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New Cable Franchise Rules to Benefit Consumers

In September of last year, the Federal Communications Commission issued a further notice of proposed rulemaking clarifying how the amount that cities are allowed to charge cable companies in franchise fees is calculated. If these changes are adopted, it will be much to the benefit of consumers. The chance that high fees extracted from cable providers will be passed along as higher prices to customers will be reduced and competition will be encouraged by insisting that established and new cable providers are treated the same.

Title VI, Section 622 of the Communications Act limits the fees local authorities (in this case, city governments) can charge cable companies to five percent of their gross revenue from that cable service. In the cable boom of the late 1970s and 1980s, cities grew fat on these fees, often collecting much more than required to cover the cities’ costs associated with cable deployment and maintenance, with much of the revenue going to the municipalities’ general funds. City authorities also negotiate in-kind contributions as part of franchise agreements, which cover everything from cable access for low-income areas to planting flowers in public parks.

The bulk of the FCC clarification is to count these additional in-kind payments toward the total five percent cap. This only makes sense for consumers, who may ultimately bear the burden of extra costs imposed by local revenue-hungry politicians. The FCC proposal makes other clarifications too, specifying that:

  • The gross revenue amount is to be based only on cable television services, not other services that might also be delivered, such as Internet access, phone, or smart home applications.
  • New and old companies will be treated the same.
  • Cities can’t use franchise cable television agreements as an opportunity to regulate parallel broadband services, dictating things like Internet coverage, speed, or prices.
  • These clarifications also apply to the handful of states that have statewide franchise agreements.

As more consumers cut their cable cords in favor of broadband-delivered streaming services instead, local politicians should stop pushing back against the FCC’s pro-consumer rule clarification and take a longer view. Revenue from cable municipal franchise fees will likely continue to fall, and politicians need to consider shrinking their spending instead of concocting new ways to fleece companies and their residents.