throbber
Case: 19-72219, 08/30/2019, ID: 11416248, DktEntry: 1-2, Page 1 of 91
`
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`CITY OF EUGENE, OREGON,
`Petitioner,
`
`
`v.
`
`FEDERAL COMMUNICATIONS
`COMMISSION
`
`
`and
`
`UNITED STATES OF AMERICA,
`Respondents.
`
`
`
`
`
`
`NO. 19-_________
`
`
`
`
`
`
`
`PETITION FOR REVIEW
`
`
`
`Pursuant to 5 U.S.C. § 706, 47 U.S.C. § 402(a), 28 U.S.C. §§ 2342(1) and
`
`2344, Rule 15(a) of the Federal Rules of Appellate Procedure, and Ninth Circuit
`
`Rule 15-1, the City of Eugene, Oregon (the “City”), petitions this Court for review
`
`of an order of the Federal Communications Commission (“FCC”) captioned
`
`Implementation of Section 621(a)(1) of the Cable Communications Policy Act of
`
`1984 as Amended by the Cable Television Consumer Protection and Competition
`
`Act of 1992, Third Report and Order, MB Docket No. 05-311, FCC 19-80, 84 Fed.
`
`Reg. 44725 (August 27, 2019) (“Order”). A copy of the Order is attached as
`
`Exhibit A to this Petition.
`
`
`
`
`

`

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`Venue is proper in this Court pursuant to 28 U.S.C. § 2343.
`
`The City submitted comments and actively participated in the underlying
`
`proceeding before the FCC that led to the Order, and is aggrieved by the Order
`
`within the meaning of 28 U.S.C. § 2344.
`
`The City seeks review of the Order on the grounds that it is arbitrary,
`
`capricious, and an abuse of discretion within the meaning of the Administrative
`
`Procedure Act, 5 U.S.C. § 701 et seq.; violates federal law, including, but not
`
`limited to, the U.S. Constitution, the Communications Act of 1934, as amended,
`
`and FCC regulations promulgated thereunder; and is otherwise contrary to law.
`
`The City respectfully requests that the Court grant this Petition, hold
`
`unlawful, vacate, enjoin, and set aside the Order, and provide such additional relief
`
`as the Court may deem proper.
`
`Respectfully submitted,
`
` s/ Tillman L. Lay
`Tillman L. Lay
`Jeffrey M. Bayne
`Spiegel & McDiarmid LLP
`1875 Eye Street, NW
`Suite 700
`Washington, DC 20006
`(202) 879-4000
`Attorneys for City of Eugene, Oregon
`
`August 30, 2019
`
`2
`
`
`

`

`Case: 19-72219, 08/30/2019, ID: 11416248, DktEntry: 1-2, Page 3 of 91
`
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`
`CITY OF EUGENE, OREGON,
`Petitioner,
`
`
`v.
`
`FEDERAL COMMUNICATIONS
`COMMISSION
`
`
`and
`
`UNITED STATES OF AMERICA,
`Respondents
`
`
`
`
`
`
`NO. 19-_________
`
`
`
`
`
`
`
`CORPORATE DISCLOSURE STATEMENT
`
`
`
`Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure and Rule
`
`26.1 of this Court, the City of Eugene, Oregon, states that it is a governmental
`
`agency and therefore exempt from Rule 26.1.
`
`
`
`
`

`

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`
`
`
`Respectfully submitted,
`
` s/ Tillman L. Lay
`Tillman L. Lay
`Jeffrey M. Bayne
`Spiegel & McDiarmid LLP
`1875 Eye Street, NW
`Suite 700
`Washington, DC 20006
`(202) 879-4000
`Attorneys for City of Eugene, Oregon
`
`August 30, 2019
`
`
`
`2
`
`

