Local Franchising Authorities' Regulation of Cable Operators and Cable Television Services, 44725-44750 [2019-18230]

Download as PDF Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations VII. Congressional Review Act Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This action is not a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). List of Subjects in 40 CFR Part 180 Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements. jspears on DSK3GMQ082PROD with RULES Dated: August 8, 2019. Michael Goodis, Director, Registration Division, Office of Pesticide Programs. * * * Fennel, florence, fresh leaves and stalk ................ Fruit, pome, group 11–10 ..... * * * * Herb subgroup 19A .............. Kohlrabi ................................. Leaf petiole vegetable subgroup 22B ......................... Leafy greens subgroup 4– 16A .................................... Nut, tree, group 14–12 ......... * * Communications Commission, 445 12th Street SW, Room CY–A257, Washington, DC 20554. This document will also be available via ECFS at * https://docs.fcc.gov/public/ attachments/FCC-19-80A1.docx. 0.1 Documents will be available 0.02 electronically in ASCII, Microsoft Word, and/or Adobe Acrobat. The complete text may be purchased from the * Commission’s copy contractor, 445 12th 0.4 Street SW, Room CY–B402, Washington, 0.05 DC 20554. Alternative formats are available for people with disabilities 0.1 (Braille, large print, electronic files, 1 audio format), by sending an email to 0.02 fcc504@fcc.gov or calling the Commission’s Consumer and Governmental Affairs Bureau at (202) * 418–0530 (voice), (202) 418–0432 (TTY). Parts per million Commodity * 44725 * * Vegetable, brassica, head and stem, group 5–16 ....... 0.05 Synopsis 1. In this Third Report and Order Therefore, 40 CFR chapter I is (Third Order), we interpret sections of amended as follows: Vegetable, fruiting, group 8– 10 ...................................... 0.02 the Communications Act of 1934, as amended (the Act) that govern how PART 180—[AMENDED] local franchising authorities (LFAs) may * * * * * ■ 1. The authority citation for part 180 regulate cable operators and cable [FR Doc. 2019–18386 Filed 8–26–19; 8:45 am] television services, with specific focus continues to read as follows: BILLING CODE 6560–50–P on issues remanded from the United Authority: 21 U.S.C. 321(q), 346a and 371. States Court of Appeals for the Sixth ■ 2. In § 180.505, amend the table in Circuit (Sixth Circuit) in Montgomery paragraph (a)(1) as follows: FEDERAL COMMUNICATIONS County, Md. et al. v. FCC. ■ i. Add alphabetically the entries COMMISSION 2. Every LFA as well as every ‘‘cable ‘‘Artichoke, globe’’; ‘‘Brassica, leafy operator’’ that offers ‘‘cable service’’ greens, subgroup 4–16B’’; ‘‘Celtuce’’; 47 CFR Part 76 must comply with the cable franchising ‘‘Cherry subgroup 12–12A’’; ‘‘Fennel, provisions of Title VI of the Act. Section [MB Docket No. 05–311; FCC 19–80] florence, fresh leaves and stalk’’; ‘‘Fruit, 621(b)(1) prohibits a cable operator from pome, group 11–10’’; ‘‘Herb subgroup Local Franchising Authorities’ providing cable service without first 19A’’; ‘‘Kohlrabi’’; ‘‘Leaf petiole Regulation of Cable Operators and obtaining a cable franchise, while vegetable subgroup 22B’’; ‘‘Leafy greens Cable Television Services section 621(a)(1) circumscribes the subgroup 4–16A’’; ‘‘Nut, tree, group 14– power of LFAs to award or deny such AGENCY: Federal Communications 12’’; ‘‘Vegetable, brassica, head and franchises. In addition, section 622 Commission. stem, group 5–16’’; and ‘‘Vegetable, allows LFAs to charge franchise fees fruiting, group 8–10’’; ACTION: Final rule. and sets the upper boundaries of those ■ ii. Remove the entries for ‘‘Fruit, fees. Notably, section 622 caps the fee SUMMARY : In this document, the Federal pome, group 11’’; ‘‘Nut, tree, group 14’’; at five percent of a ‘‘cable operator’s Communications Commission ‘‘Pistachio’’; ‘‘Turnip, greens’’; gross revenues derived . . . from the (Commission) adopts rules governing ‘‘Vegetable, brassica, leafy, group 5’’; operation of the cable system to provide how local franchising authorities may ‘‘Vegetable fruiting, group 8’’; and cable service.’’ 1 When Congress initially regulate cable operators and cable ‘‘Vegetable, leafy, except brassica, group adopted these sections in 1984, it television services. 4’’. explained that it was setting forth a DATES: These rule revisions are effective The additions read as follows: federal policy to ‘‘define and limit the on September 26, 2019. authority that a franchising authority § 180.505 Emamectin; tolerances for FOR FURTHER INFORMATION CONTACT: For residues. may exercise through the franchise additional information on this process.’’ Congress also expressly (a) * * * proceeding, contact Maria Mullarkey or preempted any state or local laws or (1) * * * Raelynn Remy of the Media Bureau, actions that conflict with those Policy Division, at Maria.Mullarkey@ Parts per definitions and limits.2 Commodity fcc.gov, Raelynn.Remy@fcc.gov or (202) million 3. As summarized in detail in the 418–2120. Second Further Notice of Proposed SUPPLEMENTARY INFORMATION: This is a Rulemaking (FNPRM) (83 FR 51911, * * * * * summary of the Commission’s Third Oct. 15, 2018), the Commission has an Report and Order, FCC 19–80, adopted extensive history of rulemakings and Artichoke, globe .................... 0.05 on August 1, 2019. The full text is litigation interpreting sections 621 and Brassica, leafy greens, subgroup 4–16B ..................... 0.2 available for public inspection and 1 47 U.S.C. 542. Celtuce .................................. 0.1 copying during regular business hours 2 Id. 556(c). Cherry subgroup 12–12A ..... 0.09 in the FCC Reference Center, Federal VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 * PO 00000 * Frm 00045 * Fmt 4700 * Sfmt 4700 * E:\FR\FM\27AUR1.SGM 27AUR1 44726 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES 622. In short, the Commission in 2007 released a First Report and Order (72 FR 13189, March 21, 2007) to provide guidance about terms and conditions in local franchise agreements that are unreasonable under section 621 of the Act with respect to new entrants’ franchise agreements.3 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, 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). The Commission also sought comment on whether to extend those conclusions to agreements that LFAs have with incumbent cable operators, and ultimately decided in a Second Report and Order (72 FR 65670, Nov. 23, 2007) and an Order on Reconsideration (80 FR 12088, Mar. 6, 2015) that those conclusions should apply to incumbent cable operators. 4. In Montgomery County, the Sixth Circuit addressed challenges by LFAs to the Second Report and Order and the Order on Reconsideration.4 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. 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.’’ 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 3 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. Such new entrants largely were telecommunications carriers subject to Title II of the Act that were seeking to enter the cable services market. 4 Montgomery County, 863 F.3d at 487. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 fees.5 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, and the court noted that the Commission’s orders did not reflect any consideration of this concern. The court also stated that the Commission failed to define what ‘‘in-kind’’ means. 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, inkind exactions as franchise fees under section 622(g)(1). 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. 5. The court in Montgomery County also agreed with LFAs that neither the Second Report 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.6 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.’’ 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 5 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.’’ This ruling was upheld by the Sixth Circuit in Alliance. 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. The court found that the Order on Reconsideration incorrectly asserted that the First Report and Order had already treated ‘‘inkind’’ cable-related exactions as franchise fees and that the Sixth Circuit had approved such treatment in Alliance. The court also found that the First Report and Order did not make clear that cablerelated exactions are franchise fees under section 622(g)(1). 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.’’ 6 The court noted that LFAs’ primary concern with the mixed-use ruling is that it would prevent them from regulating ‘‘institutional networks’’ or ‘‘INets’’—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. The court observed, however, that the Commission acknowledged that its mixed-use rule was not meant to prevent LFAs from regulating I-Nets. PO 00000 Frm 00046 Fmt 4700 Sfmt 4700 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. The court observed that in extending the mixeduse 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.’’ 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.’’ 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. Accordingly, the court concluded that the Commission’s extension of the mixeduse rule to incumbent cable operators that are not common carriers was arbitrary and capricious. The court vacated the mixed-use rule as applied to those incumbent cable operators and remanded for the Commission ‘‘to set forth a valid statutory basis, if there is one, for the rule as so applied.’’ 6. The Commission in September 2018 issued the Second FNPRM to address the issues raised by the remand from the Sixth Circuit in Montgomery County. 7. We largely adopt our tentative conclusions in the Second FNPRM.7 First, we conclude that cable-related, inkind 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 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 7 As discussed below, we define ‘‘cable related, in-kind contributions’’ slightly differently than proposed, and our reasoning for not applying buildout costs is different than what we proposed. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES 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. 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. 9. Addressing the first issue raised by the remand from the Sixth Circuit in Montgomery County, we adopt our tentative conclusion that we should treat cable-related, in-kind contributions 8 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. 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. As explained below, we find that this interpretation is consistent with the statutory language and legislative history. 10. Section 622 of Title VI, entitled ‘‘Franchise fees,’’ governs cable operator obligations with respect to franchise fees. 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 8 We define this term to include ‘‘any nonmonetary 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.’’ VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 such period from the operation of the cable system to provide cable services.’’ Notably, section 622(g) defines the term ‘‘franchise fee’’ for purposes of this section. 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 such,’’ subject to certain enumerated exceptions. Specifically, according to the definition, the term ‘‘franchise fee’’ does not include the following: (1) Any tax, fee, or assessment of general applicability; 9 (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; (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; (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; 10 or (5) any fee 9 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. No commenter disputes this analysis, and we affirm it here. 10 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. 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. 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. Consistent with this analysis and precedent, we find that cable-related, in-kind contributions demanded by an LFA do not qualify as ‘‘incidental’’ charges excluded in section 622(g)(2)(D). No commenter disputes our interpretation of this particular exclusion. PO 00000 Frm 00047 Fmt 4700 Sfmt 4700 44727 imposed under Title 17.11 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 services 12—that are so imposed.13 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.’’ Because the statute does not define the terms ‘‘tax,’’ ‘‘fee,’’ or ‘‘assessment,’’ we look to the ordinary meaning of such terms.14 As the court explained in Montgomery County, the definitions of the terms ‘‘tax’’ and ‘‘assessment,’’ in particular, ‘‘can include noncash exactions.’’ Further, as 11 In the Second FNPRM, we explained that this section excludes from the definition of franchise fees any fees imposed under the Copyright Act under Title 17, United States Code, and thus does not appear to apply to cable-related, in-kind contributions. No commenter disputes this analysis, and we affirm it here. 12 According to the record, LFAs in some cases require a grant or other monetary contribution earmarked for cable-related services, such as PEG and I-Net support. While we focus here on whether cable-related, in-kind (non-monetary) contributions are subject to the five percent cap on franchise fees, we note that these monetary contributions are subject to the franchise fee cap, unless otherwise excluded under section 622(g)(2). 13 We reject the argument that franchise considerations are not ‘‘imposed’’ by a franchising authority because they are negotiated in an armslength transaction between the parties and ‘‘are not established by force.’’ The definition of the term ‘‘impose’’ is not limited to ‘‘established as if by force,’’ but can also mean ‘‘to establish or apply by authority.’’ Further, under this narrow interpretation of the term, no monetary or in-kind payments could be construed as a franchise fee if they are negotiated by the parties as terms of the franchise agreement. As NCTA points out, ‘‘[b]y this standard, even a franchise agreement containing a requirement that the cable operator pay five percent of gross revenues to the franchising authority would not contain a franchise fee, since the five percent fee was included in a negotiated document and was not imposed by government fiat.’’ 14 We disagree with NATOA et al.’s contention that the Commission ‘‘nowhere analyzes or explains why [certain] franchise requirements are ‘assessments’ or ‘exactions.’ ’’ Rather, we find that an ‘‘assessment,’’ the term used in the statute, includes any contribution imposed by government, based on its ordinary meaning. E:\FR\FM\27AUR1.SGM 27AUR1 44728 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES 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.’’ Thus, consistent with the court’s conclusion on this issue, the term franchise fee in section 622(g)(1) includes non-monetary payments. We, therefore, reject arguments that it should be construed to cover only monetary payments.15 13. As the court noted in Montgomery County, ‘‘that the term ‘franchise fee’ can include noncash exactions, of course, does not mean that it necessarily does include every one of them.’’ As such, the next step in our analysis is to evaluate specifically whether cablerelated, in-kind contributions are included within the franchise fees. The Commission previously determined that in-kind contributions unrelated to the provision of cable service are franchise fees subject to the statutory five percent cap, and the court’s decision in Montgomery County upheld this interpretation.16 In making this determination, the Commission pointed to examples in the record where LFAs demanded in-kind contributions unrelated to the provision of cable services in the context of franchise negotiations, and it explained that such requests do not fall within any of the exempted categories in section 622(g)(2) and thus should be considered a franchise fee under section 622(g)(1).17 14. We find that there is no basis in the statute for exempting all cablerelated, in-kind contributions for purposes of the five percent franchise 15 Contrary to these arguments, the terms used in the statute are not limited to monetary payments. Moreover, these arguments ignore Congress’ specification that the franchise fee includes ‘‘any tax, fee, or assessment of any kind,’’ essentially reading this expansive language out of the statute. For example, although Anne Arundel County et al. argue ‘‘that generally, taxes, fees, and assessments are monetary, but that in exceptional circumstances (such as forfeitures) non-monetary obligations may also qualify,’’ there is nothing in the statute—which specifically applies to a tax, fee, or assessment of any kind—or in the definition of these terms that supports this statement. 16 Contrary to the contention of NATOA et al., the Commission’s finding in the First Report and Order that in-kind contributions unrelated to the provision of cable services are franchise fees subject to the statutory five percent cap was undisturbed by subsequent court decisions in Alliance and Montgomery County. The court in Montgomery County vacated the orders to the extent they treat cable-related, in-kind exactions as franchise fees, and thus the Commission’s finding with regard to in-kind contributions unrelated to the provision of cable services still stands. 17 In the First Report and Order, the Commission cited examples of in-kind contributions unrelated to the provision of cable services from the record, including requests for traffic light control systems, scholarships, and video hookups for a holiday celebration. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 fee cap or for distinguishing between cable-related, in-kind contributions and in-kind contributions unrelated to the provision of cable services. As noted above, the section 622(g)(1) franchise fee definition broadly covers ‘‘any tax, fee, or assessment of any kind,’’ and we conclude that cable-related, in-kind contributions fall within this definition. There is nothing in this language that limits in-kind contributions included in the franchise fee. In fact, Congress specified that the definition covers ‘‘any’’ tax, fee, or assessment ‘‘of any kind,’’ which means those terms should be interpreted expansively and given ‘‘maximum breadth.’’ 18 15. Further, there is no general exemption for cable-related, in-kind contributions in the five excluded categories listed in section 622(g)(2). Only two of the exclusions encompass two very specific kinds of cable-related, in-kind contributions, but not all such contributions generally. In particular, section 622(g)(2)(B) excludes payments required by the franchise to be made by the cable operator for, or in support of the use of, PEG access facilities (for franchises in effect on October 30, 1984), and section 622(g)(2)(C) excludes capital costs which are required by the franchise to be incurred by the cable operator for PEG access facilities (for franchises granted after October 30, 1984). We agree with ACA that the structure of the relevant statutory provision is ‘‘straightforward,’’ providing a broad definition of franchise fee, ‘‘then expressly provid[ing] a limited number of exceptions to this definition, none of which is so broad as to include all cable-related, in-kind contributions.’’ 19 16. Moreover, the fact that Congress carved out specific exceptions to the franchise fee definition for certain PEGrelated contributions bolsters the conclusion that Congress did not intend to establish a general exemption for all cable-related, in-kind contributions 18 Anne Arundel County et al. make the conclusory statement that ‘‘[r]egulatory obligations are clearly not a tax or fee,’’ without citing a definition of these terms or including the term ‘‘assessment,’’ and they make no mention of the court’s own conclusion in Montgomery County that the term franchise fee ‘‘can include noncash exactions.’’ 19 According to Anne Arundel County et al., the Commission incorrectly implies that ‘‘unless something falls within an exception, it must be a tax, fee, or assessment.’’ However, this is inconsistent with our analysis, in which we first evaluate whether a type of contribution meets the definition of franchise fee in section 622(g)(1) and, if so, then determine whether it falls within a specified exception in section 622(g)(2). It is also inconsistent with our conclusion herein that certain requirements, such as customer service and buildout requirements, are not covered by the definition of franchise fee. PO 00000 Frm 00048 Fmt 4700 Sfmt 4700 from treatment as franchise fees. Because support for PEG access facilities and PEG capital costs fall within the broader category of cablerelated, in-kind contributions, Congress would not have needed to craft these narrow exceptions if all cable-related, in-kind contributions generally were exempted. We disagree with the contention that the specific exceptions in section 622(g)(2) were intended to address only ‘‘payments that otherwise might be considered franchise fees,’’ and that ‘‘[o]ther cable-related obligations were not considered ‘fees’ to begin with, let alone payments that required a specific exemption.’’ This argument erroneously constricts the definition of franchise fees to apply only to ‘‘fees,’’ while the statute more broadly includes ‘‘any tax, fee, or assessment of any kind.’’ Further, we believe it is more consistent with the statutory text and structure to construe the exceptions as carve-outs from a broader definition that sweeps in all cable-related, in-kind contributions.20 17. While the statutory text is alone sufficient to support our conclusion, we also find that the legislative history supports our position that cable-related, in-kind contributions are franchise fees subject to the five percent cap. As we observed in the Second FNPRM, we see no basis in the legislative history for distinguishing between in-kind contributions unrelated to the provision of cable services and cable-related, inkind contributions for purposes of the five percent franchise fee cap.21 Further, we see no basis in the legislative history to treat in-kind payments differently from monetary payments for purposes of determining what is a franchise fee. The legislative history, in discussing what constitutes a franchise fee, refers to the definition in section 622(g)(1), which ‘‘include[s] any tax, fee, or assessment imposed on a cable operator or subscribers solely because of their status as such,’’ and it makes no distinction between cable-related contributions and those unrelated to cable services, nor between monetary and non-monetary payments. The legislative history then 20 For example, under section 622(g)(2)(B), payments required by the franchise to be made by the cable operator for, or in support of the use of, PEG access facilities are included in the franchise fee only for franchises granted after October 30, 1984. 21 According to NCTA, the legislative history shows that Congress’ intent generally was to limit the total financial obligations that franchising authorities may impose on cable operators. We find that allowing LFAs to circumvent the statutory five percent cap by not counting cable-related, in-kind contributions that clearly fall within the statutory definition of franchise fees would be contrary to Congress’ intent as reflected in the broad definition of franchise fee in the statute. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES elaborates on the specific exemptions in section 622(g)(2) and, in particular, notes that ‘‘[s]pecific exemptions from the franchise fee limitations are included for certain payments related to public, educational and governmental access.’’ It specifies that, ‘‘[f]or existing franchises, a city may enforce requirements that additional payments be made above the 5 percent cap to defray the cost of providing public, educational and governmental access, including requirements related to channels, facilities and support necessary for PEG use.’’ Because Congress limited this exception to thenexisting franchises, this provision elucidates Congress’ intent that contributions in support of PEG access—which are cable-related, in-kind contributions—are subject to the five percent cap for franchises granted after the 1984 Cable Act.22 18. We disagree with commenters who cite to a portion of the legislative history as evidence of Congress’ intent that franchise fees include only monetary payments made by cable operators. Specifically, LFA commenters cite a statement in the discussion of subsection 622(g)(2)(C), which excludes certain PEG-related capital costs from the franchise fee definition, that ‘‘[i]n general, this section defines as a franchise fee only monetary payments made by the cable operator, and does not include as a ‘fee’ any franchise requirements for the provision of services, facilities or equipment.’’ LFA commenters’ reading of this statement is inconsistent with the overall text and structure of section 622(g).23 Section 622(g)(1) ‘‘specifically defines ‘franchise fee’ to include ‘any tax, fee, or assessment of any kind[,]’ ’’ subject to certain enumerated exclusions, and the court in Montgomery County was clear that this statutory language ‘‘requires us to give those terms maximum breadth.’’ The Commission has already concluded, and the Sixth Circuit has twice upheld, that 22 Although the City of New York opines that the examples of franchise fees in the legislative history are all ‘‘services that do not use the cable operator’s cable system or other communications facilities (‘CF’) or call on the core competencies (‘CC’) of the cable operator,’’ this reading overlooks the fact that certain PEG-related costs are included as franchise fees, and it creates a distinction that is not apparent from either the statute or the legislative history. 23 For the same reason, we are not persuaded by Anne Arundel County et al.’s reliance on a letter from the Commission’s Cable Services Bureau that quotes the legislative history. First, this Bureaulevel letter does not bind the Commission. Second, to the extent that the Bureau’s guidance 20 years ago conflicts with the conclusions in this rulemaking, it is reversed and superseded. We note that the letter merely cites the statute and legislative history, without analysis. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 non-monetary payments can be franchise fees. Further, this reading would render section 622(g)(2)(C) superfluous because there would not need to be an exemption for PEG-related in-kind contributions if non-monetary contributions were not franchise fees in the first place. 19. Because we believe that the pertinent statutory provision in section 622(g) supports our conclusion that cable-related, in-kind contributions are franchise fees, we reject arguments raised by franchise authorities that other Title VI provisions should be read to exclude costs that are clearly included by the franchise fee definition. Instead of focusing on the key definition of ‘‘franchise fee’’ as ‘‘any tax, fee, or assessment of any kind’’ subject to certain enumerated exceptions, LFA commenters cite to other parts of the statute which, they argue, evince Congress’ intent to exclude cablerelated, in-kind contributions from the statutory cap on franchise fees. We reject each of these arguments in turn below. 20. First, we affirm our tentative conclusion that treating cable-related, in-kind contributions as franchise fees would not undermine the provisions in the Act that authorize or require LFAs to impose cable-related obligations on franchisees. For example, section 611(b) of the Act permits LFAs to require that channel capacity be designated for PEG use and that channel capacity on I-Nets be designated for educational and governmental use. Anne Arundel County et al. argue that the Commission errs by not acknowledging that the Cable Act ‘‘authorize[s] LFAs to both impose cable franchise obligations [in section 611] and collect franchise fees [in section 622]—they do not offset each other.’’ However, as we observed in the Second FNPRM, the fact that the Act authorizes LFAs to impose such obligations does not mean that the value of these obligations should be excluded from the five percent cap on franchise fees. We agree with NCTA and ACA that there is no basis in the statutory text for concluding that the authority provided in section 611(b) affects the definition of franchise fee in section 622(g). As explained above, section 622(g) is the key provision that defines what is included in the franchise fee, and section 622(g)(2) carves out only limited exclusions for PEG-related costs and makes no mention of an I-Net-related exclusion. Since Congress enacted the PEG and I-Net provisions at the same time it added the franchise fee provisions, it could have explicitly excluded all costs related to PEG and INets if it had intended they not count PO 00000 Frm 00049 Fmt 4700 Sfmt 4700 44729 toward the cap.24 Instead, they just excluded a subset of those costs. Further, if we were to interpret the statute such that all costs related to PEG, I-Nets, or other requirements imposed in section 611 are excluded from treatment as franchise fees because section 611(b) contemplates that such costs be incurred, the specific exemption for PEG capital costs in section 622(g)(2)(D) would be superfluous. While we acknowledge that PEG channels and INets provide benefits to consumers, such benefits cannot override the statutory framework, which carves out only limited exclusions from franchise fees. 21. Next, we do not find persuasive the argument that section 626 of the Act ‘‘reflects the fact that cable-related franchise requirements are not franchise fees.’’ Section 626 directs franchising authorities to consider, among other things, whether a cable operator’s franchise renewal proposal ‘‘is reasonable to meet the future cablerelated community needs and interests, taking into account the cost of meeting such needs and interests.’’ NATOA et al. contend that if cable-related, in-kind requirements are included as franchise fees, ‘‘it would be the LFA who pays for them, rendering the cost consideration in this Section obsolete.’’ We disagree with this reasoning. As NCTA explains, ‘‘[t]he cost/benefit analysis required under this provision underscores that Congress intended franchising authorities to balance the desire for any in-kind exactions requested by parties in the renewal process against the overall franchise fee burdens on cable operators and subscribers.’’ The section 626 assessment does not lose its purpose if cable-related, in-kind contributions are counted as franchise fees; as part of this assessment, for example, a franchising authority could determine that cable-related community 24 We disagree with the Cable Act Preservation Alliance (CAPA) that ‘‘it is equally true that Congress could have explicitly noted the franchise fee limitation in 47 U.S.C. Section 531(b) if it had intended to include these PEG-related costs as franchise fees.’’ There was no need for Congress to specify which PEG-related costs are franchise fees in section 611 when the statute sets forth a standalone provision, section 622, that defines what is included in the franchise fee and specifically addresses PEG-related costs. NATOA et al. argue that the Commission ‘‘ignores that build-out and customer service obligations also were enacted by Congress at the same time it added the franchise fee provisions and were not explicitly excluded from the cap, yet . . . finds these are not ‘franchise fees.’ ’’ However, we explain herein that Congress expressly stated that cable operators are responsible for the cost of constructing cable systems. We also find herein that federally mandated customer service standards are not a ‘‘tax, fee, or assessment’’ and, thus, there was no need for Congress to exclude them from the franchise fee. E:\FR\FM\27AUR1.SGM 27AUR1 44730 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES needs and interests can be met at a lower cost to cable subscribers than the full five percent franchise fee.25 Moreover, the community needs assessment in section 626 also accounts for items that are not in-kind contributions subject to the franchise fee cap, such as build-out requirements.26 22. Finally, we disagree with commenters that cite a provision in section 622 that relates to itemization on customer bills as evidence that Congress did not intend PEG-related franchise obligations to be included in franchise fees. In particular, LFA commenters point to section 622(c)(1), which specifies that cable operators may identify as a separate line item on each subscriber bill each of the following: (1) The amount of the total bill assessed as a franchise fee and the identity of the franchising authority to which the fee is paid; (2) the amount of the total bill assessed to satisfy any requirements imposed on the cable operator by the franchise agreement to support PEG channels or the use of such channels; and (3) the amount of any other fee, tax, assessment, or charge of any kind imposed by any governmental authority on the transaction between the operator and the subscriber. LFA commenters argue that ‘‘[t]hrough this language, Congress clearly outlined a separation between franchise fees and cablerelated, in-kind fees.’’ On the contrary, ‘‘the fact that Section 622(c) allows cable operators to itemize certain charges on subscriber bills has no bearing on which charges meet the definition of franchise fees under Section 622(g).’’ While section 622(g) was adopted as part of the 1984 Cable Act, Congress adopted section 622(c) years later in 1992 to promote transparency by allowing cable operators to inform subscribers about how much of their total bill is made of charges imposed by local governments through the franchising process. By differentiating the types of charges that can be itemized on subscriber bills, there is no indication that Congress intended to exclude certain charges from the franchise fee.27 25 As Congress noted when it adopted the five percent cap, the Commission capped franchise fees at three percent of a cable operator’s revenue. 26 Build-out requirements are subject to section 626’s directive to assess reasonableness while taking into account the cost of such requirements, and a build-out requirement requested by an LFA could be challenged under section 626. 27 Moreover, as NCTA observes, ‘‘[t]he fallacy that section 622(c) distinguishes franchise fees from other exactions, as NATOA and others claim, is underscored by the fact that subsection (c)(3) repeats virtually verbatim section 622(g)(1)’s broad definition of a franchise fee. Yet, by NATOA’s logic, the itemization of a cost under subsection (c)(3) VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 23. Having established our interpretation of section 622(g), we adopt our tentative conclusion that this treatment of cable-related, in-kind contributions should be applied to both new entrants and incumbent cable operators. As the Commission has previously observed, section 622 ‘‘does not distinguish between incumbent providers and new entrants.’’ We affirm our belief that applying the same treatment of cable-related, in-kind contributions to both new entrants and incumbent cable operators will ensure a more level playing field and that the Commission should not place its thumb on the scale to give a regulatory advantage to any competitor. 24. We disagree with the contention that our interpretation of the franchise fee definition in section 622(g) is impermissible under Chevron.28 Charles County, Maryland posits that ‘‘[b]ecause Congress has directly addressed the questions at issue by employing precise, unambiguous statutory language in section 622 of the Act, the FCC’s proposed rules re-imagining . . . what constitutes a ‘franchise fee’ are impermissible,’’ as ‘‘[o]nly Congress may alter or amend federal law.’’ Charles County does not offer an explanation for why the statutory language is unambiguous beyond arguing that the words ‘‘tax, fee, or assessment’’ in the definition are terms of art. But regardless of whether these are terms of art, they can include nonmonetary contributions, as the Sixth Circuit observed. And we believe that our interpretation of this language using traditional tools of statutory construction is a reasonable and permissible construction of the statute that effectuates Congressional intent for the reasons set forth above.29 Indeed, it is the interpretation that is most consistent with the plain meaning of the statutory definition of franchise fee. 25. In this section, we analyze whether specific types of cable-related, in-kind contributions are franchise fees subject to the five percent statutory cap under section 622. First, we find that costs attributable to franchise terms that require free or discounted cable service to public buildings are franchise fees, consistent with our tentative conclusion would control its treatment for franchise fee purposes, removing it from the very definition that Congress established for such fees in section 622(g)(1). . . .’’ 28 Review of the FCC’s interpretation of the statutes it administers is governed by Chevron USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). 29 Where a ‘‘statute is silent or ambiguous’’ with respect to a specific issue, ‘‘the question’’ for the court is whether the agency has adopted ‘‘a permissible construction of the statute.’’ PO 00000 Frm 00050 Fmt 4700 Sfmt 4700 that treating all cable-related, in-kind contributions as franchise fees unless expressly excluded would best effectuate the statutory purpose. Next, we adopt our tentative conclusion that costs in support of PEG access are franchise fees, with the exception of capital costs as defined below. Similarly, we find that costs attributable to construction of I-Nets are franchise fees. Finally, we conclude that build-out and customer service requirements do not fall within the statutory definition of franchise fee. Based on these conclusions with respect to specific types of costs, we adopt a definition of ‘‘in-kind, cable-related contributions’’ 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, costs in support of PEG access other than capital costs, and costs attributable to the construction of I-Nets. It does not include the costs of complying with build-out and customer service requirements.’’ 30 26. We find that costs attributable to franchise terms that require a cable operator to provide free or discounted cable service to public buildings, including buildings leased by or under control of the franchise authority, are cable-related, in-kind contributions that fall within the five percent cap on franchise fees. The record includes examples of cable operators providing cable service to public buildings as part of a franchise agreement. Consistent with our statutory interpretation above, providing free or discounted cable service to public buildings is an in-kind (i.e., non-monetary) contribution imposed on a cable operator by a franchise authority, and is not included in one of the enumerated exceptions from the franchise fee in section 622(g)(2). Although certain commenters emphasize that free and discounted cable services have been considered franchise considerations that are not subject to the five percent cap on franchise fees in past franchise agreements,31 we find that our reading 30 We modify the definition slightly from what was proposed in the Second FNPRM to reflect the conclusions adopted herein. 31 AWC cites a Bureau-level order in which the Cable Services Bureau found that where the LFA and cable operator agreed to establish franchise provisions regarding the eligibility standards for a senior citizen discount rate and the formula for adjusting that rate, these terms were not preempted by federal law. While this decision is about the inclusion of discounted services in the franchise terms, it does not address whether discounted services should be included in the franchise fee E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES that free and discounted services count towards the franchise fee cap is a reasonable interpretation and best effectuates Congressional intent given that the statute defines franchise fee broadly, carving out only limited exclusions. If LFAs could circumvent the five percent cap by requiring unlimited free or discounted cable services for public buildings, in addition to a five percent franchise fee, this result would be contrary to Congress’s intent as reflected in the broad definition of ‘‘franchise fee’’ in the statute. We find that the Act does not provide any basis for treating the value attributable to free or discounted services in a different manner than other in-kind services which must be included in the franchise fee. Although we acknowledge that the provision of free or discounted cable service to public buildings, such as schools or libraries, can benefit the public, such benefits cannot override the statutory framework. Further, there are policy rationales for limiting free services, given that, in a competitive market, such contributions may raise the costs of the cable operator’s service, reduce resources available for other services, and result in market inefficiency. 27. We conclude in this section that in-kind contributions related to PEG access facilities are cable-related, inkind contributions, and are therefore included within the statutory definition of ‘‘franchise fees’’ under section 622(g)(1).32 We next conclude that the term ‘‘capital cost’’ in section 622(g)(2)(C) should be given its ordinary meaning, which is a cost incurred in acquiring or improving a capital asset. Applying that interpretation, we conclude that the exclusion for capital costs under section 622(g)(2)(C) could include equipment that satisfies this definition, regardless of whether such equipment is purchased in connection with the construction of a PEG access facility. We then conclude that the record is insufficiently developed for the Commission to determine whether the provision of PEG channel capacity is included within section 622(g)(2)(C)’s exclusion for capital costs. We also find that the installation of PEG transport facilities are capital costs that are and, thus, is not inconsistent with our findings herein. 32 PEG channels provide third-party access to cable systems through channels dedicated for use by the public, including local governments, schools, and non-profit and community groups. The Act provides for the creation and support of PEG channels in various ways, including by authorizing LFAs to require franchisees to designate channel capacity for PEG, and by excluding certain costs associated with PEG access facilities from the definition of franchise fees under section 622(g)(2). VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 exempt from the five percent franchise fee cap,33 and that maintenance of those facilities are operating costs that count toward the cap. Finally, we address policy arguments regarding the impact of these conclusions on the provision of PEG programming. 28. Consistent with our tentative conclusion in the Second FNPRM, we find that the definition of franchise fee in section 622(g)(1) encompasses PEGrelated contributions. Like other taxes, fees, or assessments imposed by LFAs, we find that contributions related to PEG access facilities imposed by an LFA are subject to the five percent cap on franchise fees, unless they fall within one of the five exclusions set forth in section 622(g)(2). Consistent with the statutory analysis above, we conclude that the provision of equipment, services, and similar contributions for PEG access facilities are cable-related, in-kind contributions that meet the definition of franchise fee.34 Such PEGrelated contributions are not exempt under section 622(g)(2) of the Act unless they fall under the limited exceptions for capital costs and costs incurred by franchises existing at the time of the Cable Act’s adoption in 1984. As explained above, our starting point for analyzing cable operator contributions to LFAs is that the Act defines ‘‘franchise fee’’ broadly and has limited, narrow exceptions. Thus, we believe that including in the franchise fee cap any costs that are not specifically exempt is consistent with the statute and reasonably effectuates Congressional intent. 29. Further, including contributions for PEG access facilities within the franchise fee definition is consistent with the overall structure of section 622. For ‘‘any franchise in effect on October 30, 1984,’’ section 622(g)(2)(B) excludes from the definition of ‘‘franchise fee’’ ‘‘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.’’ There would 33 As explained below, ‘‘PEG transport facilities’’ are facilities that LFAs use to deliver PEG services from studios or other locations where the programming is produced to the cable headend. 34 In some cases, LFAs require a grant or other monetary contribution earmarked for PEG-related costs. These monetary contributions are likewise subject to the five percent cap on franchise fees, unless otherwise excluded under section 622(g)(2). Section 622 exempts only the items delineated in (g)(2), and Congress did not distinguish between inkind and monetary contributions, nor did it exempt monetary contributions earmarked for a purpose that would otherwise not be excluded under section 622(g)(2). Thus, we make clear that monetary contributions—like in-kind contributions—must be counted toward the franchise fee cap unless expressly exempt under section 622(g)(2). PO 00000 Frm 00051 Fmt 4700 Sfmt 4700 44731 have been no reason for Congress to grandfather in these PEG-related contributions for existing franchises if such payments were not otherwise included within the definition of ‘‘franchise fees.’’ In effect, excluding PEG-related contributions would read ‘‘in the case of any franchise in effect on October 30, 1984’’ out of section 622(g)(2)(B), extending this grandfathered exclusion to all franchises. 30. Some commenters claim that other sections of Title VI, including the section authorizing LFAs to require the designation of PEG channel capacity in section 611, override section 622’s definition of ‘‘franchise fee.’’ As discussed above, we find these arguments unpersuasive. We also reject arguments that provisions of the Act unrelated to cable franchising demonstrate that PEG-related fees are not franchise fees. For example, section 623 of the Act, which governs the regulation of cable rates, instructs the Commission to take the following two factors (among others) into account when prescribing rate regulations: 1. The reasonably and properly allocable portion of any amount assessed as a franchise fee, tax, or charge of any kind imposed by any State or local authority on the transactions between cable operators and cable subscribers or any other fee, tax, or assessment of general applicability imposed by a governmental entity applied against cable operators or cable subscribers; and 2. Any amount required to satisfy franchise requirements to support public, educational, or governmental channels or the use of such channels or any other services required under the franchise. Commenters argue that the separate listing of franchise fees (in 1) and the costs of PEG franchise requirements (in 2) is evidence that franchise fees do not include PEG-related costs. We disagree. We note that that the question of which factors the Commission should consider in setting rate regulations is both legally and analytically distinct from the question of which costs are included as a franchise fee under section 622. Even if it were not, the separate listing of franchise fees and PEG-related exactions in section 623 does not indicate that Congress understood these categories to be mutually exclusive. In general, section 623(b) directs the Commission to consider several factors relating to cable operators’ costs, revenue, and profits to ensure that the Commission sets ‘‘reasonable’’ rates. Ensuring that a rate is ‘‘reasonable’’ requires a full consideration of the costs borne by cable operators. Listing only franchise fees would fail to account for some of these costs, even under the interpretation E:\FR\FM\27AUR1.SGM 27AUR1 jspears on DSK3GMQ082PROD with RULES 44732 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations adopted in this Order: Franchise fees and PEG costs only partially overlap, given that section 622(g)(2) excludes certain PEG-related exactions from the definition of franchise fees. We therefore find nothing inconsistent about the separate listing of franchise fees and PEG-related costs in section 623 and the interpretation of section 622(g) adopted in this Order. The same analysis applies to the bill-itemization requirements in section 622(c), which permits the separate itemization of franchise fees and PEG-related assessments in subscriber bills.35 31. Consistent with our tentative conclusions in the Second FNPRM, we conclude (1) that PEG support payments for any franchise in effect on October 30, 1984 and (2) PEG capital costs for any franchise granted after October 30, 1984 are exempt from the definition of franchise fee. As discussed above, two provisions of section 622(g)(2) exclude certain costs associated with PEG access facilities from the definition of ‘‘franchise fee’’ in section 622(g)(1): First, section 622(g)(2)(B) excludes PEG support payments, but only with respect to franchises granted prior to 1984. To the extent that any such franchises are still in effect, we affirm that under section 622(g)(2)(B), PEG support payments made pursuant to such franchises are excluded from the five percent franchise fee cap. Consistent with the statutory language and legislative history, we find this exclusion is broad in scope, and commenters did not dispute this interpretation in the record.36 32. Second, for any franchise granted after 1984, section 622(g)(2)(C) contains a narrower exclusion covering only PEG ‘‘capital costs which are required by the franchise to be incurred by the cable operator for [PEG] access facilities.’’ The Cable Act does not define ‘‘capital costs’’. We address the scope of this exclusion below by first clarifying the definition of ‘‘capital costs’’ and concluding that it can apply to contributions for both constructionrelated and non-construction-related contributions to PEG access facilities. We then determine that the record is insufficient to determine whether costs associated with providing PEG channel capacity are subject to this exclusion, and we discuss the application of the exclusion to PEG transport. 33. Definition of ‘‘capital costs.’’ Although the Commission previously 35 Several commenters raised section 622(c) as evidence that franchise fees do not include PEGrelated assessments. We note that section 622(c) was adopted years after section 622(g) was enacted. 36 The legislative history further supports this interpretation. