1: Florida municipalities have new opportunities and responsibilities in the extended present due to two factors: the Information Age and the 1996 Telecommunications Act. By interconnecting communities with municipally owned conduits, a municipality may have the opportunity to raise significant revenue. By interconnecting communities, and thereby extending the International Information Highway to practically every school, home and business, a municipality has the corresponding responsibility to educate its community about how to use this resource. Without the corresponding educative function of the municipality, revenue resources will not be sufficiently tapped because only the wealthy, highly educated community members will utilitze the facilities. Conduits can serve a variety of functions in Florida communities, one of the most important being turning the traditional education structure upside-down. Presently, the majority of the population is schooled in reading, writing, and arithmetic, and as the population climbs the ladder of higher education, more and more members drop out. Interconnection allows community members with limited resources and with limited discretionary income to have access to the archives, the libraries, and the materials that have, until now, been reserved for a select few.

2: The tension between raising revenue on the one hand, and educating the community on the other, forces a municipality to undergo a substantial expense in the beginning to reap the optimum benefits thereafter. In other words, the more people that have access and that have the tools to utilize the access, the more revenue the municipality will earn due to more service providers being charged in accordance with the amount of service they offer. More customers, more connections, more revenue.

3: Local governments must not only work within the current rate regulation schemes set forth by the Florida Public Service Commission and the Florida Legislature, but also local governments must consider the role they will play within the information system. The local government qua regulator operates under different laws than the local government qua participant within the system. Additionally, the Telecommunications Act of 1996 fosters competition and forbids many barriers to entry within communication systems. Any action taken by a municipality cannot be a barrier to competition and should foster competition.

4: The regulatory schemes that Florida municipalities are considering have already triggered significant upset in the Florida legislature. Due to several factors, the most publicized being the "Internet Tax," companies are trying to avoid these regulatory threats. By turning to wireless technology, Personal Communication Systems for example, companies may be one step ahead of municipalities. Companies going wireless threaten the viability of the conduit.


5: A communications revolution is taking place at what seems to be breakneck speed. The terms "Information Highway," "Information Superhighway," "National Information Infrastructure" and "convergence" are being bandied about constantly. Government, industry, and the public are all being challenged to function effectively and not to be left behind as a new regime using digital technology and fiber develops. A challenge to governments is to assure that everyone has reasonable access to use and to benefit in the new world (or worlds) of telecommunications as technology expands the ability and opportunities to communicate. [Note 1]

6: Hundreds of billions of dollars are expected to be spent over the next two decades to bring the benefits of fiber optic technology into virtually every American home and business. For municipalities interested in owning or operating a telecommunications system, the opportunities and benefits might be enormous. As telecommunications companies are increasingly deregulated, municipal ownership and operation may soon be the only meaningful role available in the telecommunications sector for local governments as regulatory and franchising roles shrink or vanish. [Note 2]


7: The Telecommunications Act of 1996 [Note 3] eliminates most restrictions on cross-ownership, relaxes limitations on media concentration, and allows telephone and cable companies to enter each other's businesses. The Act is a mixed bag for local governments. On the one hand, for example, the base upon which franchise fees can be imposed has been restricted further. On the other hand, local governments dodged a bullet when the following language was added, by floor amendment, to the provision in the Senate bill dealing with removal of barriers to entry. The provision preserves the right of State and local governments to manage their rights-of-way. The provision was added to a section of the Act that usurps regulatory power from State and local governments by stating that no State or local government "may prohibit or have the effect of prohibiting the ability of any entity to provide...telecommunications services":

47 U.S.C. 253(c).

8: Because local governments may decide to build fiber optic systems and then make them available to private parties (depending upon the extent and nature of the governmental/ industry relationship), it is possible that the courts could, at some point, treat municipalities in the same manner as private parties for certain purposes. Cities need to be alert to this possibility and take steps to minimize exposure to adverse court action. [Note 4]



9: In addition to the traditional revenue producing activities of municipalities, the Information Explosion provides municipalities with new revenue generating opportunities.

10: The Florida Public Service Commission (FPSC) has the authority to require that connection be made between two or more local exchange telecommunications companies (LECs). Whenever the FPSC finds that connection could be made between two or more LECs by the construction and maintenance of suitable connections at common points, the FPSC has the authoirty to require them to connect if the connection can reasonably be made, if the connection will provide efficient service, and if the connection is necessary. [Note 5]

11: A municipality may consider this new provision as an opportunity. Seemingly, the FPSC has the authority to tell two local exchange carriers to connect with one another. A municipality may facilitate this connection by offering the use of a municipally-owned conduit. This allows the LECs to connect with one another without the expense of wiring along street poles to reach a common point. As the municipality may charge fees in relation to the actual linear length of the wiring, the conduit may provide a more direct connection. Also, the conduit may provide damage control. Whereas hurricanes, storms, heavy rain, and wind often knock down telephone polls, conduits would provide greater protection to the connections. Further, weather conditions, birds, and the occasional gardener cutting trees damage the wires above ground. The conduit would protect the actual wires.


12: The government's role requires more than either hiring a company to install a conduit or telecommunications network or installing and regulating its own network. The government must take steps to ensure that consumers have access to the instruments necessary to exchange and to use information carried through these pipes. The importance of this point is heightened by the popular comparison between efforts underway today to build a high-speed telecommunications infrastructure, and those undertaken starting in the 1950s to construct interstate highways. [Note 6] Although the buzzword "information highway" is used to connote an automotive superhighway, significant differences underlie the two situations.

13: The major components of modern automotive transportation were developed and in place by the 1950s; many Americans used and owned cars and trucks. Also, networks of roads and gas stations were in place. Then, the government aggressively implemented programs to develop superhighways--programs guaranteed to improve transportation for the public.

14: However, we face dramatically different circumstances in the 1990s. One of our weakest links is our "cars and trucks" which allow us to package and to load information for the electronic journey. Many drivers do not have the equivalent of cars for the superhighway. The cars and trucks people need are video and data terminals, mobile handsets, the converter boxes and specialized computer boards which ready information for its journey along the highway, and allow it to be used at its final destination. And unlike Americans' familiarity with cars and trucks during the 1950s and 1960s, significantly fewer Americans are familiar with the computer. Therefore, not only will a municipality have the responsibility of controlling rate structures and ensuring nondiscriminatory access, but also it will need to equip its citizens with "cars and trucks"--and teach them how to drive.


15: The opportunity that awaits a municipality is counterbalanced by equal amounts of responsibility. [Note 7] A high-speed, high-technology infrastructure is of no use to a community that does not know how to tap its potential. Further, if the only users of the infrastructure are highly educated, wealthy professionals, the municipality fails to tap a large source of revenue within the community--that is, everyone else. A municipality's public service commission, in conjunction with local legislators, libraries, schools, and outreach programs, is in the best position to offer education to the community concerning the use of a network. In the past, education has traditionally been left to the states and to the cities to administer. Here, too, the local government seems in the best position to educate its community.

