LOCAL GOVERNMENT MONEY AT STAKE IN BRAND X CASE

As state governments ponder their regulatory and taxing roles in a VoIP world, local governments officials are closely watching the outcome of the so-called Brand X case, which will decide how cable modem services are classified—and whether local entities can derive revenue from them.

FCC rules classify cable-modem offerings as an information service, but the Ninth Circuit Court of Appeals this year upheld an earlier ruling that cable modems include a telecommunications-service component. While the FCC has appealed the case to the Supreme Court to maintain its largely deregulatory authority over the high-speed data service, a local-government group has asked the high court to reverse the FCC’s order and find that cable-modem offerings are cable services.

Known as the Alliance of Local Organizations Against Preemption, the local-government group wants the cable-service classification, because local entities could then collect the 5% franchise fee associated with cable revenues. Under the current FCC rules, local governments are losing as much at $470 million in annual revenue because they cannot collect franchise fees on cable-modem revenues.

Libby Beaty, executive director for the National Association of Telecommunications Officers and Advisors (NATOA)—part of the local-government alliance—expressed optimism that the Supreme Court will take the case, which the office of the Solicitor General has recommended the high court hear.

Local-government officials agree with the FCC and the Solicitor General that the case needs to be heard because its merits have never been argued in court, Beaty said. The Ninth Circuit this year said it was compelled to follow a precedent it set years ago in the AT&T v. Portland case, when the notion of the telecommunications component was introduced in the ruling without being argued.

However, local governments differ with the FCC’s contention that the Supreme Court should grant it deference as the “expert agency” on the matter. Beaty said the FCC deserves such consideration only when it acts according to the statute and applicable case law—something the commission failed to do in this instance.

“They took license that they shouldn’t have,” Beaty said. “They didn’t even rely on the Portland case.”

Final comments are due to the Supreme Court on Nov. 4, after which the justices can decide whether to take the case.

If the local governments are successful in their appeal, they may seek retroactive payments of the franchise fees associated with cable-modem services, Beaty said.

“We’ve told them [cable companies], ‘You can refuse to pay this, but you should put the money in escrow,” Beaty said.