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 asserted with respect to section 622(g)(2)(C) that ‘‘[c]apital costs refer to those costs incurred in or associated with the construction of PEG access facilities,’’ we now revisit that interpretation and provide additional clarity on the definition of this term. As described below, we find that the term ‘‘capital costs’’ is not limited to construction-related costs; rather, it generally encompasses costs incurred in acquiring or improving capital assets for PEG access facilities. The Commission’s previous reading of the phrase ‘‘capital costs’’ was based in part on section 622(g)’s legislative history, which states that the Cable Act excludes from the franchise fee cap ‘‘the capital costs associated with the construction of [PEG] access facilities.’’ The Sixth Circuit affirmed the Commission’s prior reading in Alliance, where, rejecting a challenge to the Commission’s construction of the term ‘‘capital costs’’ in the First Report and Order, the court held that: [t]o determine the permissibility of the Commission’s construction of Section 622(g)(2)(C), we start by consulting the legislative history. During the enactment of this provision, Congress made clear that it intended section 622(g)(2)(C) to reach ‘‘capital costs associated with the construction of [PEG] access facilities.’’ H.R.Rep. No. 98–934, at 26 (emphasis added). Against this legislative pronouncement, the FCC’s limitation of ‘‘capital costs’’ to those ‘‘incurred in or associated with the construction of PEG access facilities’’ represents an eminently reasonable construction of section 622(g)(2)(C). 34. We asked for additional comment on the definition of ‘‘capital costs’’ under section 622(g)(2)(C) in the Second FNPRM.37 Arguably, the Commission’s previous construction left unsettled the extent to which the ‘‘capital costs’’ exclusion encompassed PEG equipment—such as vans, studios, or cameras. In Alliance, the Sixth Circuit observed that the Commission’s definition of capital costs could encompass the costs of such equipment, but only insofar as the equipment costs were ‘‘relate[d] to the construction of PEG facilities.’’ But neither the First Report and Order nor the legislative history from which it borrowed expressly limited capital costs to construction-related capital costs. Both statements are silent—or, at most, 37 The Second FNPRM noted that ‘‘capital costs which are required by the franchise to be incurred by the cable operator for [PEG] access facilities’’ are excluded from the definition of franchise fee, and sought comment on treating the costs of studio equipment as capital costs for the purpose of this exemption from the franchise fee cap. PO 00000 Frm 00052 Fmt 4700 Sfmt 4700 unclear—about the treatment of nonconstruction-related capital costs. 35. Based on the arguments in the record and our further consideration of the statutory text and legislative history we now conclude that the Commission’s earlier statement regarding the definition of ‘‘capital costs’’ was overly narrow. As commenters note, many local governments receive payments from cable operators that are not simply for the construction of PEG studios, but also for, among other things, the acquisition of equipment needed to produce PEG access programming. LFAs argue for a broader definition of ‘‘capital costs’’ that would include PEG channel capacity and certain equipment costs associated with PEG access facilities.38 By contrast, cable companies have urged the Commission to reaffirm, based on its previous statement, that ‘‘capital costs’’ are limited to costs associated with the construction of PEG access facilities (and thus do not include channel capacity and equipment such as cameras, or other equipment necessary to run a PEG access facility). 36. In general, when a term is undefined in a statute, courts look to that term’s ‘‘ordinary meaning.’’ While there is no general definition of the precise term ‘‘capital costs,’’ Black’s Law Dictionary defines a similar term,39 ‘‘capital expenditure,’’ as ‘‘[a]n outlay of funds to acquire or improve a fixed asset,’’ and defines a ‘‘fixed asset,’’ or ‘‘capital asset’’ as ‘‘[a] long-term asset used in the operation of a business or used to produce goods or services, such as equipment, land, or an industrial plant.’’ Merriam-Webster similarly defines ‘‘capital expenditure’’ as ‘‘costs that are incurred in the acquisition or improvement of property (as capital 38 Similarly, several commenters argue that section 611’s grant of authority to require PEG channels suggests that the cost of such channels cannot count toward the five percent franchise fee cap. We disagree with the notion that the Act’s grant of authority to require designation for PEG use necessarily excludes the costs of PEG from the definition of franchise fees. As we note above, the fact that the Act authorizes LFAs to impose such obligations does not mean that the value of these obligations should be excluded from the five percent cap on franchise fees. Section 622 governs ‘‘Franchise Fees’’ and makes clear that any items not expressly excluded from that section’s broad definition of franchise fees are included against the statutory cap. Section 622 excludes some—but not all—PEG-related costs. 39 Costs and expenditures are related, but not identical, concepts. Black’s Law Dictionary defines ‘‘cost’’ as ‘‘the amount paid or charged for something; price or expenditure.’’ Black’s relevantly defines ‘‘expenditure’’ as ‘‘a sum paid out.’’ While we recognize that ‘‘cost’’ and ‘‘expenditure’’ have distinct meanings in the accounting context, for the purposes of our interpretation of section 622(g)(2)(C), we find that the meanings of these terms are highly analogous—i.e., both pertain to expending resources to acquire a capital asset. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations assets) or that are otherwise chargeable to a capital account,’’ and defines ‘‘capital assets’’ as ‘‘long-term assets either tangible or intangible (as land, buildings, patents, or franchises).’’ An accounting textbook provides yet another similar definition: jspears on DSK3GMQ082PROD with RULES Expenditures for the purchase or expansion of plant assets are called capital expenditures and are recorded in asset accounts. . . . In brief, any material expenditure that will benefit several accounting periods is considered a capital expenditure. Any expenditure that will benefit only the current period or that is not material in amount is treated as a revenue expenditure. We also note that capital costs are distinct from operating costs (or operating expenses), which are generally defined as expenses ‘‘incurred in running a business and producing output.’’ Reflecting this distinction, the Commission has distinguished between costs incurred in building of PEG facilities, which are capital costs, and costs incurred in using those facilities, which are not. 37. While we may also look to legislative history or other context in ascertaining a statute’s meaning, none of these sources here compels a narrower definition than that set forth above. The legislative history is ambiguous: The passage relied on by the Commission in the First Report and Order, from a summary in the House Report, notes that ‘‘capital costs associated with the construction of [PEG] access facilities are excluded from the definition of a franchise fee.’’ But section 622(g)(2)(C) does not itself restrict capital costs to costs that are construction related, nor does this passage in the legislative history expressly say that the capital costs exclusion is limited to such costs. And, as some commenters recognize, not all capital costs related to PEG access facilities are related to construction: Studio equipment, vans, and cameras, often have useful lives of several years, and the costs of acquiring such equipment are often capitalized. Such costs therefore often fall within the ordinary meaning of capital costs. Had Congress wished to exclude such costs, it could have done so by narrowing the definition of ‘‘capital costs’’ in the statute. 38. Consistent with our analysis above, we find that the phrase ‘‘capital costs’’ in section 622(g)(2)(C) should be interpreted in a manner consistent with its ordinary meaning. Based on the definitions discussed above, the term ‘‘capital cost’’ generally would be understood to mean a cost incurred in acquiring or improving a capital asset. Because the ordinary meaning of this term is not limited to construction- VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 related costs, we now find that the definition of ‘‘capital costs’’ as used in section 622(g)(2)(C) is not limited to costs ‘‘incurred in or associated with the construction of PEG access facilities.’’ We conclude that while capital costs include costs associated with the construction of PEG access facilities, they are not limited to such costs.40 39. The ordinary meaning of ‘‘capital costs’’ could encompass the acquisition of a non-construction-related capital asset—such as a van or a camera. Section 622(g)(2)(C) only excludes certain capital costs—those ‘‘which are required by the franchise to be incurred by the cable operator for [PEG] access facilities.’’ Section 602(16) defines PEG access facilities as ‘‘channel capacity . . . and facilities and equipment for the use of such channel capacity.’’ In the legislative history, Congress explains that ‘‘[t]his may include vans, studios, cameras, or other equipment relating to the use of public, educational, or governmental channel capacity.’’ Based on this statutory language and legislative history as well as the current record, we believe at the present time that the definition of ‘‘capital costs’’ in section 622(g)(2)(C) includes equipment purchased in connection with PEG access facilities, even if it is not purchased in conjunction with the construction of such facilities.41 But, as both sections 622(g)(2)(c) and 602(16) make clear, the capital costs of such equipment may be excluded only insofar as they are for the use of PEG channel capacity. 40. This interpretation seems most faithful to the text of section 622(g)(2)(C), which does not restrict capital costs to those that are related to construction. We recognize that this interpretation reflects a broader sense of capital costs than described in the First Report and Order. To the extent that our interpretation in this document is inconsistent with the Commission’s earlier statements about the capital cost exclusion, we find that the interpretation in this Order better comports with the Act’s language, structure, and policy objectives.42 40 We agree with NATOA that franchising authorities should be given an opportunity to show that franchise fees are being spent on PEG capital costs if a cable operator requests an offset against franchise fees for non-monetary, cable-related franchise provisions. 41 We note that this view was affirmed by the Sixth Circuit in Alliance. 42 NCTA requests that we ‘‘make clear that cable operators have the right to audit a franchising authority’s use of the contributions and that a franchising authority must provide reasonable supporting documentation during an audit that such funds are, or were, being used for PEG capital expenses.’’ We decline to do so. We find nothing PO 00000 Frm 00053 Fmt 4700 Sfmt 4700 44733 41. We disagree with NCTA’s assertion that there would have been ‘‘no good reason’’ to grandfather PEG equipment—such as vans and cameras—if such equipment were ‘‘subject to the permanent exception from franchise fees under section 622(g)(2)(C).’’ The statute itself fully excludes PEG obligations for franchises in effect on October 30, 1984, but excludes only PEG-related capital costs for franchises granted after that date. The broader exclusion for existing franchises in section 622(g)(2)(B) reflects the legislative intent to grandfather the provisions of existing PEG franchises. Section 622(g)(2)(C) provides a narrower exclusion for new franchises than the broad exclusion enjoyed by grandfathered existing franchises; one would therefore expect these two exclusions to overlap, but not be coextensive. Even under our interpretation of section 622(g)(2)(C), section 622(g)(2)(B) remains a much broader exclusion than section 622(g)(2)(C): A number of costs—most notably, operating expenses—would still be excluded by section 622(g)(2)(B), but not by section 622(g)(2)(C).43 42. PEG channel capacity. While we find that the costs associated with the provision of PEG channel capacity are cable-related, in-kind costs that fall within the definition of ‘‘franchise fee,’’ we find that the record is insufficiently developed to determine whether such costs should be excluded from the franchise fee as a capital cost under the exemption in section 622(g)(2)(C). The Second FNPRM stated that, while the Act authorizes LFAs to require that channel capacity be designated for PEG use, this authorization does not necessarily remove the costs of such obligations from the five percent cap on franchise fees. In the record in this proceeding, cable operators generally agreed with this statement, and LFAs generally disagreed. As discussed above, the Act’s authorization of a franchise obligation (e.g., one related to PEG access facilities or I-Nets) does not remove that obligation from the five percent cap on franchise fees. It follows, then, that the costs associated with providing PEG channel capacity fall within this cap as a cable-related, inkind contribution unless they are in the Act that precludes a cable operator from auditing an LFA’s use of PEG capital funds, nor do we find anything that gives a cable operator an audit right. We note that under section 635(b) of the Act, a court may award a cable operator the right to audit if the court finds that relief appropriate. 43 Salaries and training are two examples of operating costs excluded by section 622(g)(2)(B), but not by section 622(g)(2)(C). E:\FR\FM\27AUR1.SGM 27AUR1 44734 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES otherwise excluded under section 622(g)(2).44 43. LFAs claim that the costs of providing PEG channel capacity do fall within section 622(g)(2)(C)’s exclusion for PEG-related capital costs. In support, they point out that the Act defines ‘‘[PEG] access facilities’’ as ‘‘(A) channel capacity designated for public, educational, or governmental use; and (B) facilities and equipment for the use of such channel capacity.’’ Thus, they assert, because section 622(g)(2)(C) expressly applies to costs incurred by a cable operator for ‘‘[PEG] access facilities,’’ it necessarily applies to costs associated with PEG channel capacity. But, as the cable operators state, the Act’s inclusion of channel capacity in the definition of ‘‘[PEG] access facilities’’ does not settle the question of whether channel capacity costs fall under section 622(g)(2)(C). This is because section 622(g)(2)(C) excludes only a particular subset of PEG access facility costs—capital costs—from the definition of franchise fees subject to the five percent cap, and cable operators claim that PEG channel capacity is not a capital cost. Moreover, even assuming that PEG channel capacity is not a capital cost and is therefore subject to 44 One commenter notes that California law requires ‘‘all video service providers’’—a category broader than just cable providers—to ‘‘designate a sufficient amount of capacity’’ for the provision of PEG channels. Because this requirement applies to more than just cable operators, commenters argue, it is a fee of ‘‘general applicability’’ excluded under section 622(g)(2)(A) from the definition of franchise fee. The Eastern District of California recently held that a CPUC fee under the same California law was a fee of general applicability on these grounds. The Ninth Circuit recently vacated and remanded this ruling on other grounds. An assessment aimed only at cable or cable-like services would not fall within section 622(g)(2)(A)’s exclusion as a ‘‘tax, fee, or assessment of general applicability.’’ The text of section 622(g)(2)(A) of the Cable Act identifies a ‘‘tax, fee, or assessment imposed on both utilities and cable operators or their services’’ as a paradigmatic example of an assessment of ‘‘general applicability.’’ The legislative history further explains that an assessment of ‘‘general applicability’’ ‘‘could include such payments as a general sales tax, an entertainment tax imposed on other entertainment business 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 as to effectively constitute a tax directed at the cable system.’’ Here, the provision of PEG capacity appears to be an obligation specific to cable operators—the California law itself references the provision of PEG capacity by ‘‘cable operator[s].’’ We also note that the PEG authority provided in section 611 only applies to cable service, and that there are no PEG requirements under federal law for other video providers, like Direct Broadcast Service (DBS) or over-the-top streaming services. In any case, we need not settle the question whether a specific state law is of general applicability to determine whether the provision of PEG capacity, in general, falls within the definition of ‘‘franchise fee.’’ Accordingly, we decline to do so here. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 the five percent cap, the record reveals serious difficulties regarding how to calculate the value of PEG channel capacity to account for this cost.45 44. Given this, we find that the questions raised by channel capacity are complex, and that the record is not developed enough to allow us to answer them. We therefore defer this issue for further consideration.46 In the meantime, we find that the status quo should be maintained, and that channel capacity costs should not be offset against the franchise fee cap. This approach will minimize disruption and provide predictability to both local franchise authorities and cable operators. 45. Limits on LFA Authority To Establish PEG Requirements. While we do not reach a conclusion with respect to the treatment of PEG channel capacity, we reiterate here that sections 611(a) and 621(a)(4)(B) of the Act restrict the authority of LFAs to establish PEG channel capacity requirements. We discussed the limits imposed by section 611(a) in the First Report and Order. We noted that, while section 611(b) does not place a limit on the amount of channel capacity that a franchising authority may require, section 621(a)(4)(b) provides that a franchising authority may require ‘‘adequate assurance’’ that the cable operator will provide ‘‘adequate’’ PEG access channel capacity, facilities, or financial support. We determined that ‘‘adequate,’’ as used in the statute, should be given its ordinary meaning— ‘‘satisfactory or sufficient.’’ 46. In the Second FNPRM, the Commission again discussed the limits on franchising authority requirements for PEG channels under section 611(b), identifying PEG channel capacity as an in-kind contribution and seeking comment on the effects on cable operators and cable subscribers of ‘‘allowing LFAs to seek unlimited’’ PEG operating support and other cablerelated, in-kind contributions. In response, commenters submitted examples of what they claim are LFA requirements for excessive numbers of PEG channels. LFAs responded with comments defending such requirements, as well as requirements for associated PEG support. 45 NCTA proposes valuing channel capacity at market cost; anything less, NCTA argues, would be an additional subsidy beyond the cost of the service itself. LFAs raise a host of problems with using the fair market value approach to value channel capacity. 46 We encourage parties to supplement the record on the channel capacity issue. To the extent that we are provided sufficient information to answer the complex questions raised by channel capacity, we intend to resolve them in the next twelve months. PO 00000 Frm 00054 Fmt 4700 Sfmt 4700 47. We note that many states have attempted to strike a balance between the costs of PEG channels to cable operators and the benefits of PEG channels to the public by imposing reasonable limits on PEG channel capacity. For example, some states have limited the number of PEG channels— typically to two or three. Others have required that PEG channels be returned if they are not substantially used. States have also tied the number of appropriate PEG channels to the size of the population served. 48. We decline the invitation by cable operators to establish fixed rules as to what constitutes ‘‘adequate’’ PEG channel capacity under section 621(a)(4)(B).47 We recognize that the number of channels necessary to further the goals of the Cable Act might vary depending on, among other things, the number of subscribers within a franchise, the area covered by a franchise, the number of cable operators within a franchise, the area’s population and geography, the cable-related community needs and interests, and whether PEG channel capacity is substantially used. In general, each of these factors is relevant in determining whether an LFA has exceeded its authority under section 621(a)(4)(B) by demanding more than ‘‘adequate’’ capacity.48 We note that LFA demands for PEG capacity requirements that are more than ‘‘adequate’’ are subject to judicial challenge under section 635 of the Act, as well as other forms of relief. We also reserve the right to establish fixed rules in the future should there be widespread evidence of LFAs requiring more than adequate PEG channel capacity. 49. PEG transport. We find that the installation of transport facilities dedicated for long-term use by a PEG provider for the transmittal of recurring programming to a cable headend or other point in the cable system—PEG transport—does not count toward the 47 As noted, the Commission concluded that ‘‘adequate’’ should be given its plain meaning, ‘‘satisfactory or sufficient’’ in the First Report and Order. The Sixth Circuit affirmed this interpretation. 48 LFAs argue that relying on the section 621 ‘‘adequate’’ standard conflicts with the standards established by section 626 in the context of franchise renewals, which generally ask whether a renewal proposal is reasonable to meet the ‘‘needs and interests’’ of the community. We see no such conflict. Section 621 establishes ‘‘General Franchise Requirements,’’ and nothing in section 626 suggests that these general limits do not apply in the context of a franchise renewal. As NCTA points out, to find that franchise renewals are constrained only by section 626’s ‘‘needs and interests’’ inquiry would mean, among other things, that franchise renewals would be unconstrained by the statutory cap on franchise fees in section 622. E:\FR\FM\27AUR1.SGM 27AUR1 jspears on DSK3GMQ082PROD with RULES Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations five percent franchise fee cap. For the reasons explained above, we find that exempting capital costs from the five percent cap is consistent with the Act. The expenditure for the installation of a system that carries PEG programming from a PEG studio to a cable operator’s headend facility is a capital expenditure because it is a long-term asset meant to deliver the programming. The ongoing costs associated with the maintenance or operation of that facility would not qualify as a capital expenditure, however, as these are operating costs that are necessary to run the business and produce output. NCTA requests that we declare PEG transport costs beyond ‘‘a single PEG transport return line [that] is dedicated to connecting the PEG studio to the cable network or headend’’ to count toward the five percent cap. Although we agree that the costs associated with the use of transport lines for ‘‘episodic’’ or ‘‘short-term’’ PEG programming is an operating cost that is subject to the franchise fee cap, we decline to establish a fixed quantity of PEG transport return lines that is ‘‘adequate’’ under section 621(a)(4)(B).49 Like the number of PEG channels on a system, the number of adequate return lines in a franchise area might vary according to particular circumstances like the number of subscribers in the franchise area, the area covered by the franchise and the number of cable operators in the franchise. The number also might vary depending on the number of PEG channels provided in a franchise area and the types of programming offered over them. Nevertheless, any LFA requests for multiple transport connections dedicated for long-term PEG use that the cable operator considers to be more than ‘‘adequate’’ are subject to judicial challenge under section 635 of the Act. 50. We acknowledge the benefits of PEG programming and find that our interpretations adopted above are faithful to the policy objectives of the Cable Act. A significant number of comments in the record stressed these benefits, which include providing access to the legislative process of the local governments, reporting on local issues, providing a forum for local candidates for office, and providing a platform for local communities— including minority communities. Of course, Congress itself similarly recognized the importance of PEG programming by authorizing LFAs to 49 We note, however, that NCTA cites a particularly egregious example of a ‘‘transport line [that] is used once a year for a Halloween parade’’ that seems well beyond what constitutes adequate facilities. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 44735 require the provision of PEG channel capacity in the Cable Act, and by carving out certain costs of such programming from the five percent cap on franchise fees. Nothing in this proceeding disturbs the Commission’s longstanding view that PEG programming serves an important role in local communities. 51. At the same time, the Cable Act seeks to encourage deployment and competition by limiting the franchise fees that LFAs may collect. These include limitations on imposing costs associated with the provision of PEG programming. A number of cable operators express concern with excessive LFA requirements for PEG channel capacity, support, and in-kind contributions. Altice, for example, notes that ‘‘PEG operational contributions . . . are common and routinely treated as separate from the 5 percent franchise fee.’’ Commenters likewise suggest that these excessive PEG-related demands can hinder competition and deployment. 52. The Cable Act itself, as interpreted in this Order, balances these costs and benefits. By excluding PEG-related capital costs from the five percent cap on franchise fees, but leaving other PEGrelated exactions subject to that cap, the Cable Act divides the financial burden of supporting PEG programming between LFAs and cable operators. By counting a portion of these costs against the statutory cap on franchise fees that LFAs may collect, the Cable Act allows LFAs to seek support for PEG programming from cable operators, while guarding against the possibility that LFAs will make demands for such programming without regard to cost. 53. Some commenters have suggested that the proposals in the Second FNPRM threaten to eliminate or drastically reduce PEG programming.50 We disagree. Significantly, any adverse impact of our ruling on PEG programming should be mitigated by (1) the expansion of the ‘‘capital cost’’ exclusion beyond merely capital costs associated with construction; and (2) our decision to defer ruling on whether the costs of channel capacity may be counted under this exclusion.51 Under the interpretation adopted in this Order, cable operators will continue to provide support where an LFA chooses, but some aspects of that support will now be properly counted against the statutory five percent franchise fee cap, as Congress intended.52 We recognize that this represents a departure from the longstanding treatment of PEG costs by LFAs and cable operators. We do not, however, believe that these conclusions will eliminate PEG programming. Nor do we believe that the existing practice was lawful merely because it was longstanding: the Commission’s duty is to conform its rules to law, not tradition. 54. To the extent that existing practices are inconsistent with the law, LFAs will still have a choice: they can continue to receive monetary franchise payments up to the five percent cap, they can continue to receive their existing PEG support and reduce the monetary payments they receive, or they can negotiate for a reduction of both that fits within the bounds of the law that Congress adopted. 55. We find that the costs associated with the construction, maintenance, and service of an I-Net fall within the five percent cap on franchise fees. Such costs are cable-related, in-kind contributions that meet the definition of franchise fee. In particular, agreeing to construct, maintain, and provide I-Net service pursuant to the terms of a franchise agreement is necessarily cablerelated, is an in-kind (i.e., nonmonetary) contribution imposed on a cable operator by a franchise authority, and is not included in one of the enumerated exceptions from the franchise fee in section 622(g)(2) of the Act. Thus, we believe that including such services in the franchise fee is consistent with the statute. As we tentatively concluded in the Second FNPRM, treating cable-related, in-kind contributions, such as I-Net requirements, as franchise fees would not undermine provisions in the Act that authorize or require LFAs to impose cable-related obligations on franchisees. We disagree with LFA commenters who argue that the cost of I-Nets should be excluded from the franchise fee. Although such commenters contend that ‘‘[t]he Commission’s proposal to 50 This concern was also expressed in a number of letters from members of Congress. 51 NATOA et al. say that these aspects of our decision will not have a mitigating impact on the availability of PEG programming. They suggest that this Order ‘‘is not a boon to LFAs’’ because it was already clear that both construction-related and non-construction-related PEG equipment costs are exempt from the franchise fee cap. This is incorrect. As we explain above, the scope of the PEG capital cost exemption previously was left unsettled. This Order clarifies that issue by finding that equipment costs unrelated to construction may be considered capital costs for purposes of section 622(g)(2)(C). 52 Finally, a number of commenters argue that PEG requirements confer a benefit on the community, like buildout requirements, and therefore should similarly not be considered a ‘‘contribution’’ to LFAs. We find that PEG requirements are distinguishable from buildout requirements for the reasons discussed below. PEG requirements, unlike buildout requirements, are also specifically discussed in the definition of franchise fee. PO 00000 Frm 00055 Fmt 4700 Sfmt 4700 E:\FR\FM\27AUR1.SGM 27AUR1 44736 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES require LFAs to pay for I-Nets . . . cannot be squared with the statute,’’ it is entirely consistent with the statute to find that franchising authorities may impose cable-related requirements, such as requiring dedicated channel capacity on I-Nets, on cable operators, but also to find that funding for these franchise requirements applies against the five percent cap. Similar to our conclusion with respect to PEG support, while we acknowledge that I-Nets provide benefits to communities,53 such benefits cannot override the statutory framework, which carves out only limited exclusions from franchise fees. 56. Further, as we conclude above, we disagree with commenters that section 611(b) of the Act, which authorizes LFAs to require that channel capacity on I-Nets be designated for educational and governmental use, should be interpreted to exempt the costs of I-Nets from franchise fees. There is no basis in the statutory text for concluding that section 611(b) imposes any limit on the definition of franchise fee. Moreover, section 622(g) defines what is included in the franchise fee, and section 622(g)(2) carves out only limited exclusions for PEG-related costs and does not exclude I-Net-related costs. As we observe above, since Congress enacted the PEG and I-Net provisions at the same time it added the franchise fee provisions, it could have explicitly excluded all costs related to I-Nets if it had intended they not count toward the cap.54 57. We conclude that franchise terms that require cable operators to build their systems to cover certain localities in a franchise area do not count toward 53 Anne Arundel County et al. contend that the obligation to provide I-Nets ‘‘benefits not only the public, but also the cable operator, who is in a position to sell commercial services via I-Nets,’’ and they argue that the Commission ‘‘offers no explanation as to how such a mutually beneficial arrangement constitutes a tax.’’ However, it is unclear from the record to what extent, if any, cable operators benefit from providing I-Nets. 54 Anne Arundel County et al. suggests that our interpretation of the statute as it relates to I-Nets is somehow inconsistent with the Commission’s holding in a 1996 open video systems order. Contrary to Anne Arundel County et al.’s assertion, the Commission did not conclude in the OVS Order that I-Nets were meant to be excluded from the franchise fee. Rather, that order affirmed the Commission’s decision to preclude local franchising authorities from requiring open video system operators to build I-Nets, while also clarifying that this decision is not inconsistent with permitting the local franchising authority to require channel capacity on a network if an open video system operator does build one. As we explain above, it is entirely consistent with the statute to find that franchising authorities may impose cablerelated requirements, such as requiring dedicated channel capacity on I-Nets, but also to find that funding for these requirements applies against the five percent cap. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 the five percent cap.55 As we explain herein, Title VI establishes a framework that reflects a fundamental bargain between the cable authority and franchising authority—a cable operator may apply for and obtain a franchise to construct and operate facilities in the local rights-of-way and, in exchange, an LFA may impose fees and other requirements as set forth in the Act. The statutory framework makes clear that the authority to construct a cable system is granted to the cable operator as part of this bargain and that the costs of such construction are to be borne by the cable operator. Specifically, section 621(a)(2)(B) of the Act provides that ‘‘[a]ny franchise shall be construed to authorize the construction of a cable system over public rights-of-way, and through easements, . . . except that in using such easements the cable operator shall ensure . . . that the cost of the installation, construction, operation, or removal of such facilities be borne by the cable operator or subscriber, or a combination of both.’’ Because the statute is clear that cable operators, not LFAs, are responsible for the cost of building out cable systems, it would be inconsistent with the statutory text and structure to count these costs as part of the franchise fee.56 Both cable industry and LFA commenters generally support the contention that build-out obligations should not count toward the five percent franchise fee cap.57 58. We also conclude that franchise terms that require cable operators to comply with customer service standards do not count toward the five percent cap.58 LFA commenters explain that cable operators are required to comply with customer service standards under federal or state law, and that cable franchises may include an obligation to 55 Build-out requirements are requirements that a franchisee expand cable service to parts or all of the franchise area within a specified period of time. 56 Because the statute is clear with regard to cable operator responsibility for construction costs, we reject ACA’s argument that ‘‘build-out obligations should only be excluded [from the franchise fee] to the extent an LFA needs to meet its obligation under paragraph 621(a)(3)’’ to assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides. 57 While some LFA commenters disagree with distinguishing between build-out obligations and other cable-related contributions such as PEG and I-Net support based on which entities receive the benefit of such obligations or whether such obligations can be considered ‘‘essential’’ to the provision of cable services, because we have clarified the rationale for excluding build-out obligations, we do not need to address these arguments. 58 In the Second FNPRM, we sought comment on whether there are other requirements besides buildout requirements that should not be considered contributions to an LFA. PO 00000 Frm 00056 Fmt 4700 Sfmt 4700 comply with customer service standards. Notably, section 632 of the Act directs the Commission to ‘‘establish standards by which cable operators may fulfill their customer service requirements,’’ including ‘‘at a minimum, requirements governing—(1) cable system office hours and telephone availability; (2) installations, outages, and service calls; and (3) communications between the cable operator and the subscriber (including standards governing bills and refunds.’’ The Commission implemented this mandate in § 76.309 of its rules, which sets forth with specificity the customer service standards to which cable operators are required to adhere relating to cable system office hours and telephone availability, installations, outages and service calls, and communications between cable operators and cable subscribers. We find that franchise terms that require cable operators to adhere to customer service standards are not part of the franchise fee. In contrast to in-kind, cable-related contributions that are franchise fees subject to the statutory cap, such as the provision of free cable service to government buildings or PEG and I-Net support,59 customer service obligations are not a ‘‘tax, fee, or assessment’’ imposed on a cable operator; they are regulatory standards that govern how cable operators are available to and communicate with customers. Indeed, as the legislative history explains, ‘‘[i]n general, customer service means the direct business relation between a cable operator and a subscriber,’’ and ‘‘customer service requirements include requirements related to interruption of service; disconnection; rebates and credits to consumers; deadlines to respond to consumer requests or complaints the location of the cable operator’s consumer service offices; and the provision to customers (or potential customers) of information on billing or services.’’ Based on our review of the statutory text and legislative history, we find no indication that Congress intended that standards governing a cable operator’s ‘‘direct business relation’’ with its subscribers should count toward the franchise fee cap. Apart from ACA, no commenter argued 59 We clarify that if LFAs request build-out to an area that includes a public building, we would consider that to be a build-out requirement that is not subject to the franchise fee. However, we note that our conclusion with respect to build-out and customer service requirements is entirely separate from our findings regarding the provision of free or discounted services to public buildings and the provision of I-Net services. I-Net services as well as free or discounted services to public buildings are counted toward the franchise fee for the reasons explained above. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES that customer service obligations should be included as franchise fees.60 59. As we explain in this section, we conclude that cable-related, in-kind contributions will count toward the five percent franchise fee cap at their fair market value. Because we conclude above that most cable related, in-kind contributions must be included in the franchise fee, cable operators and LFAs must assign a value to them. In our prior rulemakings, we did not provide guidance on how to value such contributions, but in the Second FNPRM, the Commission recognized that cable-related contributions could count toward the franchise fee cap at cost or at fair market value, and proposed to count toward the franchise fee cap at their fair market value. 60. Most critiques of applying fair market valuation in this context challenge how it could be applied to PEG channel capacity. But, as discussed above, we have not yet determined whether to assign the value of PEG channel capacity contributions toward the five percent franchise fee cap, and therefore we do not need to address these arguments. 61. We must address the value of other in-kind contributions, however, including free service to public buildings and I-Net contributions. We believe that fair market value, where there is a product in the market,61 is the most reasonable valuation for in-kind contributions because it is easy to ascertain—cable operators have rate cards to set the rates that they charge customers for the services that they offer. Moreover, a fair market valuation ‘‘reflects the fact that, if a franchising authority did not require an in-kind assessment as part of its franchise, it would have no choice but to pay the market rate for services it needs from the cable operator or another provider.’’ 62 In contrast, valuing these in-kind contributions at cost would ‘‘shift the true cost of an exaction from their taxpayer base at large to the smaller subset of taxpayers who are also cable subscribers.’’ As we note above, Congress adopted a broad definition of franchise fee to limit the amount that 60 For the reasons discussed above, we disagree with ACA that the costs of complying with mandated customer service standards should be counted toward the franchise fee cap. 61 We note that certain business or enterprise services may be comparable to I-Nets. 62 This demonstrates the flaw in NATOA et al.’s argument that we must provide guidance on how to calculate fair market value. If the LFA believes that the cable operator’s proposed valuation is too high, the LFA is free to forgo the in-kind contribution, accept a monetary franchise fee payment, and use the funds it received to purchase the good or service in the competitive marketplace. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 LFAs may exact from cable operators. Accordingly, we conclude that a fair market valuation for in-kind contribution best adheres to Congressional intent. 62. The franchise fee rulings we adopt in this Order are prospective. Thus, cable operators may count only ongoing and future in-kind contributions toward the five percent franchise fee cap after the Order is effective. There is broad record support for applying the rulings prospectively; no commenter argues that our rulings should apply retroactively to allow cable operators to recoup past payments that exceed the five percent franchise fee cap. To the extent a franchise agreement that is currently in place conflicts with this Order, we encourage the parties to negotiate franchise modifications within a reasonable time.63 If a franchising authority refuses to modify any provision of a franchise agreement that is inconsistent with this Order, that provision is subject to preemption under section 636(c). 63. Many LFAs express concern that our rulings could disrupt their budgets, which rely upon the franchise fees that they expect to receive. It is by no means clear from the record what fiscal choices remain available to the LFAs, but in any event, delaying the effect of our decision to address this concern would not be consistent with the statutory text. It is strongly in the public interest to prevent the harms from existing franchise agreements to continue for years until those agreements expire. In addition, the changes we adopt in this document were reasonably foreseeable because we largely adopt the tentative conclusions set forth in the Second FNPRM.64 Finally, we note that LFAs can continue to benefit from their agreements by 63 The City Coalition proposes that the parties should modify their franchises to comply with this Order via the franchise modification process set forth in section 625 of the Act. Under those procedures, an LFA has 120 days to make a final decision about a cable operator’s request to modify a franchise agreement. We do not adopt this framework, however, because as NCTA points out, the parties may not modify PEG requirements under section 625, and therefore cable operators and LFAs could not use that procedure to bring franchise agreements into compliance in every case. Therefore, we encourage the parties to negotiate franchise modifications within a reasonable time and find that 120 days should be, in most cases, a reasonable time for the adoption of franchise modifications. 64 Indeed, the lawfulness of excluding costs associated with PEG/I-Nets from the franchise fee cap has been under Commission scrutiny for more than a decade, and in 2008, the Sixth Circuit affirmed the Commission’s determination as to new entrants that PEG related costs which do not qualify as capital costs are subject to the franchise fee cap. Therefore, we find Anne Arundel County’s argument that this ‘‘decision represents [an] ‘unexpected surprise’’’ to be unfounded. PO 00000 Frm 00057 Fmt 4700 Sfmt 4700 44737 choosing to continue to receive their existing in-kind contributions, while reducing the monetary payments they receive.65 Thus, consistent with the Act, we apply our rulings to future contributions cable operators make pursuant to existing franchise agreements. 64. In this section, we address the second issue remanded from the Sixth Circuit in Montgomery County, which relates to the Commission’s mixed-use rule. As explained above, the court in Montgomery County found that the Commission, in its Second Report and Order and Order on Reconsideration, failed to identify a valid statutory basis for its application of the mixed-use rule to incumbent cable operators because the statutory provision on which the Commission relied to do so—section 602(7)(C) of the Act—applies by its terms only to Title II carriers, and ‘‘many incumbent cable operators are not Title II carriers.’’ The court thus vacated and remanded the mixed-use rule as applied to those cable operators, directing the Commission ‘‘to set forth a valid statutory basis . . . for the rule as so applied.’’ For the reasons set forth below, we adopt our tentative conclusion that the mixed-use rule prohibits LFAs from regulating under Title VI the provision of any services other than cable services offered over the cable systems of incumbent cable operators, except as expressly permitted in the Act. 65. Our conclusions regarding the scope of LFAs’ authority to regulate incumbent cable operators’ non-cable services, facilities, and equipment follow from the statutory scheme. Congress in Title VI intended, among other things, to circumscribe the ability of franchising authorities to use their Title VI authority to regulate non-cable services provided over the cable systems 65 Take, for example, a franchise agreement that requires a cable operator to deliver free cable service to all municipal buildings and contribute a monetary payment of five percent of its gross revenues derived from the operation of its cable system to provide cable services. In that case, the LFA may wish to either (1) continue to receive the existing free cable service and a monetary payment of five percent minus the fair market value of that service, or (2) discontinue service and receive a monetary payment of five percent, or (3) reduce the free cable service to select municipal buildings and receive a monetary payment of the five percent minus the fair market value of the reduced service. However, what an LFA may not do is ask a cable operator to ‘‘voluntarily’’ waive the statutory cap by asking it to continue providing free cable service to all municipal buildings and contribute the five percent monetary payment, or request that a cable operator waive anything else under the statute as interpreted by the Commission. Accordingly, we reject the request of NATOA that we clarify that this Order ‘‘is permissive not mandatory.’’ Complying with the terms of the statute is not optional. E:\FR\FM\27AUR1.SGM 27AUR1 44738 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES of cable operators and the facilities and equipment used to provide those services. As explained below, the legislative history of the 1984 Cable Act and subsequent amendments to Title VI reflect Congress’s recognition that cable operators potentially could compete with local telephone companies in the provision of telecommunications service and its intent to maintain the thenexisting status quo concerning regulatory jurisdiction over cable operators’ non-cable services, facilities, and equipment. Under the status quo, regulation of non-cable services provided over cable systems, including telecommunications and information services, was the exclusive province of either the Commission or state public utility commissions.66 66. The Mixed-Use Rule Prohibits LFAs From Regulating Under Title VI the Non-Cable Services, Facilities, and Equipment of Incumbent Cable Operators That Are Also Common Carriers. As an initial matter, we reaffirm the Commission’s application of the mixed-use rule to prohibit LFAs from using their cable franchising authority to regulate any services other than cable services provided over the cable systems of any incumbent cable operator that is a common carrier,67 with the exception of channel capacity on I-Nets.68 67. As noted above, the Commission in the First Report and Order found that the then-existing operation of the local franchising process constituted an unreasonable barrier to new entrants in the marketplace for cable services and to their deployment of broadband, in 66 Specifically, the Commission historically has had jurisdiction over interstate telecommunications and information services. States have had jurisdiction over intrastate telecommunications services but not information services, which are jurisdictionally interstate. We thus reject the City of Eugene’s suggestion that maintaining the ‘‘status quo’’ supports broad state and local authority over non-cable services provided via cable systems. 67 ‘‘Non-cable’’ services offered by cable operators include telecommunications services and nontelecommunications services. Telecommunications services offered by cable operators include, for example, business data services, which enable dedicated point-to-point transmission of data at certain guaranteed speeds and service levels using high-capacity connections, and wireless telecommunications services. Nontelecommunications services offered by cable operators include, but are not limited to, information services (such as broadband internet access services), private carrier services (such as certain types of business data services), and Wi-Fi services. Cable operators also may offer facilitiesbased interconnected Voice over Internet Protocol (VoIP) service, which the Commission has not classified as either a telecommunications service or an information service, but which is not a cable service. 68 Nothing in this Order is intended to limit LFAs’ express authority under section 611(b) of the Act to require I-Net capacity. