By Daniel Schneider

FCC Must Prevent Extortion by Local Governments

If you want less of something, tax it more.

That’s exactly what a number of states and cities are doing to the internet — shackling it with unlawful and counterproductive taxes and fees despite a widespread consensus that we need faster and farther reaching broadband networks. These maneuvers directly violate the clearly expressed federal policy against broadband access taxes and do nothing except undermine deployment of high speed broadband and driving up consumer internet bills.

Fortunately, the Federal Communications Commission (FCC) can put an end to these illegal taxes when it issues a widely anticipated order in its “Section 621” proceeding sometime this year.

That proceeding concerns the proper interpretation of the Cable Act of 1992 which allows local municipalities to charge “franchise fees” to local cable television operators. These fees are capped at 5% of the operators’ cable television revenues.

The problem is that a number of municipalities are trying to shake these companies down. And before anybody argues that the “government closest to the people governs best,” the “person” is the fundamental unit of government, and the two other levels of government recognized in the U.S. Constitution are the states and the federal government. Cities and municipalities have no constitutional role.

Nevertheless, some argue that the 5% cap should include internet revenues since some broadband service rides along the same infrastructure as cable television. That is clearly wrong. For one thing, Congress has plainly prohibited internet access taxes. For another, it would distort the broadband market by allowing municipalities to tax one form of internet access (cable broadband) while not allowing them to tax other competing forms of internet access (fiber, DSL, wireless). Hindering competition and choosing sides in the marketplace goes against the very principles that have allowed our economy to innovate and thrive since the nation’s founding.

Most municipalities actually admit they can’t charge the fee, so have instead worked to find other ways around the 5% cable television revenue cap — often by requiring companies to provide free products or services as a condition of receiving a franchise. It’s little more than economic extortion — an “offer” no cable television company can refuse.

The localities, in fact, have made it clear that their toll must be paid or no business will be permitted at all, turning billions worth of valuable cable system infrastructure into a pile of dead wires. That ploy will kill innovation in a technology space that has provided billions of dollars into the economy and sustains millions of jobs nationwide.

But let’s make no mistake, it’s consumers who are really being shaken down because it’s the consumer who will always be footing the bill.

We recognize that the telecommunications sector is evolving and many subscribers are switching to new streaming services or otherwise “cutting the cord.” But that’s not a license to ignore the law, shake down companies, and harm consumers and innovation all for the sake of filling the coffers of local governments.

If they believe existing franchise fees are inadequate, they may seek to have the cap increased or the law amended in other ways. Until then, it is critical that local governments respect the laws in place and understand that our system affords the person, state, and federal government to dictate policy.

But barring that, they may not flout the law. We hope the FCC will stop this greedy cash grab from companies and consumers when they issue their final order on Section 621.


Originally posted in Real Clear Politics.

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