City Halls Go Head-to-Head With Titans of Cyberspace Industry

Peter Letzmann picked up his paper and read a story that hit not just close to home, but burrowed beneath it. Somebody had sunk miles of high-tech cable into his city, reaming holes in public land without paying a penny, let alone asking permission.

Letzmann knew this was illegal because, as city attorney, he got the law enacted. Yet when federal officials weighed in, they scolded the city for trying to regulate an industry they were trying to unfetter.

“The telecom companies don’t like to be compared with the railroad and logging companies of long ago, but you don’t rape and pillage and plunder the public lands,” said Letzmann.

American cities are feeling bullied these days, and they know whom to blame: the nation’s cyberspace industries, which they say are getting a free ride from starry-eyed states and federal regulators at the expense of good old grass-roots government.

Both Sides Say Consumers Will Pay

In courts, Congress and statehouses across the country, cities are clamoring for the power to police the flood of Internet, telephone and cable companies competing madly for a piece of local markets. City halls and cyberbarons each insist that consumers will pay dearly if the other wins what has become a sprawling battle over what amounts to the taxing and zoning of the virtual world.

This week, for example, congressional negotiators approved a three-year ban on new sales taxes on products sold on the Internet, capping months of fights between telecom companies and local communities. California passed a similar moratorium in August.

While lobbying for sales taxes sounds like political suicide, cities say hometown businesses already are getting hurt by out-of-town competitors selling the same products tax-free on the Internet.

“It sounds appealing to say I’m for a tax-free Internet. But the effect it would have on Main Street merchants would be enormous,” said Randy Johnson, president of the National Assn. of Counties.

The issues go far beyond Internet taxes. They extend to whether cities can keep a five-story cell tower off a scenic hillside, charge rent to companies that want to lay cable across public land or impose franchise fees on telephone and Internet companies--and prohibit them from passing those costs on to consumers.

The industry says too many towns are trying to create a maze of costly local rules that will only balloon monthly bills and impede progress toward building the infrastructure needed for the things consumers want: better wireless phone service, speedier Internet access and higher-definition television pictures.

Rules Are Still Being Drafted

Both sides are making a stand during a fleeting, freewheeling period in which many rules are still being written. Some examples:

* A federal court in Tennessee ruled that Chattanooga can’t charge a franchise fee to new telephone companies, while a federal court in Michigan said the city of Dearborn can.

* A federal judge in New York let the town of Ontario deny Sprint permits to erect three wireless telephone towers. A judge in Connecticut ordered the city of Stratford to allow a tower inside a windmill.

* Colorado has ordered cities not to charge franchise fees to telephone companies. Denver defied the state by enacting a franchise fee last year, triggering a federal lawsuit by five big phone companies.

For city officials used to dealing with lawsuits by people who slipped on the sidewalk, the issues are mind-bending. “It’s a whole new ballgame,” said Johnson.

Critics say some towns are bent on balancing their budgets on the backs of companies risking much to enter an era made even more competitive by the 1996 Telecommunications Act, which opened local markets to anybody with a will and a wire.

San Antonio requires new telephone providers to cough up two strands each of fiber optic cable for city government use. Last year, the Federal Communications Commission threw out an ordinance in Meade, Kan., that required homeowners to buy permits before they could install satellite TV dishes.

Industry lobbyists regularly send the FCC what they call “ski mask” stories, which describe supposedly usurious demands from unnamed cities. “I’m trying to find a word that’s not ‘blackmail,’ ” joked Tim Ayers, spokesman for the Cellular Telecommunications Industry Assn.

Yet, between reports of bullying corporations and grasping towns, huge questions remain about the dwindling clout of grass-roots government in an Internet age that transcends political boundaries. The city of Los Angeles this year convened a telecom task force to study a whole range of issues, including whether the city can franchise phone companies just as it does cable TV.

“If every municipality tried to get its pound of flesh, that’s going to be an impediment,” said Robert Frieden, a Penn State University telecommunications professor. “Having said that, municipalities do have legitimate public safety and aesthetic issues that they are probably in the best position to resolve.”

Local rights advocates insist most cities aren’t motivated by greed but by protecting their neighborhoods from corporate callousness.

“The communities have a precious resource, and that’s public land, the places where the city halls and libraries are built, the streets and bridges,” Letzmann said. “The Dairy Queen cannot put a kiosk in the middle of the right of way.”

