Bill soon due

Dallas City Councilman Alan Walne is just happy the city and Southwestern Bell made nice-nice--even though it now means a rate hike for many customers.
Martin Menocal

When you open your phone bill on June 1, don't be surprised to see a vaguely worded statement explaining why you need to open your wallet a little wider.

The changes in your phone bill are the result of a battle fought between Texas cities and telecom companies in Austin. The state stepped in last year with legislation aimed at standardizing the way cities collected fees from telecommunication companies for the work/damage they do when, say, tearing up a street to lay telephone cable. But now Dallas officials have used this new collection method as a way to gain millions in annual revenue, even charging these companies more than the state recommended for the right to use public property.

"What we're doing is gearing up to educate our customers, telling them that this isn't an increase our own company came up with, but what the cities came up with," says Nancy Krabill, director of regulatory and external affairs for NextLink, a telecommunications provider that emphasizes business clients. "The changes depend on how much you paid before. It will be different for all our customers." (Most Dallas businesses will see a significant increase in the amount of municipal fees they pay, while many residential customers may shrug off the expected less-than-25-cent increase.)

The fight over municipal fees was particularly ugly in Dallas. Last August, Southwestern Bell terminated an agreement to pay $5.14 million in fees every three months, threatening the city with the possibility of tax hikes or layoffs. Dallas sued the company and convinced a judge that SWB had to pay the fees while the matter was being contested. Mayor Ron Kirk called the company's actions "absolutely abominable" and "outrageous."

Oh, what a difference a year makes. Under the new law, signed last year and taking effect this month, the city won an annual increase in revenue of $16.9 million because of the change in collection method, according to city controller Eric Kaalund. The total amount contributed by the telecoms will rise to approximately $40 million a year. The majority of that money will come from customers of Southwestern Bell, the area's dominant telecommunications company.

The city has been quiet about its victory over Southwestern Bell, though--maybe because officials realize their success was gained at the expense of their constituents' bank accounts. Because now, even though the companies and the politicians say everything is resolved, the only thing clear is that consumers will be the ones paying the bill for the expensive catfight. Cities such as Dallas are shrugging this off as the cost of doing business (and looking forward to the windfall). Meanwhile, the phone companies are, if not happy about the outcome, at least resigned to making customers pay for the telecoms' failures.

Says Bill Maddox, Southwestern Bell's Texas press officer: "We simply serve as a collection agency for the city."

Municipal fees primarily offset the expensive toll the communications industry takes on public property. Every trench dug to bury a gas pipe or fiber-optics cable weakens a street, chopping years off its life span. The utility cuts cause roads to age prematurely, requiring top-to-bottom reconstruction sooner and adding millions annually to the cost of maintaining streets.

But after the money for these fees leaves your wallet, it goes straight through your provider and into the city coffers. The money doesn't go back into the street department budget to pay for improvements but goes to the city's general fund. There it can be spent on things like salary increases, construction, and park projects.

Some business customers may find the municipal fees lower on their bills, especially clients that pay extra for optional services, according to GTE spokeswoman Biana Gowing. Since the former system granted the city 5 percent of the money customers paid to their telecom providers, while the new system simply counts the number of access lines, the new fees may be the same or even less. For those without the optional services that drive up their overall bill, the municipal fees will likely increase. "One reason we fought these increases is because they will be passed on to our customers," Gowing says.

As of April 27, Dallas began collecting money based on the number of access lines installed as opposed to the old method, which skimmed 5 percent of the company's gross revenue for right-of-way fees. Large facilities that use what phone companies call "point-to-point" lines--used when organizations such as hospitals or universities need dedicated phone lines between buildings--face the largest increase.

"Most of this construction is being done to serve business customers. We wanted to make sure the [residential] customers weren't paying for this," says Janee Briesemeister, senior policy analyst in Austin for Consumers Union. "The cities wanted to make sure they weren't losing any money and the telecommunication companies wanted a fair collection. I didn't know fees were going to increase."  

The telecommunications companies pay more than the amount of damage they do to streets because they essentially rent space from the city to lay their lines. To the horror of telecommunications companies, the Federal Communications Commission has previously ruled that the amount a city charges in municipal fees is also based on the value of the use of that public space, increasing the amount they pay over the tangible cost of street damage they cause. In essence, the city is not only recouping damage costs but also renting its public space to the telecom companies for profit. Each city collected municipal fees in different ways, generating acrimony and lawsuits.

