01/29/2014
Wednesday, January 29, 2014 - Q & A
Q. My cable company charges me money for a franchise fee. I never signed an agreement to pay a franchise fee and I do not even know what it is. I called for information but they didn't tell me anything. Can they charge a franchise fee?
A. You listed the name of the cable company in your actual letter and I called to get an explanation. This answer is specifically addressed to the person who wrote the letter but should apply to anyone else who is paying a franchise fee. To be sure your franchise fee works the same as the one I will be discussing, it would be wise to check with your cable, phone or electric company to be sure you do not have some different arrangement.
Your bill had 3 items on it. There was a charge for monthly service, sales tax and the franchise fee. The monthly service charge is self-explanatory and the sales tax charge is also clear. When I called about the franchise fee, it also became clear. The franchise fee charge is not a charge that the cable company is charging you for the franchise. It is the amount that the county is charging the cable company for their franchise. You do not have a franchise agreement with the cable company but the cable company has an agreement with the county. In your case, the cable company is required to pay 3% of its charges to the county in order to be allowed to do business in your county. In a way (and only for purposes of understanding), think of it as a county sales tax.
At first, your company was absorbing the cost of this 3% charge but as costs rose, the company faced a dilemma. They could not afford to keep paying the 3% and still make a reasonable profit so they considered raising the monthly service charge. Of course the problem with raising the monthly service charge is that such a raise would also raise the amount due to the county since the county charged a percentage of the money collected rather than a set sum. The cable company solved this problem by adding 3% to each customer's bill as a separate item called franchise fee.
Since the separate item was listed as franchise fee, showing that it was going to the county rather than to the cable company, it did not raise the money collected by the company for their services. By listing it as a franchise fee, the company was also not required to charge sales tax on the additional amount. In other words, by listing the increase as a franchise fee and showing that it would be going directly to the county, the cable company kept the increase to a minimum. The law about taxation is rather complex but I believe that my explanation is accurate.
You also asked if they could do this and I assume that you mean adding a new charge after the contract was signed. The answer is that they have done it. The contract you signed did not specify the amount they could charge as a monthly service charge. Therefore, they could have raised your monthly service charge and you could not have claimed a breach of the contract. By adding an additional line item (the franchise fee) they may have initially broken the contract but when you paid the fee and did not object, you probably accepted the new item into your contract by implication. I am sure that if you object to the franchise fee charge, the cable company will consider letting you out of your contract but then you would be without cablevision. You should decide whether cable is worth the 3% increase and, if it is, it does not matter what they really chose to call the increase.