FCC 96-188

Before theFEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of:

UNITED ARTISTS CABLE )OF BALTIMORE )

) Petitions for Reconsideration of )Order Issued by the Chief, Cable )Services Bureau, in United Artist )Cable of Baltimore's Appeal of Local )Rate Order Adopted by the City of )Baltimore, Maryland )

MEMORANDUM OPINION AND ORDER

Adopted: April 24, 1996 Released: April 26, 1996

By the Commission:

I. INTRODUCTION

1. On May 8, 1995, several local franchising authorities and associations representing local franchising authorities ("Petitioners") 1 separately filed petitions with the Commission, seeking reconsideration of the Cable Services Bureau's ("the Bureau") order in United Artists Cable of Baltimore (Baltimore, Maryland), 10 FCC Red 7250 (1995) ("Bureau Order"). Although-petitions seeking reconsideration of final actions taken pursuant to delegated authority may be acted upon by the designated authority, pursuant to Section 1.106(a)(l) of the Commission's rules, this matter has been referred by the Cable Services Bureau to us for review.2 Petitioners asked the Bureau to reconsider and to vacate only paragraphs 7 and 8 of the Bureau's April 6, 1995 order, where the Bureau, acting pursuant to delegated authority, issued a ruling regarding franchise fees. Under the Cable Act,3 local

1 The parties to the proceeding are discussed in detail in Section II of this order.

2 See 47 C.F.R. § 1.106(a)(l).

3 "Cable Act" refers to Title VI of the Communications Act of 1934, 47 U.S.C. §§ 521 et seq., which was added by the Cable Communications Policy Act of 1984, Pub. L. No. 98-

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franchising authorities may assess the cable operator a franchise fee." The Cable Act authorizes cable operators to pass through the franchise fee imposed by local franchising authorities to subscribers and to itemize the fee on subscribers' cable bills. 5 Section 622(b) of the Cable Act states, in relevant part, "[fjor 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."6 In its order, the Bureau concluded that, based upon its interpretation of Section 622(b), the franchise fees a cable operator collects from its subscribers are not part of a cable operator's "gross revenues" for the purpose of determining the operator's franchise fee obligation to the local franchising authority. Petitioners contend that this holding is incorrect on the merits and that the Bureau should have declined to rule on this franchise fee issue. After careful review of all the authorities, arguments, and comments submitted by the parties on the issues raised in this proceeding, for the reasons set forth below, we deny the petitions for reconsideration and affirm the Bureau Order.

II. THE PARTIES

2. Separate petitions for reconsideration were filed on May 8, 1995 by (1) the City of Baltimore, Maryland, et al ("Baltimore Petitioners"); (2) the City of Los Angeles, California, et al. ("Los Angeles Petitioners"); (3) the City of Dallas, Texas, et al. ("Dallas Petitioners"); and (4) Hillsborough County, Florida ("Hillsborough Petitioner"). On May 22, 1995, separate oppositions to the petitions for reconsideration were filed by (1) United Artists Cable of Baltimore, (2) the Cable Telecommunications Association ("CATA"), (3) the National Cable Television Association, Inc. ("NCTA"), and (4) M.L. Media Partners, L.P., trading as MultiVision Cable TV. Replies to the oppositions were filed by Dallas Petitioners on May 30, 1995, and by Baltimore and Hillsborough Petitioners on June 1, 1995.7

3. On June 5, 1995, the cities of Cape Coral, Jupiter, Lantana, Miami Beach, Village of Miami Shores, Miramar, North Miami, South Miami, Tamarac, and West Palm Beach, all franchising authorities in the State of Florida, jointly filed a "Motion to Stay" the effectiveness of the Bureau's April 6, 1995 order. On May 5, 1995, the law firm of Duncan, Weinberg, Miller & Pembroke, P.C., on behalf of unnamed municipal cable television

549, 98 Stat. 2779 (1984), and amended by the Cable Television Consumer Protection and Competition Act, Pub. L. No. 102-385, 106 Stat. 1460 (1992).

4 See Communications Act, § 622(a), 47 U.S.C. § 542(a).

5 See Communications Act, § 622(c), 47 U.S.C. § 542(c); 47 C.F.R. § 76.922(d)(3)(iv)(B).

6 Communications Act, § 622(b), 47 U.S.C. § 542(b).

7 A complete listing of the parties and pleadings is contained in Appendix 1.

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franchising authorities, filed a "Petition for Special Relief," seeking resolution of the same issues raised by Petitioners here. Because we are reviewing the merits of the petitions for reconsideration, the request for stay and the request for special relief have been rendered moot.

4. This rate appeal proceeding has been treated, for ex parte purposes, as a "non- restricted" proceeding and subject to the "permit but disclose" requirements under Section 1.1206 of the Commission's rules8 in order to provide a broader range of views and participation on the franchise fee issue and to provide a fuller record upon which a final decision may be made.9 A list of the parties that submitted written comments is contained in Appendix 2.

5. We have carefully considered the issues and arguments raised in the written comments, as well as those in the request for stay and request for special relief. We note that these issues and arguments are subsumed hi the issues and arguments raised by petitioners hi their petitions or by respondents in their oppositions. Therefore, in the interest of administrative efficiency, we make specific reference in this order only to the issues and arguments raised by petitioners and those raised by respondents. We will refer to all the parties seeking reconsideration of the Bureau Order as "Petitioners," and those seeking affirmance of the Bureau's appeal order as "Respondents."

