of the ACP.”            

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