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25009 - BellSouth v. City of Orangeburg, et al.

Shearouse Adv. Sh. No.
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

BellSouth

Telecommunications,

Inc., f/k/a Southern Bell

Telephone and

Telegraph Company, Appellant,

v.

City of Orangeburg,

Martin C. Cheatham, in

his official capacity as

Mayor of the City of

Orangeburg and

Member of its City

Council, Bernard Haire,

Marion F. Moore, W.

Everett Salley, D.V.M.,

L. Zimmerman Keitt,

Joyce W. Rheney,

Sandra P. Knotts, and

Paul A. Miller, in their

official capacities as

Present and or Past

Members of the

Orangeburg City

Council, Respondents.

Appeal From Orangeburg County

Charles W. Whetstone, Jr., Circuit Court Judge

Opinion No. 25009

Heard October 5, 1999 - Filed November 8, 1999

p.1


BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

AFFIRMED

Fred A. Walters, of Atlanta, Georgia; Caroline N.

Watson, of Columbia; William J. Quirk, of Columbia,

and A. Camden Lewis and Keith M. Babcock, both

of Lewis, Babcock & Hawkins, L.L.P., of Columbia,

for appellant.

James M. Brailsford, III, of Robinson, McFadden &

Moore, P.C., of Columbia; and James F. Walsh, of

0rangeburg, for respondents.

MOORE, A.J.: This appeal is from an order finding valid a

franchise fee ordinance enacted by respondent City of Orangeburg (City).

We affirm.

FACTS

Appellant BellSouth Telecommunications, Inc. (BellSouth)

commenced this declaratory judgment action attacking the validity of City's

franchise ordinance enacted May 11, 1993. The ordinance requires

BellSouth to pay a yearly franchise fee of 5% of its gross revenue earned

within City and a one-time administrative fee 1 in exchange for BellSouth's

use of the public streets for poles, wires, cables, and other equipment

incidental to providing telephone service. The ordinance is effective through

December 31, 2003. 2


1 The administrative fee is 5% of BellSouth's gross revenue earned

within City for 1992.

2 This case does not involve 1999 S.C. Act No. 112 which became

effective June 30, 1999, and now controls municipal telecommunications

franchise fees.

p.2


BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

Prior to this 1993 ordinance, BellSouth operated under a 1894

franchise ordinance that allowed it to use the public streets to erect poles

and wires and exempted BellSouth from "all municipal taxation, license or

rentals" for a term of five years. Twenty years later, in 1914, the original

franchise ordinance was expanded to include underground use of the public

streets. The original five-year exemption from payment was not mentioned.

BellSouth has never been obligated to pay a franchise fee until enactment of

the 1993 ordinance.

In this action, BellSouth claimed the 1993 ordinance was invalid

because (1) the franchise fee is really a "general revenue tax" which it claims

City has no authority to enact and (2) the ordinance is inconsistent with the

Constitution and general law of this State because it violates (i) the federal

Telecommunications Act of 1996 which requires State law to conform to its

requirements,3 (ii) S.C. Code Ann. § 58-9-2020 (1976), and (iii) several

constitutional provisions. On cross-motions for summary judgment, the trial

judge found the ordinance valid and entered judgment for City. BellSouth

appeals.

ISSUES

1. Does City have authority to impose the ordinance fees on

BellSouth?

2. Is the ordinance consistent with the Constitution and general

law of this State?

DISCUSSION

1. Authority to impose franchise fees

BellSouth contends the franchise fees provided in the 1993

ordinance actually constitute a "general revenue tax." BellSouth relies

heavily on the fact that the revenue collected under the ordinance will go

into City's general fund which, it argues, indicates the ordinance imposes a

tax and not a fee. We disagree.

Generally, a tax is an enforced contribution to provide for the


3 47 U.S.C. § 253(d).

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BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

support of government, whereas a fee is a charge for a particular benefit to

the payer. Brown v. County of Horry, 308 S.C. 180, 417 S.E.2d 565 (1992).

