from: Peoria Chronicle [1]

New FCC rule could mean less franchise fee revenue for Peoria

I’ve been trying to keep up on how cable franchise negotiations are going. You may recall that the city’s franchise agreement with Insight expired in April 2006. After several months, the city finally signed a temporary extension with Insight/Comcast through January 1, 2008. That’s not very far away now, and there’s still no permanent franchise agreement.

No doubt part of the reason it’s so hard to nail down a final contract is because the rules keep changing. With other players (read: AT&T) entering the cable market, state and federal authorities (e.g., the FCC) are constantly changing the landscape, trying to make it easier for telecommunications companies to get into the cable market. Most of the those changes negatively affect municipalities.

Now it seems the FCC has changed the way fees are used for so-called PEG channels. PEG stands for Public, Education, and Government. On Peoria’s Insight system, channel 17 is for Education access (you see ICC classes and District 150 board meetings on this channel), channel 22 is public and government access (you see everything here from city council meetings to independent talk shows to local band performances). It appears the cost of operating these channels will now be part of the franchise fee under any new franchise agreement, which means the city will get less revenue.

Here’s the explanation from City Manager Randy Oliver:

Last Wednesday the FCC released an order which will affect Peoria and many other municipalities on franchise fees and the use of fees paid by cable companies to support public, educational and government (PEG) channels and on certain other items. In brief, the FCC said that fees paid to support PEG channels can only be used for the ”capital costs” of such channels. If used for other purposes, the FCC said they count against the 5% Federal franchise fee cap-in other words are deducted from franchise fees. This is different from the provisions of some cable franchises, as well as some recent cable statutes adopted at the insistence of phone companies, which say that the fees municipalities get for such channels are not restricted to being used for capital purposes. The FCC also said that the preceding and its prior rulings about what can and cannot be included in gross revenues for franchise fee purposes apply nationally.

The FCC said that its order does not apply retroactively. It also indicated that it cannot void existing franchises, which it recognized may allow fees to be used for non-capital purposes (or differ from franchise fee calculation rules) for valid reasons, such as to resolve a franchise violation or rate dispute. For reasons such as these the FCC indicated that a cable company cannot unilaterally alter franchise fee computations or deduct claimed improper payments from franchise fees, but first must attempt to resolve matters with the municipality in question. The FCC also stated that Federal law does not restrict municipalities from adopting customer service standards greater than those issued by the FCC. AT&T continues to argue that it is not a cable company, although some courts have ruled to the contrary. The preceding thus is not always directly applicable to AT&T. In general the FCC order extends to incumbent cable companies some terms of the FCC’s March 2007 order on cable franchise terms for telephone companies. The March order is currently being challenged in the courts, with a decision expected soon. This is simply a quick summary of some of the main ways the FCC order is likely to affect municipalities.

Posted by C. J. Summers on Friday, November 16th, 2007 at 3:46 pm.