16: New information technologies are opening the system to new possibilities as surely as new building technologies did to architecture some hundred years ago. But the technologies do not design new practices for us. People, acting in the face of uncertainty, must determine what they can make of these emerging possibilities. People working in intellectual institutions and knowledge industries--the schools, colleges, universities, research labs, libraries, museums, and professional offices--share a sustained agenda with which to shape newly emerging educational practices. [Note 8] This agenda calls for empowering the community with the new technology.

17: A common response to changing conditions, whether in education or other domains, is one of passive reaction that arises with the failure to perceive that any new possibilities arise with the changes. The classic instance of this reaction was the way in which early printers crafted books that looked exactly like illuminated manuscripts. Passive reactions attach a timeless necessity to arrangements that are historically contingent. Passive reaction by educators amount to an inert effort to employ new information technologies to make the existing educational system work better, without significant changes in the structural features of that system. This course is fraught with ironies. Applying new technologies to current procedures, expecting them to work better but to remain essentially unchanged, does not lead to significant improvements. Rather, it forces fundamental change from within, without providing a vision of where that change should lead. In this way, educators risk being caught unaware in a cascade of unexpected innovation. We can do better in our extended present by recognizing that the task facing educators is to reconstruct the whole system in ways that will allow it to use new communications resources to overcome the inherent, structural deficiencies of the current system. [Note 9]

18: The profit-driven responsibility that a municipality should undertake highlights the fact that from a municipally owned-conduit sprouts not only profit, but also community equality and cultural richness. Throughout educational efforts up until the current historic juncture, the problem of policy has been to deploy and to allocate scarce information and educative resources. This condition is shifting. What we see now with the World Wide Web is a hint at the fullness of cultural participation that is becoming the birthright of each and every child. Educational policy as it has existed has been a complicated system for allocating differential access to the cultural assets of the world's civilizations and for legitimizing the results. Soon, educational policy will need to be redefined to take into account a completely novel starting point--all the resources of the world's cultures will in principle be available to any person at any time. [Note 10] The municipality, in time, will transform from an entity which allocates scarce resources into an entity which manages relatively abundant resources.

19: The municipality, in shifting towards the role of an information manager [Note 11], will turn traditional educational policy on its head. In the past, educational policy has served to allocate scarce resources so that access to higher educational opportunity was limited to the few who could make optimum use of the exhaustive resources. [Note 12] The vast majority of students have been limited to an education of reading, writing, and arithmetic. In contrast, the future will not foster the trade-off between people and cultural resources.


20: A conduit network can serve several useful functions. Municipalities should strive to build a network that: supports universal access to advanced telecommunications services for all residents, businesses, and institutions throughout the municipality, as well as interconnections to other telecommunications networks; provides early deployment of advanced telecommunications systems; provides for competition in telecommunications services; supports government and education information and service delivery needs; enhances the municipality's environment; minimizes financial and technical risks; and offers cost savings. For example, the city of Seattle desires that its Information Highway has several home applications including: [Note 13] Cable TV and other home entertainment services; Home monitoring and security devices; Information services; Computer and multi-media applications, such as remote learning services; Telecommuting; Citizen to citizen data and/or voice communications;Energy management services; and Remote utility meter reading and bill paying. Also, the City envisions that their network would support services for businesses, governments and institutions: Transactional services, such as banking, purchasing of goods and services, making reservations, bill-paying, etc; The "virtual office;" Computer "enterprise" networks; Teleconferencing and private voice networks; Supercomputing sharing; Telemedicine applications; Public access to government services; and Gateways to other businesses, institutional and private networks. Other cities and states have conducted studies to determine what functions their Information Highways should serve. In 1993, Governor Pete Wilson of California noted the vital role that advanced telecommunications can and must play in restoring and improving his state's health. Governor Wilson asked the California Public Utilities Commission to develop a strategy. The Commission responded with a plan designed to ensure the state's competitive advantage in the global economy, to foster the creation of new, higher-paying jobs for Californians, to bring the benefits promised by the Information Age to ALL Californians, and to continue his state's commitment to universal service. [Note 14].


21: Some municipalities have requested proposals from private investors and developers to build and to operate a telecommunications network. The exact role of the city in their endeavor is unclear. For example, Seattle has requested proposals from the private sector to develop and to operate a network. Yet the City desires to obtain a system that manages utility services for the City's electric, water, sewer, and drainage facilities, and that allows for support of government and education information--traditionally tasks of semi-private companies. (Companies heavily regulated by public service commissions.)

22: Other municipalities have requested proposals from government divisions to build and to install conduit networks. The goals are ambitious. To achieve the goals, cooperation at all levels of government and among states' many stakeholders is imperative. For example, in California, the Public Utilities Commission held three public hearings in which participants offered their perspectives on the evolving needs of the state. The Division of Strategic Planning studied extensive staff research and analysis. Over seventy public and private companies, and government departments participated in the Commission's study of telecommunications infrastructure issues. The list of participants demonstrates that an information infrastructure will benefit almost all community institutions--from telephone companies, to universities, to the elderly. The participants in the California hearnings included AT&T, Berkeley Roundtable on the International Economy, California Department of Consumer Affairs, California State Library, Dole Foods, MCI Telecommunications Corporation, Prodigy, Self Help for the Elderly, and Vision por Cable de Mexico. The broad range of participants demonstrates the objective of the government to fulfill a wide range of community needs.

23: Whether privately or publicly owned, most likely local governments will need to maintain regulatory control of firms which dominate specific telecommunications markets in the state. Like the Florida PSC stepped in to regulated Ma Bell, regulatory emphasis will need to focus on protecting captive customers from monopoly practices of dominant firms. [Note 15]. Rate structures formulated by a public service commission will ensure that the average community member can afford service. The protection against monopoly pricing, paired with controlled rate structures, in an environment that fosters competition, will benefit the public. [Note 16].


24: Under the federal Communications Act of 1934, 47 U.S.C. 151, common carriers are subject to a wide range of regulation, including a requirement that a common carrier obtain the approval of the Federal Communications Commission before constructing new communications lines. Certain exceptions to this rule exist. While this requirement probably would apply to the laying of a communications conduit network if it were being built by an investor-owned telephone company, probably governmental entities are not subject to this requirement. [Note 17].

25: In the Communications Act, the term "common carrier" is defined to mean any "person engaged as a common carrier for hire, in interstate or foreign communication." 47 U.S.C. 153(h). In turn, "person" is defined to include "an individual, partnership, association, joint- stock company, trust, or corporation." Because municipalities and other governmental entities are not included in the definition of "person" in that Act, also, they are excluded from the scope of "common carrier." [Note 18] In contrast, the Cable Communications Policy Act of 1984, 47 U.S.C. Sec. 521 ("1984 Cable Act"), which is codified as Title VI of the Communications Act of 1934, defines "person" almost identically, but the Cable Act specifically includes cities in its definition of "person" by adding the critical phrase "or governmental entity" to the end of the definition: the term "person" means an individual, partnership, association, joint stock company, trust, corporation, or governmental entity; 47 U.S.C. Sec. 522(14). Especially in light of the fact that the Cable Act is codified as part of the Communications Act, it should be concluded that governmental entities are excluded from the general definition of "person" in Title I of the Communications Act; otherwise, there would have been no need to change the definition of "person" in Title VI to encompass governmental entities. [Note 19]. Therefore, government entities are probably not subject to the wide range of regulations that govern common carriers.


