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Primeco Personal Communications, L.P. v. Illinois Commerce Commission

March 29, 2001


The opinion of the court was delivered by: Justice Thomas

Docket Nos. 89075, 89084 cons.-Agenda 14-January 2001.

In this case, we are asked to decide whether the "municipal infrastructure maintenance fee" (the municipal IMF) (see 35 ILCS 635/20 (West 1998)), part of the Telecommunications Municipal Infrastructure Maintenance Fee Act (35 ILCS 635/1 et seq. (West 1998)), violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §2). The municipal IMF is a fee which municipalities are allowed to impose on telecommunications retailers as a percentage of the retailers' gross charges to their customers. The plaintiffs in this case are all wireless telecommunications retailers. They brought this action to declare the municipal IMF unconstitutional and to enjoin the state from enforcing its provisions. The plaintiffs argued that the municipal IMF was intended as a means of compensating municipalities for the physical occupation of the public rights-of-way by certain telecommunications providers. Since the plaintiffs are not among those telecommunications providers who physically occupy the public rights-of-way with their infrastructure, they argued that it was unreasonable and therefore unconstitutional to include them within the class of telecommunications retailers subject to the municipal IMF. The intervening plaintiffs are all consumers who have paid the municipal IMF, who agree with the plaintiffs' assertion that the municipal IMF is unconstitutional, and who are seeking reimbursement in the circuit court.

The defendant is the Illinois Commerce Commission (ICC), the state agency with the responsibility of regulating certain aspects of the telecommunications industry in Illinois. The intervening defendant is the City of Chicago, one of the municipalities that has passed an ordinance imposing a municipal IMF. The defendant and the intervening defendant (the defendants) argued that the municipal IMF was merely a means of raising municipal revenue and that the General Assembly did not overstep its constitutional bounds in extending the municipal IMF to wireless providers.

The trial court agreed with the plaintiffs that the municipal IMF was unconstitutional and struck it down on its face. Because the circuit court invalidated an Illinois statute, the defendants took their appeal directly to this court. See 134 Ill. 2d R. 302(a)(1). While we agree that the municipal IMF is unconstitutional as applied to the plaintiffs in this case, we do not find it to be invalid on its face. A recitation of the pertinent facts in this case is necessary in order to frame the legal issue presented to us.


For decades, the public rights-of-way have been available for use by the telecommunications industry. Historically, landline providers (i.e., telecommunications providers who transmit messages by means of cable wire) have built, owned, and maintained a wire-based (or fiber-optic- cable-based) infrastructure by placing telecommunications cables, poles, switching equipment, terminal boxes, manhole covers, concentrators, splicing cases, and other equipment in and under the public streets and roadways. The landline providers use this infrastructure to transmit telephone calls or other data for their customers. However, the landline system is no longer the only means of sending and receiving telecommunications. For many years, it has been possible to send and receive telecommunications without the use of wires or cables-in other words, by wireless means. In order to facilitate the transmission of wireless telecommunications, however, an alternate infrastructure had to be established.

Wireless telecommunications providers transmit messages through the air by means of microwave transmissions rather than cable wire. The wireless infrastructure consists of base stations and radio cell towers located at various locations within the wireless provider's service area. These individual base stations and cell towers send and receive microwave transmissions within a "cell" site. That is, they send and receive electromagnetic signals to or from cellular devices which are passing within a certain radius of the base station or cell tower (usually two or three miles, but sometimes as little as one-quarter of a mile). A wireless provider's service area is composed of a mosaic of cells that are positioned in such a manner as to reach any customer located within the service area. When an electromagnetic signal is received at one of these stations or towers, it is then transmitted to the wireless provider's switching station, which directs the signal to its ultimate destination.

At the present time, it is impossible for the wireless providers to rely entirely on their own wireless infrastructure to send and receive most telecommunications. For instance, if a cellular customer wishes to call a land-based telephone, the signal must pass through the landline system (at least for the last portion of the call) in order for it to reach the landline customer. Conversely, when a landline customer wishes to call a wireless customer, the landline provider must use the wireless provider's infrastructure to complete the call. In order to facilitate the completion of such calls, the wireless and landline providers have negotiated "interconnection agreements" by which they pay each other specified amounts based on a standard charge for each minute that a landline provider uses the wireless infrastructure and vice versa.

