May 2002

The Federal Telecommunications Act of 1996: Section 253, Cooperative Federalism, and the Role of the Federal Courts

by David Goodnight and Roy Adkins

Federal courts have been instrumental in advancing the cooperative federalism envisioned by Congress in the passage of the Federal Telecommunications Act of 1996. However, many municipal governments have clung to comprehensive regulatory roles of a prior era, roles no longer permitted by the act. In particular, they have attempted to condition carriers' access to the rights-of-way on carriers' agreements to submit to various pre-act conditions, including gross-receipts fees and broad municipal regulation. The federal courts have served a vital role in enforcing the purposes of the act and restraining the sometimes provincial efforts of local governments.

In this article, we will briefly discuss the act, its central purpose, and the constraints it places on local government. We will then discuss a number of new developments in federal court decisions and, in particular, the landmark 9th Circuit decision City of Auburn v. Qwest, 260 F.3rd 1160 (9th Cir. 2001) (petition for certiorari pending). Finally, we will highlight the important role the 9th Circuit and other federal courts have played in advancing the purposes of the act.

Over the past 20 years, the telecommunications industry has seen rapid change, both in technology and in competition. Where customers previously were restricted to a single monopoly provider, they may now choose among any of several companies and any number of technologies, including wireless, fiber-optics, cable Internet, and telephone and Internet through existing telephone lines. In the act, Congress quite deliberately reshaped the industry's landscape by removing barriers to entry and ending local monopolies. In doing so, Congress carved out a very limited, circumscribed role for local municipal government.

The act is titled "An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications technologies."1 It ushered in a new era in telecommunications service — one that relies on a competitive market model, rather than traditional line-of-business restrictions, to encourage "rapid deployment of new telecommunications technologies" and enhance consumer access to the best possible telecommunications network.2 

Section 253 of the act is titled "Removal of barriers to entry." Sections 253(a) and (c) provide:

(a) In general: No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

(c) State and local government authority: Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

In many instances, local governments continue to operate under form franchise or license agreements originally crafted decades before the act. Some of these agreements provide for comprehensive local regulation over telecommunications services, or include onerous fee provisions taken from cable franchise agreements or pre-act agreements. Many are holdover agreements from another era, completely out of phase with the purposes of the act.3

Telecommunications companies are frequently given two options: either sign the agreements as presented or remove their facilities from municipal rights-of-way. In some instances, a telecommunications company's ability to access rights-of-way (to obtain permits, to serve existing customers) is put in jeopardy. It is against this sort of backdrop that federal courts are asked, typically in declaratory judgment actions, to determine the respective rights of the parties.

In the past few years, two distinct lines of authority have arisen. The majority line holds that by charging fees exceeding the cities' actual costs, the cities obstruct competition and, therefore, violate the act. See City of Auburn v. Qwest Corp., 247 F.3d 966, 980 (9th Cir. 2001); Qwest Communications Corp. v. City of Berkeley, 146 F. Supp.2d 1081 (N.D. Cal. 2001); Bell-Atlantic-Maryland, Inc. v. Prince George's County, Maryland, 49 F. Supp. 2d 805 (D. Md. 1999), vacated on other grounds, 212 F.3d 863 (4th Cir. 2000); AT&T Communications of the Southwest, Inc. v. City of Dallas, 49 F. Supp. 2d 582, 593 (N.D. Tex. 1998); New Jersey Payphone Assoc., Inc. v. Town of West New York, 2001 WL 242154 (D. N.J. 2001). A second line of cases has upheld municipal fees that exceed costs in various contexts. See TCG Detroit v. City of Dearborn, 16 F. Supp.2d 785 (E.D. Mich. 1998); Omnipoint Communications, Inc. v. Port Authority, No. 99 Civ. 0060 (BJS), 1999 WL 494120 (S.D.N.Y. July 13, 1999); BellSouth Telecomm., Inc. v. City of Orangeburg, 522 S.E.2d 804 (S.C. 1999).

First, in the 9th Circuit this issue has now been resolved as a result of the circuit's recent Auburn decision. Second, based on both the act and its legislative history, fees that exceed actual costs or fail to allocate costs properly among the various competitors necessarily fail to meet either the facial requirements that municipal rights-of-way compensation be "fair and reasonable" or that it be "neutral and non-discriminatory." Third, gross-receipts fees necessarily impede and distort fair competition, and therefore fail to meet either the act's overall purpose or its specific requirements.

