Washington Outlook

Federal Appellate Court Affirms Local Powers Under ’96 Telco Act
Mayor Guido Leads Effort to Defend Local Right-of-Way Authority

By Kevin McCarty
March 20, 2000

The U.S. Court of Appeals for the Sixth Circuit, Cincinnati, delivered a strong message that the federal Telecommunications Act of 1996 protects local authority to manage, and receive fair market compensation for, the use of the public’s rights-of-way by telecommunications companies. In rendering its decision March 7, the court sided with the City of Dearborn on the key issues in dispute, delivering the first comprehensive appellate decision on provisions of the 1996 Act (Section 253) that were designed to respect local right-of-way authorities.

Commenting on the decision, Dearborn Mayor Michael Guido, a leader of the Conference’s efforts on telecommunications matters, said, “We are pleased that the Court recognized the public’s right to receive fair market compensation for rental of valuable public rights-of-way, as Congress intended all along. It’s been an expensive fight, but the case involved defending an important right. I hope that other cities will also benefit from the decision.”

This case was particularly important in that it originated shortly after enactment of the 1996 law and was the first significant challenge in federal court to local right-of-way authorities. Teleport Communications Group (TCG) of Detroit, now owned by AT&T, filed suit in U.S. District Court, contesting the City of Dearborn’s telecommunications ordinance that required companies to seek a franchise and to compensate the City through a franchise fee of four percent of gross revenues for use of its property. The appellate court affirmed the 1998 decision by the U.S. District Court in TCG Detroit v. City of Dearborn.

The company had argued that the City’s rules violated Section 253 of the 1996 Act, provisions which the Conference of Mayors and other local government organizations vigorously sought during Congressional action on this legislation. The intent of Section 253 was to provide a “safe harbor” for local governments who acted in a “non-discriminatory and competitively-neutral” manner when making local property available to telecommunications companies operating in their communities, including compensation for its use.

Among many positive results for cities, the Sixth Circuit rejected as “sophistry” the company’s claim that franchising was a barrier to entry, and it further agreed with the district court that Congress used “compensation” in Section 253(c) to encompass more than recovery of “costs.” Specifically, it found that the 1996 Act does not pre-empt local governments’ ability to charge franchise fees to telecommunications providers based on a percentage of the providers’ gross receipts.

Both the district court and the appellate court found the City’s four-percent fee to be “fair and reasonable” within the meaning of Section 253 of the 1996 Act. Others challenges to similar ordinances are pending in other courts, such as the U.S. Court of Appeals for the Fourth Circuit, sitting in Richmond, where Bell Atlantic v. Prince George’s County, Maryland, was argued on February 29th.

The text of the Dearborn decision is available on the court’s website at: http://www.ca6.uscourts.gov  (Nos. 98-2034 and 98-2035).

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