The Federal Communications Commission’s (“FCC”) decision to further harmonize the rates that telecommunications and cable companies pay to attach to “utility” poles was recently published in the Federal Register. Federal law limits how much pole owners can charge attachers by tying monthly rents to the cost of constructing and maintaining the poles. These poles are primarily owned by electric utilities and, to a lesser extent, incumbent telecommunications providers like AT&T and Verizon. Historically, however, the rates paid by telecommunications providers exceeded those paid by cable operators. The FCC’s decision to harmonize those rates is designed to accelerate broadband deployment by “removing barriers to infrastructure investment” and will take effect on April 1, 2016.
Section 224 of the Communications Act, as amended, identifies two different formulas for determining the maximum rates for pole attachments: one for cable television systems (the “cable formula”), and one for telecommunications services (the “telecom formula”). The cable formula was adopted in 1976 and identifies the maximum rate as a percentage of fully-allocated costs. The telecom formula was adopted in 1996 and, unlike the cable formula, incorporates the cost of providing space on a pole. Consequently, the telecom formula traditionally allowed higher rates than the cable formula. In fact, the FCC estimated that, prior to 2011, attachers paid between 11 and 17 percent of a pole’s annual cost under the telecom rate and only 7.4 percent under the cable formula.
The FCC sought to harmonize these rates in 2011 by reinterpreting the telecom formula to yield the same rates as the cable formula in most circumstances. Specifically, the FCC defined the term “cost” in the telecom formula to assume an average number of attachers depending on where a pole is located—three in rural areas, and five in urban areas. Thus, under the FCC’s revised rules, the term “cost” usually meant 66 percent of costs in urban areas and 44 percent of costs in rural areas.
Still, some providers argued that the FCC’s 2011 decision did not go far enough to harmonize attachments rates. The National Cable and Telecommunications Association, COMPTEL, and tw telecom inc. filed a Petition for Reconsideration or Clarification, in which they argued that telecom rates could still be 70 percent higher than cable rates even after the FCC’s 2011 Order (e.g., when a pole owner shows that on average only 2.6 entities attach to its poles rather than five entities). They asked the FCC either to clarify that 66 percent and 44 percent are “illustrations” of the new rule or to revise the rule to “provide corresponding cost adjustments to other entity counts.”
The FCC adopted the petitioners’ latter proposal, agreeing that its 2011 decision “did not fully meet” the objective of bringing telecom and cable rates into parity. The FCC introduced new cost allocation formulas into its rules for poles with two and four attaching entities. Now, rates for poles with two attachers will be calculated at 31 percent of costs, and fees for poles with four attachers will be calculated at 56 percent of costs. Rates for poles with five and three attaching entities will continue to be calculated at 66 and 44 percent of costs, respectively.
The lower telecom rates should help new entrants and existing broadband providers alike cost-effectively deploy new infrastructure. Broadband providers have long complained that pole attachment fees are “among the greatest costs” faced when deploying networks. The FCC’s decision is also timely, given the recent reclassification of broadband as a Title II telecommunications service. Now, a broader pool of entities can take advantage of the lower rates as providers of “telecommunications service.”
The FCC also expects the decision to eliminate an “artificial disincentive” that could have deterred investment in states that are subject to its pole attachment rules. Section 224 allows states to “reverse preempt,” and many of the states that regulate their own pole attachmentsapply a uniform rate for all attachments. The FCC noted that, if the telecom formula frequently yielded materially higher rates than the cable formula, then telecommunications providers that “operate in multiple states or are deciding where to enter the marketplace” would have an artificial disincentive to invest in states where the telecom formula applies.