The most recent significant opinion regarding sections 253 (a) and (c) is the 9th Circuit's opinion in City of Auburn v. Qwest Corp., 260 F.3d 1160 (9th Cir. 2001). There, the United States Court of Appeals for the 9th Circuit invalidated ordinances that imposed non-cost-based rights-of-way fees and other burdensome regulations on Qwest as pre-empted by section 253 of the Federal Telecommunications Act of 1996.4  The federal district court declined to reach the section 253 claims, reasoning that they were not yet ripe. The Court of Appeals reversed, deciding these issues as a matter of law on the appellate record. See Auburn at 1175.

In Auburn, the 9th Circuit held that section 253(a):

bars all state and local regulations that prohibit or have the 'effect of prohibiting' any company's ability to provide telecommunications service, unless the regulations fall within the statute's safe harbor provisions.…

The preemption is virtually absolute and its purpose is clear — certain aspects of telecommunications regulation are uniquely the province of the federal government, and Congress has narrowly circumscribed the role of state and local governments in this arena. Auburn at 1175 (emphasis added).

The 9th Circuit held that section 253(a) pre-empts "regulations that not only 'prohibit' outright the ability of any entity to provide telecommunications services, but also that 'may…have the effect of prohibiting' the provision of such services." Id. at 1175 (emphasis added) (quoting Bell Atlantic-Maryland, Inc., 49 F. Supp. 2d at 814).

The ordinances before the Auburn court included requirements that Qwest provide detailed forms and maps, disclosure of corporate records and policies, broad municipal discretion to require additional information, regulations regarding transferability of ownership, non-cost-based fees, and civil and criminal penalties. These provisions constituted a municipal attempt at broad regulation. The Court found that these terms had the effect of prohibiting the provision of telecommunications services:

(a) Non-Cost-Based Fees. The Court held that "non-tax fees charged under the franchise agreements are not based on the costs of maintaining the right of way, as required under the Telecom Act." Id. at 1175 (emphasis added). The Court specifically invalidated ordinances imposing "non-cost-based fees," including percentage-of- revenue fees. Id. at 1180 & n.19 (invalidating ordinances containing percentage of revenue and non-cost application fees). Importantly, the Court's ruling extends to Qwest and other telecommunications providers. This very significant aspect of the Court's holding makes it clear that the ordinances are facially invalid, and not invalid as applied uniquely to Qwest.

(b) Unfettered discretion. The Court found that each city had improperly reserved the discretion to "grant, deny, or revoke the franchises" in violation of section 253(a). Id. at 1176.

(c) Written reports. The Court condemned lengthy and detailed application forms, including specified items and information requested by the city. Id. at 1175, 1177.

(d) Restrictions on transfer of ownership. The Court held that the ordinances improperly sought to "regulate transferability of ownership, even requiring franchisee to report to stock sales." Id. at 1176.

(e) Penalties. The Court found that "civil and criminal penalties," including the right to remove facilities, were unlawful. Id. at 1170, 1173.

(f) Mapping. The Court specifically indicated that cities may not require maps as a condition for entering a franchise agreement. Id. at 1176.5 

(g) Most-favored community status. The Court invalidated provisions granting a city the best available rates and terms, or requiring free or excess capacity for the use of the city or other users. Id. at 1178.

The Court concluded that these features, and others not mentioned here, created a "substantial and unlawful barrier to entry" and, further, that none of these impermissible features were saved by section 253(c). Id. at 1176. The Court specifically noted numerous other objectionable provisions, making it clear that the aforementioned list was not intended to be comprehensive, but rather, illustrative. Id. at 1179. The Court rejected the city's argument that these features were somehow justified because they were related to use of rights-of-way: "This argument has the flavor of the old children's ditty, 'Oh, your ankle bone connected to your thigh bone, your thigh bone connected to your hip bone…'" Id. at 1179 (quoting Dry Bones, American spiritual derived from Ezekiel 37: 1-14).

