CAPITAL CURRENTS - Exorbitant Rights-of-Way Costs
Will the FCC take ‘immediate action’?
The FCC’s broadband plan recognizes that exorbitant rights-of-way (ROW) rents charged by local governments can be a barrier to the deployment and availability of broadband service. In fact, there is a case pending before the FCC that provides an opportunity to clarify national policy on this longfestering issue. But the municipalities say that the pending case is merely a contract dispute and should be decided by a District Court based on the facts of the contract rather than by the FCC as an essential element of the FCC’s broadband policy.
The key players are Level 3 Communications, which operates an intercity fiber-optic network (sometimes called the “middle mile”), and the New York State Thruway Authority (NYSTA), which operates a 570-mile highway. Level 3 has received support at the FCC from AT&T, Qwest, Time Warner Cable and other network operators. NYSTA has received support from our old friends at the National Association of Telecommunications Officers and Advisors (NATOA) and various cities.
The facts go something like this: Williams Communications (later acquired by Level 3) in 1995 entered into a $31 million contract to install a backbone fiber network in the NYSTA ROW. Months later, it realized that it would need more access points to connect to customers along the route (such as TWC) than were originally planned. Since Williams needed this additional access to make full use of its $31 million investment, NYSTA offered outrageous terms, and Williams accepted them. As Verizon said, “Localities can coerce carriers into paying these outlandish fees by delaying negotiations, leaving sunk investments stranded until carriers accede to their demands.”
So last year, Level 3 filed a petition asking the FCC to preempt those ROW rates. ROW access rates are supposed to reflect “market rates” and, according to Level 3, usually range between 50 cents to $2 per linear foot. For communications ROW that does not connect to its backbone network, NYSTA charges Level 3 at the rate of $1.45 per foot. But the rates NYSTA charges Level 3 for access links that connect to the backbone network average $364 per foot.
Level 3 argues that the NYSTA rates should be based on the cost of providing service to Level 3. NYSTA rejects this suggestion and claims that its rates can be based on the “fair market value of use” – in other words, whatever the market will bear.
All of this would seem like an ordinary contract dispute if it were not for Section 253(a) of the Communications Act. That provides that “no 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.”
NYSTA and NATOA argue that the word “prohibiting” must be interpreted strictly, so the fact that Level 3 continues to operate its fiber backbone shows that the NYSTA rates are not so high that they violate Section 253(a). And at least one Ninth Circuit Court of Appeals decision seems to agree with this interpretation.
But AT&T responds: “Localities would have free rein as a matter of federal law to impose an array of anti-competitive and discriminatory regulations, knowing that they need only stop just short of driving existing providers out of business in order to immunize themselves from judicial or regulatory review.”
And TWC, which wants to use the Level 3 backbone to extend broadband service to cities along the Thruway, makes this argument: “Section 253(a) precludes not only outright prohibitions on market entry, but also any requirement that ‘materially inhibits or limits the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment.’ The courts have followed suit, recognizing that ‘a prohibition does not need to be complete or insurmountable to run afoul of 253(a).’”
The FCC recognizes that ROW costs and contract terms have been a barrier to broadband deployment. Its broadband plan explains that “infrastructure such as poles, conduits, rooftops and rights-of-way play an important role in the economics of broadband networks. Ensuring service providers can access these resources efficiently and at fair prices can drive upgrades and facilitate competitive entry.”
On July 20, the FCC released its Sixth Broadband Deployment Report. It finds that “approximately 14 to 24 million Americans remain without broadband access.” In a section of the report entitled “Immediate action to accelerate deployment,” it notes: “The National Broadband Plan, which also seeks to ensure that all people of the United States have access to broadband, proposes a number of ways to accelerate broadband deployment by removing barriers to infrastructure investment and by promoting competition. Several proceedings currently before the Commission provide a means to address some of these recommendations.”
A footnote in the deployment report lists those proceedings. One of them is the Level 3 petition. Does this predict that the FCC will take “immediate action” on the Level 3 petition? Maybe we’ll soon find out.