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Mediacom FCC Cable Franch. FeesMediacom April 9, 2002 CERTIFIED MAIL RETURN RECEIPT REQUESTED The Honorable Terrence Duggan Mayor for the City of Dubuque 50 West 13m Street Dubuque, IA 52001 Dear Mayor Duggan, I am writing to inform you of a recent ruling of the Federal Communications Commission and the action we are taking as a result of the FCC ruling. In a ruling issued and made effective on March 15, 2002, the FCC classified cable modem service as an "information service." Moreover, the FCC specifically said that cable modem service is not a "cable service." The FCC went on to discuss a number of questions regarding the regulatory effect of classifying cable modem service as an information service. On the subject of franchise fees, the FCC noted that Section 622 of the Communications Act provides that the franchise fees that a community can impose on a cable system may "not exceed 5 percent of Iai cable operator's gross revenue derived.. · from the operation of the cable system to provide cable services." The FCC then stated that "[g]iven that we have found cable modem service to be an information service, revenue from cable modem service would not be included in the calculation of gross revenues from which the franchise fee ceiling is determined." The FCC's statement has the effect of prohibiting the imposition of franchise fees on cable modem service revenues in their entirety. Our predecessor that owned the cable system until July included revenue from cable modem service in the calculations of gross revenues and paid franchise fees on this amount. It did this because until this FCC ruling the situation was unsettled. We continued the status quo after the acquisition for the same reason. However, given the clear direction from the FCC that cable modem service is not a cable service, revenues from the service cannot be included in the franchise fee ceiling calculation. Effective with our next billing April 2002, we will no longer collect franchise fees on cable modem revenues or include those revenues in our franchise fee calculation. To do othem4se would violate the FCC's ruling and statements and would expose you and us to lawsuits alleging the wrongful collection of fees. The potential liability to you and to us due to a class action lawsuit would likely be far greater than the franchise fees generated by the cable modem service. The savings from this step will be passed on directly to our subscribers (your constituents); our cable modem subscribers wilt see a reduction in their bills by the full amount Mediacom Communications Corporation 3900 26th Avenue · Moline, IL 61265 · 309'797-2580 · Fax: 309'797'2414 of the franchise fee we previously collected, so they will directly benefit. We do not benefit either way since we have merely served as a "collection agency" for these franchise fees and the franchise fee amount collected has always been passed on to you. We will provide you the franchise fees collected on cable modem service through March 2002 in our next remittance. From April 2002 forward, the subscribers will enjoy the benefit of the lower costs. We trust you can appreciate that the FCC's action has dictated this response on our part. Please feel free to contact me at (309) 743-4152 if you have any questions. Sincerely, Lee Ann James Government Relations Manager MEMORANDUM April 29, 2002 TO: FROM: SUBJECT: The Honorable Mayor and City Council Members Michael C. Van Milligen, City Manager City Support of Coalition Response to FCC Cable Modem Decision On March 14, 2002, the Federal Communications Commission declared cable modem service to be an "interstate information service" rather than a "cable service." Cable operators across the United States have interpreted the FCC's actions as exempting their cable modem service revenues from the "gross revenues" based upon which franchise fees are calculated and paid, thereby shifting a portion of the right-of-way rent formerly paid by cable operators onto the local taxpayers. The National Association of Telecommunications Officers and Advisors is coordinating the formation of a coalition of local governments and their support organizations called Alliance of Local Organizations Against Pre-emption (ALOAP) to appeal the FCC's declaratory ruling. Cable Franchise Administrator Merrill Crawford is recommending that the City of Dubuque contribute $5,000 from the Cable TV Fund to support the ALOAP in a two- pronged response to the FCC's recent cable modem decision. I concur with the recommendation and respectfully request Mayor and City Council approval. Michael C. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Merrill Crawford, Cable Franchise Administrator CITY OF DUBUQUE, IOWA MEMORANDUM April 30, 2002 MEMO TO: Michael C. Van Milligen, City Manager FROM: Merrill Crawford, Cable Franchise Administrator SUBJECT: City Support of Coalition Response to FCC Cable Modem Decision INTRODUCTION: The purpose of this memorandum is to recommend that the City of Dubuque contribute $5,000 from the Cable TV Fund to support a local government coalition in a two-pronged response to the FCC's recent cable modem decision. BACKGROUND: My memo of March 15, 2002 gave preliminary information about the nature and potential local impact of a Federal Communications Commission declaration that cable modem service is not a cable service, but an "interstate information service". Following this declaration, the FCC issued a Notice of Proposed Rulemaking (NPRM), suggesting a likely eventual position regarding the regulatory impact of its cable modem declaration, and seeking comment from interested parties. To nobody's surprise, most cable operators, including Mediacom, have interpreted the FCC's declaratory ruling and NPRM as exempting the cable modem service revenue stream from the "gross revenues" base upon which local franchise fees are calculated. Mediacom has unilaterally