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CHARTERED
MEMORANDUM
To: Clients
From: Bob Vose
Date: August 8, 2019
Re: Final FCC Order; Franchise Fees and PEG Support
Last year, I provided information about the FCC's Notice of Proposed Rulemaking
(NPRM) addressing the calculation of franchise fees and PEG support payments by local
cable operators. The NPRM indicated that the FCC may authorize cable operators to take
certain significant offsets from franchise fees. I provided an update last month after a
draft order was released. The final order(the "621 Order") was adopted on August 1st
The 621 Order is largely consistent with the recent draft. The 621 Order contains an
explanation of each issue addressed and the rulings made regarding those issues.
However, the actual amendments to the text of the Code of Federal Regulations made by
the 621 Order provide a good summary:
§ 76.42 —In-Kind Contributions.
(a) In-kind, cable-related contributions are "franchise fees" subject to the five
percent cap set forth in 47 U.S.C. 542(b). Such contributions, which count toward
the five percent cap at their fair market value, include any non-monetary
contributions related to the provision of cable service by a cable operator as a
condition or requirement of a local franchise, including but not limited to:
(1) Costs attributable to the provision of free or discounted cable service to public
buildings, including buildings leased by or under control of the franchising
authority;
(2) Costs in support of public, educational, or governmental access facilities, with
the exception of capital costs; and
(3) Costs attributable to the construction of institutional networks.
(b) In-kind, cable-related contributions do not include the costs of complying with
build-out and customer service requirements.
§ 76.43—Mixed-Use Rule.
A franchising authority may not regulate the provision of any services other than
cable services offered over the cable system of a cable operator, with the
exception of channel capacity on institutional networks.
The 621 Order differs from the draft in one important respect. In the draft, the FCC
recognized that there may be disagreements about whether the new rules require changes
to existing franchises. The FCC's draft would have required a cable operator that seeks
to modify its franchise based on the 621 Order to follow a statutory process for reaching
agreement on modifications. However, that requirement was removed and the 621 Order
instead states:
62. The franchise fee rulings we adopt in this Order are prospective.245 Thus,
cable operators may count only ongoing and future in-kind contributions toward
the five percent franchise fee cap after the Order is effective. There is broad
record support for applying the rulings prospectively; no commenter argues that
our rulings should apply retroactively to allow cable operators to recoup past
payments that exceed the five percent franchise fee cap.246 To the extent a
franchise agreement that is currently in place conflicts with this Order, we
encourage the parties to negotiate franchise modifications within a reasonable
time.247 If a franchising authority refuses to modify any provision of a franchise
agreement that is inconsistent with this Order, that provision is subject to
preemption under section 636(c).
In turn, the FCC explains in footnote 247 that it considers a 120-days (the period
established in the statutory modification process) to be an appropriate timeline for
negotiating modifications. Responsible cable operators will seek franchise modifications
thru negotiation, but some may simply change their franchise fee or PEG support
calculations without notice to the local franchising authority. This is an issue to monitor.
Finally, while the 621 Order does not allow cable operators to deduct the value of PEG
channels from franchise fees now, the Order indicates that the FCC will consider this
issue further. But instead of opening a new proceeding to do so, the FCC invites further
comment via the current proceeding. The 621 Order further states: "[t]o the extent that
we are provided sufficient information to answer the complex questions raised by channel
capacity, we intend to resolve them in the next twelve months." Order, fn. 180.
Many franchising authorities will have a significant interest in providing information to
the FCC about whether it would be appropriate to allow cable operator to offset the
"value"of PEG channels against franchise fees. Clients may want to consider providing
information or comment to the FCC about this issue.
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