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 violation of section 621(a)(1) of the Act. The Commission adopted the mixed-use rule with respect to new entrants to address this unreasonable barrier. It provides, in relevant part that LFAs’ jurisdiction applies only to the provision of cable services over cable systems. In particular, to the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on issues related to such services or facilities. For example, an LFA may not use its video franchising authority to attempt to regulate an entire network beyond the provision of cable services. 68. The Commission in the Second Report and Order extended to incumbent cable operators several rules adopted in the First Report and Order, including the mixed-use rule. Although, as noted, the Sixth Circuit in Montgomery County vacated and remanded the Commission’s application of the mixed-use rule with respect to incumbent cable operators that are not common carriers, it left undisturbed application of the rule to incumbent cable operators that are also common carriers.69 Consistent with the court’s ruling, therefore, we adopt our tentative conclusion and reaffirm that the mixeduse rule prohibits LFAs from regulating the provision of non-cable services offered over the cable systems of incumbent cable operators that are common carriers.70 69. Our interpretation is consistent with the text of section 602(7)(C), which excludes from the term ‘‘cable system’’ ‘‘a facility of a common carrier which is subject, in whole or in part, to the provisions of Title II of this Act.’’ We are not persuaded by assertions to the contrary. Anne Arundel County et al. argues, for example, that a cable operator’s provision of telecommunications services via its cable system (either directly or through a subsidiary) ‘‘does not . . . suddenly [transform its cable system] into a Title II facility’’ for purposes of applying the section 602(7)(C) common carrier exception. City of Philadelphia et al. similarly argues that the common carrier 69 Under section 3(51) of the Act, a ‘‘provider of telecommunications services’’ is a ‘‘telecommunications carrier,’’ which the statute directs ‘‘shall be treated as a common carrier under this Act only to the extent that it is engaged in providing telecommunications services.’’ Thus, to the extent that an incumbent cable operator provides telecommunications service, it would be treated as a common carrier subject to Title II of the Act with respect to its provision of such telecommunications service. 70 NCTA asserts that many cable operators currently provide telecommunications services. PO 00000 Frm 00058 Fmt 4700 Sfmt 4700 exception in section 602(7)(C) was meant to protect Title II common carriers from regulation by LFAs under their Title VI franchising authority and thus cannot reasonably be read to apply to any cable operator that provides Title II and other non-cable services over a system that is a cable system. 70. To the extent these commenters argue that section 602(7)(C) precludes LFAs only from regulating non-cable services provided over the facilities of incumbent local exchange carriers that subsequently begin to provide cable service, we find such argument is not supported by the language of the statute. As noted in the Second FNPRM, although new entrants into the cable services market may confront obstacles different from those of incumbent cable operators, the statute makes no distinction between these types of providers. In the absence of any textual basis for treating incumbent cable operators that provide telecommunications services differently from new entrants that do so, we conclude that a facility should be categorized as ‘‘a facility of a common carrier’’ under section 602(7)(C) so long as it is being used to provide some type of telecommunications service, irrespective of whether the facility was originally deployed by a provider that historically was treated as a ‘‘common carrier.’’ 71. This interpretation also is consistent with the legislative history of the 1984 Cable Act. Although, as City of Philadelphia et al. points out, one of the concerns expressed in the legislative history was the potential that cable operators’ provision of telecommunications services could enable large users of such services to bypass the local telephone companies and thereby threaten universal service, the legislative history also reflects Congressional recognition that ‘‘ultimately, local telephone companies and cable companies could compete in all communications services.’’ The legislative history clarifies, moreover, that Congress intended the 1984 Cable Act to ‘‘maintain[] [then-]existing regulatory authority over all . . . communications services offered by a cable system, including . . . services that could compete with communications services offered by telephone companies.’’ Indeed, the legislative history is replete with statements reflecting Congress’s intent to preserve the then-status quo regarding the ability of federal, state, and local authorities to regulate noncable services provided via cable systems. In light of its stated intention to maintain the jurisdictional status quo, E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES we find that Congress intended via section 602(7)(C) to preclude LFAs from regulating under Title VI the provision of telecommunications services by incumbent cable operators, services that historically have been within the exclusive purview of the Commission (with respect to interstate services) or state public utility commissions (with respect to intrastate services).71 Moreover, section 602(7)(C) broadly states that, with narrow exceptions, the facility of a common carrier is only ‘‘considered a cable system to the extent such facility is used in the transmission of video programming directly to subscribers,’’ and therefore not with respect to provision of any other services. For these reasons, we see no basis for altering our previous conclusion, as upheld by the Sixth Circuit,72 that the mixed-use rule prohibits LFAs from exercising their Title VI authority to regulate the provision of non-cable services provided via the cable systems of incumbent cable operators that are common carriers, except as otherwise provided in the Act. 72. The Mixed-Use Rule Prohibits LFAs From Regulating Under Title VI the Non-Cable Services, Facilities, and Equipment of Incumbent Cable Operators That Are Not Common Carriers. We also adopt our tentative conclusion that LFAs are precluded from using their Title VI franchising authority to regulate the non-cable services (e.g., information services such as broadband internet access) of incumbent cable operators that do not provide telecommunications services. As directed by the court, we explain herein our statutory bases for concluding that LFAs lack authority under Title VI to regulate non-cable services of incumbent cable operators that do not provide telecommunications services. 73. Section 624 of the Act, which principally governs franchising authority regulation of services, facilities, and equipment, provides in 71 This interpretation is reinforced by both the text of section 621(b)(3) of the Act and its legislative history (relating to the provision of telecommunications services by cable operators), which Congress added to Title VI through the Telecommunications Act of 1996. The fact that section 621(b)(3) seeks to protect incumbent cable operators from LFA regulation under Title VI when they provide certain non-cable services, i.e., telecommunications services, further undermines LFAs’ assertion that the common carrier exception in section 602(7)(C) was intended to shield from LFA regulation only the provision of non-cable services by new entrants. 72 Certain LFA advocates appear to concede that the Act precludes LFAs from regulating under Title VI a cable operator’s provision of telecommunications services via its cable system. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 subsection (a) that ‘‘[a] franchising authority may not regulate the services, facilities, and equipment provided by a cable operator except to the extent consistent with [Title VI of the Act].’’ 73 The subsequent provision, section 624(b)(1), provides that franchising authorities ‘‘may not . . . establish requirements for video programming or other information services.’’ 74 Although the term ‘‘information service’’ is not defined in section 624, the legislative history of that provision distinguishes ‘‘information service’’ from ‘‘cable service.’’ In particular, the legislative history explains that ‘‘[a]ll services offered by a cable system that go beyond providing generally-available video programming or other programming are not cable services’’ and ‘‘a cable service may not include ‘active information services’ such as at-home shopping and banking that allows transactions between subscribers and cable operators or third parties.’’ 74. We find significant that the description of the term ‘‘information services’’ in the legislative history (i.e., ‘‘services providing subscribers with the capacity to engage in transactions or to store, transfer, forward, manipulate, or otherwise process information or data [which] would not be cable services’’) aligns closely with the 1996 Telecommunications Act’s definition of ‘‘information service’’ codified in section 3(24) of the Act (i.e., ‘‘the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications’’). We conclude, therefore, that for purposes of applying section 624(b), interpreting the term ‘‘information services’’ to have the meaning set forth in section 3(24) of the Act is most consistent with Congressional intent.75 Because the Commission has determined that broadband internet access service is an 73 47 U.S.C. 544(a). the preamble to section 624(b) specifically limits the provision to franchises ‘‘granted after the effective date of this title’’ and therefore appears to grandfather local regulation of information services that may have occurred prior to 1984, when Title VI took effect, we note that very few franchises in effect today were granted prior to that year. 75 The fact that the ‘‘information services’’ definition in section 3(24) of the Act was enacted as part of the 1996 Act—more than ten years after Congress passed section 624(b)—supports our conclusion that LFAs lack authority under section 624(b)(1) to regulate information services. The absence in Title VI of specific references to the section 3(24) definition of ‘‘information service’’ suggests only that Congress, in passing the 1996 Act, did not wish to re-open the 1984 Cable Act; it does not indicate that Congress intended to grant LFAs general authority to regulate information services. 74 While PO 00000 Frm 00059 Fmt 4700 Sfmt 4700 44739 ‘‘information service’’ under section 3(24),76 we likewise find that section 624(b)(1) precludes LFAs from regulating broadband internet access provided via the cable systems of incumbent cable operators that are not common carriers. Moreover, even if the definition set forth in section 3(24) was not the intended definition of ‘‘information services’’ for purposes of section 624(b)(1), the highly analogous descriptions of this term in the legislative history of the 1984 Act also would apply to broadband internet access service. Thus, in either case, LFAs may not lawfully impose fees for the provision of information services (such as broadband internet access) via a franchised cable system or require a franchise (or other authorization) for the provision of information services via such cable system.77 We also clarify that LFAs and other state and local governmental units cannot impose additional requirements on mixed-use ‘‘cable systems’’ in a manner inconsistent with this Order and the Act under the pretense that they are merely regulating facilities and equipment rather than information services.78 75. Although we recognize that a later provision, section 624(b)(2)(B), permits franchising authorities to enforce requirements for ‘‘broad categories of video programming or other services,’’ when read together with the specific injunction against regulation of ‘‘information services’’ in section 624(b)(1), we find that it would be unreasonable to construe section 624(b)(2)(B) as authorizing LFA regulation of information services when (b)(1) precludes franchising authorities from regulating such services.79 As we noted in the Second FNPRM, the legislative history explains that section 624(b)(2)’s grant of authority ‘‘to enforce 76 The Commission in 2018 reinstated the ‘‘information service’’ classification of broadband internet access service. 77 Application of the mixed-use rule to broadband internet access service is not tied to the Commission’s classification of broadband as an information service. Under the Commission’s prior conclusion in 2015 that broadband internet access service is a Title II telecommunications service, the mixed-use rule would apply based on the provisions of Title VI for the reasons explained above. 78 For this reason, we reject assertions that section 624’s grant of authority to ‘‘establish’’ and ‘‘enforce’’ certain requirements for facilities and equipment would permit LFAs to bypass the statutory prohibition on regulation of information services. 79 We note further that the limitation on the ability of franchising authorities to establish requirements under section 624(b)(1) extends specifically to ‘‘information services,’’ whereas the authority granted to franchising authorities in section 624(b)(2) makes no mention of ‘‘information services.’’ E:\FR\FM\27AUR1.SGM 27AUR1 44740 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES requirements . . . for broad categories of video programming or other services’’ was intended merely to ‘‘assure[] the franchising authority that commitments made in an arms-length situation will be met,’’ while protecting the cable operator from ‘‘being forced to provide specific programming or items of value which are not utilized in the operation of the cable system.’’ Reading these provisions together, it is apparent that Congress intended to permit LFAs to enforce franchise requirements governing ‘‘other services’’ under (b)(2), but only to the extent they are otherwise permitted to establish such requirements under (b)(1).80 Because LFAs lack authority to regulate information services under section 624(b)(1), they may not lawfully enforce provisions of a franchise agreement permitting such regulation under section 624(b)(2), even if such provisions resulted from arms-length negotiations between the cable operator and LFA.81 That is, the grant of authority to ‘‘enforce’’ certain requirements under section 624(b)(2)(B) does not give franchising authorities an independent right to impose requirements that they otherwise may not ‘‘establish’’ under section 624(b)(1). We thus reject claims to the contrary. 76. As discussed above, Congress in the 1984 Cable Act intended to preserve the status quo with respect to federal, state, and local jurisdiction over noncable services, which lends further support to our conclusion that LFAs may not use their cable franchising authority to regulate information services provided over a cable system. Because information services that are interstate historically have fallen outside the lawful regulatory purview of state and local authorities,82 including 80 Although the legislative history provides examples of ‘‘broad categories of video programming,’’ it does not specify what services are encompassed within the phrase ‘‘other services’’ for purposes of applying section 624(b)(2)(B). Although the phrase ‘‘other services’’ is ambiguous, it would be unreasonable to conclude that Congress intended for it to include services, such as information services, that franchising authorities are not empowered to regulate under section 624. Rather, we find it more reasonable to construe the phrase as referring to services that franchising authorities lawfully could require under Title VI, such as the provision of PEG channels and I-Net capacity. We, therefore, reject Anne Arundel County et al.’s assertion that the term ‘‘other service’’ in section 624(b)(2)(B) includes information services. 81 We thus disagree with City Coalition’s contention that ‘‘[i]f . . . a cable operator agrees to undertake obligations regarding information services though arms-length negotiation—be they obligations regarding facilities that are not part of the cable system or obligations regarding noncable services—then a LFA may enforce those obligations.’’ 82 The Commission has determined that the term ‘‘information service’’ has essentially the same VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 LFAs, construing section 624(b) to bring those services within the scope of permissible LFA authority under Title VI would be fundamentally at odds with Congressional intent. For this reason, we reject City of Philadelphia et al.’s contention that our application of the mixed-use rule is barred by the Act because ‘‘[t]he ‘regulatory and jurisdictional status quo’ in 1984 . . . included [LFAs’] use of the franchise and franchise agreement to regulate . . . cable systems that [Congress] recognized were carrying both cable services and non-cable communications services.’’ The statutory design as reflected in other provisions of Title VI reinforces our conclusion that LFAs are precluded under section 624(b)(1) from regulating non-cable services provided over the cable systems of incumbent cable operators that are not common carriers. LFAs, therefore, may not lawfully regulate the non-cable services of such cable operators, including information services (such as broadband internet access), private carrier services (such as certain types of business data services), and interconnected VoIP service.83 For example, this precludes LFAs from not only requiring such a cable operator to pay fees or secure a franchise to provide broadband service via its franchised cable system, but also requiring it to meet prescribed service quality or performance standards for broadband service carried over that cable system. 77. We find unconvincing arguments that the statute compels a broader reading of LFAs’ authority under Title VI to regulate cable operators’ non-cable services, facilities, and equipment. Anne Arundel County et al. maintains, for example, that because section 624(a) grants LFAs authority to regulate a ‘‘cable operator,’’ a term the Act defines as ‘‘[a] person . . . who provides cable service over a cable system,’’ LFAs generally are authorized to regulate any of the services provided by a ‘‘cable operator’’ over a ‘‘cable system,’’ including non-cable services.84 Anne meaning as the term ‘‘enhanced service’’ for purposes of applying the Act. Moreover, even assuming that LFAs at the time Congress passed the 1984 Cable Act used their cable franchising authority to regulate non-cable services as City of Philadelphia et al. asserts, the provisions of section 624 plainly evidence Congressional intent to treat pre- and post-Act cable franchises differently. 83 Although interconnected VoIP service has not been classified by the Commission, LFA regulation of this service is prohibited under the mixed-use rule, as clarified in this Order, regardless of whether it is deemed a telecommunications service or an information service. 84 Insofar as Anne Arundel County et al. is arguing that ‘‘once a cable operator, always a cable operator,’’ and ‘‘once a cable system, always a cable system,’’ i.e., that when a cable operator deploys facilities, those facilities remain part of a cable PO 00000 Frm 00060 Fmt 4700 Sfmt 4700 Arundel County et al. contends further that under section 624(b), LFAs ‘‘to the extent related to the establishment or operation of a cable system . . . may establish requirements for facilities and equipment’’ and argues that the Act cannot be construed as limiting LFAs’ jurisdiction to cable services since it permits LFAs to require, for example, build out and institutional networks. We disagree with these arguments. Although, as Anne Arundel County et al. and others note, the Act in certain circumstances permits LFAs to impose on cable operators certain requirements that are not strictly related to the provision of cable service, such circumstances constitute limited exceptions to the general prohibition on LFA regulation of non-cable services contained in section 624.85 They also do not override the specific prohibition on regulation of information services set forth in section 624(b)(1). This interpretation accords with one of the 1984 Cable Act’s principal purposes to ‘‘continue[] reliance on the local franchising process as the primary means of cable television regulation, while defining and limiting the authority that a franchising authority may exercise through the franchise process.’’ 78. We also conclude, contrary to the assertions of some commenters, that it would conflict with Congress’s goals in the Act to permit LFAs to treat incumbent cable operators that are not common carriers differently from incumbent cable operators and new entrants that are common carriers in their provision of information services, including broadband internet access service. As we noted in the Second FNPRM, incumbent and new entrant cable operators (whether or not they are also common carriers) often compete in the same markets and offer nearly identical services to consumers. Thus, to allow LFAs to regulate the latter group of providers more strictly, such as by subjecting them to franchise and fee requirements for the provision of noncable services, could place them at a system even when used to provide non-cable services, we disagree with that assertion. Consistent with our interpretation of section 602(7)(C) above, we find that a more reasonable reading of the statute is that the nature of facilities (i.e., ‘‘cable system’’ or not) depends on how the facilities are used, not on whether the provider offered cable service at the time the facilities were deployed. 85 NATOA et al. agree that the grant to LFAs of authority to require I-Nets is an exception from the general injunction in section 621(b)(3)(D) against requiring cable operators to provide telecommunications services or facilities. NATOA eta l. also appear to concede that section 624(b) precludes LFAs from regulating under Titled VI information services provided over cable systems. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES competitive disadvantage.86 A report submitted by NCTA asserts, for example, that two fixed broadband providers may build out their networks differently, with one utilizing wireless backhaul and the other using landline backhaul, but ‘‘if one has inputs subjected to [fees] and the other does not, the differential . . . treatment can distort competition between the two, even when the services provided . . . are indistinguishable to the consumer.’’ The distortion to competition that stems from ‘‘hampering a subset of competitors,’’ in turn, reduces the incentives of those competitors to invest in cable system upgrades for the provision of both cable and non-cable services, which could thwart the 1996 Act’s goals to promote competition among communications providers and secure lower prices and higher quality services for consumers.87 Such regulations, moreover, impede the Commission’s development of a ‘‘consistent regulatory framework across all broadband platforms,’’ which is ‘‘[o]ne of the cornerstones of [federal] broadband policy.’’ 88 79. We also are not convinced by arguments that interpreting the Act to bar LFAs from regulating non-cable facilities and equipment placed in public rights-of-way would pose a safety risk to the public because cable operators would have unfettered discretion to install non-cable facilities without review or approval by local authorities. Section 636(a) of the Act specifically provides that ‘‘[n]othing in [Title VI] shall be construed to affect any authority of any State, political 86 As NCTA notes, under the First Report and Order, LFAs may not lawfully require a telecommunications carrier with a preexisting right to access public rights-of-way for the provision of telecommunications services, to secure a Title VI franchise to provide non-cable services over its network. We agree with NCTA that a cable operator with a preexisting right to access public rights-ofway for the provision of cable service likewise should not be required to obtain a separate authorization to provide non-cable services over its cable system, given that there is no incremental burden on the rights-of-way. 87 We find no record basis for concluding that these concerns are raised only with respect to incumbent cable operators, and not new entrants. 88 The fact that section 602(7)(C) excludes from the term ‘‘cable system’’ a facility of a common carrier subject to Title II of the Act does not persuade us that Congress intended to permit LFAs to regulate incumbent cable operators that are not common carriers differently from incumbent cable operators and new entrants that are common carriers in their provision of non-cable services. Rather, given Congress’s desire in the Act to ensure ‘‘competitively neutral and nondiscriminatory’’ regulation, we find that section 602(7)(C)’s carve out of Title II facilities from the definition of ‘‘cable system’’ merely evinces Congressional intent to preclude franchising authorities from regulating any telecommunications services carried over a cable system. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 subdivision, or agency thereof, or franchising authority, regarding matters of public health, safety, and welfare, to the extent consistent with the express provisions of [Title VI].’’ This provision, which is an express exception to Title VI’s general prohibition on franchising authority regulation of non-cable facilities and equipment, thus permits LFAs to impose requirements on noncable facilities and equipment designed to protect public safety, so long as such requirements otherwise are consistent with the provisions of Title VI. 80. As noted above, Title VI does not permit franchising authorities to extract fees or impose franchise or other requirements on cable operators insofar as they are providing services other than cable services. Ample record evidence shows, however, that some states and localities are purporting to assert authority to do so outside the limited scope of their authority under Title VI. These efforts appear to have followed the decision by the Supreme Court of Oregon in City of Eugene v. Comcast, which upheld a local government’s imposition of an additional seven percent ‘‘telecommunications’’ license fee on the provision of broadband services over a franchised cable system with mixed use facilities. To address this problem, we now expressly preempt any state or local requirement, whether or not imposed by a franchising authority, that would impose obligations on franchised cable operators beyond what Title VI allows.89 Specifically, we preempt (1) any imposition of fees on a franchised cable operator or any affiliate using the same facilities franchised to the cable operator 90 that exceeds the formula set forth in section 622(b) of the Act and the rulings we adopt in this document, whether styled as a ‘‘franchise’’ fee, ‘‘right-of-access’’ fee, or a fee on noncable (e.g., telecommunications or broadband) services, and (2) any requirement that a cable operator with a Title VI franchise secure an additional franchise or other authorization to provide non-cable services via its cable system.91 We base these conclusions on 89 Such preemption applies to the imposition of duplicative taxes, fees, assessments, or other requirements on affiliates of the cable operator that utilize the cable system to provide non-cable services. 90 For example, a cable operator may provide voice or broadband services through affiliates, and an LFA could not impose duplicative fees on those affiliates. 91 We do not set forth an exhaustive list of state and local laws and legal requirements that are deemed expressly preempted. Rather, we simply clarify that state and local laws and other legal requirements are preempted to the extent that they conflict with the Act and the Commission’s PO 00000 Frm 00061 Fmt 4700 Sfmt 4700 44741 Congress’s express decision to preempt state and local laws that conflict with Title VI of the Communications Act (section 636(c)), the text and structure of Title VI and the Act as a whole, Congressional and Commission policies (including the policy of nonregulation of information services), and the Supremacy Clause of the U.S. Constitution.92 81. Authority to Preempt. Congress has the authority to preempt state law under Article VI of the U.S. Constitution. While Congress’s intent to preempt sometimes needs to be discerned or implied from a purported conflict between federal and state law, here Congress spoke directly to its intent to preempt state and local requirements that are inconsistent with Title VI. This express preemption extends beyond the actions of any state or local franchising authority. Section 636(c) of the Act provides that ‘‘any provision of law of any State, political subdivision, or agency thereof, or franchising authority, or any provision of any franchise granted by such authority, which is inconsistent with this chapter shall be deemed to be implementing rules and policies. As discussed in paragraph below, such preempted requirements include those expressly approved in Eugene. 92 Contrary to some assertions in the record, we find that the Second FNPRM provided adequate notice to interested parties that the Commission could exercise its preemption authority under section 636(c) to address local regulation of noncable services outside Title VI. In support of its tentative conclusion that ‘‘[s]ection 624(b) of the Act prohibits LFAs from using their franchising authority to regulate the provision of information services, including broadband internet access service,’’ the Second FNPRM specifically cited section 636(c) and set forth the text of that provision nearly verbatim. In addition, the Commission in the Second FNPRM tentatively concluded that preempted ‘‘entry and exit restrictions’’ include requirements that an incumbent cable operator obtain a franchise to provide broadband internet access service and that LFAs therefore are expressly preempted from imposing such requirements. The Commission sought comment on that tentative conclusion and on ‘‘whether there are other regulations imposed by LFAs on incumbent cable operators’ provision of broadband internet access service that should be considered entry and exit restrictions, or other types of economic or public utility-type regulations, preempted by the Commission.’’ Such regulations include duplicative fee and franchise requirements imposed by franchising authorities such as the City of Eugene, which is a ‘‘governmental entity empowered by . . . [s]tate [] or local law to grant a [cable franchise].’’ Indeed, the fact that multiple LFA advocates recognized that the Second FNPRM could be read to seek comment on the Commission’s authority to preempt requirements imposed outside Title VI contradicts claims that the Second FNPRM did not adequately apprise parties of the possible scope of the Commission’s preemption ruling. Moreover, the fact that cable commenters in this proceeding referenced section 636(c) as a potential basis for our preemption ruling demonstrates that such ruling is a ‘‘logical outgrowth’’ of the Second FNPRM. E:\FR\FM\27AUR1.SGM 27AUR1 44742 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES preempted and superseded.’’ 93 The reference in section 636(c) to ‘‘this chapter’’ means that Congress intended to preempt any state or local law (or any franchise provision) that is inconsistent with any provision of the Communications Act, whether or not codified in Title VI.94 Moreover, section 636(c) applies broadly to ‘‘any [inconsistent] provision of law’’ of ‘‘any State, political subdivision, or agency thereof.’’ 95 That means that Congress intended that states and localities could not ‘‘end-run’’ the Act’s limitations by using other governmental entities or other sources of authority to accomplish indirectly what franchising authorities are prohibited from doing directly.96 82. Where Congress provides an express preemption provision such as section 636(c), the Commission has delegated authority to identify the scope of the subject matter expressly preempted and assess whether a state’s law falls within that scope. The Commission may, therefore, expressly bar states and localities from acting in a manner that is inconsistent with both the Act and the Commission’s interpretations of the Act, so long as those interpretations are valid. We therefore disagree with assertions that the Commission lacks authority to preempt non-cable regulations imposed by states and localities pursuant to nonTitle VI sources of legal authority. 83. Scope of Preemption. The Commission’s task, then, in interpreting the scope of preemption under section 636(c) is to determine whether specific state or local requirements are inconsistent with Title VI or other provisions in the Communications Act. Looking at the provisions of Title VI and the Act as a whole, we have little trouble concluding that Congress did not intend to permit states, municipalities, or franchising authorities to impose fees or other 93 For purposes of this provision, the term ‘‘State’’ has the meaning given such term in section 3 of the Act. Section 3, in turn, provides that ‘‘the term ‘State’ includes the District of Columbia and the Territories and possessions.’’ 94 Section 636(c)’s reference to ‘‘this chapter’’ is to the Communications Act of 1934, as amended, which is codified in Chapter 5 of Title 47 of the United States Code. Section 636(c)’s reference to ‘‘this chapter’’ stands in contrast to other provisions in section 636, which reference ‘‘this subchapter,’’ or Title VI of the Act. 95 Contrary to some LFAs’ assertion, given that Congress in section 636(c) expressly preempted certain state and local laws, we need not find that federal preemption of laws governing intrastate telecommunications services is permissible under the ‘‘impossibility exception.’’ Nevertheless, we find that the impossibility doctrine further supports our decision herein. 96 Contrary to the suggestion of the City of Eugene, our preemption authority does not depend on section 706 of the Act. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 requirements on cable operators beyond those specified under Title VI, under the guise of regulating ‘‘non-cable services’’ or otherwise restricting a cable operator’s construction, operation, or management of facilities in the rights-ofway. 84. As an initial matter, we note that Title VI establishes a framework that reflects the basic terms of a bargain—a cable operator may apply for and obtain a franchise to access and operate facilities in the local rights-of-way, and in exchange, a franchising authority may impose fees and other requirements as set forth and circumscribed in the Act. So long as the cable operator pays its fees and complies with the other terms of its franchise, it has a license to operate and manage its cable system free from the specter of compliance with any new, additional, or unspecified conditions (by franchise or otherwise) for its use of the same rights-of-way. 85. The substantive provisions of Title VI make the terms of this bargain clear. For starters, section 621(a)(1) provides franchising authorities with the right to grant franchises, and section 621(a)(2) explains that such franchises ‘‘shall be construed to authorize the construction of a cable system over public rights-ofway . . .’’ A ‘‘cable operator,’’ in turn, may not provide ‘‘cable service’’ unless the cable operator has obtained such a franchise. Other provisions make clear that a franchise does not merely authorize the construction of a cable system, but also the ‘‘management and operation of such a cable system,97 including the installation of Wi-Fi and small cell antennas attached to the cable system.’’ 86. The right to construct, manage, and operate a ‘‘cable system’’ does not mean merely the right to provide cable service.98 Numerous provisions in Title VI evidence Congress’s knowledge and understanding that cable systems would carry non-cable services—including telecommunications and information services. The definition of ‘‘cable system,’’ for example, anticipates that some facilities may carry both telecommunications and cable services. 97 We therefore reject LFA assertions that the absence in section 621(a)(2) of an express grant of authority to ‘‘operate’’ a cable system evinces Congress’s intent that a Title VI franchise bestow only the right to construct, but not to operate, a cable system over public rights-of-way. 98 As noted, under section 621(a)(2), ‘‘[a]ny franchise shall be construed to authorize the construction of a cable system over public rightsof-way.’’ Because the ‘‘construction of a cable system’’ includes the installation of facilities and equipment needed to provide both cable and noncable services, such as wireless broadband and WiFi services, the grant of a Title VI franchise bestows the right to place facilities and equipment in rightsof-way to provide such services. PO 00000 Frm 00062 Fmt 4700 Sfmt 4700 With respect to information services, section 601 of the Act provides that one of Title VI’s purposes is to ‘‘assure that cable communications provide and are encouraged to provide the widest possible diversity of information sources and services to the public.’’ And, as we have already seen, Congress expressly provided in section 624(b) for ‘‘mixed-use’’ facilities that carry both cable services and ‘‘video programming or other information services.’’ 87. The legislative history reinforces the conclusion that Congress understood that a franchised ‘‘cable system’’ would carry both cable and non-cable services. The House Report, for example, explains that ‘‘[t]he term ‘cable system’ is not limited to a facility that provides only cable service which includes video programming. Quite the contrary, many cable systems provide a wide variety of cable services and other communications services as well. A facility would be a cable system if it were designed to include the provision of cable services (including video programming) along with communications services other than cable service.’’ 88. The point is that Congress was well aware that ‘‘cable systems’’ would be used to carry a variety of cable and non-cable services. It follows that Congress could have, if it wanted, provided significant leeway for states, localities, and franchising authorities to tax or provide other regulatory restrictions on a cable system’s provision of non-cable services in exchange for the cable operator receiving access to the rights-of-way. But as it turns out, the balance of Title VI makes clear that Congress sharply circumscribed the authority of state or local governments to regulate the terms of this exchange. In this document, we make clear that, under section 636(c), states, localities, and franchising authorities may not impose fees or restrictions on cable operators for the provision of non-cable services in connection with access to such rightsof-way, except as expressly authorized in the Act. We provide further explanation in two critical areas to clarify that these categories of state and local restrictions are preempted: (a) Additional franchise fees beyond those authorized in section 622 and (b) additional franchises or regulatory restrictions on a cable operator’s construction, management, or operation of a cable system in the rights-of-way. 89. Additional fees. Both Congress and the Commission have recognized that the franchise fee is the core consideration that franchising authorities receive in exchange for the E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES cable operator’s right to access and use the rights-of-way. As explained in detail above, Congress carefully circumscribed how this fee should be calculated: It provided that ‘‘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’’. We must assume that Congress’s careful choice of words was intentional. While the fee would apply to the ‘‘cable operator’’ with respect to any ‘‘cable system,’’ it would only apply to revenue obtained from ‘‘cable services,’’ not non-cable services that Congress understood could provide additional sources of revenue. 90. We find additional support for this conclusion in Congress’s broad definition of the term ‘‘franchise fee,’’ which covers ‘‘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 such.’’ This broad definition was intended to limit the imposition of any tax, fee, or assessment of any kind—including fees purportedly for provision of non-cable services or for, access to, use of, or the value of the rights of way—to five percent of the cable operator’s revenue from cable services.99 And its language reinforces the text of section 636(c) by making clear that a different state or local ‘‘governmental entity’’ cannot endrun the cap by imposing fees for access to any public right of way within the franchise area or in instances of overlapping jurisdiction. 91. In reaching this conclusion, we read the phrase ‘‘solely because of their status as such’’ as protective language intended to place a ceiling on any sort of fee that a franchising authority might impose on a cable operator qua cable operator or qua franchisee—that is, any fee assessed in exchange for the right to construct, manage, or operate a cable system in the rights-of-way. We therefore reject the claim of some commenters that this language permits localities to charge additional fees so long as the cable operator also acts as a telecommunications provider or internet service provider, or so long as the state or locality can articulate some non-cable 99 State and local advocates do not appear to dispute that section 622(b) limits franchise fees to five percent of a cable operator’s gross revenues derived from the provision of cable service only. Rather, their claims, as discussed herein, are that fees on broadband and telecommunications services are not ‘‘franchise fees’’ at all—claims that we show are belied by the text, structure, and purposes of Title VI. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 related rationale for its actions. This alternate rationale flies in the face of statutory text. As noted above, a ‘‘cable operator’’ is defined not only as a person or entity that provides cable service, but also one that ‘‘controls or is responsible for, through any arrangement, the management and operation of such a cable system.’’ The management or operation of a cable system includes the maintenance of the system to provide non-cable services— which Congress understood would be supplied over the same cable facilities.100 Because a fee that a state or locality imposes on a cable operator’s provision of non-cable services relates to the ‘‘manage[ment] and operat[ion]’’ of its cable system, such fee is imposed on the cable operator ‘‘solely because of [its] status’’ as a cable operator and is capped by section 622. 92. The structure of section 622 as a whole provides further support for our reading. The language ‘‘solely because of their status as such’’ operates to distinguish fees imposed on cable operators for access to the rights-of-way (‘‘franchise fees’’), which are capped, from ‘‘any tax, fee, or assessment of general applicability,’’ which are not. Section 622 thus envisions two mutually exclusive categories of assessments—(1) fees imposed on cable operators for access to the rights-of-way in their capacity as franchisees (that is, ‘‘solely because of their status as such’’) and (2) broad-based taxes. Understood in this manner, any assessment on a cable operator for constructing, managing, or operating its cable system in the rights-of-way is subject to the five-percent cap—even if other noncable service providers (e.g., telecommunications or broadband providers) are subject to the same or similar access fees.101 This is because 100 As NCTA notes, a service provider may have status as a cable operator either because of its provision of cable service or because of its operation of a cable system. A service provider that is operating a cable system to provide broadband internet access service thus is providing such service ‘‘solely because of’’ its status as a cable operator. 101 Although a ‘‘franchise fee’’ does not include ‘‘any tax, fee, or assessment of general applicability,’’ we note that this exception excludes a tax, fee, or assessment ‘‘which is unduly discriminatory against cable operators or cable subscribers.’’ Even if ‘‘telecommunications’’ fees such as those at issue in Eugene could reasonably be characterized as fees of general applicability by virtue of their application to providers other than cable operators, we find that such fees would be ‘‘unduly discriminatory’’—and thus constitute ‘‘franchise fees’’—as applied to franchised cable operators. This is because such fees are assessed on cable operators in addition to the five percent franchise fees such operators must pay for use of public rights-of-way. That is, cable operators must pay twice for access to rights-of-way (i.e., one fee PO 00000 Frm 00063 Fmt 4700 Sfmt 4700 44743 the definition of ‘‘franchise fee’’ in section 622(g)(1) centers on why the fee is imposed on a cable operator, i.e., ‘‘solely because of [its] status’’ as a franchisee, and not to whom the fee is imposed, i.e., ‘‘solely applicable’’ to a cable operator. The entire category of ‘‘franchise fees’’ is subject to the fivepercent cap, in distinction to generallyapplicable taxes whose validity must be shown, at least in part, by their application to broader classes of entities or citizens beyond providers of cable and non-cable communications services.102 93. The legislative history and purposes of the 1984 Cable Act support this broad and exclusive interpretation of the term ‘‘franchise fees.’’ It reveals, for example, that Congress initially established the section 622(b) cap on franchise fees out of concern that local authorities could use such fees as a revenue-raising mechanism. A reading of section 622 that would permit states and localities to circumvent the five percent cap by imposing unbounded fees on ‘‘non-cable services’’ would frustrate the Congressional purpose behind the cap and effectively render it meaningless. The legislative history behind the 1996 amendments to section 622(b) make this intent explicit. Prior to 1996, section 622 provided, in relevant part, that ‘‘the franchise fees paid by a cable operator with respect to any cable system shall not exceed [five percent] of such cable operator’s gross revenues derived . . . from the operation of the cable system.’’ The House Report accompanying the 1996 amendment,103 which explained the addition of the key limitation ‘‘for the provision of cable services’’ in section 622(b), provides that: Franchising authorities may collect franchise fees under [section 622 of the Act] solely on the basis of the revenues derived by an operator from the provision of cable service. . . . This section does not restrict the right of franchising authorities to collect franchise fees on revenues from cable services and cable-related services, such as, but not limited to, revenue from the installation of cable service, equipment used to receive cable service, advertising over for cable service and a second fee for non-cable service), whereas non-cable providers must pay only once for such access (i.e., for non-cable service). We, therefore, conclude that interpreting the Act to preclude localities from assessing fees on cable operators’ use of rights-of-way to provide noncable services would be ‘‘competitively neutral and nondiscriminatory,’’ contrary to the suggestion of some commenters. 102 We thus disagree with assertions that Congress did not intend for franchise fees to cover cable operators’ use of public property for the provision of services other than cable services. 103 The conference agreement adopted the House version of this provision. E:\FR\FM\27AUR1.SGM 27AUR1 44744 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations video channels, compensation received from video programmers, and other sources related to the provision of cable service over the cable system. jspears on DSK3GMQ082PROD with RULES 94. If, as CAPA asserts, Congress had intended the term ‘‘cable operator’’ as used in section 622(b) to refer to an entity only to the extent such entity provides cable service, there would have been no need for Congress to amend section 622(b) in this manner. 95. Although, as LFA advocates note, section 621(d)(2) of the Act provides that ‘‘[n]othing in [Title VI] shall be construed to affect the authority of any State to regulate any cable operator to the extent that such operator provides any communication service other than cable service, whether offered on a common carrier or private contract basis,’’ this provision is not an affirmative grant to states of authority to regulate non-cable services that they historically have not been empowered to regulate. First, the term ‘‘State’’ in section 621(d) does not extend to LFAs; it is defined by reference to section 3 of the Communications Act. The legislative history makes clear that this was a reference to the division of regulatory authority between the ‘‘state public utility commission and . . . the FCC.’’ Second, this provision merely reflects Congress’s intent in the 1984 Cable Act to preserve the status quo with respect to federal and state jurisdiction over non-cable services. As noted, under the then-existing status quo, the Commission had jurisdiction to regulate interstate services; states had jurisdiction to regulate intrastate services. Because the Commission historically has concluded that information service is jurisdictionally interstate, it traditionally has fallen outside the proper regulatory sphere of state and local authorities.104 Moreover, the Commission has long recognized the impossibility of separately regulating interstate and intrastate information services. Thus, neither a state nor its political subdivisions may lawfully regulate such service under section 104 For example, the Commission previously has stated that it has independent authority to displace state and local regulations in accordance with the longstanding federal policy of nonregulation for information services. For more than a decade prior to the 1996 Act, the Commission consistently preempted state regulation of information services (which were then known as ‘‘enhanced services’’). When Congress adopted the Commission’s regulatory framework and its deregulatory approach to information services in the 1996 Act, it thus embraced its longstanding policy of preempting state laws that interfere with our federal policy of nonregulation. Because broadband internet access service is jurisdictionally interstate whether classified as a telecommunications or an information service, regulatory authority over such service resides exclusively with the Commission. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 621(d)(2) by requiring a cable operator with a Title VI franchise to pay a fee or secure a franchise or other authorization to provide broadband internet access service over its cable system. To conclude otherwise would contravene Congress’s intent in Title VI to maintain the jurisdictional status quo with respect to federal, state, and local regulation of non-cable services.105 96. We find unpersuasive NATOA et al.’s selective reading of the legislative history to conclude that Congress intended to permit states and localities to require franchised cable operators to pay additional rights-of-way fees for the provision of non-cable services. NATOA et al. note that the House Conference Report accompanying the 1996 amendment stated that ‘‘to the extent permissible under state and local law, communications services, including those provided by a cable company, shall be subject to the authority of a local government to, in a nondiscriminatory and competitively neutral way, manage its public rights-ofway and charge fair and reasonable fees.’’ Although the cited legislative history is relevant to our interpretation of the statute,106 we do not read this language so broadly as permitting states and localities to charge redundant or duplicative fees on cable franchisees that are subject to the five-percent cap— a reading that would, as we have explained, eviscerate the cap entirely. Rather, we conclude that, under section 636(c), and taking into account the provisions of Title VI as a whole, any fees that exceed the five-percent cap, as formulated in section 622, are not ‘‘fair and reasonable.’’ 107 105 We also reject claims that section 621(d)(1)’s grant to states of authority to require the filing of tariffs by cable operators for the provision of certain non-cable services reflects Congress’s intent to permit state regulation of those services. As explained above, that provision was intended only to permit states to require tariffs for services that they otherwise were authorized to regulate, such as telecommunications services that are purely intrastate. 106 As some LFA advocates note, the Commission previously noted in passing that, while a cable operator is not required to pay cable franchise fees on revenues from non-cable services, this rule ‘‘does not apply to non-cable franchise fee requirements, such as any lawful fees related to the provision of telecommunications service.’’ For the reasons explained below, we would deem an LFA’s assessment of a cable operator twice for accessing public rights-of-way (once as a cable operator and again as a telecommunications provider) to be unlawful as not ‘‘fair and reasonable’’ nor ‘‘competitively neutral and nondiscriminatory.’’ To the extent our earlier statement may suggest any broader application, we disavow it based on the record before us and the arguments made throughout this item. 107 We disagree with LFA assertions that this interpretation is inconsistent with section 253 of the Act and the Commission’s 2018 Wireless PO 00000 Frm 00064 Fmt 4700 Sfmt 4700 97. Consistent with Congress’s intent, as early as 2002, the Commission has construed section 622(b) to permit franchising authorities to include in the revenue base for franchise fee calculations only those revenues derived from the provision of cable service.108 Thus, if a cable operator generates additional revenue by providing non-cable services over its cable system, such additional revenue may not be included in the gross revenues for purposes of calculating the cable franchise fee.109 98. As courts have recognized, the Commission is charged with ‘‘the ultimate responsibility for ensuring a ‘national policy’ with respect to franchise fees.’’ We exercise that authority in this document by making clear that states, localities, and cable franchising authorities are preempted from charging franchised cable operators more than five percent of their gross revenue from cable services. This cap applies to any attempt to impose a ‘‘tax, fee, or assessment of any kind’’ that is not subject to one of the enumerated exemptions in section 622(g)(2) on a cable operator’s non-cable Infrastructure Order. Although section 253 permits states and localities to require ‘‘fair and reasonable’’ compensation from telecommunications providers on a ‘‘competitively neutral and nondiscriminatory basis’’ for use of public rights-of-way, as explained above, we find that imposing fees on cable operators beyond what Title VI allows is neither ‘‘fair and reasonable’’ nor ‘‘competitively neutral and nondiscriminatory.’’ Moreover, although the Commission in the Wireless Infrastructure Order concluded, among other things, that fees to use the rights-of-way to deploy small cells for the provision of telecommunications must be cost-based and no greater than those charged to ‘‘similarly situated’’ entities for comparable uses of the rights-of-way, we do not believe that our approach in this document introduces any inconsistency. Rather, as NCTA notes, we merely recognize that under the Act, cable operators must compensate local governments for accessing public rights-of-way under a statutory framework different from that applicable to telecommunications providers, and that Congress did not intend for them to be assessed twice for the provision of cable service or the facilities used in the provision of such service. Any difference in approach, therefore, follows from different standards established by Congress in sections II and VI of the Act. 108 In the Cable Modem Declaratory Ruling, for example, the Commission stated that under section 622(b) the franchise fees paid by a cable operator with respect to any cable system may not exceed five percent of the cable operator’s gross revenues derived from the operation of the cable system to provide cable services. Because cable modem service was then deemed to be an information service, the Commission concluded that revenue from cable modem service would not be included in the calculation of gross revenues from which the franchise fee ceiling is determined. 109 In the First Report and Order, the Commission affirmed its prior interpretation of section 622(b) by clarifying that a cable operator is not required to pay franchise fees on revenues from non-cable services. Thus, internet access services, including broadband data services, and any other non-cable services are not subject to ‘cable services’ fees. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES services or its ability to construct, manage, or operate its cable system in the rights-of-way. 99. Additional Franchises or Other Requirements. Congress also made clear that states, localities, and franchising authorities lack authority to require additional franchises or place additional nonmonetary conditions on a cable operator’s provision of non-cable services that are not expressly authorized in the Act. Several provisions state explicitly that franchising authorities may not regulate franchised ‘‘cable systems’’ to the extent that they provide telecommunications services. In addition, as we noted above, section 624(b)(1) precludes franchising authorities from ‘‘establish[ing] requirements for video programming or other information services.’’ In the mixed-use rule we adopt in this document, we reasonably construed this provision to prohibit LFAs from regulating information services provided over cable systems. 100. As noted above, section 636(c) operates to preempt state and local requirements that would use non-Title VI authority to accomplish indirectly what franchising authorities are prohibited from doing directly. Consistent with this reasoning, we conclude that any state or local law or legal requirement that obligates a cable operator franchised under Title VI to obtain a separate, additional franchise (or other authorization) or imposes requirements beyond those permitted by Title VI to provide cable or non-cable services, including telecommunications and information services, over its cable system conflicts with the Act and thus also is expressly preempted by section 636(c). The mixed-use rule we adopt in this document represents a reasonable interpretation of the relevant provisions of Title VI as well as a balanced accommodation of the various policy interests that Congress entrusted to the Commission; therefore, it too has preemptive effect under section 636(c).110 101. Public Policy. Apart from our analysis of the text and structure of the 110 We reject arguments that the Commission lacks authority to preempt state and local regulation of information services without asserting ancillary jurisdiction over information services. Because we are relying on express preemption authority under section 636(c), there is no reason for us to rely upon ancillary authority in this proceeding. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 Act and our longstanding delegated authority to preempt state regulations that are inconsistent with the Act, our preemption decisions in this document are also consistent with Congress’s and the Commission’s public policy goals and an appropriate response to problems that are apparent in the record. 102. Recognizing that excessive regulation at the local level could limit the potential of cable systems to deliver a broad array of services, Congress expressed its intent to ‘‘minimize unnecessary regulation that would impose an undue economic burden on cable systems’’ and ‘‘assure that cable communications provide and are encouraged to provide the widest possible diversity of information sources and services to the public.’’ More generally, section 230(b) of the Act expresses Congress’s intent ‘‘to preserve the vibrant and competitive free market that presently exists for the internet and other interactive computer services, unfettered by Federal or State regulation.’’ 111 Accordingly, the Commission has previously preempted state and local regulations that would conflict with this federal policy of nonregulation of information services. These longstanding federal policies provide further support for our decision in this document to read Title VI as prohibiting states, localities, and franchising authorities from imposing fees and obligations on cable operators beyond those expressly set forth in that Title. 103. Our preemption decision in this document will advance these federal policies by preventing further abuses of state and local authorities of the kind manifested in the record in this proceeding. In recent years, governmental entities at the local level increasingly have sought to regulate non-cable services provided over mixeduse cable systems franchised under Title VI, particularly broadband internet access service. Such governmental entities have included not only state and local franchising authorities acting pursuant to the cable franchising provisions of Title VI, but also state and 111 ‘‘Interactive computer services’’ are defined, in relevant part, as ‘‘any information service, system, or access software provider that provides or enables computer access by multiple users to a computer service, including specifically a service or system that provides access to the Internet. . . .’’ PO 00000 Frm 00065 Fmt 4700 Sfmt 4700 44745 local entities purportedly acting pursuant to their police powers to regulate public rights-of-way or other powers derived from sources outside Title VI. Although the record reveals that such regulation takes many different forms, NCTA and other industry advocates have expressed acute concerns about two particular kinds of state and local regulation: (1) Requirements obligating cable operators with a Title VI franchise that are subject to the franchise fee requirement in section 622(b) of the Act to pay additional fees for the provision of noncable services (such as broadband internet access) via their cable systems; and (2) requirements obligating cable operators with a Title VI franchise to secure an additional franchise (or other authorization) to provide non-cable services over their cable systems. Our preemption decisions in this document are carefully tailored to address these problems and prevent states and localities from continuing to circumvent the carefully calibrated terms of Title VI through these and similar kinds of regulations. 104. We disagree with those commenters who attempt to minimize the harm posed by the state and local requirements that we preempt in this document. We disagree, for example, that cable industry claims regarding the impact of duplicative fee and franchise requirements on broadband deployment are belied by the industry’s substantial investments to date in broadband infrastructure, and that such requirements thus will not adversely affect broadband investment going forward. As the record reflects, even if cable operators were to continue to invest, such investments likely would be higher absent such requirements, and even small decreases in investment can have a substantial adverse impact on consumer welfare. We also are persuaded that the imposition of duplicative requirements may deter investment in new infrastructure and services irrespective of whether or to what extent a cable operator passes on those costs to consumers. Contrary to the assertions of some commenters, we also believe that such requirements impede Congress’s goal to accelerate deployment of ‘‘advanced telecommunications capability to all Americans.’’ E:\FR\FM\27AUR1.SGM 27AUR1 44746 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES 105. Other Legal Considerations. In reaching our decision in this document, we agree with the majority of courts that have found that a Title VI franchise authorizes a cable operator to provide non-cable services without additional franchises or fee payments to state or local authorities. In so doing, we repudiate the reasoning in a 2016 decision by the Supreme Court of Oregon in City of Eugene v. Comcast,112which appears to have prompted an increasing number of states and municipalities to impose fees on franchised cable operators’ provision of non-cable services.113 In Eugene, the court upheld the city’s imposition of a separate, additional ‘‘telecommunications’’ license fee on the provision of broadband services over a franchised cable system, reasoning that the fee was not imposed pursuant to the city’s Title VI cable franchising authority, but rather, under the city’s authority as a local government to impose fees for access to rights-of-way for the provision of telecommunications services. For the reasons stated above, we conclude that Eugene fundamentally misreads the text, structure, and legislative history of the Act, and clarify that any state or local regulation that imposes on a cable operator fees for the provision of non-cable services over a cable system franchised under Title VI conflicts with section 622(b) of the Act and is preempted under section 636(c).114 106. As noted above, although sections 602(7)(C) and 624(b)(1) by their 112 The regulations at issue in Eugene included that: (i) Comcast’s franchise agreement for the provision of cable services over the city’s public rights-of-way did not give it the right to provide cable modem service over those rights-of-way; (ii) the Communications Act did not give Comcast an independent right to provide cable modem service over the city’s public rights-of-way; (iii) the Act did not preclude the city from assessing fees on revenues derived from Comcast’s provision of cable modem service over public rights-of-way; and (iv) such fees did not constitute franchise fees under section 622(b) of the Act. 113 NCTA asserts that in the wake of Eugene, a multitude of cities in Oregon have adopted or reinterpreted ordinances to impose fees on gross revenues derived from the provision of broadband services, in addition to those already imposed under cable franchises. NCTA notes that multiple communities in Ohio also have passed ordinances requiring that cable operators secure a ‘‘Certificate of Registration’’ in addition to a state-issued cable franchise before offering non-cable services, and that such certificates require payment of additional fees as a condition of occupying rights-of-way. NCTA asserts further that such duplicative fees are imposed not only at the local level, but also at the state level. 114 Such regulation includes not only requirements imposed by a state or locality acting pursuant to the cable franchising provisions of Title VI, but also requirements imposed by a state or locality purportedly acting pursuant to any powers granted outside Title VI. VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 terms circumscribe franchising authority regulation of non-cable services pursuant to Title VI, section 636(c) makes clear that state and local authorities may not end-run the provisions of Title VI simply by asserting some other source of authority—such as their police powers to regulate access to public rights-ofway—to accomplish what Title VI prohibits. To be sure, section 636(a) provides that ‘‘[n]othing in [Title VI] shall be construed to affect any authority of any State, political subdivision, or agency thereof, or franchising authority, regarding matters of public health, safety, and welfare, to the extent consistent with the express provisions of [Title VI].’’ While we recognize that states and municipalities possess authority to manage rights-ofway that is distinct from their cable franchising authority under Title VI, states and localities may not exercise that authority in a manner that conflicts with federal law. As the U.S. Supreme Court has found, ‘‘[w]hen federal officials determine, as the FCC has here, that restrictive regulation of a particular area is not in the public interest, [s]tates are not permitted to use their police power to enact such . . . regulation.’’ 107. Our decision in this document still leaves meaningful room for states to exercise their traditional police powers under section 636(a).115 While we do not have occasion in this document to delineate all the categories of state and local rules saved by that provision, we note that states and localities under section 636(a) may lawfully engage in rights-of-way management (e.g., road closures necessitated by cable plant installation, enforcement of building and electrical codes) so long as such regulation otherwise is consistent with Title VI. Similarly, we do not preempt state regulation of telecommunications services that are purely intrastate, such as requirements that a cable operator obtain a certificate of public convenience and necessity to provide such services. State regulation of intrastate telecommunications services is permissible so long as it is consistent with the Act and the Commission’s implementing rules and policies.116 We also do not disturb or displace the traditional role of states in generally 115 Given the robust scope that we retain in this Order for the operation of section 636(a), we reject the City of Eugene’s assertion that we have not engaged in ‘‘meaningful discussion’’ of this provision. 116 We note, for example, that section 253(a) of the Act prohibits state or local statutes, regulations, or other legal requirements that prohibit or have the effect of prohibiting the ability of any entity to provide ‘‘any interstate or intrastate telecommunications service.’’ PO 00000 Frm 00066 Fmt 4700 Sfmt 4700 policing such matters as fraud, taxation, and general commercial dealings, so long as the administration of such laws does not interfere with federal regulatory objectives. 108. We also find unconvincing Anne Arundel County et al.’s argument that the Commission’s preemption of state and local management of public rightsof-way violates the Tenth Amendment to the U.S. Constitution by ‘‘direct[ing] local governments to surrender their property and management rights to generate additional funds for use in the expanded deployment of broadband.’’ In particular, Anne Arundel County et al. contends that by preventing states and localities from overseeing use of their rights-of-way, the Commission effectively is commanding them to grant rights-of-way access on terms established by the Commission, rather than state or local governments. That argument fails for multiple reasons. 109. The Tenth Amendment provides that ‘‘[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.’’ We find that Anne Arundel County et al. has failed to demonstrate any violation of the Tenth Amendment. As the Supreme Court has stated, ‘‘[i]f a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States.’’ Therefore, when Congress acts within the scope of its authority under the Commerce Clause, no Tenth Amendment issue arises. Regulation of interstate telecommunications and information services, and cable services, is within Congress’ authority under the Commerce Clause. Thus, because our authority derives from a proper exercise of Congressional power, the Tenth Amendment poses no obstacle to our preemption of state and local laws and other legal requirements. 110. We also find no merit to arguments that the Commission’s preemption of certain state and local requirements constitutes an improper ‘‘commandeering’’ of state governmental power. The Supreme Court has recognized that ‘‘where Congress has the authority to regulate private activity under the Commerce Clause,’’ Congress has the ‘‘power to offer States the choice of regulating that activity according to federal standards or having state law preempted by federal regulation.’’ Title VI provides that a franchising authority ‘‘may award’’ franchises ‘‘in accordance with this title.’’ It thus simply establishes limitations on the scope of that authority when and if exercised. Here, we are simply requiring that, E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES should state and local governments decide to open their rights-of-way to providers of interstate communication services within the Commission’s jurisdiction, they do so in accordance with federal standards. As noted, Congress in section 636(c) expressly authorized Commission preemption of state and local laws and other legal requirements that conflict with federal standards. Because the Commission has the constitutional authority to adopt such standards, and because those standards do not require that state or local governments take or decline to take any particular action, we conclude that our preemption decisions in this Order do not violate the Tenth Amendment.117 111. As proposed in the Second FNPRM, we find that the conclusions set forth in this Order, as well as the Commission’s decisions in the First Report and Order 118 and Second Report and Order,119 as clarified in the Order 117 We also conclude that our actions do not violate the Fifth Amendment to the U.S. Constitution. The ‘‘takings’’ clause of the Fifth Amendment provides: ‘‘[N]or shall private property be taken for public use, without just compensation.’’ First, our actions herein do not result in a Fifth Amendment taking. Courts have held that municipalities generally do not have a compensable ‘‘ownership’’ interest in public rightsof-way, but rather hold the public streets and sidewalks in trust for the public. Moreover, even if there was a taking, Congress provided for ‘‘just compensation’’ through cable franchise fees. Section 622(h)(2) of the Act provides that a franchising authority may recover a franchise fee of up to five percent of a cable operator’s annual gross revenues derived from the provision of cable service. Congress intended that the cable franchise fee serve as the consideration given in exchange for a cable operator’s right to use public rights-of-way. Our actions herein do not eviscerate the ability of local authorities to impose such franchise fees. Rather, our actions simply ensure that local authorities do not impose duplicative fees for the same use of rights-of-way by mixed use facilities of cable operators, contrary to express statutory provisions and policy goals set forth in the Act. 118 In the First Report and Order, the Commission adopted time limits for LFAs to render a final decision on a new entrant’s franchise application and established a remedy for applicants that do not receive a decision within the applicable time frame; concluded that it was unlawful for LFAs to refuse to grant a franchise to a new entrant on the basis of unreasonable build-out mandates; clarified which revenue-generating services should be included in a new entrant’s franchise fee revenue base and which franchise-related costs should and should not be included within the statutory five percent franchise fee cap; concluded that LFAs may not make unreasonable demands of new entrants relating to PEG channels and I-Nets; adopted the mixed-use network ruling for new entrants; and preempted local franchising laws, regulations, and agreements to the extent they conflict with the rules adopted in that order. 119 In the Second Report and Order, the Commission extended to incumbent cable operators the rulings in the First Report and Order relating to franchise fees and mixed-use networks and the PEG and I-Net rulings that were deemed applicable to incumbent cable operators, i.e., the findings that the non-capital costs of PEG requirements must be VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 44747 on Reconsideration, apply to franchising actions taken at the state level and state regulations that impose requirements on local franchising. In the First Report and Order, the Commission declined to ‘‘address the reasonableness of demands made by state level franchising authorities’’ or to extend the ‘‘findings and regulations’’ adopted in its section 621 orders to actions taken at the state level. It noted that many state franchising laws had only been in effect for a short time and that the Commission lacked a sufficient record regarding their effect. In the Order on Reconsideration, the Commission indicated that if any interested parties believed the Commission should revisit the issue in the future, they could present the Commission with evidence that the findings in the First Report and Order and Second Report and Order ‘‘are of practical relevance to the franchising process at the state-level and therefore should be applied or extended accordingly.’’ 112. In the Second FNPRM, we again asked whether the Commission should apply the decisions in this proceeding to franchising actions and regulations taken at the state level. As we noted, more than ten years have passed since the Commission first considered whether to apply its decisions interpreting section 621 to state-level franchising actions and state regulations. The decade of experience with the state-franchising process, along with comments responding to the questions related to this issue raised in the Second FNPRM, provide us with an adequate record regarding the effect of state involvement in the franchising process. 113. We now find that the better reading of the Cable Act’s text and purpose is that that the rules and decisions adopted in this Order, as well as those adopted in the First Report and Order and Second Report and Order, should fully apply to state-level franchising actions and regulations. First, we see no statutory basis for distinguishing between state- and locallevel franchising actions. Nor do we think such a distinction would further Congress’s goals: Unreasonable demands by state-level franchising authorities can impede competition and investment just as unreasonable demands by local authorities can. While we need not opine on the reasonableness of specific state actions raised by commenters, we find that there is evidence in the record that state franchising actions—alone or cumulatively with local franchising actions—in some cases impose burdens beyond what the Cable Act allows. We see no reason—statutory or otherwise— why the Cable Act would prohibit these actions at the local level but permit them at the state level. 114. The Cable Act does not distinguish between state and local franchising authorities. Section 621(a) and the other cable franchising provisions of Title VI circumscribe the power of ‘‘franchising authorities’’ to regulate services provided over cable systems. The Cable Act defines ‘‘franchising authority’’ as ‘‘any governmental entity empowered by Federal, State or local law to grant a franchise.’’ In other words, the provisions of Title VI that apply to ‘‘franchising authorities’’ apply equally to any entity ‘‘empowered by . . . law’’—including state law—‘‘to grant a franchise.’’ Many states have left franchising to local authorities, making those authorities subject to the limits imposed under Title VI. Twenty-three states, however, have empowered a state-level entity, such as a state public utility commission, to grant cable franchise authorizations, rendering them ‘‘franchising authorities’’ under Title VI. Bolstering the conclusion that Congress intended the Cable Act to govern state-level action is section 636 of the Cable Act, which expressly preempts ‘‘any provision of law of any State, political subdivision, or agency thereof, or franchising authority, or any provision of any franchise granted by such authority’’ that conflicts with the Cable Act.120 Limiting the Commission’s rulings to local-level action would call for some plausible interpretation of these provisions; those opposing the extension of the Commission’s rulings to state franchising authorities offer none. Accordingly, we find that the Cable Act does not distinguish between state- and local-level franchising actions, and that the Commission’s rulings should therefore apply equally to both. 115. In addition, we find unavailing claims in the record that the Commission should limit its decisions to local authorities for policy reasons. To the contrary, we find that extending offset from the cable operator’s franchise fee payments, that it is not necessary to adopt standard terms for PEG channels, and that it is not per se unreasonable for LFAs to require the payment of ongoing costs to support PEG, so long as such support costs as applicable are subject to the franchise fee cap. 120 As we explain above, this preemption does not extend to state regulation of intrastate telecommunications services or regulation related to matters of public health, safety, and welfare that otherwise is consistent with the Act, and nothing in this Order is intended to disturb the traditional role that states have played in these regards. PO 00000 Frm 00067 Fmt 4700 Sfmt 4700 E:\FR\FM\27AUR1.SGM 27AUR1 44748 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations jspears on DSK3GMQ082PROD with RULES the Commission’s rulings to state level franchising actions and regulations furthers the goals of the Cable Act. Unreasonable barriers to entry imposed by any franchising authority—state or local—frustrate the goals of competition and deployment. In the First Report and Order, we found that removing regulatory obstacles posed by local franchising authorities would further these goals. We now find that this policy rationale applies with equal force to franchising actions taken at the state level. 116. We disagree that extending the Commission’s rulings to state-level franchising and regulation, however, will eliminate the benefits of state-level action. We are not persuaded that extending the Commission’s rulings to state-level actions would prevent—or even discourage—state-level franchising and regulation. Indeed, applying the Commission’s rulings to state-level action will merely ensure that the same rules that apply to LFAs also apply at the state level.121 This consistency is itself beneficial, ensuring that various statutory provisions—such as sections 621 and 622—are interpreted uniformly throughout the country. As one commenter notes, ‘‘state-level cable regulations may be modeled on the federal act, and so, allowing disparate interpretations of the same language could lead to confusion among consumers, regulators, and franchisees.’’ 117. Nor should applying our interpretations of the Cable Act to statelevel actions interfere with states’ authority to enact general taxes and regulations. Some commenters express concern that the Commission’s rulings would disturb state franchising laws that apply more broadly than the Cable Act.122 While we decline here to opine 121 For these reasons, we disagree with commenters who argue that applying the Commission’s rules at the state level is contrary to the Cable Act’s purpose of ‘‘assur[ing] that cable systems are responsive to the needs and interests of the local community.’’ The City of Philadelphia, for example, argues that extending the Commission’s rules to state-level actions would ‘‘unduly restrict state and local governments from addressing local and hyperlocal cable-related issues.’’ For the reasons discussed above, we are not convinced that applying our rules to state franchising authorities will impede the ability of state and local authorities to address local issues. Rather, by doing so, we ensure that the goals of the Cable Act, as determined by Congress, including ‘‘encourag[ing] the growth and development of cable systems,’’ are fully realized. 122 For example, California’s Digital Infrastructure and Video Competition Act (DIVCA) assesses an annual administrative fee and authorizes LFAs to assess on both cable operators and non-cable video franchise holders, up to a one-percent fee on gross revenues for PEG, in addition to a state franchise fee of five percent of gross revenues. The Eastern District of California found that DIVCA was a law VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 on the application of the Cable Act to specific state laws, we note that these concerns are largely settled by section 622, which excludes ‘‘any tax, fee, or assessment of general applicability’’ from the definition of franchise fees. Other provisions of the Act similarly make clear that the Act does not affect state authority regarding matters of public health, safety, and welfare, to the extent that states exercise that authority consistent with the express provisions of the Cable Act. 118. Finally, some commenters assert that extending the Commission’s rulings to state-level actions would ‘‘upend carefully balanced policy decisions by the states.’’ 123 According to commenters, local governments might wish to refuse these benefits if they come at the expense of franchise fees— but they will be unable to do so where they are mandated by state law.124 119. We are not convinced that these concerns justify limiting the Commission’s rulings to local-level actions. Again, our conclusion in this section will disturb existing state laws only to the extent that they conflict with the Cable Act and the Commission’s rulings implementing the Act. While this may upset some preexisting legislative compromises, it will also root out state laws that impose demands and conditions that Congress and the Commission have found to be unreasonable. Further, ensuring that the Cable Act is applied uniformly between state and local franchising authorities is necessary to further the goals of the Act, and more importantly, is consistent with the language of the Act. As some commenters have noted, if the Commission does not apply these requirements to state franchises, states could pass laws circumventing the Cable Act’s limitations on LFAs. That result would thwart Congress’s intent in imposing those limitations. For these reasons, we conclude that the benefits of extending the Commission’s rulings and interpretations to state-level actions outweigh any burdens caused by upsetting existing state-level policy decisions. of ‘‘general applicability’’ for the purposes of section 622 in Comcast of Sacramento. 123 In Illinois, for example, state law requires that cable operators provide ‘‘line drops and free basic service to public buildings.’’ The Illinois statute defines a ‘‘service line drop’’ as ‘‘the point of connection between a premises and the cable or video network that enables the premises to receive cable service or video service.’’ 124 Similarly, one commenter claims that DIVCA reflected a legislative compromise between cable operators and franchising authorities that would be upset if the Commission’s rules were extended to state level actions. PO 00000 Frm 00068 Fmt 4700 Sfmt 4700 120. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Second Further Notice of Proposed Rulemaking in this proceeding. The Commission sought written public comment on the proposals in the Second FNPRM, including comment on the IRFA. The Commission received one comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA. 121. In the Report and Order, we interpret sections of the Communications Act of 1934, as amended that govern how local franchising authorities 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. v. FCC (Montgomery County). The Order seeks to explain and establish the statutory basis for the Commission’s interpretation of the Act in order to better fulfill the Commission’s goals of eliminating regulatory obstacles in the marketplace for cable services and encouraging broadband investment and deployment by cable operators. 122. In the Order, we first 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. We base this conclusion on the broad definition of franchise fee in section 622, which is not limited to monetary contributions. We interpret the Act’s limited exceptions to the definition of franchise fee, including an exemption for capital costs related to public, educational, and governmental access (PEG) channels, such as equipment costs or those associated with building a facility. We also reaffirm that this rule applies to both new entrants and incumbent cable operators. Second, we conclude that under the Act, LFAs may not regulate the provision of most non-cable services, including broadband internet access service, offered over a cable system by an incumbent cable operator that is not a common carrier. Finally, we conclude that Commission guidance concerning LFAs’ regulation of cable operators should apply to state-level franchising actions and regulations that impose requirements on local franchising. 123. The Order is authorized pursuant to sections 1, 4(i), 201(b), 230, 303, 602, 621, 622, 624, and 636 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 201, 230, 303, 522, 541, 542, 544, and 556. E:\FR\FM\27AUR1.SGM 27AUR1 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations The types of small entities that may be affected by the Order fall within the following categories: small businesses, small organizations, small governmental jurisdictions; wired telecommunications carriers; cable companies and systems; cable system operators; and open video services. 124. Only one commenter, the City of Newton Massachusetts, submitted a comment that specifically responded to the IRFA.125 The City of Newton suggests that a transition period of at least six years is needed to satisfy the Commission’s Regulatory Flexibility Act obligation to minimize significant financial impacts on small communities and non-profit organizations. The City of Newton argues that this transition period is needed to allow time for affected parties to: (1) Identify cablerelated in kind contributions which count against the franchise fee cap; (2) reach agreement on the valuation of cable-related in-kind contributions; (3) resolve any disputes with respect to those issues; and (4) adjust their contractual commitments in light of any prospective reduction in franchise fee revenues (and the timing of those reductions). 125. The rules adopted in the Order will impose no additional reporting or recordkeeping requirements. We expect the compliance requirements—namely, modifying and renewing cable franchise agreements to comport with the law— will have only a de minimis effect on small entities. As ACA explains, ‘‘most franchising authorities understand the limits of their authority and do not impose unlawful requirements on [small cable operators].’’ 126 LFAs will continue to review and make decisions on applications for cable franchises as they already do, and any modifications to the local franchising process resulting from these rules will further streamline that process. The rules will streamline the local franchising process by providing guidance as to: The appropriate treatment of cable-related, in-kind contributions demanded by LFAs for purposes of the statutory five percent franchise fee cap, what constitutes ‘‘cable-related, in-kind contributions,’’ and how such contributions are to be valued. The rules will also streamline the local franchising process by making clear that LFAs may not use their video franchising authority to regulate the provision of certain non-cable services offered over cable systems by incumbent cable operators. The same can be said of franchising at the state level. The rules will help streamline the franchising process by ensuring that applicable statutory provisions are interpreted uniformly throughout the country. 126. The RFA requires an agency to describe any significant alternatives it has considered in reaching its proposed approach, which may include the following four alternatives (among others): ‘‘(1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance, rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.’’ 127 127. To the extent that these rules are matters of statutory interpretation, we find that the adopted rules are statutorily mandated and therefore no meaningful alternatives exist.128 Moreover, as noted above, the rules are expected to have only a de minimis effect on small entities. The rules will also streamline the local franchising process by providing additional guidance to LFAs. 128. Treating cable-related, in-kind contributions as ‘‘franchise fees’’ subject to the statutory five percent franchise fee cap will benefit small cable operators by ensuring that LFAs do not circumvent the statutory five percent cap by demanding, for example, unlimited free or discounted services. This in turn will help to ensure that local franchising requirements do not deter small cable operators from investing in new services and facilities. Similarly, applying these rules at the state level helps to ensure that such deterrence does not come from statelevel franchising requirements either. Finally, applying the Commission’s mixed-use rule to all incumbent cable operators helps to ensure that all small 127 5 jspears on DSK3GMQ082PROD with RULES 125 Letter from Ruthanne Fuller, Mayor and Issuing Authority, and Alan D. Mandl, Assistant City Solicitor, City of Newton, Massachusetts, to Chairman Pai and Commissioners Carr, O’Rielly and Rosenworcel, FCC, MB Docket No. 05–311, at 7 (filed Nov. 14, 2018) (City of Newton Letter); City of Newton Comments at 3–4. 126 Letter from Ross Lieberman, Senior Vice President, Government Affairs ACA Connects— America’s Communications Association, to Marlene Dortch, Secretary, FCC, at 1 (July 25, 2019). VerDate Sep<11>2014 18:42 Aug 26, 2019 Jkt 247001 U.S.C. 603(c)(1) through (4). this reason, we disagree with NATOA et al. that our actions will affect service to senior citizens, or to schools, libraries, and other public buildings and that this analysis is inadequate. See Letter from Joseph Van Eaton et al., Counsel to Anne Arundel County, et al. to Marlene H. Dortch, Secretary, FCC at 2 (July 24, 2019). This argument is essentially that the statutory cap does not afford local governments enough money to serve their constituents, and we do not have the authority to amend the statute. 128 For PO 00000 Frm 00069 Fmt 4700 Sfmt 4700 44749 cable operators may compete on a level playing field because incumbent cable operators will now be subject to the same rule that applies to competitive cable operators. We disagree with the City of Newton’s argument that we should afford small entities six years to implement these changes—the issues that City of Newton raises are matters of statutory interpretation, and the Communications Act does not provide for the implementation period that the City of Newton requests. 129. This document does not contain new or revised information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104– 13 (44 U.S.C. 3501–3520). In addition, therefore, it does not contain any new or modified ‘‘information burden for small business concerns with fewer than 25 employees’’ pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107–198, 44 U.S.C. 3506(c)(4). 130. Accordingly, it is ordered that, pursuant to the authority found in sections 1, 4(i), 201(b), 230, 303, 602, 621, 622, 624, and 636 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 201(b), 230, 303, 522, 541, 542, 544, and 556, this Third Report and Order is adopted. It is further ordered that the Commission’s rules are hereby amended and such rule amendments shall be effective 30 days after publication in the Federal Register. It is further ordered that the Commission’s Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Third Report and Order, including the Final Regulatory Flexibility Act Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. It is further ordered that, pursuant to section 801(a)(1)(A) of the Congressional Review Act, 5 U.S.C. 801(a)(1)(A), the Commission shall send a copy of the Third Report and Order to Congress and the Government Accountability Office. List of Subjects in 47 CFR Part 76 Cable television, Communications, internet, Telecommunications. Federal Communications Commission. Marlene Dortch, Secretary. For the reasons discussed in the preamble, the Federal Communications Commission amends part 76 of title 47 of the Code of Federal Regulations (CFR) as set forth below: E:\FR\FM\27AUR1.SGM 27AUR1 44750 Federal Register / Vol. 84, No. 166 / Tuesday, August 27, 2019 / Rules and Regulations PART 76—MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE GENERAL SERVICES ADMINISTRATION 1. The authority citation for part 76 continues to read as follows: 48 CFR Parts 501, 507, 515, 538, and 552 ■ Authority: 47 U.S.C. 151, 152, 153, 154, 201, 230, 301, 302, 302a, 303, 303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 341, 503, 521, 522, 531, 532, 534, 535, 536, 537, 541, 542, 543, 544, 544a, 545, 548, 549, 552, 554, 556, 558, 560, 561, 571, 572, 573. 2. Revise subpart C heading to read as follows: ■ Subpart C—Cable Franchising ■ 3. Add § 76.42 to read as follows: § 76.42 [GSAR Case 2016–G506; Docket GSA– GSAR–2019–0009; Sequence 1] RIN 3090–AJ483 General Services Administration Acquisition Regulation (GSAR); Updates to the Issuance of GSA’s Acquisition Policy; Correction Office of Acquisition Policy, General Services Administration. ACTION: Final rule; correction. AGENCY: GSA is issuing a correction to GSAR Case 2016–G506; Updates to the Issuance of GSA’s Acquisition Policy, which was published in the Federal Register on July 16, 2019. This correction amends the heading of the document. SUMMARY: In-kind contributions. (a) In-kind, cable-related contributions are ‘‘franchise fees’’ subject to the five percent cap set forth in 47 U.S.C. 542(b). Such contributions, which count toward the five percent cap at their fair market value, include any non-monetary contributions related to the provision of cable service by a cable operator as a condition or requirement of a local franchise, including but not limited to: (1) Costs attributable to the provision of free or discounted cable service to public buildings, including buildings leased by or under control of the franchising authority; (2) Costs in support of public, educational, or governmental access facilities, with the exception of capital costs; and (3) Costs attributable to the construction of institutional networks. (b) In-kind, cable-related contributions do not include the costs of complying with build-out and customer service requirements. DATES: Effective: August 27, 2019. Mr. Thomas O’Linn, Procurement Analyst, at 202–445–0390, for clarification of content. For information pertaining to status or publication schedules, contact the Regulatory Secretariat Division at 202–501–4755. Please cite GSAR Case 2016–G509—Updates to the Issuance of GSA’s Acquisition Policy. Corrections. SUPPLEMENTARY INFORMATION: FOR FURTHER INFORMATION CONTACT: Correction In rule FR Doc. 2019–15056, published in the Federal Register at 84 FR 33858, on July 16, 2019, on page 33858, in the third column, in the docket number in the document heading, remove ‘‘GSAR Change 102’’. Jeffrey A. Koses, Senior Procurement Executive, Office of Acquisition Policy, Office of Governmentwide Policy. [FR Doc. 2019–18408 Filed 8–26–19; 8:45 am] ■ 4. Add § 76.43 to read as follows: § 76.43 BILLING CODE 6820–61–P Mixed-use rule. A franchising authority may not regulate the provision of any services other than cable services offered over the cable system of a cable operator, with the exception of channel capacity on institutional networks. jspears on DSK3GMQ082PROD with RULES [FR Doc. 2019–18230 Filed 8–26–19; 8:45 am] DEPARTMENT OF ENERGY 48 CFR Part 970 RIN 1991–AC14 Inclusion of Early Stage Technology Demonstration in Authorized Technology Transfer Activities BILLING CODE 6712–01–P Office of Management, Department of Energy. ACTION: Final rule; technical amendments. AGENCY: The Department of Energy (DOE) is publishing this final rule to SUMMARY: VerDate Sep<11>2014 17:38 Aug 26, 2019 Jkt 247001 PO 00000 Frm 00070 Fmt 4700 Sfmt 4700 amend its current acquisition regulations regarding allowability of costs associated with technology transfer activities pursuant to the Stevenson-Wydler Technology Innovation Act of 1980, as amended. The content of these technical amendments correspond with the provisions enacted by Congress through the Department of Energy Research and Innovation Act. DATES: This rule is effective August 27, 2019. ADDRESSES: The docket, which includes Federal Register notices and other supporting documents/materials, is available for review at https:// www.regulations.gov. All documents in the docket are listed in the https:// www.regulations.gov index. A link to the docket web page can be found at https://www.regulations.gov. The docket web page will contain simple instructions on how to assess all documents, including public comments, in the docket. FOR FURTHER INFORMATION CONTACT: Mr. Jason Taylor, U.S. Department of Energy, Office of Management, at (202)– 287–1560 or by email at Jason.Taylor@ hq.doe.gov. SUPPLEMENTARY INFORMATION: Table of Contents I. Background II. Summary of This Action III. Final Action IV. Procedural Requirements V. Approval of the Office of the Secretary I. Background Section 102 of the Department of Energy Research and Innovation Act, Public Law 115–246 (Research and Innovation Act), amended section 1001 of EPACT 2005, 42 U.S.C. 16391 to require DOE to permit specified National Laboratories owned by DOE to use funds authorized to support technology transfer within DOE to carry out early stage and precommercial technology demonstration activities to remove technology barriers that limit private sector interest and demonstrate potential commercial applications of any research and technologies arising from National Laboratory activities. The Technology Transfer Mission clause at 48 CFR 970.5227–3 (paragraph (c)(1)) currently limits the use of funds used to support Office of Research and Technology Applications (ORTAs) to three categories: (1) Obtaining, maintaining, licensing, and assigning Intellectual Property rights; (2) increasing the potential for the transfer of technology; and (3) providing widespread notice of technology E:\FR\FM\27AUR1.SGM 27AUR1