26: In light of the fact that government entities likely are not subject to the regulations governing common carriers, an examination of past and present revenue earning strategies of Florida municipalities will determine what steps Florida municipalities need to take in the future to increase their revenue earning capability.



27: Municipalities generate revenue by charging fees for the use of rights-of-ways. Municipalities have jurisdiction over and control of public roads. Municipalities have the authority to prescribe and to enforce reasonable rules or regulations with reference to the placing and maintaining along, across, or on any road under their respective jurisdictions any electric transmission, telephone, or telegraph lines; pole lines, poles; railways; ditches; sewers; water, heat, or gas mains; or other structures that are utilities. [Note 20].

28: Florida Statute 337.401 authorizes municipalities to charge a 1% gross receipts tax to any telephone company as a condition for granting permission to occupy municipal streets and rights-of-way for poles, wires, and other fixtures. The 1% gross receipts tax is a tax on recurring local service revenues for service provided within the corporate limits of the municipality by such telephone company. The municipality may not charge other taxes, licenses, or fees in addition to the 1% gross receipts tax. However, at least 2 exceptions exist: Ad valorem taxes and amounts for assessments for special benefits, such as sidewalks, street pavings, and similar improvements, and occupational license taxes levied or imposed upon the telephone company may be charged in addition to the 1% tax. [Note 21].

29: A municipality may by ordinance enter into an agreement with any person providing telecommunications services as defined in F.S. 203.012(7) (defining toll telephone service) as a condition for granting permission to occupy or use any city street, alley , viaduct, elevated roadway, bridge, or other public way. [Note 22]. This agreement permits the telecommunication service provider to construct, operate, maintain, repair, rebuild, or replace a telecommunications route within a municipal right-of-way. Moreover, the agreement can provide for a fee or other consideration payable annually. The fee is calculated in relation to the actual linear feet of any cable, fiber optic, or other pathway that makes use of the municipal right-of-way. The fee need not be less than $500 per linear mile of any cable, fiber optic, or other pathway that makes use of the municipal right-of-way. If the fee is in excess of $500, the fee must be applied in a nondiscriminatory manner and must not exceed the sum of (a) Costs directly related to the inconvenience or impairment solely caused by the disturbance of the municipal right-of-way; and (b) The reasonable cost of the regulatory activity of the municipality; and (c) The proportionate share of cost of land for such street, alley, or other public way attributable to utilization of the right-of-way by a telecommunication service provider. Furthermore, no telecommunication service provider can be required to pay more than one such fee or consideration annually for the construction, maintenance, operation, repair, rebuilding, or replacement of a parallel telecommunications route owned by it which makes use of the right-of-way of the municipality. In addition, this proviso applies to any subsidiary under the service provider's direct control. This fee does not apply to any telecommunication service provider who provides telecommunication service as defined in F.S. 203.012(3). (defining local telephone service.) [Note 23].


30: Municipalities may levy a tax on the purchase of telecommunications services as defined in F.S. 203.012(5). [Note 24]. According to F.S. 166.231(9), municipalities may choose to tax one of two types of telecommunication service purchase. A municipality may tax purchases within the municipality of local telephone service at a rate not to exceed 10 percent of the monthly recurring customer service charges. These charges exclude public telephone charges collected on site, access charges, and any customer access line charges paid to a local telephone company.

31: In the alternative, a municipality may tax purchases within the municipality of telecommunications service which originates and terminates in Florida at a rate not to exceed 7 percent of the total amount charged for any telecommunications service provided within the municipality . If the location of the telecommunications service provided cannot be determined, the tax will be levied on the total amount billed for such telecommunications service to a telephone or telephone number, a telecommunications number or device, or a customers' billing address located within the municipality.


32: In the past, the Florida Public Service Commission has contemplated laying underground facilities. At least for electric utility purposes, the Commission decided against it. In 1990, the Florida Public Service Commission made a determination as to the cost-effectiveness of requiring the installation of underground electric utility distribution and transmission facilities for all new construction, and for the conversion of overhead distribution and transmission facilities to underground distribution and transmission facilities when such facilities are replaced or relocated. In making the determination, the Commission considered the total cost involved. The Commission surveyed the overall cost of accidental electrocutions and temporary and permanent disabilities to both the utility employees and others; vehicular accidents involving distribution and transmission facilities; ascertainable and measurable costs of adverse health effects; the differential between the rights-of-way required for underground versus overhead utilities; the cost differential due to the elimination of tree-trimming requirements; the cost differentials between underground and overhead utilities to be expected from repairing storm damage, as well as the incurred loss to the private sector as a result of outages due to storm damage; and costs of associated insurance, attorney's fees, and legal settlements and costs.

33: Once again, Florida municipalities are considering the installation of an underground transmission facility. It may not be the right solution for municipalities. In fact, it may only be a short-lived solution. But municipalities are asking the question, "Will a municipally owned conduit allow us to 'cash in' on the Information Age?"

34: Several of these factors should be considered by municipalities in applying a cost-benefit analysis to the installation of a conduit network. In addition, municipal governments should survey the experiences of other municipalities for guidance. [Note 25].


35: In predicting the regulatory function of a municipality in managing a conduit network, it is unclear whether a conduit network would be regulated as a utility or as a cable franchise. Other viable options may exist, but to effectively implement a conduit network, it is unlikely that a municipality needs to "reinvent the wheel." In Florida, cable companies are not utilities. [Note 26]. For the purpose of advising a municipality of its rights to establish and to regulate a conduit network, the network environment may be contemplated within an utility framework. First, a conduit network is a semi-permanent installed device; from its inception, the municipality could grant long-term rights to the network--if the right to use the conduit could be revoked every couple of years, the municipality provides no incentive to a company to use its network. The threatened company would build its own conduit with the assurance that its franchise could not be revoked. Today, utility companies do not operate under this threat. Second, utility companies are regulated for the welfare of the public. It may be argued that Information is such an important resource that the government should regulate the conduit to ensure every person has access to the resources that the conduit supports.

36: On the other hand, public utilities are closely regulated because they control a natural resource. If a conduit network is built solely to interconnect telecommunications companies, and used solely to transmit information, the conduit might be regulated more efficiently by franchising the use of the conduit. These franchises could be short or could be long. A shorter franchise period would give the municipality a heavy hand in regulation. A longer franchise period would provide more stability to the entire system. Like cable franchises, conduit franchises could be granted after the municipality considers: (a) The economic impact upon private property within the franchise area; (b) The public need for such franchises, if any; (c) The capacity of public rights-of-way to accommodate the franchisee; (d) The present and future use of the conduit; (e) The potential disruption to existing users of the conduit and the resultant inconvenience which may occur to the public; (f) The financial ability of the franchise applicant to perform; (g) Other societal interests; (h) Such other additional matters, both procedural and substantive, as the municipality may, in its sole discretion, determine to be relevant. [Note 27].