Cities say local oversight is needed to prevent companies from following their natural inclinations to serve the wealthiest customers while redlining less-lucrative inner cities or rural areas. In northern Kentucky, 11 small towns formed a single telecom authority this year to have clout comparable to nearby Cincinnati.

Company Balks at Franchise Fee

Letzmann was city attorney in this upscale Detroit suburb last year when it tried to impose an extra $10,000 franchise fee and a 5% slice of gross revenues on Tele-Communications Inc., the cable giant, on the suspicion that it was tip-toeing into the telephone business.

The tip-off was the fact that TCI was laying fiber optic cable, which can carry both TV shows and telephone calls, between rows of office buildings where, presumably, more people were chatting on phones than scanning the soaps.

TCI, however, said it would not pay a telephone franchise fee and complained to the FCC. While the case was pending, Letzmann said he learned TCI and its telephone affiliate, Teleport, installed 16 miles of cable in what he said was brazen defiance of local law. TCI spokesman Scott Sobel said the company was within its rights under its cable franchise to lay that line.

With cities and companies nationwide waiting for a major precedent on whether a municipality could franchise a phone company, the FCC rendered a narrow decision that pleased nobody. It accused Troy of trying to add an extra layer of regulation to telecommunications. Yet it also let the ordinance stand because TCI insisted it was not going into the phone business, even though its telephone affiliate already was.

Since then, AT&T; Corp. decided to buy both Teleport and TCI in its bid to break into the local phone market. AT&T; lawyer Rick Coy said he thinks the ordinance is illegal. The company already won lawsuits against Austin and Dallas this year to get out of paying local telephone fees and is suing Denver.

Whatever happens here, Letzmann will not be around. He resigned this summer and is now a consultant to cities tangling with the telecoms, a serious growth industry.

The cities say they can’t match the industry’s influence over a federal government high on technology. The FCC says it’s under orders to keep towns from hindering competition.

“Congress decided that their autonomy was going to be limited in some way for the national good,” said FCC Chief of Staff John Nakahata. “At the same time . . . we certainly have not set out to let the telecommunications interest trump all other interests.”

Nakahata said nothing in federal law prohibits cities from recouping costs from telecom companies, though he said a state can stop local governments from doing so--one reason why industry is moving the fight to the state legislatures.

Some cities say it’s hard enough keeping track of the hardware under their communities, let alone the volatile dynamics of telecom law. “Our problem is we have cables running all over the place,” said Troy City Engineer Neall Schroeder. “We went to connect some storm sewer and found a fiber optic cable dead in front of the connection. They had to redesign the storm sewer.”

Phone Wires Lost in the Shuffle

Guessing what’s underground is a nationwide problem, said Kenneth Fellman, chairman of the FCC’s Local and State Government Advisory Committee and a city councilman from Arvada, Colo. Colorado towns asked local carrier US West where all the wires are, “and they say they don’t know. It’s mind-boggling.”

Few issues trigger more local grief than cellular phone towers. Many residents say they’re ugly, hurt property values and emit radio waves that may be unhealthy, though that is unproven. A recent FCC-brokered truce between municipal lobbies and wireless companies would let arbitrators settle disputes, though the decisions aren’t binding.

The Telecommunications Act, which calls for the country to have a seamless wireless network by 2006, prohibits towns from banning towers, though many try anyway.

The good news is that wireless companies are halfway to the 100,000-125,000 towers they need. The bad news? “The easy ones are gone,” said Ayers, who wonders why residents never got upset about telephone poles.

Phone companies have enticed cities with cash and community centers to get them to take towers. Entire companies have sprung up to make towers look like trees, church steeples and even billboards, apparently a more acceptable eyesore.

What rankles cities is the fact that federal and state governments are willing to accept towers on their land regardless of local zoning. Post offices and state police posts have become popular spots.

Troy has 11 towers and more on the way, and, like most cities, has a hard time finding places where people won’t complain, which is why it considered allowing one in a cemetery.

Jean Schramm, a nurse and mother of two, is part of a nationwide network of tower opponents who trade strategy on the Internet. Her activism ignited when Troy said it was going to let AT&T; build a tower into a light standard overlooking a baseball diamond next to her kids’ school. Unceasing complaints to City Hall have delayed tower construction for more than a year.

Ayers said cell towers are most often opposed by suburbanites who own cell phones. Schramm doesn’t own one, but she resents the implied irony. “I eat meat, but that doesn’t mean I want a meatpacking factory in the neighborhood.”