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The Congress of the United States has no power to take private property for public purposes without compensation, and it can no more take the property of a state or one of its municipalities than the property of an individual. The acts of Congress . . . conferred on the defendant [telecommunications company] no right to use the streets and alleys of the city . . . which belonged to the municipality.[2]{2} Although this principle has seemed to be well-settled since 1903, it may be revisited again 92 years later in light of (1) contemporary constitutional challenges, (2) advances in technology, (3) a recent Federal Communications Commission ("FCC") action on video dialtone services, and (4) proposed Congressional telecommunications legislation involving telecommunications companies' use of local rights-of-way for the "information superhighway"--that cornucopia of telecommunications services. This article will first examine the municipal and federal authority behind this established legal principle and then analyze the current issues facing it.
{4} A city-wide street franchise is a special kind of contract granted by a municipality. It is a contract that gives the city's permission to a private company--a franchisee--to use the public streets and rights-of-way for private economic gain. The franchisee pays the city for the use of the public streets in the form of franchise fees. These franchise fees that are paid to a city as compensation for using the public streets are sometimes called "street rentals"--they are not taxes.[8] A franchise fee is the consideration paid for the rights granted by the franchise, and serves as compensation for use of the public property.[9] The payment of franchise fees is a contractual obligation of the franchisee.[10]
{6} The law in this area arose primarily in the late 1800s and early 1900s through the United States Supreme Court's interpretations of federal legislation passed in 1866 to assist the infant telegraph industry.[12] The same legal principles, as established in those cases, are still cited as they apply to cable television companies' contemporary use of local public rights-of-way.[13]
{7} In the Telegraph Act of 1866, Congress granted rights to telegraph companies[14] to use federal "post roads" (mail routes) for interstate telegraph operations and prohibited states and local governments from interfering with those operations.[15] In St. Louis v. Western Union Tel. Co., Western Union challenged the right of a city to impose a pole charge on its use of the local rights-of-way, in light of the Telegraph Act of 1866.[16] The United States Supreme Court held, in this 1893 case, that cities could require telegraph companies to pay reasonable street rental franchise fee payments for the use of the public streets, as the federal statute did not grant an "unrestricted right to appropriate the public property of a State."[17] The Court went on to say:
No one would suppose that a franchise from the Federal government to a corporation . . . to construct interstate . . . lines of . . . communication, would authorize it to enter upon the private property of an individual, and appropriate it without compensation. . . . [T]he franchise . . . would be . . . subordinate to the right of the individual not to be deprived of his property without just compensation. And the principle is the same when, under the grant of a franchise from the national government, a corporation assumes to enter upon property of a public nature belonging to a State. . . . [I]t is not within the competency of the national government to dispossess the State of such control and use, or appropriate the same to its own benefit, or the benefit of any its corporations or grantees, without suitable compensation to the State. This rule extends to streets and highways; they are public property of the State.[18]The Court concluded that under the Telegraph Act of 1866 "the occupation by this interstate commerce company of the streets cannot be denied by the city; . . . all . . . [the city] can insist upon is . . . reasonable compensation for the space in the streets thus exclusively appropriated . . . ."[19]
{8} On rehearing of this case, a challenge was made as to the city's right to charge the fee pursuant to the state statutory authority delegated to it to "regulate the streets."[20] The Supreme Court held: "[T]he power to require payment of some reasonable sum for the exclusive use of a portion of the streets was within the grant of power to regulate the use."[21]
{9} In delivering the opinion of the Court in Western Union Tel. Co. v. City of Richmond,[22] Justice Holmes construed the Telegraph Act of 1866 to avoid the takings issue as applied to public property: "[T]he statute is only permissive, not a source of positive rights. . . . [The statute] gives the appellant [the telegraph company] no right to use the soil of the streets, even though post roads, as against private owners, or as against the city or state, where it owns the land."[23]
