Thousands of local franchising authorities (LFAs), are raising barriers to broadband access by imposing or increasing franchise fees on internet service providers, the cost of which has ultimately fallen on consumers.  Some states and localities are attempting to extend these fees to online streaming services.

Municipalities have the right to impose fees to reimburse the cost incurred by cable and wireless operators that dig up public streets and sidewalks to provide connections to their services or attach cell nodes onto publicly owned utility poles.  Hungry for more government revenue, LFAs in at least 13 states have nevertheless sought to apply these legacy infrastructure fees to burgeoning alternative technologies that do not disrupt public infrastructure, along with the “over-the-top” video streaming services they carry.

A November 2021 R Street Institute report explained that to “deploy broadband infrastructure, providers need access to public rights-of-way, and the infrastructure along them, to attach equipment and connect network elements. … [These] fees from the local government… often serve as a major cost to network providers as they build out networks. … [I]t will be critical for local governments to limit the costs per facility, and ideally put a hard cap on the fees they charge. The [Federal Communications Commission] FCC has taken steps to limit these costs, but states continue to have a major role to play in this area.”

The Cable Communications Policy Act of 1984, as amended by the Cable TV Consumer Protection and Competition Act of 1992, caps franchise fees at 5 percent of providers’ gross revenues from operating a cable network.  However, LFAs exceed the cap by piling on excessive “add-ons” that they call “in-kind contributions,” and applying separate fees to broadband services offered by cable providers. 

On August 2, 2019, the FCC ruled that add-ons to franchise fees to skirt the caps violated the Cable Act.  These add-ons count as “franchise fees subject to the statutory five percent cap on franchise fees set forth in … the Act, with limited exceptions.”  This ruling prevents LFAs from imposing financial requirements on companies seeking franchise agreements outside of those permitted by law and protects consumers from having to pay for those additional costs by blocking local officials from demanding disproportionate and unwarranted “in-kind contributions” beyond the 5 percent cap from cable operators as a condition of providing service to residents.  The U.S. Court of Appeals for the Sixth Circuit upheld the FCC ruling in a May 26, 2021 decision, calling it “a correct interpretation of a federal statute.” 

FCC Commissioner Brendan Carr, who has been tapped by President-elect Trump to chair the Commission in 2025, praised the Sixth Circuit’s decision by noting that add-on fees “drove up the cost of building and maintaining the infrastructure needed to eliminate the digital divide.  As part of a series of steps to accelerate infrastructure builds and increase competition, the Commission in 2019 cracked down on the outlier conduct that had been slowing down these construction projects and raising the costs of Internet service.” 

By enabling providers to reduce deployment costs by capping franchise fees, the court’s decision represented a victory for rural unserved and underserved communities across the country who lack access to high-speed internet.  Yet more than three years after this ruling, municipal taxes and fees continue to rise, driving up the price of cable, internet, and cell phone plans for consumers.  Commissioner Carr’s elevation to the chairmanship and other staffing changes in the incoming administration will set the FCC up to enforce the Sixth Circuit’s ruling and end franchise fee abuse once and for all.