Where a municipality seeks to justify a charge as a fee because the revenue

generated by the charge is used for the payer's benefit, we will consider the

fact that the revenue is placed in a municipality's general fund in deciding

whether or not the payer specially benefits from imposition of the charge.4

This factor is irrelevant, however, where the benefit to the payer derives not

from the municipality's use of the revenue but is a benefit given directly and

solely to the payor in exchange for the fee. In exchange for the fees imposed

in this case, BellSouth is granted the special privilege of using public streets

to place its equipment in order to serve City's residents and generate private

profit.5 The fact that the fees are placed in City's general fund is irrelevant.

Under S.C. Code Ann. § 5-7-30 (Supp. 1998), a municipality is

authorized "to grant franchises for the use of public streets and make

charges for them." Accordingly, we find it is clearly within City's authority to

impose these fees in exchange for the franchise rights granted BellSouth.

2. Consistency with State law

Under § 5-7-30, a municipal ordinance may not be "inconsistent

with the Constitution and general law of this State." BellSouth contends the

1993 ordinance is inconsistent with State law on several grounds.


4 Under Brown, for instance, a fee is valid as a uniform service charge if

(1) the revenue generated is used to the benefit of the payers, even if the

general public also benefits (2) the revenue generated is used only for the

specific improvement contemplated (3) the revenue generated by the fee does

not exceed the cost of the improvement and (4) the fee is uniformly imposed

on all the payers.

5 A franchise has been defined as a special privilege granted by the

government to particular individuals or companies to be exploited for private

profits. City of Cayce v. AT&T Communications of the Southern States, Inc.,

326 S.C. 237~ 486 S.E.2d 92, 94 n.2 (1997). Government franchisees are

typically service-type businesses that are willing to pay the municipality for

the privilege of doing business with its citizens. Id.

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BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

a. Telecommunications Act

BellSouth contends the 1993 ordinance conflicts with the

Telecommunications Act of 1996, 47 U.S.C. § 253(a). While this is a federal

law, State law must conform to it, and therefore so must City's ordinance in

order to pass muster under § 5-7-30. Section 253(a) provides:

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.

The trial judge found no conflict with this section based on 47 U.S.C. §

253(c) which provides:

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.

The trial judge found this provision was satisfied because the only other

telecommunications franchisee, a cable television company, paid the same

fees. BellSouth, however, contends this provision does not validate the fees

imposed under the 1993 ordinance because BellSouth is the only telephone

service provider that must pay. We disagree.

BellSouth is the only telephone service provider required to pay

these fees because it is the only telephone service provider that holds a

franchise for private use of the public streets.6 The fees charged BellSouth

are therefore non-discriminatory as required under the Telecommunications

Act.


6 The record indicates that City has its own communications lines to

control different utility systems by computer from a central location. A

private telephone service provider, MPX, pays for use of these lines.

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BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

BellSouth further contends the 1993 ordinance violates § 253(c)

because it contains provisions that exceed a local government's power under

that section "to manage the public rights-of-way. " BellSouth cites the

ordinance's provision that it maintain or remove its "facilities" and give

notice of merger or corporate restructuring.

In context, nothing in the ordinance applies to BellSouth's

"facilities" other than those placed in the public street pursuant to the

franchise 7 which is clearly within City's power to manage its rights-of-way as

permitted under § 253(c).

Moreover, BellSouth's reliance on AT&T Communications of the

Southwest, Inc. v. City of Dallas, 8 F. Supp.2d 582 (1998), for the proposition

that a local government's power under § 253(c) is strictly limited to

managing the right-of-way is misplaced. In that case, the federal district

court interpreted § 253(c) and found municipalities "absent explicit

delegation by the state legislature ... do not have the more general authority

to regulate to protect public safety and welfare." Id. at 590 (emphasis

added); see also Bell Atlantic-Maryland, Inc. v. Prince George's Country,

Maryland, 49 F. Supp. 2d 805, 814 n.23 (D. Md. 1999) (noting local

government did not seek to justify franchise ordinance as an exercise of

regulatory powers reserved to the states and delegable to local government

under § 253(b)). South Carolina has delegated to municipalities the power to

enact ordinances "necessary and proper for the security, general welfare, and

convenience of the municipality or for preserving health, peace, order, and

good government in it." § 5-7-30. This power includes the ability to ensure

that the grant of franchise privileges operates to the benefit of the public.