III. BACKGROUND

6. Prior to the passage of the Cable Communications Policy Act of 1984 ("1984 Cable Act"), the Communications Act did not have occasion to speak directly to regulation of cable television and the permissible level of franchise fees. 10 Before enactment of the 1984 Cable Act, the Commission exercised authority over the imposition of franchise fees pursuant to 47 C.F.R. § 76.31." Section 76.31 limited franchise fees to three percent of an operator's

8 47 C.F.R. § 1.1206.

9 See Public Notice, Commission Applies "Permit But Disclose" Ex Parte Rules to Reconsideration of United Artists Cable of Baltimore (DA 95-737), DA 95-1366 (Cable Serv. Bur. June 19, 1995).

10 Congress amended the Communications Act of 1934 by adding the Cable Act. By virtue of this amendment, the Communications Act now contains a Title VI entitled "Cable Communications."

11 Rule 76.3 l(b) provided as follows:

The franchise fee shall be reasonable (e.g., in the range of 3-5 percent of the franchisee's gross subscriber revenues per year from cable television operations in the community (including all forms of consideration, such as initial lump sum payments)).

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"gross subscriber revenues," with the potential of raising the limit to five percent upon a showing of reasonableness. 12 Since Congress in 1984 imposed a uniform, federal standard on the level of franchise fees in subsection (b) of Section 622, the Commission eliminated Section 76.31 from its rules, allowing franchising authorities to charge operators up to the maximum permitted under the 1984 Cable Act. Section 622(b) of the 1984 Cable Act provides that an annual franchise fee may not exceed five percent of a cable operator's "gross revenues" derived from the operation of the cable system. A franchise fee is defined by Section 622(g)(l) of the 1984 Cable Act to include "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."' 3

7. In 1992, Congress enacted the Cable Television Consumer Protection and Competition Act ("1992 Cable Act"), which, among other things, amended the franchise fee provision (i.e., Section 622) of the 1984 Cable Act. Section 622(c) of the 1984 Cable Act was amended to permit cable operators to identify, in accordance with standards prescribed by the Commission, as a separate line item on each bill of each subscriber: (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 public, educational, or governmental 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. 14 The 1992 Cable Act did not amend the other subsections of Section 622, including subsection (b) ~ the provision setting the limit on franchise fees.

If the franchise fee exceeds three percent of such revenues, the cable television system shall not receive Commission certification until the reasonableness of the fee is approved by the Commission on showings, by the franchisee, that it will not interfere with the effectuation of federal regulatory goals in the field of cable television, and, by the franchising authority, that it is appropriate in light of the planned local regulatory program. The provisions of this paragraph shall not be effective with respect to a cable television system that was hi operation prior to March 31, 1972 until the end of its current franchise period, or March 31, 1977, whichever occurs first.

Cable Television Report and Order, 36 FCC.2d 143, 219-220 (Appendix) (1972).

12 See In the Matter of Amendment of Parts 1, 63, and 76 of the Commission's Rules to Implement the Provisions of the Cable Communications Policy Act of 1984 in MM Docket No. 84-1296, FCC 85-179, at ffl[ 86-90 (1985).

13 Communications Act, § 622(g)(l), 47 U.S.C. § 542(g)(l).

14 Communications Act, § 622(c), 47 U.S.C. § 542(c)

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IV. THE BUREAU'S ORDER

8. On July 29, 1994, United Artists Cable of Baltimore ("UACB"), the franchisee, filed an appeal of a local cable rate order adopted on June 29, 1994, by its franchising authority, the City of Baltimore, Maryland ("the City"). 15 The City's rate order established a new regulated rate schedule for UACB's basic service tier rates and associated equipment and required UACB to implement certain rate reductions and to issue refunds to its subscribers, dating back to September 1, 1993. In its appeal, UACB raised three issues, only one of which was raised in the petitions for reconsideration. 16 In relevant part, UACB challenged the provision in the City's rate order stating that UACB was unlawfully itemizing franchise fees on subscriber bills. UACB argued that it was properly itemizing franchise fees and that it correctly excluded franchise fees from gross revenues. The Cable Act authorizes cable operators to pass through franchise fees imposed by local franchising authorities to subscribers and to itemize such fees on subscribers' cable bills.' 7 The City concluded,

15 See Bureau Order, 10 FCC Red at 7250. We note that, under our rules, rate orders made by local franchising authorities may be appealed to the Commission. See 47 C.F.R § 76.944.

16 Two issues that were raised on appeal but are not raised in the petitions for reconsideration involved: (1) the City's rate order setting rates for UACB's A/B switches and VCR installations, which UACB opposed; and (2) UACB's argument that the rate order improperly restricted its choice over how to pay refunds to subscribers. With respect to these two issues, the City countered that A/B switches and VCR connections were a prerequisite to basic cable service and therefore subject to rate regulation; and that, while the City could not restrict UACB's choice between the two refund methodologies allowed by the Commission's rules, it did retain the right to review any plan adopted by UACB to ensure that it was consistent with the City's rate order and the Commission's rules. After consideration of these two issues, the Bureau found for the City with respect to the issues regarding the regulatory status of UACB's VCR installations and the City's authority to review any proposed refund plan. See Bureau Order, 10 FCC Red at 7252. The Bureau, however, found for UACB with respect to the issue regarding the regulatory status of UACB's A/B switches and thus remanded that issue back to the City for resolution in accordance with the terms of the order. Id. Petitioners do not contest the Bureau's ruling relating to the regulatory status of A/B switches.

