Rejecting complaints of some municipal governments, the FCC said Thursday that cable operators may pass through to subscribers the full cost of local franchise fees, including levies on home shopping, advertising, cable modem and other non-subscription revenue.
Pasadena, Calif. and several other municipal cable regulators argued that cable companies should not be allowed to charge customers any portion of franchise fees beyond the portion based on video programming revenue. The FCC also rejected local authorities' request to prohibit cable companies from listing the entire franchising fee on customers' monthly bills as a separate line item. The FCC did make it clear that cable franchisers and operators have the right to negotiate fee agreements that exclude non-subscription revenue.
"Cable operators have a right and obligation to itemize franchise fees to help customers better understand where their money is going," said Dave Barford, Charter Communications chief operating officer.
The issue came to a head because some cable authorities base franchise fees on a local operator's gross revenues rather than a company's subscription revenue. So when a cable operator's home shopping or cable modem businesses do well, franchise fees rise with no service improvements.
Federal law limits local franchise fees to 5% of an operator's gross revenues.
Some local officials argue that non-subscription fees should be passed through to advertisers and home shopping channels rather than subscribers. They also argue that, if an entire franchise fee is passed through, the portion devoted to non-subscription revenue should be added to the general charges rather than included in the franchise fee line item.
The cable industry argues that some local governments are seeking political cover for aggressive fee hikes by forbidding operators from passing on the levies or disclosing their true amount.
So far Cox, Comcast and Charter Communication have been passing through the entire amount of franchise fees while AOL Time Warner, AT&T and Adelphi and many others have not. It's unclear whether the entire cable industry will pass through fees that based non-subscription revenue.
Many in the industry expect aggressive authorities to back down now that the FCC has clarified that complete line item disclosure is allowed.
But an attorney for the local authorities said the FCC made the wrong decision by viewing the fees solely as a tax on consumers and not as rent paid for the right to pass cable lines through property. "Why should lcoal government's subsidize advertisers' use of public rights of way?" asked Frederick Ellrod, attorney for Washington firm Miller & Van Eaton. They can appeal the decision, issued by the FCC Cable Services Bureau, to the five commissioners or to federal court but have not made a decision whether to keep the case alive, Ellrod said. - Bill McConnell