Agencies

FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 84, Number 166 (Tuesday, August 27, 2019)]
[Rules and Regulations]
[Pages 44725-44750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18230]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 05-311; FCC 19-80]


Local Franchising Authorities' Regulation of Cable Operators and 
Cable Television Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) adopts rules governing how local franchising authorities 
may regulate cable operators and cable television services.

DATES: These rule revisions are effective on September 26, 2019.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Maria Mullarkey or Raelynn Remy of the Media 
Bureau, Policy Division, at [email protected], 
[email protected] or (202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third 
Report and Order, FCC 19-80, adopted on August 1, 2019. The full text 
is available for public inspection and copying during regular business 
hours in the FCC Reference Center, Federal Communications Commission, 
445 12th Street SW, Room CY-A257, Washington, DC 20554. This document 
will also be available via ECFS at https://docs.fcc.gov/public/attachments/FCC-19-80A1.docx. Documents will be available 
electronically in ASCII, Microsoft Word, and/or Adobe Acrobat. The 
complete text may be purchased from the Commission's copy contractor, 
445 12th Street SW, Room CY-B402, Washington, DC 20554. Alternative 
formats are available for people with disabilities (Braille, large 
print, electronic files, audio format), by sending an email to 
[email protected] or calling the Commission's Consumer and Governmental 
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Synopsis

    1. In this Third Report and Order (Third Order), we interpret 
sections of the 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. v. FCC.
    2. Every LFA as well as every ``cable operator'' that offers 
``cable service'' must comply with the cable franchising provisions of 
Title VI of the Act. Section 621(b)(1) prohibits a cable operator from 
providing cable service without first obtaining a cable franchise, 
while section 621(a)(1) circumscribes the power of LFAs to award or 
deny such franchises. 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.'' \1\ 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.'' Congress also expressly 
preempted any state or local laws or actions that conflict with those 
definitions and limits.\2\
---------------------------------------------------------------------------

    \1\ 47 U.S.C. 542.
    \2\ Id. 556(c).
---------------------------------------------------------------------------

    3. As summarized in detail in the Second Further Notice of Proposed 
Rulemaking (FNPRM) (83 FR 51911, Oct. 15, 2018), the Commission has an 
extensive history of rulemakings and litigation interpreting sections 
621 and

[[Page 44726]]

622. In short, the Commission in 2007 released a First Report and Order 
(72 FR 13189, March 21, 2007) to provide guidance about terms and 
conditions in local franchise agreements that are unreasonable under 
section 621 of the Act with respect to new entrants' franchise 
agreements.\3\ 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, 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). The 
Commission also sought comment on whether to extend those conclusions 
to agreements that LFAs have with incumbent cable operators, and 
ultimately decided in a Second Report and Order (72 FR 65670, Nov. 23, 
2007) and an Order on Reconsideration (80 FR 12088, Mar. 6, 2015) that 
those conclusions should apply to incumbent cable operators.
---------------------------------------------------------------------------

    \3\ 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. Such new entrants largely were telecommunications 
carriers subject to Title II of the Act that were seeking to enter 
the cable services market.
---------------------------------------------------------------------------

    4. In Montgomery County, the Sixth Circuit addressed challenges by 
LFAs to the Second Report and Order and the Order on 
Reconsideration.\4\ 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. 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.'' 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.\5\ 
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, and the court noted that the 
Commission's orders did not reflect any consideration of this concern. 
The court also stated that the Commission failed to define what ``in-
kind'' means. 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-kind exactions as franchise 
fees under section 622(g)(1). 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.
---------------------------------------------------------------------------

    \4\ Montgomery County, 863 F.3d at 487.
    \5\ 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.'' This ruling was upheld by 
the Sixth Circuit in Alliance. 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. 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. 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). 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.''
---------------------------------------------------------------------------

    5. The court in Montgomery County also agreed with LFAs that 
neither the Second Report 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.\6\ 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.'' 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. 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.'' 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.'' 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. 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. The court vacated the mixed-use rule as 
applied to those incumbent cable operators and remanded for the 
Commission ``to set forth a valid statutory basis, if there is one, for 
the rule as so applied.''
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    \6\ 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. The court observed, however, that the Commission acknowledged 
that its mixed-use rule was not meant to prevent LFAs from 
regulating I-Nets.
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    6. The Commission in September 2018 issued the Second FNPRM to 
address the issues raised by the remand from the Sixth Circuit in 
Montgomery County.
    7. We largely adopt our tentative conclusions in the Second 
FNPRM.\7\ First, we conclude 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 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

[[Page 44727]]

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.
---------------------------------------------------------------------------

    \7\ 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.
---------------------------------------------------------------------------

    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.
    9. Addressing the first issue raised by the remand from the Sixth 
Circuit in Montgomery County, we adopt our tentative conclusion that we 
should treat cable-related, in-kind contributions \8\ 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. 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. As explained below, we 
find that this interpretation is consistent with the statutory language 
and legislative history.
---------------------------------------------------------------------------

    \8\ We define this term 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.''
---------------------------------------------------------------------------

    10. Section 622 of Title VI, entitled ``Franchise fees,'' governs 
cable operator obligations with respect to franchise fees. 
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.'' Notably, section 622(g) 
defines the term ``franchise fee'' for purposes of this section.
    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 such,'' subject to certain enumerated exceptions. 
Specifically, according to the definition, the term ``franchise fee'' 
does not include the following: (1) Any tax, fee, or assessment of 
general applicability; \9\ (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; (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; (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; \10\ or (5) any fee imposed under 
Title 17.\11\ 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.
---------------------------------------------------------------------------

    \9\ 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. No commenter disputes this analysis, and we affirm it 
here.
    \10\ 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. 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. 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. Consistent with 
this analysis and precedent, we find that cable-related, in-kind 
contributions demanded by an LFA do not qualify as ``incidental'' 
charges excluded in section 622(g)(2)(D). No commenter disputes our 
interpretation of this particular exclusion.
    \11\ In the Second FNPRM, we explained that this section 
excludes from the definition of franchise fees any fees imposed 
under the Copyright Act under Title 17, United States Code, and thus 
does not appear to apply to cable-related, in-kind contributions. No 
commenter disputes this analysis, and we affirm it here.
---------------------------------------------------------------------------

    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 services 
\12\--that are so imposed.\13\ 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.'' 
Because the statute does not define the terms ``tax,'' ``fee,'' or 
``assessment,'' we look to the ordinary meaning of such terms.\14\ As 
the court explained in Montgomery County, the definitions of the terms 
``tax'' and ``assessment,'' in particular, ``can include noncash 
exactions.'' Further, as

[[Page 44728]]

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.'' Thus, 
consistent with the court's conclusion on this issue, the term 
franchise fee in section 622(g)(1) includes non-monetary payments. We, 
therefore, reject arguments that it should be construed to cover only 
monetary payments.\15\
---------------------------------------------------------------------------

    \12\ According to the record, LFAs in some cases require a grant 
or other monetary contribution earmarked for cable-related services, 
such as PEG and I-Net support. While we focus here on whether cable-
related, in-kind (non-monetary) contributions are subject to the 
five percent cap on franchise fees, we note that these monetary 
contributions are subject to the franchise fee cap, unless otherwise 
excluded under section 622(g)(2).
    \13\ We reject the argument that franchise considerations are 
not ``imposed'' by a franchising authority because they are 
negotiated in an arms-length transaction between the parties and 
``are not established by force.'' The definition of the term 
``impose'' is not limited to ``established as if by force,'' but can 
also mean ``to establish or apply by authority.'' Further, under 
this narrow interpretation of the term, no monetary or in-kind 
payments could be construed as a franchise fee if they are 
negotiated by the parties as terms of the franchise agreement. As 
NCTA points out, ``[b]y this standard, even a franchise agreement 
containing a requirement that the cable operator pay five percent of 
gross revenues to the franchising authority would not contain a 
franchise fee, since the five percent fee was included in a 
negotiated document and was not imposed by government fiat.''
    \14\ We disagree with NATOA et al.'s contention that the 
Commission ``nowhere analyzes or explains why [certain] franchise 
requirements are `assessments' or `exactions.' '' Rather, we find 
that an ``assessment,'' the term used in the statute, includes any 
contribution imposed by government, based on its ordinary meaning.
    \15\ Contrary to these arguments, the terms used in the statute 
are not limited to monetary payments. Moreover, these arguments 
ignore Congress' specification that the franchise fee includes ``any 
tax, fee, or assessment of any kind,'' essentially reading this 
expansive language out of the statute. For example, although Anne 
Arundel County et al. argue ``that generally, taxes, fees, and 
assessments are monetary, but that in exceptional circumstances 
(such as forfeitures) non-monetary obligations may also qualify,'' 
there is nothing in the statute--which specifically applies to a 
tax, fee, or assessment of any kind--or in the definition of these 
terms that supports this statement.
---------------------------------------------------------------------------

    13. As the court noted in Montgomery County, ``that the term 
`franchise fee' can include noncash exactions, of course, does not mean 
that it necessarily does include every one of them.'' As such, the next 
step in our analysis is to evaluate specifically whether cable-related, 
in-kind contributions are included within the franchise fees. The 
Commission previously determined that in-kind contributions unrelated 
to the provision of cable service are franchise fees subject to the 
statutory five percent cap, and the court's decision in Montgomery 
County upheld this interpretation.\16\ In making this determination, 
the Commission pointed to examples in the record where LFAs demanded 
in-kind contributions unrelated to the provision of cable services in 
the context of franchise negotiations, and it explained that such 
requests do not fall within any of the exempted categories in section 
622(g)(2) and thus should be considered a franchise fee under section 
622(g)(1).\17\
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    \16\ Contrary to the contention of NATOA et al., the 
Commission's finding in the First Report and Order that in-kind 
contributions unrelated to the provision of cable services are 
franchise fees subject to the statutory five percent cap was 
undisturbed by subsequent court decisions in Alliance and Montgomery 
County. The court in Montgomery County vacated the orders to the 
extent they treat cable-related, in-kind exactions as franchise 
fees, and thus the Commission's finding with regard to in-kind 
contributions unrelated to the provision of cable services still 
stands.
    \17\ In the First Report and Order, the Commission cited 
examples of in-kind contributions unrelated to the provision of 
cable services from the record, including requests for traffic light 
control systems, scholarships, and video hookups for a holiday 
celebration.
---------------------------------------------------------------------------

    14. We find that there is no basis in the statute for exempting all 
cable-related, in-kind contributions for purposes of the five percent 
franchise fee cap or for distinguishing between cable-related, in-kind 
contributions and in-kind contributions unrelated to the provision of 
cable services. As noted above, the section 622(g)(1) franchise fee 
definition broadly covers ``any tax, fee, or assessment of any kind,'' 
and we conclude that cable-related, in-kind contributions fall within 
this definition. There is nothing in this language that limits in-kind 
contributions included in the franchise fee. In fact, Congress 
specified that the definition covers ``any'' tax, fee, or assessment 
``of any kind,'' which means those terms should be interpreted 
expansively and given ``maximum breadth.'' \18\
---------------------------------------------------------------------------

    \18\ Anne Arundel County et al. make the conclusory statement 
that ``[r]egulatory obligations are clearly not a tax or fee,'' 
without citing a definition of these terms or including the term 
``assessment,'' and they make no mention of the court's own 
conclusion in Montgomery County that the term franchise fee ``can 
include noncash exactions.''
---------------------------------------------------------------------------

    15. Further, there is no general exemption for cable-related, in-
kind contributions in the five excluded categories listed in section 
622(g)(2). Only two of the exclusions encompass two very specific kinds 
of cable-related, in-kind contributions, but not all such contributions 
generally. In particular, section 622(g)(2)(B) excludes payments 
required by the franchise to be made by the cable operator for, or in 
support of the use of, PEG access facilities (for franchises in effect 
on October 30, 1984), and section 622(g)(2)(C) excludes capital costs 
which are required by the franchise to be incurred by the cable 
operator for PEG access facilities (for franchises granted after 
October 30, 1984). We agree with ACA that the structure of the relevant 
statutory provision is ``straightforward,'' providing a broad 
definition of franchise fee, ``then expressly provid[ing] a limited 
number of exceptions to this definition, none of which is so broad as 
to include all cable-related, in-kind contributions.'' \19\
---------------------------------------------------------------------------

    \19\ According to Anne Arundel County et al., the Commission 
incorrectly implies that ``unless something falls within an 
exception, it must be a tax, fee, or assessment.'' However, this is 
inconsistent with our analysis, in which we first evaluate whether a 
type of contribution meets the definition of franchise fee in 
section 622(g)(1) and, if so, then determine whether it falls within 
a specified exception in section 622(g)(2). It is also inconsistent 
with our conclusion herein that certain requirements, such as 
customer service and build-out requirements, are not covered by the 
definition of franchise fee.
---------------------------------------------------------------------------

    16. Moreover, the fact that Congress carved out specific exceptions 
to the franchise fee definition for certain PEG-related contributions 
bolsters the conclusion that Congress did not intend to establish a 
general exemption for all cable-related, in-kind contributions from 
treatment as franchise fees. Because support for PEG access facilities 
and PEG capital costs fall within the broader category of cable-
related, in-kind contributions, Congress would not have needed to craft 
these narrow exceptions if all cable-related, in-kind contributions 
generally were exempted. We disagree with the contention that the 
specific exceptions in section 622(g)(2) were intended to address only 
``payments that otherwise might be considered franchise fees,'' and 
that ``[o]ther cable-related obligations were not considered `fees' to 
begin with, let alone payments that required a specific exemption.'' 
This argument erroneously constricts the definition of franchise fees 
to apply only to ``fees,'' while the statute more broadly includes 
``any tax, fee, or assessment of any kind.'' Further, we believe it is 
more consistent with the statutory text and structure to construe the 
exceptions as carve-outs from a broader definition that sweeps in all 
cable-related, in-kind contributions.\20\
---------------------------------------------------------------------------

    \20\ For example, under section 622(g)(2)(B), payments required 
by the franchise to be made by the cable operator for, or in support 
of the use of, PEG access facilities are included in the franchise 
fee only for franchises granted after October 30, 1984.
---------------------------------------------------------------------------

    17. While the statutory text is alone sufficient to support our 
conclusion, we also find that the legislative history supports our 
position that cable-related, in-kind contributions are franchise fees 
subject to the five percent cap. As we observed in the Second FNPRM, we 
see no basis in the legislative history for distinguishing between in-
kind contributions unrelated to the provision of cable services and 
cable-related, in-kind contributions for purposes of the five percent 
franchise fee cap.\21\ Further, we see no basis in the legislative 
history to treat in-kind payments differently from monetary payments 
for purposes of determining what is a franchise fee. The legislative 
history, in discussing what constitutes a franchise fee, refers to the 
definition in section 622(g)(1), which ``include[s] any tax, fee, or 
assessment imposed on a cable operator or subscribers solely because of 
their status as such,'' and it makes no distinction between cable-
related contributions and those unrelated to cable services, nor 
between monetary and non-monetary payments. The legislative history 
then

[[Page 44729]]

elaborates on the specific exemptions in section 622(g)(2) and, in 
particular, notes that ``[s]pecific exemptions from the franchise fee 
limitations are included for certain payments related to public, 
educational and governmental access.'' It specifies that, ``[f]or 
existing franchises, a city may enforce requirements that additional 
payments be made above the 5 percent cap to defray the cost of 
providing public, educational and governmental access, including 
requirements related to channels, facilities and support necessary for 
PEG use.'' Because Congress limited this exception to then-existing 
franchises, this provision elucidates Congress' intent that 
contributions in support of PEG access--which are cable-related, in-
kind contributions--are subject to the five percent cap for franchises 
granted after the 1984 Cable Act.\22\
---------------------------------------------------------------------------

    \21\ According to NCTA, the legislative history shows that 
Congress' intent generally was to limit the total financial 
obligations that franchising authorities may impose on cable 
operators. We find that allowing LFAs to circumvent the statutory 
five percent cap by not counting cable-related, in-kind 
contributions that clearly fall within the statutory definition of 
franchise fees would be contrary to Congress' intent as reflected in 
the broad definition of franchise fee in the statute.
    \22\ Although the City of New York opines that the examples of 
franchise fees in the legislative history are all ``services that do 
not use the cable operator's cable system or other communications 
facilities (`CF') or call on the core competencies (`CC') of the 
cable operator,'' this reading overlooks the fact that certain PEG-
related costs are included as franchise fees, and it creates a 
distinction that is not apparent from either the statute or the 
legislative history.
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    18. We disagree with commenters who cite to a portion of the 
legislative history as evidence of Congress' intent that franchise fees 
include only monetary payments made by cable operators. Specifically, 
LFA commenters cite a statement in the discussion of subsection 
622(g)(2)(C), which excludes certain PEG-related capital costs from the 
franchise fee definition, that ``[i]n general, this section defines as 
a franchise fee only monetary payments made by the cable operator, and 
does not include as a `fee' any franchise requirements for the 
provision of services, facilities or equipment.'' LFA commenters' 
reading of this statement is inconsistent with the overall text and 
structure of section 622(g).\23\ Section 622(g)(1) ``specifically 
defines `franchise fee' to include `any tax, fee, or assessment of any 
kind[,]' '' subject to certain enumerated exclusions, and the court in 
Montgomery County was clear that this statutory language ``requires us 
to give those terms maximum breadth.'' The Commission has already 
concluded, and the Sixth Circuit has twice upheld, that non-monetary 
payments can be franchise fees. Further, this reading would render 
section 622(g)(2)(C) superfluous because there would not need to be an 
exemption for PEG-related in-kind contributions if non-monetary 
contributions were not franchise fees in the first place.
---------------------------------------------------------------------------

    \23\ For the same reason, we are not persuaded by Anne Arundel 
County et al.'s reliance on a letter from the Commission's Cable 
Services Bureau that quotes the legislative history. First, this 
Bureau-level letter does not bind the Commission. Second, to the 
extent that the Bureau's guidance 20 years ago conflicts with the 
conclusions in this rulemaking, it is reversed and superseded. We 
note that the letter merely cites the statute and legislative 
history, without analysis.
---------------------------------------------------------------------------

    19. Because we believe that the pertinent statutory provision in 
section 622(g) supports our conclusion that cable-related, in-kind 
contributions are franchise fees, we reject arguments raised by 
franchise authorities that other Title VI provisions should be read to 
exclude costs that are clearly included by the franchise fee 
definition. Instead of focusing on the key definition of ``franchise 
fee'' as ``any tax, fee, or assessment of any kind'' subject to certain 
enumerated exceptions, LFA commenters cite to other parts of the 
statute which, they argue, evince Congress' intent to exclude cable-
related, in-kind contributions from the statutory cap on franchise 
fees. We reject each of these arguments in turn below.
    20. First, we affirm our tentative conclusion that treating cable-
related, in-kind contributions as franchise fees would not undermine 
the provisions in the Act that authorize or require LFAs to impose 
cable-related obligations on franchisees. For example, section 611(b) 
of the Act permits LFAs to require that channel capacity be designated 
for PEG use and that channel capacity on I-Nets be designated for 
educational and governmental use. Anne Arundel County et al. argue that 
the Commission errs by not acknowledging that the Cable Act 
``authorize[s] LFAs to both impose cable franchise obligations [in 
section 611] and collect franchise fees [in section 622]--they do not 
offset each other.'' However, as we observed in the Second FNPRM, the 
fact that the Act authorizes LFAs to impose such obligations does not 
mean that the value of these obligations should be excluded from the 
five percent cap on franchise fees. We agree with NCTA and ACA that 
there is no basis in the statutory text for concluding that the 
authority provided in section 611(b) affects the definition of 
franchise fee in section 622(g). As explained above, section 622(g) is 
the key provision that defines what is included in the franchise fee, 
and section 622(g)(2) carves out only limited exclusions for PEG-
related costs and makes no mention of an I-Net-related exclusion. Since 
Congress enacted the PEG and I-Net provisions at the same time it added 
the franchise fee provisions, it could have explicitly excluded all 
costs related to PEG and I-Nets if it had intended they not count 
toward the cap.\24\ Instead, they just excluded a subset of those 
costs. Further, if we were to interpret the statute such that all costs 
related to PEG, I-Nets, or other requirements imposed in section 611 
are excluded from treatment as franchise fees because section 611(b) 
contemplates that such costs be incurred, the specific exemption for 
PEG capital costs in section 622(g)(2)(D) would be superfluous. While 
we acknowledge that PEG channels and I-Nets provide benefits to 
consumers, such benefits cannot override the statutory framework, which 
carves out only limited exclusions from franchise fees.
---------------------------------------------------------------------------

    \24\ We disagree with the Cable Act Preservation Alliance (CAPA) 
that ``it is equally true that Congress could have explicitly noted 
the franchise fee limitation in 47 U.S.C. Section 531(b) if it had 
intended to include these PEG-related costs as franchise fees.'' 
There was no need for Congress to specify which PEG-related costs 
are franchise fees in section 611 when the statute sets forth a 
standalone provision, section 622, that defines what is included in 
the franchise fee and specifically addresses PEG-related costs. 
NATOA et al. argue that the Commission ``ignores that build-out and 
customer service obligations also were enacted by Congress at the 
same time it added the franchise fee provisions and were not 
explicitly excluded from the cap, yet . . . finds these are not 
`franchise fees.' '' However, we explain herein that Congress 
expressly stated that cable operators are responsible for the cost 
of constructing cable systems. We also find herein that federally 
mandated customer service standards are not a ``tax, fee, or 
assessment'' and, thus, there was no need for Congress to exclude 
them from the franchise fee.
---------------------------------------------------------------------------

    21. Next, we do not find persuasive the argument that section 626 
of the Act ``reflects the fact that cable-related franchise 
requirements are not franchise fees.'' Section 626 directs franchising 
authorities to consider, among other things, whether a cable operator's 
franchise renewal proposal ``is reasonable to meet the future cable-
related community needs and interests, taking into account the cost of 
meeting such needs and interests.'' NATOA et al. contend that if cable-
related, in-kind requirements are included as franchise fees, ``it 
would be the LFA who pays for them, rendering the cost consideration in 
this Section obsolete.'' We disagree with this reasoning. As NCTA 
explains, ``[t]he cost/benefit analysis required under this provision 
underscores that Congress intended franchising authorities to balance 
the desire for any in-kind exactions requested by parties in the 
renewal process against the overall franchise fee burdens on cable 
operators and subscribers.'' The section 626 assessment does not lose 
its purpose if cable-related, in-kind contributions are counted as 
franchise fees; as part of this assessment, for example, a franchising 
authority could determine that cable-related community

[[Page 44730]]

needs and interests can be met at a lower cost to cable subscribers 
than the full five percent franchise fee.\25\ Moreover, the community 
needs assessment in section 626 also accounts for items that are not 
in-kind contributions subject to the franchise fee cap, such as build-
out requirements.\26\
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    \25\ As Congress noted when it adopted the five percent cap, the 
Commission capped franchise fees at three percent of a cable 
operator's revenue.
    \26\ Build-out requirements are subject to section 626's 
directive to assess reasonableness while taking into account the 
cost of such requirements, and a build-out requirement requested by 
an LFA could be challenged under section 626.
---------------------------------------------------------------------------

    22. Finally, we disagree with commenters that cite a provision in 
section 622 that relates to itemization on customer bills as evidence 
that Congress did not intend PEG-related franchise obligations to be 
included in franchise fees. In particular, LFA commenters point to 
section 622(c)(1), which specifies that cable operators may identify as 
a separate line item on each subscriber bill each of the following: (1) 
The amount of the total bill assessed as a franchise fee and the 
identity of the franchising authority to which the fee is paid; (2) the 
amount of the total bill assessed to satisfy any requirements imposed 
on the cable operator by the franchise agreement to support PEG 
channels or the use of such channels; and (3) the amount of any other 
fee, tax, assessment, or charge of any kind imposed by any governmental 
authority on the transaction between the operator and the subscriber. 
LFA commenters argue that ``[t]hrough this language, Congress clearly 
outlined a separation between franchise fees and cable-related, in-kind 
fees.'' On the contrary, ``the fact that Section 622(c) allows cable 
operators to itemize certain charges on subscriber bills has no bearing 
on which charges meet the definition of franchise fees under Section 
622(g).'' While section 622(g) was adopted as part of the 1984 Cable 
Act, Congress adopted section 622(c) years later in 1992 to promote 
transparency by allowing cable operators to inform subscribers about 
how much of their total bill is made of charges imposed by local 
governments through the franchising process. By differentiating the 
types of charges that can be itemized on subscriber bills, there is no 
indication that Congress intended to exclude certain charges from the 
franchise fee.\27\
---------------------------------------------------------------------------

    \27\ Moreover, as NCTA observes, ``[t]he fallacy that section 
622(c) distinguishes franchise fees from other exactions, as NATOA 
and others claim, is underscored by the fact that subsection (c)(3) 
repeats virtually verbatim section 622(g)(1)'s broad definition of a 
franchise fee. Yet, by NATOA's logic, the itemization of a cost 
under subsection (c)(3) would control its treatment for franchise 
fee purposes, removing it from the very definition that Congress 
established for such fees in section 622(g)(1). . . .''
---------------------------------------------------------------------------

    23. Having established our interpretation of section 622(g), we 
adopt our tentative conclusion that this treatment of cable-related, 
in-kind contributions should be applied to both new entrants and 
incumbent cable operators. As the Commission has previously observed, 
section 622 ``does not distinguish between incumbent providers and new 
entrants.'' We affirm our belief that applying the same treatment of 
cable-related, in-kind contributions to both new entrants and incumbent 
cable operators will ensure a more level playing field and that the 
Commission should not place its thumb on the scale to give a regulatory 
advantage to any competitor.
    24. We disagree with the contention that our interpretation of the 
franchise fee definition in section 622(g) is impermissible under 
Chevron.\28\ Charles County, Maryland posits that ``[b]ecause Congress 
has directly addressed the questions at issue by employing precise, 
unambiguous statutory language in section 622 of the Act, the FCC's 
proposed rules re-imagining . . . what constitutes a `franchise fee' 
are impermissible,'' as ``[o]nly Congress may alter or amend federal 
law.'' Charles County does not offer an explanation for why the 
statutory language is unambiguous beyond arguing that the words ``tax, 
fee, or assessment'' in the definition are terms of art. But regardless 
of whether these are terms of art, they can include non-monetary 
contributions, as the Sixth Circuit observed. And we believe that our 
interpretation of this language using traditional tools of statutory 
construction is a reasonable and permissible construction of the 
statute that effectuates Congressional intent for the reasons set forth 
above.\29\ Indeed, it is the interpretation that is most consistent 
with the plain meaning of the statutory definition of franchise fee.
---------------------------------------------------------------------------

    \28\ Review of the FCC's interpretation of the statutes it 
administers is governed by Chevron USA, Inc. v. Natural Resources 
Defense Council, 467 U.S. 837 (1984).
    \29\ Where a ``statute is silent or ambiguous'' with respect to 
a specific issue, ``the question'' for the court is whether the 
agency has adopted ``a permissible construction of the statute.''
---------------------------------------------------------------------------

    25. In this section, we analyze whether specific types of cable-
related, in-kind contributions are franchise fees subject to the five 
percent statutory cap under section 622. First, we find that costs 
attributable to franchise terms that require free or discounted cable 
service to public buildings are franchise fees, consistent with our 
tentative conclusion that treating all cable-related, in-kind 
contributions as franchise fees unless expressly excluded would best 
effectuate the statutory purpose. Next, we adopt our tentative 
conclusion that costs in support of PEG access are franchise fees, with 
the exception of capital costs as defined below. Similarly, we find 
that costs attributable to construction of I-Nets are franchise fees. 
Finally, we conclude that build-out and customer service requirements 
do not fall within the statutory definition of franchise fee. Based on 
these conclusions with respect to specific types of costs, we adopt a 
definition of ``in-kind, cable-related contributions'' 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, costs in support of PEG access other than 
capital costs, and costs attributable to the construction of I-Nets. It 
does not include the costs of complying with build-out and customer 
service requirements.'' \30\
---------------------------------------------------------------------------

    \30\ We modify the definition slightly from what was proposed in 
the Second FNPRM to reflect the conclusions adopted herein.
---------------------------------------------------------------------------

    26. We find that costs attributable to franchise terms that require 
a cable operator to provide free or discounted cable service to public 
buildings, including buildings leased by or under control of the 
franchise authority, are cable-related, in-kind contributions that fall 
within the five percent cap on franchise fees. The record includes 
examples of cable operators providing cable service to public buildings 
as part of a franchise agreement. Consistent with our statutory 
interpretation above, providing free or discounted cable service to 
public buildings is an in-kind (i.e., non-monetary) contribution 
imposed on a cable operator by a franchise authority, and is not 
included in one of the enumerated exceptions from the franchise fee in 
section 622(g)(2). Although certain commenters emphasize that free and 
discounted cable services have been considered franchise considerations 
that are not subject to the five percent cap on franchise fees in past 
franchise agreements,\31\ we find that our reading

[[Page 44731]]

that free and discounted services count towards the franchise fee cap 
is a reasonable interpretation and best effectuates Congressional 
intent given that the statute defines franchise fee broadly, carving 
out only limited exclusions. If LFAs could circumvent the five percent 
cap by requiring unlimited free or discounted cable services for public 
buildings, in addition to a five percent franchise fee, this result 
would be contrary to Congress's intent as reflected in the broad 
definition of ``franchise fee'' in the statute. We find that the Act 
does not provide any basis for treating the value attributable to free 
or discounted services in a different manner than other in-kind 
services which must be included in the franchise fee. Although we 
acknowledge that the provision of free or discounted cable service to 
public buildings, such as schools or libraries, can benefit the public, 
such benefits cannot override the statutory framework. Further, there 
are policy rationales for limiting free services, given that, in a 
competitive market, such contributions may raise the costs of the cable 
operator's service, reduce resources available for other services, and 
result in market inefficiency.
---------------------------------------------------------------------------

    \31\ AWC cites a Bureau-level order in which the Cable Services 
Bureau found that where the LFA and cable operator agreed to 
establish franchise provisions regarding the eligibility standards 
for a senior citizen discount rate and the formula for adjusting 
that rate, these terms were not preempted by federal law. While this 
decision is about the inclusion of discounted services in the 
franchise terms, it does not address whether discounted services 
should be included in the franchise fee and, thus, is not 
inconsistent with our findings herein.
---------------------------------------------------------------------------

    27. We conclude in this section that in-kind contributions related 
to PEG access facilities are cable-related, in-kind contributions, and 
are therefore included within the statutory definition of ``franchise 
fees'' under section 622(g)(1).\32\ We next conclude that the term 
``capital cost'' in section 622(g)(2)(C) should be given its ordinary 
meaning, which is a cost incurred in acquiring or improving a capital 
asset. Applying that interpretation, we conclude that the exclusion for 
capital costs under section 622(g)(2)(C) could include equipment that 
satisfies this definition, regardless of whether such equipment is 
purchased in connection with the construction of a PEG access facility. 
We then conclude that the record is insufficiently developed for the 
Commission to determine whether the provision of PEG channel capacity 
is included within section 622(g)(2)(C)'s exclusion for capital costs. 
We also find that the installation of PEG transport facilities are 
capital costs that are exempt from the five percent franchise fee 
cap,\33\ and that maintenance of those facilities are operating costs 
that count toward the cap. Finally, we address policy arguments 
regarding the impact of these conclusions on the provision of PEG 
programming.
---------------------------------------------------------------------------

    \32\ PEG channels provide third-party access to cable systems 
through channels dedicated for use by the public, including local 
governments, schools, and non-profit and community groups. The Act 
provides for the creation and support of PEG channels in various 
ways, including by authorizing LFAs to require franchisees to 
designate channel capacity for PEG, and by excluding certain costs 
associated with PEG access facilities from the definition of 
franchise fees under section 622(g)(2).
    \33\ As explained below, ``PEG transport facilities'' are 
facilities that LFAs use to deliver PEG services from studios or 
other locations where the programming is produced to the cable 
headend.
---------------------------------------------------------------------------

    28. Consistent with our tentative conclusion in the Second FNPRM, 
we find that the definition of franchise fee in section 622(g)(1) 
encompasses PEG-related contributions. Like other taxes, fees, or 
assessments imposed by LFAs, we find that contributions related to PEG 
access facilities imposed by an LFA are subject to the five percent cap 
on franchise fees, unless they fall within one of the five exclusions 
set forth in section 622(g)(2). Consistent with the statutory analysis 
above, we conclude that the provision of equipment, services, and 
similar contributions for PEG access facilities are cable-related, in-
kind contributions that meet the definition of franchise fee.\34\ Such 
PEG-related contributions are not exempt under section 622(g)(2) of the 
Act unless they fall under the limited exceptions for capital costs and 
costs incurred by franchises existing at the time of the Cable Act's 
adoption in 1984. As explained above, our starting point for analyzing 
cable operator contributions to LFAs is that the Act defines 
``franchise fee'' broadly and has limited, narrow exceptions. Thus, we 
believe that including in the franchise fee cap any costs that are not 
specifically exempt is consistent with the statute and reasonably 
effectuates Congressional intent.
---------------------------------------------------------------------------

    \34\ In some cases, LFAs require a grant or other monetary 
contribution earmarked for PEG-related costs. These monetary 
contributions are likewise subject to the five percent cap on 
franchise fees, unless otherwise excluded under section 622(g)(2). 
Section 622 exempts only the items delineated in (g)(2), and 
Congress did not distinguish between in-kind and monetary 
contributions, nor did it exempt monetary contributions earmarked 
for a purpose that would otherwise not be excluded under section 
622(g)(2). Thus, we make clear that monetary contributions--like in-
kind contributions--must be counted toward the franchise fee cap 
unless expressly exempt under section 622(g)(2).
---------------------------------------------------------------------------

    29. Further, including contributions for PEG access facilities 
within the franchise fee definition is consistent with the overall 
structure of section 622. For ``any franchise in effect on October 30, 
1984,'' section 622(g)(2)(B) excludes from the definition of 
``franchise fee'' ``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.'' There would have been 
no reason for Congress to grandfather in these PEG-related 
contributions for existing franchises if such payments were not 
otherwise included within the definition of ``franchise fees.'' In 
effect, excluding PEG-related contributions would read ``in the case of 
any franchise in effect on October 30, 1984'' out of section 
622(g)(2)(B), extending this grandfathered exclusion to all franchises.
    30. Some commenters claim that other sections of Title VI, 
including the section authorizing LFAs to require the designation of 
PEG channel capacity in section 611, override section 622's definition 
of ``franchise fee.'' As discussed above, we find these arguments 
unpersuasive. We also reject arguments that provisions of the Act 
unrelated to cable franchising demonstrate that PEG-related fees are 
not franchise fees. For example, section 623 of the Act, which governs 
the regulation of cable rates, instructs the Commission to take the 
following two factors (among others) into account when prescribing rate 
regulations:

    1. The reasonably and properly allocable portion of any amount 
assessed as a franchise fee, tax, or charge of any kind imposed by 
any State or local authority on the transactions between cable 
operators and cable subscribers or any other fee, tax, or assessment 
of general applicability imposed by a governmental entity applied 
against cable operators or cable subscribers; and
    2. Any amount required to satisfy franchise requirements to 
support public, educational, or governmental channels or the use of 
such channels or any other services required under the franchise.

Commenters argue that the separate listing of franchise fees (in 1) and 
the costs of PEG franchise requirements (in 2) is evidence that 
franchise fees do not include PEG-related costs. We disagree. We note 
that that the question of which factors the Commission should consider 
in setting rate regulations is both legally and analytically distinct 
from the question of which costs are included as a franchise fee under 
section 622. Even if it were not, the separate listing of franchise 
fees and PEG-related exactions in section 623 does not indicate that 
Congress understood these categories to be mutually exclusive. In 
general, section 623(b) directs the Commission to consider several 
factors relating to cable operators' costs, revenue, and profits to 
ensure that the Commission sets ``reasonable'' rates. Ensuring that a 
rate is ``reasonable'' requires a full consideration of the costs borne 
by cable operators. Listing only franchise fees would fail to account 
for some of these costs, even under the interpretation

[[Page 44732]]

adopted in this Order: Franchise fees and PEG costs only partially 
overlap, given that section 622(g)(2) excludes certain PEG-related 
exactions from the definition of franchise fees. We therefore find 
nothing inconsistent about the separate listing of franchise fees and 
PEG-related costs in section 623 and the interpretation of section 
622(g) adopted in this Order. The same analysis applies to the bill-
itemization requirements in section 622(c), which permits the separate 
itemization of franchise fees and PEG-related assessments in subscriber 
bills.\35\
---------------------------------------------------------------------------

    \35\ Several commenters raised section 622(c) as evidence that 
franchise fees do not include PEG-related assessments. We note that 
section 622(c) was adopted years after section 622(g) was enacted.
---------------------------------------------------------------------------

    31. Consistent with our tentative conclusions in the Second FNPRM, 
we conclude (1) that PEG support payments for any franchise in effect 
on October 30, 1984 and (2) PEG capital costs for any franchise granted 
after October 30, 1984 are exempt from the definition of franchise fee. 
As discussed above, two provisions of section 622(g)(2) exclude certain 
costs associated with PEG access facilities from the definition of 
``franchise fee'' in section 622(g)(1): First, section 622(g)(2)(B) 
excludes PEG support payments, but only with respect to franchises 
granted prior to 1984. To the extent that any such franchises are still 
in effect, we affirm that under section 622(g)(2)(B), PEG support 
payments made pursuant to such franchises are excluded from the five 
percent franchise fee cap. Consistent with the statutory language and 
legislative history, we find this exclusion is broad in scope, and 
commenters did not dispute this interpretation in the record.\36\
---------------------------------------------------------------------------

    \36\ The legislative history further supports this 
interpretation.
---------------------------------------------------------------------------

    32. Second, for any franchise granted after 1984, section 
622(g)(2)(C) contains a narrower exclusion covering only PEG ``capital 
costs which are required by the franchise to be incurred by the cable 
operator for [PEG] access facilities.'' The Cable Act does not define 
``capital costs''. We address the scope of this exclusion below by 
first clarifying the definition of ``capital costs'' and concluding 
that it can apply to contributions for both construction-related and 
non-construction-related contributions to PEG access facilities. We 
then determine that the record is insufficient to determine whether 
costs associated with providing PEG channel capacity are subject to 
this exclusion, and we discuss the application of the exclusion to PEG 
transport.
    33. Definition of ``capital costs.'' Although the Commission 
previously asserted with respect to section 622(g)(2)(C) that 
``[c]apital costs refer to those costs incurred in or associated with 
the construction of PEG access facilities,'' we now revisit that 
interpretation and provide additional clarity on the definition of this 
term. As described below, we find that the term ``capital costs'' is 
not limited to construction-related costs; rather, it generally 
encompasses costs incurred in acquiring or improving capital assets for 
PEG access facilities. The Commission's previous reading of the phrase 
``capital costs'' was based in part on section 622(g)'s legislative 
history, which states that the Cable Act excludes from the franchise 
fee cap ``the capital costs associated with the construction of [PEG] 
access facilities.'' The Sixth Circuit affirmed the Commission's prior 
reading in Alliance, where, rejecting a challenge to the Commission's 
construction of the term ``capital costs'' in the First Report and 
Order, the court held that:

[t]o determine the permissibility of the Commission's construction 
of Section 622(g)(2)(C), we start by consulting the legislative 
history. During the enactment of this provision, Congress made clear 
that it intended section 622(g)(2)(C) to reach ``capital costs 
associated with the construction of [PEG] access facilities.'' 
H.R.Rep. No. 98-934, at 26 (emphasis added). Against this 
legislative pronouncement, the FCC's limitation of ``capital costs'' 
to those ``incurred in or associated with the construction of PEG 
access facilities'' represents an eminently reasonable construction 
of section 622(g)(2)(C).

    34. We asked for additional comment on the definition of ``capital 
costs'' under section 622(g)(2)(C) in the Second FNPRM.\37\ Arguably, 
the Commission's previous construction left unsettled the extent to 
which the ``capital costs'' exclusion encompassed PEG equipment--such 
as vans, studios, or cameras. In Alliance, the Sixth Circuit observed 
that the Commission's definition of capital costs could encompass the 
costs of such equipment, but only insofar as the equipment costs were 
``relate[d] to the construction of PEG facilities.'' But neither the 
First Report and Order nor the legislative history from which it 
borrowed expressly limited capital costs to construction-related 
capital costs. Both statements are silent--or, at most, unclear--about 
the treatment of non-construction-related capital costs.
---------------------------------------------------------------------------

    \37\ The Second FNPRM noted that ``capital costs which are 
required by the franchise to be incurred by the cable operator for 
[PEG] access facilities'' are excluded from the definition of 
franchise fee, and sought comment on treating the costs of studio 
equipment as capital costs for the purpose of this exemption from 
the franchise fee cap.
---------------------------------------------------------------------------

    35. Based on the arguments in the record and our further 
consideration of the statutory text and legislative history we now 
conclude that the Commission's earlier statement regarding the 
definition of ``capital costs'' was overly narrow. As commenters note, 
many local governments receive payments from cable operators that are 
not simply for the construction of PEG studios, but also for, among 
other things, the acquisition of equipment needed to produce PEG access 
programming. LFAs argue for a broader definition of ``capital costs'' 
that would include PEG channel capacity and certain equipment costs 
associated with PEG access facilities.\38\ By contrast, cable companies 
have urged the Commission to reaffirm, based on its previous statement, 
that ``capital costs'' are limited to costs associated with the 
construction of PEG access facilities (and thus do not include channel 
capacity and equipment such as cameras, or other equipment necessary to 
run a PEG access facility).
---------------------------------------------------------------------------

    \38\ Similarly, several commenters argue that section 611's 
grant of authority to require PEG channels suggests that the cost of 
such channels cannot count toward the five percent franchise fee 
cap. We disagree with the notion that the Act's grant of authority 
to require designation for PEG use necessarily excludes the costs of 
PEG from the definition of franchise fees. As we note above, the 
fact that the Act authorizes LFAs to impose such obligations does 
not mean that the value of these obligations should be excluded from 
the five percent cap on franchise fees. Section 622 governs 
``Franchise Fees'' and makes clear that any items not expressly 
excluded from that section's broad definition of franchise fees are 
included against the statutory cap. Section 622 excludes some--but 
not all--PEG-related costs.
---------------------------------------------------------------------------

    36. In general, when a term is undefined in a statute, courts look 
to that term's ``ordinary meaning.'' While there is no general 
definition of the precise term ``capital costs,'' Black's Law 
Dictionary defines a similar term,\39\ ``capital expenditure,'' as 
``[a]n outlay of funds to acquire or improve a fixed asset,'' and 
defines a ``fixed asset,'' or ``capital asset'' as ``[a] long-term 
asset used in the operation of a business or used to produce goods or 
services, such as equipment, land, or an industrial plant.'' Merriam-
Webster similarly defines ``capital expenditure'' as ``costs that are 
incurred in the acquisition or improvement of property (as capital

[[Page 44733]]

assets) or that are otherwise chargeable to a capital account,'' and 
defines ``capital assets'' as ``long-term assets either tangible or 
intangible (as land, buildings, patents, or franchises).'' An 
accounting textbook provides yet another similar definition:
---------------------------------------------------------------------------

    \39\ Costs and expenditures are related, but not identical, 
concepts. Black's Law Dictionary defines ``cost'' as ``the amount 
paid or charged for something; price or expenditure.'' Black's 
relevantly defines ``expenditure'' as ``a sum paid out.'' While we 
recognize that ``cost'' and ``expenditure'' have distinct meanings 
in the accounting context, for the purposes of our interpretation of 
section 622(g)(2)(C), we find that the meanings of these terms are 
highly analogous--i.e., both pertain to expending resources to 
acquire a capital asset.

