In August 2019, the Federal Communications Commission (FCC) will take a strong step to modernize rules relating to how local franchise authorities will be permitted to regulate cable operators.

Section 621 of the Cable Act specifies the limit in percentage that a local franchise authority may charge a cable company to allow it to operate in its locality.  This limit is set at 5 percent of gross revenues from the operation of the cable system to provide cable services.  Over the years, several localities have found creative ways to get around the 5 percent limit, by requesting “in-kind” contributions that have included “traffic light control systems; prepaying $1 million in franchise fees and to fund a $50,000 scholarship; a $13 million ‘wish list’ in Tampa Florida; a request for video hookup for a Christmas celebration and money for wildflower seeds in New York; and a request for fiber on traffic lights to monitor traffic in Virginia.”

Only cable operators are subject to local franchise fees and are often seen as “deep pockets” to solve unrelated local financial issues.  The city of Eugene, Oregon is a prime example of this problem.  After a court decision confirmed the municipality’s ability to impose licensing fees and other taxes on cable right-of-way use, the city began using these new revenues to pay down its public pension.  These additional fees, forced in-kind contributions, and taxes are not just borne by companies striving to deploy new networks and improved services across the country, they are also passed along to customers in their monthly bills to offset the increased cost of providing services.

The FCC’s action in August will provide local franchise authorities firm guidance on what constitutes the 5 percent franchise agreement cap.  As noted by FCC Chairman Ajit Pai in his medium post, “Excessive fees and inappropriate regulations imposed by local governments deter broadband deployment and discourage investment in next-generation facilities and services.”

This much needed clarification of the rules will prevent local officials from charging exorbitant, unwarranted, and unnecessary fees and “in-kind contributions” beyond the 5 percent franchise fee cap to cable operators that increase cost to consumers as a condition of providing service to residents.