Citing Hillsborough County v. Automated Med. Labs., Inc., 471 U.S. 707, 713 (1985), the Court concluded that these ordinances were pre-empted as "contrary to section 253 of the Telecom Act.…" Auburn at 1180. The Court then reasoned that the various objectionable portions of the ordinances could not be excised without rendering the end product a "Swiss cheese regulation.…" Id. at 1181. The Court thus invalidated all of the ordinances in their entirety and, in its ordering paragraph, remanded to the district court with instructions to grant judgment to Qwest consistent with its opinion. Id.

In reaching these conclusions, the Court noted that the city's argument had no limiting principle. Refusing to remand for fact finding, the Court drew a bright line, strictly limiting the role of municipal government. The Court reached these conclusions as a matter of law, focusing on the language of the ordinances and not on their impact on Qwest.

Congress enacted section 253 to eliminate local regulations that interfere with the act's stated competitive goals. Like Auburn, lower federal courts consistently have struck down, as pre-empted under section 253(a), local laws imposing burdensome regulations or unreasonable charges on telecommunications companies because such requirements have a prohibitory effect on the provision of telecommunications services.

For example, relying on Auburn, the Northern District of California granted a motion preliminarily enjoining the City of Berkeley from imposing burdensome regulations and revenue-based fees. Qwest Communications Corp. v. City of Berkeley, 146 F. Supp.2d 1081 (N.D. Cal. May 23, 2001). Following the 9th Circuit in Auburn, Judge Illston concluded that Berkeley's ordinance imposed an impermissible application and permit process; significant, non-cost-based application fees; an impermissible public-hearing requirement; and unlawful detailed informational requirements. The Court also held that the city's unfettered discretion to consider numerous open-ended criteria in granting or denying the application "impose[d] an onerous burden" and, therefore, constituted a barrier to entry under section 253(a) that was not saved under section 253(c). Berkeley, 146 F. Supp.2d 1081 (N.D. Cal. 2001) at *12-13.6 

The Federal Communications Commission (FCC) has also issued several opinions consistent with Auburn's conclusion that non-cost-based fees are prohibited. See Mem. Opin. & Order, In re New England Public Communications Council Petition for Preemption, 11 F.C.C.R. 19, 713, 19, 721-22, ¶ 20 (1996), (holding that section 253 precludes any local requirement that "substantially raises the costs and other burdens of providing services, thus deterring the entry of potential competitors"), recons. denied, 12 F.C.C.R. 5, 215 (1997); In re TCI Cablevision of Oakland County, Inc., 12 F.C.C.R. 21,396, ¶ 102 (1997); ("Congress intended primarily for competitive markets to determine which entrants shall provide telecommunications services demanded by consumers, and by preempting [local regulation] under section 253 sought to ensure that State and local governments implement the 1996 act in a manner consistent with these goals.").7 

As stated, the act repeatedly expresses Congress's intent to encourage free competition between, and rapid distribution of, the various products and technologies now evolving in the telecommunications industry.8  This is apparent from sources as general as the name of the act: "An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications technologies," and from sources as specific as sections 253(a) (forbidding local actions that may "have the effect of prohibiting" the provision of telecommunications services) and 253(c) (exempting only those fee requirements that are both "fair and reasonable" and "neutral and non-discriminatory"). Because gross-receipts fees are inherently incompatible with the recovery of a city's actual costs, they conflict with and are barred by the act.

In Auburn, and the related cases cited above, various courts have held that section 253(a) limits municipalities to recovery of actual costs. See, e.g., Auburn at 1180 & n.19 (invalidating code provisions imposing "non-cost-based fees"). For example, the Auburn court specifically held that "non-tax fees charged under the franchise agreements are not based on the costs of maintaining the right of way, as required under the Telecom Act." Id. at 1176 (emphasis added).9 The non-cost-based fees in Auburn included application fees of $2,500 and $5,000, and a percentage-of-revenue fee. See id. at 1165, 1173 & n.19 (and cited code provisions in n.19).10 Non-cost-based fees often include percentage-of-revenue fees, which are even less directly tied to the use of the right-of-way than application fees and are pre-empted by section 253(a). By requiring wireline carriers to pay a surcharge in order to place lines in municipal rights-of-way, the cities necessarily "have the effect of prohibiting" new services.