Expenditures for the purchase or expansion of plant assets are 
called capital expenditures and are recorded in asset accounts. . . 
. In brief, any material expenditure that will benefit several 
accounting periods is considered a capital expenditure. Any 
expenditure that will benefit only the current period or that is not 
---------------------------------------------------------------------------
material in amount is treated as a revenue expenditure.

    We also note that capital costs are distinct from operating costs 
(or operating expenses), which are generally defined as expenses 
``incurred in running a business and producing output.'' Reflecting 
this distinction, the Commission has distinguished between costs 
incurred in building of PEG facilities, which are capital costs, and 
costs incurred in using those facilities, which are not.
    37. While we may also look to legislative history or other context 
in ascertaining a statute's meaning, none of these sources here compels 
a narrower definition than that set forth above. The legislative 
history is ambiguous: The passage relied on by the Commission in the 
First Report and Order, from a summary in the House Report, notes that 
``capital costs associated with the construction of [PEG] access 
facilities are excluded from the definition of a franchise fee.'' But 
section 622(g)(2)(C) does not itself restrict capital costs to costs 
that are construction related, nor does this passage in the legislative 
history expressly say that the capital costs exclusion is limited to 
such costs. And, as some commenters recognize, not all capital costs 
related to PEG access facilities are related to construction: Studio 
equipment, vans, and cameras, often have useful lives of several years, 
and the costs of acquiring such equipment are often capitalized. Such 
costs therefore often fall within the ordinary meaning of capital 
costs. Had Congress wished to exclude such costs, it could have done so 
by narrowing the definition of ``capital costs'' in the statute.
    38. Consistent with our analysis above, we find that the phrase 
``capital costs'' in section 622(g)(2)(C) should be interpreted in a 
manner consistent with its ordinary meaning. Based on the definitions 
discussed above, the term ``capital cost'' generally would be 
understood to mean a cost incurred in acquiring or improving a capital 
asset. Because the ordinary meaning of this term is not limited to 
construction-related costs, we now find that the definition of 
``capital costs'' as used in section 622(g)(2)(C) is not limited to 
costs ``incurred in or associated with the construction of PEG access 
facilities.'' We conclude that while capital costs include costs 
associated with the construction of PEG access facilities, they are not 
limited to such costs.\40\
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    \40\ We agree with NATOA that franchising authorities should be 
given an opportunity to show that franchise fees are being spent on 
PEG capital costs if a cable operator requests an offset against 
franchise fees for non-monetary, cable-related franchise provisions.
---------------------------------------------------------------------------

    39. The ordinary meaning of ``capital costs'' could encompass the 
acquisition of a non-construction-related capital asset--such as a van 
or a camera. Section 622(g)(2)(C) only excludes certain capital costs--
those ``which are required by the franchise to be incurred by the cable 
operator for [PEG] access facilities.'' Section 602(16) defines PEG 
access facilities as ``channel capacity . . . and facilities and 
equipment for the use of such channel capacity.'' In the legislative 
history, Congress explains that ``[t]his may include vans, studios, 
cameras, or other equipment relating to the use of public, educational, 
or governmental channel capacity.'' Based on this statutory language 
and legislative history as well as the current record, we believe at 
the present time that the definition of ``capital costs'' in section 
622(g)(2)(C) includes equipment purchased in connection with PEG access 
facilities, even if it is not purchased in conjunction with the 
construction of such facilities.\41\ But, as both sections 622(g)(2)(c) 
and 602(16) make clear, the capital costs of such equipment may be 
excluded only insofar as they are for the use of PEG channel capacity.
---------------------------------------------------------------------------

    \41\ We note that this view was affirmed by the Sixth Circuit in 
Alliance.
---------------------------------------------------------------------------

    40. This interpretation seems most faithful to the text of section 
622(g)(2)(C), which does not restrict capital costs to those that are 
related to construction. We recognize that this interpretation reflects 
a broader sense of capital costs than described in the First Report and 
Order. To the extent that our interpretation in this document is 
inconsistent with the Commission's earlier statements about the capital 
cost exclusion, we find that the interpretation in this Order better 
comports with the Act's language, structure, and policy objectives.\42\
---------------------------------------------------------------------------

    \42\ NCTA requests that we ``make clear that cable operators 
have the right to audit a franchising authority's use of the 
contributions and that a franchising authority must provide 
reasonable supporting documentation during an audit that such funds 
are, or were, being used for PEG capital expenses.'' We decline to 
do so. We find nothing in the Act that precludes a cable operator 
from auditing an LFA's use of PEG capital funds, nor do we find 
anything that gives a cable operator an audit right. We note that 
under section 635(b) of the Act, a court may award a cable operator 
the right to audit if the court finds that relief appropriate.
---------------------------------------------------------------------------

    41. We disagree with NCTA's assertion that there would have been 
``no good reason'' to grandfather PEG equipment--such as vans and 
cameras--if such equipment were ``subject to the permanent exception 
from franchise fees under section 622(g)(2)(C).'' The statute itself 
fully excludes PEG obligations for franchises in effect on October 30, 
1984, but excludes only PEG-related capital costs for franchises 
granted after that date. The broader exclusion for existing franchises 
in section 622(g)(2)(B) reflects the legislative intent to grandfather 
the provisions of existing PEG franchises. Section 622(g)(2)(C) 
provides a narrower exclusion for new franchises than the broad 
exclusion enjoyed by grandfathered existing franchises; one would 
therefore expect these two exclusions to overlap, but not be 
coextensive. Even under our interpretation of section 622(g)(2)(C), 
section 622(g)(2)(B) remains a much broader exclusion than section 
622(g)(2)(C): A number of costs--most notably, operating expenses--
would still be excluded by section 622(g)(2)(B), but not by section 
622(g)(2)(C).\43\
---------------------------------------------------------------------------

    \43\ Salaries and training are two examples of operating costs 
excluded by section 622(g)(2)(B), but not by section 622(g)(2)(C).
---------------------------------------------------------------------------

    42. PEG channel capacity. While we find that the costs associated 
with the provision of PEG channel capacity are cable-related, in-kind 
costs that fall within the definition of ``franchise fee,'' we find 
that the record is insufficiently developed to determine whether such 
costs should be excluded from the franchise fee as a capital cost under 
the exemption in section 622(g)(2)(C). The Second FNPRM stated that, 
while the Act authorizes LFAs to require that channel capacity be 
designated for PEG use, this authorization does not necessarily remove 
the costs of such obligations from the five percent cap on franchise 
fees. In the record in this proceeding, cable operators generally 
agreed with this statement, and LFAs generally disagreed. As discussed 
above, the Act's authorization of a franchise obligation (e.g., one 
related to PEG access facilities or I-Nets) does not remove that 
obligation from the five percent cap on franchise fees. It follows, 
then, that the costs associated with providing PEG channel capacity 
fall within this cap as a cable-related, in-kind contribution unless 
they are

[[Page 44734]]

otherwise excluded under section 622(g)(2).\44\
---------------------------------------------------------------------------

    \44\ One commenter notes that California law requires ``all 
video service providers''--a category broader than just cable 
providers--to ``designate a sufficient amount of capacity'' for the 
provision of PEG channels. Because this requirement applies to more 
than just cable operators, commenters argue, it is a fee of 
``general applicability'' excluded under section 622(g)(2)(A) from 
the definition of franchise fee. The Eastern District of California 
recently held that a CPUC fee under the same California law was a 
fee of general applicability on these grounds. The Ninth Circuit 
recently vacated and remanded this ruling on other grounds. An 
assessment aimed only at cable or cable-like services would not fall 
within section 622(g)(2)(A)'s exclusion as a ``tax, fee, or 
assessment of general applicability.'' The text of section 
622(g)(2)(A) of the Cable Act identifies a ``tax, fee, or assessment 
imposed on both utilities and cable operators or their services'' as 
a paradigmatic example of an assessment of ``general 
applicability.'' The legislative history further explains that an 
assessment of ``general applicability'' ``could include such 
payments as a general sales tax, an entertainment tax imposed on 
other entertainment business 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 as to effectively 
constitute a tax directed at the cable system.'' Here, the provision 
of PEG capacity appears to be an obligation specific to cable 
operators--the California law itself references the provision of PEG 
capacity by ``cable operator[s].'' We also note that the PEG 
authority provided in section 611 only applies to cable service, and 
that there are no PEG requirements under federal law for other video 
providers, like Direct Broadcast Service (DBS) or over-the-top 
streaming services. In any case, we need not settle the question 
whether a specific state law is of general applicability to 
determine whether the provision of PEG capacity, in general, falls 
within the definition of ``franchise fee.'' Accordingly, we decline 
to do so here.
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    43. LFAs claim that the costs of providing PEG channel capacity do 
fall within section 622(g)(2)(C)'s exclusion for PEG-related capital 
costs. In support, they point out that the Act defines ``[PEG] access 
facilities'' as ``(A) channel capacity designated for public, 
educational, or governmental use; and (B) facilities and equipment for 
the use of such channel capacity.'' Thus, they assert, because section 
622(g)(2)(C) expressly applies to costs incurred by a cable operator 
for ``[PEG] access facilities,'' it necessarily applies to costs 
associated with PEG channel capacity. But, as the cable operators 
state, the Act's inclusion of channel capacity in the definition of 
``[PEG] access facilities'' does not settle the question of whether 
channel capacity costs fall under section 622(g)(2)(C). This is because 
section 622(g)(2)(C) excludes only a particular subset of PEG access 
facility costs--capital costs--from the definition of franchise fees 
subject to the five percent cap, and cable operators claim that PEG 
channel capacity is not a capital cost. Moreover, even assuming that 
PEG channel capacity is not a capital cost and is therefore subject to 
the five percent cap, the record reveals serious difficulties regarding 
how to calculate the value of PEG channel capacity to account for this 
cost.\45\
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    \45\ NCTA proposes valuing channel capacity at market cost; 
anything less, NCTA argues, would be an additional subsidy beyond 
the cost of the service itself. LFAs raise a host of problems with 
using the fair market value approach to value channel capacity.
---------------------------------------------------------------------------

    44. Given this, we find that the questions raised by channel 
capacity are complex, and that the record is not developed enough to 
allow us to answer them. We therefore defer this issue for further 
consideration.\46\ In the meantime, we find that the status quo should 
be maintained, and that channel capacity costs should not be offset 
against the franchise fee cap. This approach will minimize disruption 
and provide predictability to both local franchise authorities and 
cable operators.
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    \46\ We encourage parties to supplement the record on the 
channel capacity issue. To the extent that we are provided 
sufficient information to answer the complex questions raised by 
channel capacity, we intend to resolve them in the next twelve 
months.
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    45. Limits on LFA Authority To Establish PEG Requirements. While we 
do not reach a conclusion with respect to the treatment of PEG channel 
capacity, we reiterate here that sections 611(a) and 621(a)(4)(B) of 
the Act restrict the authority of LFAs to establish PEG channel 
capacity requirements. We discussed the limits imposed by section 
611(a) in the First Report and Order. We noted that, while section 
611(b) does not place a limit on the amount of channel capacity that a 
franchising authority may require, section 621(a)(4)(b) provides that a 
franchising authority may require ``adequate assurance'' that the cable 
operator will provide ``adequate'' PEG access channel capacity, 
facilities, or financial support. We determined that ``adequate,'' as 
used in the statute, should be given its ordinary meaning--
``satisfactory or sufficient.''
    46. In the Second FNPRM, the Commission again discussed the limits 
on franchising authority requirements for PEG channels under section 
611(b), identifying PEG channel capacity as an in-kind contribution and 
seeking comment on the effects on cable operators and cable subscribers 
of ``allowing LFAs to seek unlimited'' PEG operating support and other 
cable-related, in-kind contributions. In response, commenters submitted 
examples of what they claim are LFA requirements for excessive numbers 
of PEG channels. LFAs responded with comments defending such 
requirements, as well as requirements for associated PEG support.
    47. We note that many states have attempted to strike a balance 
between the costs of PEG channels to cable operators and the benefits 
of PEG channels to the public by imposing reasonable limits on PEG 
channel capacity. For example, some states have limited the number of 
PEG channels--typically to two or three. Others have required that PEG 
channels be returned if they are not substantially used. States have 
also tied the number of appropriate PEG channels to the size of the 
population served.
    48. We decline the invitation by cable operators to establish fixed 
rules as to what constitutes ``adequate'' PEG channel capacity under 
section 621(a)(4)(B).\47\ We recognize that the number of channels 
necessary to further the goals of the Cable Act might vary depending 
on, among other things, the number of subscribers within a franchise, 
the area covered by a franchise, the number of cable operators within a 
franchise, the area's population and geography, the cable-related 
community needs and interests, and whether PEG channel capacity is 
substantially used. In general, each of these factors is relevant in 
determining whether an LFA has exceeded its authority under section 
621(a)(4)(B) by demanding more than ``adequate'' capacity.\48\ We note 
that LFA demands for PEG capacity requirements that are more than 
``adequate'' are subject to judicial challenge under section 635 of the 
Act, as well as other forms of relief. We also reserve the right to 
establish fixed rules in the future should there be widespread evidence 
of LFAs requiring more than adequate PEG channel capacity.
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    \47\ As noted, the Commission concluded that ``adequate'' should 
be given its plain meaning, ``satisfactory or sufficient'' in the 
First Report and Order. The Sixth Circuit affirmed this 
interpretation.
    \48\ LFAs argue that relying on the section 621 ``adequate'' 
standard conflicts with the standards established by section 626 in 
the context of franchise renewals, which generally ask whether a 
renewal proposal is reasonable to meet the ``needs and interests'' 
of the community. We see no such conflict. Section 621 establishes 
``General Franchise Requirements,'' and nothing in section 626 
suggests that these general limits do not apply in the context of a 
franchise renewal. As NCTA points out, to find that franchise 
renewals are constrained only by section 626's ``needs and 
interests'' inquiry would mean, among other things, that franchise 
renewals would be unconstrained by the statutory cap on franchise 
fees in section 622.
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    49. PEG transport. We find that the installation of transport 
facilities dedicated for long-term use by a PEG provider for the 
transmittal of recurring programming to a cable headend or other point 
in the cable system--PEG transport--does not count toward the

[[Page 44735]]

five percent franchise fee cap. For the reasons explained above, we 
find that exempting capital costs from the five percent cap is 
consistent with the Act. The expenditure for the installation of a 
system that carries PEG programming from a PEG studio to a cable 
operator's headend facility is a capital expenditure because it is a 
long-term asset meant to deliver the programming. The ongoing costs 
associated with the maintenance or operation of that facility would not 
qualify as a capital expenditure, however, as these are operating costs 
that are necessary to run the business and produce output. NCTA 
requests that we declare PEG transport costs beyond ``a single PEG 
transport return line [that] is dedicated to connecting the PEG studio 
to the cable network or headend'' to count toward the five percent cap. 
Although we agree that the costs associated with the use of transport 
lines for ``episodic'' or ``short-term'' PEG programming is an 
operating cost that is subject to the franchise fee cap, we decline to 
establish a fixed quantity of PEG transport return lines that is 
``adequate'' under section 621(a)(4)(B).\49\ Like the number of PEG 
channels on a system, the number of adequate return lines in a 
franchise area might vary according to particular circumstances like 
the number of subscribers in the franchise area, the area covered by 
the franchise and the number of cable operators in the franchise. The 
number also might vary depending on the number of PEG channels provided 
in a franchise area and the types of programming offered over them. 
Nevertheless, any LFA requests for multiple transport connections 
dedicated for long-term PEG use that the cable operator considers to be 
more than ``adequate'' are subject to judicial challenge under section 
635 of the Act.
---------------------------------------------------------------------------

    \49\ We note, however, that NCTA cites a particularly egregious 
example of a ``transport line [that] is used once a year for a 
Halloween parade'' that seems well beyond what constitutes adequate 
facilities.
---------------------------------------------------------------------------

    50. We acknowledge the benefits of PEG programming and find that 
our interpretations adopted above are faithful to the policy objectives 
of the Cable Act. A significant number of comments in the record 
stressed these benefits, which include providing access to the 
legislative process of the local governments, reporting on local 
issues, providing a forum for local candidates for office, and 
providing a platform for local communities--including minority 
communities. Of course, Congress itself similarly recognized the 
importance of PEG programming by authorizing LFAs to require the 
provision of PEG channel capacity in the Cable Act, and by carving out 
certain costs of such programming from the five percent cap on 
franchise fees. Nothing in this proceeding disturbs the Commission's 
longstanding view that PEG programming serves an important role in 
local communities.
    51. At the same time, the Cable Act seeks to encourage deployment 
and competition by limiting the franchise fees that LFAs may collect. 
These include limitations on imposing costs associated with the 
provision of PEG programming. A number of cable operators express 
concern with excessive LFA requirements for PEG channel capacity, 
support, and in-kind contributions. Altice, for example, notes that 
``PEG operational contributions . . . are common and routinely treated 
as separate from the 5 percent franchise fee.'' Commenters likewise 
suggest that these excessive PEG-related demands can hinder competition 
and deployment.
    52. The Cable Act itself, as interpreted in this Order, balances 
these costs and benefits. By excluding PEG-related capital costs from 
the five percent cap on franchise fees, but leaving other PEG-related 
exactions subject to that cap, the Cable Act divides the financial 
burden of supporting PEG programming between LFAs and cable operators. 
By counting a portion of these costs against the statutory cap on 
franchise fees that LFAs may collect, the Cable Act allows LFAs to seek 
support for PEG programming from cable operators, while guarding 
against the possibility that LFAs will make demands for such 
programming without regard to cost.
    53. Some commenters have suggested that the proposals in the Second 
FNPRM threaten to eliminate or drastically reduce PEG programming.\50\ 
We disagree. Significantly, any adverse impact of our ruling on PEG 
programming should be mitigated by (1) the expansion of the ``capital 
cost'' exclusion beyond merely capital costs associated with 
construction; and (2) our decision to defer ruling on whether the costs 
of channel capacity may be counted under this exclusion.\51\ Under the 
interpretation adopted in this Order, cable operators will continue to 
provide support where an LFA chooses, but some aspects of that support 
will now be properly counted against the statutory five percent 
franchise fee cap, as Congress intended.\52\ We recognize that this 
represents a departure from the longstanding treatment of PEG costs by 
LFAs and cable operators. We do not, however, believe that these 
conclusions will eliminate PEG programming. Nor do we believe that the 
existing practice was lawful merely because it was longstanding: the 
Commission's duty is to conform its rules to law, not tradition.
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    \50\ This concern was also expressed in a number of letters from 
members of Congress.
    \51\ NATOA et al. say that these aspects of our decision will 
not have a mitigating impact on the availability of PEG programming. 
They suggest that this Order ``is not a boon to LFAs'' because it 
was already clear that both construction-related and non-
construction-related PEG equipment costs are exempt from the 
franchise fee cap. This is incorrect. As we explain above, the scope 
of the PEG capital cost exemption previously was left unsettled. 
This Order clarifies that issue by finding that equipment costs 
unrelated to construction may be considered capital costs for 
purposes of section 622(g)(2)(C).
    \52\ Finally, a number of commenters argue that PEG requirements 
confer a benefit on the community, like buildout requirements, and 
therefore should similarly not be considered a ``contribution'' to 
LFAs. We find that PEG requirements are distinguishable from 
buildout requirements for the reasons discussed below. PEG 
requirements, unlike buildout requirements, are also specifically 
discussed in the definition of franchise fee.
---------------------------------------------------------------------------

    54. To the extent that existing practices are inconsistent with the 
law, LFAs will still have a choice: they can continue to receive 
monetary franchise payments up to the five percent cap, they can 
continue to receive their existing PEG support and reduce the monetary 
payments they receive, or they can negotiate for a reduction of both 
that fits within the bounds of the law that Congress adopted.
    55. We find that the costs associated with the construction, 
maintenance, and service of an I-Net fall within the five percent cap 
on franchise fees. Such costs are cable-related, in-kind contributions 
that meet the definition of franchise fee. In particular, agreeing to 
construct, maintain, and provide I-Net service pursuant to the terms of 
a franchise agreement is necessarily cable-related, is an in-kind 
(i.e., non-monetary) contribution imposed on a cable operator by a 
franchise authority, and is not included in one of the enumerated 
exceptions from the franchise fee in section 622(g)(2) of the Act. 
Thus, we believe that including such services in the franchise fee is 
consistent with the statute. As we tentatively concluded in the Second 
FNPRM, treating cable-related, in-kind contributions, such as I-Net 
requirements, as franchise fees would not undermine provisions in the 
Act that authorize or require LFAs to impose cable-related obligations 
on franchisees. We disagree with LFA commenters who argue that the cost 
of I-Nets should be excluded from the franchise fee. Although such 
commenters contend that ``[t]he Commission's proposal to

[[Page 44736]]

require LFAs to pay for I-Nets . . . cannot be squared with the 
statute,'' it is entirely consistent with the statute to find that 
franchising authorities may impose cable-related requirements, such as 
requiring dedicated channel capacity on I-Nets, on cable operators, but 
also to find that funding for these franchise requirements applies 
against the five percent cap. Similar to our conclusion with respect to 
PEG support, while we acknowledge that I-Nets provide benefits to 
communities,\53\ such benefits cannot override the statutory framework, 
which carves out only limited exclusions from franchise fees.
---------------------------------------------------------------------------

    \53\ Anne Arundel County et al. contend that the obligation to 
provide I-Nets ``benefits not only the public, but also the cable 
operator, who is in a position to sell commercial services via I-
Nets,'' and they argue that the Commission ``offers no explanation 
as to how such a mutually beneficial arrangement constitutes a 
tax.'' However, it is unclear from the record to what extent, if 
any, cable operators benefit from providing I-Nets.
---------------------------------------------------------------------------

    56. Further, as we conclude above, we disagree with commenters that 
section 611(b) of the Act, which authorizes LFAs to require that 
channel capacity on I-Nets be designated for educational and 
governmental use, should be interpreted to exempt the costs of I-Nets 
from franchise fees. There is no basis in the statutory text for 
concluding that section 611(b) imposes any limit on the definition of 
franchise fee. Moreover, section 622(g) defines what is included in the 
franchise fee, and section 622(g)(2) carves out only limited exclusions 
for PEG-related costs and does not exclude I-Net-related costs. As we 
observe above, since Congress enacted the PEG and I-Net provisions at 
the same time it added the franchise fee provisions, it could have 
explicitly excluded all costs related to I-Nets if it had intended they 
not count toward the cap.\54\
---------------------------------------------------------------------------

    \54\ Anne Arundel County et al. suggests that our interpretation 
of the statute as it relates to I-Nets is somehow inconsistent with 
the Commission's holding in a 1996 open video systems order. 
Contrary to Anne Arundel County et al.'s assertion, the Commission 
did not conclude in the OVS Order that I-Nets were meant to be 
excluded from the franchise fee. Rather, that order affirmed the 
Commission's decision to preclude local franchising authorities from 
requiring open video system operators to build I-Nets, while also 
clarifying that this decision is not inconsistent with permitting 
the local franchising authority to require channel capacity on a 
network if an open video system operator does build one. As we 
explain above, it is entirely consistent with the statute to find 
that franchising authorities may impose cable-related requirements, 
such as requiring dedicated channel capacity on I-Nets, but also to 
find that funding for these requirements applies against the five 
percent cap.
---------------------------------------------------------------------------

    57. We conclude that franchise terms that require cable operators 
to build their systems to cover certain localities in a franchise area 
do not count toward the five percent cap.\55\ As we explain herein, 
Title VI establishes a framework that reflects a fundamental bargain 
between the cable authority and franchising authority--a cable operator 
may apply for and obtain a franchise to construct and operate 
facilities in the local rights-of-way and, in exchange, an LFA may 
impose fees and other requirements as set forth in the Act. The 
statutory framework makes clear that the authority to construct a cable 
system is granted to the cable operator as part of this bargain and 
that the costs of such construction are to be borne by the cable 
operator. Specifically, section 621(a)(2)(B) of the Act provides that 
``[a]ny franchise shall be construed to authorize the construction of a 
cable system over public rights-of-way, and through easements, . . . 
except that in using such easements the cable operator shall ensure . . 
. that the cost of the installation, construction, operation, or 
removal of such facilities be borne by the cable operator or 
subscriber, or a combination of both.'' Because the statute is clear 
that cable operators, not LFAs, are responsible for the cost of 
building out cable systems, it would be inconsistent with the statutory 
text and structure to count these costs as part of the franchise 
fee.\56\ Both cable industry and LFA commenters generally support the 
contention that build-out obligations should not count toward the five 
percent franchise fee cap.\57\
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    \55\ Build-out requirements are requirements that a franchisee 
expand cable service to parts or all of the franchise area within a 
specified period of time.
    \56\ Because the statute is clear with regard to cable operator 
responsibility for construction costs, we reject ACA's argument that 
``build-out obligations should only be excluded [from the franchise 
fee] to the extent an LFA needs to meet its obligation under 
paragraph 621(a)(3)'' to assure that access to cable service is not 
denied to any group of potential residential cable subscribers 
because of the income of the residents of the local area in which 
such group resides.
    \57\ While some LFA commenters disagree with distinguishing 
between build-out obligations and other cable-related contributions 
such as PEG and I-Net support based on which entities receive the 
benefit of such obligations or whether such obligations can be 
considered ``essential'' to the provision of cable services, because 
we have clarified the rationale for excluding build-out obligations, 
we do not need to address these arguments.
---------------------------------------------------------------------------

    58. We also conclude that franchise terms that require cable 
operators to comply with customer service standards do not count toward 
the five percent cap.\58\ LFA commenters explain that cable operators 
are required to comply with customer service standards under federal or 
state law, and that cable franchises may include an obligation to 
comply with customer service standards. Notably, section 632 of the Act 
directs the Commission to ``establish standards by which cable 
operators may fulfill their customer service requirements,'' including 
``at a minimum, requirements governing--(1) cable system office hours 
and telephone availability; (2) installations, outages, and service 
calls; and (3) communications between the cable operator and the 
subscriber (including standards governing bills and refunds.'' The 
Commission implemented this mandate in Sec.  76.309 of its rules, which 
sets forth with specificity the customer service standards to which 
cable operators are required to adhere relating to cable system office 
hours and telephone availability, installations, outages and service 
calls, and communications between cable operators and cable 
subscribers. We find that franchise terms that require cable operators 
to adhere to customer service standards are not part of the franchise 
fee. In contrast to in-kind, cable-related contributions that are 
franchise fees subject to the statutory cap, such as the provision of 
free cable service to government buildings or PEG and I-Net 
support,\59\ customer service obligations are not a ``tax, fee, or 
assessment'' imposed on a cable operator; they are regulatory standards 
that govern how cable operators are available to and communicate with 
customers. Indeed, as the legislative history explains, ``[i]n general, 
customer service means the direct business relation between a cable 
operator and a subscriber,'' and ``customer service requirements 
include requirements related to interruption of service; disconnection; 
rebates and credits to consumers; deadlines to respond to consumer 
requests or complaints the location of the cable operator's consumer 
service offices; and the provision to customers (or potential 
customers) of information on billing or services.'' Based on our review 
of the statutory text and legislative history, we find no indication 
that Congress intended that standards governing a cable operator's 
``direct business relation'' with its subscribers should count toward 
the franchise fee cap. Apart from ACA, no commenter argued

[[Page 44737]]

that customer service obligations should be included as franchise 
fees.\60\
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    \58\ In the Second FNPRM, we sought comment on whether there are 
other requirements besides build-out requirements that should not be 
considered contributions to an LFA.
    \59\ We clarify that if LFAs request build-out to an area that 
includes a public building, we would consider that to be a build-out 
requirement that is not subject to the franchise fee. However, we 
note that our conclusion with respect to build-out and customer 
service requirements is entirely separate from our findings 
regarding the provision of free or discounted services to public 
buildings and the provision of I-Net services. I-Net services as 
well as free or discounted services to public buildings are counted 
toward the franchise fee for the reasons explained above.
    \60\ For the reasons discussed above, we disagree with ACA that 
the costs of complying with mandated customer service standards 
should be counted toward the franchise fee cap.
---------------------------------------------------------------------------

    59. As we explain in this section, we conclude that cable-related, 
in-kind contributions will count toward the five percent franchise fee 
cap at their fair market value. Because we conclude above that most 
cable related, in-kind contributions must be included in the franchise 
fee, cable operators and LFAs must assign a value to them. In our prior 
rulemakings, we did not provide guidance on how to value such 
contributions, but in the Second FNPRM, the Commission recognized that 
cable-related contributions could count toward the franchise fee cap at 
cost or at fair market value, and proposed to count toward the 
franchise fee cap at their fair market value.
    60. Most critiques of applying fair market valuation in this 
context challenge how it could be applied to PEG channel capacity. But, 
as discussed above, we have not yet determined whether to assign the 
value of PEG channel capacity contributions toward the five percent 
franchise fee cap, and therefore we do not need to address these 
arguments.
    61. We must address the value of other in-kind contributions, 
however, including free service to public buildings and I-Net 
contributions. We believe that fair market value, where there is a 
product in the market,\61\ is the most reasonable valuation for in-kind 
contributions because it is easy to ascertain--cable operators have 
rate cards to set the rates that they charge customers for the services 
that they offer. Moreover, a fair market valuation ``reflects the fact 
that, if a franchising authority did not require an in-kind assessment 
as part of its franchise, it would have no choice but to pay the market 
rate for services it needs from the cable operator or another 
provider.'' \62\ In contrast, valuing these in-kind contributions at 
cost would ``shift the true cost of an exaction from their taxpayer 
base at large to the smaller subset of taxpayers who are also cable 
subscribers.'' As we note above, Congress adopted a broad definition of 
franchise fee to limit the amount that LFAs may exact from cable 
operators. Accordingly, we conclude that a fair market valuation for 
in-kind contribution best adheres to Congressional intent.
---------------------------------------------------------------------------

    \61\ We note that certain business or enterprise services may be 
comparable to I-Nets.
    \62\ This demonstrates the flaw in NATOA et al.'s argument that 
we must provide guidance on how to calculate fair market value. If 
the LFA believes that the cable operator's proposed valuation is too 
high, the LFA is free to forgo the in-kind contribution, accept a 
monetary franchise fee payment, and use the funds it received to 
purchase the good or service in the competitive marketplace.
---------------------------------------------------------------------------

    62. The franchise fee rulings we adopt in this Order are 
prospective. Thus, cable operators may count only ongoing and future 
in-kind contributions toward the five percent franchise fee cap after 
the Order is effective. There is broad record support for applying the 
rulings prospectively; no commenter argues that our rulings should 
apply retroactively to allow cable operators to recoup past payments 
that exceed the five percent franchise fee cap. To the extent a 
franchise agreement that is currently in place conflicts with this 
Order, we encourage the parties to negotiate franchise modifications 
within a reasonable time.\63\ If a franchising authority refuses to 
modify any provision of a franchise agreement that is inconsistent with 
this Order, that provision is subject to preemption under section 
636(c).
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    \63\ The City Coalition proposes that the parties should modify 
their franchises to comply with this Order via the franchise 
modification process set forth in section 625 of the Act. Under 
those procedures, an LFA has 120 days to make a final decision about 
a cable operator's request to modify a franchise agreement. We do 
not adopt this framework, however, because as NCTA points out, the 
parties may not modify PEG requirements under section 625, and 
therefore cable operators and LFAs could not use that procedure to 
bring franchise agreements into compliance in every case. Therefore, 
we encourage the parties to negotiate franchise modifications within 
a reasonable time and find that 120 days should be, in most cases, a 
reasonable time for the adoption of franchise modifications.
---------------------------------------------------------------------------

    63. Many LFAs express concern that our rulings could disrupt their 
budgets, which rely upon the franchise fees that they expect to 
receive. It is by no means clear from the record what fiscal choices 
remain available to the LFAs, but in any event, delaying the effect of 
our decision to address this concern would not be consistent with the 
statutory text. It is strongly in the public interest to prevent the 
harms from existing franchise agreements to continue for years until 
those agreements expire. In addition, the changes we adopt in this 
document were reasonably foreseeable because we largely adopt the 
tentative conclusions set forth in the Second FNPRM.\64\ Finally, we 
note that LFAs can continue to benefit from their agreements by 
choosing to continue to receive their existing in-kind contributions, 
while reducing the monetary payments they receive.\65\ Thus, consistent 
with the Act, we apply our rulings to future contributions cable 
operators make pursuant to existing franchise agreements.
---------------------------------------------------------------------------

    \64\ Indeed, the lawfulness of excluding costs associated with 
PEG/I-Nets from the franchise fee cap has been under Commission 
scrutiny for more than a decade, and in 2008, the Sixth Circuit 
affirmed the Commission's determination as to new entrants that PEG 
related costs which do not qualify as capital costs are subject to 
the franchise fee cap. Therefore, we find Anne Arundel County's 
argument that this ``decision represents [an] `unexpected 
surprise''' to be unfounded.
    \65\ Take, for example, a franchise agreement that requires a 
cable operator to deliver free cable service to all municipal 
buildings and contribute a monetary payment of five percent of its 
gross revenues derived from the operation of its cable system to 
provide cable services. In that case, the LFA may wish to either (1) 
continue to receive the existing free cable service and a monetary 
payment of five percent minus the fair market value of that service, 
or (2) discontinue service and receive a monetary payment of five 
percent, or (3) reduce the free cable service to select municipal 
buildings and receive a monetary payment of the five percent minus 
the fair market value of the reduced service. However, what an LFA 
may not do is ask a cable operator to ``voluntarily'' waive the 
statutory cap by asking it to continue providing free cable service 
to all municipal buildings and contribute the five percent monetary 
payment, or request that a cable operator waive anything else under 
the statute as interpreted by the Commission. Accordingly, we reject 
the request of NATOA that we clarify that this Order ``is permissive 
not mandatory.'' Complying with the terms of the statute is not 
optional.
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    64. In this section, we address the second issue remanded from the 
Sixth Circuit in Montgomery County, which relates to the Commission's 
mixed-use rule. As explained above, the court in Montgomery County 
found that the Commission, in its Second Report and Order and Order on 
Reconsideration, failed to identify a valid statutory basis for its 
application of the mixed-use rule to incumbent cable operators because 
the statutory provision on which the Commission relied to do so--
section 602(7)(C) of the Act--applies by its terms only to Title II 
carriers, and ``many incumbent cable operators are not Title II 
carriers.'' The court thus vacated and remanded the mixed-use rule as 
applied to those cable operators, directing the Commission ``to set 
forth a valid statutory basis . . . for the rule as so applied.'' For 
the reasons set forth below, we adopt our tentative conclusion that the 
mixed-use rule prohibits LFAs from regulating under Title VI the 
provision of any services other than cable services offered over the 
cable systems of incumbent cable operators, except as expressly 
permitted in the Act.
    65. Our conclusions regarding the scope of LFAs' authority to 
regulate incumbent cable operators' non-cable services, facilities, and 
equipment follow from the statutory scheme. Congress in Title VI 
intended, among other things, to circumscribe the ability of 
franchising authorities to use their Title VI authority to regulate 
non-cable services provided over the cable systems

[[Page 44738]]

of cable operators and the facilities and equipment used to provide 
those services. As explained below, the legislative history of the 1984 
Cable Act and subsequent amendments to Title VI reflect Congress's 
recognition that cable operators potentially could compete with local 
telephone companies in the provision of telecommunications service and 
its intent to maintain the then-existing status quo concerning 
regulatory jurisdiction over cable operators' non-cable services, 
facilities, and equipment. Under the status quo, regulation of non-
cable services provided over cable systems, including 
telecommunications and information services, was the exclusive province 
of either the Commission or state public utility commissions.\66\
---------------------------------------------------------------------------

    \66\ Specifically, the Commission historically has had 
jurisdiction over interstate telecommunications and information 
services. States have had jurisdiction over intrastate 
telecommunications services but not information services, which are 
jurisdictionally interstate. We thus reject the City of Eugene's 
suggestion that maintaining the ``status quo'' supports broad state 
and local authority over non-cable services provided via cable 
systems.
---------------------------------------------------------------------------

    66. The Mixed-Use Rule Prohibits LFAs From Regulating Under Title 
VI the Non-Cable Services, Facilities, and Equipment of Incumbent Cable 
Operators That Are Also Common Carriers. As an initial matter, we 
reaffirm the Commission's application of the mixed-use rule to prohibit 
LFAs from using their cable franchising authority to regulate any 
services other than cable services provided over the cable systems of 
any incumbent cable operator that is a common carrier,\67\ with the 
exception of channel capacity on I-Nets.\68\
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    \67\ ``Non-cable'' services offered by cable operators include 
telecommunications services and non-telecommunications services. 
Telecommunications services offered by cable operators include, for 
example, business data services, which enable dedicated point-to-
point transmission of data at certain guaranteed speeds and service 
levels using high-capacity connections, and wireless 
telecommunications services. Non-telecommunications services offered 
by cable operators include, but are not limited to, information 
services (such as broadband internet access services), private 
carrier services (such as certain types of business data services), 
and Wi-Fi services. Cable operators also may offer facilities-based 
interconnected Voice over Internet Protocol (VoIP) service, which 
the Commission has not classified as either a telecommunications 
service or an information service, but which is not a cable service.
    \68\ Nothing in this Order is intended to limit LFAs' express 
authority under section 611(b) of the Act to require I-Net capacity.
---------------------------------------------------------------------------

    67. As noted above, the Commission in the First Report and Order 
found that the then-existing operation of the local franchising process 
constituted an unreasonable barrier to new entrants in the marketplace 
for cable services and to their deployment of broadband, in violation 
of section 621(a)(1) of the Act. The Commission adopted the mixed-use 
rule with respect to new entrants to address this unreasonable barrier. 
It provides, in relevant part that LFAs' jurisdiction applies only to 
the provision of cable services over cable systems. In particular, to 
the extent a cable operator provides non-cable services and/or operates 
facilities that do not qualify as a cable system, it is unreasonable 
for an LFA to refuse to award a franchise based on issues related to 
such services or facilities. For example, an LFA may not use its video 
franchising authority to attempt to regulate an entire network beyond 
the provision of cable services.
    68. The Commission in the Second Report and Order extended to 
incumbent cable operators several rules adopted in the First Report and 
Order, including the mixed-use rule. Although, as noted, the Sixth 
Circuit in Montgomery County vacated and remanded the Commission's 
application of the mixed-use rule with respect to incumbent cable 
operators that are not common carriers, it left undisturbed application 
of the rule to incumbent cable operators that are also common 
carriers.\69\ Consistent with the court's ruling, therefore, we adopt 
our tentative conclusion and reaffirm that the mixed-use rule prohibits 
LFAs from regulating the provision of non-cable services offered over 
the cable systems of incumbent cable operators that are common 
carriers.\70\
---------------------------------------------------------------------------