`

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`
`EXHIBIT A
`
`
`

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`
`Federal Communications Commission
`
`FCC 19-80
`
`Before the
`Federal Communications Commission
`Washington, D.C. 20554
`
`MB Docket No. 05-311
`
`))))))
`
`In the Matter of
`
`Implementation of Section 621(a)(1) of the Cable
`Communications Policy Act of 1984 as Amended
`by the Cable Television Consumer Protection and
`Competition Act of 1992
`
`THIRD REPORT AND ORDER
`
`Adopted: August 1, 2019
`
`Released: August 2, 2019
`
`By the Commission: Chairman Pai and Commissioners O’Rielly and Carr issuing separate statements;
`Commissioners Rosenworcel and Starks dissenting and issuing separate statements.
`
`TABLE OF CONTENTS
`
`Heading
`
`Paragraph #
`
`INTRODUCTION...................................................................................................................................1
`I.
`II. BACKGROUND.....................................................................................................................................2
`III. DISCUSSION..........................................................................................................................................7
`A. In-Kind Contributions.......................................................................................................................8
`1.
`Interpretation of Cable-Related, In-Kind Contributions Under Section 622 .............................9
`2. Specific Types of Cable-Related, In-Kind Contributions Under Section 622 .........................25
`a. Free and Discounted Cable Service to Public Buildings ...................................................26
`b. PEG Access Facilities........................................................................................................27
`(i) The Franchise Fee Definition Generally Includes Contributions for PEG
`Access Facilities..........................................................................................................28
`(ii) Scope of Specific Franchise Fee Exclusions Related to PEG Access Facilities.........31
`(iii) Policy Concerns and the Impact on PEG Programming .............................................50
`I-Nets..................................................................................................................................55
`c.
`d. Build-Out and Customer Service Requirements................................................................57
`3. Valuation of In-Kind Contributions and Application to Existing Franchises ..........................59
`B. Mixed-Use Rule ..............................................................................................................................64
`C. Preemption of Other Conflicting State and Local Regulation ........................................................80
`D. State Franchising Regulations.......................................................................................................111
`IV. PROCEDURAL MATTERS...............................................................................................................120
`V. ORDERING CLAUSES......................................................................................................................124
`APPENDIX A—Final Rules
`APPENDIX B—Final Regulatory Flexibility Analysis
`
`I.
`
`INTRODUCTION
`In this Third Report and Order (Third Order), we interpret sections of the
`1.
`Communications Act of 1934, as amended (the Act) that govern how local franchising authorities (LFAs)
`may regulate cable operators and cable television services, with specific focus on issues remanded from
`the United States Court of Appeals for the Sixth Circuit (Sixth Circuit) in Montgomery County, Md. et al.
`
`

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`Federal Communications Commission
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`FCC 19-80
`
`v. FCC.1 First, we conclude that cable-related, “in-kind” contributions required by a cable franchise
`agreement are franchise fees subject to the statutory five percent cap on franchise fees set forth in section
`622 of the Act, with limited exceptions, including an exemption for certain capital costs related to public,
`educational, and governmental access (PEG) channels.2 Second, we find that under the Act, LFAs may
`not regulate the provision of most non-cable services,3 including broadband Internet access service,
`offered over a cable system by an incumbent cable operator. Third, we find that the Act preempts any
`state or local regulation of a cable operator’s non-cable services that would impose obligations on
`franchised cable operators beyond what Title VI of the Act allows. Finally, we conclude that
`Commission requirements that concern LFA regulation of cable operators should apply to state-level
`franchising actions and state regulations that impose requirements on local franchising.
`II.
`BACKGROUND
`2.
`Every LFA as well as every “cable operator”4 that offers “cable service”5 must comply
`with the cable franchising provisions of Title VI of the Act.6 Section 621(b)(1) prohibits a cable operator
`from providing cable service without first obtaining a cable franchise,7 while section 621(a)(1)
`circumscribes the power of LFAs to award or deny such franchises.8 In addition, section 622 allows
`LFAs to charge franchise fees and sets the upper boundaries of those fees. Notably, section 622 caps the
`fee at five percent of a “cable operator’s gross revenues derived . . . from the operation of the cable
`system to provide cable service.”9 When Congress initially adopted these sections in 1984, it explained
`that it was setting forth a federal policy to “define and limit the authority that a franchising authority may
`exercise through the franchise process.”10 Congress also expressly preempted any state or local laws or
`actions that conflict with those definitions and limits.11
`As summarized in detail in the Second FNPRM, the Commission has an extensive history
`3.
`of rulemakings and litigation interpreting sections 621 and 622.12 In short, the Commission in 2007
`released a First Report and Order to provide guidance about terms and conditions in local franchise
`
`1 Montgomery County, Md. et al. v. FCC, 863 F.3d 485 (6th Cir. 2017) (Montgomery County).
`2 47 U.S.C. § 542.
`3 See infra note 257 (defining “non-cable service”).
`4 Id. § 502(5) (“the term ‘cable operator’ means any person or group of persons (A) who provides cable service over
`a cable system and directly or through one or more affiliates owns a significant interest in such cable system, or (B)
`who otherwise controls or is responsible for, through any arrangement, the management and operation of such a
`cable system.”).
`5 Id. § 502(6) (“the term ‘cable service’ means— (A) the one-way transmission to subscribers of (i) video
`programming, or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the
`selection or use of such video programming or other programming service.”).
`6 Id. §§ 521-573.
`7 Id. § 541(b)(1).
`8 Id. § 541(a)(1).
`9 Id. § 542.
`10 H.R. Rep. No. 98-934, at 19 (1984).
`11 47 U.S.C. § 556(c). See, e.g., Comcast v. City of Plano, 315 S.W.3d 673, 678-80 (Tex. Ct. App. 2010) (discussing
`historical development of federal regulatory scheme); City of Chicago v. Comcast Cable Holdings, L.L.C., 231 Ill.2d
`399, 405-07 (2008).
`12 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Amended by the Cable
`Television Consumer Protection and Competition Act of 1992, Second Further Notice of Proposed Rulemaking, 33
`FCC Rcd 8952, 8953-59, paras. 3-14 (2018) (Second FNPRM).
`
`2
`
`