As stated, the act was enacted in order to institute free competition. See, e.g., Cablevision of Boston, Inc. v. Public Improvement Comm'n of Boston, 184 F.3d 88, 98 (1st Cir. 1999) (253(a) is intended to protect "Congress' new free market vision"). However, as trustees of rights-of-way, cities enjoy an effective monopoly over access to customers because carriers require a city's permission to access rights-of-way in order to install cables to customers' buildings. If cities could lawfully erect a virtual toll booth for their own financial benefit, members of the telecommunications industry would be held hostage to the demands of one city or another, and then excluded from public rights-of-way absent acquiescence to revenue-raising provisions. Consumers, of course, ultimately bear the burden of such revenue-raising provisions in the form of increased rates — an increase that is in direct conflict with the purpose of the act.

Gross-receipts charges are particularly pernicious. If a city may charge a carrier based on a company's revenues, rather than the costs related to use of the right-of-way, the city receives fees that have no relationship to the use of the right-of-way. For instance, if a carrier provided a new service based on existing facilities, any additional revenue would have no relationship to the right-of-way. In that event, the carrier and its customers are penalized financially by innovation.

In the 1984 Cable Act, Congress explicitly empowered cities to impose on cable providers revenue-based fees up to a five percent cap. See 47 U.S.C. § 542(b). In sharp contrast, the act does not contain any language granting authority to charge revenue-based fees to telecommunications carriers. Had Congress wished to authorize revenue-based fees under the act, it certainly could have; in fact, it did exactly the opposite. In 1996, Congress amended the Cable Act to clarify that local authority to charge revenue-based fees under the Cable Act does not reach telecommunications services provided by cable operators. See id. § 541(b)(3)(A)(ii) ("the provisions of this title shall not apply to…cable operator[s] [in their] provision of telecommunications services"). Congress specifically added this amendment "to make clear that the franchise-fee provision [in the Cable Act] is not intended to reach revenues that a cable operator derives from providing new telecommunications services over its system." S. Rep. No. 104-23, at 36 (1996) (emphasis added).11 This deliberate distinction reveals that revenue-based fees are impermissible under the act.

By definition, revenue-based fees do not reflect actual management costs. Revenue-based fees are, therefore, not "fair and reasonable compensation" related to use of rights-of-way, as permitted by section 253(c), and are pre-empted. See Bell Atlantic-Maryland, Inc. v. Prince George's County, 49 F. Supp. 2d 805, 817-18 (D. Md. 1999) (appropriate benchmark of franchise fee is the county's cost of maintaining and improving the public rights-of-way the provider actually uses, not the value of the provider's privilege of using the county's public rights-of-way), vacated on other grounds, 212 F.3d 863 (4th Cir. 2000); AT&T Communications of the Southwest, Inc. v. City of Dallas (City of Dallas I), 8 F. Supp. 2d 582, 593 (N.D. Tex. 1998) (requirement that provider pay four percent of its total gross revenues pre-empted); New Jersey Payphone Ass'n, Inc. v. Town of West New York, 130 F. Supp. 2d 631, 638 (D. N.J. 2001) (a revenue-based franchise fee can never be sufficiently connected to compensation for use of the rights-of-way; commissions-based fee has "no logical link at all to costs" and constitutes an economic barrier to entry; any fee that does more than make a municipality whole is not compensatory); PECO Energy Co. v. Township of Haverford, No. Civ. A. 99-4766, 1999 WL 1240941, at *8 (E.D. Pa. Dec. 20, 1999). ("Revenue-based fees cannot, by definition, be based on pure compensation for use of the rights-of-way.")12 

Federal courts have made it clear that in passing section 253, Congress reserved for municipalities only the narrow authority to manage the manner in which telecommunications companies install their facilities in city streets — the physical process of installing and maintaining telecommunications facilities in the public rights-of-way — and to recovering actual costs related to this narrow management role. Section 253(c), titled "[s]tate and local government authority," permits cities to manage public rights-of-way, and to require fair and reasonable compensation from telecommunications service providers on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way. 47 U.S.C. § 253(c).