37: In either circumstance, the purposes of regulatory framework should parallel the purposes of The Cable Communications Policy Act of 1984. In relevant part, the purposes behind the Act are "to (2) establish franchise procedures and standards which encourage the growth and development of cable systems and which assure that cable systems are responsive to the needs and interests of the local community; and (5) establish an orderly process for franchise renewal which protects cable operators against unfair denials of renewal where the operator's past performance and proposal for future performance meet the standards established by this title..." 47 U.S.C. 601. The Act prevents a franchiser from granting a franchise to a cable company, allowing the franchise to invest in expensive equipment, and following these substantial investments, upon renewal of the franchise, imposing excessive fees to continue the contract. In H. Rep. 98-935, 98th Cong. 2d Sess. at 25 (1984), Congress explains, As the expiration of the franchise term nears, the incumbent operator will seek to renew the franchise in order to continue to build on and profit from this investment...This legislation establishes a national process governing the renewal of cable franchise that can be initiated by the cable operator or the franchising authority. It contains procedures and standards designed to give some stability and certainty to the renewal process, while continuing to provide the franchising authority with the ability to assure that renewal proposals are reasonable to meet community needs and interests, relative to the costs thereof. Likewise, a municipality must ensure that the users in the conduit have stability and to some degree, "staying power."

38: Municipalities have more revenue earning potential in the utility framework. First, utilities are subject to a gross receipts tax of 2.5% under F.S. 203.01. Under F.S. 203.012(2)(b)(2) (1995) cable television service is exempt from this tax. Second, if using a cable franchising grid rather than a utility grid, the risk of a "conduit tax" being 6%, the rate of the cable tax, rather than 7%, the rate of the telecommunications tax, exists. Third, under F.S. 366.05(1) the Florida Public Service Commission has the power to determine the rates and charges, classifications, standards of quality and measurements, and service rules and regulations to be observed by each public utility; to require repairs, improvements, additions, and extensions to the plant and equipment of any public utility when reasonably necessary to promote the convenience and welfare of the public and secure adequate service or facilities for those reasonably entitled. Therefore, in choosing a regualtory scheme, these types of concerns must be addressed. Further, in addition to adapting a regulatory scheme to the conduit, a municipalities' role as a regulator of information carries with it serious implications. Some of these implications are addressed in Part VI(B)(6): Local Government as Regulator.


39: A municipality will need to devote a significant amount of revenue to the initial installation of a conduit. But with time, the revenue needed to maintain the conduit will decrease. The larger the initial expenditure, the larger the gain. The more time that passes, the larger the revenue. So with time, the expenditures will decrease and the revenue will increase. This phenomenon is the opposite of how the traditional educational system works today.

40: Digitized cultural resources will have very different economies from those of printed cultural resources. With printed texts, the bulk of production costs are absorbed in the costs of physical reproduction, along with the costs in libraries of storage and preservation. The curve of supply and cost for printed information rises steadily, perhaps even accelerating as large collections require special buildings and staffs for their maintenance. The developing curve of supply and cost for digital resources is different. It has a very steep initial threshold, which is becoming lower as the information infrastructure becomes fuller and more efficient. But above that threshold, both the cost of adding more resources to the set of those available and the cost of making the set available to more and more people is low. Legitimizing harsh differentials in the degree of access ceases to be a significant policy problem when everyone has nearly unlimited access to the full stock of cultural assets of the world's cultures. [Note 28].


41: To answer this question by analogy, yes. F.S. 337.401(3)(1995) grants municipalities the authority to require any telephone company to pay a fee or other consideration as a condition for granting permission to occupy municipal streets and rights-of-way for poles, wires, and other fixtures. Such fee or consideration may not exceed one percent of the gross receipts on recurring local service revenues for services provided within the corporate limits of the municipality by such telephone company. Included within such one percent maximum fee or consideration are all taxes, licenses, fees, and other impositions except ad valorem taxes and amounts for assessments for special benefits, such as sidewalks, street pavings, and similar improvements, and occupational license taxes levied or imposed by a municipality upon the telephone company.

42: By analogy, nothing seems to prevent a county or municipality from requiring a company to pay a fee or other consideration as a condition for granting permission to occupy a conduit network. This fee is analogous to "renting" space from the city to occupy public streets and rights-of-way for poles, wires, and other fixtures.

43: For example, currently the City of Seattle charges an annual fee for use of its utility poles. The City will charge an annual fee for use of conduit or other facilities. Seattle charges fees for street use permits and business licenses. Network operators will be subject to appropriate City taxes.


44: The term "franchise fee" includes any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as such. 47 U.S.C.S. 542(g).

45: The term "franchise fee" does not include any tax, fee, or assessment of general applicability (including any such tax, fee, or assessment imposed on both utilities and cable operators or their services but not including a tax, fee, or assessment which is unduly discriminatory against cable operators or cable subscribers.) 47 U.S.C.S. 542(g)(2)(A).

46: If the "rental fee" for use of the conduit applies to all utilities and cable operators, then the fee is of general applicability. Since for any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system, only if the rental fee is not part of the "franchise fee" can a city collect both fees.

47: On other hand, F.S. 337.401(3)(1995) provides that if any municipal authority requires any telephone company to pay a fee or other consideration as a condition for granting permission to occupy municipal streets and rights-of-way for poles, wires, and other fixtures, such fee or consideration may not exceed 1 percent of the gross receipts on recurring local service revenues for services provided within the corporate limits of the municipality by such telephone company. Included within such 1 percent maximum fee or consideration are all taxes, licenses, fees. and other impositions except ad valorem taxes and amounts for assessments for special benefits such as sidewalks, street pavings, and similar improvements, and occupational license taxes levied or imposed by a municipality upon the telephone company.

48: Since 47 U.S.C.S. 542(g) and F.S. 337.401(3) declare different fee limitations on cable operators and telephone companies respectively, this fee discrepancy may cause discrimination against some providers utilizing the network. For example, if the definition of a rental fee falls outside the definition of a franchise fee, then, presumably, the City can charge cable operators greater fees than telephone companies for using the same conduit. Yet different fees for different companies would apply the law in a discriminatory fashion.


49: If local governments decide to compete within the conduit that they regulate, local governments could face complications because of the multiple roles they would play as governmental entities, which are subject to special requirements, as regulators and as market participants. [Note 29]. 45: There seem to be no laws that would give municipalities the authority to require special franchises or licenses for the construction of private companies' conduits. In fact, two courts in Illinois have held that neither towns nor cities have the power to require special franchises or licenses. The Illinois Supreme Court, upon rehearing, ruled under Illinois law that towns do not have the right to demand expensive franchise agreements from telecommunications companies passing cables under their streets, because they lack proprietary powers over their streets. [Note 30]. In a similar case, a federal appeals court held against the City of Chicago, ruling that the franchise fee was an unauthorized tax and that, if cities like Chicago and Arlington Heights were successful, telephone and other similar utility services "could be held up for a monopoly toll, as if Illinois' municipalities were so many little medieval German principalities." [Note 31].


