Authored Articles & Publications May 27, 2016

Oregon Supreme Court: Right of Way Fee Can Be Levied on Internet Revenues

By Joseph Van Eaton

Big news yesterday from the Oregon Supreme Court: The City of Eugene, Ore. may lawfully impose a fee on Comcast’s use of rights of way to provide cable modem service/Internet service.

Cable operators like Comcast originally paid franchise fees on cable modem/Internet services. But after the FCC declared that cable modem/Internet service was not a cable service, operators across the country stopped paying franchise fees. Localities cannot use cable franchising authority to impose a fee on cable modem/Internet services. The question in the Eugene case is whether localities can use other authority to impose a fee for use of the rights of way to provide Internet services. In a world where some cable companies are reporting more Internet than cable video customers, the case is an important step toward preserving local authority to obtain fair compensation for use of the rights of way.

Eugene passed an ordinance that imposed a revenues-based fee that applied to all entities occupying its right of way to provide telecommunications services. The term “telecom services” was defined broadly enough to reach Internet services. The City directed Comcast to pay the fee on its revenues from cable modem Internet service, and Comcast challenged the fee, arguing that it was barred by the Internet Tax Freedom Act and by the federal Cable Act. The Oregon Supreme Court rejected both claims. The case only involves the question of whether a fee for use of the rights of way that reaches Internet services is permissible under federal law – the Oregon courts had already decided the fee was permissible under state law.

The ITFA, by its terms, does not prevent localities from imposing fees in return for benefits provided. Eugene argued that what it was charging was a fee for use of the rights of way to provide Internet services. Comcast argued that, because it was already using the rights of way pursuant to a cable franchise, its use of the rights of way were already authorized, there was no additional benefit being provided and, therefore, the fee was in fact subject to the ITFA’s limits. The Court disagreed: The cable franchise only granted rights to provide services required by the franchise, and the franchise only required the provision of cable services. Therefore, the Court reasoned, the cable franchise did not provide Comcast the right to use the rights of way to provide Internet services. Comcast argued that the Cable Act required the Court to read the franchise to grant it the right to use the cable system (and hence the rights of way) to provide any service desired without additional authorization. The Court again disagreed:

“The legislative history establishes, at most, that the Cable Act does not prohibit a cable operator from providing non-cable services. In that sense, and only in that sense, the 1984 Cable Act ‘permit[s]’ cable operators to provide non-cable services. But the legislative history does not establish, as Comcast contends, that the Cable Act grants cable operators an affirmative right to provide non-cable services, prohibiting state or local authorities from regulating non-cable services or charging fees for the right to provide non-cable services over the cable system that occupies public rights of way…”

Comcast also argued that the Eugene fee was also preempted by the franchise fee provisions of the Cable Act, which limit localities to charging cable operators a franchise fee equal to 5 percent of gross revenues derived from the operation of the cable system to provide cable services. The court noted that the franchise fee limit only applies to fees imposed on cable operators because of their status as such. Because Eugene had written its ordinance to apply to any entity that used the rights of way to provide Internet services, the Court reasoned the Eugene fee was not subject to the 5 percent franchise fee cap. According to the Court, Congress “expected that not only would local governments be able to impose fees on telecommunications services provided over franchised cable systems using public rights of way but also that those telecommunications services would continue to be subject to the limitations that generally apply to telecommunications services.”

Note: This article originally appeared on the now-defunct BBKnowledge blog, where Best Best & Krieger authors shared their knowledge on emerging issues in public agency law.

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