A change in the way federal officials classify cable modem service could cost Carroll County and its municipalities thousands of dollars a month in franchise fees from Adelphia Cable and send the county into a long legal battle with the cable giant.
The Federal Communications Commission decided last month that cable modem services are a form of interstate communications rather than a cable or telecommunications service. With the ruling, modem service no longer falls under Adelphia's franchise agreement with the county, the company's attorneys say. Franchise General Manager Teresa Pickett informed the Carroll Cable Commission of the change in a letter dated April 17.
Carroll officials, however, say their contract protects the county from losing money because of such a decision, and they promise to fight Adelphia, in court if necessary, to get the full revenue expected from the contract.
Adelphia's decision throws Carroll into the same situation as the rest of the counties in the Baltimore area, all served by Comcast Cable, which announced this month that it will no longer pay franchise fees on its modem service because of the FCC decision. Comcast's policy change could cost Baltimore-area county governments millions of dollars a year by official estimates. Rough estimates suggest the Adelphia change could cost Carroll and its municipalities about $150,000 a year.
The potential fight over franchise fees is the latest skirmish in the contentious two-year relationship between the county and Adelphia, based in Coudersport, Pa., and one of the nation's largest cable companies. In January and February, many Carroll customers complained that Adelphia's modem service rarely functioned. That problem has mostly abated only to be replaced by the fee questions, said Ken Decker, chairman of Carroll's cable commission.
"If you look back at the last year and a half with Adelphia, it hasn't been a joyride," Decker said. "They mistreated and shortchanged our customers, and now they're trying to do the same to the governments."
Decker said that if negotiations over the franchise fees don't go smoothly, the cable commission might look to break its contract with Adelphia.
"You can only stretch a contract so far before it loses its significance and becomes just a piece of paper," he said.
Decker said the contract states that all of its conditions apply to any service transmitted through Adelphia's cable. The FCC decision does not give Adelphia license to violate the contract, he said.
"Adelphia is committed to complying with the FCC's guidelines, just as they have in the past," Pickett said yesterday. "To that end, according to the FCC's recent ruling, modem service is no longer subject to franchise fees. The letter sent to political leaders was sent as a result of Adelphia's desire to comply with the FCC's recent ruling regarding cable modem service." The contract also says that Adelphia must compensate the county for any significant loss of expected revenue from the contract, Decker said. The decision not to pay franchise fees on modem service constitutes such a loss, he said.
"We want to assure you that this ruling does not affect franchise fees that are paid for television services," Pickett wrote in her letter.
But Decker dismissed the statement as blunt and punchless because Adelphia could keep its franchise rate the same and still effectively gut its contract with the county.
Pickett reiterated yesterday that Adelphia plans no significant rate changes.
Adelphia has paid a 5 percent franchise fee on all of its services. That means $2.50 per customer for the $50 monthly cost of Internet service. The company has about 5,300 Internet customers, so the county could lose about $13,250 a month in Internet fees.
The situation could get worse, Decker said. Adelphia could largely eliminate franchise fees without losing revenue by reducing television charges to virtually nothing while simultaneously increasing Internet rates to make up the difference.
A customer might pay $40 a month for cable television and $50 a month for cable modem service, with Adelphia paying the county 5 percent on the overall $90 sum. Under a new configuration, Adelphia could charge $1 for television service and $89 for cable service, guaranteeing itself the same gross revenue while having to pay the 5 percent franchise tax only on the $1 television charge.
"Just like water finds its lowest level, business invariably does all it can to avoid regulation," Decker said.
He has asked the county's telecommunications attorney to write a letter to Adelphia stating the commission's concerns. Decker said he wouldn't be surprised if the county ends up suing Adelphia to recover franchise fees.