At&T Communications v. Austin, Tex.

• Decision Date: 21 August 1997
• Docket Number: No. A 97-CA-532 SS.,A 97-CA-532 SS.
• Court: U.S. District Court — Western District of Texas
• Parties: AT & T COMMUNICATIONS OF THE SOUTHWEST, INC., Plaintiff, v. CITY OF AUSTIN, TEXAS, Defendant.

Page 928

975 F.Supp. 928

AT & T COMMUNICATIONS OF THE SOUTHWEST, INC., Plaintiff, v. CITY OF AUSTIN, TEXAS, Defendant.

No. A 97-CA-532 SS.

United States District Court, W.D. Texas, Austin Division.

August 21, 1997.

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Paula W. Hinton, Akin, Gump, Hauer & Feld, Houston, TX, Mary Jean K. O'Conner, Dallas, TX, Andrew W. Austin, Thomas K. Anson, Sheinfeld, Maley & Kay, P.C., Austin, TX, David Graham, Sidley & Austin, Chicago, IL, for Plaintiff.

Peter D. Kennedy, R. James George, Jr., Todd S. George, George Donaldson & Ford, Austin, TX, Andrew Martin, City of Austin, Edward Delabarre, Assistant City of Austin Attorney, Austin, TX, for Defendant.

SPARKS, District Judge.

ORDER

BE IT REMEMBERED on the 7th day of August 1997 the Court called the above-styled cause for hearing on the plaintiff AT & T Communications of the Southwest, Inc.'s ("AT & T") motion for preliminary injunction filed on July 30, 1997, to which the defendant the City of Austin, Texas (the "City") filed a response on August 7, 1997. The Court also heard oral argument on a motion filed by Southwestern Bell Telephone Company ("SWBT") to intervene as a matter of right pursuant to Federal Rule of Civil Procedure 24(a) and the City's motion to dismiss, or in the alternative, to abate. All parties to the suit and SWBT appeared by representation of counsel. In accordance with the Court's announcements at the hearing, the City filed a post-hearing brief on August 14, 1997, in which it presented new evidence and arguments to be considered by the Court. On August 18, 1997, AT & T filed its response to the City's brief. On August 14, 1997, SWBT filed an amicus curiae brief on the issues presented at the hearing, particularly on those issues in which SWBT claims to have an interest.¹

AT & T seeks to enjoin the enforcement of a city ordinance purporting to regulate companies providing local telephone service in Austin. The City asserts that the suit should be dismissed for lack of subject matter jurisdiction or, in the alternative, asks the Court to stay the case pending the resolution of issues within the exclusive or primary jurisdiction of the Federal Communications Commission ("FCC") and/or to abstain from deciding the state law issues raised in AT & T's motion. The City also seeks to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. SWBT filed a motion to intervene in the suit, claiming that AT & T seeks a declaration that the municipal fees to which AT & T may or may not be subject under the ordinance should be deemed paid in whole or in part by SWBT. For the reasons discussed below, the Court concludes that SWBT's motion to intervene as a matter of right and the City's motion to dismiss or abate should be denied and that AT & T's motion for preliminary injunction should be granted.

I. FACTUAL BACKGROUND

Congress recently enacted the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56, codified at 47 U.S.C. § 151 et seq. (Supp.1997), ("FTA" or the "Act"), in an effort to foster rapid competition in the local telephone service market and to end the monopoly market of local providers. Congress recognized that it would be extremely difficult for potential competitors to enter the market if they had to finance and build their own local telephone networks. Congress therefore devised two means by which new entrants could obtain services from already existing facilities belonging to the incumbent local service provider ("incumbent LEC"). First, incumbent LECs are required under the Act to sell their services at essentially wholesale prices to competitors, who can then resell the services to consumers at retail value. See 47 U.S.C. § 251(c)(4). Second, new entrants can purchase access to functionalities of the incumbent LEC's network on an "unbundled" basis, which the new entrants can then use to create their own services. See 47 U.S.C. § 251(c)(3). Pursuant to the Act, AT & T attempts to enter the local telephone service market both by reselling services it will purchase from SWBT, the incumbent LEC in Austin, and also by providing services through unbundled network capabilities obtained from SWBT. By offering local service in this manner, AT & T will use SWBT's existing facilities and will not install, operate, maintain, or repair any telecommunications facilities in the City's public rights-of-way.² See In the Matter of Definition of a Cable Television System, 5 F.C.C.R. 7638, 1990 WL 603007, ¶ 28 (1990) ("Congress did not intend to include within the meaning of the term `use' of a public right-of-way the mere passing over of such a right-of-way by electromagnetic radiation."). The City will continue to manage SWBT's access to and use of its public rights-of-way to the extent authorized by law.

