FCC Broadband Deregulation: Who Is the Real Winner?

By: Chris Jannace

Maryland’s Montgomery County challenged a 2015 Federal Communications Commission (“FCC”) order interpreting noncash and cable-related exactions as “franchise fees.”[1]  Federal law provides that annual franchise fees paid by a cable operator “shall not exceed 5 percent of such cable operator’s gross revenues” for that period.[2]  The Sixth Circuit concluded that the FCC did not sufficiently explain its inclusion of “in-kind” cable-related exactions.[3]  Therefore, the court vacated the order for being arbitrary and capricious and remanded it to the FCC to explain its interpretation.[4]

On August 27, 2019, the FCC issued an order explaining its conclusion that “non-cash, ‘in-kind’ contributions” are franchise fees limited by the five percent statutory cap.[5]  It first referred to the Sixth Circuit’s finding that franchise fees can include “in-kind,” nonmonetary payments.[6]  The FCC then defended against the contention that the statutory definition of “franchise fee” did not include capital costs or payments for, or in support of the use of, “public, educational, or governmental access facilities.”[7]  It argued that the statute is “straightforward” because it provides a broad definition of “franchise fee,” then expressly provides limited exceptions that do not include all cable-related, in-kind contributions.[8]

The parties affected by this situation include the FCC, local franchising authorities (“LFA”), broadband providers, and United States inhabitants—particularly those in rural areas with limited or no broadband access.  The issue is whether the FCC’s interpretation of “franchise fees” in its recent order is a permissible construction, and further, whether limiting in-kind cable-related exactions is likely to have the intended positive effect on broadband expansion.

If a statute is silent or ambiguous, courts are obligated to defer to the agency’s interpretation if it is a permissible construction of the law.[9]  While the Sixth Circuit previously considered the FCC’s order arbitrary and capricious, the FCC’s August 2019 order will likely pass as a permissible construction because it addresses whether Congress intended the FCC to consider the language, does not fail to consider an important aspect of the problem, does not run counter to evidence, and is not “so implausible that it could not be ascribed to a difference in view or the product of agency expertise.”[10]

LFAs have been able to exact demands in excess of capped franchise fees.[11]  Broadband providers require investment and regulatory predictability to plan business ventures that will facilitate the FCC’s objective of expanding broadband access, especially in underserved rural communities.[12]  Currently, rural broadband deployment is lagging significantly. While 24 million Americans still lack broadband speeds of at least 25/3 megabits per second, 14 million rural Americans and 1.2 million Americans living on tribal lands lack broadband speeds of even 10/3 megabits per second.[13]  This shocking divide has been noticed by both the FCC and the U.S. Department of Agriculture, which specifically acknowledges the need for broadband expansion to enhance agricultural production, manufacturing, and rural prosperity for households, schools, and healthcare facilities.[14]  Additionally, it is recognized that broadband development will facilitate job creation in rural areas.[15]

The FCC is taking rural broadband development seriously.  Its Connect America fund has awarded $1.98 billion over ten years for broadband service support in unserved areas, and this summer, it authorized over $524 million for over 200 thousand rural homes across twenty-three states.[16]  The FCC is attempting to promote private investment by limiting additional expenditures—particularly, franchising fees—but understands that public assistance is still necessary because of the high cost of broadband development into expansive rural areas.[17]

 Annual capital expenditures on broadband have averaged about $76 billion since 2013.[18]  Detractors are quick to point out decreases in broadband providers’ capital expenditures.  Recently, some have pointed to the fact that AT&T is reporting lower-than-expected infrastructure spending that “surprised Wall Street analysts.”[19]  Its 2020 capital expenditure forecast decreased from $23 billion to $20 billion, and is currently expected to decrease to $19 billion in 2021 and 2022.[20]  This analysis is predicated, however, on other reporting that acknowledges that it is “difficult to ascertain whether operators are pulling back from 5G or whether they’re simply moving spending from one thing to another.”[21]

Experts acknowledge that increasing access in underdeveloped areas requires encouraging both investment and competition,[22] and that regulatory predictability will help accomplish this.[23]  Decreasing private expenditures on LFA demands should encourage investment and competition to bring broadband into rural areas.  The FCC has shown a willingness to invest public funds to support this endeavor.  Since the FCC is an independent regulatory agency with five-year terms (the earliest of which is over in 2021), there will hopefully be adequate time to implement the FCC’s order and observe the results.  While broadband providers have made a profit and will continue to do so, the real winner will likely be rural Americans, who should see increased broadband infrastructure development and its corresponding intended economic improvements.