This narrow savings clause gives cities the limited authority to manage rights-of-way by, for example, charging costs for inspection and permits. Auburn at 1177 ("right-of-way management means [for example]…coordination of construction schedules, determination of insurance bonding and indemnity requirements, establishment and enforcement of building codes") (quoting In re TCI Cablevision of Oakland County, Inc., 12 F.C.C.R. 21,396, ¶ 103 (1997)). By contrast, cost-based fees are fair and reasonable. Each carrier pays for actual costs related to its use of the right-of-way. Thus, if a carrier's use is extensive, its costs rise. If its use is nominal, its costs are nominal. This charging mechanism is consistent with Congress's goals and avoids problems of discrimination and non-mutual charges.

Revenue-based fees by definition are not based on or related to use of rights-of-way. Rather, they are based on the existence of revenue which, in turn, may be derived by numerous factors that have nothing whatsoever to do with carriers' use of rights-of-way (such as changing corporate policy, the quality of advertising, management changes and even accounting). Instead of charging carriers a formula based on the actual costs they impose on the city, such as the actual costs of processing permit applications and ensuring safety on roadwork, revenue-based fees will inevitably overcharge some carriers relative to others in a manner that bears no relationship to the impact on rights-of-way. Accordingly, revenue-based fees are competitively non-neutral and, therefore, not saved by section 253(c). See City of Dallas I, 8 F. Supp. 2d at 593 (explaining that whether other providers have agreed to regulations is irrelevant for purposes of the "competitively neutral and nondiscriminatory" requirement; the operative question is whether the fees are tied to the amounts of rights-of-way used by the respective telecommunications providers). Cf. In re Federal-State Joint Board on Universal Service, 12 F.C.C.R. 8,776 ¶¶ 48-50 (1997) (in context of section 254, to allow the market to function properly, "competitive neutrality" required both neutrality between different competitors and different technologies).13 

Gross-receipts fees also are necessarily non-neutral and discriminatory as to landline, as opposed to wireless carriers. For landline carriers, the cities have a de facto monopoly position, because carriers are typically able to reach customers only by crossing city rights-of-way. Because gross-receipts fees are conditioned on the use of rights-of-way, they necessarily discriminate in favor of wireless products, which are not required to use city rights-of-way, and against landline services, which are.

In addition to this "technological non-neutrality," gross-receipts fees also discriminate in favor of inefficient carriers and against efficient carriers. For example, if two carriers each dig identical length trenches through a city, but one carrier invests in placing extra fibers in the trench or invests in modern technology that allows it to use its fibers more efficiently, the efficient carrier is likely to have more gross revenue than the inefficient carrier, despite their equal costs to the city. By conditioning payment on something unrelated to costs, such as gross revenue, cities actually punish investment in efficient use of city resources.

Congress expressly rejected a "parity" provision that would have required a single fee to be imposed on all carriers in a given area, because a parity requirement ignores the different amounts of city rights-of-way that each carrier uses to provide its services. AT&T Communications of the Southwest, Inc. v. City of Dallas, (City of Dallas I) 8 F. Supp. 2d 582, 593 (N.D. Tex. 1998). Representative Stupak, who proposed the amendment that ultimately became section 253(c), explained:

Local governments must be able to distinguish between different telecommunications providers. The way the [parity] amendment is right now, they cannot make that distinction. For example, if a company plans to run 100 miles of trenching in our streets and wires to all parts of the cities, it imposes a different burden on the right-of-way than a company that just wants to string a wire across two streets to a couple of buildings. The [parity] amendment states that local governments would have to charge the same fee to every company, regardless of how much or how little they use the right-of-way or rip up our streets.

141 Cong. Rec. H8460-01, H8460 (daily ed. Aug. 4, 1995) (quoted in City of Dallas I, 8 F. Supp. 2d at 594). Accord Bell Atlantic-Maryland, Inc. v. Prince George's County, 49 F. Supp. 2d 805, 817 n.26 (D. Md. 1999), vacated on other grounds by 212 F.3d 863 (4th Cir. 2000).

