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FEDERAL LEGISLATION UPDATE

U.S. House

On June 8, 2006, the U.S. House of Representatives, by a vote of 321 to 101, passed the Communications Opportunity, Promotion and Enhancement Act (“COPE”). The COPE bill eliminates local franchising of cable operators and instead places the FCC in charge of granting national franchises within thirty (30) days from the date of filing. There are no build-out requirements meaning a competing cable operator could choose to build only a small portion of a given community should it so desire. Once a competing operator obtains a national franchise for a given community the incumbent cable operator can terminate its existing local franchise and likewise obtain a national franchise for the same community. The only build-out obligation that either provider will have under a national franchise is to avoid discrimination on the basis of income. Such discrimination will be enforced by the FCC, not by local communities.

COPE also significantly impacts local control over public rights-of-way granting significant authority instead to the FCC. COPE limits all right-of-way fees to the cost of regulation and limits the ability of a community to receive additional compensation for such use. COPE does contain a five percent (5%) franchise fee and permits local audit authority over the payment of that fee. The bill also contains provisions for local PEG channels including a fee of up to one percent (1%) of gross revenues to support PEG programming.

Senate

On June 29, 2006, the U.S. Senate Committee on Commerce, Science and Transportation approved, by a vote of 15 to 7, the Communications, Consumer’s Choice and Broadband Deployment Act of 2006 (S.2686). Under S.2686 franchising authorities have ninety (90) days within which to approve a franchise application which will include an FCC created franchise application form. There are no build-out requirements although the bill contains a prohibition on discrimination on the basis of income and race. Enforcement of discrimination will rest with the state, not with cities.

Competing cable operators must match PEG channels provided by the incumbent cable operator and provide up to one percent (1%) of gross revenues (in addition to a five percent (5%) franchise fee) to support the PEG channels. Cities can continue to require institutional networks of the incumbent cable operators, but no longer have the ability to impose new institutional network requirements as a condition for franchise approval. Cities will continue to have the right to impose a five percent (5%) franchise fee with local audit authority. The legislation also appears to require the FCC to revise its customer service standards.

The most significant debate in the Committee concerned “net neutrality.” A variety of companies including AT&T, Verizon, Comcast, Time Warner, Google, eBay, Microsoft and others debated the merits of whether net neutrality provisions should be included in the legislation. By a vote of 11 to 11 the proposed net neutrality amendments failed. Thus S.2686 does not bar telecommunications firms and cable operators from charging fees to preferred businesses for speedier Internet delivery. Proponents of net neutrality have vowed to bring this issue up should the bill reach the Senate floor. Various commentators have suggested that net neutrality could prove to be a “poison pill” for S.2686.

Should the Senate adopt S.2686 a conference committee will be formed to reconcile the Senate’s version with the COPE bill as passed by the House. Whether this can all be accomplished in the remaining months prior to the November elections is a subject of debate in Washington, D.C. Moss & Barnett will provide further updates as this legislation works its way through the process.

POLE ATTACHMENT AGREEMENTS

Pole attachments are attachments “by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility” (47 U.S.C. § 224(a) (4)). These companies attach their wires and cables to existing electric or telephone poles since it is often times impractical to install their own poles. The electric and telephone companies charge a fee for attaching to the existing poles.

In many cases cities directly or indirectly own the utility poles in the community. Cable operators originally entered into pole attachment agreements to string their facilities on these poles to provide cable service. Many of the pole attachment agreements are very antiquated, dating back to the early 80s or late 70s. These pole attachment agreements may contain very favorable terms for the cable operator particularly with respect to the compensation paid for the attachments. Many cities have found that upon review of their pole attachment agreements, the city may be entitled to substantially increased pole attachment rates resulting in additional revenue for the community. In recent cases pole attachment fees have been successfully increased by municipal utilities from $3 per attachment per pole to over $18 for each attachment. Similar benefits can also be obtained in conduit use agreements between municipal-owned facilities and communications companies.

800 MHz REBANDING

On August 6, 2004, the FCC issued Report and Order FCC 04-168 that modified its rules governing the 800 MHz band to minimize harmful interference to public safety communications systems. On December 22, 2004, the FCC issued a Supplemental Order and Order on Reconsideration FCC 04-294. Pursuant to these Orders, certain licenses of 800 MHz channels used in public safety or other systems must relinquish their existing channels and relocate their systems to other licensed channels (“Replacement Channels”). Also pursuant to the Orders, Sprint/Nextel (hereinafter “Nextel”) must relinquish some of its existing channels and must provide and pay relocation funds (“Relocation Funds”) to enable affected licensees to relocate their systems onto Replacement Channels and reconfigure their systems so they are “comparable facilities.” Relocation funds are to be used to pay for the licensee’s rebanding costs, including reasonable transaction costs.

