Municipal governments may grant franchises to privately owned utilities that use public rights of way. The majority of city charters contain procedures for granting franchises. Most franchises require the utility to pay a fee to reimburse the community for using its streets and rights of way. Municipalities may, upon request by a cable company, grant a cable franchise. T.C.A. §§ 7-59-101, et seq.

Cities under the general law modified city manager-council charter have authority to acquire, own, and operate cable TV systems. T.C.A. § 6-33-101. Under the 1992 Cable Television Consumer Protection Act, all cities may build and operate a cable system in competition with their existing franchise without granting themselves a franchise.

Municipally owned electric utility systems may construct and operate cable TV systems in their service areas. However, the cable operation may not be subsidized by the municipality or by the electric system, and it must pay tax equivalents using the same method prescribed for the electric system. T.C.A. §§ 7-52-401–407.

In addition to cable TV companies, cities have issued franchises to private companies providing gas, electric, water, steam, and public transportation. State law prohibits a company from acquiring the franchise or property of another company operating under a city franchise without the city’s permission. T.C.A. § 6-54-109.

Municipalities probably do not have the authority to franchise a telephone/ telecommunications company or to collect a franchise fee based on the company’s income. But, cities may require the firm to pay “police power” rent, i.e., a fee that covers the municipality’s direct costs of the telephone/telecommunications company’s use of rights of way. T.C.A. § 65-21-103, T.C.A. § 65-21-203. (Also see City of Chattanooga v. BellSouth Telecommunications, (unreported) 2000 W.L. 122199 (Tenn. Ct. App. 2000).)

Statewide Cable and Video Service Franchising
Notwithstanding the above discussion about local cable franchising authority, cable and video service companies have the authority to bypass a local franchise and obtain a state franchise under the Competitive Cable and Video Services Act. T.C.A. §§ 7-59-301, et seq.

The act preserves local franchising but creates a new statewide franchise with immediate opt-in provision for incumbent franchise holders. An incumbent with an expired franchise can apply for a statewide franchise within 180 days of July 1, 2008. The award of a statewide franchise terminates any unexpired local franchise. Franchise fees, however, remain the same until the local franchise agreement would have expired, and the provider cannot reduce or terminate any services until another provider is providing services.

Statewide franchise applications are filed with Tennessee Regulatory Authority and forwarded to the affected local government. Providers then have 24 months to begin offering services. Statewide franchise fees are set at 5 percent of gross revenues. The application fee is population based. The state franchise has a 10- year term and is transferable. Local governments cannot request anything else of value from statewide franchise holders.

State franchises do not alter state law regarding local control of rights of way, local police power, or right to impose generally applicable taxes.

State franchise holders are subject to FCC customer service standards and are obligated to keep current PEG channels at no additional cost. New PEG channels are based on population levels.