The PUC’s Sustained Bombardment of City Authority:

Private Profit from Free Use of City Rights-of-Way?

In Complaint of ExteNet Network Sys., Inc. against the City of Houston for imposition of fees for use of public right-of-way, a panel of administrative law Judges (ALJs) has urged the Texas Public Utility Commission (PUC) mandate that certain wireless telecommunications companies are entitled to free use of city rights-of-way. These companies (e.g., ExteNet and others) are using small cellular nodes to supplement the capacity of those massive cellular towers that now dot the landscape. 

Those large towers have become overcrowded with signals from the smartphones that almost everyone now carries.  The industry solution is to deploy smaller antenna in densely-populated areas to provide more bandwidth.  Their business plan is to use city right-of-way to quickly deploy the technology.  That wouldn’t necessarily be problem, except they want to do it for free.  And they want cities to have minimal authority over it.

Streets, alleys, and sidewalks.  In a city, these transportation assets are held by the city in trust for the public good.  Constructing and maintaining them in good and safe conditions are a core municipal function.  For over 150 years, private utility companies have sought access to these assets to provide their services, be they gas, electric, or telecommunications.

City residents typically want the services provided by these companies, but most of them probably don’t understand the complexities of keeping streets and rights-of-way in working order when private utilities place their facilities on, under, or along them.  Natural tensions exist between the city officials charged with protecting the people’s assets and quality of life and the employees of private companies that seek to make money by their use.

Telephone, video, gas, and electric companies each have state laws that allow them to use city rights-of-way, with certain conditions.  Those laws balance the needs of the people to get the services with the people’s demand for functioning streets.  They also require the utilities to pay value-based rental for the use of city property.  The Texas Constitution requires that because citizens of Texas know that politicians sometimes want to help out their friends.  Without the Texas Constitution’s prohibition against giving away public property, those politicians could give the valuable use of city property away, harming the interests of the taxpayers.

When a private company has new technology to allow it to better provide a service, it obviously wants to quickly and cheaply deploy that product.  Take, for example, video over fiber optic.  In the early 2000s, AT&T began rolling out its Uverse product (which included fiber-based video programming).  It found that negotiating individual franchises with each city (as the law required at the time) was burdensome to doing that as quickly as it wished.   AT&T went to the legislature, and passed legislation allowing it to obtain a franchise from the state instead.  That legislation was a compromise under which AT&T could more quickly deploy and cities retained right-of-way management authority and value-based compensation.

The newest technology for cellular broadband is the use of small cellular nodes to supplement the capacity of those massive, existing cellular towers.  The industry solution is to deploy smaller antenna in densely-populated areas to provide more bandwidth.  (In some locations, the small antennas may even eventually become the replacement for land-line broadband service of any type.)

City officials want this technology, no doubt.  But city officials should be concerned with how some companies have tried to deploy it.   In October 2015, a wireless tower builder known as ExteNet filed a complaint against the City of Houston at the PUC.  The complaint asks the PUC to order the city to allow the company to install equipment for small antennas in the city’s rights-of-way on their own poles or existing city or other utility poles without paying compensation to the city. (A similar complaint filed in December 2015 against the City of Dallas by a company known as Crown Castle is still pending.)

The legal aspects of the case are complex, but the underlying premise is not.  The case is about wireless antenna poles and towers being installed in the rights-of-way by a private company wanting to profit from the free use of taxpayer-owned property.

The companies claim that a 16-year-old law, Chapter 283 of the Texas Local Government Code, gives them the power to move forward with their plans. Chapter 283 was not written to allow wireless equipment installation in the rights-of-way (because the technology didn’t even exist back then). Moreover, these same companies have previously obtained a city’s consent to install wireless facilities in the rights-of-way. 

Chapter 283 replaced telecommunications franchise agreements with a new system of compensation based on retail, end-user “access lines” for the formerly city franchised wireline providers.  Essentially, a PUC certified telecommunications provider (CTP) may use the rights-of-way and pays compensation for the use of the rights-of-way based on how many retail end-user lines it operates in a city, known as “access lines.”  The new access line system represented a relatively successful compromise in 1999 in the context of a rapidly changing, and recently deregulated telecommunications industry. 

The ALJs who heard ExteNet’s contested case against Houston concluded that, because it is a CTP, ExteNet’s use of the rights-of-way is governed by Chapter 283, including installation of wireless equipment.  However, the ALJs found that, because ExteNet has no retail end-use customers, it has no access lines and thus pays no access line fees under Chapter 283 for that installation. 

ExteNet provides a wholesale service to cellular phone companies.  This service extends from an antenna located on a utility pole or tower back to the Commercial Mobile Radio Service (CMRS) provider [e.g., AT&T, Verizon, Sprint, and T-Mobile] customer’s macro tower hub location.  The antenna system routes customers’ cellphone calls to the CMRS provider’s hub and switch to allow the CMRS provider to connect the caller to the person being called.  ExteNet installs equipment to perform the function of routing calls to the CMRS hub.  ExteNet calls this service “backhaul.”  The ALJs found that this “backhaul service” provided by ExteNet is not counted as an access line. 

The ALJs stated that:

If the PUC determines that backhaul service provided by a CTP to wireless carriers should be counted as an access line, a rulemaking can be opened under the statute and, after the rule is enacted, ExteNet would then be subject to the revised definition of access line and any resulting fees.  However, under Chapter 283 and the current substantive rules, ExteNet is a CTP providing backhaul service, which is not compensable to the city as an access line.

In an extremely puzzling statement, the ALJs also stated that “ExteNet’s customers, CMRS providers, already pay the city for their use of the right of way, and ExteNet’s backhaul service is part of what is already covered in the CMRS providers’ franchise agreements.”  That’s incorrect.  Some of those companies have land lines for which they pay fees, but none pays based on wireless accounts.  The PUC will conduct an open meeting to discuss the proposal at 9:30 a.m. on March 30, 2017, in Austin. 

The ALJs ExteNet proposal to the PUC comes on the heels of similar aggressive action at the federal level.  At the end of 2015, the Federal Communications Commission (FCC) issued a public notice seeking comment on two topics that could shape the future of cities’ control over their rights-of-way. The FCC’s Wireless Bureau requested public comment on how to “streamline” the deployment of small wireless facilities, primarily through potential changes to local land-use ordinances, and it also seeks comment on a petition filed by infrastructure company Mobilitie regarding local government rules and procedures.

Legislation has been filed this session relating to the issue as well.  (See S.B. 1044, summarized elsewhere in this edition.)  The legislation would authorize “streamlined access” to city  rights-of-way, but it would also include a fee of up to $1,000 multiplied by the number of node support poles (i.e., those installed by a private company dedicated to cell service) and utility poles (i.e., those that provide electric or telecommunications service).

League staff will continue to monitor and participate in this quickly-changing regulatory landscape.

TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League. 

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