`

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`Federal Communications Commission
`
`FCC 19-80
`
`agreements that are unreasonable under section 621 of the Act with respect to new entrants’ franchise
`agreements.13 Two major conclusions that the Commission adopted are that (1) non-cash, “in-kind”
`contributions from cable operators to franchise authorities are franchise fees that count toward the
`statutory cap of five percent of cable operator revenue,14 and (2) franchising authorities may not use their
`cable franchising authority to regulate non-cable services (like telephone and broadband services) that the
`new entrants deliver over their mixed-use networks (i.e., networks that carry broadband services, voice
`services, and other non-cable services, in addition to video programming services).15 The Commission
`also sought comment on whether to extend those conclusions to agreements that LFAs have with
`incumbent cable operators,16 and ultimately decided in a Second Report and Order17 and an Order on
`Reconsideration18 that those conclusions should apply to incumbent cable operators.
`In Montgomery County, the Sixth Circuit addressed challenges by LFAs to the Second
`4.
`Report and Order and the Order on Reconsideration.19 The court agreed that in-kind (i.e., non-cash)
`contributions are franchise fees as defined by section 622(g)(1), noting that section 622(g)(1) defines
`“franchise fee” to include “any tax, fee, or assessment of any kind” and that the terms “tax” and
`“assessment” can include nonmonetary exactions.20 The court found, however, that the fact that the term
`franchise fee can include in-kind contributions “does not mean that it necessarily does include every one
`of them.”21 The court concluded that the Commission failed to offer any explanation in the Second
`Report and Order or in the Order on Reconsideration as to why section 622(g)(1) allows it to treat cable-
`related, “in-kind” exactions—such as free or discounted cable services or obligations related to PEG
`channels—as franchise fees.22 LFAs had claimed that the Commission’s interpretation would limit LFAs’
`ability to enforce their statutory authority to require cable operators to dedicate channel capacity for PEG
`use and to impose build-out obligations in low-income areas,23 and the court noted that the Commission’s
`orders did not reflect any consideration of this concern.24 The court also stated that the Commission
`failed to define what “in-kind” means.25 The court therefore vacated as arbitrary and capricious the
`Second Report and Order and the Order on Reconsideration to the extent that they treat cable-related, in-
`
`13 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Amended by the Cable
`Television Consumer Protection and Competition Act of 1992, Report and Order and Further Notice of Proposed
`Rulemaking, 22 FCC Rcd 5101 (2007) (First Report and Order), aff’d sub nom. Alliance for Community Media et
`al. v. FCC, 529 F.3d 763 (6th Cir. 2008) (Alliance), cert. denied, 557 U.S. 904 (2009). The term “new entrants” as
`used in the First Report and Order refers to entities that choose to offer “cable service” over a “cable system”
`utilizing public rights-of-way and thus are deemed under the Act to be “cable operator[s]” that must obtain a
`franchise. First Report and Order, 22 FCC Rcd at 5106 n.24. Such new entrants largely were telecommunications
`carriers subject to Title II of the Act that were seeking to enter the cable services market.
`14 First Report and Order, 22 FCC Rcd at 5149-50, paras. 105-08.
`15 Id. at 5155-56, paras. 121-24.
`16 Id. at 5164-65, paras. 139-40.
`17 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Amended by the Cable
`Television Consumer Protection and Competition Act of 1992, Second Report and Order, 22 FCC Rcd 19633,
`19637-38, 19640-41, paras. 11, 17 (2007) (Second Report and Order).
`18 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as Amended by the Cable
`Television Consumer Protection and Competition Act of 1992, Order on Reconsideration, 30 FCC Rcd 810, 814-17,
`paras. 11-15 (2015) (Order on Reconsideration).
`19 Montgomery County, 863 F.3d at 487.
`20 Id. at 490-91.
`21 Id. at 491.
`22 Id. In the First Report and Order, the Commission ruled that “any requests made by LFAs that are unrelated to
`the provision of cable services by a new competitive entrant are subject to the statutory 5 percent franchise fee cap.”
`(continued….)
`
`3
`
`

