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Ms. Coralie A. Wilson January 10, 2003 Page 4 • A. Franchisee Disputes the Claim That It Has Violated Section 8.3: Franchisee's Cessation of Franchise Fee Payments on Cable Modem Service Revenues Does Not Violate the Franchise. Contrary to the Notice, Franchisee is not required to pay. franchise fees on cable modem service. In fact, the plain language of the Franchise required Franchisee to cease paying franchise fees in accordance with the requirements of federal law. 1. Federal Law Precludes the Payment of Franchise Fees on Cable Modem Service Revenues. In its Declaratorv Ruling, the FCC determined that cable modem services, such as those on which the Notice seeks to impose franchise fees, are "interstate information services" and not "cable services" (as that term is defined under federal 1aw).2 As the FCC stated: "we conclude that cable modem service; as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service." 3 The Declaratorv Ruling is fully applicable to the Franchise, the Commission and its member cities. Although the Declaratorv Ruling has been challenged by • municipal and county representatives and that case is now pending in the United States Court of Appeals for Ninth Circuit,4 the Declaratorv Ruling has not been stayed and thus remains effective while' the appeal is pending.5 Nor does the fact that the FCC continues #o have an open proceeding regarding the implementation of the Declaratorv Ruling alter the effectiveness of the FCC's designation of cable modem services. Although the FCC continues to consider how cable modem services should be regulated in light of its Declaratory Ruling, the designation of cable modem services as interstate information services was a separate, conclusive ruling, made after years of inquiry and investigation and with open acknowledgement of the effect the ruling would have on issues such as the collection of franchise fees on cable modem services.s Accordingly, the 2 See Declaratorv Ruling at ¶ 60 ("cable modem service is not a 'cable service' under the definition prescribed by the Act."). 3 Id. at ¶ 7. See also id. at ¶ 33. a Brand X fnternet Services v. FCC, Docket No. 02-70518 (and consoled. cases) (9th Cir., filed Mar. 22, 2002). No party has requested a stay of the FCC's order pursuant to Fed. R. App. P. 18 (procedures for stay of agency orders pending appeal). • s See. e.a., Declaratorv Ruling at ¶ 105 ("Given that we have found cable modem service to be an information service, revenue from cable modem service would not be included in the