City's ordinance merely requires BellSouth, as its franchisee, to make

reasonable effort to provide the service that is the subject of its franchise.


7 Section 6 of the ordinance reserves to City the right under certain

conditions to require BellSouth to relocate those "facilities erected or

maintained pursuant to the privilege granted herein." Section 5 of the

ordinance requires BellSouth to "maintain its facilities in a reasonable

operating condition at all normal times" and requires City to "do all things

reasonably within its power" to restore normal service when a disruption

occurs. Although the word "facilities" is not specifically defined in § 5, it

inferably includes only those facilities placed in the public street since, in

context, that is how the word "facilities" is used throughout the ordinance.

p.6


BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

Similarly, the ordinance's requirement that BellSouth give notice

of mergers and corporate restructuring is a reasonable exercise of its

authority over its franchise for the good of the public welfare as a means of

ensuring notice of a possible change in service.

Finally, BellSouth complains the franchise fees, based on a

percentage of its gross revenue, are not "fair and reasonable compensation"

for use of the public rights-of-way as required under § 253(c). Again,

BellSouth's reliance on AT&T v. City of Dallas, supra, to support its

argument is misplaced. In that case, the federal district court found the

municipality's percentage-based fee exceeded its authority to impose fees

because Texas state law prohibited municipalities from charging franchise

fees for certain services (such as long-distance service) that were included as

sources of revenue for calculating the percentage fee. 8 F. Supp. 2d at 593.

Here, City's authority to charge franchise fees under § 5-7-30 is not so

limited and there is nothing in the record to indicate the percentage is not

fair and reasonable.

Further, we are aware of a split of authority in the federal courts

regarding whether municipal franchise fees must be limited under § 253(c) to

the municipality's cost of maintaining the public rights-of-way used by the

telecommunications utility. Compare Bell Atlantic, 49 F. Supp. 2d 805

(limiting fees to costs incurred) and TCG Detroit v. City of Dearborn, 16 F.

Supp. 2d 785 (E.D. Mich. 1998) (upholding percentage of revenue fee). We

find that a franchise fee equal to a percentage of the revenue generated is

not inherently unfair or unreasonable as a measure of the franchise's value

as a business asset to the franchisee. Absent any evidence that the amount

of the percentage is unfair, we decline to find the fees in this case violate the

Telecommunications Act.

b. § 58-9-2020

BellSouth next contends the 1993 ordinance is inconsistent with

general State law because it violates S.C. Code Ann. § 58-9-2020 (1976)

which provides in pertinent part:

Any telegraph or telephone company incorporated

under the laws of this State ... may construct,

maintain and operate its line through, upon, over

and under any of the public lands of this State,

p.7


BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

under, over, along and upon any of the highways or

public roads of the State, over, through or under any

of the waters of this State, on, over and under the

lands of any person in this State and along, upon and

over the rights of way of any railroad or railway

company in this State....

This statute, enacted in 1899, must be read in conjunction with article VIII, §

15, of our State Constitution which provides:

No law shall be passed by the General Assembly

granting the right to construct and operate in a

public street a ... telephone [utility] . . without first

obtaining the consent of the governing body of the

municipality.. . .

This constitutional provision limits a telephone utility's right to use public

streets under § 58-9-2020 by requiring a municipality's consent at the time

the telephone facilities are constructed. City of Cayce v. AT&T

Communications of the Southern States, Inc., 326 S.C. 237, 486 S.E.2d 92

(1997); City of Abbeville v. Aiken Elec. Coop., 287 S.C. 361, 338 S.E.2d 831

(1985). Article VIII, § 15, does not bestow upon municipalities the power to

oust existing utilities. Abbeville v. Aiken Elee. Coo-D., supra. Accordingly,

BellSouth argues, City has no power under § 58-9-2020 to oust it by

imposing fees for the continuation of its franchise.