The FCC has appointed a Transition Administrator who is subject to the review and oversight of the FCC, to ensure that the rebanding initiative proceeds on schedule and in a planned and coordinated manner. On April 21, 2005, the Transition Administrator published a “Reconfiguration Handbook” and a “Quick Reference Guide”, both of which describe the administrative proceedings the Transition Administrator will follow to administer the reconfiguration process, including Nextel’s responsibility to pay the Relocation Funds. In the Reconfiguration Handbook the two major phases to accomplish the reconfiguration are described as the “Reconfiguration Planning and Negotiation Phase” and the “Reconfiguration Implementation Phase.”

Achieving an acceptable Planning Funding Agreement (“PFA”) with Nextel requires negotiation with the city’s technical contractors both with respect to the scope of work and the compensation to be provided by Nextel. Once a PFA is in place the parties must then direct their attention to acceptable language for a Frequency Reconfiguration Agreement (“FRA”). While the Transition Administrator has provided a sample FRA, numerous amendments are routine and the supporting exhibits and scope of work require significant negotiation between the parties. Experience has proven that advance planning by cities, including planning with any cooperating regional jurisdictions, is essential to facilitate an expeditious process to accomplish the mandatory rebanding. Contact Moss & Barnett for additional information.

MUNICIPAL WIRELESS

As more and more cities around the country issue RFPs for large-scale wireless networks many industry commentators are beginning to question the desired mission for the networks being sought. As they say in the construction trade “measure twice, cut once.” Applying this logic to municipal wireless networks city planners should carefully consider the city’s goals for its wireless system. Will the network be municipally owned? Will it be treated as a public utility? Will the network be flexible enough to incorporate evolving technologies? Will the primary focus of the network address municipal applications or is the goal to bring wireless connectivity to everyone regardless of income level? Before RFPs are issued and contracts drafted careful consideration of these and numerous other issues should be undertaken and studied by the city to ensure that unnecessary delay and duplication of costs are not incurred. For additional information regarding planning and implementation of municipal wireless networks please contact Moss & Barnett.

What is Wi-Fi?

Wi-Fi (Wireless Fidelity) systems let people log on to the Internet without plugging into a phone or data line (hard wire connection). Wi-Fi equipped devices including laptops, PDA’s and cell phones automatically seek out the wireless signals to log on to the Internet. WiFi is a technology that allows broadband connectivity within ranges of a few hundred feet from a piece of hardware called the WiFi access point. It transmits over the unlicensed spectrum which is one of the reasons for its rapid growth.

What is a WiMAX system?

A Wi-Fi relative called WiMAX (Worldwide Interoperability for Microwave Access) is gaining ground around the country. WiMAX has a significantly longer range version of WiFi bandwidths that operate both on licensed as well as unlicensed spectrums.

Difference between WiFi and WiMAX

WiFi is meant to connect an access point to a computer or PDA within a distance of 100-200 feet. Outdoor coverage can extend over a few city blocks using “carrier-grade” equipment. WiMAX is meant to connect an access point to another device or a network at a distance of up to several miles. WiMAX is designed for a large number of users and WiFi is designed for a small number of users.

FRANCHISE FEE PAYMENT REVIEW

Most communities across the country have existing cable franchises which contain a requirement that the cable operator remit a franchise fee of up to five percent (5%) of the cable operator’s “gross revenues.” Gross revenues are often defined differently from franchise to franchise resulting in different levels of payment to each community. As the cable industry has become more consolidated franchise fee payments are often calculated at corporate headquarters far removed from the community with little knowledge of the definition of gross revenues contained in the local franchise.

As new competitors are beginning to enter the marketplace, it is prudent to review the accuracy of the incumbent cable operator’s franchise fee payments to ensure that all appropriate revenue is included in the calculation. With the adoption of state and federal legislation changing the regulatory landscape for cable communications, it is particularly important to review past franchise fee payments. If local franchising is superseded by federal or state law a franchising authority’s ability to enforce the payment of past due franchise fees may be jeopardized. For additional information regarding the procedure to be followed in a franchise fee audit or for information regarding relevant cases which have helped to clarify the revenues available via franchise fee payments please feel free to contact Moss & Barnett.

RIGHT-OF-WAY MANAGEMENT

Nearly twenty percent (20%) of all states now have some form of state-wide cable television franchising as a result of unprecedented legislative activity in 2006. Several other states are currently considering historic changes to the franchising process which will significantly limit municipal authority over cable service providers. As referenced earlier in this update, both the House and the Senate have crafted bills which may also have an adverse impact on local control of cable television providers. With these changes it is crucial that municipalities carefully review their local code requirements with respect to right-of-way management.

In the past, municipalities have often relied upon franchises to maintain contractual relationships with providers to protect public rights-of-way. In the absence of local authority to impose contractual obligations municipalities should assess the provisions contained within the local code to determine if adequate protections are in place.

