LOC News
Sixth Circuit Reaches Decision on FCC Cable Franchising Order
On August 2, 2019, the Federal Communications Commission (FCC) released its Third Report and Order in its 2005 docket interpreting provisions of the federal Cable Act. The 621 Cable Franchising Order (referred to as “the Order”):
- Redefined franchise fees and allowed cable providers to deduct the “fair market value” of any in-kind franchise obligations from their cash franchise payments when the 5% cap is reached. This includes any obligation other than build-out requirements, customer service requirements, PEG capital costs or channel placement value. This also includes the value of service or infrastructure to government buildings or schools, discounted or gratis service for seniors or low-income households or institutional networks (I-Nets).
- Contained “mixed-use” provisions and preempts state and local authority to regulate non-cable services and infrastructure of franchised cable operators, including the provision of Internet, Wi-Fi, voice and small cell equipment. An increasing number of residents get broadband service from their community’s cable provider.
- Attempted to limit state and local governments’ ability to regulate non-cable services of cable providers.
In the fall of 2019, many local governments across the United States, including the cities of Portland and Eugene, filed suit against the FCC on this matter. Cities argued the Order would likely reduce franchise revenues at the local level and wholly preempt state and local authority over the growing non-cable services (broadband and wireless services) being provided by cable companies. While the case originated in the 9th Circuit Court of Appeals, the case City of Eugene v. FCC was consolidated with similar cases and transferred to the 6th Circuit Court of Appeals. On April 15, oral arguments were heard before the 6th Circuit.
On May 26, the 6th Circuit released its decision on the Order, and cities received a mix bag of results. The court upheld the FCC's decision to redefine in-kind obligations as franchise fees, which count towards the 5% cap. Fortunately, the court determined cable operators were not to value in-kind contributions using "fair market value" of those obligations, but instead use the value based on the cost to operators to provide them, which should be marginal. The shift from fair market value valuation to marginal costs is a win for cities.
The mixed-use portion of the decision is less clear. While the court critiqued the FCC's interpretation of the statute to reach its justification in the mixed-use portion of the Order, it simultaneously seems to uphold the FCC’s preemption that state and local governments, as franchising authorities, cannot regulate some non-cable services provided by cable operators. However, the court, on page 12, in a footnote states that "We do not address, however, the question whether a state or local government (as opposed to a franchising authority) may impose a fee on telecommunications services provided by cable operators. The question where a fee of that sort would circumvent Title VI's limits on franchisor regulation of a cable operator's telecommunications services is neither fully briefed nor clearly presented on the facts here."
Cities should work with their counsel to assess how the decision in this case affects current cable franchise negotiations.
Contact: Jenna Jones, Legislative Analyst – jjones@orcities.org
Last Updated 5/28/21