By Ron Thaniel
April 12, 2004

The United States Circuit Court of Appeals (9th Circuit) March 31 rejected an appeal led by the United States Conference of Mayors to a Federal Communications Commission (FCC) ruling, which declared cable modem service to be an interstate "information service," but not a "cable service" subject to franchise fees, as defined by the Telecommunications Act of 1996.

In doing so the 9th Circuit remanded the matter back to the FCC, and denied the arguments made by the United States Conference of Mayors (USCM), National League of Cities (NLC), the National Association of Counties (NACo), National Association of Telecommunications Officers and Advisors (NATOA) and the Texas Coalition of Cities for Utility Issues (TCCFUI) that cable modem is a cable service therefore subject to local taxing authority.

The FCC's March 2002 "Declaratory Ruling" became the basis for cable companies to stop paying franchise fees on the portion of revenue generated by cable modem service. Experts have assessed that the cable modem ruling has already cost local government over a billion dollars in lost franchise fees.

After the FCC's 2002 ruling, The United States Conference of Mayors, National League of Cities, National Association of Counties and the National Association of Telecommunications Officers and Advisors banded together creating the Alliance of Local Organizations Against Preemption (ALOAP) and appealed to the D.C. Circuit Court of Appeals asking that the FCC's decision be overturned. The case was consolidated with a number of similar cases in the 9th Circuit in San Francisco.

The 9th Circuit said the FCC should have found, as the court did in an earlier case, that cable modem services are part "telecommunications service" and part "information service."

The 9th Circuit found that the FCC's classification in the declaratory ruling was inconsistent with the court's earlier finding in AT&T Corp. v. City of Portland. That dispute involved the question of whether local franchising authorities in Portland could force AT&T to open up its cable modem platforms to competing Internet service providers.

The United States Conference of Mayors is considering an appeal of the 9th Circuits decision.