6th Circuit Ruling on 621 Order

The Sixth Circuit Court of Appeals issued a decision overturning several key provisions of the FCC’s September 2019 Third Report and Order interpreting the definition of “franchise fees” and other provisions of the federal Cable Act.  The Court found that the FCC incorrectly decided that cable operators may deduct from franchise fees the fair market value of non-monetary, cable-related franchise provisions.  Rather, the Court found that non-monetary, cable-related franchise provisions “should be assigned a value equal to the cable operator’s marginal cost in providing them.”  This holding is a significant win for state and local franchising authorities, who otherwise could have faced steep franchise fees offsets by cable operators using the FCC’s “fair market value” standard.

The Court also agreed with local governments that the FCC’s mixed-use rule, which largely preempted states and local governments from regulating the non-cable services and equipment of franchised cable operators, “does not follow from the Act’s terms.”  The Court acknowledged that the Cable Act is not “the fountainhead of all franchisor regulatory authority” and thus the FCC got it wrong when it suggested franchising authorities need “express permission” from the Act to regulate the non-cable services of a cable operator.  Instead, the question is “simply one of preemption” for which the FCC’s mixed-use rule “only gets in the way.”  After rejecting the FCC’s preemption analysis, the Court declined to address “the question whether a state or local government (as opposed to a franchising authority) may impose a fee on telecommunications services provided by cable operators” (emphasis by the Court), and with one exception did not address any of the other state and local actions the Third Report and Order purported to preempt.  The Court’s only application of its preemption analysis was with respect to the City of Eugene, Oregon’s right of way fee that applies to cable operators’ broadband services. The Court found that, under the current classification of broadband as “information services,” Eugene’s fee conflicts with a portion of the Cable Act that precludes a franchising authority from including “in its request for proposals for a franchise … requirements for video programming or other information services[.]” The Court’s rejection of the FCC’s efforts to broadly preempt local authority is another victory for NATOA members.