    \69\ Under section 3(51) of the Act, a ``provider of 
telecommunications services'' is a ``telecommunications carrier,'' 
which the statute directs ``shall be treated as a common carrier 
under this Act only to the extent that it is engaged in providing 
telecommunications services.'' Thus, to the extent that an incumbent 
cable operator provides telecommunications service, it would be 
treated as a common carrier subject to Title II of the Act with 
respect to its provision of such telecommunications service.
    \70\ NCTA asserts that many cable operators currently provide 
telecommunications services.
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    69. Our interpretation is consistent with the text of section 
602(7)(C), which excludes from the term ``cable system'' ``a facility 
of a common carrier which is subject, in whole or in part, to the 
provisions of Title II of this Act.'' We are not persuaded by 
assertions to the contrary. Anne Arundel County et al. argues, for 
example, that a cable operator's provision of telecommunications 
services via its cable system (either directly or through a subsidiary) 
``does not . . . suddenly [transform its cable system] into a Title II 
facility'' for purposes of applying the section 602(7)(C) common 
carrier exception. City of Philadelphia et al. similarly argues that 
the common carrier exception in section 602(7)(C) was meant to protect 
Title II common carriers from regulation by LFAs under their Title VI 
franchising authority and thus cannot reasonably be read to apply to 
any cable operator that provides Title II and other non-cable services 
over a system that is a cable system.
    70. To the extent these commenters argue that section 602(7)(C) 
precludes LFAs only from regulating non-cable services provided over 
the facilities of incumbent local exchange carriers that subsequently 
begin to provide cable service, we find such argument is not supported 
by the language of the statute. As noted in the Second FNPRM, although 
new entrants into the cable services market may confront obstacles 
different from those of incumbent cable operators, the statute makes no 
distinction between these types of providers. In the absence of any 
textual basis for treating incumbent cable operators that provide 
telecommunications services differently from new entrants that do so, 
we conclude that a facility should be categorized as ``a facility of a 
common carrier'' under section 602(7)(C) so long as it is being used to 
provide some type of telecommunications service, irrespective of 
whether the facility was originally deployed by a provider that 
historically was treated as a ``common carrier.''
    71. This interpretation also is consistent with the legislative 
history of the 1984 Cable Act. Although, as City of Philadelphia et al. 
points out, one of the concerns expressed in the legislative history 
was the potential that cable operators' provision of telecommunications 
services could enable large users of such services to bypass the local 
telephone companies and thereby threaten universal service, the 
legislative history also reflects Congressional recognition that 
``ultimately, local telephone companies and cable companies could 
compete in all communications services.'' The legislative history 
clarifies, moreover, that Congress intended the 1984 Cable Act to 
``maintain[] [then-]existing regulatory authority over all . . . 
communications services offered by a cable system, including . . . 
services that could compete with communications services offered by 
telephone companies.'' Indeed, the legislative history is replete with 
statements reflecting Congress's intent to preserve the then-status quo 
regarding the ability of federal, state, and local authorities to 
regulate non-cable services provided via cable systems. In light of its 
stated intention to maintain the jurisdictional status quo,

[[Page 44739]]

we find that Congress intended via section 602(7)(C) to preclude LFAs 
from regulating under Title VI the provision of telecommunications 
services by incumbent cable operators, services that historically have 
been within the exclusive purview of the Commission (with respect to 
interstate services) or state public utility commissions (with respect 
to intrastate services).\71\ Moreover, section 602(7)(C) broadly states 
that, with narrow exceptions, the facility of a common carrier is only 
``considered a cable system to the extent such facility is used in the 
transmission of video programming directly to subscribers,'' and 
therefore not with respect to provision of any other services. For 
these reasons, we see no basis for altering our previous conclusion, as 
upheld by the Sixth Circuit,\72\ that the mixed-use rule prohibits LFAs 
from exercising their Title VI authority to regulate the provision of 
non-cable services provided via the cable systems of incumbent cable 
operators that are common carriers, except as otherwise provided in the 
Act.
---------------------------------------------------------------------------

    \71\ This interpretation is reinforced by both the text of 
section 621(b)(3) of the Act and its legislative history (relating 
to the provision of telecommunications services by cable operators), 
which Congress added to Title VI through the Telecommunications Act 
of 1996. The fact that section 621(b)(3) seeks to protect incumbent 
cable operators from LFA regulation under Title VI when they provide 
certain non-cable services, i.e., telecommunications services, 
further undermines LFAs' assertion that the common carrier exception 
in section 602(7)(C) was intended to shield from LFA regulation only 
the provision of non-cable services by new entrants.
    \72\ Certain LFA advocates appear to concede that the Act 
precludes LFAs from regulating under Title VI a cable operator's 
provision of telecommunications services via its cable system.
---------------------------------------------------------------------------

    72. The Mixed-Use Rule Prohibits LFAs From Regulating Under Title 
VI the Non-Cable Services, Facilities, and Equipment of Incumbent Cable 
Operators That Are Not Common Carriers. We also adopt our tentative 
conclusion that LFAs are precluded from using their Title VI 
franchising authority to regulate the non-cable services (e.g., 
information services such as broadband internet access) of incumbent 
cable operators that do not provide telecommunications services. As 
directed by the court, we explain herein our statutory bases for 
concluding that LFAs lack authority under Title VI to regulate non-
cable services of incumbent cable operators that do not provide 
telecommunications services.
    73. Section 624 of the Act, which principally governs franchising 
authority regulation of services, facilities, and equipment, provides 
in subsection (a) that ``[a] franchising authority may not regulate the 
services, facilities, and equipment provided by a cable operator except 
to the extent consistent with [Title VI of the Act].'' \73\ The 
subsequent provision, section 624(b)(1), provides that franchising 
authorities ``may not . . . establish requirements for video 
programming or other information services.'' \74\ Although the term 
``information service'' is not defined in section 624, the legislative 
history of that provision distinguishes ``information service'' from 
``cable service.'' In particular, the legislative history explains that 
``[a]ll services offered by a cable system that go beyond providing 
generally-available video programming or other programming are not 
cable services'' and ``a cable service may not include `active 
information services' such as at-home shopping and banking that allows 
transactions between subscribers and cable operators or third 
parties.''
---------------------------------------------------------------------------

    \73\ 47 U.S.C. 544(a).
    \74\ While the preamble to section 624(b) specifically limits 
the provision to franchises ``granted after the effective date of 
this title'' and therefore appears to grandfather local regulation 
of information services that may have occurred prior to 1984, when 
Title VI took effect, we note that very few franchises in effect 
today were granted prior to that year.
---------------------------------------------------------------------------

    74. We find significant that the description of the term 
``information services'' in the legislative history (i.e., ``services 
providing subscribers with the capacity to engage in transactions or to 
store, transfer, forward, manipulate, or otherwise process information 
or data [which] would not be cable services'') aligns closely with the 
1996 Telecommunications Act's definition of ``information service'' 
codified in section 3(24) of the Act (i.e., ``the offering of a 
capability for generating, acquiring, storing, transforming, 
processing, retrieving, utilizing, or making available information via 
telecommunications''). We conclude, therefore, that for purposes of 
applying section 624(b), interpreting the term ``information services'' 
to have the meaning set forth in section 3(24) of the Act is most 
consistent with Congressional intent.\75\ Because the Commission has 
determined that broadband internet access service is an ``information 
service'' under section 3(24),\76\ we likewise find that section 
624(b)(1) precludes LFAs from regulating broadband internet access 
provided via the cable systems of incumbent cable operators that are 
not common carriers. Moreover, even if the definition set forth in 
section 3(24) was not the intended definition of ``information 
services'' for purposes of section 624(b)(1), the highly analogous 
descriptions of this term in the legislative history of the 1984 Act 
also would apply to broadband internet access service. Thus, in either 
case, LFAs may not lawfully impose fees for the provision of 
information services (such as broadband internet access) via a 
franchised cable system or require a franchise (or other authorization) 
for the provision of information services via such cable system.\77\ We 
also clarify that LFAs and other state and local governmental units 
cannot impose additional requirements on mixed-use ``cable systems'' in 
a manner inconsistent with this Order and the Act under the pretense 
that they are merely regulating facilities and equipment rather than 
information services.\78\
---------------------------------------------------------------------------

    \75\ The fact that the ``information services'' definition in 
section 3(24) of the Act was enacted as part of the 1996 Act--more 
than ten years after Congress passed section 624(b)--supports our 
conclusion that LFAs lack authority under section 624(b)(1) to 
regulate information services. The absence in Title VI of specific 
references to the section 3(24) definition of ``information 
service'' suggests only that Congress, in passing the 1996 Act, did 
not wish to re-open the 1984 Cable Act; it does not indicate that 
Congress intended to grant LFAs general authority to regulate 
information services.
    \76\ The Commission in 2018 reinstated the ``information 
service'' classification of broadband internet access service.
    \77\ Application of the mixed-use rule to broadband internet 
access service is not tied to the Commission's classification of 
broadband as an information service. Under the Commission's prior 
conclusion in 2015 that broadband internet access service is a Title 
II telecommunications service, the mixed-use rule would apply based 
on the provisions of Title VI for the reasons explained above.
    \78\ For this reason, we reject assertions that section 624's 
grant of authority to ``establish'' and ``enforce'' certain 
requirements for facilities and equipment would permit LFAs to 
bypass the statutory prohibition on regulation of information 
services.
---------------------------------------------------------------------------

    75. Although we recognize that a later provision, section 
624(b)(2)(B), permits franchising authorities to enforce requirements 
for ``broad categories of video programming or other services,'' when 
read together with the specific injunction against regulation of 
``information services'' in section 624(b)(1), we find that it would be 
unreasonable to construe section 624(b)(2)(B) as authorizing LFA 
regulation of information services when (b)(1) precludes franchising 
authorities from regulating such services.\79\ As we noted in the 
Second FNPRM, the legislative history explains that section 624(b)(2)'s 
grant of authority ``to enforce

[[Page 44740]]

requirements . . . for broad categories of video programming or other 
services'' was intended merely to ``assure[] the franchising authority 
that commitments made in an arms-length situation will be met,'' while 
protecting the cable operator from ``being forced to provide specific 
programming or items of value which are not utilized in the operation 
of the cable system.'' Reading these provisions together, it is 
apparent that Congress intended to permit LFAs to enforce franchise 
requirements governing ``other services'' under (b)(2), but only to the 
extent they are otherwise permitted to establish such requirements 
under (b)(1).\80\ Because LFAs lack authority to regulate information 
services under section 624(b)(1), they may not lawfully enforce 
provisions of a franchise agreement permitting such regulation under 
section 624(b)(2), even if such provisions resulted from arms-length 
negotiations between the cable operator and LFA.\81\ That is, the grant 
of authority to ``enforce'' certain requirements under section 
624(b)(2)(B) does not give franchising authorities an independent right 
to impose requirements that they otherwise may not ``establish'' under 
section 624(b)(1). We thus reject claims to the contrary.
---------------------------------------------------------------------------

    \79\ We note further that the limitation on the ability of 
franchising authorities to establish requirements under section 
624(b)(1) extends specifically to ``information services,'' whereas 
the authority granted to franchising authorities in section 
624(b)(2) makes no mention of ``information services.''
    \80\ Although the legislative history provides examples of 
``broad categories of video programming,'' it does not specify what 
services are encompassed within the phrase ``other services'' for 
purposes of applying section 624(b)(2)(B). Although the phrase 
``other services'' is ambiguous, it would be unreasonable to 
conclude that Congress intended for it to include services, such as 
information services, that franchising authorities are not empowered 
to regulate under section 624. Rather, we find it more reasonable to 
construe the phrase as referring to services that franchising 
authorities lawfully could require under Title VI, such as the 
provision of PEG channels and I-Net capacity. We, therefore, reject 
Anne Arundel County et al.'s assertion that the term ``other 
service'' in section 624(b)(2)(B) includes information services.
    \81\ We thus disagree with City Coalition's contention that 
``[i]f . . . a cable operator agrees to undertake obligations 
regarding information services though arms-length negotiation--be 
they obligations regarding facilities that are not part of the cable 
system or obligations regarding noncable services--then a LFA may 
enforce those obligations.''
---------------------------------------------------------------------------

    76. As discussed above, Congress in the 1984 Cable Act intended to 
preserve the status quo with respect to federal, state, and local 
jurisdiction over non-cable services, which lends further support to 
our conclusion that LFAs may not use their cable franchising authority 
to regulate information services provided over a cable system. Because 
information services that are interstate historically have fallen 
outside the lawful regulatory purview of state and local 
authorities,\82\ including LFAs, construing section 624(b) to bring 
those services within the scope of permissible LFA authority under 
Title VI would be fundamentally at odds with Congressional intent. For 
this reason, we reject City of Philadelphia et al.'s contention that 
our application of the mixed-use rule is barred by the Act because 
``[t]he `regulatory and jurisdictional status quo' in 1984 . . . 
included [LFAs'] use of the franchise and franchise agreement to 
regulate . . . cable systems that [Congress] recognized were carrying 
both cable services and non-cable communications services.'' The 
statutory design as reflected in other provisions of Title VI 
reinforces our conclusion that LFAs are precluded under section 
624(b)(1) from regulating non-cable services provided over the cable 
systems of incumbent cable operators that are not common carriers. 
LFAs, therefore, may not lawfully regulate the non-cable services of 
such cable operators, including information services (such as broadband 
internet access), private carrier services (such as certain types of 
business data services), and interconnected VoIP service.\83\ For 
example, this precludes LFAs from not only requiring such a cable 
operator to pay fees or secure a franchise to provide broadband service 
via its franchised cable system, but also requiring it to meet 
prescribed service quality or performance standards for broadband 
service carried over that cable system.
---------------------------------------------------------------------------

    \82\ The Commission has determined that the term ``information 
service'' has essentially the same meaning as the term ``enhanced 
service'' for purposes of applying the Act. Moreover, even assuming 
that LFAs at the time Congress passed the 1984 Cable Act used their 
cable franchising authority to regulate non-cable services as City 
of Philadelphia et al. asserts, the provisions of section 624 
plainly evidence Congressional intent to treat pre- and post-Act 
cable franchises differently.
    \83\ Although interconnected VoIP service has not been 
classified by the Commission, LFA regulation of this service is 
prohibited under the mixed-use rule, as clarified in this Order, 
regardless of whether it is deemed a telecommunications service or 
an information service.
---------------------------------------------------------------------------

    77. We find unconvincing arguments that the statute compels a 
broader reading of LFAs' authority under Title VI to regulate cable 
operators' non-cable services, facilities, and equipment. Anne Arundel 
County et al. maintains, for example, that because section 624(a) 
grants LFAs authority to regulate a ``cable operator,'' a term the Act 
defines as ``[a] person . . . who provides cable service over a cable 
system,'' LFAs generally are authorized to regulate any of the services 
provided by a ``cable operator'' over a ``cable system,'' including 
non-cable services.\84\ Anne Arundel County et al. contends further 
that under section 624(b), LFAs ``to the extent related to the 
establishment or operation of a cable system . . . may establish 
requirements for facilities and equipment'' and argues that the Act 
cannot be construed as limiting LFAs' jurisdiction to cable services 
since it permits LFAs to require, for example, build out and 
institutional networks. We disagree with these arguments. Although, as 
Anne Arundel County et al. and others note, the Act in certain 
circumstances permits LFAs to impose on cable operators certain 
requirements that are not strictly related to the provision of cable 
service, such circumstances constitute limited exceptions to the 
general prohibition on LFA regulation of non-cable services contained 
in section 624.\85\ They also do not override the specific prohibition 
on regulation of information services set forth in section 624(b)(1). 
This interpretation accords with one of the 1984 Cable Act's principal 
purposes to ``continue[] reliance on the local franchising process as 
the primary means of cable television regulation, while defining and 
limiting the authority that a franchising authority may exercise 
through the franchise process.''
---------------------------------------------------------------------------

    \84\ Insofar as Anne Arundel County et al. is arguing that 
``once a cable operator, always a cable operator,'' and ``once a 
cable system, always a cable system,'' i.e., that when a cable 
operator deploys facilities, those facilities remain part of a cable 
system even when used to provide non-cable services, we disagree 
with that assertion. Consistent with our interpretation of section 
602(7)(C) above, we find that a more reasonable reading of the 
statute is that the nature of facilities (i.e., ``cable system'' or 
not) depends on how the facilities are used, not on whether the 
provider offered cable service at the time the facilities were 
deployed.
    \85\ NATOA et al. agree that the grant to LFAs of authority to 
require I-Nets is an exception from the general injunction in 
section 621(b)(3)(D) against requiring cable operators to provide 
telecommunications services or facilities. NATOA eta l. also appear 
to concede that section 624(b) precludes LFAs from regulating under 
Titled VI information services provided over cable systems.
---------------------------------------------------------------------------

    78. We also conclude, contrary to the assertions of some 
commenters, that it would conflict with Congress's goals in the Act to 
permit LFAs to treat incumbent cable operators that are not common 
carriers differently from incumbent cable operators and new entrants 
that are common carriers in their provision of information services, 
including broadband internet access service. As we noted in the Second 
FNPRM, incumbent and new entrant cable operators (whether or not they 
are also common carriers) often compete in the same markets and offer 
nearly identical services to consumers. Thus, to allow LFAs to regulate 
the latter group of providers more strictly, such as by subjecting them 
to franchise and fee requirements for the provision of non-cable 
services, could place them at a

[[Page 44741]]

competitive disadvantage.\86\ A report submitted by NCTA asserts, for 
example, that two fixed broadband providers may build out their 
networks differently, with one utilizing wireless backhaul and the 
other using landline backhaul, but ``if one has inputs subjected to 
[fees] and the other does not, the differential . . . treatment can 
distort competition between the two, even when the services provided . 
. . are indistinguishable to the consumer.'' The distortion to 
competition that stems from ``hampering a subset of competitors,'' in 
turn, reduces the incentives of those competitors to invest in cable 
system upgrades for the provision of both cable and non-cable services, 
which could thwart the 1996 Act's goals to promote competition among 
communications providers and secure lower prices and higher quality 
services for consumers.\87\ Such regulations, moreover, impede the 
Commission's development of a ``consistent regulatory framework across 
all broadband platforms,'' which is ``[o]ne of the cornerstones of 
[federal] broadband policy.'' \88\
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    \86\ As NCTA notes, under the First Report and Order, LFAs may 
not lawfully require a telecommunications carrier with a preexisting 
right to access public rights-of-way for the provision of 
telecommunications services, to secure a Title VI franchise to 
provide non-cable services over its network. We agree with NCTA that 
a cable operator with a preexisting right to access public rights-
of-way for the provision of cable service likewise should not be 
required to obtain a separate authorization to provide non-cable 
services over its cable system, given that there is no incremental 
burden on the rights-of-way.
    \87\ We find no record basis for concluding that these concerns 
are raised only with respect to incumbent cable operators, and not 
new entrants.
    \88\ The fact that section 602(7)(C) excludes from the term 
``cable system'' a facility of a common carrier subject to Title II 
of the Act does not persuade us that Congress intended to permit 
LFAs to regulate incumbent cable operators that are not common 
carriers differently from incumbent cable operators and new entrants 
that are common carriers in their provision of non-cable services. 
Rather, given Congress's desire in the Act to ensure ``competitively 
neutral and nondiscriminatory'' regulation, we find that section 
602(7)(C)'s carve out of Title II facilities from the definition of 
``cable system'' merely evinces Congressional intent to preclude 
franchising authorities from regulating any telecommunications 
services carried over a cable system.
---------------------------------------------------------------------------

    79. We also are not convinced by arguments that interpreting the 
Act to bar LFAs from regulating non-cable facilities and equipment 
placed in public rights-of-way would pose a safety risk to the public 
because cable operators would have unfettered discretion to install 
non-cable facilities without review or approval by local authorities. 
Section 636(a) of the Act specifically provides that ``[n]othing in 
[Title VI] shall be construed to affect any authority of any State, 
political subdivision, or agency thereof, or franchising authority, 
regarding matters of public health, safety, and welfare, to the extent 
consistent with the express provisions of [Title VI].'' This provision, 
which is an express exception to Title VI's general prohibition on 
franchising authority regulation of non-cable facilities and equipment, 
thus permits LFAs to impose requirements on non-cable facilities and 
equipment designed to protect public safety, so long as such 
requirements otherwise are consistent with the provisions of Title VI.
    80. As noted above, Title VI does not permit franchising 
authorities to extract fees or impose franchise or other requirements 
on cable operators insofar as they are providing services other than 
cable services. Ample record evidence shows, however, that some states 
and localities are purporting to assert authority to do so outside the 
limited scope of their authority under Title VI. These efforts appear 
to have followed the decision by the Supreme Court of Oregon in City of 
Eugene v. Comcast, which upheld a local government's imposition of an 
additional seven percent ``telecommunications'' license fee on the 
provision of broadband services over a franchised cable system with 
mixed use facilities. To address this problem, we now expressly preempt 
any state or local requirement, whether or not imposed by a franchising 
authority, that would impose obligations on franchised cable operators 
beyond what Title VI allows.\89\ Specifically, we preempt (1) any 
imposition of fees on a franchised cable operator or any affiliate 
using the same facilities franchised to the cable operator \90\ that 
exceeds the formula set forth in section 622(b) of the Act and the 
rulings we adopt in this document, whether styled as a ``franchise'' 
fee, ``right-of-access'' fee, or a fee on non-cable (e.g., 
telecommunications or broadband) services, and (2) any requirement that 
a cable operator with a Title VI franchise secure an additional 
franchise or other authorization to provide non-cable services via its 
cable system.\91\ We base these conclusions on Congress's express 
decision to preempt state and local laws that conflict with Title VI of 
the Communications Act (section 636(c)), the text and structure of 
Title VI and the Act as a whole, Congressional and Commission policies 
(including the policy of nonregulation of information services), and 
the Supremacy Clause of the U.S. Constitution.\92\
---------------------------------------------------------------------------

    \89\ Such preemption applies to the imposition of duplicative 
taxes, fees, assessments, or other requirements on affiliates of the 
cable operator that utilize the cable system to provide non-cable 
services.
    \90\ For example, a cable operator may provide voice or 
broadband services through affiliates, and an LFA could not impose 
duplicative fees on those affiliates.
    \91\ We do not set forth an exhaustive list of state and local 
laws and legal requirements that are deemed expressly preempted. 
Rather, we simply clarify that state and local laws and other legal 
requirements are preempted to the extent that they conflict with the 
Act and the Commission's implementing rules and policies. As 
discussed in paragraph below, such preempted requirements include 
those expressly approved in Eugene.
    \92\ Contrary to some assertions in the record, we find that the 
Second FNPRM provided adequate notice to interested parties that the 
Commission could exercise its preemption authority under section 
636(c) to address local regulation of non-cable services outside 
Title VI. In support of its tentative conclusion that ``[s]ection 
624(b) of the Act prohibits LFAs from using their franchising 
authority to regulate the provision of information services, 
including broadband internet access service,'' the Second FNPRM 
specifically cited section 636(c) and set forth the text of that 
provision nearly verbatim. In addition, the Commission in the Second 
FNPRM tentatively concluded that preempted ``entry and exit 
restrictions'' include requirements that an incumbent cable operator 
obtain a franchise to provide broadband internet access service and 
that LFAs therefore are expressly preempted from imposing such 
requirements. The Commission sought comment on that tentative 
conclusion and on ``whether there are other regulations imposed by 
LFAs on incumbent cable operators' provision of broadband internet 
access service that should be considered entry and exit 
restrictions, or other types of economic or public utility-type 
regulations, preempted by the Commission.'' Such regulations include 
duplicative fee and franchise requirements imposed by franchising 
authorities such as the City of Eugene, which is a ``governmental 
entity empowered by . . . [s]tate [] or local law to grant a [cable 
franchise].'' Indeed, the fact that multiple LFA advocates 
recognized that the Second FNPRM could be read to seek comment on 
the Commission's authority to preempt requirements imposed outside 
Title VI contradicts claims that the Second FNPRM did not adequately 
apprise parties of the possible scope of the Commission's preemption 
ruling. Moreover, the fact that cable commenters in this proceeding 
referenced section 636(c) as a potential basis for our preemption 
ruling demonstrates that such ruling is a ``logical outgrowth'' of 
the Second FNPRM.
---------------------------------------------------------------------------

    81. Authority to Preempt. Congress has the authority to preempt 
state law under Article VI of the U.S. Constitution. While Congress's 
intent to preempt sometimes needs to be discerned or implied from a 
purported conflict between federal and state law, here Congress spoke 
directly to its intent to preempt state and local requirements that are 
inconsistent with Title VI. This express preemption extends beyond the 
actions of any state or local franchising authority. Section 636(c) of 
the Act provides that ``any provision of law of any State, political 
subdivision, or agency thereof, or franchising authority, or any 
provision of any franchise granted by such authority, which is 
inconsistent with this chapter shall be deemed to be

[[Page 44742]]

preempted and superseded.'' \93\ The reference in section 636(c) to 
``this chapter'' means that Congress intended to preempt any state or 
local law (or any franchise provision) that is inconsistent with any 
provision of the Communications Act, whether or not codified in Title 
VI.\94\ Moreover, section 636(c) applies broadly to ``any 
[inconsistent] provision of law'' of ``any State, political 
subdivision, or agency thereof.'' \95\ That means that Congress 
intended that states and localities could not ``end-run'' the Act's 
limitations by using other governmental entities or other sources of 
authority to accomplish indirectly what franchising authorities are 
prohibited from doing directly.\96\
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    \93\ For purposes of this provision, the term ``State'' has the 
meaning given such term in section 3 of the Act. Section 3, in turn, 
provides that ``the term `State' includes the District of Columbia 
and the Territories and possessions.''
    \94\ Section 636(c)'s reference to ``this chapter'' is to the 
Communications Act of 1934, as amended, which is codified in Chapter 
5 of Title 47 of the United States Code. Section 636(c)'s reference 
to ``this chapter'' stands in contrast to other provisions in 
section 636, which reference ``this subchapter,'' or Title VI of the 
Act.
    \95\ Contrary to some LFAs' assertion, given that Congress in 
section 636(c) expressly preempted certain state and local laws, we 
need not find that federal preemption of laws governing intrastate 
telecommunications services is permissible under the ``impossibility 
exception.'' Nevertheless, we find that the impossibility doctrine 
further supports our decision herein.
    \96\ Contrary to the suggestion of the City of Eugene, our 
preemption authority does not depend on section 706 of the Act.
---------------------------------------------------------------------------

    82. Where Congress provides an express preemption provision such as 
section 636(c), the Commission has delegated authority to identify the 
scope of the subject matter expressly preempted and assess whether a 
state's law falls within that scope. The Commission may, therefore, 
expressly bar states and localities from acting in a manner that is 
inconsistent with both the Act and the Commission's interpretations of 
the Act, so long as those interpretations are valid. We therefore 
disagree with assertions that the Commission lacks authority to preempt 
non-cable regulations imposed by states and localities pursuant to non-
Title VI sources of legal authority.
    83. Scope of Preemption. The Commission's task, then, in 
interpreting the scope of preemption under section 636(c) is to 
determine whether specific state or local requirements are inconsistent 
with Title VI or other provisions in the Communications Act. Looking at 
the provisions of Title VI and the Act as a whole, we have little 
trouble concluding that Congress did not intend to permit states, 
municipalities, or franchising authorities to impose fees or other 
requirements on cable operators beyond those specified under Title VI, 
under the guise of regulating ``non-cable services'' or otherwise 
restricting a cable operator's construction, operation, or management 
of facilities in the rights-of-way.
    84. As an initial matter, we note that Title VI establishes a 
framework that reflects the basic terms of a bargain--a cable operator 
may apply for and obtain a franchise to access and operate facilities 
in the local rights-of-way, and in exchange, a franchising authority 
may impose fees and other requirements as set forth and circumscribed 
in the Act. So long as the cable operator pays its fees and complies 
with the other terms of its franchise, it has a license to operate and 
manage its cable system free from the specter of compliance with any 
new, additional, or unspecified conditions (by franchise or otherwise) 
for its use of the same rights-of-way.
    85. The substantive provisions of Title VI make the terms of this 
bargain clear. For starters, section 621(a)(1) provides franchising 
authorities with the right to grant franchises, and section 621(a)(2) 
explains that such franchises ``shall be construed to authorize the 
construction of a cable system over public rights-of-way . . .'' A 
``cable operator,'' in turn, may not provide ``cable service'' unless 
the cable operator has obtained such a franchise. Other provisions make 
clear that a franchise does not merely authorize the construction of a 
cable system, but also the ``management and operation of such a cable 
system,\97\ including the installation of Wi-Fi and small cell antennas 
attached to the cable system.''
---------------------------------------------------------------------------

    \97\ We therefore reject LFA assertions that the absence in 
section 621(a)(2) of an express grant of authority to ``operate'' a 
cable system evinces Congress's intent that a Title VI franchise 
bestow only the right to construct, but not to operate, a cable 
system over public rights-of-way.
---------------------------------------------------------------------------

    86. The right to construct, manage, and operate a ``cable system'' 
does not mean merely the right to provide cable service.\98\ Numerous 
provisions in Title VI evidence Congress's knowledge and understanding 
that cable systems would carry non-cable services--including 
telecommunications and information services. The definition of ``cable 
system,'' for example, anticipates that some facilities may carry both 
telecommunications and cable services. With respect to information 
services, section 601 of the Act provides that one of Title VI's 
purposes is to ``assure that cable communications provide and are 
encouraged to provide the widest possible diversity of information 
sources and services to the public.'' And, as we have already seen, 
Congress expressly provided in section 624(b) for ``mixed-use'' 
facilities that carry both cable services and ``video programming or 
other information services.''
---------------------------------------------------------------------------

    \98\ As noted, under section 621(a)(2), ``[a]ny franchise shall 
be construed to authorize the construction of a cable system over 
public rights-of-way.'' Because the ``construction of a cable 
system'' includes the installation of facilities and equipment 
needed to provide both cable and non-cable services, such as 
wireless broadband and Wi-Fi services, the grant of a Title VI 
franchise bestows the right to place facilities and equipment in 
rights-of-way to provide such services.
---------------------------------------------------------------------------

    87. The legislative history reinforces the conclusion that Congress 
understood that a franchised ``cable system'' would carry both cable 
and non-cable services. The House Report, for example, explains that 
``[t]he term `cable system' is not limited to a facility that provides 
only cable service which includes video programming. Quite the 
contrary, many cable systems provide a wide variety of cable services 
and other communications services as well. A facility would be a cable 
system if it were designed to include the provision of cable services 
(including video programming) along with communications services other 
than cable service.''
    88. The point is that Congress was well aware that ``cable 
systems'' would be used to carry a variety of cable and non-cable 
services. It follows that Congress could have, if it wanted, provided 
significant leeway for states, localities, and franchising authorities 
to tax or provide other regulatory restrictions on a cable system's 
provision of non-cable services in exchange for the cable operator 
receiving access to the rights-of-way. But as it turns out, the balance 
of Title VI makes clear that Congress sharply circumscribed the 
authority of state or local governments to regulate the terms of this 
exchange. In this document, we make clear that, under section 636(c), 
states, localities, and franchising authorities may not impose fees or 
restrictions on cable operators for the provision of non-cable services 
in connection with access to such rights-of-way, except as expressly 
authorized in the Act. We provide further explanation in two critical 
areas to clarify that these categories of state and local restrictions 
are preempted: (a) Additional franchise fees beyond those authorized in 
section 622 and (b) additional franchises or regulatory restrictions on 
a cable operator's construction, management, or operation of a cable 
system in the rights-of-way.
    89. Additional fees. Both Congress and the Commission have 
recognized that the franchise fee is the core consideration that 
franchising authorities receive in exchange for the

[[Page 44743]]

cable operator's right to access and use the rights-of-way. As 
explained in detail above, Congress carefully circumscribed how this 
fee should be calculated: It provided that ``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''. We 
must assume that Congress's careful choice of words was intentional. 
While the fee would apply to the ``cable operator'' with respect to any 
``cable system,'' it would only apply to revenue obtained from ``cable 
services,'' not non-cable services that Congress understood could 
provide additional sources of revenue.
    90. We find additional support for this conclusion in Congress's 
broad definition of the term ``franchise fee,'' which covers ``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 such.'' This broad definition 
was intended to limit the imposition of any tax, fee, or assessment of 
any kind--including fees purportedly for provision of non-cable 
services or for, access to, use of, or the value of the rights of way--
to five percent of the cable operator's revenue from cable 
services.\99\ And its language reinforces the text of section 636(c) by 
making clear that a different state or local ``governmental entity'' 
cannot end-run the cap by imposing fees for access to any public right 
of way within the franchise area or in instances of overlapping 
jurisdiction.
---------------------------------------------------------------------------

    \99\ State and local advocates do not appear to dispute that 
section 622(b) limits franchise fees to five percent of a cable 
operator's gross revenues derived from the provision of cable 
service only. Rather, their claims, as discussed herein, are that 
fees on broadband and telecommunications services are not 
``franchise fees'' at all--claims that we show are belied by the 
text, structure, and purposes of Title VI.
---------------------------------------------------------------------------

    91. In reaching this conclusion, we read the phrase ``solely 
because of their status as such'' as protective language intended to 
place a ceiling on any sort of fee that a franchising authority might 
impose on a cable operator qua cable operator or qua franchisee--that 
is, any fee assessed in exchange for the right to construct, manage, or 
operate a cable system in the rights-of-way. We therefore reject the 
claim of some commenters that this language permits localities to 
charge additional fees so long as the cable operator also acts as a 
telecommunications provider or internet service provider, or so long as 
the state or locality can articulate some non-cable related rationale 
for its actions. This alternate rationale flies in the face of 
statutory text. As noted above, a ``cable operator'' is defined not 
only as a person or entity that provides cable service, but also one 
that ``controls or is responsible for, through any arrangement, the 
management and operation of such a cable system.'' The management or 
operation of a cable system includes the maintenance of the system to 
provide non-cable services--which Congress understood would be supplied 
over the same cable facilities.\100\ Because a fee that a state or 
locality imposes on a cable operator's provision of non-cable services 
relates to the ``manage[ment] and operat[ion]'' of its cable system, 
such fee is imposed on the cable operator ``solely because of [its] 
status'' as a cable operator and is capped by section 622.
---------------------------------------------------------------------------

    \100\ As NCTA notes, a service provider may have status as a 
cable operator either because of its provision of cable service or 
because of its operation of a cable system. A service provider that 
is operating a cable system to provide broadband internet access 
service thus is providing such service ``solely because of'' its 
status as a cable operator.
---------------------------------------------------------------------------

    92. The structure of section 622 as a whole provides further 
support for our reading. The language ``solely because of their status 
as such'' operates to distinguish fees imposed on cable operators for 
access to the rights-of-way (``franchise fees''), which are capped, 
from ``any tax, fee, or assessment of general applicability,'' which 
are not. Section 622 thus envisions two mutually exclusive categories 
of assessments--(1) fees imposed on cable operators for access to the 
rights-of-way in their capacity as franchisees (that is, ``solely 
because of their status as such'') and (2) broad-based taxes. 
Understood in this manner, any assessment on a cable operator for 
constructing, managing, or operating its cable system in the rights-of-
way is subject to the five-percent cap--even if other non-cable service 
providers (e.g., telecommunications or broadband providers) are subject 
to the same or similar access fees.\101\ This is because the definition 
of ``franchise fee'' in section 622(g)(1) centers on why the fee is 
imposed on a cable operator, i.e., ``solely because of [its] status'' 
as a franchisee, and not to whom the fee is imposed, i.e., ``solely 
applicable'' to a cable operator. The entire category of ``franchise 
fees'' is subject to the five-percent cap, in distinction to generally-
applicable taxes whose validity must be shown, at least in part, by 
their application to broader classes of entities or citizens beyond 
providers of cable and non-cable communications services.\102\
---------------------------------------------------------------------------

    \101\ Although a ``franchise fee'' does not include ``any tax, 
fee, or assessment of general applicability,'' we note that this 
exception excludes a tax, fee, or assessment ``which is unduly 
discriminatory against cable operators or cable subscribers.'' Even 
if ``telecommunications'' fees such as those at issue in Eugene 
could reasonably be characterized as fees of general applicability 
by virtue of their application to providers other than cable 
operators, we find that such fees would be ``unduly 
discriminatory''--and thus constitute ``franchise fees''--as applied 
to franchised cable operators. This is because such fees are 
assessed on cable operators in addition to the five percent 
franchise fees such operators must pay for use of public rights-of-
way. That is, cable operators must pay twice for access to rights-
of-way (i.e., one fee for cable service and a second fee for non-
cable service), whereas non-cable providers must pay only once for 
such access (i.e., for non-cable service). We, therefore, conclude 
that interpreting the Act to preclude localities from assessing fees 
on cable operators' use of rights-of-way to provide non-cable 
services would be ``competitively neutral and nondiscriminatory,'' 
contrary to the suggestion of some commenters.
    \102\ We thus disagree with assertions that Congress did not 
intend for franchise fees to cover cable operators' use of public 
property for the provision of services other than cable services.
---------------------------------------------------------------------------

    93. The legislative history and purposes of the 1984 Cable Act 
support this broad and exclusive interpretation of the term ``franchise 
fees.'' It reveals, for example, that Congress initially established 
the section 622(b) cap on franchise fees out of concern that local 
authorities could use such fees as a revenue-raising mechanism. A 
reading of section 622 that would permit states and localities to 
circumvent the five percent cap by imposing unbounded fees on ``non-
cable services'' would frustrate the Congressional purpose behind the 
cap and effectively render it meaningless. The legislative history 
behind the 1996 amendments to section 622(b) make this intent explicit. 
Prior to 1996, section 622 provided, in relevant part, that ``the 
franchise fees paid by a cable operator with respect to any cable 
system shall not exceed [five percent] of such cable operator's gross 
revenues derived . . . from the operation of the cable system.'' The 
House Report accompanying the 1996 amendment,\103\ which explained the 
addition of the key limitation ``for the provision of cable services'' 
in section 622(b), provides that:
---------------------------------------------------------------------------

    \103\ The conference agreement adopted the House version of this 
provision.
---------------------------------------------------------------------------

    Franchising authorities may collect franchise fees under 
[section 622 of the Act] solely on the basis of the revenues derived 
by an operator from the provision of cable service. . . . This 
section does not restrict the right of franchising authorities to 
collect franchise fees on revenues from cable services and cable-
related services, such as, but not limited to, revenue from the 
installation of cable service, equipment used to receive cable 
service, advertising over

[[Page 44744]]

video channels, compensation received from video programmers, and 
other sources related to the provision of cable service over the 
---------------------------------------------------------------------------
cable system.

