The FCC will vote this month on whether to consider adopting a set of rulings that would limit the authority of cable local franchise authorities (LFAs) in the franchising and regulation of cable systems in response to a recent court case that threatens to expand LFA authority over cable systems and their diverse service offerings. In preparation for this vote, the FCC has pre-released a draft Second Notice of Proposed Rulemaking (NPRM) that contains these proposals.
I. Background on the Shared Local and Federal Regulatory Authority Over Cable Systems
Before discussing the NPRM, a little background is in order. Cable franchising is an arcane area of law, which mixes federal, state, and local law and regulation. The Cable Act of 1984, as amended in 1992, sets the rules for what has been called a “deliberately structured dualism.” That is, dual locality/FCC authority over cable systems and cable service. Localities exercise this authority through LFAs (that in many cases are not even separate local offices), who control the public rights-of-way that cable companies use to string their cable, while the FCC is charged by the Cable Act with exercising federal jurisdiction. FCC policy and LFA desires are frequently in tension, with LFAs often seeking franchise agreements that will give them greater regulatory authority and payments than the FCC or cable operators believe to be appropriate. It is rare to find a LFA that is actually interested in or capable of regulating any services offered by a cable system.
For the LFA, it is all about what they can get from the cable operator –Public, Educational and Governmental access channels and the franchise and other fees that LFAs extract from cable operators who pass the fees along to subscribers. For years, LFAs have fought with cable operators and the FCC over franchise fees and other ways to extract money (and other benefits) from cable operators, as well as the regulatory authority of LFAs. While we thought these battles had been settled by definitive court and FCC rulings, certain very aggressive LFAs (particularly Montgomery County, MD) have continued to fight for more money and power, and have had some recent success in convincing courts that FCC limits on LFA-imposed fees and LFA regulatory authority have not been legally justified. The proposed NPRM is a reaction to these recent LFA successes.
II. The Montgomery County Court Decision
The primary impetus behind the proposed NPRM is the 2017 decision of the Sixth Circuit US Court of Appeals in Montgomery County v. FCC. In this case, the LFA attacked the FCC’s doctrine that LFAs are prohibited from regulating non-cable services offered over cable systems – business data services, VoIP services, and high speed Internet access services among others. This doctrine is called the “mixed-use” doctrine. Because of this doctrine, LFAs have not been able to require cable operators to obtain separate franchises for these non-cable services or to assess franchise fees on these non-cable services. In addressing the challenge to this doctrine, the Court found that the FCC had adequately justified the doctrine only as applied to the services of a common carrier that provides cable services. For other cable companies, the Court found that the FCC had not shown a sufficient basis for shielding their non-cable services from LFA regulation.
The Court also determined that the FCC had not adequately justified the decision to treat cable-related in-kind contributions as franchise fees. An example of these “contributions” are cable services to government buildings provided at no charge. This is important because franchise fees are limited to five percent of a cable system’s gross cable services revenues.
III. Proposals in the NPRM to Respond to the Montgomery County Decision
The proposed NPRM would look to correct these deficiencies in the FCC’s rulings. First, the NPRM would declare that the “mixed-use” doctrine applies to cable systems not owned by telephone companies (e.g., Comcast or Charter) as well as cable systems owned by telephone companies (e.g., AT&T and Verizon). The Montgomery County Court found that the “mixed-use” doctrine applies to telephone company cable systems because the Cable Act’s definition of a “cable system” says that LFAs may regulate these “Title II” carriers only to the extent that they provide cable services. The proposed NPRM would tentatively find that this “Title II exception applies not just to traditional telephone companies (e.g., AT&T and Verizon), but to any entity that offers a Title II service over its cable system. Thus, if Comcast offered a telecom service with its cable plant (e.g., business data service), this exception would apply to Comcast. In other words, LFAs would not be able to impose regulations on traditional telecom services provided by cable companies.
As for those cable systems that offer information services but not traditional telecom services, the NPRM would tentatively conclude that Section 624(b) of the Cable Act bars LFA regulation of their non-cable services, as it bars LFAs from establishing “requirements for … information services.” This ruling would prohibit LFA regulation of Internet access services, which were classified as telecommunications services but are now classified as information services. The NPRM notes that Internet access services cannot be regulated at the state or local level for the additional reason that the FCC preempted regulation of those services when it recently reclassified Internet access services as information services.