SESSION OF 2002

SUPPLEMENTAL NOTE ON SENATE BILL NO. 397

As Amended by Senate Committee on

Commerce

Brief

       SB 397, as amended by the Senate Commerce Committee, would create a new and separate city franchise procedure for telecommunications local exchange service providers (hereafter referred to as telecommunications providers). Major components of the new system are as follows:

Contract Franchise

Under the bill, cities could require a telecommunications provider intending to provide local exchange services in the city to enter into a contract franchise ordinance. The contract franchise ordinance must be adopted by the governing body of a city absent a compelling public interest necessitated by public health, safety and welfare. The contract franchise would be required to be competitively neutral and could not be unreasonable or discriminatory. Furthermore, no contract franchise ordinance could be denied or revoked without reasonable notice and an opportunity for a public hearing before the city governing body. The denial or revocation of a contract franchise ordinance could be appealed to the district court.

       Under the bill, contract franchises would be subject to the following requirements:

• All contract franchises or extensions would be made by ordinance.

• No contract franchise could be extended for more than 20 years from the date of the ordinance or extension.

• No telecommunications provider could be granted an exclusive contract franchise.

• No contract franchise would be effective until the ordinance granting it has been legally adopted, and all expenses associated with publishing the ordinance would be paid by the applicant.

Application Fees

       Under the bill, a city could assess a one-time application fee to recover its costs associated with the review and approval of a contract franchise as long as the application fee reimburses the city for its reasonable, actual and verifiable costs of reviewing and approving the contract franchise. Likewise, the application fee would be required to be competitively neutral and could not be unreasonable or discriminatory.

       The city would have 90 days to process and submit the application and contract franchise proposal to the city’s governing body. The governing body would be required to take a final vote concerning the contract franchise unless the telecommunications provider and the city agree otherwise. In considering the adoption and passage of a telecommunications contract franchise ordinance, the city could not regulate telecommunications providers based on the content, nature, or type of communications service or signal to be provided, or the quality of service provided to customers.

Access Line Fee and Gross Receipts Fee

       The governing body of a city could require telecommunications providers to collect and remit an access line fee or, alternatively, a gross receipts fee to the city.

       Access Line Fee. An access line fee of up to $2.00 per month, per access line would be authorized under the bill. The bill defines “access line” to include a variety of residential and business lines, but specifically excludes a number of items including wireless telecommunications services. The access line fee would be based on the access line count, which is the number of access lines serving consumers within the corporate boundaries of the city on the last day of each month. The maximum fee possible would be increased to $2.25 in 2006, $2.50 in 2009, and $2.75 in 2012 and thereafter.

       Gross Receipts Fee. As an alternative to the access line fee, the governing body of a city could require telecommunications providers to collect and remit a fee of up to 5 percent of gross receipts. The bill defines “gross receipts” as receipts collected from within the corporate boundaries of the city, derived from the following:

• Recurring local exchange service for business and residence, including basic exchange service, touch tone, optional calling features, and measured local calls;

• Recurring local exchange access line services for pay phone lines provided by a telecommunications provider to all pay phone service providers;

• Local directory assistance revenue;

• Line status verification/busy interrupt revenue;

• Local operator assistance revenue; and

• Nonrecurring local exchange service revenue which does not include customer service for installation of lines, reconnection of service and charge for duplicate bills.

       Subject to notification requirements, cities could elect to adopt an increased access line fee or gross receipts fee beginning January 1, 2004, and every 36 months thereafter.

       A city could require a telecommunications provider to collect or remit an access line fee or a gross receipts fee on those access line that have been resold to another telecommunications provider, but if this is done, the city could not require such collection or remittance from the reseller and could not require the reseller to enter into a franchise contract ordinance.

       The bill lists a number of restrictions which cities may not place on telecommunications providers, including requiring that particular business offices or other telecommunications facilities be located in the city.

Pass Through of Fees

       Under the bill, telecommunications providers that are assessed, collect and remit an application fee, access line fee or gross receipts fee must add a corresponding surcharge to its customer’s bill.

Authority to Use Public Rights-of-Way

       Under the bill, any local exchange carrier or telecommunications carrier as defined by statute would have the right to construct, maintain and operate poles, conduit, cable, switches and related items in, above, or under any public right-of-way in Kansas. This use of the right-of-way would be required to be done in such a way as not to obstruct or hinder the usual travel or public safety or obstruct the legal use by other utilities.

       The bill would allow cities to exercise home rule powers in the administration and regulation of the public right-of-way so long as this exercise is competitively neutral and not unreasonable or discriminatory. The bill would also give cities the authority to prohibit the use or occupation of a specific portion of public right-of-way by a provider due to a reasonable public interest necessitated by public health, safety and welfare as long as the authority is exercised in a competitively neutral manner and is not unreasonable or discriminatory. The bill provides a list of permissible public interests.

“Hold Harmless” Provision

       Under the bill, providers are required to indemnify and hold the city and its officers and employees harmless against claims resulting from the negligence of the provider while installing, repairing or maintaining facilities in a public right-of-way.

Background

       The subject matter of SB 397 was first contained in 2001 SB 306. During the 2001 Legislative Session, legislation was passed requiring that representatives of the telecommunications industry and Kansas municipalities negotiate a joint proposal for telecommunications franchise and right-of-way legislation. As a part of this legislation, the negotiating parties were required to report their progress three times to the Joint Committee on Economic Development during the Interim.

       After hearing the required progress reports from the negotiating parties, the Joint Committee on Economic Development introduced SB 397, a new bill containing compromise language negotiated by the telecommunications industry and Kansas municipalities.

       The Senate Commerce Committee held hearings on SB 397 at which time representatives of the telecommunications industry and Kansas municipalities stressed the delicate nature of the compromise and urged the Committee not to make significant changes to the bill. The Senate Committee amended the bill to include technical changes and to make language in the bill more closely reflect the language of the Federal Telecommunications Act by changing references to “communications services” to read “telecommunications services.”

       An official fiscal note was not available for SB 397 upon publication of this Supplemental Note.