What Is Capital?
A Legal Perspective
Alliance for Community Media 2011 Annual Conference
Tucson, Arizona
July 28, 2011
Presented by:
Joseph Van Eaton, Partner
Best Best & Krieger, L.L.P.
What Does the Statute Say?
Key issues defined by 47 U.S.C. Section 542
• 542(b): …the franchise fees paid by a cable operator …shall not
exceed 5 percent of…gross revenues derived… from the operation
of the cable system to provide cable services…
• 542(g)(1): …''franchise fee'' includes any tax, fee, or assessment of
any kind imposed by a franchising authority… on a cable operator
or…subscriber…solely because of their status as such
• 542(g) (2): …the term ''franchise fee'' does not include-(B) in the case of any franchise in effect [in 1984]…payments
…required by the franchise… for, or in support of the use of,
public, educational, or governmental access facilities;
(C) [for any franchise granted after 1984], capital costs… required
by the franchise to be incurred by the cable operator… for public,
educational, or governmental access facilities;
What Is Capital? A Legal Perspective
What Does the Statute Say?
Key Questions:
1. What is a tax, fee or assessment?
2. What does it mean to impose a fee on an operator
because of “its status as such?”
3. Why is the phrase, “required by the franchise” important?
4. What are capital costs?
5. What’s the significance of the “for and in support”
language for pre-1984 and post-1984 franchises
6. What are PEG access “facilities”?
7. What are “costs…incurred” by the cable operator? (not
answered by FCC Orders)
What Is Capital? A Legal Perspective
Answering the Questions
Key Resources Include:
1. Definition section of Cable Act
2. FCC franchising orders:
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–
–
22 F.C.C.R. 5101 - In The Matter of Implementation of Section
621(a)(1) of the Cable Communications Policy Act of 1984 as
Amended by the Cable Television Consumer Protection and
Competition Act of 1992 (First Order – New Entrants)
Second Report and Order, FCC-07-190, (October 31, 2007)
Alliance for Community Media v. FCC, 529 F.3d 763 (6th Cir. 2008)
3. Briefs filed in Sixth Circuit appeal
4. Letters cited in franchising orders (see especially, City of
Bowie, Maryland, 14 FCC Rcd. 7675 (1999) as clarified 14
FCC Rcd 9596 (1999)
What Is Capital? A Legal Perspective
Tax, Fee, Assessment and
“Status as Such”
• A tax, fee or assessment can include “in-kind” payments
unrelated to the provision of cable services (e.g., a
requirement that an operator build a fire station).
– First Order, ¶ 98: certain types of “in-kind” obligations, in addition
to monetary payments, may be subject to the [franchise fee]
cap.”
• Status as such:
– General taxes (utility taxes) that fall on cable companies and
others not a franchise fee
– What about fees imposed by state law on all video service
providers (California, MI, etc.) – undecided; pending.
What Is Capital? A Legal Perspective
“Required by the Franchise”
• A settlement of past non-compliance may provide for
PEG payments outside the franchise (this is why past
performance review can be important)
• The cable operator may enter into an agreement with an
NPO to provide PEG outside the franchise
• The cable operator may make voluntary grants outside
the franchise
•
Other?
What Is Capital? A Legal Perspective
“Capital Costs”
• “We decline to adopt a requirement that an operator’s gross income
be determined under Generally Accepted Accounting Principles….”
Second Order, ¶ 23
• First Order, ¶ 109: “Accordingly, payments of this type [CAPITAL
cost payments], if collected only for the cost of building PEG
facilities, are not subject to the 5 percent limit…Capital costs refer to
those costs incurred in or associated with the construction of PEG
access facilities. These costs are distinct from payments in support
of the use of PEG access facilities. PEG support payments may
include, but are not limited to, salaries and training. Payments made
in support of PEG access facilities are considered franchise fees
and are subject to the 5 percent cap.”
• Second Order, ¶ 11: “…payments made to support the operation of
PEG access facilities are considered franchise fees and are subject
to the 5 percent cap, unless they are capital costs, which are
excluded from franchise fees…”
What Is Capital? A Legal Perspective
“For and in Support”
• First Order, ¶ 109: “While Section 622(g)(2)(B) excluded
from the term franchise fee any such payments made in
support of PEG facilities, it only applies to any franchise
in effect on the date of enactment.”
What Is Capital? A Legal Perspective
“Facilities and Equipment”
• Cable Act definition: 47 U.S.C. § 522(16): “public,
educational, or governmental access facilities means--
(A) channel capacity designated for public, educational, or
governmental use; and
(B) facilities and equipment for the use of such channel
capacity
• Operators focus on First Order, ¶ 109: “construction of
facilities,” but FCC denied that it intended to limit “capital” to
“construction” in 6th Circuit appeal
• Bowie letter (cited by FCC in its Orders) says: a franchise fee
does not include any “franchise requirements for services,
facilities or equipment…”
What Is Capital? A Legal Perspective
Where Things Stand
• “What is capital” from an accounting perspective is an
important part, but not only part of the analysis
• There remains substantial outstanding questions as to what
FCC meant
• There are opportunities to eliminate the confusion created by
the FCC Orders:
– Second franchising order is under reconsideration at FCC and the
FCC has been asked to clarify its rulings with respect to PEG
– The CAP Act would remove the confusion created by the FCC
Orders
• You always have the opportunity to obtain non-capital dollars
through arrangements outside the franchise
What Is Capital? A Legal Perspective