Franchise Fees And The FCC's Mixed-Use Rule ' Oregon Federal Decision For Comcast May Have Wide Impact

• Published date: 25 July 2022
• Subject Matter: Corporate/Commercial Law, Media, Telecoms, IT, Entertainment, IT and Internet, Mobile & Cable Communications, Franchising
• Law Firm: Duane Morris LLP
• Author: J. Tyson Covey

For decades, cities and municipalities have counted on steady revenue from the franchise fees they charge cable companies for use of the public rights-of-way (ROWs). Such fees are imposed by local franchising authorities (LFAs). Under the federal Cable Act, these fees could be as high as 5% of a cable operator's gross revenues from providing cable TV service. 47 U.S.C. ' 542(b).

As the television industry has migrated toward streaming platforms, cable TV revenues have been affected, leading local governments to seek new sources of income from entities using the public ROW. One effort has been to try to impose local fees on streaming platforms, like Netflix or Hulu, that send video using broadband service provided over wires in the public ROW. That has been largely unsuccessful, as discussed here.

Another effort has been to try to impose cable franchise fees, or their equivalent, on the revenue cable operators derive from providing non-cable services, such as broadband internet service, over wires in the public ROW. That effort has run into the FCC's "mixed-use rule." That rule, revised and reviewed over the course of three FCC decisions and three challenges to those decisions in the Sixth Circuit, prohibits LFAs from imposing franchise requirements or franchise fees on cable operators for the revenues they derive from providing non-cable services. See 47 C.F.R. ' 76.43.

The latest chapter in this saga - and an important one - came in a recent Oregon federal district court decision. Comcast of Oregon II, Inc. v. City of Beaverton, No. 3:20-cv-1225, 2022 WL 2341961 (D. Or., June 29, 2022). That case involved Comcast's challenge to a local ordinance from Beaverton, Oregon. The ordinance imposed a fee, 5% of gross revenue, on all "utility" services provided over the public ROW, with utility service defined to include broadband service. Comcast argued, among other things, that the fee was preempted by the mixed-use rule.

The Hobbs Act and Binding Effect of FCC Decisions on Non-Hobbs Act Courts

Most significantly from an administrative law standpoint, the Court, per Judge Michael Simon, held that under the Hobbs Act, 28 U.S.C. ' 2342, it was required to follow the FCC's most recent order on the mixed-use rule (the "Third Order"), which had been affirmed by the Sixth Circuit on direct review. The Third Order stated that 47 U.S.C. ' 544(b)(1), part of the Cable Act, prohibits LFAs from regulating "information services" as part of regulating the franchise issued...