Municipalities have the right to regulate and charge utility companies for the privileges to conduct business and occupy public property and rights of way. These charges are called franchise fees.
A franchise is a charge for the privilege of physically occupying the municipality's streets and rights of way. Franchises are customarily granted in exchange for an annual fee to place telephone, electric, gas, fiber optic and cable television lines in streets or on public property. The fee is not a tax. It is more closely related to a lease or license for physical occupation of property owned, controlled by or for the benefit of the municipality, like streets and sidewalks.
The South Carolina Constitution prevents the General Assembly from passing any law granting a private party the right to construct and operate infrastructure in the public rights "without first obtaining the consent of the governing body of the municipality in control of the streets or public places proposed to be occupied. " In addition, SC law provides that municipalities may "grant franchises for the use of public streets and make charges for them."
Traditionally, municipalities charged private parties a franchise fee equal to 3% to 5% of the gross income generated by the activity occupying and using the public property or rights of way within the municipality.
Municipalities may also regulate and charge private utility companies for activities located in the municipal boundaries. For example, the municipality may impose permit fees, inspection fees, or encroachment fees on construction or improvements, even if it occurs within the public right of way. Municipalities may regulate and charge for the use of municipal fixtures and improvements — for example, attachment fees for the use of municipally owned poles, or mast arms, or leases for the use of water tanks.
Beginning in the late 1990s, the SC General Assembly passed laws restricting and blurring the previously clear municipal authority to require business licenses and franchises for telecommunication and cable companies occupying and using municipally controlled streets or public places, and to require regulatory compliance.
Telecommunications companies
Under prior law, municipalities generally charged telecommunications companies by imposing significant franchise fees. The South Carolina Supreme Court affirmed a 5% franchise fee on gross income from all sources in the 1999 case BellSouth Telecommunications, Inc. v. City of Orangeburg. Under this ruling, business licenses taxes on telecommunications companies were less significant.
With the Telecommunications Act of 1999, telecommunications companies pay a statutorily fixed franchise fee ranging from $100 to $1,000, depending on the size of the municipality and a 1% business license fee. Instead of the formerly significant franchise fee, telecommunications companies pay business license taxes at a fixed rate.
In the Telecommunications Act, the fixed franchise fees are "in lieu of any permit fee, encroachment fee, degradation fee, or other fee assessed on a telecommunications provider for its occupation of or work within the public right of way."
The municipality may still require a franchise agreement, and may regulate the terms and conditions on which occupation and work occur.
Cable companies
Under prior law, municipalities required that cable companies secure and pay for local franchises. In addition to requiring annual payments, municipal franchises also often included other requirements applicable to cable companies — for example, requiring the cable company to provide support for and distribution of local access channels.
In 2006, the General Assembly passed the South Carolina Competitive Cable Services Act, now codified beginning at SC Code Section 58-12-300. It provides that cable companies may apply for a statewide franchise agreement. Existing local franchise agreements remain in effect during a transitional period, but are superseded by the statewide franchise upon expiration or termination. Municipalities may establish a franchise fee payable under the state franchise, but the fee may not exceed 5% of gross revenues.
The municipality may not charge any other permit, inspection, or encroachment fee beyond the franchise fee. It may still reserve a right to access one or more "PEG" channels (public, educational or governmental), but must bear all operational costs of providing local access programming.
The Municipal Association of SC encourages that municipalities take two separate actions on cable franchises. First, for all existing local franchises, municipalities should establish a franchise fee rate for such cable service providers upon expiration or termination of the existing franchise with the municipality. Most municipalities did so after the passage of the Competitive Cable Services Act, but it is prudent to check that such an ordinance was adopted and remains in.
Second, for cable providers operating under a statewide franchise, municipalities should adopt an ordinance consenting to such franchise, establishing a local franchise fee rate (not to exceed 5%), and imposing other terms and conditions allowed by law on the provider's activities within the municipality.
Telecommunications and Cable Regulatory Framework
| Telecommunications | Cable | |
|---|---|---|
| Franchise | Local franchise; capped based on population at nominal amount ($100 - $1,000) | Statewide franchises; locality can consent and impose fee not to exceed 5% |
The Association has prepared model ordinances for both situations, which models are available on request and at www.masc.sc (keyword: cable model ordinance).