Cable Firm or Telecom? Proposed Law's Language Could Cost Suburbs Millions

By Pierce, Gala M. | Daily Herald (Arlington Heights, IL), October 26, 2003 | Go to article overview

Cable Firm or Telecom? Proposed Law's Language Could Cost Suburbs Millions


Pierce, Gala M., Daily Herald (Arlington Heights, IL)


Byline: Gala M. Pierce Daily Herald Staff Writer

Local municipalities and several watchdog organizations nationwide are lobbying to patch what they claim is a billion- dollar loophole in the proposed Internet Tax Nondiscrimination Act of 2003.

The act is an amendment to the Internet Tax Freedom Act, which bans taxes on Internet services.

Municipalities and watchdog groups fear the language of the new act would free cable and telecommunication companies from paying franchise fees for the use of the public rights-of-way to install cable or fiber optic systems.

AT&T, Sprint, SBC, MCI, EarthLink and Comcast are some of the major companies in the area that provide phone, cable and Internet services.

They are subject to regulation because they run wires through public property to offer their services. Wireless Internet service providers, not as prevalent in the area, are not subject to such regulation.

If companies were free of regulation, a cable provider would no longer have to pay 5 percent of its gross revenue to municipalities.

Even as recently as this month, the courts are battling out how they define telecommunications and Internet or information services - and thereby determining what the full impact of the act may be.

If a company is classified as a telecommunications service, it is subject to regulation and, therefore, fees. If considered an Internet or information service, it is pardoned of such regulation under the Internet Tax Freedom Act.

Cities receive thousands of dollars in fees from cable companies each year. The city of Batavia, for example, received $207,000 in franchise fees from Comcast this year. That amount is representative of other cities of its population with similar numbers of cable subscribers.

Wheaton and Elmhurst, which have populations in the 40,000s and 50,000s, and have about 10,000 cable subscribers, receive about $330,000 in franchise fees annually from cable companies. And larger communities, such Aurora and Naperville, receive approximately $1 million in franchise fees in a given year.

While municipal officials fear this loss of revenue, others say the intention of the legislation is clear - to simply ban taxes on Internet services.

Representatives from the Washington, D.C.-based National Cable and Telecommunications Association, the lobbying arm for the cable industry, say the concerns are unfounded.

"The Internet Tax Nondiscrimination Act would not have an effect on the cable television franchise fees that are paid by cable operators," association spokesman Brian Dietz said.

But with the big day approaching, questions linger. The U.S. House of Representatives already has passed the bill, and senators are poised to review their version before Nov. 1, when the first act will expire.

"There's a deep concern that the way (the bill) is worded, any revenue related to the Internet in any way shape or form, won't be available to local governments," said Stu Chapman, a Hoffman Estates telecommunications consultant for cities and counties across the country.

Plugged into profits

Worries have escalated since the Washington, D.C.,-based Multi- State Tax Commission released a report Sept. 24 stating that if the current language of the proposed legislation had been in effect for 2002, state and local governments would have lost $22 billion in revenue, a large part of which would be franchise fees.

Those fees are used in a variety of ways. In Batavia, money from Comcast helps fund entities like the city's public access channels. The funds also act as a general revenue source for the city, Batavia Access Television Director Dan Shanahan said.

"To me, Senate Bill 150 reflects the lobbying strength of big telecommunication businesses and how it wants to squelch the functions of municipalities and community television," he said. …

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