New York City Solicits Proposals for Rights-of-Way Franchises

The New York City (“City”) Department of Information Technology & Telecommunications (“DoITT”) is in the process of soliciting proposals for two types of franchises using landline communications transmission facilities: (1) for the provision of information services and (2) for the provision of telecommunications services. DoITT created a new franchise format to expressly permit the installation, operation and maintenance of landline facilities in City rights-of-way for the provision of “information services,” as defined by federal law, because the legal treatment of communications technologies remains “in flux.” Going forward, entities with an expired High-Cap Telecommunications Services franchise using landline facilities in the City rights-of-way to provide information services, telecommunications services or both will need to obtain one or two franchises as applicable.

DoITT has also opened the solicitation process, which is open until Nov. 1, 2012, to those entities that may want to replace an effective Telecommunications Services franchise before expiration. Given the terms set forth in the initial Information Services franchise agreement template prepared by DoITT, current franchisees may want to wait until the expiration of their existing franchise before pursuing the new form of franchise. For example, DoITT does not plan to use a revenue-based formula for franchise agreements issued pursuant to the solicitation. Rather, DoITT proposes a complex franchise fee calculation that requires determining the Block Linear Feet for every borough where the company has installed facilities (“Installation Area”), a Pre-Credit Amount equal to $0.30 per foot of Installation Area, and a CPI Adjustment using monthly U.S. Department of Labor Consumer Price Indexes. DoITT also proposes, to the extent that one entity has two franchises for the provision of information services and telecommunications services, respectively, to credit the compensation payments made under one franchise against payments due under the other franchise to avoid requiring duplicative payment for use of the same physical facilities. Other significant terms set forth in the initial franchise agreement template:

• An irrevocable letter of credit formula, which is computed using certain calculations from the compensation model and might be as much or more than the letter of credit that has previously been provided to the City; and
• Prior approval requirements for a transfer of de jure or de facto control, a change of 10 percent or more in voting interests, and a change of 25 percent or more for non-voting interests.

On the other hand, current franchisees may want to try to have an impact on the terms of the new franchises that will be in place between the City and other providers at the time their franchises expire. Both Verizon and AT&T have High-Cap Telecommunications Services franchises as a result of their respective acquisitions of MCI/MFS and AT&T/Teleport, and although the City has for years threatened to bring Verizon’s other local exchange operations under the franchise regime, we do not know whether that is part of the effort to replace the existing agreements with a new franchise structure.

We would be pleased to work with you to determine the effect of the proposed changes on your New York business and, if appropriate, in the solicitation and negotiation process. There may also be an opportunity to work in tandem with other affected carriers in an effort to fashion a reasonable agreement.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: