For years, California cable operators have reduced the franchise fee paid to local governments by the amount paid to the California Public Service Commission. While a small amount for many communities, the deduction reduced municipal revenues across the State by about $950,000 for fiscal year 2016-2017. The Sacramento Metropolitan Cable Television Commission challenged Comcast’s deduction, and a U.S. District Court judge for the Eastern District of California ruled that the deduction was not permitted, a ruling that was just confirmed on reconsideration this week. Best Best & Krieger partners Harriet Steiner and Joshua Nelson represented the Sacramento Metropolitan Cable Television Commission in Comcast of Sacramento I, LLC, et al v. Sacramento Metropolitan Cable Television Commission. The decision is likely to be appealed.

The decision may affect all states that adopted video franchising laws similar to those adopted in California. Comcast argued that the fee was a franchise fee because it was imposed only upon cable operators, because of their status as such, (fees that are not imposed on a cable operator because of their status are not franchise fees, as a matter of federal law). The court disagreed. It found, among other things, that state law requires cable operators and video service providers to pay franchise and PEG fees, and video service providers include companies that are not cable operators under federal law. Hence, the fee would only be a franchise fee if all cable operators were video service providers and vice versa. The court found: “By definition, the CPUC fee may reach entities that do not fall under federal law’s definition of ‘cable operator.’ An entity that provided video programming using publicly located cables it did not own, control, or have responsibility for…was held not to be a ‘cable operator’ under federal law, see City of Chicago v. F.C.C., 199 F.3d 424, 427, 431-33 (7th Cir. 1999), but would appear to fall within the definition of entities subject to the CPUC fee.”
 
This is important because, in many states, companies, like Layer3 TV, are beginning to market video services to subscribers using capacity leased from incumbent video service providers. The services are “streaming” services, but are not delivered via the public Internet. The decision raises the question as to whether such companies may need to pay franchise and PEG fees at least in those states that, like California, have extended franchise and PEG fees to “video service providers.”

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