{10} The vitality of the century-old St. Louis opinion was evidenced again in 1982 by the Supreme Court in Loretto v. Teleprompter Manhattan CATV Corp.[24] In Loretto, the Supreme Court ruled on the constitutionality of a New York state statute which required landlords to allow cable television companies to install cable wires in buildings without any compensation to the property owner.[25] The Court held that the State of New York could not require such use of private property without compensation even though the cable wires did not take up a great deal of space.[26] As the Court stated, "a taking does not depend on whether the volume of space it occupies is bigger than a bread box."[27]
{11} Again, while the authority of the state or a city to receive compensation for the use of public streets has been upheld many times by the Supreme Court,[28] the extent of any particular city's authority to regulate those public streets and receive compensation ultimately turns on the authority granted it by state law, as cities are wholly creatures of state law.[29]
{13} The 1984 Cable Act and the Cable Television Consumer Protection and Competition Act of 1992[33] (the "1992 Cable Act") (collectively, the "Cable Act"),[34] as did the FCC regulations[35] before them, expressly provide that compensation be paid to the franchising authority for the use of the local public property.[36] The Cable Act permits up to 5% of the cable operators' revenues as a franchise fee.[37] Absent this 5% compensation, the constitutionality of any mandated use of the public rights-of-way could be called into question, in light of St. Louis v. Western Union Tel. Co.[38] and its progeny, including Loretto v. Teleprompter Manhattan CATV Corp.[39]
{14} A number of cases comment on the possible violations of the Takings Clause that might arise under section 541(a)(2) of the Cable Act[40] if it were construed as mandating access to non-publicly dedicated easements and rights-of-way.[41] All of these cases discuss the takings issue in the context of a physical taking. Therefore, any physical taking in the use of public properties by additional equipment or lines would violate the Takings Clause as interpreted by Loretto and the aforementioned line of cases.
{15} Cable television franchisees, as mediums of information, raise First Amendment issues as to their regulation and taxation. A number of cases do indicate, however, that cable television franchisees can be regulated and there can be local franchise fees and taxes imposed upon them, so long as they are incidental and not overly burdensome on the medium.[42]
{16} In Telestat Cablevision, Inc. v. City of Riviera Dist.,[43] a United States District Court in Florida held that a franchise fee on a cable television franchise did not violate the First Amendment, as the franchise fee constituted "the costs associated with the City's administration of the franchise and the reasonable rental value of the cable operator's use of the City's rights-of-way."[44]
{17} However, in Century Fed., Inc. v. City of Palo Alto, the United States District Court for the Northern District of California held that the cable television franchise fees were unconstitutional based on the First Amendment and the Equal Protection Clause of the Fourteenth Amendment.[45] The court concluded that (1) the fees were excessive and infringed on First Amendment rights and (2) the fact that different users of the rights-of-way were paying different amounts of money constituted a violation of the Equal Protection Clause.[46] Thus, although local franchise fees are allowed, some courts may review them to ensure that they are reasonable.
{18} Telephone franchisees or telephone service providers have argued in the past that cities and states violate the Commerce Clause of the U.S. Constitution when they impose state or local charges on interstate access fee revenue.[47] The Supreme Court has rejected that argument and has upheld such charges against the Commerce Clause challenges when there is a sufficient nexus with the state and when the charges (1) are fairly apportioned, (2) do not discriminate against interstate commerce, and (3) are fairly related to services which the state provides to taxpayers.[48] An example of a sufficient nexus is where an interstate call ends or begins in the state and is billed, charged or paid in the state or locale.[49]
{20} Putting aside the issue of whether the franchise itself grants the right to provide the "new" services, if the services are merely an additional electronic impulse they would not seem to be an additional servitude on the easement. On the other hand, if the current use of the easement is akin to telegraph service in the sense that there are few streets being used in the city, while the new telecommunications service requires the use of all the public streets and rights-of-way, then that new use would seem to pose an additional burden on the servitude of the public property. The Tennessee Supreme Court in 1907 provided an excellent discussion of this issue in Home Tel. Co. v. Mayor of Nashville.[51] The court discussed why a telephone company does not have the same rights and privileges under a Tennessee statute as those granted to a telegraph company.[52] It noted the additional burdens and difficulties imposed by a telephone business versus a telegraph business in using the city streets.[53] Specifically, it indicated that while there are only a few lines and only a few people involved in the operation of a telegraph system within a city, many lines (to every residence and business) and many people are involved in the operation of a telephone system.[54] The case cites extensively the 1899 Supreme Court case of Richmond v. Southern Bell Tel. Co.,[55] which reached the same conclusion as to the enormous increase in the burdens placed on public property by a telephone company as opposed to a telegraph company.[56]
