In January 2013, AT&T and Verizon reported to the financial press multi-billion dollar accounting charges due to costs associated with their pension and post-retirement benefit plans in 2012. Specifically, AT&T recorded a $10 billion charge for the fourth quarter of 2012, while Verizon booked a pretax charge of $7.2 billion “related primarily to non-cash year-end mark-to-market adjustment of pension and other post-employment benefit liabilities” for the same period. We expect AT&T and Verizon to attempt to flow through these charges in the form of increased pole attachment rental fees paid by third party attachers.

A pole owner’s General and Administrative (“G&A”) expense (ARMIS Account 6720) is one of the carrying charges used to compute pole attachment rental fees under formulas used by the FCC and state commissions. FCC filings last spring by AT&T and Verizon of their pole investment and expense figures for year-end 2012 reflect significant spikes in ARMIS Account 6720 due to pension-related charges. AT&T’s 2012 G&A expense figures increased an average of 40% over the 2011 figures in the 22 states in which it operates, while Verizon’s G&A expense increased an average of 17% in its 12 states. Certain states saw even more dramatic increases. For example, AT&T’s G&A expense increased 50% in Connecticut and 122% in California in 2012. Similarly, Verizon’s 2012 FCC filings show G&A expense increases of 43% in Florida, 32% in Virginia, 29% in Texas and 28% in California.

In the context of pole attachment rental rate disputes, FCC case law holds that that these types of extraordinary one-time charges should be amortized over a multi-year period. Nevertheless, we expect to see AT&T and Verizon attempt to pass on their pension-related charges to third-party attachers in the form of higher rental fees in the next round of rate increase notifications. The timing of these notifications will vary based on the invoicing cycle, and could begin any time. Under FCC rules, attachers have 60 days to challenge any pole attachment rental rate increase.

In a related development, FCC Rule 1.1403(j), which requires pole owners to provide requesting attachers with cost and other operational data used to support their proposed pole attachment rental fees within 30 days, recently was approved by the federal Office of Management and Budget (OMB). The OMB approval came on August 27, 2013 – more than 13 years after the FCC’s adoption of the rule in 2000.

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