Wireless and landline usage intersect in other situations as well. For instance, when a cellular customer wishes to call another cellular customer (even if both customers use the same wireless provider), the wireless customer places the call, which is then received at a cell tower servicing the cell site in which he is located. Once the signal is received, it must be sent to a switching center. In order for the signal to be sent from the cell site to the switching center, it must pass through the landline system. After it is received at the switching center, it is sent through the landline system again to the cell site where the other cellular customer is located. Once the signal reaches the cell site, it is transmitted electromagnetically to the other wireless customer's cellular device.

In order for a wireless provider to obtain the right to transmit its electromagnetic signals through the landline system, it must lease the capacity from a landline provider. When a wireless provider enters into lease agreements with the landline provider for the purpose of allowing it to send messages between its cell sites and switching center, it is called "backhaul services."

In order to provide telecommunications services to all of their customers, the landline providers install and maintain an extensive system of wires and cables within the public rights-of-way. Wireless providers, on the other hand, do not own, operate or maintain any equipment in the public rights-of-way. The wireless providers operate and maintain all of their equipment on private property pursuant to privately negotiated commercial leases.

Historically, landline providers have obtained access to the public rights-of-way by negotiating with individual municipalities. In order to establish and maintain telephone service, a landline provider would often have to tear up the public roads, dig holes, and erect telephone poles along the streets. Until 1998, the landline providers obtained the right to do this in exchange for the payment of what was called a "franchise fee." The franchise fee operated as a means of compensating the municipality for the providers' use of the streets, sidewalks and other public areas. See City of Springfield v. Inter-State Independent Telephone & Telegraph Co., 279 Ill. 324, 325-26 (1917).

Of course, wireless providers never entered into municipal franchise fee agreements. Because the wireless providers have never installed any equipment in the public rights-of-way, they would never have any need to negotiate with municipalities for the right to do so. However, under the franchise fee system, when a landline provider leased capacity to wireless providers, it would pass a share of the franchise fee on to the wireless providers in proportion to the volume of capacity used by them. These costs were embedded within the lease payments made to the landline provider.

Franchise fees were not the only fees or taxes paid by telecommunications retailers to the various organs of government. Until 1998, the state levied a tax on telecommunications retailers called the "invested capital tax." See 35 ILCS 610/2a.1 (West 1996). The invested capital tax was paid to the state, not municipalities, in an amount equal to 0.8% of the telecommunication retailer's invested capital for the taxable period. 35 ILCS 610/2a.1 (West 1996).

Five years ago, Congress amended the Communications Act of 1934 in the form of the federal Telecommunications Act of 1996. One of these amendments provides that "[n]o 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." 47 U.S.C. §253(a) (Supp. 1996). It goes on to say that "[n]othing 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, for use of public rights-of-way on a nondiscriminatory basis ***." 47 U.S.C. §253(c) (Supp. 1996).

Following the passage of the amendments to the Telecommunications Act, the Illinois General Assembly passed the Telecommunications Municipal Infrastructure Maintenance Fee Act (the Act), which became effective on January 1, 1998. 35 ILCS 635/1 et seq. (West 1998). The Act repealed the invested capital tax (35 ILCS 635/905 (West 1998)), and abolished franchise fees (35 ILCS 635/30(a) (West 1998)). In their place, the General Assembly enacted three new taxes: the state infrastructure maintenance fee (state IMF) (35 ILCS 635/15(a), (b) (West 1998)), the optional infrastructure maintenance fee (optional IMF) (35 ILCS 635/15(c), (d) (West 1998)), and the municipal IMF (35 ILCS 635/20 (West 1998)). The state IMF is paid to the state in an amount equal to 0.5% of a telecommunication retailer's "gross charges" to its customers. 35 ILCS 635/15(b) (West 1998). The optional IMF is also paid to the state, but only in the event that a certain municipality has not yet adopted a municipal IMF and there is no pre-existing franchise fee agreement between the retailer and the municipality. 35 ILCS 635/15(c), 30 (West 1998). Payment of the optional IMF gives the retailer the right to "use" the public rights-of-way in the municipality to which the fee relates without having to negotiate the payment of a franchise fee. 35 ILCS 635/30 (West 1998).

