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Before 2005,, four states had passed laws governing cable franchise terms at the state level; since then, 20 more have passed such laws. Source: Miller & Van Eaton n LLC

The battle over who sets the terms of a franchise agreement came to a head Oct. 29. That's when a federal appeals court decided not to force the Federal Communications Commission (FCC) to reconsider its 2007 order that limits compensation and build-out requirements and imposes a deadline on communities for ruling on applications.

The case was brought by organizations like the National League of Cities and the National Association of Telecommunications Officers and Advisors. They believe the FCC's order isn't fair, and at press time were considering whether to appeal to the U.S. Supreme Court on the grounds that it violates local property rights and exceeds the agency's authority.

The nation's highest court is the last resort for reversing the power that providers have gained over local authority. When Congress didn't grant national franchise authority, companies went to work at the state level, claiming the time-consuming process of negotiating agreements community by community stifles competition. To date, 24 states have laws governing franchise terms (see below).

But communities should be allowed to charge fair market value to access their rights of way, and these laws don't let them, says Frederick Ellrod III of Miller & Van Eaton, one of the law firms representing local governments.

Required by law to charge market rates for land under its jurisdiction, the National Oceanic and Atmospheric Administration estimates the price for 5 or more miles of right of way rose from $8,000/mile in 1987 to $100,000 in 1997. Alaska charges a 12.5% royalty on crude oil pumped from state land.

In contrast, federal law caps cable franchise fees at 5% of gross revenues; and many state laws as well as the FCC have imposed increasingly narrow restrictions on what sorts of revenues — such as encroachment fees — can be used to calculate that percentage. And while federal law allows communities to negotiate additional amounts for capital costs for PEG (public, educational, and governmental) facilities, state laws often limit the amount.

Since 2005, providers have gotten most of what they wanted, so your state probably won't pass a franchise-agreement law if it hasn't already, Ellrod says. But semantics ensure the legal wrangling continues.

In 2002 the FCC decided that the federal definition of “cable service” doesn't include Internet access. So while the average person uses “cable service” nd “telecommunications service” interchangeably, federal and state law apply different regulatory schemes to each term.

“The traditional phone network was designed to be two-way from the begin beginning, but allowed very little bandwidth,” Ellrod says. “The traditional cable network had much more bandwidth, but was originally designed to be one-way, pushing programming out to customers but not receiving data back. Each type of system has been working toward a fully two-way, high-bandwidth goal, but they're coming from different directions.

“Similarly, in terms of service, each one began with a single type — voice for t telephony, video for cable — and is working toward a ‘triple play' goal.”