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District ruling bolsters franchise fees.

In a significant win for cities around the country, the Federal District Court in Detroit took a giant step toward upholding the intent of the Federal Telecommunications Act of 1996 by protecting the ability of cities and towns to manage the public rights-of-way and charge compensation for their use. In the case of TCG Detroit v. City of Dearborn, the judge issued a decision upholding the city of 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 noteworthy 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 solely the cost of maintaining the public rights-of-way, a position frequently articulated by telephone and cable companies.

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 court's decision buttresses the cities' position, and paves the way for other municipalities 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.

Here, the city of Dearborn, Michigan was sued by a new telephone company (TCG). 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. Specifically, TCG argued that the ordinance violated Section 253 of the Telecommunications Act on the grounds that: (1) the compensation is not fair and reasonable under the Act, (2) the city is not requiring compensation in a competitively neutral and nondiscriminatory manner, and (3) the city's ordinance is in violation of the Act because it has the effect of prohibiting the company's entry into the market.

In reaching a decision in favor of the city of Dearborn, the district court judge rejected all of TCG's claims.

With regard to the issue of compensation, the opinion spends substantial time discussing the provision 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 judge rejected TCG's claims that "fair and reasonable compensation" was limited solely to a city's costs.

"There is nothing inappropriate with the city charging compensation, or rent, for the City owned property that the Plaintiff [phone company] seeks to appropriate for its private use. The statute specifically allows it," the judge said.

The judge also examined what other telecommunications providers were willing to pay to help determine whether the amount charged to TCG was "fair and reasonable." The judge noted three other cases in which telecommunications companies negotiated, and agreed to, franchise agreements with the city of Dearborn similar to that proposed to TCG.

He noted that "this is evidence in support of a finding that the compensation sought by the city is fair and reasonable."
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Title Annotation:local cable TV franchise fees upheld
Author:Tabin, Barrie
Publication:Nation's Cities Weekly
Article Type:Cover Story
Date:Aug 31, 1998
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