Tele-Con

[September 26th, 2007] Pretend you’re a landlord, and one of your tenants hasn’t paid the rent in six years. You know he’s loaded, too. You’d probably be pretty pissed off.

OK, you can get pissed now. Because you are a landlord, and a big telecommunications company owes about $3.90 to you and every other Portland resident—more than $2.2 million in total.

The deadbeat in question is 360networks, a privately held telecom with national assets worth hundreds of millions of dollars. The Colorado-based company makes money by selling or leasing its interstate network of fiber-optic cable to institutional users.

Last week, Portland commissioners voted to give the city attorney’s office the go-ahead to sue 360networks for an estimated $2.2 million in late payments and interest.

It’s a case that once again asks how much power local governments have over large private utilities.

Oregon, like many states, allows cities to charge rent for utility companies to string their cables along public property. In Portland, these so-called franchise fees generate about 12 percent of the city’s $502 million general fund, which pays for police, firefighters and other essential public services.

City officials say 360networks hasn’t paid a nickel since 2001.

“We’ve been awfully patient with these folks,” says deputy city attorney Terry Thatcher.

360networks, formerly Pacific Fiber Link, was a victim of the turn-of-the-millennium tech crash. It emerged from bankruptcy five years ago and claims on its website to be “debt-free.” The company owns about 16 miles worth of cable in Portland, for which it’s supposed to pay an annual fee of about $3 per foot. It’s also supposed to file reports with the city that detail how its network is being used, which Thatcher says it hasn’t done.

“We’ve certainly had other situations where franchisees were delinquent,” says Commissioner Dan Saltzman, who oversees the city’s cable office. “This sticks out as the largest one.”

In challenging the telecom, Portland is making a much bigger argument that’s played out before both locally and around the country.

Cities are “under attack” from large corporations that don’t recognize the right of cities to charge for the use of public property, says Ken Brunetti, a San Francisco lawyer who specializes in communications. Bigger cities can fight corporate claims, but smaller ones can’t afford the costs of litigation.

The battles began after Congress passed the 1996 Telecommunications Act. The law says states and localities could demand “fair and reasonable compensation” from the telecoms for use of public rights-of-way.

The problem is defining what’s “fair.” “Companies have tried to argue that what Congress really meant was, ‘If you charge us anything other than a minimal fee, that prevents us from being in business,’” Thatcher says.

Portland won a U.S. district court case against Qwest over per-foot franchise fees last year. And district courts have generally favored cities, Brunetti says, while the federal Ninth Circuit Court, which covers Portland, has been friendlier to the telecoms.

Thatcher wouldn’t say when or where a lawsuit will be filed. 360networks did not return messages left at its offices in Louisville, Colo., and Seattle.