New Order Eliminates Possible Disparity in Cable and Telecom Pole Attachment Rates

In last week’s Order on Reconsideration, the FCC definitively closed the “telecom formula loophole” thereby ensuring that pole attachment rates for telecommunications attachers (including providers of broadband Internet access service) approximate the rates for cable attachers, as intended by the Commission’s 2011 Order amending its pole attachment rules.  In the Reconsideration Order, the FCC further revised the telecom formula to equalize it with the cable formula in most cases in response to a petition for reconsideration filed jointly by NCTA, Comptel (now INCOMPAS) and tw telecom (now Level 3 Communications) (see our advisories dated April 8, 2011Feb. 26, 2013 and May 6, 2015).  The FCC explained that reducing the telecom rate to the cable rate level furthers numerous federal policy goals including encouraging broadband investment, particularly in rural areas. By closing the loophole in yesterday’s Order, the FCC expressly rejected utility arguments that the rule revision unfairly burdens utility ratepayers, or is inconsistent with the requirements of the federal Pole Attachment Act.

The FCC’s 2011 Pole Attachment Order sought to level pole attachment rates for telecom and cable television attachers by revising the telecom formula to lower the cost allocation of unusable space to 66% in urban areas and 44% in non-urban areas. However, the revised rules succeeded in leveling rates only when the number of attaching entities on utility poles matched the FCC’s “presumptions” – 5 attaching entities in urban areas and 3 in rural areas. Where utilities rebutted the presumptions to show that there were fewer attaching entities on their poles, telecom pole attachment rates could be as much as 70 percent higher than rates yielded by the cable formula. This “loophole” became particularly significant when the FCC reclassified broadband Internet access as a telecommunications service earlier this year in its Open Internet Order. That reclassification overnight potentially converted virtually all cable television attachments to telecommunications attachments subject to higher attachment rates.

The FCC’s Reconsideration Order addressed this rate disparity by amending its pole attachment rules to change the cost allocator in the telecom formula in cases where the number of attaching entities is lower than the 3 and 5 attaching entity presumptions. Specifically, the FCC retained the existing cost allocators for 3 and 5 attaching entities and introduced new cost allocators for poles with 2 attaching entities (31%), 4 attaching entities (56%), and interpolated allocators for fractional numbers of attaching entities by referring to the closest integer.

In revising the telecom rate formula to equalize pole rates for telecom and cable attachments, the FCC reaffirmed that lower pole rates promote broadband deployment. It also noted that the existing telecom rate could have led to a windfall for utilities by increasing rates for many attachments (i.e., reclassified cable broadband attachments to telecom) without any offsetting benefits to cable attachers. “This not only would harm cable operators and their customers, but more broadly would undermine the Commission’s broadband policies by creating artificial marketplace distortions and disincentives for investment.” This is consistent with the position expressed by the FCC in the Open Internet Order where it stated, “[t]o the extent that there is a potential for an increase in pole attachment rates for cable operators that also provide broadband Internet access service, we are highly concerned about its effect on the positive investment incentives that [otherwise] arise from new providers’ access to pole infrastructure.”

The FCC’s decision was unanimous with a concurring statement by Commissioner Pai who expressed some concern over the FCC’s legal basis for establishing different definitions of cost in the rules for cable and telecommunications attachments. While Commissioner Pai questioned whether the FCC’s rationale would survive judicial review, he also expressed the view that pole rates should be even lower than the formula revisions adopted by the FCC to promote broadband objectives.

The FCC’s decision did not address the question of whether cable operators must notify pole owners in FCC states that they are providing telecommunications services over their attachments (as a result of the broadband Internet access reclassification). In light of the reduction of telecom attachment rates to the cable level, such notices would appear to have little practical consequence.

The Order on Reconsideration will become effective 30 days after its publication in the Federal Register, which has not yet occurred. Upon its Federal Register publication, pole owners have a 60-day period to file petitions for review challenging the Commission’s action in a U.S. court of appeals.