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Circuit Court Ruling Bolsters Franchise Fees; Local Cable Fees Upheld In Dearborn Case.

In a significant win for cities around the country, the Federal Appeals Court for the Sixth Circuit upheld the ability of cities and towns to manage public rights-of-way and charge compensation for their use. In the case of TCG Detroit v. City of Dearborn, the court upheld the Dearborn, Michigan's ability to require telecommunications companies to enter into franchise agreements and pay franchise fees under the Federal Telecommunications Act of 1996. This victory is particularly positive because the court's opinion recognizes that municipalities are entitled to charge rent for the use of the public rights-of-way, as opposed to only the cost of maintaining the public rights-of-way, a position frequently articulated by telephone and cable companies.

TCG had planned to install fiber optic cable in conduits owned by Detroit Edison within Dearborn's rights-of-way. Dearborn adopted an ordinance requiring telecommunications providers that wanted to use the city's rights-of-way to enter into a franchise agreement with the city. Dearborn and TCG reached agreement on a proposal that required TCG to pay Dearborn a franchise fee of 4 percent of gross revenues, a $50,000 one-time payment (in lieu of providing the city with four fiber-optic strands) and up to $2,500 of the city's costs in connection with the franchise.

After Congress enacted the 1996 Act, TCG rejected the proposed franchise agreement and filed suit, alleging that the Dearborn ordinance violated Section 253 of that act because they contended the required compensation was not fair and reasonable. It asserted that the city was not requiring compensation in a competitively neutral and nondiscriminatory manner and the city's ordinance had the effect of prohibiting TCG's entry into the market. The suit maintained that Dearborn's ordinance requiring TCG to enter into a franchise agreement to pay franchise fees to the city in the amount of 4 percent of gross revenues was a violation of the Telecommunications Act of 1996.

TCG argued that the requirement of "fair and reasonable" compensation in Section 253 has the same meaning as "just and reasonable" rates under the federal Pole Attachment Act, which essentially defines such a rate as one that ensures that a utility recovers its costs. The district court disagreed, explaining that the fact that Congress used the word "compensation" in lieu of the word "costs" in Section 253 argued against construing the term to limit municipalities strictly to their costs related to telecommunications providers' use of their rights-of-way.

The circuit court upheld the lower court's ruling which held that there was "nothing inappropriate about the city charging compensation, or `rent,' for the City-owned property" that TCG "seeks to appropriate for its private use," and concluded that the compensation was "fair and reasonable" because three other telecommunications providers--MFS, Metrocom and MCI Metro Access--negotiated and agreed to franchise agreements that were substantially similar to the proposed TCG agreement, "including a percentage fee on gross revenue, costs and conduit space."

NLC, and localities around the country, have consistently maintained that the Telecommunications Act of 1996, specifically Section 253(c), in fact, preserved municipal franchising, compensation and right-of-way management authority, including the right of cities and towns to charge rent for the use of the public rights-of-way The circuit court's decision buttresses the cities' position, and strengthens other municipalities' efforts to require telecommunications companies seeking to use the public rights-of-way to enter into franchise agreements with local governments and pay local taxpayers compensation for their use.

With regard to the issue of compensation, the opinion upholds the lower court's interpretation of Section 253(c) of the Telecommunications Act of 1996, which allows municipalities to charge "fair and reasonable compensation ... for use of the public fights of way." In a decision very favorable for municipalities, the lower court rejected TCG's claims that "fair and reasonable compensation" was limited solely to a city's costs.
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Author:Otero, Juan
Publication:Nation's Cities Weekly
Date:Mar 13, 2000
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