MMLA Member Bill August, our expert on all matters relating to cable franchising, has provided us with his explanation of the August 1, 2019, FCC vote relating to new franchise fee rules. Here is Bill’s explanation:
I believe some further explanation of the August 1, 2019 Federal Communications Commission (FCC) vote to change the cable franchise fee calculation rules is in order in light of the importance of the new franchise fee rules and the complexity of some aspects of these rules. I offer what I hope are some simple explanations of the new framework (below). As this will impact significant payments to many (not all) municipalities, it is important for municipal officials to be aware of these developments and have access to background information explaining the changes. The following is a basic explanation.
Cable companies pay ‘franchise fees’ to municipalities if required by cable license and Federal law caps franchise fees at 5% of the cable company’s Gross Annual Revenues (GAR). In the past, most cable companies took the position in practice that only monetary payments to the municipality would count toward the 5%-of-revenues cap. That will be history once the FCC approved new rules are released, published and become effective in the near future, as cable companies will soon be able to count both monetary and ‘in-kind benefits’ toward the statutory 5% franchise fee cap. That’s the big picture. Many of the details are yet to be released including which assets may and may not be counted toward the 5% cap, how the valuations of the assets will be implemented and to what extent they will be negotiable.