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Ms. Coralie A. Wilson January 10, 2003 Page 8 As demonstrated above, federal law prohibits the assessment of franchise fees on cable modem services revenues and any Franchise provisions to the contrary are preempted and superseded. Accordingly, Franchisee is under no obligation to continue paying franchise fees on cable modem revenues under the Franchise and Franchisee's failure to do so does not provide any basis for finding of .Franchise violation. 2. The Franchise .language requires Franchisee to cease paying Franchise Fees on cable ,modem revenues; thus Franchisee is currently in compliance.. - The Notice is based on the assertion that the Franchise requires the Franchisee to pay franchise fees on cable modem service revenues, irrespective of the FCC's Declaratory Ruling, because according to your notice "the obligation to pay franchise fees on cable modem service/Internet access revenues is not dependent. on how the Federal Communications Commission or federal law defines cable modem service." Aside. from ignoring. the preemptive effect of federal law discussed above, this statement is simply incorrect. The language of the .Franchise plainly provides that franchise fee payments are limited to that allowed by federal law. The Notice correctly notes that the: definition of Gross Revenues in the Franchise states that such revenues include • cable modem service/Internet access revenues. However, the Notice ignores. the specific language in the Franchise detailing the obligation to pay franchise .fees on such, revenues. In establishing the Franchisee's obligation to pay franchise fees, Section 8.3(b) states: Grantee shall. pay quarterly to City or its designee a Franchise Fee in the .amount equal to five percent (5%) of its quarterly Gross Revenues, or such other amounts _as ar_e subseguently permitted by federal statute.' Thus, the Franchise provides that Franchisee's payment obligation is limited to that which is subsequently permitted under federal statute. This provision does .not depend on, or~ make reference to, the definition of Gross Revenues, but rather makes the payment of franchise fees subject to change based solely on the future parameters of federal law. Franchisee's decision to adhere to the requirements of Section 622 (a federal statute) and cease payment of franchise fees on cable modem service revenues was therefore in full compliance with the plain language of the Franchise. • 1e Franchise at § 8.3(a) (emphasis added).