The Cable Franchising Authority of State and Local Governments and the Communications Act

Summary

Companies that provide cable television service (cable operators) are subject to regulation at the federal, state, and local levels. Under the Communications Act of 1934, the Federal Communications Commission (FCC or Commission) exercises regulatory authority over various operational aspects of cable service. At the same time, a cable operator must obtain a franchise from the state or local franchising authority for the area in which it wishes to provide cable service. The franchising authority often negotiates various obligations as a condition of granting the franchise.

Under the Cable Communications Policy Act of 1984 (Cable Act), cable operators must obtain franchises from state or local franchising authorities, and these authorities may continue to condition franchises on various requirements. Nevertheless, the Cable Act subjects franchising authorities to important limitations. For instance, the Cable Act prohibits franchising authorities from charging franchise fees greater than 5% of a cable operator’s gross annual revenue and from “unreasonably” refusing to award a franchise.

In a series of orders since 2007, the FCC has interpreted the Cable Act to authorize an expanding series of restrictions on the powers of state and local franchising authorities to regulate cable operators. In particular, these orders clarify (1) when practices or policies by a franchising authority amount to an unreasonable refusal to award a franchise; (2) the types of expenditures that count toward the 5% franchise fee cap; and (3) the extent to which franchising authorities may regulate non-cable services provided by cable operators. Franchising authorities, in turn, have successfully challenged some of the FCC’s administrative actions in federal court. The U.S. Court of Appeals for the Sixth Circuit upheld many rules in the FCC’s orders, but it also vacated some of the FCC’s rules in the 2017 decision in Montgomery County v. FCC. In response to the Montgomery County decision, the FCC adopted a new order on August 1, 2019, which clarifies its interpretations of the Cable Act. Among other things, the order reiterates the FCC’s position that in-kind (i.e., non-monetary) expenses, even if related to cable service, may count toward the 5% franchise fee cap and preempts any attempt by state and local governments to regulate non-cable services provided by cable operators. Some localities have criticized the order for hampering their ability to control public rights-of-way and for reducing their ability to ensure availability of public, educational, and government (PEG) programming in their communities. Several cities have filed legal challenges to the order, which will likely involve many complex issues of statutory interpretation and administrative law, along with constitutional questions regarding the FCC’s ability to impose its deregulatory policy on states.

This report first outlines the FCC’s role in regulating cable operators and franchising authorities, beginning with the Commission’s approach under the Communications Act through the passage of the Cable Act and its amendments. The report then turns to a discussion of recurring legal issues over the FCC’s power over franchising authorities. The report concludes with a discussion of possible legal issues that may arise in current legal challenges to FCC regulations and offers considerations for Congress.