Once a violation of section 253(a) has been demonstrated, the city bears the burden of showing that its conduct and the challenged laws fall within the safe harbor of section 253(c). TCG New York, Inc. v. City of White Plains, 125 F. Supp. 2d 81, 89 n.5 (S.D.N.Y. 2000) (appeal pending). As succinctly summarized by the 9th Circuit in Auburn, section 253(c) preserves only cities' authority to manage their rights-of-way: "Right-of-way management means control over the public right-of-way itself, not control over companies with facilities in the right-of-way." Auburn at 1177. Like Auburn, courts routinely have held that local laws like those at issue here fail to fit within section 253(c)'s "safe harbor" when they stray beyond "traditional rights-of-way matters," and impose a "third tier" of regulation14 on telecommunications providers.15 

Section 253(c)'s safe harbor for "management" allows cities to impose reasonable safety restrictions on a telecommunications carrier's excavations in the rights-of-way (e.g., time periods for excavation, use of traffic control measures, restoration of excavated pavement, etc.). During the floor debate regarding section 253(c), Senator Dianne Feinstein stated that it is within the scope of "management" to:

regulate the time or location of excavation to preserve effective traffic flow, prevent hazardous road conditions, or minimize notice impacts; require a company to place its facilities under ground, rather than overhead, consistent with the requirements imposed on other utility companies; require a company to pay fees to recover an appropriate share of the increased street repair and paving costs that result from repeated excavation; enforce local zoning regulations; and require a company to indemnify the City against any claims of injury arising from the company's excavation.

Auburn at 1177 (quoting In re Classic Telephone, Inc., 11 F.C.C.R. 13,082, ¶ 39 (1996), in turn, quoting 141 Cong. Rec. S8172 (daily ed. June 12, 1995)).16 See Auburn at 1175-1177.

The changes envisioned by the act are dramatic and, in a general sense, require a diminishing role for state and local government. As the 9th Circuit recently held, that role is properly focused on managing rights-of-way, not the companies that use them. Revenue-raising is inconsistent with that role and, as the vast majority of courts have concluded, is prohibited by the act. The line-drawing being done by federal courts is a necessary part of the change Congress sought to implement.

1. The Act, Pub. L. No. 104-104, 110 Stat. at 56 (codified as amended in scattered sections of 47 U.S.C.).

2. Id.; see Reno v. ACLU, 521 U.S. 844, 855-60 (1997); Joint Explanatory Statement of the Committee of Conference, H.R. Rep. No. 104-458, at 113 (1996) (The act designed to "rapidly" foster competition in local telecommunications markets); H.R. Rep. No. 104-204, at 89 (1995) (goal of the act is "to shift monopoly markets to competition as quickly as possible").

3. Several decades ago, many cities regulated both the rates and the terms and conditions of service of telecommunications providers.

4. See Communications Act of 1934, Ch. 652, 48 Stat. 1064, amended by Federal Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of 47 U.S.C.).

5. Not all mapping requirements are invalid. However, mapping requirements that impose burdensome or technologically infeasible requirements or telecommunications providers are invalid.

6. See also AT&T Communications of the Southwest, Inc. v. City of Dallas (City of Dallas II) 52 F. Supp. 2d 763, 769 (N.D. Tex. 1999) (form franchise ordinance requiring four percent of gross receipts from all operations within the city; dedicated fiber for city's use; city access to a duct or sub-duct of each conduit at no charge; and access to financial and other records for detailed audits found inconsistent with the act), vacated as moot by 243 F.3d 928 (5th Cir. 2001); AT&T Communications of the Southwest, Inc. v. City of Austin, 975 F. Supp. 928, 934-35, 942 (W.D. Tex. 1997) (by passing an ordinance requiring among many restrictions that providers obtain municipal consent before operating services within the city, pay a nonrefundable application fee, pay quarterly franchise fees, disclose detailed financial information, as well as any information regarding any legal proceedings, the city "overstepped its bounds").

7. Because the FCC is the administrative agency charged with administering the act, the courts must grant deference to determinations made within its authority. See AT&T Corp. v. Iowa Utilities Bd., 525 U.S. 366, 397 (1999) (deferring to FCC to interpret ambiguities in the act); Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44 (1984).

8. Congress meant to encourage facilities-based competition.

9. In its original opinion containing this same sentence, the text included a reference, two sentences earlier, to application fees in the amount of $2,500 and $5,000. City of Auburn v. Qwest Corp., 247 F.3d 966, 981 (9th Cir. 2001). This reference was dropped in the amended opinion, broadening the prohibition against non-cost-based fees. Auburn at 1176.

