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As efforts to increase telecommunications competition have intensified, there has been an ongoing struggle to define the appropriate level of local government oversight. One key battleground is Section 253 of the Telecommunications Act of 1996. This provision allows courts and the Federal Communications Commission to pre-empt state and local statutes, regulations, or other requirements that are so Draconian that they “prohibit” the provision of telecom service. The section has been seized upon by service providers (and would-be service providers) as a vehicle to undermine local management authority. Often trivialized, however, is the language in Section 253 that provides a safe harbor from pre-emption for certain competitively neutral state or local requirements that “manage” the public rights of way, impose “fair and reasonable compensation” for their use, or protect the public safety and welfare. Due to the litigation that the law has spawned — including a noteworthy recent decision from the U.S. Circuit Court of Appeals for the 9th Circuit — the pre-emption authority is in danger of swallowing the safe-harbor exception. THE BASIS OF FEES Courts have generally upheld the ability of municipalities to charge a franchise fee for use of the public rights of way — one of the key issues litigated. But they have differed on another key issue — whether such fees can be revenue-based or value-based (meaning charges not limited to costs, and akin to rental payments) or must be cost-based (meaning costs incurred in permitting a provider to use public rights of way). In TCG Detroit v. City of Dearborn(6th Cir. 2000), the court upheld Dearborn’s imposition of a revenue-based franchise fee for the right to lay fiber cable in the electric utility’s existing conduit, characterizing the fee as “fair and reasonable.” Revenue-based fees were also upheld by a federal district court in TCG New York v. City of White Plains(S.D.N.Y. 2000) and by the South Carolina Supreme Court in BellSouth Telecommunications v. City of Orangeburg(1999). Conversely, several district courts have held that fees must be cost-based (see, e.g., PECO v. Township of Haverford(E.D. Pa. 1999)), although some of those decisions have been vacated. The scope of local government conditioning authority, and the extent to which any conditions must apply identically to incumbents and competitive providers, has likewise split the courts. Of particular interest on this question is an opinion that the 9th Circuit issued on April 24, City of Auburn v. Qwest Corp.The opinion is significant because it potentially construes Section 253 to limit the scope of permissible rights-of-way management. In the case, Qwest, a telecommunications provider, sought a declaratory judgment that Section 253 should pre-empt municipal ordinances enacted by several cities in the state of Washington. While holding that Section 253 authorizes cities to enact ordinances to manage their rights of way, the court found the ordinances under review to be so pervasive as to justify pre-emption. The court ruled that portions of the ordinances were unduly vague and could be read to extend beyond the safe-harbor provisions of Section 253. Significantly, the requirements pre-empted by the 9th Circuit include obligating providers to furnish the cities with financial and technical data. Essentially, the court held that a city must allow all providers onto its streets, regardless of whether the provider can demonstrate that it is financially, technically, or even legally sound. In so doing, the court sought to draw a distinction between the regulation of facilities in the right of way and regulation of the right of way itself. According to the court, only the latter falls within the safe harbor. This purported distinction does not lend itself to the bright-line test visualized by the court and fails to recognize the legitimacy of the cities’ requirements, for example, for data from service providers. In considering the scope of rights-of-way management, the 9th Circuit held that a contrary interpretation would result in the “safe harbor provisions swallow[ing] whole the broad congressional preemption.” We disagree — and are concerned that the opposite could be the case. Disturbingly, in reaching its decision, the 9th Circuit cites and relies upon district court decisions that were vacated by the 4th and 5th Circuits. Bell Atlantic v. Prince George’s County(D. Md. 1999) was vacated by the 4th Circuit. AT&T Communications v. City of Austin(W.D. Tex. 1997) was vacated by the 5th Circuit, as was AT&T Communications v. City of Dallas(N.D. Tex. 1999). In AT&T v. Dallas, the 5th Circuit pointedly noted: “AT&T urges that, if we find jurisdiction and hold that this appeal is moot, we should simply dismiss this appeal and allow the district court’s opinion and judgment to stand. We will not do that. When a case becomes moot, vacatur of the district court’s opinion and judgment is the appropriate course to follow ‘as a means of avoiding the unfairness of a party’s being denied the power to appeal an unfavorable judgment.’ “ DEFINING TERMS? The 9th Circuit’s recent decision recognizes that the 1996 Telecom Act does not define the crucial term “management” and turns for guidance to two FCC decisions discussing the issue in light of the legislative history: In re TCI Cablevision of Oakland County Inc.(1997) and In re Classic Telephone Inc.