Is Tennessee's law requiring toll-free calling within a county an unconstitutional taking of telephone-company property?

Subject

Opinion No. 14-32, Constitutionality of Tenn. Code Ann. § 65-21-114 Mandating County-wide Calling, March 18, 2014

Plain-English summary

Senator Bill Ketron asked the AG to revisit and update a 2001 opinion on Tennessee's mandatory county-wide toll-free calling statute. The statute, Tenn. Code Ann. § 65-21-114, says that "[a]ny telephone call made between two (2) points in the same county in Tennessee shall be classified as toll-free and shall not be billed to any customer." The 2014 question had two parts: (1) is that mandate a taking without compensation under the Tennessee or U.S. Constitutions, in all circumstances where its application requires a carrier to handle a call for free? (2) given that the 2009 telecom market-regulation election in Tenn. Code Ann. § 65-5-109(l)-(n) lets local carriers opt out of TRA rate regulation, does the statute still have any practical effect?

The AG essentially carried forward the 2001 opinion (Op. 01-115). The statute is constitutional in most applications. The narrow takings problem identified in 2001 still exists in its narrow zone: when parts of a single county are split between different Local Access and Transport Areas (LATAs), the local exchange carrier cannot complete the call across the LATA boundary on its own and must hand the call off to a long-distance (interexchange) carrier. The long-distance carrier bills on a call-by-call basis and has no way to recover the cost of an intra-county call it is forced to complete for free. Applied that way, § 65-21-114 requires a "particular service" without "just compensation" and would violate Article I, Section 21 of the Tennessee Constitution and the Takings Clause of the Fifth and Fourteenth Amendments.

For local exchange carriers, the analysis is different. Local carriers sell a bundle of services for a monthly lump-sum charge and can recover their county-wide-calling cost through that bundled rate, traditionally set with TRA oversight. That was the 2001 answer.

The new twist in 2014 was the 2009 market-regulation election in Tenn. Code Ann. § 65-5-109(l)-(n). A local carrier that elects market regulation becomes exempt from most TRA retail-rate oversight. The senator's question was whether the takings analysis changes once the TRA can no longer set rates. The AG said no. A carrier that has elected market regulation can raise its own rates at will. It does not need the TRA to recoup county-wide calling costs. There is no takings problem because the carrier remains able to set compensatory rates by its own market decisions. The statute, codified outside the TRA's specific regulatory chapter, continues to apply to all carriers.

So the practical scope of § 65-21-114 is: (1) it applies in counties not divided by a LATA boundary; (2) it applies in counties divided by a LATA boundary if the local exchange carrier can complete the call across the boundary; (3) it cannot constitutionally apply to a long-distance carrier that must complete an inter-LATA call across a divided county without any compensation; and (4) market regulation does not change the answer in any direction.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What did the county-wide calling statute actually require?

Tenn. Code Ann. § 65-21-114(a) says any telephone call made between two points in the same Tennessee county "shall be classified as toll-free and shall not be billed to any customer." "Toll-free" means no extra charge beyond basic local service. It does not mean the call is literally free; it means no separate toll is layered on top of the local-service bundle.

What is a LATA, and why did it matter?

A LATA, or Local Access and Transport Area, is a defined geographic region used in U.S. telecom regulation (47 U.S.C. § 153(31)). LATAs generally track area-code geography but do not necessarily follow county lines. So a single Tennessee county can be split between two LATAs. When it is, the local exchange carrier cannot complete an intra-county call across the LATA boundary on its own; the call must be handed off to a long-distance (interexchange) carrier.

Why is forcing a long-distance carrier to handle an intra-county call for free a constitutional problem?

Because the long-distance carrier bills only on a call-by-call basis. It has no monthly subscription model in which it could fold the cost. If the statute requires the long-distance carrier to complete the call without any toll, the carrier provides a particular service with no compensation at all. Article I, Section 21 of the Tennessee Constitution and the federal Takings Clause forbid taking a particular service without just compensation. The Tennessee Court of Appeals' decision in AT&T Communications of the South Central States v. Cochran (1995) confirmed the cost-recovery problem.

Why is the local exchange carrier different?

A local exchange carrier sells a bundle of services for a monthly lump-sum charge. The cost of providing county-wide calling can be folded into the bundled rate, with the Tennessee Regulatory Authority (TRA) traditionally supervising those rates. The carrier is therefore compensated for the service through its monthly rate. No takings problem.

Did the 2009 market-regulation election change the answer for local carriers?

No. Under Tenn. Code Ann. § 65-5-109(m), a local carrier that elects market regulation is "exempt from all authority jurisdiction, including, but not limited to, state-based regulation of retail pricing or retail operations," except for the specific TRA jurisdiction preserved in § 65-5-109(n). The AG said this does not create a takings problem because a market-regulated carrier can raise its rates at will, without TRA approval. The carrier remains able to charge enough to cover the cost of county-wide calling.