17 See Communications Act, § 622(c), 47 U.S.C. § 542(c); 47 C.F.R. § 76.922(d)(3)(iv)(B). See also Report and Order and Further Notice of Proposed Rulemaking in MM Docket 92-266, 8 FCC Red 5631, 5790 ("'Report and Order") (franchise fees are "costs [which] are largely beyond the control of the cable operator, and should be passed on to subscribers without a cost-of-service showing"); Telesat Cablevision, Inc. v. City of Riviera Beach, 773 F. Supp. 383, 407 (S.D. Fla. 1991) ("[P]ayment of the franchise fee should pose no burden to the cable operator since it may be passed on to its subscribers and even

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however, that UACB's "method" of itemizing franchise fees as a separate line item on UACB's bills resulted in an under-calculation of UACB's franchise "fee obligation to the City (the franchise agreement between the City and UACB calls for a franchise fee of five percent of UACB's "gross revenues."). The City argued that UACB should not have added the franchise fee to other cable charges. Rather, the City continues, the franchise fee should be a percentage of the total amount collected from subscribers. In essence, the City asserted that it should be able to assess from UACB as part of UACB's franchise fee obligation to the City, not only five percent of the total amount that subscribers pay for cable services, but also an additional five percent of the five percent franchise fee UACB collects from subscribers.

9. Upon examination of the relevant statutory section in question, Section 622(b), the Bureau concluded that the franchise fees that a cable operator collects from its subscribers are not part of an operator's "gross revenues" for purposes of calculating the total amount of franchise fees owed by the operator to its local franchising authority. 18 The Bureau reached this conclusion based on the language in Section 622(b) of the Cable Act which limits the amount of franchise fees paid by a cable operator to five percent of its "gross revenues," which, under that section, consist of only those revenues derived "from the operation of the cable system." 19 The Bureau concluded that because franchise fees are a charge levied by the franchising authority, rather than revenues derived from the operation of the cable system, the franchise fee a cable operator collects from subscribers should not be included in calculating an operator's "gross revenues." Furthermore, given the statutory franchise fee caps, the Bureau determined that if the franchise fee itself was subject to a franchise fee, as the City urged, and if the franchise agreement required a five percent assessment (as here), a cable operator could end up paying more than the maximum franchise fee permitted under the Cable Act. Accordingly, the Bureau remanded this franchise fee calculation issue back to the City for further proceedings consistent with the Bureau's findings.

V. GROSS REVENUES AND FRANCHISE FEES

A. Contentions of the Parties

10. In its April 6, 1995 appeal order, the Bureau held that, under Section 622(b) of the Cable Act, a cable operator's "gross revenues" do not include the franchise fees it collects from subscribers. Petitioners contend that this holding is incorrect on the merits and will result in the underpayment of franchise fees to local franchising authorities. Specifically, Petitioners argue that the language of Section 622(b) and the legislative history to the 1992 Cable Act support their method of calculating franchise fees. They assert that nothing in the language of Section 622(b) states that amounts received from subscribers for franchise fees

designated on its billing statements").

18 Bureau Order, 10 FCC Red at 7251.

19 See Communications Act, § 622(b), 47 U.S.C. § 542(b).

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should be deducted from "gross revenues." They rely on a statement contained in the House Report to the 1992 Cable Act which addresses the franchise fee itemization provision, Section 622(c) of the 1992 Cable Act. It states:

For example, a cable operator might itemize pursuant to [Section 622(c)] a $1.50 per month charge to account for a five percent franchise fee obligation. If a cable operator charges $30 per month for basic cable service, the $1.50 itemized charge shall be included in such amount; the cable operator cannot provide the cable subscriber a basic bill for $28.50, with a $1.50 additional charge added as a franchise fee. Thus, the bill would show a total charge of $30, but the cable operator would have the right to include in a legend a statement that the $30 basic cable service rate includes a five percent franchise fee, which amounts to $1.50.20

Petitioners assert that this example illustrates that "if the total amount paid by a subscriber is $30.00, the maximum franchise fee is 5% of that figure, or $1.50."21 This example, they argue, suggests that the amount paid with respect to franchise fees is included in the operator's "gross revenues."

11. Petitioners further argue that the Bureau's decision is contrary to analogous court cases.22 Petitioners rely heavily on Stiehler \. Public Service Comm 'n of the District of Columbia.23 According to Petitioners, the District of Columbia Court of Appeals in Stiehler considered the "proper way" to calculate a 9.7% tax imposed on the "gross receipts" of public utilities and telephone companies. Petitioners state that "the court interpreted the term 'gross receipts' to 'include all money collected,' including money collected to pay the tax," which Petitioners assert is consistent with their own conclusion.24 They also rely on State Tax Comm 'n v. Quebedeaux Chevrolet,25 which involved a tax for the privilege of engaging in business measured by the taxpayer's "gross income" or "gross proceeds." In that case, the Arizona Supreme Court considered whether an automobile dealer could exclude from its "gross proceeds" and "gross income" the amount of the tax which it passed through and stated separately on its bills to its customers. The court held that the terms "gross income" and "gross proceeds" included "any and all sums received, regardless of whether or not the retailer separately bill[ed] to his customers the privilege tax he [passed] on to them, and whether or

20 H.R. Rep. No. 628, 102d Cong., 2d Sess. 86 (1992) ("1992 House Report").

Baltimore Petition at 18.

Baltimore Petition at 19-23; Dallas Petition at 14-17; Hillsborough Petition at 15-18.

23 629 A.2d 1211 (D.C. 1993).

24 Baltimore Petition at 19 (quoting Stiehler, 629 A.2d at 1212).

25 226 P.2d 549 (1951).

21

22

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not he segregate[d] the amounts thus received."26 Petitioners argue .that Stiehler and Ouebedeaia support their contention that just because a cable operator may pass the cost of franchise fees through to its subscribers, it does not mean that operators can exclude the franchise fee it receives from subscribers from its "gross revenues."