50: If the municipality decides not only to regulate the conduit, but also to offer services through use of the conduit, the government becomes both a regulator and a competitor within the same community. Experience with utilities and cable companies shows that the private sector is not going to be passive when municipalities become competitors.

51: If a municipality enters into any kind of joint venture with a private company, an argument could be made that the local government should lose its non-regulated status under the federal Communications Act. If such an argument were to prevail, a municipality could find itself regulated as a "common carrier," subject to any cross-ownership restrictions that apply to common carriers. [Note 32]. Although the Telecommunications Act of 1996 has eliminated many of the cross-ownership restrictions, some still apply.

52: Municipalities should be aware that their potential roles as regulators and service providers may result in antitrust and First Amendment challenges. Private companies, both telephone and cable, will likely allege that municipal service providers are engaging in anticompetitive activity such as predatory pricing. Because of antitrust concerns, municipalities should focus primarily on ensuring that their conduct promotes, rather than impedes, competition. Municipalities would be wise to provide access to all private entities seeking access both as a matter of good policy and to ward off potential suits by private companies. Therefore, cities should take steps to be sure that they treat private services and their own services equally if they are able to operate as direct service providers. It might be advisable for a municipal department to obtain a franchise from the city for a fiber optic system, for example, if it intends to require private companies to obtain franchises before constructing a similar system. [Note 33].

53: Many municipal activities may be shielded from antitrust challenges under the "state action" doctrine. Under this doctrine, it has been held that a municipality will not be subject to the antitrust laws as long as its actions have been authorized by state law. This doctrine has specifically been applied in the context of state authorization of a municipally-owned cable television system. [Note 34]. 50: Cities will not be subject to payment of damages even if found liable for antitrust violations. The Local Government Antitrust Act of 1984, 15 U.S.C. Sec. 35, protects local governments from having to pay damages, costs or attorney's fees for violations of federal antitrust laws. Similarly, the 1992 Cable Act (adding a new Section 555a to 47 U.S.C.) provides that municipalities (or their officials or employees) are not liable for damages or attorney's fees for violations of federal antitrust laws or for claims "arising from...a decision of approval or disapproval with respect to the grant...of a franchise..." Under both statutes, however, cities remain subject to injunctive relief and declaratory relief if they have violated the antitrust laws and are not shielded by state action doctrine. [Note 35].

54: Municipalities should be aware that the First Amendment limits a municipality's ability to control the "speech" of others. Once a municipality makes its conduit available to entities outside of city operations, the city should ensure that it is opening the system to everyone interested in using it. Although it is unlikely that a city bears this responsibility as a common carrier under the Communications Act, a private company might have a persuasive argument that being barred from sending its messages along a city's communications lines is a significant infringement of free speech. [Note 36].

55: Finally, if a municipality were to erect barriers against a competitor's building of a fiber optic system, the competitor might argue that the city was violating its procedural due process rights. A similar claim was made in the context of a cable television franchise. [Note 37]. Although the court there ruled in favor of the city, it left the door open for possible claims in other circumstances in which a city acts unfairly out of self-interest. [Note 38].


56: A major obstacle municipalities face is that it is not clear whether a municipally-owned conduit network would be profitable. If a city lays the conduit, who is to say that companies will use it? Logically, a city must answer the question, "Can I require telecommunications companies to use the conduit when the companies upgrade their systems or install new fiber optics in the city?"

57: Case law does not address this question.. Logically, if a conduit network is in place, it may be cheaper for a telephone or communications company to situate its lines within the city's conduit network rather than installing its own conduit network. On the other hand, if the conduit network is unfavorably located, the network may not serve the needs of the company. VII. CONCERNS


58: The Act provides for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition. This means that both telecommunications carriers [Note 39] and local exchange carriers [Note 40] have affirmative duties to promote competition and deregulation. New section 251 provides two alternative methods for reaching interconnection agreements. These affirmative duties for reaching interconnection agreements are listed in Title 1, Part II, S. 251, of the new Act. In the development of competitive markets, telecommunications carriers have the duty (1) to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers; and (2) not to install network features, functions, or capabilities that do not comply with the guidelines and standards established pursuant to section 255 or 256. New subsection 251(b) provides a list of minimum standards relating to types of interconnection the local exchange carrier must agree to provide. The negotiation process established by this section is intended to resolve questions of economic reasonableness with respect to the interconnection requirements. That is, either the parties resolve the issue or the State will impose conditions for interconnection consistent with section 251 and the Commission's rules. In the development of competitive markets, local exchange carriers have the following duties: (1) Resale.--The duty not to prohibit, and not to impose unreasonable or discriminatory conditions or limitations on, the resale of its telecommunications service. (2) Number portability.--The duty to provide, to the extent technically feasible, number portability in accordance with requirements prescribed by the Commission. (3) Dialing parity.--The duty to provide dialing parity to competing providers of telephone exchange service and telephone toll service, and the duty to permit all such directory assistance, and directory listing, with no unreasonable dialing delays. (4) Access to rights-of-way.--The duty to afford access to the poles, ducts, conduits, and rights-of-way of such carrier to competing providers of telecommunications services on rates, terms, and conditions that are consistent with section 224. (5) Reciprocal compensation.--The duty to establish reciprocal compensation arrangements for the transport and termination of telecommunications. Title I, Part II, S. 251. The minimum standards require interconnection to the local exchange carrier's network that is at least equal in type, quality, and price to the interconnection the carrier provides to any other party, including itself or affiliated companies. Access to poles, ducts, conduits, and rights-of-way owned or controlled by the local exchange carrier is a minimum standard. Incumbent local exchange carriers have additional obligations.

59: Under section 251, local exchange carriers have the duty to afford access to conduits to competing providers of telecommunications services and to provide that such rates, terms, and conditions [of access] are just and reasonable. 47 U.S.C.S. 224 (1995). Therefore, if a city installs a conduit network, the city must provide access to the network to all competing providers under just and reasonable rates, terms, and conditions. The city must provide this access to both existing companies and new companies. This access must be competitively neutral and nondiscriminatory. How these requirements are affected by the section 253(c) proviso is yet to be seen.

60: Section 303 sets forth the jurisdiction of and limitation on franchising authorities over cable operators engaged in the provision of telecommunications services. Specifically, a cable operator or affiliate engaged in the provision of telecommunications services is not required to obtain a franchise under title VI of the Communications Act, nor do the provisions of title VI apply to a cable operator or affiliate to the extent they are engaged in the provision of telecommunications services. Franchising authorities are prohibited from ordering a cable operator or affiliate to discontinue the provision of telecommunications service, requiring cable operators to obtain a franchise to provide telecommunications service or facilities as a condition of initial grant of franchise, franchise renewal, or transfer of a franchise. However, telecommunications services provided by a cable company shall be subject to the authority of a local government to manage its public rights of way in a nondiscriminatory and competitively neutral manner and to charge fair and reasonable fees for its use. These changes do not affect existing Federal or State authority with respect to telecommunications services.

