THE STATE OF SOUTH CAROLINA
In The Supreme Court
Inc., f/k/a Southern Bell
Telegraph Company, Appellant,
City of Orangeburg,
Martin C. Cheatham, in
his official capacity as
Mayor of the City of
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
Appeal From Orangeburg County
Charles W. Whetstone, Jr., Circuit Court Judge
Opinion No. 25009
Heard October 5, 1999 - Filed November 8, 1999
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,
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).
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
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
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
1. Does City have authority to impose the ordinance fees on
2. Is the ordinance consistent with the Constitution and general
law of this State?
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
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.
(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.
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
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
control different utility systems by computer from a central location. A
private telephone service provider, MPX, pays for use of these lines.
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.
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.
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
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,
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
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 . ..)
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
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).
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
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
TOAL, A.C. J., WALLER, BURNETT, JJ., and Acting Associate
Justice William T. Howell, concur.