12. Separately, Dallas and Hillsborough Petitioners argue that the Bureau Order is inconsistent with "accepted accounting standards" regarding the nature of a franchise fee. 27 Petitioners cite to the Financial Accounting Standard Board's Statement of Financial Accounting Standards No. 51 ("FAS 51"), which, they state, recognizes that "cable franchise fees are costs no different than the general manager's salary, marketing costs, and programming costs."28 Therefore, they assert, franchise fees are an "expense, no more deductible from 'gross revenues' than are other expenses."29

13. Respondents contend that the Bureau reasonably determined that amounts received from customers for franchise fees are not included in the definition of "gross revenues" under the Cable Act.30 Respondents allege that Petitioners are seeking to evade the statutory cap in Section 622(b) by including the franchise fee in the calculation of "gross revenues."31 Respondents assert that Petitioners' "accounting mechanism" "would require

26 Baltimore Petition at 21 (quoting Ouebedeaux, 226 P.2d at 555).

27 Dallas Petition at 17-19; Hillsborough Petition at 12-13.

28 Dallas Petitioners at 18. Dallas Petitioners state that FAS 51 defines "subscriber- related costs" as:

costs incurred to obtain and retain subscribers to the cable television system, [including] costs of billing and collection, bad debts, and mailing; repairs and maintenance of taps and connections; franchise fees related to revenues or number of subscribers; general and administrative system costs; such as salary of the system manager and office rent; programming costs for additional channels used in the marketing effort or costs related to revenues from, or number of subscribers to per channel or per program service; and direct selling costs.

Id (quoting FAS 51, Financial Reporting by Cable Television Companies, Appendix A, at 9 (1981). See Hillsborough Petition at 13.

29 Dallas Petition at 18. See Hillsborough Petition at 13.

30 UACB Opposition at 6. Accord NCTA Opposition at 2; CATA Opposition at 2; MultiVision Opposition at 2-3.

31 UACB Opposition at 6-7. See NCTA Opposition at 1-2.

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cable operators to pay a franchise fee on the franchise fee" collected from subscribers.32 Respondents contend that, contrary to petitioners' assertion, the plain language in Section 622(b) "strongly" supports the Bureau's conclusion.33 Respondents further assert that, if Congress had intended for franchise fees to be included in "gross revenues," Congress certainly could have so provided, but Congress instead adopted a specific and narrow definition.34 Respondents argue, therefore, that Petitioners' reliance on the legislative history is not appropriate in light of the plain language of the Act.35 Moreover, Respondents state, the legislative history relied upon by Petitioners was not even intended to address the franchise fee dispute at issue in this case and Petitioners provide no evidence to indicate that the statement hi the 1992 House Report was intended to interpret "gross revenues."36 Finally, Respondents argue that the court cases and accounting standards relied upon by Petitioners are misplaced and "simply irrelevant" and that, in fact, a court decision exists that supports the Bureau's conclusion.37

B. Discussion

14. Contrary to Petitioner's assertion, we find that the statutory provisions and legislative history of both the 1984 and 1992 Cable Acts do not state that the franchise fees operators collect from subscribers are to be included in "gross revenues," nor do they state how franchise fees are to be calculated. We agree with Respondents that the Bureau correctly held that the franchise fees cable operators collect from subscribers are not included hi the operator's "gross revenues." We find that the Bureau's holding is the most reasonable and correct interpretation of the statutory language at issue that is consistent with Congressional intent. Nothing in the statutory provisions of the Cable Act states that franchise fees are to be included in calculating an operator's "gross revenues."

15. In the 1984 Cable Act, Congress stated that the "gross revenues" upon which franchise fees are to be calculated include only those revenues an operator had "derived . . . from the operation of the cable system."38 The statute does not expressly address whether

32 UACB Opposition at 2.

33 Id. at 6-7.

34 Id.

37

1994).

35 UACB Opposition at 6 n. 13. See CAT A Opposition at 2.

36 UACB Opposition at 6-7; NCTA Opposition at 5.

37 Kansas City Cable Partners v. City of Kansas, 1994 WL 583133 (D. Kan., July 26, 4).

38 Communications Act, § 622(b), 47 U.S.C. § 542(b).

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franchise fees fall within the scope of this definition. We believe the most reasonable interpretation is that they do not. Congress defined franchise fees as" "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."39 These definitions are unchanged in the 1992 Cable Act. Because Congress included taxes, fees and assessments imposed on cable subscribers, as well as those imposed by the local franchising authority on operators, in the definition of franchise fees, we believe that the most reasonable interpretation is that Congress did not view franchise fees as part of an operator's gross revenues derived from the operation of the cable system, but instead as a separately collected sum, for which either operators or subscribers could be liable.40

16. In footnote 1 of their Petition for Reconsideration, Baltimore Petitioners give the following example to support their approach to the franchise fee calculation:

Assume that the sum of an operator's maximum permitted rates for a subscriber, exclusive of franchise fees is $32. The Bureau would add a franchise fee of $1.60 (5% of $32) to this amount for a total charge of $33.60.

39 Communications Act, § 622(g)(l), 47 U.S.C. § 542(g)(l) (emphasis added).

40 Prior to the 1984 Cable Act, the Commission used the term "gross subscriber revenues," in a rule concerning the calculation of franchise fees. Franchise fees themselves were not included in the explication, which read:

The term "gross subscriber revenues" is meant to include only those revenues derived from the supplying of regular subscriber service, that is, the installation fees, disconnect and reconnect fees, and fees for regular cable benefits including the transmission of broadcast signals and access and origination channels if any. It does not include revenues derived from per-program or per- channel charges, leased channel revenues, advertising revenues, or any other income derived from the system.

