TR Daily Judge Questions FCC on Basis of Local Fee Preemption
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Thursday, April 15, 2021

Judge Questions FCC on Basis of Local Fee Preemption

A member of a three-judge panel of the U.S. Court of Appeals for the Sixth Circuit (Cincinnati) today repeatedly asked an FCC attorney to point out the exact provision of a federal statute that the Commission believes is violated by a local statute requiring Comcast Corp. to pay the 7% fee on broadband services that other broadband service providers in the same local market are required to pay.

The legal dispute (consolidated cases beginning at City of Eugene OR v. FCC,case 19-4161) involves challenges to the FCC’s third report and order in MB docket 05-311 adopted in 2019 requiring, among other things, that "in-kind" payments other than the capital costs of public, educational, and governmental (PEG) access channels be counted toward the statutory 5% cap on franchise fee (TR Daily, Aug. 1, 2019).

The FCC had recently asked the court to hold the case in abeyance until August, to give "the newly constituted Commission an opportunity to determine how it plans to proceed with respect to this case," but the court declined to do so (TR Daily, March 23).

During today’s oral argument, held remotely with audio streaming for the public, the judges asked Tillman Lay, representing the city of Eugene, Oregon, about the market for broadband services in Eugene and whether Comcast was being asked to pay a 5% franchise fee in addition to the 7% fee other broadband providers are paying to use the same public right-of-way (ROW). Mr. Lay emphasized that the 5% franchise fee is only assessed on gross cable revenues, so that if the court accepts the FCC’s argument, Comcast will not pay anything to the city on its broadband revenues, while its competitors would pay 7% of gross broadband revenues.

FCC attorney Maureen Flood told the court that the city ordinance violates a provision of Title VI of the Communications Act which states that, with the exception of an I-NET serving the local government, local franchising authorities (LFAs) cannot require a cable system operator to provide other services, including telecom services.

One of the judges pointed out that this prohibition applies to an LFA’s request for a proposal for franchise, and questioned how that would affect city assessments on non-cable services that a cable system operator chooses to provide on its own.

The statute "doesn’t say cable provider [only] when it is acting as a cable provider," Ms. Flood said, adding that cable networks are mixed use network, providing cable, telecom, and Internet services.

The judge said that when the FCC makes a preemption argument, it needs to point to a specific provision that is being violated or circumvented by the state or local action in question.

"What Congress did was consider inconsistent state and local laws … because it wanted to prevent state and local governments from doing outside of the franchise what they were forbidden to do in the franchise," Ms. Flood said.

Circuit Judge Raymond M. Kethledge asked where the statute indicated that that was Congress’s intent. "It has to be inconsistent with the subchapter. You have to tell me what provision of the subchapter it’s inconsistent with," he added.

He said that he didn’t see "any support" for the FCC’s conclusion that the city’s action was inconsistent with the statute.

He also said he was "a little concerned about the D.C. Circuit case of Mozilla v. FCC," in which the U.S. Court of Appeals for the District of Columbia Circuit vacated the provision of the FCC’s 2017 restoring Internet freedom (RIF order) that preempted states from adopting rules repealed in the RIF order (TR Daily, Oct. 1, 2019). He suggested that a ruling by Sixth Circuit upholding the FCC’s preemption in the franchise case would create a conflict between the circuits.

Ms. Flood said that in Mozilla, the FCC’s preemption was based "on this general federal policy of deregulation," but in the Eugene case, "we have a statutory basis for what we’re doing."

One of the judges noted that the FCC invoked a statutory provision barring LFAs from requiring cable providers to provide any telecom services as a prerequisite of receiving a franchise and questioned how the 7% broadband fee would have the effect of requiring a cable system operator to provide a telecom service.

Ms. Flood said that the FCC interpreted the provision in question "to mean [LFAs] could not regulate those services outside the franchise."

The judge said, "I’m telling you that I don’t see any conflict between this provision and the city of Eugene’s 7% fee."

"I just don’t get it," he added. "Eugene is not requiring anybody … to provide telecom services."

Circuit Judge Richard Allen Griffin, who presided over the proceedings, asked whether a cable provider had to have a second franchise to provide broadband service.

Ms. Flood said, "I don’t know."

Judge Kethledge said that the Title Vi prohibition would not apply to "a law of general applicability to anybody engaged in a certain business."

Ms. Flood said that telecom fees are not fees of general applicability.

Judge Kethledge asked whether a fee imposed on all broadband providers, even those that don’t use the public ROW, would be preempted under the FCC’s interpretation.

Ms. Flood said no, but pointed out the Eugene’s 7% is imposed on wireline providers based on their use of public ROW, which she said Comcast is already paying for in its franchise fee.

Jessica Ring Amunson, attorney for intervenor NCTA, argued that the law is clear and the court does not need to review the FCC’s action under the Chevron deference test.

She said that the "basic bargain" of the Title VI franchise fee cap is that 5% of gross cable revenues pays for use of the ROW to operate a cable system, and a cable system provides more than just cable services.

Judge Kethledge repeated, "You have to point to a clear congressional authorization to knock out state and local laws." He added, "Under federalism, state and local laws can exist with federal laws unless Congress has taken over the field."

On rebuttal, Mr. Lay said that "there’s nothing in the Cable Act that authorizes a cable system to offer non-cable services."

He also said that if cable system operators, which generally are seeing revenues shift from cable services to broadband services, are exempted from broadband or telecom service fees, they will get to use ROW "virtually for free," while their competitors have to pay the service fees. The FCC, he said, not the city of Eugene, is violating the Communications Act’s competitive neutrality approach.

Senior Judge David W. McKeague also heard the argument.

Cheryl Leanza, representing the city of Portland, Ore., a petitioner in one of the consolidated cases, also participated in the oral argument. —Lynn Stanton, [email protected]

MainStory: FederalNews OregonNews Courts FCC

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