{21} Several cases have addressed the issue as to whether easements dedicated for public utility uses are compatible with subsequent technological improvements.[57] The general rule seems to be that technological improvements may utilize the easement so long as the new use is substantially compatible with the original dedication or grant and does not substantially increase the burden on the easement.[58] In C/R TV, Inc. v. Shannondale, Inc.,[59] the developer of a residential subdivision argued that cable television service was not a compatible use and/or it substantially increased the burden on the easement granted to a telephone utility. The court concluded that in this case technological innovations fit within the use of the easements as long as such innovations did not increase significantly the burden on the estate.[60] The court found that as the telephone wires, which were fiber optic, already carry video images, there was in fact no distinction between the two--cable television and telephone lines that transmit video signals--which would result in any increased burden.[61]
{22} However, in 1971, the Fifth Circuit took another view, focusing on what services were authorized to be provided rather than focusing on the additional burdens placed on the easement estate due to "technological innovations."[62] While this case primarily upheld the initial FCC Cable-Telco cross-ownership ban, the court, in dicta, stated that providing cable television services was not incidental to providing telephone services.[63] The significance of this is that if cable service is not incidental to providing telephone service, then local telephone franchises may not have granted the authority to the telephone company to provide any other telecommunications services, including video dialtone service (as discussed below) under that local franchise. Therefore a new video franchise may be required to obtain that authority, notwithstanding that there is no increase in the "burden" on the easements by providing this "technological innovation."
{24} Video dialtone is a legal construct by the FCC of a telecommunications technology in which the the video programmer is an entity distinct from the owner/operator of the physical facility which transmits the programming.[69] The physical facility in this case is owned by the local telephone exchange company. Thus, in essence, video dialtone is a use of the telephone lines as a pipeline for cable television programmers. By that legal construct or separation of entities, those providing video dialtone services avoid the requirements of the Cable Act, including the need for a local cable television franchise.
{25} The FCC initially defined "video dialtone" as follows: "Video dialtone . . . is an enriched version of video common carriage under which [Local Exchange Companies] will offer various non-programming services in addition to the underlying video transport . . . [including] the transmission of entertainment video programming and other forms of video communications . . . ."[70] The FCC further explained in 1992 that in video dialtone service there is
separate control over the creation, selection, and ownership of video programming from control over the facilities linking the program supplier and each of its individual viewers or "subscribers." This separation was designed to comport with the prohibition of Section 613(b) of the Cable Act against telephone companies providing video programming directly to subscribers in telephone service areas.[71]{26} Due to the potential impact of this novel way of avoiding the application of the Cable Act, the D.C. Circuit opinion was widely covered in the national news media.[72] Almost without exception, these news stories characterized the court's holding in National Cable Television Ass'n in much broader terms than in fact was the case, suggesting that the holding nullified any local franchising requirements and the attendant franchise fees that local governments may impose on telephone companies which provide video services.[73] These characterizations by the news reports of National Cable Television Ass'n created a misconception that a locally required franchise, as opposed to one required by the Cable Act, is not required to provide video dialtone service or other new telecommunications services. In fact, neither the FCC nor the D.C. Circuit addressed in any way any franchise or right-of-way use agreements required pursuant to state or local law. The 1991[74] and 1992[75] FCC orders and National Cable Television Ass'n only addressed the very narrow issue of whether the Cable Act applied to video dialtone service.[76] They held it did not and no more.