Clarification of Cable Television Rules and Notice of Proposed Rulemaking and Inquiry, FCC 74-384, 46 FCC2d 175, 202 (1974). The Commission later expanded the basis for computation of franchise fees "to include gross revenues from all cable services," but it never included franchise fees themselves as part of "gross subscriber revenues." In the Matter of Amendment of Subparts B and C of Part 76 of the Commission's Rules Pertaining to Applications for Certificates of Compliance and Federal-State/Local Regulatory Relationships in Docket No. 21002, FCC 75-530, 66 FCC2d 380, 402 (1977). Although Section 76.31 was deleted from the Commission's rules after the Commission determined that Section 76.31 was rendered invalid on grounds unrelated to the issue here, under the 1984 Cable Act, the Commission's explanation in Section 76.31 of "gross subscriber revenues" was never overturned or modified.

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This method of calculation, however, means that the franchise fee is less than 5% of the total amount received from the subscriber. ($1.60 is only 4.76% of $33.60.) Under the City's [Baltimore's] method, the total bill should be $33.68, representing the same $32 of maximum permitted rates plus a franchise fee of $1.68, which is 5% of the gross revenues of $33.68. In this example, the Bureau's method results in an underpayment by the cable operator of $.08 per subscriber.

In Petitioners' example the franchise fee is $1.68, which is 5 percent of the total charge of $33.68. However, this amount is 5.5 percent of the subscriber's total bill, excluding the franchise fee, of $32. This method of calculation amounts to a 5 percent franchise fee being charged on top of the 5 percent franchise fee, a result not supported by the statute.

17. We further note that Congress has exhibited a strong desire to prevent attempts by local franchising authorities to evade the statutory five percent cap on franchise fees. During floor debate on the 1984 bill, Senator Goldwater pointed out that "the overriding purpose of the 5 percent fee cap was to prevent local governments from taxing private operators to death as a means of raising local revenues for other concerns. This would be discriminatory and would place the private operator/owners at a disadvantage with respect to their competitors."41 As Senator Goldwater stated, "[i]t was the intent of the committee, in crafting this definition [of "franchise fees"], to prevent cities from circumventing the 5 percent cap on franchise fees as set out in the bill by establishing a new sort of tax on cable operators or subscribers."42 We find that to allow for a "franchise fee on franchise fee" effect, as Petitioner's desire, would be contrary to this Congressional intent that the 5% cap be strictly applied.

18. With respect to the court cases cited by Petitioners, we note, first, that no case has been uncovered deciding what Congress meant in using the term "gross revenues" in Section 622(b) of the Cable Act. Like Petitioners and Respondents, we are aware of only one federal court case, Kansas City Cable Partners v. City of Kansas?3 that addresses a similar issue. In this unpublished decision, the District Court, in interpreting a contractual term in a local franchise agreement (and not, as here, the construction of a federal statute), rejected the local franchising authority's argument that franchise fees are part of the cost of serving subscribers and that therefore such fees should be included in the operator's "gross subscriber revenues." The court found that because the definition of "gross subscriber revenues" in the franchise agreement did not specifically include amounts paid for franchise fees, those fees cannot be assumed to have been included in the operator's revenue base. However, the decision seeks to interpret a contractual term in a local franchise agreement rather than the

41 Cong. Rec. S8,254 (daily ed. June 13, 1983).

42 Id. at S8,255.

43 1994 WL 583133 (D. Kan., July 26, 1994).

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federal statute at issue here. Further, because our decision rests on construction of a federal statute, we are not persuaded by court decisions cited by Petitioners "(such as Stiehler and Ouebedeaux) which deal with irrelevant interpretations of state or local laws which are wholly unrelated to the issue before the Commission. Not only do those cases have no precedential value in this proceeding, but also, as Respondent UACB points out, the "taxes at issue" in those cases applied to "gross receipts," "gross income," or "gross proceeds," which the courts interpreted to include "all money collected" or "any and all sums received."44 We agree with UACB that "all money collected" is a different, and larger, amount than "gross revenues" "derived . . . from the operation of the cable system" in Section 622(b) of the Act.45 We find no merit in Petitioners' attempt to support their arguments with the cited cases and, instead, find that the Bureau Order reflects the correct interpretation of the federal statutory language at issue.

19. We are not persuaded by Petitioners' argument that the legislative history regarding the franchise fee itemization provision of the 1992 Cable Act (i.e., Section 622(c)) is dispositive of or even necessarily relevant to the issue. Petitioners provide no evidence that the statements in the 1992 House Report addressing subsection (c) of Section 622 were intended to address or change the construction of the statutory language regarding gross revenues contained in subsection (b) of Section 622. We agree with Respondents that the legislative history from the 1992 Cable Act relied upon by Petitioners simply illustrates the proper format of subscribers' cable bills, and does not seek to define differently the term "gross revenues" or prescribe a particular method of calculating franchise fees. The purpose of Section 622(c) is to permit the identification of the source of the franchise fee, i.e., the local franchising authority, not the cable operator. As Senator Lott stated, in introducing the final version of Section 622(c) as an amendment to the Senate bill:

I would like to offer my amendment. . . dealing with subscriber bill itemization, to give the cable companies an opportunity to itemize these so-called hidden costs to explain to people what is involved in the charges so they will know it is not just the cable company jacking up the prices. . . . The fact is sometimes the rates have gone up because of hidden, unidentified increases in fees or taxes which the cable [company] has to pay and . . . passes on to the consumers . . . . [46]

Thus, in light of Senator Lett's statement, we concluded in the Report and Order "that the purpose of Section 622(c) is to ensure that cable operators are not prevented, by a franchise agreement or otherwise, from itemizing the specific costs enumerated in that section."47

44 Baltimore Petition at 21.

45 Id. at 9. *See NCTA Opposition at 2.

46 138 Cong. Rec S569 (daily ed. January 29, 1992).

