Courts

Court: Chicago May Collect Cable-Data Fee

5/22/2007 4:59 PM Eastern

Comcast owes the City of Chicago as much as 5% of its high-speed Internet-access revenue generated from all city-based data customers in the past five years, according to an Illinois state court ruling that conflicts with multiple court rulings on the same regulatory issue.

In a prepared statement, Comcast said it would appeal the ruling released Tuesday by the Illinois Court of Appeals for the First District, Fourth Division.

“We are puzzled by the Illinois Appeals Court ruling, and we intend to appeal,” Comcast senior director Sena Fitzmaurice said.

The ruling, if it stands, could add a few dollars each month to cable-data bills. It was unclear how the ruling would impact the pricing of Comcast's voice-video-data triple-play product, which retails for $99 per month. Another issue apparently left open by the court ruling: Can Comcast pay the city probably many millions of dollars by dunning data subscribers on a retroactive basis?

Under federal law, cities may collect up to 5% of a cable operator’s gross revenue derived from the provision of cable service. On a national basis, cable operators contribute more than $2 billion to state and municipal coffers in exchange for access to rights of way, such as streets and conduits.

In March 2002, the Federal Communications Commission ruled that cable-modem service was an interstate information service, not a cable service, within the meaning of federal. As a result, the FCC exempted cable-data revenue from the franchise fee. One month later, Comcast stopped collecting franchise fees from data subscribers -- a move that triggered a five-year court battle with Chicago.

In 2004, local governments estimated that that the FCC ruling’s was costing them $500 million annually -- a figure that has only grown since then due to the ongoing popularity of cable’s nation-leading broadband-access service.

The Illinois court case was a setback for Comcast because cable operators had fought the same issue in other courts and won clear-cut victories by relying on language used by the FCC in the March 2002 ruling, which was part of larger agency effort to promote a deregulatory environment for broadband-access providers.

“The ruling is contrary to the opinions of four federal district courts that have previously ruled on nearly the identical question before the Illinois court,” Fitzmaurice said.

In the 25-page opinion, the court said it wasn’t bound by cable's triumphs in the other courts, adding that the Telecommunications Act of 1996 “reflects no specific intent to pre-empt franchise fees on noncable services.” Comcast, the court ruled, was violating terms of its service contract with the city by withholding data-revenue fees.

In June 2005, the U.S. Supreme Court affirmed in the National Cable & Telecommunications Association vs. Brand X Internet Services case the FCC’s decision that cable-modem service was an information service. But the Illinois court said the “BrandX case did not resolve the matter of applicability of franchise fees to cable-modem service.”

Lastly, the court said Comcast couldn't rely on the Internet Tax Freedom Act of 2003 to avoid paying cable-modem franchise fees because such fees are “not a tax prohibited by the ITFA.”

The court’s opinion was delivered by Justice Calvin C. Campbell, with Justices P. Scott Neville Jr. and Patrick J. Quinn concurring.

The ruling, for now, is expected to apply just in Cook Country. Cable operators RCN and WideOpenWest were Comcast’s co-defendants in the case.

In a prepared statement, RCN senior vice president strategic and external affairs Richard Ramlall said his company would likely appeal.

“We believe that Chicago consumers would be outraged to learn that their city government is attempting to impose a 5% gross-receipts fee on their broadband service, which will add about $1.35-$3.50 per month to their bill,” Ramlall said.

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