In contrast to cable operators, local telephone companies already receive authorization to use the public rights-of-way pursuant to common carrier regulation. Consequently, there is no basis to infer that Congress intended that local telephone companies secure a cable television franchise to use the same rights-of-way they are already authorized to use.[81]Unfortunately, the FCC did not clearly state under which regulations telephone companies had received the prior authorization to use local public rights-of-way. Still, it refers to a franchise as how that authorization is accomplished with cable television.[82]
{28} The FCC also explained in its 1992 opinion that as telephone companies already have a local franchise, which addresses the concerns about public safety and convenience and use of public rights-of-way, another franchise is not needed to provide video dialtone service. The FCC stated:
Since these concerns [about use of the public rights-of-way] are already addressed by the existing common carrier regulatory scheme for telephone company facilities [in part by having a local telephone franchise], we conclude that Congress did not intend to subject telephone companies to the duplicative regulation that would occur if we were to find that a cable franchise is also required for video dialtone facilities.[83]{29} Thus, the FCC's analysis assumed that local telephone companies providing video dialtone would already have a local franchise permitting use of public rights-of-way.
{31} The court distinguishes "video dialtone" and "cable service" under the Cable Act as follows:
[V]ideo dialtone service and cable service are very different creatures: video dialtone is a common carriage service, the essence of which is an obligation to provide service indifferently to all comers--here, to provide service to all would-be video programmers. On the other hand, cable operators exercise "a significant amount of editorial discretion regarding what their programming will include."[87]Video dialtone service is not "video programming" under the Cable Act definition and thus is not regulated by the Cable Act. Therefore, a franchise under the Cable Act is not required to provide this service.
{32} The court does not hold or suggest in any way that a local franchise to use public rights-of-way, as required under state or local law, is somehow preempted or negated, nor does it state that any local public rights-of-way can be used without a locally required franchise. The court, like the FCC, states that it would be duplicative to require another franchise for the non-cable television service of video dialtone, as the concerns about the public safety and use of rights of way have already been addressed in that pre-existing franchise.[88]
{33} The court quoted the House Report on the 1984 Cable Act which stated that nothing in the Cable Act was "intended to prevent a common carrier from constructing, subject to applicable law, a local distribution system that is capable of delivering video programming and other communications . . . to multiple subscribers within a community."[89] In other words, if applicable state or local law requires a local franchise to use public rights-of-way for that distribution system, those applicable local laws must be adhered to prior to providing the video dialtone service.
{34} Thus, neither the FCC's video dialtone decisions nor the D.C. Circuit's opinion addressed, in any way, local franchising requirements as required by applicable state or local law for providing video dialtone service. In fact, as has been noted above, the FCC predicated its opinion that no additional local cable television franchise was required to provide video dialtone service on the existing regulatory schemes which had already authorized use of the local public rights-of-way and already protected the local interest. The principal components of those regulatory schemes are right-of-way use agreements, typically by a local franchise to use the streets.
{36} Again, in the current 104th Congress, H.R. 411 was filed on January 4, 1995, by Rep. Markey, together with Rep. Dingell and Rep. Conyers.[93] This bill includes some of the same broad, problematic clauses that were in last session's bills regarding preemption of state and local authority to regulate telecommunications services in their state or local area.[94] For instance, section 302(a) of the legislation provides the following preemption language:
{38} A narrow exception to this preemption allows state and local regulation that is "necessary and appropriate to . . . protect public safety and welfare,"[96] and that provides for "normal construction permits."[97]
{39} The bill allows, in section 302, for cable companies to provide other telecommunications services (including, presumably, telephone services)[98] and, in section 401, for local exchange telephone companies to provide cable services.[99] Section 302(a) also provides that all franchise fees and charges should be equivalent for all telecommunications operators.[100] In section 659(a)(3), the bill exempts video services provided by a telephone company from the franchise requirements of the Cable Act (including franchise fees),[101] yet section 659(b)(2) of the bill requires local franchise fees to be charged that are comparable to Cable Act fees on such revenue.[102] However, section 302(b)(1) of the bill amends section 541(c) of the Cable Act to restrict the application of franchise fees on cable operators to apply only to cable service revenue, thereby excluding any telephone or other telecommunications service revenue from a cable operator's franchise fee base.[103] The result of section 659 and section 302(b)(1) is a nonparity of fees. These provisions, taken together, could jeopardize existing franchise fee agreements of cable companies, telephone companies and other competitive access providers.[104]