Mediacom Cable franchise feesCity Manager's Office
50 West 13th Street
Dubuque, Iowa 52001a1864
(319) 589-4110
(319) 589-4149 FAX
February 5,2002
Mr. Bruce Gluckman
Vice President of Legal and Regulatory Affairs
Mediacom Communications Corporation
100 Crystal Run Road
Middletown, N.Y. 10941
Dear Mr. Gluckman:
Thank you for your letter of January 10, 2002, regarding franchise fees. We have
reviewed the Federal Communications Commission's order City of Pasadena,
California, et aL: Petitions for Declaratory Ruling on Franchise Fee Pass Through
Issues, CSR 5441-R, Memorandum Opinion and Order, FCC 01-289 (Oct. 4, 2001 ). As
you know, this order is now on appeal before the U.S. Court of Appeals for the Fifth
Circuit. The City supports that appeal and believes that the FCC's order is unsound. At
the same time, we understand why Mediacom is now claiming a right to pass through to
subscribers its franchise fee expenses attributable to non-subscriber revenues.
The FCC has not authorized any rate increases based on its Pasadena order, nor any
special procedures for implementing such increases. Thus, we remind you that the rate
increase we understand Mediacom proposes to take is subject to all the conditions that
apply to any other rate increase. In particular, you must notify subscribers and the City
at least thirty days in advance of any rate change, stating the precise amount of the
change and explaining its Cause in readily understandable fashion. See 47 C.F.R.
§ 76.1603(b)-(d).
The City is Concerned that subscribers may find the proposed change, and Mediacom's
explanation of that change, misleading. For example, some cable operators that
propose to increase rates based on Pasadena have sought to describe the process as
reflecting an increase in franchise fees. There has, however, been no increase in the
City's franchise fees, merely a change in the way Mediacom proposes to base its rates
on the existing fees. Similarly, some cable operators have sought to express the
combined franchise fee they seek to itemize on the subscriber's bill - the franchise fee
attributable to the subscriber's payment plus the additional amount attributable to non-
subscriber revenues - as a percentage of the subscriber bill. Obviously, however, any
such statement in percentage terms would be both meaningless (since the fee
itemization under Pasadena bears no systematic relationship to the subscriber's bill)
and misleading (since it would suggest that the City is charging a franchise fee higher
than five percent of gross revenues, which it is not).
Service People Integcity Responsibility Innovation Teamwork
Mr. Bruce Gluckman
February 5, 2002
Page 2
In addition, it should be kept in mind that the total cost for cable service or equipment
must be stated inclusive of the amount attributable to franchise fees, and not as if the
franchise fee were an add-on to the rate, like a sales tax. See H. Rep. No. 102-628,
102d Cong., 2nd Sess. at 86 (1992); City of Dallas, Texas v. FCC, 118 F.3d 393, 398
(5th Cir. 1997). This requirement is particularly important in the context of the confusion
likely to be caused by cable operators' application of the Pasadena order. Thus, we
remind you that misleading or inaccurate representations to subscribers may subject
Mediacom to liability under applicable law and under its franchise agreement with the
City. Under the circumstances, we strongly recommend that you discuss with us in
advance any proposed subscriber messages or information regarding this matter, so
that Mediacom has the benefit of the City's views on such representations before they
are sent out to subscribers.
To the extent to which Mediacom bases a rate increase on the FCC's Pasadena order,
the company will need to be prepared to refund any excess amounts charged to
subscribers if the Court of Appeals ultimately holds the FCC's order unlawful. The
potential complications of such an arrangement may provide a good reason for
Mediacom to refrain from implementing the FCC's order until the pending court
challenge has resolved its validity. We would support such restraint, which Mediacom
could exercise without waiving any rights to later rate increases that it may have in the
event the FCC's order is ultimately upheld.
Your January 10 letter invites the City to consider reducing Mediacom's franchise fee
payments by approximately 6.2 percent to offset the excess pass-through that
Mediaoom views as allowed by the FCC's order. While we appreciate your concern for
the rates paid by cable subscribers, the City does not view such a fee reduction as
addressing the problems created by the FCC's order. Mediacom's imposition of non-
subscriber costs on subscribers has the effect of forcing subscribers to subsidize
Mediacom's advertising business; a reduction in the franchise fee standard would
merely shift that subsidy to the City. Neither sort of subsidy to Mediacom is appropriate.
Rather, we suggest that the best way to keep subscriber rates Iow is for Mediacom to
pass through its franchise fee costs on non-subscriber revenue to the sources of that
revenue, such as advertising and home shopping, as we presume Mediacom has been
doing up until now.
Please contact Cable Franchise Administrator Merrill Crawford as soon as possible to
discuss Mediacom's plans and the explanations it intends to offer subscribers.
Sincerely,
Michael C. Van Milligen
City Manager
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