61: Although courts have not interpreted this provision yet, it seems as if the authority of the franchiser may be limited in its ability to require a cable company to use the conduit network if this requirement prohibits, limits, restricts, or conditions the cable company's ability to offer telecommunications service.


62: Title I, Part II, S. 253(a) provides that "[N]o 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." First, requiring a provider to use the city conduit may prohibit the provider from serving certain intracity locations. Second, if the conduit is not interconnected with other city conduits, use of the conduit may inhibit interstate and intrastate telecommunications service.

63: Subsection (a) preempts any State and local statutes and regulations, or other State and local legal requirements, that may prohibit or have the effect of prohibiting any entity from providing interstate or intrastate telecommunications services.

64: Subsection (b) preserves a State's authority to impose, on a competitively neutral basis and consistent with universal service provisions, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers. States may not exercise this authority in a way that has the effect of imposing entry barriers or other prohibitions.

65: Subsection (c) provides that nothing in the new section affects the authority of States or local governments to manage the pubic rights-of-way or to require, on a competitively neutral and nondiscriminatory basis, fair and reasonable compensation for the use of public rights-of-way, on a nondiscriminatory basis, provided any compensation required is publicly disclosed.

66: Within 15 months after the date of enactment of the Telecommunications Act of 1996, the Commission shall complete a proceeding for the purpose of identifying and eliminating, by regulations pursuant to its authority under this Act (other than this section), market entry barriers for entrepreneurs and other small businesses in the providing and ownership of telecommunications services and information services, or in the provision of parts or services to providers of telecommunications services and information services. Title I, Part II, S. 257(a).

67: This section requires the Commission to adopt rules that identify and eliminate market entry barriers for entrepreneurs and small businesses in the provision and ownership of telecommunications and information services. The Commission must review these rules and report to Congress every three years on how it might prescribe or eliminate rules to promote the purposes of this section.


68: To apply the new law in a nondiscriminatory manner, both existing companies and new companies must have equal access to the conduit network. This application seems to call for an expansive network spanning the entire city. Providing equal accessibility seems problematic for several reasons. First, as this provision pertains to existing companies, the conduit cannot be exactly equidistant from every provider. Are providers further away from the conduit disadvantaged? Second, the conduit cannot be exactly equidistant from providers which do not yet exist. How is a city to lay a network that serves providers which do not exist? Would not the network inherently favor the existing providers? On the other hand, providers which do not yet exist have the opportunity to place their equipment after knowing where the conduit is located. Does this not favor providers who do not exist today? If the conduit network favors already existing providers, new providers will be discouraged from entering the market. If new providers are discouraged from entering the market, the existing providers will be able to charge high fees for service as new companies will not be able to compete. This provision seems problematic to say the least.

69: Another problematic consideration is that existing providers already have, for example, lines above ground. If a city requires all providers to use the conduit, existing providers will be forced to remove the wires above ground and relocate the wires below ground. This massive expense, though, only burdens already existing providers. Obviously, new providers have not wired above ground yet. But to apply the requirement in a nondiscriminatory fashion, all providers must abide by the requirement. Does this added expense to already existing providers cause the law to discriminate against already existing providers? The lack of a level playing field is problematic.


70: A city must provide access to the network to all competing providers under just and reasonable rates, terms, and conditions. To promote public interest, convenience and necessity, Congress has provided that access to the network must be just and reasonable. Access must be feasible for all competing providers and must be offered in a nondiscriminatory manner. Considerations in installing a network must take this into account. Considerations may include the proximity of the network to existing companies, access to such network elements are proprietary in nature, and if the failure to provide access to such network elements would impair the ability of telecommunications carriers seeking access to provide the services that it seeks to offer.

71: A city might want to consider auctioning the space. This option would provide revenue to the City and is a means of distributing the space in a nondiscriminatory manner. Also, auctioning may force companies to service in the public's best interest. As auctions would increase the cost of conduit space, only companies with large revenues, stemming from large customer bases, would have the money to bid for the space. Companies with large revenues stemming from exorbitant prices, on the other hand, would be forced out of the market as the fee payers, the consumers, would abandon the "high fee" companies for the "lower fee" companies.

72: Conversely, auctioning does not necessarily guarantee quality service for the consumer. In an auction, the highest bidder prevails. Therefore, even a company with a small customer base may "win" the bid for conduit space. But having received the conduit space, without customers, the space itself is useless. Theoretically, this may force the "high fee" company to lower fees for its customer space to optimize the conduit space it won in the auction.

73: Auctioning, though, might be a very unpopular option for the service provider. Auctioning will increase the cost of conduit space. Politically, at least, the City might not want to choose this option.

74: second option for providing nondiscriminatory access to the network is a lottery. For a reasonable fee, each provider can participate in a lottery to "win" conduit space. A lottery is administratively unburdensome for the City, and it creates large revenues for the City. Also, as an auction awards the bidder with the most money, the lottery system does not penalize the smaller bidder. Each entrant, whether of the majority or minority, whether rich or poor, whether democrat or republican, has an equal chance. On the other hand, a lottery provides no quality control. Whether or not a lottery is in the public's interest is debatable. Additionally, a lottery may be unpopular with the service provider as a lottery is completely random and does not reward a company serving the public interest.

75: A third option, comparative hearings, might provide nondiscriminatory access to the network. This option seems administratively burdensome and costly. For example, the FCC has considered awarding broadcasting licenses using a comparative hearing process. But the FCC determined the process was too burdensome and now only uses comparative hearings as the exception. Also, issues of discrimination tend to lurk where the decision is left to politicians. Conversely, a comparative hearing process can be designed to reward community service and quality service.

76: The bottom line for a municipality is two-fold. First, the municipality must determine whether it can raise a significant amount of revenue from the installation of a multi-million dollar conduit network. Second, the municipality must determine if the revenue raised is sufficient to provide the community with a profit after it equips its members with the education necessary to utilize the conduit. Although service to all community members is a priority, if a city cannot make money, the project will not be able to support itself. Presently, two factors may cause a city to decide against a conduit network. One factor is a tax currently being examined by the Florida Legislature: the Internet tax. Florida businesses are lobbying heavily against the implementation of this tax. Without it, a city may not be able to fund a network. Another factor is a new technology which companies say will leave wire technology behind: personal communications system, or PCS.


77: The Department of Revenue issued Technical Assistance Advisement 95A-044 earlier this year. The TAA declared Internet access charges to be subject to both the State Gross Receipts Tax and State Sales Tax. Further, the Department issued a revised Technical Assistance Advisement 95A-025R, dated October 3, 1995, which declared e-mail communications to be subject to the aforementioned taxes on the same basis. [Note 41].