10. Auburn note 19 refers to various municipal code provisions invalidated by the 9th Circuit, including Auburn Municipal Code § 20.04.020. Auburn Mun. Code § 20.040.020 (J) states an application shall also include all deposits or "charges" required pursuant to that title. Section 20.06.180, Compensation for use of Public Ways, states that: "A.…grantees and franchisees shall pay the city as a general compensation for the use of the public way during each year of the term of a franchise a franchise fee as determined by city council, not to exceed six percent of gross revenue for each quarter of each calendar year…."

11. The Cable Act also provides: "A franchising authority may not impose any requirement under this subchapter that has the purpose or effect of prohibiting, limiting, restricting, or conditioning the provision of a telecommunications service by a cable operator or an affiliate thereof." Id. § 541(b)(3)(B). Cf. In re TCI Cablevision of Oakland County, Inc., 12 F.C.C.R. 21,396 ¶ 64 (1997) (explaining cross-ownership restrictions of Cable Act).

12. But see, TCG Detroit v. City of Dearborn, 16 F. Supp. 2d 785 (E.D. Mich. 1998), aff'd, 206 F.3d 618 (6th Cir. 2000) and TCG New York, Inc. v. City of White Plains, 125 F. Supp. 2d 81 (S.D.N.Y. 2000) (appeal pending). However, these cases are not authoritative in the 9th Circuit. Moreover, in both TCG Detroit and TCG New York, the carriers had begun negotiations with the cities before the enactment of the act and had been willing to pay a revenue-based fee. The courts looked to the course of dealings based on facts unique to these long histories of negotiations when they upheld the fee structure. As other courts have noted, the court in Dearborn did not address the various reasons intrinsic to the act that limit franchise fees to actual costs. Bell Atlantic-Maryland, 49 F. Supp. 2d at 819.

13. The FCC recently filed an amicus brief supporting this conclusion: "A percentage of gross revenues-based fee, even if uniformly applied, might well have no relationship to either the extent of each carrier's use of the rights-of-way or the costs it would impose on the municipality. It therefore could be inconsistent with the competitive neutrality requirement of 253(c)." See Brief of the Federal Communications Commission and the United States as Amici Curiae, TCG New York, Inc. v. City of White Plains, (2nd Cir. appeal filed March 8, 2001) (Nos. 01-7255 (XAP), 01-7213 (L)), appealed from 125 F. Supp. 2d 81 (S.D.N.Y. 2000) (included in Qwest's notebook of authorities).

14. See TCI Cablevision, 12 F.C.C.R. at 21,441-42, ¶¶ 8, 102, 105 (expressing concerns about local "third tier" regulation).

15. See, e.g., Bell Atlantic-Maryland, 49 F. Supp. 2d at 817; Board of County Comm'rs for Grant County, New Mexico v. U.S. West Communications, No. Civ. 98-1354 JC/LCS, slip op. at 11 (D.N.M. June 26, 2000); PECO Energy Co. v. Township of Haverford, No. Civ.A. 99-4766, 1999 WL 1240941, at *6 (E.D. Pa. Dec. 20, 1999); City of Dallas I, 8 F. Supp. 2d at 592; AT&T Communications of the Southwest, Inc. v. City of Dallas (City of Dallas II), 52 F. Supp. 2d 763, 769 (N.D. Tex. 1999), vacated as moot, 243 F.3d 928 (5th Cir. 2001); BellSouth Telecommunications, Inc. v. City of Coral Springs, 42 F. Supp. 2d 1304, 1309-10 (S.D. Fla. 1999), aff'd in part, rev'd in part on other grounds sub nom. BellSouth Telecommunications, Inc. v. Town of Palm Beach, 252 F.3d 1169 (11th Cir. 2001).

16. In light of this legislative history, the FCC has likewise interpreted the proper scope of "management" under Section 253(c) to prohibit the type of regulations at issue here:

[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 control the orderly flow of vehicles and pedestrians; to manage gas, water, cable (both electric and cable television) and telephone facilities that crisscross the streets and public rights-of-way.…[T]he types of activities that fall within the sphere of appropriate rights-of-way management… include coordination of construction schedules, determination of insurance, bonding and indemnity requirements, establishment and enforcement of building codes, and keeping track of the various systems using the rights-of-way to prevent interference between them. TCI Cablevision, 12 F.C.C.R. 21,396 ¶ 103.