La Teoría de la Comunicación

!

This report discusses legal, regulatory and policy issues that could affect a decision to build and operate a fiber optic network to provide information and telecommunications services including voice, video and data/Internet on a new network in Austin.

!

The legal and regulatory provisions that might apply depend on a number of factors including the authority for fiber projects in Minnesota, the technology that is used, the services taken by the

customers, the form of the owning entity and the role of local public bodies—if any—in the project. In some circumstances local regulation may apply and in others state or federal. In addition, the new network would begin to provide voice, video and data/Internet services where some services already exist and would therefore be a competitive service provider to which some specific rules will apply.

!

I. Summary of Key Findings

!

A summary of the key findings is stated here and a fuller discussion of those findings follows:

!

• Private, public, cooperative and nonprofit ownership are all approved forms of ownership of a

fiber optic network providing telecommunications and data/Internet services under Minnesota law.

!

• Minnesota Statute Chapter 238.08 applies to the granting of franchises by local authorities to a

new service provider for the provision of video services in a municipality. Any provider offering video service in a municipal area (and possible adjacent service areas) will need to obtain a franchise from local authority to use the streets and rights of way to construct its network and deliver its service. Minnesota Statute Chapter 238.08 identifies a process that is consistent with federal law regarding franchise grants. A new franchise would be required and a provider whose application conforms to statute requirements will be granted a franchise.

!

• Minnesota Statute Chapter 237.16 outlines the obligations of a telephone service provider that

would be consistent with state and federal requirements. A new provider of voice services will need to apply to the Minnesota Department of Commerce and be approved by the Public Utilities Commission which will issue a notice of certification to provide service. A new provider whose application as a competitive local exchange carrier conforms to regulatory and statutory

requirements will be approved.

!

• Minnesota Statute Chapter 237.19 poses special requirements when a public or municipal owner

is the new provider. The face of the statute calls for a public referendum with a 65% approval level when a community proposes to construct or buy a telephone exchange when an exchange

already exists in that community. The applicability of Chapter 237.19 to a fiber optics based voice service is untested.

!

• The Minnesota Court of Appeals case Bridgewater Telephone Company Inc. vs. City of

Monticello established that municipalities have the legal right to offer Internet services as part of the services to be provided through building and operating a fiber optics network. This finding put the rights of private, cooperative, nonprofit and public providers on the same basis as far as provision of data/Internet services.

!

• Relevant City of Austin ordinances have been examined and do not appear to present any

unexpected requirements relating to the infrastructure work to construct a new fiber optic network in the intended service area. Network construction would expect to conform to the city ordinances in respect to rights of way and other needs.

!

II. Discussion of Key Findings

!

Private, public, cooperative and nonprofit ownership are all approved forms of ownership of a fiber optic network providing telecommunications and data/Internet services under Minnesota law.

!

In general private ownership, cooperative ownership and nonprofit ownership do not now nor have they in the past faced legal obstacles to entering the information and telecommunications business. However, the legal right of public municipalities to own and operate public

telecommunications and information systems as a public utility was not explicit until 2009 even though notable examples of public telecommunications systems such as WindomNet and

Telecommunications were operating successfully.

!

In 2009 the legal right of public municipalities to own and fund a telecommunications utility was clearly established by the Minnesota Appeals Court in Bridgewater Telephone Company, Inc. vs. City of Monticello. The Court held that under Minn. Stat. §475.52, subd.1., any statutory city may raise and spend money for any utility or other public convenience and that a fiber optics network is within the law as a public convenience. Therefore it is now clear that public ownership of a fiber optic network is an approved form of ownership along with private, cooperative or nonprofit forms.

!

Minnesota Statute Chapter 238.08 applies to the granting of franchises by local authorities to a new service provider for the provision of video (cable) services in a municipality. Any provider offering video service in a municipal area (and adjacent service areas) will need to obtain a franchise from local authority to use the streets and rights of way to construct its network and deliver its service. Minnesota Statute Chapter 238 identifies a process that is consistent with federal law regarding franchise grants. A new franchise would be required and a provider whose application conforms to statute requirements will be granted a franchise.

Video (cable) service is among the services would be delivered over the fiber optics network. These services are subject to some regulation at federal, state and local levels.

The most important initial requirement is that the new fiber optics network will need to obtain a franchise from the local authority wherever it delivers service within a municipality, county or township. Federal law requires that local authorities grant competitive franchises to qualified applicants (47 C. F. R. β 76.41).

Minnesota Statute 238.08 lays down the requirements for obtaining a franchise including that any video (cable) system providing service within the municipality (or other local authority) must obtain a franchise. A key provision of 238.08 (b) requires that “No municipality shall grant an additional franchise for cable service for an area included in an existing franchise on terms and conditions more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees. Nothing in this paragraph prevents a municipality from imposing additional terms and conditions on any additional franchises.” The application of this provision means that the new fiber optics network will assume essentially similar obligations as found in the franchise that will be in place at the time the network will apply for a franchise. The obligation of the new network for payment of franchise fees will be limited by federal law to no more than five percent of the gross revenues on an annual basis (47 U. S. Code β 542). In addition Section 238.08 explicitly authorizes municipal ownership and operation of a video (cable) system for those communities following that path.

Minnesota Statute 238.08 provides a carefully sequenced franchise application process and specifies the content of the application materials. Satisfying the process and content requirements means that the new fiber optics network will be granted a franchise.

