STATEMENT OF TIMOTHY H. LEE
SENIOR VICE PRESIDENT OF LEGAL AND PUBLIC AFFAIRS
CENTER FOR INDIVIDUAL FREEDOM

HEARING ON “LB1046 - CHANGE PROVISIONS RELATING TO TAXES AND FEES
ON COMMUNITY ANTENNA TELEVISION SERVICE”

BEFORE THE
 
NEBRASKA LEGISLATURE
COMMITTEE ON TRANSPORTATION AND TELECOMMUNICATIONS

FEBRUARY 11, 2020

Good afternoon, and thank you for this important opportunity to speak before you on this critical issue. 

My name is Timothy Lee, and I have served for fourteen years as Senior Vice President of Legal and Public Affairs at the Center for Individual Freedom, or CFIF.   CFIF was established almost twenty-five years ago in 1998, as a nonprofit organization founded to defend and advance the principles of free markets, constitutional rights and technological innovation.  CFIF claims over 300,000 supporters and activists across the United States, including thousands here in Nebraska.  We work on issues spanning legislative, executive, and judicial matters, and it’s important to note that we focus on issues of state and local import, not simply national matters. 

That is why I am here today, and on that basis I speak in strong support of L.B. 1046, which would wisely cap cable franchise fees at 3% going forward, to reflect the realities of today’s telecommunications and consumer markets. 

First, it’s important to place this proposal in historical context to help highlight its appropriateness. 

The current 5% cap on consumers’ total bills originates from federal laws enacted three decades ago, at cable television’s advent and sudden expansion.  At the time, those fees helped compensate localities for the new costs of installing cable infrastructure upon public rights of way.  Today, however, such fees center less on public right-of-way and other sunk costs, and more upon increasing costs of licensing television programming.  Accordingly, the original logic of those rates has become far less applicable or appropriate today. 

In similar vein, it’s critical to highlight that three decades ago when the current 5% cap was implemented, consumers’ typical cable bills were just $10 or less per month.  Accordingly, that 5% fee meant approximately $0.50 or less to consumers.  Today, in contrast, cable bills can reach $100 or more, significantly compounding the monthly cost to consumers by 10 times or more.  While the intervening three decades have brought exponentially greater options to programming and service, the consequent increase in monthly costs and rates paid by consumers now exceeds its original proportionality.  For that additional reason, historical context demonstrates that the 5% limit is as anachronism. 

The old law hasn’t kept up with market changes, so under the current cap consumers in Nebraska and across the country are stuck paying billions of dollars in franchise fees unrelated to public right-of-way costs, and in much higher amounts than during the 1980s when the cap was devised. 

A second critical rationale behind L.B. 1046 relates to one of the principles most central and foundational to CFIF that I referenced earlier – free markets and opposition to government laws tipping the scales in the marketplace, thereby picking winners and losers. 

In today’s marketplace, consumers can choose between cable, as well as satellite or streaming video, for their programming.  Unfortunately, existing law discriminates against cable instead of treating all entities equitably.  Specifically, Nebraska consumers must pay up to the 5% franchise fee each month for cable, but 0% for satellite or streaming video.  As I mentioned a moment ago, that disparity is no longer justified by sunk costs like public right-of-way expenses.  Additionally, cable is subject to the applicable 2% sales tax, whereas satellite is not. 

As a result, taxes and regulatory fees paid by cable customers can be two times or higher the amounts paid for satellite and streaming.  That’s an artificial, top-down governmental distortion of the marketplace, which undermines open and fair competition in today’s modern consumer marketplace.  It also handicaps cable providers in terms of infrastructure improvements, modernization, and innovation vis-à-vis competitors. 

Nebraska consumers thus pay millions of dollars per year to local governments in the form of cable franchise fees that simply don’t meet a basic fairness test.  With consumers in Nebraska and elsewhere paying ever-higher amounts from their paychecks for basic necessities and in daily life, a new 3% cap would bring them much-needed relief while still allowing for fair compensation to localities for the costs still incurred such as right-of-way. 

For these reasons, CFIF supports L.B. 1046, which offers greater fairness to consumers, improves affordability, helps eliminate government picking winners and losers among competing enterprises, and reflects today’s telecommunications market realities. 

Thank you very much for your time, and this opportunity to meet you and discuss this important issue.  I’m happy to answer and questions.

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