Section 253(c) of the Telecommunications Act of 1996 (“Act”) preserves the authority of a state or local government to “manage the public rights-of-way,” but what does that mean? Provisions which cities can include within a right-of-way ordinance include:

1. Coordination of construction schedules.

2. Determination of insurance.

3. Indemnity requirements.

4. Establishment and enforcement of building codes.

5. Monitoring the various systems and utilities that use the rights-of-way to prevent interference between them.[1]

6. Regulating the time or location of excavation to preserve effective traffic flow, prevent hazardous road conditions, or minimize notice impacts.

7. Requiring a company to place facilities underground, rather than overhead, consistent with the requirements imposed on other utility companies.

8. Requiring a company to pay fees to recover an appropriate share of the increased street repair and paving costs that result from repeated excavations.

9. Enforcing local zoning regulations.

10. Requiring a company to indemnify the city against any claims of injury arising from the company’s excavation.[2]

These ten (10) requirements can be addressed in right-of-way ordinances with confidence that support exists from both the FCC and the legislative history of the Act to defend such provisions against arguments raised by right-of-way users.

Federal courts have also provided clarification regarding what may not be included within a right-of-way ordinance. Generally, the courts have found that “right-of-way management means control over the right-of-way itself, not control over companies with facilities in the right-of-way.”[3] With this principle in mind, courts have held that the following rights-of-way ordinance provisions are unacceptable:

1. Regulations requiring the applicant to submit proof of its financial, technical and legal qualifications. [4]

2. A description of the telecommunication services to be provided[5]

3. Regulation of stock transfers.[6]

4. Most favored community status – best available rates and terms.[7]

5. Unspecified franchise terms and ability to revoke a franchise based on unnamed factors.[8]

Municipalities are obtaining clarification from the courts regarding the reasonableness of certain rights-of-way management regulations. However, no clear consensus has emerged with respect to the two most difficult rights-of-way management issues: 1) How much compensation is a city entitled to for use of the rights-of-way; and 2) Should new rights-of-way regulations apply to existing providers and resellers. For additional information please contact Moss & Barnett.

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Brian T. Grogan is a shareholder with the Minneapolis law firm of Moss & Barnett practicing in the areas of telecommunications and communications law. Brian represents entities throughout the country on franchise renewals, competitive franchising, pole attachment agreements, wireless networking planning and contracts, effective competition proceedings, telecommunications planning, right-of-way management, first amendment issues, tower siting, leasing and zoning, litigation and other related communication matters. He is a frequent presenter at state and national conferences regarding communications law and he is a member of the American Bar Association (Forum Committee on Communications Law), National Association of Telecommunications Officers and Advisors, International Municipal Lawyers Association (Contracts, Franchises and Technology Section), and is past chair of the Communications Law Section of the Minnesota State Bar Association.

Brian Grogan at Moss & Barnett, 4800 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402, phone: (612) 347-0340, email: groganb@moss-barnett.com. Web site: Please visit www.municipalcommunicationslaw.com for additional updates on municipal communications law issues.

The materials in this Municipal Communications Law Update have been complied from a variety of sources and address only a portion of the relevant issues contained within hundreds of pages of regulations and decisions. We have not addressed many important points that may apply to your situation. You should consult with legal counsel before taking any action on matters covered by this Municipal Communications Law Update.

[1] See Generally In the Matter of Classic Telephone, Inc. for support of items 1-5.

[2] Id. The FCC quoted from the Congressional testimony of Senator Diane Feinstein, who offered examples of the types of restrictions that Congress intended to permit under Section 253(c) for support of items 6-10.

[3] City of Auburn v. Qwest Corp., 260 F.3d 1160, 1177 (9^th Cir. 2001).

[4] See Bell South Telecommunications v. Town of Palm Beach, 127 F. Supp. 2d 1348, 1355 (S.D. Fla. 1999). See also AT&T Communications v. City of Dallas, 8 F. Supp. 2d 582, 593 (N.D. Tex. 1998).

[5] See Bell South Telecommunications v. City of Coral Springs, 42 F. Supp. 2d 1304, 1309 (S.D. Fla. 1999). (The city does not have the authority to request information regarding systems, plans, or purposes of the telecommunications facilities.)

[6] See City of Auburn v. Qwest Corp., 260 F.3d 1160, 1177 (9^th Cir. 2001).

[7] See TCG New York, Inc. v. White Plains, 125 F. Supp. 2d 81, 93 (S.D. N.Y. 2000) (Holding that a most-favored clause is akin to regulation of rates, terms and conditions of service unrelated to the use of public rights-of-way). See also In re TCI Cablevision, 12 F.C.C.R. 21396 ¶ 105(noting that most favored nation clauses are difficult to justify under § 253(c) on the grounds that they are within the scope of permissible local rights-of-way management authority.)

[8] See White Plains, 125 F. Supp. 2d at 92; City of Coral Springs, 42 F. Supp. 2d at 1306.