`

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`
`Federal Communications Commission
`
`FCC 19-80
`
`kind exactions as franchise fees under section 622(g)(1).26 The court directed the Commission to
`determine and explain on remand to what extent cable-related, in-kind contributions are franchise fees
`under the Act.27
`The court in Montgomery County also agreed with LFAs that neither the Second Report
`5.
`and Order nor the Order on Reconsideration offered a valid statutory basis for the Commission’s
`application of its prior “mixed-use ruling” to incumbent cable operators.28 Under the mixed-use rule,
`“LFAs’ jurisdiction applies only to the provision of cable services over cable systems” and “an LFA may
`not use its video franchising authority to attempt to regulate a LEC’s entire network beyond the provision
`of cable services.”29 The court stated that the Commission’s decision in the First Report and Order to
`apply the mixed-use rule to new entrants had been defensible because section 602(7)(C) of the Act
`expressly states that LFAs may regulate Title II carriers only to the extent that they provide cable services
`and the Commission found that new entrants generally are Title II carriers.30 The court observed that in
`extending the mixed-use rule to incumbent cable operators in the Second Report and Order, the
`Commission merely relied on the First Report and Order’s interpretation of section 602(7)(C), noting that
`section 602(7)(C) “does not distinguish between incumbent providers and new entrants.”31 The court
`found, however, that this reasoning is not an affirmative basis for the Commission’s decision in the
`Second Report and Order to apply the mixed-use rule to incumbent cable operators because section
`602(7)(C) by its terms applies only to Title II carriers and “many incumbent cable operators are not Title
`II carriers.”32 The court further found that the Order on Reconsideration did not offer any statutory basis
`for the Commission’s decision to extend the mixed-use rule to incumbent cable operators.33 Accordingly,
`the court concluded that the Commission’s extension of the mixed-use rule to incumbent cable operators
`that are not common carriers was arbitrary and capricious.34 The court vacated the mixed-use rule as
`applied to those incumbent cable operators and remanded for the Commission “to set forth a valid
`
`(Continued from previous page)
`First Report and Order, 22 FCC Rcd at 5149, para. 105. This ruling was upheld by the Sixth Circuit in Alliance.
`529 F.3d at 782-83. The Commission later relied on the First Report and Order to conclude that “in-kind payments
`involving both cable and non-cable services” count toward the franchise fee cap. Order on Reconsideration, 30
`FCC Rcd at 816, para. 13. The court found that the Order on Reconsideration incorrectly asserted that the First
`Report and Order had already treated “in-kind” cable-related exactions as franchise fees and that the Sixth Circuit
`had approved such treatment in Alliance. Montgomery County, 863 F.3d at 490. The court also found that the First
`Report and Order did not make clear that cable-related exactions are franchise fees under section 622(g)(1). Id. In
`this regard, the court pointed out that the Commission specifically told the Sixth Circuit in Alliance that the First
`Report and Order’s “analysis of in-kind payments was expressly limited to payments that do not involve the
`provision of cable service.” Id.
`23 47 U.S.C. § 531.
`24 Montgomery County, 863 F.3d at 491.
`25 Id.
`26 Id. at 491-92.
`27 Id. at 492.
`28 Id. at 493. The court noted that LFAs’ primary concern with the mixed-use ruling is that it would prevent them
`from regulating “institutional networks” or “I-Nets”—communication networks that are constructed or operated by
`the cable operator and are generally available only to subscribers who are not residential customers—even though
`the Act makes clear that LFAs may regulate I-Nets. Id. at 492; see 47 U.S.C. §§ 531(b) (authorizing franchising
`authorities to require as part of a franchise or franchise renewal that channel capacity on institutional networks be
`designated for educational or governmental use), 541(b)(3)(D) (“Except as otherwise permitted by sections 611 and
`(continued….)
`
`4
`
`