47 Report and Order, 8 FCC Red at 5967.

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Section 622(c) was intended to prevent subscriber confusion as to what is or is not part of their bill for cable services and is not meant to dictate how the actual numbers at issue should be calculated.48 In any event, even if the statements hi the 1992 House Report were relevant to Section 622(b), such subsequent legislative history would be given little, if any, weight, in interpreting the statute.49

20. We also find no merit in Dallas and Hillsborough Petitioners' suggestion that we look to accounting standards to determine whether franchise fees are included in "gross revenues." As Respondent UACB points out, and we agree, the FAS-51 treatment relied upon by Dallas and Hillsborough Petitioners says nothing about the method or percentage of franchise fee calculation. Furthermore, we find that the fact that franchise fees collected by cable operators may be part of "gross revenues" under Petitioners' particular reading of generally accepted accounting principles does not establish Congressional intent as to whether franchise fees are included in "gross revenues" in the context of cable television. We find that the Bureau Order, not FAS-51 and Petitioner's interpretation thereof, represents the correct interpretation of Congressional intent in this matter.

21. Therefore, after careful review of the authorities, arguments, and comments submitted by the parties on this issue, we find that the Bureau Order accurately concluded that the franchise fees that a cable operator collects from its subscribers are not part of an operator's "gross revenues" for purposes of calculating the total amount of franchise fees owed by the operator to its local franchising authority. Accordingly, we deny Petitioner's request for reconsideration and affirm the Bureau Order on this issue.

VL CHARACTERIZATION OF FRANCHISE FEES

A. Contentions of the Parties

22. Paragraph 7 of the Bureau Order states that "[fjranchise fees are taxes imposed by local franchising authorities on the earnings of cable operators." While that statement was not material to the Bureau's holding with respect to its interpretation of "gross revenues," Petitioners, nevertheless, dispute the Bureau's characterization of franchise fees as a tax imposed by local franchising authorities.50 Petitioners argue that franchise fees are not "taxes"

48 Id.

49 Mackey v. Lanier Collection Agency & Service, Inc. 486 U.S. 825, 840 (1988).

50 Baltimore and Los Angeles Petitioners also dispute the Bureau's statement (see Bureau Order, 10 FCC Red at 7251) that franchise fees are "imposed ... on the earnings of cable operators." Baltimore Petition at 13 n.6; Los Angeles Petition at 11. Rather, Petitioners assert, franchise fees are imposed on "gross revenues." Id. While Petitioners are correct in pointing out that franchise fees are imposed on the cable operator's "gross revenues" (as opposed to its "earnings") and is consistent with the language in Section 622(b) of the Cable

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but are intended to be "fees" or function like "rent" or compensation for the operator's right to place wires and other equipment in public rights-of-way. 51 In response, UACB argues that franchise fees are properly characterized as "taxes." However, UACB also states that, in deciding the franchise fee calculation issue, it does not matter whether the assessments are characterized as a "fee" or a "tax."52 In reply, Baltimore Petitioners agree and state that, "[i]n any event, it is not necessary to decide whether franchise fees are taxes in order to resolve this case." 53

B. Discussion

23. We agree that characterizing franchise fees as either a "fee" or a "tax" is not material to our resolution of the issue of whether the Bureau properly held that an operator's "gross revenues" include the franchise fee that an operator collects from subscribers. 54 We find, however, our characterization of a franchise fee as a tax was not exactly accurate. Although a tax may be a type of franchise fee, a franchise fee is not necessarily a tax. In this regard Section 622(g)(l) defines the term "franchise fee" as "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."55

VH. REVIEW OF FRANCHISE FEE DISPUTES

A. Background

24. As stated above, prior to passage of the 1984 Cable Act, the Commission exercised authority over the imposition of franchise fees. Shortly after passage of the 1984 Cable Act, the Commission initiated a rulemaking to implement the Act's various provisions.

Act, that change does not affect the outcome in this proceeding.

51 Baltimore Petition at 12-15, 13 n.7 (citing cases); Dallas .Petition at 8-17; Los Angeles Petition at 7-10; Hillsborough Petition at 11.

52 See UACB Opposition at 13-17.

53 Baltimore Petition at 5.

54 We also note that characterizing franchise fees as "fees" and not "taxes" would tend to further distinguish Stiehler and Quebedeaux, since both cases deal with utility user taxes, not franchise fees.

55 Communications Act, § 622(g)(l), 47 U.S.C. § 542(g)(l). Cf. Communications Act, § 622(g)(2), 47 U.S.C. § 542(g)(2) (Section 622(g)(2) specifies what the term "franchise fee" does not include). See 138 Cong. Rec. S569 (daily ed. January 29, 1992) (statement of Senator Lott regarding Section 622(c)).