Pursuant to the Texas Public Utility Regulatory Act of 1995, TEX.REV.CIV.STAT. art. 1446c-0 § 3.2531, ("PURA 95"), AT & T applied for and received from the Texas Public Utility Commission ("PUC") a Certificate of Operating Authority ("COA") to operate as a local exchange service provider in Texas. On June 5, 1997, the PUC issued the COA after an extensive review process in which the PUC examined AT & T's financial, technical, and other qualifications as a potential local service provider, including consideration of the types of services AT & T will provide.³ On July 15, 1997, AT & T became fully authorized by the State to offer, and is technologically capable of offering, local exchange residential service in Texas in areas currently served by SWBT. AT & T began efforts to market local exchange service in Texas on or about July 15, 1997, including the implementation of an "800" number in which potential customers can call and place orders for local telephone service.

On February 13, 1997, the City of Austin, a home rule municipality, approved Ordinance No. 970213-E, which enacted Chapter 18-8 of the City Code (the "Ordinance"). The Ordinance, effective February 24, 1997, requires telecommunications service providers such as AT & T to obtain municipal consent before operating telecommunications services in the City. Ordinance § 18-8-4. The Ordinance is extremely comprehensive. Among other things, it requires: (1) a non-refundable $850.00 application fee; (2) quarterly franchise fees to compensate the City for use and occupancy of the public rights-of-way; (3) disclosure of detailed financial and organizational materials, including copies of the company's filings with the Securities and Exchange Commission, its latest annual report and prospectus, and its Articles of Incorporation and Bylaws; (4) information relating to state and federal certificates of authority to operate as a telecommunications service provider, as well as franchises held in other Texas municipalities; (5) continuing disclosure requirements, such as providing updated audits of its business records and notifying the City of all petitions, applications, and communications with the FCC and the PUC affecting the use of public rights-of-way; (6) information regarding any legal or administrative proceedings in which the provider may have been involved; and (7) information relating to the company's Equal Employment Opportunity program, as well as company plans to encourage procurements from minority-and women-owned businesses. The Ordinance also grants the City the authority to conduct audits of the corporation on thirty-days notice. In short, the information sought by the City is either duplicative of or exceeds the information sought by the PUC in determining whether to grant a COA.

The granting, amending, denying and terminating of a municipal consent is a legislative function within the discretion of the Austin City Council (the "City Council"). Ordinance § 18-8-8. The approval process can take up to six months, and if the City Council refuses to act within the time period prescribed, the application is deemed denied. If the municipal consent is not sought or is denied, the provider cannot compete within Austin city limits and is subject to criminal penalties and fines for each day the provider operates without consent. In light of the Ordinance, AT & T has withdrawn its telemarketing and advertising plans and has instructed its representatives not to solicit or accept orders for local telephone service in Austin.

II. AT & T's CLAIMS

AT & T brings a combination of federal claims under the FTA, state law claims under PURA 95, and constitutional claims under both the United States and Texas constitutions. By far the most significant and compelling of AT & T's claims is its preemption claim under the FTA.⁴ Section 253 of the FTA, entitled "Removal of barriers to entry," provides in relevant part:

No state or local statute or regulation, or other state or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

...

Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

47 U.S.C. § 253(a) & (c).

AT & T argues that § 253(c), in conjunction with state law, reserves to municipalities only the limited authority to regulate and make reasonable charges for the installation, maintenance, and repair of physical facilities placed in the public rights-of-way. AT & T argues that the Ordinance, as applied to AT & T, cannot be justified as an exercise of the power reserved to municipalities under § 253(c) since AT & T is not installing or maintaining any facilities in the public rights-of-way. The Ordinance therefore violates § 253(a) of the FTA by flatly prohibiting ...