Does § 65-21-114 still apply to carriers that have elected market regulation?

Yes. The AG read § 65-21-114 as part of the state's general public-utility scheme, not as a TRA-specific obligation that disappears when the TRA's authority recedes. The statute is codified outside the TRA's specific chapter, so deregulation under § 65-5-109(l)-(n) does not exempt a carrier from the county-wide calling mandate.

Where can the statute not constitutionally apply?

To a long-distance (interexchange) carrier that must complete an inter-LATA call in a county split by a LATA boundary, when the local exchange carrier cannot reach across that boundary. In that narrow situation, the long-distance carrier would be required to provide the service for free, which is the takings problem the AG identified in 2001 and reaffirmed in 2014.

Has the telecom industry already eliminated the problem?

The AG flagged this possibility. The opinion noted that "[t]o the extent that changes in the telecommunications industry since 2001 have eliminated such circumstances by no longer requiring separation between long-distance carriers and local exchange carriers, Tenn. Code Ann. § 65-21-114 may be constitutionally applied" across the board. But the opinion did not make a factual finding about whether such changes had eliminated the problem statewide.

Background and statutory framework

The county-wide calling statute, Tenn. Code Ann. § 65-21-114, was enacted in 1995. It was meant to spare Tennessee callers from being charged long-distance rates to call neighbors in the same county. The catch was that some Tennessee counties straddle LATA boundaries, which were drawn for federal telecom-regulation purposes (from the AT&T divestiture era) and do not respect state political boundaries.

The 2001 AG opinion, Op. 01-115, identified the inter-LATA situation as the source of a takings problem because the long-distance carrier has no rate mechanism to recover the cost. The 2014 opinion brought the analysis up to date by confirming that Tennessee's introduction of market regulation for local carriers in 2009 did not change the answer. A market-regulated local carrier can still set its own rates to recover the cost, so no takings problem arises on the local side; the inter-LATA problem on the long-distance side remains the same.

The federal definitions cited (47 U.S.C. § 153(31) for LATA, § 153(55) for "toll" and related concepts) are the standard federal telecom-regulation definitions.

Citations

• Tenn. Code Ann. § 65-21-114 (county-wide toll-free calling mandate)
• Tenn. Code Ann. § 65-5-109(l)-(n) (2009 market-regulation election for local telephone providers)
• Tenn. Const. art. I, § 21 (no taking of particular services without just compensation)
• U.S. Const. amend. V; amend. XIV (Takings Clause; due process)
• 47 U.S.C. § 153(31) (LATA definition)
• 47 U.S.C. § 153(55) (toll-related definitions)
• AT&T Communications of the South Central States, Inc. v. Cochran, 1995 WL 256662 (Tenn. Ct. App. May 3, 1995)
• In re MCI Telecommunications Complaint, 596 N.W.2d 164 (Mich. 1999) (Michigan Supreme Court; LATA discussion)
• Tenn. Att'y Gen. Op. 01-115 (July 20, 2001)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-032.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
March 18, 2014
Opinion No. 14-32
Constitutionality of Tenn. Code Ann. § 65-21-114 Mandating County-wide Calling

QUESTIONS

1. Does Tenn. Code Ann. § 65-21-114 (which mandates toll-free county-wide calling) constitute a "taking" of property without just compensation in violation of Article I, § 21, of the Tennessee Constitution and the Fifth and Fourteenth Amendments to the United States Constitution in all circumstances where its application would require a telecommunications carrier to provide a call free of any long-distance toll?

2. If the answer is yes, does the statute have any practical application whatsoever, in light of the option of electing market regulation granted to local phone carriers by Tenn. Code Ann. § 65-5-109(m)?

OPINIONS

1. No. As stated in Tenn. Att'y Gen. Op. 01-115 (July 20, 2001), the application of Tenn. Code Ann. § 65-21-114 to long-distance (interexchange) carriers would be unconstitutional in those circumstances in which parts of a single county are assigned to more than one Local Access and Transport Area ("LATA") and the local exchange carrier cannot complete a call across the LATA boundary. Only in those limited circumstances would the interexchange carrier be required to provide without compensation an inter-LATA call for a caller to whom it does not otherwise provide service and for which it would otherwise charge a toll. Such an application of Tenn. Code Ann. § 65-21-114 would require a "particular service" without "just compensation," in violation of Article I, § 21, of the Tennessee Constitution and would constitute an unconstitutional taking under both the Tennessee and United States Constitutions.

2. As also stated in Opinion 01-115, "Tenn. Code Ann. § 65-21-114 is constitutional in most of its applications." Regardless of whether one or more carriers have elected market regulation, the statute continues to have practical application in those circumstances in which the local exchange carrier can complete a call to all parts of the county.