[1] Montgomery Cty. v. FCC, 863 F.3d 485, 489 (6th Cir. 2017).

[2] 47 U.S.C. § 542(b) (1996).

[3] Montgomery Cty., 863 F.3d at 491 (quoting Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016) (“One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions.”).

[4] Id. at 491-92.

[5] Local Franchising Authorities’ Regulation of Cable Operators and Cable Television Services, 84 Fed. Reg. 44,725, 44,726 (Aug. 27, 2019) (to be codified at 47 C.F.R. pt. 76).

[6] Id. at 44,726; see Montgomery Cty., 863 F.3d at 491 (citing Austin v. United States, 509 U.S 602, 623-24 (1993) (Scalia, J., concurring) (recognizing that “assessments” under 47 U.S.C. § 542(g)(1) need not be monetary).

[7] 47 U.S.C. § 542(g)(2)(B)-(C) (1996).

[8] Local Franchising Authorities’ Regulation of Cable Operators and Cable Television Services, 84 Fed. Reg. at 44,728.

[9] Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984).

[10] See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

[11] Roslyn Layton, How Local Government Gets in the Way of Better, Faster, and Cheaper Broadband, Am. Enter. Inst. (Feb. 27, 2019),

How local government gets in the way of better, faster, and cheaper broadband
(last visited Nov. 5, 2019).

[12] See Doug Brake, A Policymaker’s Guide to Rural Broadband Infrastructure, Info. Tech. & Innovation Found, April 2017, at 6; cf. Broadband Policies for Latin America and the Caribbean: A Digital Economy Toolkit, Org. for Econ. Coop. and Dev.,  http://www.oecd.org/internet/broadband/lac-digital-toolkit/Home/toolkit-text-chapter1.htm (last visited Nov. 3, 2019) [hereinafter OECD] (contending that closing access and usage gaps “involves major supply-side challenges, notably encouraging investment and competition, extending broadband infrastructure into rural and remote areas and upgrading networks to match the rising demand”); Wolster Lemstra et al., The Dynamics of Broadband Markets in Europe: Realizing the 2020 Digital Agenda 168-69 (Wolter Lemstra & William H. Melody eds., Cambridge Univ. Press 2015) [hereinafter Dynamics] (observing that stabilized regulatory frameworks enhance the security of planning and investment).

[13]2018 Broadband Deployment Report, Fed. Comm’cn Comm’n (Feb. 2, 2018), https://www.fcc.gov/reports-research/reports/broadband-progress-reports/2018-broadband-deployment-report.

[14] See e-Connectivity for all rural Americans is a modern-day necessity, U.S. Dep’t of Agric., https://www.usda.gov/broadband (last visited Nov. 3, 2019).

[15] See Robert W. Crandall & Hal J. Singer, Broadband Creates Jobs, Brookings (Feb. 23, 2010), https://www.brookings.edu/opinions/broadband-creates-jobs/.

[16] See Connect America Fund Phase II Auction (Auction 903), Fed. Commc’n Comm’n, https://www.fcc.gov/auction/903 (last visited Nov. 3, 2019); Press Release, Fed. Commc’n Comm’n, FCC Authorizes $524 Million in Funding for Rural Broadband from Connect America Fund Auction (July 15, 2019), https://docs.fcc.gov/public/attachments/DOC-358490A1.pdf.

[17] See Brake, supra note 12, at 6.

[18] Historical Broadband Provider Capex, ustelecom, https://ustelecom.org/wp-content/uploads/2018/12/Broadband-Investment-Historical-Broadband-Provider-Capex.pdf (last visited Nov. 3, 2019).

[19] Jon Brodkin, AT&T Will Slash $3 Billion Off Its Capital Investments Next Year, Ars Technica (Oct. 30, 2019), https://arstechnica.com/information-technology/2019/10/att-is-cutting-capital-investment-from-23-billion-to-20-billion/?comments=1&post=38189193#.

[20] Id.

[21] Mike Dano, AT&T & Verizon Are Stingy on CAPEX, Despite 5G Deployments, Light Reading (Oct. 30, 2019), https://www.lightreading.com/mobile/5g/atandt-and-verizon-are-stingy-on-capex-despite-5g-deployments/d/d-id/755244.

[22] See OECD, supra note 12.

[23] See Howard H. Stevenson & Milhnea C. Moldoveanu, The Power of Predictability, Harv. Bus. Rev. (Jul./Aug. 1995), https://hbr.org/1995/07/the-power-of-predictability; see also Dynamics, supra note 12.

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