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In the Commission's Report and Order, In the Matter of Amendments of Parts 1, 63 and 76 of the Commission's Rules to Implement the Provisions of the Cable Communications Policy Act of 1984: Report and Order ^Amendments of Parts 1, 63 and 7<J"), 56 the Commission addressed the issue of franchise fees and considered whether to continue the Commission's past practice of adjudicating disputes over whether a particular tax, fee or assessment imposed on cable operators constituted a "franchise fee." In Amendments of Parts 1, 63 and 76, the Commission announced that it would refuse to adjudicate disputes over whether particular taxes, fees or assessments could be deemed "franchise fees" under the definition provided by Congress in the statute, and would instead relegate that responsibility to the courts. In 1986, the Commission reexamined and modified its policy regarding hearing such disputes in response to a petition for reconsideration in In re Amendment to Parts 1, 63 and 76 of the Commission's Rules to Implement the Provisions of the Cable Communications Policy Act of 1984: Memorandum Opinion and Order ("1986 Reconsideration Order").57 In that Order, the Commission modified its earlier policy regarding franchise fees and announced that, while most franchise fee disputes were best resolved through the courts, it would retain jurisdiction to adjudicate franchise fee disputes arising under the Cable Act to the extent the claim "directly impinge[d]" on a "national policy concerning cable communications" and implicated the Commission's expertise.58 In accordance with this policy, the Commission announced that it would not resolve disputes over whether particular taxes could be considered "franchise fees" within the meaning of the 1984 Cable Act. The Commission reasoned, among other things, that it possessed no expertise in the matters of local taxation, that local courts were better situated to resolve such issues, and that the relevance of such matters to a national policy concerning cable communications was "slight."59 The Commission also indicated that it would decline to hear franchise fee related disputes that pertained to payments made under the Copyright Act, incidental payments made under the terms of the franchise, or challenges to the constitutionality of a particular fee.60 All of these types of proceedings implicated local law or would call for the presentation of evidence best presented in a local forum. 61 However, the Commission made clear in the 1986 Reconsideration Order that it would continue to hear franchise fee related disputes that "arise directly under specific provisions of the Cable Act and that may call upon the expertise of the Commission for their

56 58 R.R.2d 1 (1985).

57 60 Rad.Reg.-2d (P&F) 514 (1986).

58 1986 Reconsideration Order, 60 Rad. Reg. 2d (P&F) at 518 (quoting CommunicationsAct, § 601(1), 47 U.S.C. 521(1)).

59 Id. at 518-519.

60 Id.

61 Id.

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interpretation."62

B. Contentions of the Parties

25. Petitioners contend that the Bureau should have declined to rule on the franchise fee calculation issue, asserting that the Bureau Order is inconsistent with the Commission's stated policy with respect to franchise fee issues announced in the 1986 Reconsideration Order. They argue that, in this instance, forbearance is appropriate because the franchise fee dispute in this case does not impinge on a "national policy concerning cable communications." Petitioners further argue that forbearance is appropriate because the resolution of franchise fee disputes will require the Commission to interpret franchise agreements that have been negotiated between cable operators and franchising authorities and will contravene the "historical" method by which cable operators and franchising authorities have calculated franchise fees.63 Baltimore Petitioners contend that the burden of resolving such disputes should be left to the courts or otherwise left to the franchising authority to make such determinations so long as there is a rational basis for the franchising authority's decision.

26. In response, UACB argues that the 1992 Cable Act changed the "national policy concerning cable communications" to include franchise fee disputes where franchise fee calculations impact on the national rate regulatory scheme.64 UACB asserts that there is no justification for a forbearance policy that allows franchising authority actions that are inconsistent with the standards of the 1992 Cable Act. UACB argues that Petitioners' reference to the "historical method" by which cable operators and franchising authorities have calculated franchise fees is immaterial and inaccurate.65 In support of that argument, UACB asserts that the Commission, as a result of its "forbearance policy," had little opportunity to review local franchise fee calculations.66 UACB asserts that Commission review, which was commonplace prior to the 1984 Cable Act, was unnecessary until rate regulation was reintroduced by the 1992 Cable Act.

62 Id.

63 Baltimore Petition at 10; Los Angeles Petition at 6-7.

64 UACB Opposition at 4.

65 See note 94, supra (regarding Hillsborough Petition statement); see also Cablevision Systems Corporation Letter (August 4, 1995) ("Thus, the [Baltimore Petitioners'] Reply Brief is disingenuous in claiming that cable operators had passively accepted the [Baltimore Petitioners'] definition of the proper franchise fee calculation prior to the Commission's [sic] resolution of this issue in United Artist Cable of Baltimore, and only subsequently began adopting this position. Cablevision has consistently taken this position, as evidenced by [our appeals pending before the Commission].").

66 UACB Opposition at 4.

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C. Discussion

27. We agree with Respondent UACB's arguments. We are not persuaded by Petitioners' contentions that the Bureau Order is inconsistent with the Commission's previously stated policy with respect to the adjudication of franchise fee issues and that the Bureau should have deferred resolution of this franchise fee dispute to the courts or to franchising authorities. First, neither the franchise fee provision, Section 622(b) of the Cable Act, nor the legislative history to this provision precludes the Commission from ruling on the franchise fee issue here. Moreover, as the agency responsible for implementing the Communications Act, we have the discretion to interpret the franchise fee provision, which was incorporated into the Communications Act and to have such interpretations serve as precedent for future disputes.

28. Further, contrary to Petitioners' claim, the Bureau's decision to resolve this issue is not inconsistent with our policy on resolving franchise fee disputes. As we stated in that policy, we will exercise jurisdiction over franchise fee disputes that impinge on a "national policy concerning cable communications."67 As an example, we indicated that we would exercise jurisdiction over disputes arising directly under the provisions of the statute as opposed to specific factual patterns involving local issues. Section 622(b) states that franchise fees are to be calculated based on "gross revenues...derived from the operation of the cable system." The issue of what constitutes "gross revenues...derived from the operation of a cable system" arises from a specific provision of the statute and not, as some commenters appear to claim from individual franchise agreements. Moreover, in enacting this provision, Congress established a uniform federal standard governing how franchise fees were to be calculated. The issue of how franchise fees are calculated necessarily impinges a national policy on cable franchise fees. It is fully consistent with our policy on resolving franchise fee disputes and appropriate for the Commission to exercise jurisdiction over this issue in order to provide a Commission interpretation of this statutory term that can serve as precedent in future cases.

