News

Court Affirms Mich. 4% Telephony Fee

3/26/2000 7:00 PM Eastern

A 4-percent-of-revenue franchise fee for telephony
transport is fair and reasonable, a U.S. appeals court ruled, acting in a dispute between
TCG Detroit and Dearborn, Mich.

The March 7 ruling upheld a municipality's right to
charge fees for telephony and data transport, a subject of hot debate since the
Telecommunications Act of 1996. That legislation is meant to spur competition, but not to
saddle local taxpayers with the tab for repairing streets torn up by network builders.

Telecommunications companies argue that franchise fees,
administrative costs and other charges hinder competition and are forbidden by federal
law.

Cities, conversely, cite a provision that allows them to
charge for wear and tear on the public infrastructure as long as the fees are "fair
and reasonable." The definition of that broad phrase is at the heart of the debate.

The telcos also challenge whether the disputes should be
decided in court or by the Federal Communications Commission.

The 6th U.S. Circuit Court of Appeals in
Cincinnati affirmed a lower court ruling in favor of Dearborn. The court, in its decision
on a summary judgment motion, assumed jurisdiction and said the city can charge TCG a
franchise fee.

The argument began in 1994, when TCG Detroit, now owned by
AT&T Corp., signed a deal to use Detroit Edison's electrical conduit to string
fiber for its launch of competitive telephony service. TCG had deployed eight of its
intended 27 miles of fiber when the suburban Detroit city of Dearborn ordered it to stop.

The company entered negotiations with the city, according
to court documents, and eventually reached an agreement in principle in 1995, although
attorneys for TCG suggested amendments that would allow for subsequent changes that would
reflect updated state or federal policy.

That agreement, according to court documents, called for a
fee of 4 percent of gross revenues, a one-time fee of $50,000 and $2,500 for reimbursement
of city administrative costs.

But the 1996 Act appeared to make the franchise agreement
illegal, TCG argued. TCG backed away from that agreement and instead requested a license.
TCG also noted that telephone operator Ameritech Corp. is not charged a franchise fee.

Dearborn then sought a similar fee from Ameritech Corp. and
was rebuffed, and Ameritech joined the TCG suit.

The court ruled that Ameritech's statewide franchise
predates the federal policy change.

In deeming the fee reasonable, the appeals panel cited
TCG's own activities. TCG agreed to the fee structure before the federal policy
changes, the judges noted. Other providers have also agreed to pay Dearborn's fee,
they added.

TCG also has a franchise challenge under state law, which
it filed in Wayne County Circuit Court. Trial is set for June.

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