78: After much discussion, the Department of Revenue decided to retract the responses contained in both TAAs until after the 1996 Legislative Session. The Department legal staff feels that the current wording of Chapters 203 and 212, Florida Statutes, subject these activities to tax, but the Department is going to give the Legislature an opportunity to clarify the provisions of these statutes if it wishes to exempt these services. If the Legislature does not act affirmatively to provide a specific exemption, then the Department will begin taxing these services on a prospective basis beginning July 1, 1996.

79: The main issue is whether businesses offering e-mail services, electronic bulletin board services or access to the Internet are providing a "computer exchange service" within the meaning of F.S. 203.012(6) and are therefore selling taxable telecommunication services.

80: Following is the Florida Department of Revenue's explanation of the problem. [Note 42] Florida and its local governments have for many years looked to taxes on utility services to fund capital facilities. Art. XII, Section 9 of the 1968 Florida Constitution committed gross receipts taxes (GRT) collected pursuant to Chapter 203, F.S. from persons receiving payment for, among other things, "use of telephones and for the sending of telegrams and telegraph messages" into the Public Education Capital Outlay (PECO) fund. The fund backs full faith and credit bonds issued by the State for education facility projects.

81: Until 1984, Chapter 203 used language virtually identical to that in Art. XII, Section 9, taxing charges for "use of telephones." On January 1, 1984, the U.S. Justice Department order deregulating the telephone industry took effect. The divestiture by AT&T of the Bell operating companies, and consequent separation of the provision of customer premises equipment (CPE) from the provision of service, the separation of local and long distance traffic services, an FCC ruling requiring new customer access line charges (CALCs), and the impending entry of new technologies and charges left the Florida PECO tax base (charges "for use of telephones") in doubt. The State forecasted a decline in GRT revenues for FY 1984-85, an unacceptable situation in view of the fact that outstanding revenue bonds were backed by those taxes.

82: Accordingly, Chapter 203 was substantially amended, with the outdated reference to "use of telephones" replaced so that the gross receipts tax applied to "telecommunication service." Ch. 84-342, LOF, CS/SB 1152. The term "telecommunication service" was broadly defined to include local telephone service, toll telephone service, teletypewriter and computer exchange service, private communication services, and cellular, pager and beeper services, among others. Section 203.012, Fla. Stat.

83: In restating the gross receipts tax base, the Legislature borrowed a number of provisions from the federal excise tax on communications services, 26 U.S.C. 4251 et seq. In doing so, it even made certain services which are exempt from the federal tax subject to Florida tax, such as private communication services. Moreover, as it imported the definition of "teletypewriter exchange service" into Chapter 203, the Legislature specifically chose to add "computer exchange service" to the list of services from which PECO bond revenues were to be derived. Computer exchange service is defined in section 203.012(6), Fla. Stat. (1995) to mean: ...access from a ...telephone, computer. or other data station of which such station is a part, and the privilege of intercommunication by such station with substantially all persons having...telephone, computer, or other data stations constituting a part of the same...computer exchange system, to which the subscriber or user is entitled upon payment of a charge or charges...

84: In November 1984, Art. XII, Section 9(a)(2) of the Florida Constitution was amended to make clear that taxes collected pursuant to Chapter 203 as amended in 1984, and as amended from time to time thereafter, could be bonded for education facility projects. SJR No. 1157. Sales tax was made applicable to "telecommunication service" in 1985. Ch. 85-174, LOF. The sales tax rate applicable to telecommunication services was increased to 7% in 1992. Ch. 92-319, LOF. The sale of telecommunication service to residential households by utilities paying Chapter 203 taxes is exempt from sales tax pursuant to Section 212.08(7)(j), F.S. (1995). Telecommunication service was also made subject to the municipal utility tax (MUT) under Section 166.231, Fla. Stat., in 1985. Ch. 85-174, LOF. The State gross receipts and sales taxes, and the MUT, all operate from the same definitions of "telecommunication service", namely those set forth in F.S. 203.012. Discretionary sales surtaxes may also be applicable, as the tax base for them is the same, with some limitations, as for State sales tax purposes.

85: In other jurisdictions, such as Ohio and New York, e-mail and bulletin board services are subject to sales and use tax.

86: Reps. Jim Fuller (R-Jacksonville) and Ron Klein (D-Boca Raton) announced on February 8, 1996, that they are co-sponsoring a bill in the House to exempt computer services from the gross receipts and sales taxes. Currently, Florida does not collect taxes on computer services, and Rep. Klein recently said, "The centers of high-tech are Silicon Valley, North Carolina's Research Triangle, Texas, New York. We want to add Florida's name to that list." Rep. Fuller said, "Computer services are one of the keys to building Florida's economy. This exemption will let everyone out there know that we want them to grow their businesses in Florida."

87: The proposed bill [Note 43] is entitled "An act relating to taxation of telecommunication service; amending s. 203.012, F.S.; excluding access to, or intercommunication through, electronic mail or electronic bulletin board from the definition of "teletypewriter or computer exchange service" for purposes of the gross receipts tax on telecommunication service; reenacting s. 166.231(9), F.S., relating to the municipal public service tax on telecommunications service, and s. 212.05(1)(e), F.S., relating to the sales tax on telecommunication service, to incorporate the amendment to s. 203.012, F.S., in references thereto; providing an effective date." The title sufficiently explains the purpose of the bill: to exempt intercommunication through electronic mail or electronic bulletin boards from the definition of "teletypewriter or computer exchange service" in F.S. 203.012.

88: The proposed gross receipts tax (2.5%) and sales tax on telecommunications services (7%), together with local taxes (8%) could add as much as 17.5 per cent to telecommunications bills, according to Chamber tax experts. [Note 44]. As the Legislature is strongly pushing for economic development this session, Florida businesses' pleas that these taxes will prevent businesses from developing in Florida will be taken very seriously. Without these taxes, Florida will have a tough time funding a multi-million dollar communications network.


89: The backlash a municipality that installs a conduit system might experience could be devastating. The regulatory systems that municipalities are contemplating heavily tax the service providers. Fearing the regulatory institution, private companies are contemplating not subscribing to the conduit service. If private companies are forced into a corner in which they must use the municipal conduit or no conduit at all, then private companies are threatening to go wireless. And if the companies go wireless, a conduit may be extinct before it is built.

90: U.S. Senator Ted Stevens of Alaska, a senior Republican on the Senate Commerce Subcommittee on Communications, is a key figure in the telecom deregulation debate on Capitol Hill. As he contemplates the issues of restructuring communications law, he has reason to be suspicious of the grand claims of an information age. He knows that universal service--available dial tone in your own home--has hardly reached rural Alaska at all. [Note 45].

91: Several people think Ted Stevens is right to be concerned. Portentously sharing his concern are other powerful Republicans from rural states, including Larry Pressler of South Dakota, the chairman of the subcommittee. Extended now from phone service to broadband digital superhighways, their concerns could pose a deadly obstacle to true deregulation of communications and thus to continued American leadership in these central technologies of the age. At stake is some $2 trillion of potential value to the U.S. economy (see Forbes ASAP, April 10). The problems of universal service in Alaska disguise the more profound paradox of telephone service [and telecommunications service] in most of the world. [Note 46].