ANALYSIS

1. In 1995, the General Assembly enacted Tenn. Code Ann. § 65-21-114, which states, in pertinent part:

(a) Any telephone call made between two (2) points in the same county in Tennessee shall be classified as toll-free and shall not be billed to any customer.

In 2001, this Office concluded that "[w]hile Tenn. Code Ann. § 65-21-114 is constitutional in most of its applications, it would be unconstitutional to apply this statute to a long distance telephone carrier under circumstances where the carrier does not receive reasonable remuneration for the service it is required to provide." Tenn. Att'y Gen. Op. 01-115 (July 20, 2001). Such circumstances arise in those Tennessee counties where the local exchange carrier cannot complete calls to certain other parts of the county as a result of the location of Local Access and Transport Area ("LATA") boundary lines.[1]

As a result, in parts of these affected counties, a long distance carrier must be involved in completing a call to certain areas within the county. Since long distance calls are billed on a toll basis, the requirement of § 65-21-114 that such calls be toll free would mean that the long distance carrier would be required to complete these calls for no remuneration whatsoever.

Tenn. Att'y Gen. Op. 01-115 at 2.

A "toll" call is one for which the provider bills a customer separately from its charges for local exchange service.[2] So "toll-free," for purposes of § 65-21-114, does not mean that there is no charge for the service; it means only that the carrier will not place a charge in addition to that for basic local service on a call to a location within the same county. But unlike local exchange carriers, which furnish a package of services for a monthly lump-sum charge, long-distance carriers that charge only on a call-by-call basis have no mechanism by which to recoup the cost of completing intra-county, long-distance calls. See AT&T Communications of the South Central States, Inc. v. Cochran, No. 01A01-9409-BC-00427, 1995 WL 256662, at *1 (Tenn. Ct. App. May 3, 1995).

To the extent that changes in the telecommunications industry since 2001 have eliminated such circumstances by no longer requiring separation between long-distance carriers and local exchange carriers, Tenn. Code Ann. § 65-21-114 may be constitutionally applied. As we opined in Opinion 01-115, "[t]here is no problem in enforcing this statute in areas where a subscriber's local exchange carrier can complete a call to all areas of the county." Tenn. Att'y Gen. Op. 01-115 at 2.

2. The conclusion reached in Opinion 01-115 is unaffected by the introduction in 2009 of market regulation, codified at Tenn. Code Ann. § 65-5-109(l)-(n). Under those provisions, a provider of local telephone service may elect to be "exempt from all authority jurisdiction, including, but not limited to, state-based regulation of retail pricing or retail operations," except for those specific grants of jurisdiction to the Tennessee Regulatory Authority ("TRA") in Tenn. Code Ann. § 65-5-109(n). Tenn. Code Ann. § 65-5-109(m).

In our 2001 opinion, we concluded that there was no "taking" problem created by applying Tenn. Code Ann. § 65-21-114 to local exchange carriers that could complete a call to all parts of the county because the cost of providing county-wide service could be included in a local carrier's billing rate as a required service, and we noted that "[t]his is the sort of regulation commonly required by the [TRA]." Tenn. Att'y Gen. Op. 01-115 at 2. Unlike a long-distance (interexchange) carrier, a provider of local telephone service does not lack a mechanism for the recovery of costs associated with providing county-wide calling. See AT&T, 1995 WL 256662, at *2.

If carriers choose market regulation under Tenn. Code Ann. § 65-5-109, the TRA cannot set new rates to allow them to recover the costs of providing county-wide calling or any other services. But there is still no "takings" problem, because any provider of local telephone service that has elected market regulation can raise its rates as it wishes and is not dependent on the TRA for that purpose. See Tenn. Code Ann. § 65-5-109(m). Those providers can charge rates that fully compensate them for providing county-wide calling. Tenn. Code Ann. § 65-21-114 is part of the State's general statutory scheme affecting public utilities and is not codified with or tied to the specific provisions in Chapters 1 through 5 of Title 65 that define the TRA's authority. Tenn. Code Ann. § 65-21-114, therefore, continues to have practical application and is fully effective and constitutional, notwithstanding the deregulation provided for by Tenn. Code Ann. § 65-5-109(l)-(n), in counties that are not divided by a LATA boundary, as well as counties divided by a LATA boundary but in which the local exchange carrier can complete calls to all parts of the county.

ROBERT E. COOPER, JR.
Attorney General and Reporter

JOSEPH F. WHALEN
Acting Solicitor General

JONATHAN N. WIKE
Senior Counsel

Requested by:
The Honorable Bill Ketron
State Senator
5 Legislative Plaza
Nashville, Tennessee 37243-0213

[1] LATAs are defined geographic regions that generally correspond to telephone area-code regions but do not necessarily follow county lines. See 47 U.S.C. § 153(31); In re MCI Telecommunications Complaint, 596 N.W.2d 164, 168 (Mich. 1999).

[2] See 47 U.S.C. § 153(55).