Murtha Cullina LLP

November 2014 - Connecticut Cable Taxes and Deregulation: Moving Beyond the Faustian Bargain

By: Burt Cohen

07-253 and Deregulation of Cable Video Services

On October 1, 2007, Public Act 07-253 (07-253), An Act Concerning Certified Competitive Video Service, changed the landscape of Connecticut cable regulation that had been in place since the first cable franchises were granted in 1967. To protect the local telephone company, the Southern New England Telephone Company (SNET), cable companies had been regulated and taxed like the phone company. This meant that Connecticut, in contrast to other states, treated cable as akin to a utility. By 2007, however, SNET, then owned by the telecommunications behemoth AT&T (SNET/AT&T), needed legislative relief to clear the cloud over its legal ability to continue to offer video service that it had branded as u-Verse.

SNET/AT&T’s legal issues in Connecticut derived from a successful cable industry challenge in federal court asserting that the u-Verse video product legally would be considered a cable service and, accordingly, could not be offered without first obtaining a franchise (referred to under Connecticut law as a "certificate of public convenience and necessity"), which would subject its video operations to the same rules that cable operators had been meeting for decades.

To remove the cloud over its legal rights, SNET/AT&T sought cable industry support for a legislative deal that would allow all video providers to transition into a deregulatory scheme that granted cable franchises in perpetuity, thus eliminating the need for franchise renewal proceedings. With cable industry opposition eliminated, SNET/AT&T was able to obtain overwhelming legislative support for 07-253, thereby creating new certified competitive video provider categories, with the rights granted to SNET/AT&T and cable providers to offer video service in Connecticut under far less than traditional cable regulation. In short, all certified wireline video providers in Connecticut were effectively freed from the legacy of regulation that had begun over 40 years earlier.

This article is not intended to address the mechanics or the benefits of cable deregulation or of AT&T’s legal issues but, rather, concerns instead the tax consequences of 07-253, particularly on the non-AT&T cable operators in Connecticut. Those consequences are significant, as is explained below.

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