Last, the operation of a video (cable) system will require a significant commitment to legal handling of service agreement contracts with video content providers. An important contract option for rural video service providers is the National Rural Telecommunications Cooperative (NRTC) which represents the advanced telecommunications and information technology interests of more than 1,500 rural utilities and affiliates in 48 states. It offers cost effective programming distribution rights for video providers, long distance programs as well as advanced metering infrastructure.

Minnesota Statute Chapter 237.16 outlines the obligations of a telephone service provider that would be consistent with state and federal requirements. A new provider of voice services will need to apply to the Minnesota Department of Commerce and be approved by the Public Utilities Commission which will issue a notice of certification to provide service. A new provider whose application as a competitive local exchange carrier conforms to regulatory and statutory requirements will be approved.

!

Telephone landline service is among the services that would be delivered over the fiber optics network. In the planned service area for the new fiber optics network there are existing

(incumbent) companies providing service so the new fiber optics network would be competing with the incumbent companies. This generally has the effect of improving services and lowering costs of service. While landline service is diminishing overall statewide in greater Minnesota it

continues to be an important service in cities and towns in greater Minnesota and in the rural areas.

!

Telephone service is a more closely regulated telecommunications service than video (cable) service. Minnesota regulates local and long distance telephone service providers by two state agencies. The Minnesota Department of Commerce (DOC) reviews the application, investigates the company and makes a recommendation to the PUC. The PUC evaluates the application, considers recommendations and decides whether to grant or deny authority. Once a new company is in business, the DOC monitors the company’s services and enforces the rules of operation, as defined by PUC Rules and Minnesota Statute 237.

The initial critical step is to obtain authority to engage in telephone service. The new telephone service to be offered over the fiber optic network would submit an application to become a competitive local exchange carrier (CLEC). The PUC is required to respond to a bona fide application within 120 days though in actuality it may be less. All telecommunications carriers, telephone companies and service resellers must file an application with the Public Utilities Commission for a "certificate of authority" to do business in Minnesota. Initial applications must be accompanied by a $570 filing fee. All regulated telecommunications service providers pay an annual assessment based on gross state revenues once in business. No services may be provided until a proper certification has been issued.

There are a range of rules and requirements at the state level that will apply to the telephone service side of the new business including tariff filings, agreements with other carriers for interconnections, customer service requirements and other matters relating to both intrastate and interstate services. There will also be some rules and requirements at the federal level reflecting federal law such as access to numbering blocks, privacy of customer information and other matters.

!

The major legal consequence arising from offering telephone service is that at the outset there is a considerable need for attention to regulatory requirements which will become less frequent once service is established but which will always need to be tended.

!

Minnesota Statute Chapter 237.19 poses special requirements when a public or municipal owner is the new provider. The face of the statute calls for a public referendum with a 65% approval level when a community proposes to construct or buy a telephone exchange when an exchange already exists in that community.

!

The applicability of Chapter 237.19 to a fiber optics based voice service is untested.

!

The applicability of Chapter 237.19 to a fiber optics based voice service is untested. It is arguable that under conditions of new fiber optics based technology for voice service Chapter 237.19 is not relevant. In Austin an exchange does exist but new forms of technology enable telephone service by a different technology which is voice service over Internet protocol or VOIP service.

!

This is important because in practice VOIP voice services have been implemented in numerous areas within Minnesota where local telephone exchanges exist without incident or triggering any challenges under 237.19. Second, Chapter 237.19 in any case is only relevant if a new fiber optic system is owned by a public or municipal owner. Third, in the event the Austin broadband committee were to seriously consider the municipal ownership option it is important to be aware that it is municipal ownership that gathers the most hostility from established incumbent

providers and uncertainty over the applicability of Chapter 237.19 might be a convenient point on which to mount opposition—legal or otherwise--to a new project in Austin. This report will recommend options other than the municipal option in another section of the report.

!

The Minnesota Court of Appeals case Bridgewater Telephone Company Inc. vs. City of Monticello established that municipalities have the legal right to offer Internet services as part of the services to be provided through building and operating a fiber optics network. This finding put the rights of private, cooperative, nonprofit and public providers on the same basis as far as provision of data/Internet services.

!

Data/Internet services have historically been an unregulated area of service with open entry. As a result and without challenge a number of Minnesota cities or city owned public utilities began to offer Internet service when private providers were not offering any or adequate service.

!

However, in 2009 a Minnesota court case attempted to limit the right of municipalities to offer Internet services as part of funding and building a fiber optic network. The attempt was part of the Bridgewater Telephone Company, Inc. vs. City of Monticello case in which Bridgewater argued that Internet services were not a proper public purpose within the meaning of the statute authorizing public utilities for the public convenience.

!

Since data/Internet service is now the key service running over a fiber optics network the loss of that right would have definitively blocked the path for local communities who wanted to provide a fiber optic network for their residents.

!

The Minnesota Appeals Court held that under Minn. Stat. §475.52, the statutory authority was clear that the definition of a municipal telecommunications public utility certainly includes Internet access.

!

Relevant City of Austin Ordinances have been examined and do not appear to present any unexpected requirements relating to the infrastructure work to construct a new fiber optic network in the intended service area. Network construction would expect to conform to the city ordinances in respect to rights of way and other needs.

!

Two areas which sometimes present legal issues arising from construction activities include (a) rights of way access and conformity and (2) pole access and fees. Rights of way access and conformity appear relatively straight forward. It appears that poles within the City of Austin are

owned by Austin Utilities and there is every expectation that information regarding pole access or fees can be discussed at the appropriate time.

!