`

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`Federal Communications Commission
`
`FCC 19-80
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`statutory basis, if there is one, for the rule as so applied.”35
`The Commission in September 2018 issued the Second FNPRM to address the issues
`6.
`raised by the remand from the Sixth Circuit in Montgomery County. In the Second FNPRM, the
`Commission tentatively concluded that: (1) it should treat cable-related, in-kind contributions required by
`LFAs from cable operators as a condition or requirement of a franchise agreement as franchise fees
`subject to the statutory five percent cap on franchise fees set forth in section 622 of the Act, with certain
`exceptions;36 and (2) it should apply its mixed-use rule to incumbent cable operators.37 The Commission
`sought comment on these tentative conclusions.38 The Commission also sought comment on whether
`other statutory provisions limit LFAs’ authority to regulate non-cable services offered over a cable system
`by an incumbent cable operator or the facilities and equipment used to provide such services.39 Finally,
`the Commission invited comment on whether it should apply its proposals and tentative conclusions in
`the Second FNPRM, and its prior decisions governing regulation of cable operators by local franchising
`authorities, to franchising actions taken at the state level and state regulations that impose requirements on
`local franchising.40
`III.
`DISCUSSION
`We largely adopt our tentative conclusions in the Second FNPRM.41 First, we conclude
`7.
`that cable-related, in-kind contributions required by LFAs from cable operators as a condition or
`requirement of a franchise agreement are franchise fees subject to the statutory five percent cap on
`(Continued from previous page)
`612, a franchising authority may not require a cable operator to provide any telecommunications service or facilities,
`other than institutional networks, as a condition of the initial grant of a franchise, a franchise renewal, or a transfer
`of a franchise”). See also id. § 531(f) (defining “institutional networks”). The court observed, however, that the
`Commission acknowledged that its mixed-use rule was not meant to prevent LFAs from regulating I-Nets.
`Montgomery County, 863 F.3d at 492.
`29 First Report and Order, 22 FCC Rcd at 5155, paras. 121-22.
`30 Montgomery County, 863 F.3d at 492-93.
`31 Id. at 493.
`32 Id.
`33 Id.
`34 Id.
`35 Id.
`36 Second FNPRM, 33 FCC Rcd at 8960-64, paras. 16-24. The Commission proposed to apply this treatment of
`cable-related, in-kind contributions to both incumbent cable operators and new entrants. Id. at 8963-64, para. 22.
`37 Second FNPRM, 33 FCC Rcd at 8964-65, para. 25. In particular, the Commission tentatively concluded that the
`mixed-use rule prohibits LFAs from regulating the provision of any services other than cable services offered over
`the cable systems of incumbent cable operators that are common carriers, or from regulating facilities and equipment
`used in the provision of such non-cable services, with the exception of I-Nets. Id. at 8965-66, para. 26. Similarly,
`the Commission tentatively concluded that LFAs are prohibited from regulating the provision of non-cable services
`provided by incumbent cable operators that are not common carriers, or the facilities and equipment used to provide
`such services. Id. at 8966-68, paras. 27-28.
`38 Id. at 8952, para. 1.
`39 Id. at 8969-71, para. 31.
`40 Id. at 8971-72, para. 32.
`41 As discussed below, we define “cable related, in-kind contributions” slightly differently than proposed, and our
`reasoning for not applying build-out costs is different than what we proposed. Compare infra paras. 25 and 57 with
`Second FNPRM, 33 FCC Rcd at 8963-64, paras. 21 and 24.
`
`5
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`Federal Communications Commission
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`FCC 19-80
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`franchise fees set forth in section 622 of the Act. We find that the Act exempts capital contributions
`associated with the acquisition or improvement of a PEG facility from this definition and remind LFAs
`that under the Act they may only require “adequate” PEG access channel capacity, facilities, or financial
`support. Second, we find that our mixed-use rule applies to incumbent cable operators. Third, we find