92: According to George Gilder at the University of Pennsylvania, (Gilder writes prolifically on the future of technology in the Information Age,) surban access systems comprise a bramble of millions of wire loops, each linking a home or business telephone to a nearby central office switch. Under a half mile in length, these lines still represent some 80% of the cost of the system. Regulators, politicians and litigators always imagine that they can control the future of telecom, awarding monopoly privileges in exchange for various high-minded goals, such as universal or enriched services. But their actual role, as Peter Huber and his associates show in their new text, Federal Broadband Law, is mostly to promote monopoly at the expense of such values as universality, which ultimately depend not on law but on innovation. As a form of tax, regulations reduce the supply of the taxed output. It is technological and entrepreneurial progress, impelled by low tax rates and deregulation, that brings once-rare products into the reach of the poor, always the world's largest untapped market.

93: Communications companies have decided that in a global marketplace increasingly unified by telecommunications, airwaves as the fundamental resource afford not only a better image of physics, but also a better purchase on economic reality than a spurious search for solid states, physical resources, national economies and commodity products. [Note 47] In other words, companies are one step ahead of the cities presently installing conduit networks and elaborate underground broadband communications systems. Companies are breaking out of the copper cage and going wireless. Furthermore, they have solved the problem of scarcity of the airwaves with a new technology: PCS.

94: Digital wireless is a cheaper and better way of delivering service. The market for PCS is not the cellular customer, but the one billion wireline customers in rich countries and the several billions of potential phone and teleputer customers around the globe. [Note 48] The FCC has auctioned off 120 megahertz of frequencies for PCS. The most prominent winning bidders were consortia led by Sprint, TCI, Comcast and Cox ( a long-distance carrier and three cable companies going under the name Wireless Co.); by AT&T; and by AirTouch, Bell Atlantic, NYNEX and U.S. West as PCS PrimeCo. Industry analyst Herschel Shosteck calculated that there will be between 400 million and 800 million new wireless subscribers by the end of the year 2000. (Today, there are only 60 million cellular customers.)

95: Like cellular phones, PCS phones operate by transmitting and receiving wireless signals within a grid of small base stations. But, unlike most of the U.S. cellular system, the PCS system handles information in digital bytes. The PCS communications are clearer than cellular and provide greater protection. PCS communications cannot be overheard with the simple technology currently used to eavesdrop on cellular calls because the message is encrypted.

96: All these gains, however, could be nullified by the expense and difficulty of implanting base stations all over cities and neighborhoods. The key to the gains of space division, therefore, is creation of base stations drastically cheaper, smaller, more discreet and more functional than the current cell sites, costing between $500,000 and $1 million, occupying 1,000 square feet and containing between 55 and 416 radios, depending on the frequency reuse factor. The most notable breakthrough is the Steinbrecher MiniCell. [Note 49].

97: The MiniCell is the size of a briefcase and the key breakthrough is a proprietary mixer that can flawlessly down-convert all the waveforms in the entire cellular spectrum into a stream of baseband digital bits without losing any information or introducing spurious signals. The MiniCell promises to reduce the cost of a cell site by an initial factor of 10 and eventually by infinitely more. [Note 50].

98: The MiniCell, paired with the ArrayComm IntelliCell solves the scarcity of spectrum. Richard Roy, an inventor, invented the IntelliCell. While working with the Strategic Defense Initiative program (This is where Bill Gates developed his satellite scheme called Teledesic too.), Roy developed algorithms for rapidly calculating the source and trajectory of missiles from their electromagnetic emissions as detected by satellite antennas scanning the surface of the earth. Now he is using similar algorithms to identify the position, direction, distance and amplitude of electromagnetic emissions from handsets in a wireless cell, as collected by arrays of smart antennas at a base station. Once the information is digitized, Roy's algorithms can sort out all the calls by their location in the cell, excavating signals otherwise buried in neighboring noise or shrouded in cross-talk, and conducting several calls at once on the same frequencies. [Note 51].

99: Adding a spatial dimension to the frequencies, time slots or codes tracked by ordinary cell sites, an ArrayCom system can distinguish signals entirely unintelligible to other systems. For example, an array with eight antennas can effectively magnify the signal by a factor of eight. There is no theoretical limit to the number of antennas, but as a practical matter, the size of the array becomes a problem in urban cells. By moving up spectrum from 900 megahertz 15 centimeters to 1,800 megahertz, PCS reduces the size of the antenna from two meters across to one meter across (antenna size drops in proportion to the decline in wavelength at higher frequencies). [Note 52].

100: In other words, cellular uses a series of "cells" up to thirty miles in diameter that have routing and switching gear to follow you signal as you travel through cells. These cells are powered by expensive room-size transmitters and have 100 foot tall antenna. PCS uses many small stations with transmitters smaller than a suitcase. These allow the signal to move through microcells no bigger than a city block. This reduces the cost of PCS. [Note 53].


101: Section 704 of the Telecommunications Act of 1996 prevents Commission preemption of local and State land use decisions and preserves the authority of State and local governments over zoning and land use matters except in limited circumstances. The intent of the Legislature is to ensure that a State or local government does not in making a decision regarding the placement, construction and modification of facilities of personal wireless services unreasonably favor one competitor over another. However, the new section preserves localities' flexibility to treat facilities that create different visual, aesthetic, or safety concerns differently to the extent permitted under generally applicable zoning requirements even if those facilities provide functionally equivalent services. For example, if a State or local government grants a permit in a commercial district, it need not grant a permit for a competitor's 50-foot tower in a residential district.

102: Actions taken by State or local governments shall not prohibit or have the effect of prohibiting the placement, construction or modification of personal wireless services. The intent behind this section is that bans or policies that have the effect of banning personal wireless services or facilities not be allowed.

103: Significantly, the procedures set forth in this section establish a presumption that requests for the use of property, rights-of-way, and easements by duly authorized providers should be granted absent unavoidable direct conflict with the department or agency's mission, the current or planned use of the property, rights-of-way, and easements in question. Reasonable fees may be charged to providers of such telecommunications services for use of property.

104: Summarily, ArrayCom is part of what Steinbrecher calls "the transformation of wireless from a radio business to a computer business." As a computer business, wireless will double cost effectiveness every 18 months, rather than continuing on the stagnant price curves of wireline telephony in its cage of copper, dominated by the costs of rolling out trucks, digging trenches, laying wire and climbing poles. [Note 54]

105: Municipalities must consider this new technology: a technology powerful enough that the digging up of the rights-of-way will actually be municipalities digging their own graves. Gilder's view of the future is dim for municipalities currently preparing conduit networks for the information age. He opines, "[t]oday, in the name of deregulation, politicians are preparing to impose a series of new competitive requirements upon the Bell operating systems, on the assumption that they still wield monopoly power. Pundits still seem to believe that the copper cage protects local telephone companies from outside competition. But in fact, the cage incarcerates them in copper wires, while the world prepares to pass them by."