The city's bounty comes from political wrangling in Austin. As the city-by-city telecom firefights raged in Texas, the Legislature considered a bill that would standardize the method by which cities collected municipal fees. Several bills were introduced to tackle the issue, but House Bill 1777, sponsored by Steve Wolens, husband of Dallas City Councilwoman Laura Miller, was the bill that survived. The state does not have the authority to dictate the amount a city may charge, but it can clarify the method used to determine the fee and recommend a rate.

That's exactly what HB 1777 did, but the outcome is far less friendly than the telecommunications companies wanted. While the state legislature debated the bill, telecommunications companies tried to create a fee structure that was based on the real cost of the work they did, rather than a formula. If $5 million in damages was tallied, the companies wanted to pay that amount, rather than paying $7 million for the use of the public space.

"It's a product of compromise," says Bob Burton, Southwestern Bell's area manager. "Our position has been and always will be that municipal fees should be based on the actual cost of administering the right of way. But the bill is what it is."

Dallas did more than just reap the reward of the state's ruling. In April the state's Public Utility Commission (PUC) quietly released its suggestions of rates, but Dallas disregarded the state's math and charged the telecommunications companies the maximum rate allowed. Other cities, such as Austin, Laredo, and Houston, also decided to charge above the state rate, while some smaller cities--perhaps fearing renewed hostility with telecom companies--lowered the rates at the state's request. The disregard for the PUC's suggested rates is one reason Dallas is estimating an additional $17 million every fiscal year into the general fund.

Nick Fehrenbach, Dallas' manager of regulatory affairs and utility franchises, says the sparsely populated rural areas in Texas brought down the state's average, making Dallas' rate fair for its size. State Rep. Wolens also defended the increases in fees, even though his bill was supposed to be "revenue-neutral"--political-speak for "close to the amount they pay now."

"There is more growth in urban areas, and I wanted municipal fees to reflect that," Wolens says. "What's fair is that the law is being followed."

The telecommunications revolution is raging in Dallas. New franchises are growing quickly as the incumbent giants try to hold their ground. There have been more than 20 new "boutique" telecommunications companies vying for Dallas customers, according to city officials. In 1990 there were only five companies, and the number is rising steadily. One city utility coordinator in the public works department said he received requests to do street work from two new companies in one week.

There are two broad groups of telecom players in Dallas--large corporations deeply entrenched in residential and business markets, and the increasing numbers of smaller start-ups that are targeting the more lucrative business phone networks. Both are affected by the new collection schemes, but the franchise fees do not affect other companies, such as wireless communication companies and cable operators that allow phone service through their lines.

While the telecom companies have been working on ways to educate their customers--and make clear the increase is the city's doing and not theirs--the city of Dallas has been silent. Many members of the city council, including Transportation and Telecommunications Committee Vice Chair Sandy Greyson and committee member Alan Walne, seemed unable to address the issue because they hadn't been briefed specifically about the changes. On the city side, everyone just seems glad it's over.

"The thing I was happy about was that we were able to make peace with Southwestern Bell," Walne says.

It took two months after HB 1777 was signed into law for Dallas and Southwestern Bell to reach a truce, with both parties filing a joint motion in federal court to dismiss the lawsuit. Southwestern Bell agreed to pay the original fees while waiting for the PUC to set new regulations. The company made a point to maintain its option to challenge the legality of the new law if it didn't like what it saw.  

"They all signed on," Wolens says. "Some may be regretting it, but they all signed on."

Despite the fee increases and unsatisfying conclusion, Southwestern Bell officers and spokesmen told the Dallas Observer that the company has no intention of challenging the new law in state or federal court. Even the complaints lodged with the PUC to change the fee structure will be abandoned, according to area manager Burton.

"We filed a number of [complaints], but we're not pursuing them any further," he says. "I suspect the issue has been put to rest for some time. From our standpoint, we'll abide by the commission's rules."

The chances of another lawsuit are unlikely because of the amount of havoc the previous legal battles caused. For now, all should be quiet on the telecommunications front.

"If [Southwestern Bell] wanted to head out to state or federal court to challenge the legality of the law, they could," says Diane Barlow, an attorney who represented a coalition of local competitive carriers in the legislative negotiations. "But that would make things really uncertain. It would be back to a free-for-all."

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