`that the Act preempts any state or local regulation of a cable operator’s non-cable services that would
`impose obligations on franchised cable operators beyond what Title VI of the Act allows. Finally, we
`decide that our guidance related to the local franchising process in this docket also will apply to state-
`level franchising actions and state regulations that impose requirements on local franchising.
`A.
`In-Kind Contributions
`8.
`Section 622 of the Act contains a broad definition of franchise fees. For the reasons
`provided below, we find that most cable-related, in-kind contributions are encompassed within this
`definition and thus must be included for purposes of calculating the statutory five percent cap on such
`fees. In this section, we first explain our interpretation of section 622 and why the definition of franchise
`fees includes most cable-related, in-kind contributions. We then explain how our interpretation applies to
`certain common franchise agreement terms. Lastly, we explain the process that LFAs and cable operators
`should use to amend their franchise agreements to conform to this Order.
`1.
`Interpretation of Cable-Related, In-Kind Contributions Under Section 622
`Addressing the first issue raised by the remand from the Sixth Circuit in Montgomery
`9.
`County, we adopt our tentative conclusion that we should treat cable-related, in-kind contributions42
`required by LFAs from cable operators as a condition or requirement of a franchise agreement as
`franchise fees subject to the statutory five percent cap set forth in section 622 of the Act, with limited
`exceptions as described herein.43 We also adopt our tentative conclusion that this treatment of cable-
`related, in-kind contributions should be applied to both new entrants and incumbent cable operators.44 As
`explained below, we find that this interpretation is consistent with the statutory language and legislative
`history.
`
`Section 622 of Title VI, entitled “Franchise fees,” governs cable operator obligations with
`10.
`respect to franchise fees.45 Specifically, section 622(a) states that any cable operator may be required
`under the terms of any franchise agreement to pay a franchise fee, and section 622(b) sets forth the
`limitation that “[f]or any twelve-month period, the franchise fees paid by a cable operator with respect to
`any cable system shall not exceed 5 percent of such cable operator’s gross revenues derived in such
`period from the operation of the cable system to provide cable services.”46 Notably, section 622(g)
`defines the term “franchise fee” for purposes of this section.47
`11.
`To understand what types of contributions from cable operators are franchise fees subject
`to the five percent statutory cap, the key provision is the section 622(g) definition, which states that “the
`term ‘franchise fee’ includes any tax, fee, or assessment of any kind imposed by a franchising authority or
`other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as
`
`42 We define this term infra para. 25, to include “any non-monetary contributions related to the provision of cable
`services provided by cable operators as a condition or requirement of a local franchise, including but not limited to
`free or discounted cable service to public buildings, non-capital costs in support of PEG access, and costs
`attributable to the construction of I-Nets. It does not include the costs of complying with build-out and customer
`service requirements.”
`43 Second FNPRM, 33 FCC Rcd at 8960, para. 16.
`44 Id. at 8963, para. 22.
`45 47 U.S.C. § 542.
`46 Id. § 542(a), (b).
`47 Id. § 542(g).
`
`6
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`Federal Communications Commission
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`FCC 19-80
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`such,” subject to certain enumerated exceptions.48 Specifically, according to the definition, the term
`“franchise fee” does not include the following: (1) any tax, fee, or assessment of general applicability;49
`(2) in the case of any franchise in effect on October 30, 1984, payments which are required by the
`franchise to be made by the cable operator during the term of such franchise for, or in support of the use
`of, PEG access facilities;50 (3) in the case of any franchise granted after October 30, 1984, capital costs
`which are required by the franchise to be incurred by the cable operator for PEG access facilities;51 (4)
