In the world of municipal sparring with cable TV companies, a federal appeals court just handed cities a potential set of teeth that could put Mike Tyson's to shame. The 5th US Circuit Court of Appeals in New Orleans earlier this month overturned a Federal Communications Commission decision that the cities claimed gave cable operators an undue windfall. And in an unusual fit of judicial simplicity, the court was decidedly unwishy-washy. It just politely took the FCC to task for buying into the industry argument, and presumably went out for gumbo.
The decision is costly enough to the industry that municipal lawyers say they have a tool to grab goodies from cable TV companies during franchise-renewal talks. And they were already plotting strategies to use the court's reasoning to bolster other important cases. An FCC spokesman said the agency hasn't yet decided whether to appeal the ruling.
At issue in the case are the payments cable operators make to cities to use public rights-of-way. Known as "franchise fees," these gems usually come as a percentage of "gross revenues" (federal law caps the fees at 5 percent). Cable operators, which need the public rights of way to make money, have been reluctantly paying these tolls for years.
But disputes over the definition of "gross revenues" are inevitable and have occurred almost everywhere. The 1995 FCC decision that was overturned affected Tele-Communications Inc.'s Baltimore system. The city wanted to include the 5 percent fee that TCI already pays there as part of its gross revenues, prompting TCI to complain to the FCC that that amounted to a kind of double billing - 5 percent on top of 5 percent. The FCC lawyers bought the company's argument and, two years ago, the commission ruled in its favor.
After the FCC spoke, TCI wasted no time faxing copies of the Baltimore order to its managers across the country. The managers faxed copies to local officials, along with a note informing them that TCI would be recalculating its payments in light of the Baltimore order. Guess what? Cities weren't happy about the prospect of losing millions, and so they sued.
In the wake of the 5th Circuit decision, municipal attorneys have been salivating over one phrase in the opinion that will generate controversy - and for them, lots of business: "retroactive franchise fees." Since TCI was charging its recalculated franchise fees for a couple of years, and since TCI has lots and lots of customers, it has accrued a pretty good bill (perhaps as much as $10,000 a month for every 100,000 subscribers in the affected locales).
"Every city that got those [recalculation] letters will tell TCI, 'It's time to pay up,'" said Joe Van Eaton, an attorney at the Washington law firm of Miller and Van Eaton. He added that the 5th Circuit decision will have "tremendous precedential value" for any city whose cable operator unilaterally lowered its fee payments because of the Baltimore decision.
The fireworks over the next few months are going to be "real interesting," Washington municipal attorney Tillman Lay said.
Lay said the 5th Circuit's ruling amounts to a finding that franchise fees "are not a tax ... but essentially a form of rent: the price paid to rent the use of public rights-of- way." That finding could sway the FCC to conclude that the cable industry's argument that cities should only receive "out of pocket" reimbursement for rights-of-way usage is no longer is valid. By equating the public rights-of-way to "rent," he said, the court is saying that cities can profit off its use.
The inevitable question: How will cities use this good fortune to get what they want from cable operators?
One way would be to hold up the threat of retroactive franchise fees in an attempt to win a quid pro quo - say, cable company funding for public-access studios, or free hook-ups for city buildings.
TCI has signaled its willingness to negotiate. Spokeswoman Joanne Dobbs put it diplomatically enough: "We look forward to working with the communities to ensure that the implementation of the decision is equitable to the customers, the community, and of course the company."
As for whether TCI would be willing to cough up retroactive payments, she said the firm "will address that issue as it comes up at that time."