First, there is no evidence the imposition of the fees in question

would actually force an ouster of BellSouth from its service of City's

residents. Moreover, § 5-7-30, which was enacted subsequently to § 58-9

2020 pursuant to the Home Rule Amendment, specifically delegates to

municipalities the power to "grant franchises for the use of public streets and

make charges therefor" and it does not limit City's authority to impose fees

on a formerly gratuitous franchise.8 This section therefore modifies the


8 While we have determined the extent of municipal power over public

streets under article VIII, § 15, and § 58-9-2020, we have not previously

determined the impact of § 5-7-30. In Cayce v. AT&T, supra, we specifically

noted that because the telephone utility was not seeking to provide service to

the municipality's residents, the use of public streets was not a franchise

(continued . ..)

p.8


BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

impact of § 58-9-2020 by delegating to municipalities the franchise power

over public streets. 9 Since the rights granted telephone utilities under § 58

9-2020 were restricted by enactment of § 5-7-30 under which franchise fees

are permitted, there is no violation of § 58-9-2020.

c. Constitutional provisions

BellSouth contends the 1993 ordinance is inconsistent with

federal and State equal protection, due process, and impairment of contract

clauses. We disagree.

First, BellSouth complains of an equal protection violation

because it is the only business that must pay the franchise fees, which

BellSouth characterizes as a "tax." As discussed above, these fees do not.

constitute a tax but are charged in exchange for a specific benefit directly

conferred i.e., use of the public streets for the placement of BellSouth

equipment. BellSouth does not contest that it is charged the same fees as

the only other franchisee, a cable television provider. Accordingly, BellSouth

has failed to show any disparate treatment of similarly situated entities. See

TNS Mills, Inc. v. South Carolina Dept. of Revenue, 331 S.C. 611, 503 S.E.2d

471 (1998) (in order to show an equal protection violation, a party must show

that similarly situated persons received disparate treatment).

Second, BellSouth contends the forced imposition of the franchise

fees constitutes a taking of property without just compensation in violation

of due process. There is no evidence the imposition of these fees will force

BellSouth to abandon its franchise or that its property would retain no value


(continued ...)

and the municipal franchise power under § 5-7-30 did not apply. In

Abbeville v. Aiken Elec. Coop., supra, we did not discuss § 5-7-30 but held

article VIII, § 15, was not an affirmative grant of franchise power to

municipalities such that a municipality could oust an existing utility in a

subsequently annexed area. Finally, in City of Aiken v. Aiken Elec. Coop.,

305 S.C. 466, 409 S.E.2d 403 (1991), we held under article VIII, § 15, a

municipality has the power to deny a new franchise but we did not examine

the effect of § 5-7-30 on the municipality's franchise power.

9 See Abbeville v. Aiken Elec. Coop., supra (the power to franchise is an

attribute of state sovereignty delegated to municipalities by statute).

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BELLSOUTH v. CITY OF ORANGEBURG, ET AL.,

if the franchise is terminated. BellSouth has failed to show a taking in this

case. See Long Cove Club Assoc. v. Town of Hilton Head Island, 319 S.C. 30,

458 S.E.2d 757 (1995) (no taking of personal property if property retains

some value).

Finally, BellSouth contends the 1993 ordinance is inconsistent

with the constitutional protection against the impairment of contract.

BellSouth argues it had a contract with the State pursuant to § 58-9-2020 to

use any public streets in the State and therefore its use of City's streets could

not be subsequently impaired by the 1993 ordinance.

BellSouth mischaracterizes its relation to the State as a

contractual one regarding the use of City's streets. Although there are

exceptions, statutes generally do not create contractual rights and in the

absence of a contract, there is no violation of the Contract Clause. Alston v.

City of Camden, 322 S.C. 38, 471 S.E.2d 174 (1996). The terms of § 58-9-

2020 create no contractual obligation between the State and BellSouth and

we find no impairment of contract.

Accordingly, the judgment of the circuit court finding City's

franchise ordinance valid is

AFFIRMED.

TOAL, A.C. J., WALLER, BURNETT, JJ., and Acting Associate

Justice William T. Howell, concur.

p.10