`requirements or charges incidental to the awarding or enforcing of the franchise, including payments for
`bonds, security funds, letters of credit, insurance, indemnification, penalties, or liquidated damages;52 or
`(5) any fee imposed under Title 17.53 Because Congress spoke directly to the issue of what constitutes a
`franchise fee in section 622(g), our analysis of whether cable-related, in-kind exactions are included in the
`franchise fee is appropriately focused on this statutory language.
`12.
`As a preliminary matter, we note our prior finding, which was upheld by the Sixth Circuit
`in Montgomery County, that the franchise fee definition in section 622(g) can encompass both monetary
`payments imposed by a franchising authority or other governmental entity on a cable operator, as well as
`“in-kind” payments – i.e., payments consisting of something other than money, such as goods and
`services54 – that are so imposed.55 The definition of “franchise fee” in section 622(g)(1) broadly covers
`“any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity
`on a cable operator . . . solely because of [its] status as such.”56 Because the statute does not define the
`terms “tax,” “fee,” or “assessment,” we look to the ordinary meaning of such terms.57 As the court
`explained in Montgomery County, the definitions of the terms “tax” and “assessment,” in particular, “can
`include noncash exactions.”58 Further, as the court observed, section 622(g)(1) “more specifically defines
`‘franchise fee’ to include ‘any tax, fee, or assessment of any kind[,]’ . . . which requires us to give those
`terms maximum breadth.”59 Thus, consistent with the court’s conclusion on this issue, the term franchise
`fee in section 622(g)(1) includes non-monetary payments.60 We, therefore, reject arguments that it should
`
`48 Id. § 542(g)(1) (emphasis added).
`49 Id. § 542(g)(2)(A). In the Second FNPRM, we noted that, by definition, a tax, fee, or assessment of general
`applicability does not cover cable-related, in-kind contributions, and therefore we tentatively concluded that this
`exclusion is not applicable to such contributions. Second FNPRM, 33 FCC Rcd at 8961, para. 18. See also H.R.
`Rep. No. 934, 98th Cong., 2nd Sess. 1984 at 64 (“This would include such payments as a general sales tax, an
`entertainment tax imposed on other entertainment businesses as well as the cable operator, and utility taxes or utility
`user taxes which, while they may differentiate the rates charged to different types of utilities, do not unduly
`discriminate against the cable operator so as to effectively constitute a tax directed at the cable system.”). No
`commenter disputes this analysis, and we affirm it here.
`50 47 U.S.C. § 542(g)(2)(B). See infra Section III.A.2.b (discussing PEG costs).
`51 Id. § 542(g)(2)(C). See infra Section III.A.2.b (discussing PEG costs).
`52 Id. § 542(g)(2)(D). In the First Report and Order, the Commission found that the term “incidental” in this section
`should be limited to the list of incidentals in the statutory provision, as well as certain other minor expenses, and the
`court in Alliance upheld this determination. First Report and Order, 22 FCC Rcd at 5148, para. 103; Alliance, 539
`F.3d at 782-83. The Commission also emphasized that non-incidental costs should be counted toward the five
`percent cap on franchise fees, and listed various examples including attorney fees and consultant fees, application or
`processing fees that exceed the reasonable cost of processing the application, acceptance fees, free or discounted
`services provided to an LFA, and in-kind services unrelated to the provision of cable services. First Report and
`Order, 22 FCC Rcd at 5149, para. 104. In the Second FNPRM, we explained that, although the statute does not
`define the term “incidental,” based on the interpretive canon of noscitur a sociis, the exemplary list delineated in the
`text of the provision as well as the applicable legislative history suggests that the term refers to costs or requirements
`related to assuring that a cable operator is financially and legally qualified to operate a cable system, not to cable-
`related, in-kind contributions. Second FNPRM, 33 FCC Rcd at 8961-62, para. 18 (citing Gustafson v. Alloyd Co.,
`513 U.S. 561, 575 (1995)). See also H.R. Rep. No. 934, 98th Cong.,

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