withheld payment of franchise fees on cable modem revenues after March 15, 2002. As franchise fees are a form of rent paid by Mediacom'for the permanent occupancy and use of public property, this action effectively shifts a greater portion of the cost of constructing and maintaining Dubuque streets and alleys onto the taxpayer, while Mediacom's for-profit cable modem business gets a free ride. What is the potential impact on the franchise fee in Dubuque? Looking ahead, the exclusion of cable modem service revenues from the gross revenue base upon which the franchise fee is calculated will have an escalating impact in terms of "lost potential income" to the City. The escalation comes from the anticipated significant future growth of Mediacom's revenues from cable modem services sold to residential, institutional and business customers. By contrast, gross revenues from more traditional cable services (mostly video programming) will probably grow at a somewhat slower pace, at least until new "killer applications" such as true "video-on-demand" services are perfected and capture consumer interest. For Fiscal Year 2003, my early estimate is that Dubuque's franchise fee income could be between $60,000 and $80,000 lower than if cable modem service were still counted among Mediacom's "gross revenues". However, I do not suggest any need to refigure the FY-2003 Budget at this time, as the revenue estimates I presented in the budgeting process were conservative, in anticipation of such negative action by the FCC. Aisc, the schedule by which our franchise fees are collected should give us reasonable time to detect and adjust to significant revenue shortfalls as a result of the expected FCC rules. Will the City lose all authority over how Mediacom conducts its cable modem business? There is a wide range of possibilities. However, depending upon the outcome of the rulemaking and any court appeals, right-of-way authority should be preserved to the extent it is preserved for other physical aspects of the cable company's business in our community, minus franchise fees. We may also be able to continue a reasonable degree of oversight in terms of Mediacom's business transactions with its customers, to the degree that these fall under the more general umbrella of consumer protection, (deceptive contracts, failure to deliver, door-to-door sales, etc.) which are not specific to the type of service being delivered. How will this affect our ability to negotiate cable modem services during the franchise renewal process? It's anybody's guess, but we can assume that the FCC decision and expected rules will embolden most cable operators to resist any efforts by cities to require broadband intemet service for residences or businesses, or to set any significant terms for the providing of such services. We should still be able to negotiate the prevision of Institutional Networks and other kinds of broadband infrastructure as long as we can separate them from the FCC's eventual definition of "Information Service". How are consumer organizations and local governments responding to the FCC's decision? A number of consumer organizations and internet service providers have already filed suit against the FCC in the Ninth Circuit Court of Appeals on various grounds. Representing the interests of local government, NATOA (the National Association Of Telecommunications Officers and Advisors) is coordinating two efforts in response to the FCC's cable modem stance, in partnership with the National League of Cities, the US Conference of Mayors, and the National Association of Counties. First, an appeal of the FCC's decision will be filed in the Ninth Cimuit, and second, comments and reply comments will be offered in the FCC's Rulemaking, Many cities and towns of all sizes are joining to support the coalition on these two related fronts. The coalition has been dubbed "ALOAP" (Alliance of Local Organizations Against Pre-emption) RECOMMENDED ACTION: The Recommended Action is that the City of Dubuque join with other local governments in the ALOAP coalition and support the court appeal and the rulemaking comments with a contribution totaling $5,000 from cable franchise fee revenues. A proposed resolution for that purpose is attached. Cc: Pauline Joyce, Administrative Services Manager Cable TV Regulatory Commission Cable Community Teleprogramming Commission RESOLUTION NO. 237-02 A RESOLUTION OF THE CITY OF DUBUQUE, Iowa IN SUPPORT OF THE COALITION OF LOCAL GOVERNMENTS APPEALING THE FEDERAL COMMUNICATION COMMISSION'S DECLARATORY RULING REGARDING CABLE MODEM SERVICE AND OFFERING COMMENTS AND REPLY COMMENTS IN THE RELATED FCC RULEMAKING. WHEREAS, the Federal Communications Commission on March 14, 2002 declared cable modem service to be an "interstate information service" rather than a "cable service" and issued a Notice of Proposed Rulemaking regarding the ramifications of this declaration, and WHEREAS, cable operators across the United Slates have mterpreted the FCC's actions as exempting their cable modem service revenues from the "gross revenues" base upon which franchise fees are calculated and paid, thereby shifting a portion of the right-of-way rent formerly paid by cable operators onto the local taxpayer, and WHEREAS, the National Association of Telecommunications Officers and Advisors is coordinating the formation of a coalition of local governments and their support organizations to appeal the FCC's declaratory ruling and to participate in the Rulemaking. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. That the City of Dubuque, Iowa supports the efforts of the coalition of local governments in the Appeal and in the Rulemaking pertaining to cable modem service and authorizes the contribution of five thousand dollars ($5,000) from the Cable TV Fund to the coalition for this purpose. PASSED, APPROVED, and ADOPTED this 6th day of May, 2002. Terrance M. Duggan, Mayor ATTEST: Jeanne F. Schneider, City Clerk