Vin. ADMINISTRATIVE PROCEDURE ACT

29. Separately, Dallas Petitioners allege that the Bureau's decision to rule on the franchise fee calculation issue deprived them of an opportunity for notice and comment in violation of the Administrative Procedure Act ("APA") and their rights to due process. See Dallas Petition at 5-7. Specifically, they assert that the Bureau announced a rule of general applicability without providing local authorities, like themselves, any opportunity for notice and comment. Id. at 7. We find no merit in these arguments. We note that we have fully considered the views and arguments contained in the pleadings filed by Dallas Petitioners. Thus, Dallas Petitioners' participation in this proceeding and our consideration of their arguments makes their due process argument moot. The Bureau's action was an interpretation of a statutory provision in the context of an adjudicatory proceeding, which is

67 1986 Reconsideration Order, 60 Rad. Reg. 2d (P&F) at 518.

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entirely appropriate.68

IX. CONCLUSION

30. After review of the all the authorities cited by the parties and the arguments contained in their respective briefs and letters, we find that the Bureau's determination on the franchise fee issue is based on an accurate construction of Section 622(b) of the Cable Act and is reasonable. We are not persuaded by Petitioners' contention that the word "gross revenues," as used in Section 622(b), encompasses the franchise fees collected by cable operators from subscribers. Accordingly, we deny Petitioners' request for reconsideration of the Bureau Order, and affirm the Bureau Order to the extent consistent with this order.

X. ORDERING CLAUSES

31. Accordingly, in view of the foregoing, it is ORDERED, that the petitions for reconsideration are DENIED.

32. IT IS FURTHER ORDERED that, in light of the resolution of the petitions for reconsideration, the joint motion for stay filed by the cities of Cape Coral, Jupiter, Lantana, Miami Beach, Village of Miami Shores, Miramar, North Miami, South Miami, Tamarac, and West Palm Beach, Florida; and the petition for special relief filed by the law firm of Duncan, Weinberg, Miller & Pembroke, P.C., on behalf of municipal television franchising authorities, ARE DISMISSED as moot.

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton Acting Secretary

68 See, Office of Communications of the United Church of Christ v. Federal .. Communications Commission, 590 F.2d 1062, 1070 (1978); Chisolm v. FCC, 538 F.2d 349, 364-365 (1976).

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APPENDIX 1

Petitions for Reconsideration were filed on May 8, 1995 by:

(1) The City of Baltimore, Maryland, the National Association of Telecommunications Officers and Advisors ("NATOA"), the National League of Cities, and the City of New York, New York (collectively, "Baltimore Petitioners");

(2) The City of Los Angeles, California, and the City and County of San Francisco, California (collectively, "Los Angeles Petitioners");

(3) The City of Dallas, Texas, the City of Dubuque, Iowa, the City of Indianapolis, Indiana, the City of Laredo, Texas, Montgomery County, Maryland, the Miami Valley Cable Council, Ohio, the City of St. Louis, Missouri, and the City of Tallahassee, Florida (collectively, "Dallas Petitioners"); and,

(4) Hillsborough County, Florida ("Hillsborough Petitioner").

Oppositions to the Petitions for Reconsideration were filed on May 22, 1995 by:

(1) United Artists Cable of Baltimore;

(2) The Cable Telecommunications Association ("CATA");

(3) The National Cable Television Association, Inc. ("NCTA"); and,

(4) M.L. Media Partners, L.P., trading as MultiVision Cable TV.

Replies to the oppositions were filed on May 30, 1995 by:

(1) Dallas Petitioners;

(2) Baltimore Petitioners; and,

(3) Hillsborough Petitioners.

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APPENDIX 2

The following parties submitted written comments with the Commission, urging reconsideration of the Bureau's April 6, 1995 order with respect to that part of the order addressing franchise fees: the City of Santa Ana, California; the Executive Director, Recreation and Community Services of Santa Ana, California; the City of Garden Grove, California; the City of Orange, California; Video Communications Assistance on behalf of the City of Beverly Hills, California; the City of Chino, California; the City of Buenaventura, California; the Public Cable Television Authority of Fountain Valley, California; the County Council of Baltimore County; the City of Gainesville, Florida; the Greater Metro Cable Consortium, a joint agency of 24 local governments in the City of Denver, Colorado; the law firm of Curtis, Getting, Heinz, Garrett & Soule, P.C., on behalf of 22 municipalities in St. Louis County, Missouri, and 10 located in Madison County, Illinois; the Board of Public Service Communications Division in St. Louis, Missouri; the City of Rock Hill, South Carolina; Piedmont Triad Council of Governments, which represents six counties and 25 cities in the State of North Carolina; the Communications & Information Systems Department on behalf of the City of Charlotte and Mecklenburg County, North Carolina; Telecommunications Management Corporation, a consultant to more than 250 franchising authorities; the Rainier Cable Commission, representing 13 local governments on matters relating to cable television; and the Executive Director and president of the Michigan chapter of NATOA on behalf of the Intergovernmental Cable Communications Authority.

Cable-vision Systems Corporation and the Armstrong Group of Companies of Place Butler, Pennsylvania submitted written comments to the Commission urging affirmance of the Bureau's order.

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