(1996). Unfortunately, those orders do not support the court’s restrictive reading of Section 253. In TCI, the FCC defined local government “management” authority somewhat circularly as the power to manage: “[S]ection 253(c) preserves the authority of state and local governments to manage public rights-of-way. Local governments must be allowed to perform the range of vital tasks necessary to preserve the physical integrity of streets and highways, … to manage gas, water, cable (both electric and cable television), and telephone facilities that crisscross the streets and public rights-of-way.” Further, by defining the authority to manage as “the range of vital tasks necessary … to manage,” the TCI decision does not limit the term. The 9th Circuit’s reliance on Classicis similarly unpersuasive. That FCC decision refers to examples of rights-of-way management discussed during floor debate on Section 253(c) and then treats them as the universe of acceptable activity. But the FCC’s reference in Classic to “examples of the types of restrictions that Congress intended to permit under Section 253(c)” was not intended to be exhaustive. At most, the FCC’s examples in TCIand Classichelp to describe the types of management regulations that are most obviously protected by Section 253(c), without excluding other, possibly less-obvious, regulations. SWEEPING APPROACH The sweeping nature of the 9th Circuit decision in Auburnpre-empting the ordinances in their entirety stands in marked contrast to the more measured approach taken by other courts, which found some provisions of telecom ordinances to be objectionable and others to be permissible exercises of rights-of-way management. But the 9th Circuit went further in criticizing the local provisions. For example, it found requirements related to transfer of ownership of telecommunications companies unrelated to management of rights of way. By contrast, in a similar case, the Southern District of New York found that restrictions on assignment or transfer “prevents a carrier from escaping the city’s right-of-way regulation” and that such provisions “are simply enforcement mechanisms designed to give meaning and effect to valid provisions of the franchise.” For municipalities seeking to manage public rights of way, the adverse holdings of Auburnmay raise somewhat the hurdle but should not present an insurmountable barrier. Cities seeking to enact telecom ordinances may need to demonstrate more clearly the link between information and other requirements imposed on service providers and the rights-of-way management or other purposes for which these requirements are imposed. In addition, municipalities may wish to make explicit that they are required to apply local ordinances in a reasonable and nonarbitrary manner. One last Section 253 issue concerns a pending and potentially significant FCC proceeding involving an effort to pre-empt requirements imposed by three Ohio cities for the placement of telecom facilities underground. The petitioning provider, City Signal Communications Inc., claims that, although it has been unable to obtain the authorization to install fiber optic cable above ground on utility poles, incumbent providers have their facilities located on poles above ground. The heart of the City Signaldispute is the legitimacy of an undergrounding requirement, justified by the cities on aesthetic and public nuisance grounds, applied to new but not incumbent providers. A number of providers and their trade associations filed comments in the City Signalproceeding and have attempted to broaden the proceeding by reciting and complaining about allegedly similar requirements imposed by other cities in other parts of the country. These consumers assert that undergrounding requirements violate Section 253′s “competitively neutral and nondiscriminatory” language, asserting that “nondiscriminatory” really means “identical.” A number of local governments and their associations have filed reply comments in opposition. Congress, however, did not intend for Section 253 to require identical treatment of providers, as several courts have held. The obligation to manage public rights of way in a “neutral” and “nondiscriminatory” manner means just that-not that all providers be treated identically. Indeed, in enacting Section 253, Congress rejected a provision that would have required exact parity. It is only sensible, then, to conclude that an incumbent provider, which may have begun serving residents 100 years ago and now provides service as a common carrier throughout its franchised area, should be “managed” and regulated differently from a new provider that, for example, plans to serve only a limited number of commercial customers. The new entrant should not be entitled to the same regulatory treatment provided to a very differently situated incumbent. Five years after enactment, the scope of Section 253 remains very much in dispute-with a great deal at stake. The patchwork quilt of court and FCC decisions, reached in the context of both facial and as-applied challenges to specific local requirements, virtually guarantees that it will be quite some time before the boundaries of municipal authority are clear. James N. Horwood and Scott H. Strauss are partners, and Alisa N. Stein is an associate, at D.C.’s Spiegel & McDiarmid , which represents local and state governments and consumers in telecommunications, energy, environmental, and transportation matters. Horwood leads the firm’s telecommunications group, in which both Strauss and Stein practice.

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