Impact of Reclassification on Pole Attachments
The Order recognizes that the deployment of communications networks and broadband infrastructure depends heavily on access to utility poles on reasonable rates, terms and conditions. Accordingly, the Order declined to forebear from applying the federal Pole Attachment Act (Section 224), and associated FCC rules, with respect to providers of broadband Internet access service (BIAS). Reclassifying BIAS as a telecommunications service means that pole attachment rights under Section 224 also cover entities that provide only broadband services, which until now were not telecommunications service providers who qualified for protection under the Act.
As explained by the FCC, the expanded application of Section 224 will “help ensure just and reasonable rates for [BIAS] by continuing pole access while limiting the input costs that broadband providers otherwise would need to incur.” The Order also notes that “[l]eveling the pole attachment playing field for new entrants that offer solely broadband services also removes barriers to deployment and fosters additional broadband competition.” Because the FCC regulates pole attachments in 30 states, it remains to be seen what, if any, action the 20 “certified” states (and D.C.) that self-regulate pole attachments will take in response to the reclassification. In contrast, in an order released the same day as the Open Internet Order, the Commission preempted a North Carolina law that required municipally-owned broadband service providers to allow other communications networks to use any poles, rights of way and conduit “owned, leased or operated” by the municipal system on nondiscriminatory rates, terms and conditions.
The FCC’s reclassification of BIAS also has significant implications for the rates that cable television operators pay for pole attachments. Section 224, and FCC rules, prescribe separate pole attachment rate formulas for attachments by cable systems that do not provide telecommunications services (the “Cable Formula”) and those cable systems that do provide telecommunications services (the “Telecommunications Formula”). Before today’s order, cable operators that provided “commingled” services (i.e. cable service and non-Title II BIAS) were governed by the Cable Formula for the vast majority of their attachments but paid higher rates for the relatively few attachments that carried telecommunications services. The reclassification of BIAS as a Title II service means that cable operators will now be providing telecommunications services over virtually all of their attachments and could be subject to significantly higher rates in the 30 FCC regulated states. In self-regulating states, the impact should be less significant, because the majority of those states apply the Cable Formula (or a close variant) uniformly to cable and telecommunications attachments.
Prior to 2011 there was a significant disparity between the maximum rates provided by the two pole attachment formulas, with the Telecommunications Formula sometimes resulting in attachment rates two or three times higher than the Cable Formula. A significant ruling in 2011 (the 2011 Pole Attachment Order) eliminated most of the rate differential; however, utilities at least potentially can obtain higher rates by rebutting the FCC’s presumption regarding the number of entities that attach to its poles. In such cases the Telecommunications Formula rate can be as high as 70% more than the rate yielded by the Cable Formula when the number of attaching entities used is less than the presumptions. In his dissent, Commissioner Pai asserts that reclassification could increase pole rents by $150-200 million per year nationally.
In the Order, the FCC acknowledged the potential for pole rate increases for cable operators resulting from reclassification and “its effect on positive investment incentives that arise from new providers’ access to pole infrastructure.” The Order commits to avoid “an outcome in which entities misinterpret today’s decision as an excuse to increase pole attachment rates of cable operators that provide [BIAS].” Indeed, the FCC states that it does not expect to see “any increase in the rates for pole attachments paid by cable operators that also provide [BIAS], and we caution utilities against relying on this decision to that end.” Retroactive rate increases based on the reclassification are explicitly banned. The FCC “will be monitoring marketplace developments following this Order and can and will promptly take further action in that regard if warranted.” In this regard, there is a long-pending request at the FCC from the NCTA, COMPTEL and tw telecom that, if granted, would eliminate the cable and telecommunications pole rate differential. The FCC could use this separate proceeding to put an end to any attempts by utilities to exploit the Order for higher pole rents.