    94. If, as CAPA asserts, Congress had intended the term ``cable 
operator'' as used in section 622(b) to refer to an entity only to the 
extent such entity provides cable service, there would have been no 
need for Congress to amend section 622(b) in this manner.
    95. Although, as LFA advocates note, section 621(d)(2) of the Act 
provides that ``[n]othing in [Title VI] shall be construed to affect 
the authority of any State to regulate any cable operator to the extent 
that such operator provides any communication service other than cable 
service, whether offered on a common carrier or private contract 
basis,'' this provision is not an affirmative grant to states of 
authority to regulate non-cable services that they historically have 
not been empowered to regulate. First, the term ``State'' in section 
621(d) does not extend to LFAs; it is defined by reference to section 3 
of the Communications Act. The legislative history makes clear that 
this was a reference to the division of regulatory authority between 
the ``state public utility commission and . . . the FCC.'' Second, this 
provision merely reflects Congress's intent in the 1984 Cable Act to 
preserve the status quo with respect to federal and state jurisdiction 
over non-cable services. As noted, under the then-existing status quo, 
the Commission had jurisdiction to regulate interstate services; states 
had jurisdiction to regulate intrastate services. Because the 
Commission historically has concluded that information service is 
jurisdictionally interstate, it traditionally has fallen outside the 
proper regulatory sphere of state and local authorities.\104\ Moreover, 
the Commission has long recognized the impossibility of separately 
regulating interstate and intrastate information services. Thus, 
neither a state nor its political subdivisions may lawfully regulate 
such service under section 621(d)(2) by requiring a cable operator with 
a Title VI franchise to pay a fee or secure a franchise or other 
authorization to provide broadband internet access service over its 
cable system. To conclude otherwise would contravene Congress's intent 
in Title VI to maintain the jurisdictional status quo with respect to 
federal, state, and local regulation of non-cable services.\105\
---------------------------------------------------------------------------

    \104\ For example, the Commission previously has stated that it 
has independent authority to displace state and local regulations in 
accordance with the longstanding federal policy of nonregulation for 
information services. For more than a decade prior to the 1996 Act, 
the Commission consistently preempted state regulation of 
information services (which were then known as ``enhanced 
services''). When Congress adopted the Commission's regulatory 
framework and its deregulatory approach to information services in 
the 1996 Act, it thus embraced its longstanding policy of preempting 
state laws that interfere with our federal policy of nonregulation. 
Because broadband internet access service is jurisdictionally 
interstate whether classified as a telecommunications or an 
information service, regulatory authority over such service resides 
exclusively with the Commission.
    \105\ We also reject claims that section 621(d)(1)'s grant to 
states of authority to require the filing of tariffs by cable 
operators for the provision of certain non-cable services reflects 
Congress's intent to permit state regulation of those services. As 
explained above, that provision was intended only to permit states 
to require tariffs for services that they otherwise were authorized 
to regulate, such as telecommunications services that are purely 
intrastate.
---------------------------------------------------------------------------

    96. We find unpersuasive NATOA et al.'s selective reading of the 
legislative history to conclude that Congress intended to permit states 
and localities to require franchised cable operators to pay additional 
rights-of-way fees for the provision of non-cable services. NATOA et 
al. note that the House Conference Report accompanying the 1996 
amendment stated that ``to the extent permissible under state and local 
law, communications services, including those provided by a cable 
company, shall be subject to the authority of a local government to, in 
a nondiscriminatory and competitively neutral way, manage its public 
rights-of-way and charge fair and reasonable fees.'' Although the cited 
legislative history is relevant to our interpretation of the 
statute,\106\ we do not read this language so broadly as permitting 
states and localities to charge redundant or duplicative fees on cable 
franchisees that are subject to the five-percent cap--a reading that 
would, as we have explained, eviscerate the cap entirely. Rather, we 
conclude that, under section 636(c), and taking into account the 
provisions of Title VI as a whole, any fees that exceed the five-
percent cap, as formulated in section 622, are not ``fair and 
reasonable.'' \107\
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    \106\ As some LFA advocates note, the Commission previously 
noted in passing that, while a cable operator is not required to pay 
cable franchise fees on revenues from non-cable services, this rule 
``does not apply to non-cable franchise fee requirements, such as 
any lawful fees related to the provision of telecommunications 
service.'' For the reasons explained below, we would deem an LFA's 
assessment of a cable operator twice for accessing public rights-of-
way (once as a cable operator and again as a telecommunications 
provider) to be unlawful as not ``fair and reasonable'' nor 
``competitively neutral and nondiscriminatory.'' To the extent our 
earlier statement may suggest any broader application, we disavow it 
based on the record before us and the arguments made throughout this 
item.
    \107\ We disagree with LFA assertions that this interpretation 
is inconsistent with section 253 of the Act and the Commission's 
2018 Wireless Infrastructure Order. Although section 253 permits 
states and localities to require ``fair and reasonable'' 
compensation from telecommunications providers on a ``competitively 
neutral and nondiscriminatory basis'' for use of public rights-of-
way, as explained above, we find that imposing fees on cable 
operators beyond what Title VI allows is neither ``fair and 
reasonable'' nor ``competitively neutral and nondiscriminatory.'' 
Moreover, although the Commission in the Wireless Infrastructure 
Order concluded, among other things, that fees to use the rights-of-
way to deploy small cells for the provision of telecommunications 
must be cost-based and no greater than those charged to ``similarly 
situated'' entities for comparable uses of the rights-of-way, we do 
not believe that our approach in this document introduces any 
inconsistency. Rather, as NCTA notes, we merely recognize that under 
the Act, cable operators must compensate local governments for 
accessing public rights-of-way under a statutory framework different 
from that applicable to telecommunications providers, and that 
Congress did not intend for them to be assessed twice for the 
provision of cable service or the facilities used in the provision 
of such service. Any difference in approach, therefore, follows from 
different standards established by Congress in sections II and VI of 
the Act.
---------------------------------------------------------------------------

    97. Consistent with Congress's intent, as early as 2002, the 
Commission has construed section 622(b) to permit franchising 
authorities to include in the revenue base for franchise fee 
calculations only those revenues derived from the provision of cable 
service.\108\ Thus, if a cable operator generates additional revenue by 
providing non-cable services over its cable system, such additional 
revenue may not be included in the gross revenues for purposes of 
calculating the cable franchise fee.\109\
---------------------------------------------------------------------------

    \108\ In the Cable Modem Declaratory Ruling, for example, the 
Commission stated that under section 622(b) the franchise fees paid 
by a cable operator with respect to any cable system may not exceed 
five percent of the cable operator's gross revenues derived from the 
operation of the cable system to provide cable services. Because 
cable modem service was then deemed to be an information service, 
the Commission concluded that revenue from cable modem service would 
not be included in the calculation of gross revenues from which the 
franchise fee ceiling is determined.
    \109\ In the First Report and Order, the Commission affirmed its 
prior interpretation of section 622(b) by clarifying that a cable 
operator is not required to pay franchise fees on revenues from non-
cable services. Thus, internet access services, including broadband 
data services, and any other non-cable services are not subject to 
`cable services' fees.
---------------------------------------------------------------------------

    98. As courts have recognized, the Commission is charged with ``the 
ultimate responsibility for ensuring a `national policy' with respect 
to franchise fees.'' We exercise that authority in this document by 
making clear that states, localities, and cable franchising authorities 
are preempted from charging franchised cable operators more than five 
percent of their gross revenue from cable services. This cap applies to 
any attempt to impose a ``tax, fee, or assessment of any kind'' that is 
not subject to one of the enumerated exemptions in section 622(g)(2) on 
a cable operator's non-cable

[[Page 44745]]

services or its ability to construct, manage, or operate its cable 
system in the rights-of-way.
    99. Additional Franchises or Other Requirements. Congress also made 
clear that states, localities, and franchising authorities lack 
authority to require additional franchises or place additional 
nonmonetary conditions on a cable operator's provision of non-cable 
services that are not expressly authorized in the Act. Several 
provisions state explicitly that franchising authorities may not 
regulate franchised ``cable systems'' to the extent that they provide 
telecommunications services. In addition, as we noted above, section 
624(b)(1) precludes franchising authorities from ``establish[ing] 
requirements for video programming or other information services.'' In 
the mixed-use rule we adopt in this document, we reasonably construed 
this provision to prohibit LFAs from regulating information services 
provided over cable systems.
    100. As noted above, section 636(c) operates to preempt state and 
local requirements that would use non-Title VI authority to accomplish 
indirectly what franchising authorities are prohibited from doing 
directly. Consistent with this reasoning, we conclude that any state or 
local law or legal requirement that obligates a cable operator 
franchised under Title VI to obtain a separate, additional franchise 
(or other authorization) or imposes requirements beyond those permitted 
by Title VI to provide cable or non-cable services, including 
telecommunications and information services, over its cable system 
conflicts with the Act and thus also is expressly preempted by section 
636(c). The mixed-use rule we adopt in this document represents a 
reasonable interpretation of the relevant provisions of Title VI as 
well as a balanced accommodation of the various policy interests that 
Congress entrusted to the Commission; therefore, it too has preemptive 
effect under section 636(c).\110\
---------------------------------------------------------------------------

    \110\ We reject arguments that the Commission lacks authority to 
preempt state and local regulation of information services without 
asserting ancillary jurisdiction over information services. Because 
we are relying on express preemption authority under section 636(c), 
there is no reason for us to rely upon ancillary authority in this 
proceeding.
---------------------------------------------------------------------------

    101. Public Policy. Apart from our analysis of the text and 
structure of the Act and our longstanding delegated authority to 
preempt state regulations that are inconsistent with the Act, our 
preemption decisions in this document are also consistent with 
Congress's and the Commission's public policy goals and an appropriate 
response to problems that are apparent in the record.
    102. Recognizing that excessive regulation at the local level could 
limit the potential of cable systems to deliver a broad array of 
services, Congress expressed its intent to ``minimize unnecessary 
regulation that would impose an undue economic burden on cable 
systems'' and ``assure that cable communications provide and are 
encouraged to provide the widest possible diversity of information 
sources and services to the public.'' More generally, section 230(b) of 
the Act expresses Congress's intent ``to preserve the vibrant and 
competitive free market that presently exists for the internet and 
other interactive computer services, unfettered by Federal or State 
regulation.'' \111\ Accordingly, the Commission has previously 
preempted state and local regulations that would conflict with this 
federal policy of nonregulation of information services. These 
longstanding federal policies provide further support for our decision 
in this document to read Title VI as prohibiting states, localities, 
and franchising authorities from imposing fees and obligations on cable 
operators beyond those expressly set forth in that Title.
---------------------------------------------------------------------------

    \111\ ``Interactive computer services'' are defined, in relevant 
part, as ``any information service, system, or access software 
provider that provides or enables computer access by multiple users 
to a computer service, including specifically a service or system 
that provides access to the Internet. . . .''
---------------------------------------------------------------------------

    103. Our preemption decision in this document will advance these 
federal policies by preventing further abuses of state and local 
authorities of the kind manifested in the record in this proceeding. In 
recent years, governmental entities at the local level increasingly 
have sought to regulate non-cable services provided over mixed-use 
cable systems franchised under Title VI, particularly broadband 
internet access service. Such governmental entities have included not 
only state and local franchising authorities acting pursuant to the 
cable franchising provisions of Title VI, but also state and local 
entities purportedly acting pursuant to their police powers to regulate 
public rights-of-way or other powers derived from sources outside Title 
VI. Although the record reveals that such regulation takes many 
different forms, NCTA and other industry advocates have expressed acute 
concerns about two particular kinds of state and local regulation: (1) 
Requirements obligating cable operators with a Title VI franchise that 
are subject to the franchise fee requirement in section 622(b) of the 
Act to pay additional fees for the provision of non-cable services 
(such as broadband internet access) via their cable systems; and (2) 
requirements obligating cable operators with a Title VI franchise to 
secure an additional franchise (or other authorization) to provide non-
cable services over their cable systems. Our preemption decisions in 
this document are carefully tailored to address these problems and 
prevent states and localities from continuing to circumvent the 
carefully calibrated terms of Title VI through these and similar kinds 
of regulations.
    104. We disagree with those commenters who attempt to minimize the 
harm posed by the state and local requirements that we preempt in this 
document. We disagree, for example, that cable industry claims 
regarding the impact of duplicative fee and franchise requirements on 
broadband deployment are belied by the industry's substantial 
investments to date in broadband infrastructure, and that such 
requirements thus will not adversely affect broadband investment going 
forward. As the record reflects, even if cable operators were to 
continue to invest, such investments likely would be higher absent such 
requirements, and even small decreases in investment can have a 
substantial adverse impact on consumer welfare. We also are persuaded 
that the imposition of duplicative requirements may deter investment in 
new infrastructure and services irrespective of whether or to what 
extent a cable operator passes on those costs to consumers. Contrary to 
the assertions of some commenters, we also believe that such 
requirements impede Congress's goal to accelerate deployment of 
``advanced telecommunications capability to all Americans.''

[[Page 44746]]

    105. Other Legal Considerations. In reaching our decision in this 
document, we agree with the majority of courts that have found that a 
Title VI franchise authorizes a cable operator to provide non-cable 
services without additional franchises or fee payments to state or 
local authorities. In so doing, we repudiate the reasoning in a 2016 
decision by the Supreme Court of Oregon in City of Eugene v. 
Comcast,\112\which appears to have prompted an increasing number of 
states and municipalities to impose fees on franchised cable operators' 
provision of non-cable services.\113\ In Eugene, the court upheld the 
city's imposition of a separate, additional ``telecommunications'' 
license fee on the provision of broadband services over a franchised 
cable system, reasoning that the fee was not imposed pursuant to the 
city's Title VI cable franchising authority, but rather, under the 
city's authority as a local government to impose fees for access to 
rights-of-way for the provision of telecommunications services. For the 
reasons stated above, we conclude that Eugene fundamentally misreads 
the text, structure, and legislative history of the Act, and clarify 
that any state or local regulation that imposes on a cable operator 
fees for the provision of non-cable services over a cable system 
franchised under Title VI conflicts with section 622(b) of the Act and 
is preempted under section 636(c).\114\
---------------------------------------------------------------------------

    \112\ The regulations at issue in Eugene included that: (i) 
Comcast's franchise agreement for the provision of cable services 
over the city's public rights-of-way did not give it the right to 
provide cable modem service over those rights-of-way; (ii) the 
Communications Act did not give Comcast an independent right to 
provide cable modem service over the city's public rights-of-way; 
(iii) the Act did not preclude the city from assessing fees on 
revenues derived from Comcast's provision of cable modem service 
over public rights-of-way; and (iv) such fees did not constitute 
franchise fees under section 622(b) of the Act.
    \113\ NCTA asserts that in the wake of Eugene, a multitude of 
cities in Oregon have adopted or reinterpreted ordinances to impose 
fees on gross revenues derived from the provision of broadband 
services, in addition to those already imposed under cable 
franchises. NCTA notes that multiple communities in Ohio also have 
passed ordinances requiring that cable operators secure a 
``Certificate of Registration'' in addition to a state-issued cable 
franchise before offering non-cable services, and that such 
certificates require payment of additional fees as a condition of 
occupying rights-of-way. NCTA asserts further that such duplicative 
fees are imposed not only at the local level, but also at the state 
level.
    \114\ Such regulation includes not only requirements imposed by 
a state or locality acting pursuant to the cable franchising 
provisions of Title VI, but also requirements imposed by a state or 
locality purportedly acting pursuant to any powers granted outside 
Title VI.
---------------------------------------------------------------------------

    106. As noted above, although sections 602(7)(C) and 624(b)(1) by 
their terms circumscribe franchising authority regulation of non-cable 
services pursuant to Title VI, section 636(c) makes clear that state 
and local authorities may not end-run the provisions of Title VI simply 
by asserting some other source of authority--such as their police 
powers to regulate access to public rights-of-way--to accomplish what 
Title VI prohibits. To be sure, section 636(a) provides that 
``[n]othing in [Title VI] shall be construed to affect any authority of 
any State, political subdivision, or agency thereof, or franchising 
authority, regarding matters of public health, safety, and welfare, to 
the extent consistent with the express provisions of [Title VI].'' 
While we recognize that states and municipalities possess authority to 
manage rights-of-way that is distinct from their cable franchising 
authority under Title VI, states and localities may not exercise that 
authority in a manner that conflicts with federal law. As the U.S. 
Supreme Court has found, ``[w]hen federal officials determine, as the 
FCC has here, that restrictive regulation of a particular area is not 
in the public interest, [s]tates are not permitted to use their police 
power to enact such . . . regulation.''
    107. Our decision in this document still leaves meaningful room for 
states to exercise their traditional police powers under section 
636(a).\115\ While we do not have occasion in this document to 
delineate all the categories of state and local rules saved by that 
provision, we note that states and localities under section 636(a) may 
lawfully engage in rights-of-way management (e.g., road closures 
necessitated by cable plant installation, enforcement of building and 
electrical codes) so long as such regulation otherwise is consistent 
with Title VI. Similarly, we do not preempt state regulation of 
telecommunications services that are purely intrastate, such as 
requirements that a cable operator obtain a certificate of public 
convenience and necessity to provide such services. State regulation of 
intrastate telecommunications services is permissible so long as it is 
consistent with the Act and the Commission's implementing rules and 
policies.\116\ We also do not disturb or displace the traditional role 
of states in generally policing such matters as fraud, taxation, and 
general commercial dealings, so long as the administration of such laws 
does not interfere with federal regulatory objectives.
---------------------------------------------------------------------------

    \115\ Given the robust scope that we retain in this Order for 
the operation of section 636(a), we reject the City of Eugene's 
assertion that we have not engaged in ``meaningful discussion'' of 
this provision.
    \116\ We note, for example, that section 253(a) of the Act 
prohibits state or local statutes, regulations, or other legal 
requirements that prohibit or have the effect of prohibiting the 
ability of any entity to provide ``any interstate or intrastate 
telecommunications service.''
---------------------------------------------------------------------------

    108. We also find unconvincing Anne Arundel County et al.'s 
argument that the Commission's preemption of state and local management 
of public rights-of-way violates the Tenth Amendment to the U.S. 
Constitution by ``direct[ing] local governments to surrender their 
property and management rights to generate additional funds for use in 
the expanded deployment of broadband.'' In particular, Anne Arundel 
County et al. contends that by preventing states and localities from 
overseeing use of their rights-of-way, the Commission effectively is 
commanding them to grant rights-of-way access on terms established by 
the Commission, rather than state or local governments. That argument 
fails for multiple reasons.
    109. The Tenth Amendment provides that ``[t]he powers not delegated 
to the United States by the Constitution, nor prohibited by it to the 
States, are reserved to the States respectively, or to the people.'' We 
find that Anne Arundel County et al. has failed to demonstrate any 
violation of the Tenth Amendment. As the Supreme Court has stated, 
``[i]f a power is delegated to Congress in the Constitution, the Tenth 
Amendment expressly disclaims any reservation of that power to the 
States.'' Therefore, when Congress acts within the scope of its 
authority under the Commerce Clause, no Tenth Amendment issue arises. 
Regulation of interstate telecommunications and information services, 
and cable services, is within Congress' authority under the Commerce 
Clause. Thus, because our authority derives from a proper exercise of 
Congressional power, the Tenth Amendment poses no obstacle to our 
preemption of state and local laws and other legal requirements.
    110. We also find no merit to arguments that the Commission's 
preemption of certain state and local requirements constitutes an 
improper ``commandeering'' of state governmental power. The Supreme 
Court has recognized that ``where Congress has the authority to 
regulate private activity under the Commerce Clause,'' Congress has the 
``power to offer States the choice of regulating that activity 
according to federal standards or having state law preempted by federal 
regulation.'' Title VI provides that a franchising authority ``may 
award'' franchises ``in accordance with this title.'' It thus simply 
establishes limitations on the scope of that authority when and if 
exercised. Here, we are simply requiring that,

[[Page 44747]]

should state and local governments decide to open their rights-of-way 
to providers of interstate communication services within the 
Commission's jurisdiction, they do so in accordance with federal 
standards. As noted, Congress in section 636(c) expressly authorized 
Commission preemption of state and local laws and other legal 
requirements that conflict with federal standards. Because the 
Commission has the constitutional authority to adopt such standards, 
and because those standards do not require that state or local 
governments take or decline to take any particular action, we conclude 
that our preemption decisions in this Order do not violate the Tenth 
Amendment.\117\
---------------------------------------------------------------------------

    \117\ We also conclude that our actions do not violate the Fifth 
Amendment to the U.S. Constitution. The ``takings'' clause of the 
Fifth Amendment provides: ``[N]or shall private property be taken 
for public use, without just compensation.'' First, our actions 
herein do not result in a Fifth Amendment taking. Courts have held 
that municipalities generally do not have a compensable 
``ownership'' interest in public rights-of-way, but rather hold the 
public streets and sidewalks in trust for the public. Moreover, even 
if there was a taking, Congress provided for ``just compensation'' 
through cable franchise fees. Section 622(h)(2) of the Act provides 
that a franchising authority may recover a franchise fee of up to 
five percent of a cable operator's annual gross revenues derived 
from the provision of cable service. Congress intended that the 
cable franchise fee serve as the consideration given in exchange for 
a cable operator's right to use public rights-of-way. Our actions 
herein do not eviscerate the ability of local authorities to impose 
such franchise fees. Rather, our actions simply ensure that local 
authorities do not impose duplicative fees for the same use of 
rights-of-way by mixed use facilities of cable operators, contrary 
to express statutory provisions and policy goals set forth in the 
Act.
---------------------------------------------------------------------------

    111. As proposed in the Second FNPRM, we find that the conclusions 
set forth in this Order, as well as the Commission's decisions in the 
First Report and Order \118\ and Second Report and Order,\119\ as 
clarified in the Order on Reconsideration, apply to franchising actions 
taken at the state level and state regulations that impose requirements 
on local franchising. In the First Report and Order, the Commission 
declined to ``address the reasonableness of demands made by state level 
franchising authorities'' or to extend the ``findings and regulations'' 
adopted in its section 621 orders to actions taken at the state level. 
It noted that many state franchising laws had only been in effect for a 
short time and that the Commission lacked a sufficient record regarding 
their effect. In the Order on Reconsideration, the Commission indicated 
that if any interested parties believed the Commission should revisit 
the issue in the future, they could present the Commission with 
evidence that the findings in the First Report and Order and Second 
Report and Order ``are of practical relevance to the franchising 
process at the state-level and therefore should be applied or extended 
accordingly.''
---------------------------------------------------------------------------

    \118\ In the First Report and Order, the Commission adopted time 
limits for LFAs to render a final decision on a new entrant's 
franchise application and established a remedy for applicants that 
do not receive a decision within the applicable time frame; 
concluded that it was unlawful for LFAs to refuse to grant a 
franchise to a new entrant on the basis of unreasonable build-out 
mandates; clarified which revenue-generating services should be 
included in a new entrant's franchise fee revenue base and which 
franchise-related costs should and should not be included within the 
statutory five percent franchise fee cap; concluded that LFAs may 
not make unreasonable demands of new entrants relating to PEG 
channels and I-Nets; adopted the mixed-use network ruling for new 
entrants; and preempted local franchising laws, regulations, and 
agreements to the extent they conflict with the rules adopted in 
that order.
    \119\ In the Second Report and Order, the Commission extended to 
incumbent cable operators the rulings in the First Report and Order 
relating to franchise fees and mixed-use networks and the PEG and I-
Net rulings that were deemed applicable to incumbent cable 
operators, i.e., the findings that the non-capital costs of PEG 
requirements must be offset from the cable operator's franchise fee 
payments, that it is not necessary to adopt standard terms for PEG 
channels, and that it is not per se unreasonable for LFAs to require 
the payment of ongoing costs to support PEG, so long as such support 
costs as applicable are subject to the franchise fee cap.
---------------------------------------------------------------------------

    112. In the Second FNPRM, we again asked whether the Commission 
should apply the decisions in this proceeding to franchising actions 
and regulations taken at the state level. As we noted, more than ten 
years have passed since the Commission first considered whether to 
apply its decisions interpreting section 621 to state-level franchising 
actions and state regulations. The decade of experience with the state-
franchising process, along with comments responding to the questions 
related to this issue raised in the Second FNPRM, provide us with an 
adequate record regarding the effect of state involvement in the 
franchising process.
    113. We now find that the better reading of the Cable Act's text 
and purpose is that that the rules and decisions adopted in this Order, 
as well as those adopted in the First Report and Order and Second 
Report and Order, should fully apply to state-level franchising actions 
and regulations. First, we see no statutory basis for distinguishing 
between state- and local-level franchising actions. Nor do we think 
such a distinction would further Congress's goals: Unreasonable demands 
by state-level franchising authorities can impede competition and 
investment just as unreasonable demands by local authorities can. While 
we need not opine on the reasonableness of specific state actions 
raised by commenters, we find that there is evidence in the record that 
state franchising actions--alone or cumulatively with local franchising 
actions--in some cases impose burdens beyond what the Cable Act allows. 
We see no reason--statutory or otherwise--why the Cable Act would 
prohibit these actions at the local level but permit them at the state 
level.
    114. The Cable Act does not distinguish between state and local 
franchising authorities. Section 621(a) and the other cable franchising 
provisions of Title VI circumscribe the power of ``franchising 
authorities'' to regulate services provided over cable systems. The 
Cable Act defines ``franchising authority'' as ``any governmental 
entity empowered by Federal, State or local law to grant a franchise.'' 
In other words, the provisions of Title VI that apply to ``franchising 
authorities'' apply equally to any entity ``empowered by . . . law''--
including state law--``to grant a franchise.'' Many states have left 
franchising to local authorities, making those authorities subject to 
the limits imposed under Title VI. Twenty-three states, however, have 
empowered a state-level entity, such as a state public utility 
commission, to grant cable franchise authorizations, rendering them 
``franchising authorities'' under Title VI. Bolstering the conclusion 
that Congress intended the Cable Act to govern state-level action is 
section 636 of the Cable Act, which expressly preempts ``any provision 
of law of any State, political subdivision, or agency thereof, or 
franchising authority, or any provision of any franchise granted by 
such authority'' that conflicts with the Cable Act.\120\ Limiting the 
Commission's rulings to local-level action would call for some 
plausible interpretation of these provisions; those opposing the 
extension of the Commission's rulings to state franchising authorities 
offer none. Accordingly, we find that the Cable Act does not 
distinguish between state- and local-level franchising actions, and 
that the Commission's rulings should therefore apply equally to both.
---------------------------------------------------------------------------

    \120\ As we explain above, this preemption does not extend to 
state regulation of intrastate telecommunications services or 
regulation related to matters of public health, safety, and welfare 
that otherwise is consistent with the Act, and nothing in this Order 
is intended to disturb the traditional role that states have played 
in these regards.
---------------------------------------------------------------------------

    115. In addition, we find unavailing claims in the record that the 
Commission should limit its decisions to local authorities for policy 
reasons. To the contrary, we find that extending

[[Page 44748]]

the Commission's rulings to state level franchising actions and 
regulations furthers the goals of the Cable Act. Unreasonable barriers 
to entry imposed by any franchising authority--state or local--
frustrate the goals of competition and deployment. In the First Report 
and Order, we found that removing regulatory obstacles posed by local 
franchising authorities would further these goals. We now find that 
this policy rationale applies with equal force to franchising actions 
taken at the state level.
    116. We disagree that extending the Commission's rulings to state-
level franchising and regulation, however, will eliminate the benefits 
of state-level action. We are not persuaded that extending the 
Commission's rulings to state-level actions would prevent--or even 
discourage--state-level franchising and regulation. Indeed, applying 
the Commission's rulings to state-level action will merely ensure that 
the same rules that apply to LFAs also apply at the state level.\121\ 
This consistency is itself beneficial, ensuring that various statutory 
provisions--such as sections 621 and 622--are interpreted uniformly 
throughout the country. As one commenter notes, ``state-level cable 
regulations may be modeled on the federal act, and so, allowing 
disparate interpretations of the same language could lead to confusion 
among consumers, regulators, and franchisees.''
---------------------------------------------------------------------------

    \121\ For these reasons, we disagree with commenters who argue 
that applying the Commission's rules at the state level is contrary 
to the Cable Act's purpose of ``assur[ing] that cable systems are 
responsive to the needs and interests of the local community.'' The 
City of Philadelphia, for example, argues that extending the 
Commission's rules to state-level actions would ``unduly restrict 
state and local governments from addressing local and hyperlocal 
cable-related issues.'' For the reasons discussed above, we are not 
convinced that applying our rules to state franchising authorities 
will impede the ability of state and local authorities to address 
local issues. Rather, by doing so, we ensure that the goals of the 
Cable Act, as determined by Congress, including ``encourag[ing] the 
growth and development of cable systems,'' are fully realized.
---------------------------------------------------------------------------

    117. Nor should applying our interpretations of the Cable Act to 
state-level actions interfere with states' authority to enact general 
taxes and regulations. Some commenters express concern that the 
Commission's rulings would disturb state franchising laws that apply 
more broadly than the Cable Act.\122\ While we decline here to opine on 
the application of the Cable Act to specific state laws, we note that 
these concerns are largely settled by section 622, which excludes ``any 
tax, fee, or assessment of general applicability'' from the definition 
of franchise fees. Other provisions of the Act similarly make clear 
that the Act does not affect state authority regarding matters of 
public health, safety, and welfare, to the extent that states exercise 
that authority consistent with the express provisions of the Cable Act.
---------------------------------------------------------------------------

    \122\ For example, California's Digital Infrastructure and Video 
Competition Act (DIVCA) assesses an annual administrative fee and 
authorizes LFAs to assess on both cable operators and non-cable 
video franchise holders, up to a one-percent fee on gross revenues 
for PEG, in addition to a state franchise fee of five percent of 
gross revenues. The Eastern District of California found that DIVCA 
was a law of ``general applicability'' for the purposes of section 
622 in Comcast of Sacramento.
---------------------------------------------------------------------------

    118. Finally, some commenters assert that extending the 
Commission's rulings to state-level actions would ``upend carefully 
balanced policy decisions by the states.'' \123\ According to 
commenters, local governments might wish to refuse these benefits if 
they come at the expense of franchise fees--but they will be unable to 
do so where they are mandated by state law.\124\
---------------------------------------------------------------------------

    \123\ In Illinois, for example, state law requires that cable 
operators provide ``line drops and free basic service to public 
buildings.'' The Illinois statute defines a ``service line drop'' as 
``the point of connection between a premises and the cable or video 
network that enables the premises to receive cable service or video 
service.''
    \124\ Similarly, one commenter claims that DIVCA reflected a 
legislative compromise between cable operators and franchising 
authorities that would be upset if the Commission's rules were 
extended to state level actions.
---------------------------------------------------------------------------

    119. We are not convinced that these concerns justify limiting the 
Commission's rulings to local-level actions. Again, our conclusion in 
this section will disturb existing state laws only to the extent that 
they conflict with the Cable Act and the Commission's rulings 
implementing the Act. While this may upset some preexisting legislative 
compromises, it will also root out state laws that impose demands and 
conditions that Congress and the Commission have found to be 
unreasonable. Further, ensuring that the Cable Act is applied uniformly 
between state and local franchising authorities is necessary to further 
the goals of the Act, and more importantly, is consistent with the 
language of the Act. As some commenters have noted, if the Commission 
does not apply these requirements to state franchises, states could 
pass laws circumventing the Cable Act's limitations on LFAs. That 
result would thwart Congress's intent in imposing those limitations. 
For these reasons, we conclude that the benefits of extending the 
Commission's rulings and interpretations to state-level actions 
outweigh any burdens caused by upsetting existing state-level policy 
decisions.
    120. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Second Further Notice of Proposed Rulemaking in 
this proceeding. The Commission sought written public comment on the 
proposals in the Second FNPRM, including comment on the IRFA. The 
Commission received one comment on the IRFA. This Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.
    121. In the Report and Order, we interpret sections of the 
Communications Act of 1934, as amended that govern how local 
franchising authorities 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. v. FCC (Montgomery County). The Order 
seeks to explain and establish the statutory basis for the Commission's 
interpretation of the Act in order to better fulfill the Commission's 
goals of eliminating regulatory obstacles in the marketplace for cable 
services and encouraging broadband investment and deployment by cable 
operators.
    122. In the Order, we first 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. We base this conclusion on 
the broad definition of franchise fee in section 622, which is not 
limited to monetary contributions. We interpret the Act's limited 
exceptions to the definition of franchise fee, including an exemption 
for capital costs related to public, educational, and governmental 
access (PEG) channels, such as equipment costs or those associated with 
building a facility. We also reaffirm that this rule applies to both 
new entrants and incumbent cable operators. Second, we conclude that 
under the Act, LFAs may not regulate the provision of most non-cable 
services, including broadband internet access service, offered over a 
cable system by an incumbent cable operator that is not a common 
carrier. Finally, we conclude that Commission guidance concerning LFAs' 
regulation of cable operators should apply to state-level franchising 
actions and regulations that impose requirements on local franchising.
    123. The Order is authorized pursuant to sections 1, 4(i), 201(b), 
230, 303, 602, 621, 622, 624, and 636 of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 154(i), 201, 230, 303, 522, 541, 542, 
544, and 556.

[[Page 44749]]

The types of small entities that may be affected by the Order fall 
within the following categories: small businesses, small organizations, 
small governmental jurisdictions; wired telecommunications carriers; 
cable companies and systems; cable system operators; and open video 
services.
    124. Only one commenter, the City of Newton Massachusetts, 
submitted a comment that specifically responded to the IRFA.\125\ The 
City of Newton suggests that a transition period of at least six years 
is needed to satisfy the Commission's Regulatory Flexibility Act 
obligation to minimize significant financial impacts on small 
communities and non-profit organizations. The City of Newton argues 
that this transition period is needed to allow time for affected 
parties to: (1) Identify cable-related in kind contributions which 
count against the franchise fee cap; (2) reach agreement on the 
valuation of cable-related in-kind contributions; (3) resolve any 
disputes with respect to those issues; and (4) adjust their contractual 
commitments in light of any prospective reduction in franchise fee 
revenues (and the timing of those reductions).
---------------------------------------------------------------------------

    \125\ Letter from Ruthanne Fuller, Mayor and Issuing Authority, 
and Alan D. Mandl, Assistant City Solicitor, City of Newton, 
Massachusetts, to Chairman Pai and Commissioners Carr, O'Rielly and 
Rosenworcel, FCC, MB Docket No. 05-311, at 7 (filed Nov. 14, 2018) 
(City of Newton Letter); City of Newton Comments at 3-4.
---------------------------------------------------------------------------

    125. The rules adopted in the Order will impose no additional 
reporting or recordkeeping requirements. We expect the compliance 
requirements--namely, modifying and renewing cable franchise agreements 
to comport with the law--will have only a de minimis effect on small 
entities. As ACA explains, ``most franchising authorities understand 
the limits of their authority and do not impose unlawful requirements 
on [small cable operators].'' \126\ LFAs will continue to review and 
make decisions on applications for cable franchises as they already do, 
and any modifications to the local franchising process resulting from 
these rules will further streamline that process. The rules will 
streamline the local franchising process by providing guidance as to: 
The appropriate treatment of cable-related, in-kind contributions 
demanded by LFAs for purposes of the statutory five percent franchise 
fee cap, what constitutes ``cable-related, in-kind contributions,'' and 
how such contributions are to be valued. The rules will also streamline 
the local franchising process by making clear that LFAs may not use 
their video franchising authority to regulate the provision of certain 
non-cable services offered over cable systems by incumbent cable 
operators. The same can be said of franchising at the state level. The 
rules will help streamline the franchising process by ensuring that 
applicable statutory provisions are interpreted uniformly throughout 
the country.
---------------------------------------------------------------------------

    \126\ Letter from Ross Lieberman, Senior Vice President, 
Government Affairs ACA Connects--America's Communications 
Association, to Marlene Dortch, Secretary, FCC, at 1 (July 25, 
2019).
---------------------------------------------------------------------------

    126. The RFA requires an agency to describe any significant 
alternatives it has considered in reaching its proposed approach, which 
may include the following four alternatives (among others): ``(1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance, rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
small entities.'' \127\
---------------------------------------------------------------------------

    \127\ 5 U.S.C. 603(c)(1) through (4).
---------------------------------------------------------------------------

    127. To the extent that these rules are matters of statutory 
interpretation, we find that the adopted rules are statutorily mandated 
and therefore no meaningful alternatives exist.\128\ Moreover, as noted 
above, the rules are expected to have only a de minimis effect on small 
entities. The rules will also streamline the local franchising process 
by providing additional guidance to LFAs.
---------------------------------------------------------------------------

    \128\ For this reason, we disagree with NATOA et al. that our 
actions will affect service to senior citizens, or to schools, 
libraries, and other public buildings and that this analysis is 
inadequate. See Letter from Joseph Van Eaton et al., Counsel to Anne 
Arundel County, et al. to Marlene H. Dortch, Secretary, FCC at 2 
(July 24, 2019). This argument is essentially that the statutory cap 
does not afford local governments enough money to serve their 
constituents, and we do not have the authority to amend the statute.
---------------------------------------------------------------------------

    128. Treating cable-related, in-kind contributions as ``franchise 
fees'' subject to the statutory five percent franchise fee cap will 
benefit small cable operators by ensuring that LFAs do not circumvent 
the statutory five percent cap by demanding, for example, unlimited 
free or discounted services. This in turn will help to ensure that 
local franchising requirements do not deter small cable operators from 
investing in new services and facilities. Similarly, applying these 
rules at the state level helps to ensure that such deterrence does not 
come from state-level franchising requirements either. Finally, 
applying the Commission's mixed-use rule to all incumbent cable 
operators helps to ensure that all small cable operators may compete on 
a level playing field because incumbent cable operators will now be 
subject to the same rule that applies to competitive cable operators. 
We disagree with the City of Newton's argument that we should afford 
small entities six years to implement these changes--the issues that 
City of Newton raises are matters of statutory interpretation, and the 
Communications Act does not provide for the implementation period that 
the City of Newton requests.
    129. This document does not contain new or revised information 
collection requirements subject to the Paperwork Reduction Act of 1995, 
Public Law 104-13 (44 U.S.C. 3501-3520). In addition, therefore, it 
does not contain any new or modified ``information burden for small 
business concerns with fewer than 25 employees'' pursuant to the Small 
Business Paperwork Relief Act of 2002, Public Law 107-198, 44 U.S.C. 
3506(c)(4).
    130. Accordingly, it is ordered that, pursuant to the authority 
found in sections 1, 4(i), 201(b), 230, 303, 602, 621, 622, 624, and 
636 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
154(i), 201(b), 230, 303, 522, 541, 542, 544, and 556, this Third 
Report and Order is adopted. It is further ordered that the 
Commission's rules are hereby amended and such rule amendments shall be 
effective 30 days after publication in the Federal Register. It is 
further ordered that the Commission's Consumer and Governmental Affairs 
Bureau, Reference Information Center, shall send a copy of this Third 
Report and Order, including the Final Regulatory Flexibility Act 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration. It is further ordered that, pursuant to section 
801(a)(1)(A) of the Congressional Review Act, 5 U.S.C. 801(a)(1)(A), 
the Commission shall send a copy of the Third Report and Order to 
Congress and the Government Accountability Office.

List of Subjects in 47 CFR Part 76

    Cable television, Communications, internet, Telecommunications.

Federal Communications Commission.
Marlene Dortch,
Secretary.

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends part 76 of title 47 of the Code of 
Federal Regulations (CFR) as set forth below:

[[Page 44750]]

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

0
1. The authority citation for part 76 continues to read as follows:


    Authority:  47 U.S.C. 151, 152, 153, 154, 201, 230, 301, 302, 
302a, 303, 303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 
341, 503, 521, 522, 531, 532, 534, 535, 536, 537, 541, 542, 543, 
544, 544a, 545, 548, 549, 552, 554, 556, 558, 560, 561, 571, 572, 
573.


0
2. Revise subpart C heading to read as follows:

Subpart C--Cable Franchising

0
3. Add Sec.  76.42 to read as follows:


Sec.  76.42   In-kind contributions.

    (a) In-kind, cable-related contributions are ``franchise fees'' 
subject to the five percent cap set forth in 47 U.S.C. 542(b). Such 
contributions, which count toward the five percent cap at their fair 
market value, include any non-monetary contributions related to the 
provision of cable service by a cable operator as a condition or 
requirement of a local franchise, including but not limited to:
    (1) Costs attributable to the provision of free or discounted cable 
service to public buildings, including buildings leased by or under 
control of the franchising authority;
    (2) Costs in support of public, educational, or governmental access 
facilities, with the exception of capital costs; and
    (3) Costs attributable to the construction of institutional 
networks.
    (b) In-kind, cable-related contributions do not include the costs 
of complying with build-out and customer service requirements.


0
4. Add Sec.  76.43 to read as follows:


Sec.  76.43   Mixed-use rule.

    A franchising authority may not regulate the provision of any 
services other than cable services offered over the cable system of a 
cable operator, with the exception of channel capacity on institutional 
networks.

[FR Doc. 2019-18230 Filed 8-26-19; 8:45 am]
 BILLING CODE 6712-01-P

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