What's the deal? As part of its effort to buy a statewide cable TV franchise in New Jersey, Verizon Communications Inc. (NYSE: VZ) agreed to pay a higher franchising fee than cable operators. And why not? Service providers pass franchise fees on to their customers. In other words, consumers foot the bill and local governments get more cash in their coffers.
As the New Jersey State League of Municipalities explained to its members earlier this year in an update about the state's "System-wide Cable Television Franchise Act":
One of the Act's key municipal benefits was a higher franchise fee: Verizon is obligated to pay 3.5% of total revenues to each host municipality and up to .5% of total revenue to the State to subsidize service for PAAD-eligible residents. By contrast, the current franchise fee is 2% of revenues for basic service. Significantly, when Verizon is able to service 60% of the households in a town, then the incumbent cable provider will also have to pay the higher franchise fee.
— Michael Harris, Chief Analyst, Cable Digital News