The municipal IMF is a fee paid to a certain municipality that has passed an ordinance imposing one. 35 ILCS 635/20(a) (West 1998). The maximum amount that a municipality can charge in the form of a municipal IMF is dependent upon the size of the municipality. 35 ILCS 635/20(b) (West 1998). If the municipality has a population greater than 500,000 (i.e., Chicago), it may charge a municipal IMF no greater than 2% of the "gross charges charged by the telecommunications retailer to service addresses in the municipality for telecommunications originating or received in the municipality." 35 ILCS 635/20(b)(i) (West 1998). For all other municipalities in Illinois, the maximum amount is 1%. 35 ILCS 635/20(b)(ii) (West 1998). The General Assembly determined that the municipal IMF:

"shall be the only fee or compensation for recovering the reasonable costs of regulating the use of the public rights-of-way and for the use of public rights-of-way that may be levied by or otherwise required by ordinance, resolution, or contract to be paid to a municipality for the use of its public way by telecommunications retailers." 35 ILCS 635/30 (West 1998). See also 35 ILCS 635/35 (West 1998).

Soon after the passage of the Act, the City of Chicago passed its own municipal IMF at the maximum allowable rate, 2%. See Municipal Code of Chicago §3-75-030(A) (eff. January 1, 1998). The ordinance, like the Act itself, provided that the municipal IMF would be imposed on "all gross charges charged by telecommunications retailers to a service address in the city for telecommunications originating or received in the city." Compare Municipal Code of Chicago §3-75-030(A) (eff. January 1, 1998) with 35 ILCS 635/20(b)(i) (West 1998).

On April 27, 1998, a number of wireless providers filed this action for injunctive and declaratory relief challenging the constitutionality of the Act insofar as it authorizes municipalities to impose a municipal IMF. The plaintiffs, Primeco Personal Communications, L.P., Illinois RSA #3, Inc., USCOC of Illinois RSA #4, Inc., Davenport Cellular Telephone Co., USCOC of Illinois RSA #1, Inc., and National Cellular Communications, Inc., are all wireless telecommunications retailers providing wireless telephone service to customers in Illinois. The defendant, the ICC, is the Illinois agency responsible for regulating the rates of landline telecommunications providers. The complaint contained three counts, all seeking to invalidate the municipal IMF as unconstitutional on its face. After the complaint was filed, the City of Chicago intervened as a defendant to defend the constitutionality of the Act as well as the City's own municipal IMF ordinance.

In count I, the plaintiffs argued that the municipal IMF violates the uniformity clause because it allows municipalities to assess a percentage fee on the "gross charges" of telecommunications retailers, whether landline or wireless. Because the purpose of the municipal IMF is to compensate municipalities for the use of the public rights-of-way, it was argued, the extension of the municipal IMF to wireless providers, who do not own or operate any equipment in the public rights-of-way, was "entirely unreasonable and inconsistent with the express purpose of the [IMF] Act." According to the complaint, the Act, by classifying all telecommunications providers as equally subject to the municipal IMF, violated the portion of the uniformity clause which requires the General Assembly to classify the subjects or objects of nonproperty taxes in a reasonable manner.

In count II of the complaint, the plaintiffs argued that the municipal IMF violated the uniformity clause because of those entities which the Act excluded from its coverage. Precisely, the plaintiffs argued that certain entities that use "PBX" (private branch exchange) and "Centrex" systems are not subject to payment of a municipal IMF, but should be. Centrex customers are those entities which lease switching capacity from landline providers for private use. These entities tend to be large corporations or commercial landlords that need an internal means of communication, but do not wish to establish their own network of wires and equipment. Instead, the Centrex customers sign a lease with a landline provider for the limited use of some of the landline provider's infrastructure. PBX customers, on the other hand, buy or lease a switching computer which performs the same function as a Centrex system. Instead of signing a lease with a landline provider, the PBX customer buys or leases its own switching computer which is located on the customer's premises. When a PBX or Centrex system has been established, it allows its users to dial an extension which then routes the call to another user within the system. If the user wishes to make a call to someone outside of the system, the user must dial "9" in order to access an outside line.

According to the plaintiffs, the exclusion of PBX and Centrex customers from coverage under the municipal IMF creates an unreasonable classification. Because the PBX or Centrex customers simply lease capacity from the landline providers, the wireless plaintiffs argued that their own use (or, rather, nonuse) of the public rights-of-way is equivalent to that of PBX and Centrex customers. For this reason, it was argued that there is no ...

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