Court Slaps Telecom Franchise Terms

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Regulators can't charge potential telecommunications competitors fees that aren't also levied on incumbents, a federal appeals court ruled last week.

Ruling in a 1999 lawsuit between White Plains, N.Y., and Teleport Communications Group, the U.S. Court of Appeals for the Second Circuit held that localities do have the right to charge different rates of compensation to various providers.

But those amounts must correlate to impacts upon rights-of-way and not tenure in the community, the court said in its ruling. It did not state an acceptable amount of compensation.

Faced with 19 telecommunications suitors, White Plains created a cable-like franchising structure in the 1990s, including a fee assessed on 5 percent of a telecom provider's revenue.

TCG challenged the policy, contending it violates state law, the 14th amendment to the U.S. Constitution and the federal Cable Act.

A New York district court judge called the franchise scheme a barrier to entry, but said elements are acceptable under the section of the Cable Act that permits "fair and reasonable" compensation to use public land. Both sides appealed that ruling.

The appeals panel noted that other courts have held that barriers to entry — barred in Section 243a of the Cable Act — don't have to be insurmountable to be illegal. It faulted elements of the White Plains regulation, such as the common council's authority to reject a vendor based on vague "public-interest factors."

TCG noted that incumbent Verizon Communications Inc. does not pay a franchise fee, but defenders said Verizon has provided in-kind compensation.

ROW compensation should be computed going forward and should be competitively neutral, the court said. Cities can also demand service from providers at below-market prices, but must do so uniformly, the court held.

The court also chided a requirement that vendors not challenge their franchises in court, calling it an attempt to "contract around" federal law.

This is the third judicial attempt to settle the right-of-way compensation question, and in each case, appeals panels have disagreed on the specifics.

Ruling in another dispute involving TCG, now an AT&T Corp. subsidiary, the 6th U.S. Court of Appeals ruled that Dearborn, Mich., could charge cost-based fees. But a panel from the 9th Circuit in San Francisco found Auburn, Wash.'s cost-based fees to be objectionable.

The parties have not decided whether to appeal this latest decision.

The decision wasn't popular at last week's meeting of the National Association of Telecommunications Officers and Advisors in Chicago.

"Don't interpret this as a victory for the industry," NATOA executive director Libby Beaty told the gathering. "Local governments can and should be compensated for their rights-of-way."

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