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Franchise arrangements for cable services are a major benefit to many Texas municipalities. In addition to serving as a source of revenue, they often provide additional “freebies” such as low- or no-cost services for public institutions. However, a recent order by the Federal Communications Commission (FCC) will effectively do away with those freebies, resulting in greater financial burdens for the municipalities that have come to rely on them.

It’s a win for the cable industry, but a major loss for local governments.

The 5% cap

In Texas, cable service providers operate through franchise agreements with state and local governments. They pay a portion of their gross receipts to the applicable government in exchange for their “right of way” to provide services. Under longstanding federal law, however, that portion is capped at 5%.

Governmental entities in Texas have long relied on additional nonmonetary compensation — or “in-kind” contributions — to supplement their 5% revenues. Typically, these “freebies” include cable services and institutional networks for public buildings, government entities and the like. They’re a key element of many established franchise agreements.

The FCC order

Under the new FCC order, however, cable service providers may now deduct the value of their in-kind contributions from the amount of revenue they pay under existing franchise agreements — effectively reducing the 5% portion they pay. Limited exceptions apply to certain capital costs. Still, the order means state and local governments will likely see a dramatic decrease in cable franchise revenues once the order goes into effect.

Read the order to learn more.

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