U.S. Court of Appeals Affirms: Mandatory Access to Utility Poles and Rights-of-Way Constitutional

On Thursday, Sept. 9, a unanimous three-judge panel of the 11th Circuit Court of Appeals (Atlanta) affirmed a federal district court decision upholding the constitutionality of the provision of the Telecommunications Act of 1996 that requires utilities to provide cable and telecommunications operators with nondiscriminatory access to utility poles, conduit, and rights-of-way. Last year, the United States District Court for the Northern District of Florida rejected utility arguments that this provision violates the Constitution’s prohibition on governmental takings of property without just compensation (see our advisory dated March 10, 1998). In affirming the district court, the 11th Circuit found that the access provision constituted a “taking,” but was nonetheless constitutional because the FCC’s administrative process for setting pole rents, subject to judicial review, establishes a framework for providing a utility with “just compensation.” The decision, scheduled to be published, is captioned Gulf Power Co v. United States, No. 98-2403. 

After the utility interests lost in the district court, they appealed to the 11th Circuit hoping to avail themselves of the holding in an earlier case the utilities brought challenging the FCC’s formula for providing fees for cable operators’ attachments to utility poles. In that prior decision (Florida Power v. FCC, 772 F.2d 1537 (11th Cir. 1985), reversed, 480 U.S. 245 (1987)) the 11th Circuit ruled that the pole attachment provisions amounted to a “per se” taking of utility property, even though the statute did not require utilities to lease space to cable operators, and that the “compensation” for such a taking could not be entrusted to the FCC. On appeal, the Supreme Court reversed and upheld the law as it then existed, on the grounds that the law merely regulated the rent that a utility could charge cable operators to whom the a utility had voluntarily rented pole space. The Supreme Court, however, explicitly stated that it did not reach the question of the law’s validity if it had required utilities to provide cable operators with space on the poles. The Supreme Court also did not reach the issue of whether delegating rate determinations to the FCC in the first instance was constitutional.

In 1996, Congress amended the pole attachment law to add Section 224(f) to the Communications Act and require every investor-owned utility to “provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-or-way owned or controlled by it,” with exceptions for reasons of safety, reliability and generally applicable engineering purposes. The FCC was once again directed to set the appropriate rates for such access. The utilities took their cue from the Supreme Court’s dicta in Florida Power and filed for declaratory relief in a district court within the 11th Circuit and hoped that the district court, and ultimately the 11th Circuit, would find that the new access provision was a taking and that the FCC’s administrative compensation process was unconstitutional.

The district court’s decision surprised the utilities. Although the district court held that mandatory access constituted a taking, it also found that the FCC’s rate process was sufficient and therefore section 224(f) was constitutional. On appeal the 11th Circuit agreed with the district court and the utilities that Section 224(f) authorizes a permanent physical invasion of utility property by cable operators and telecommunications carriers, and therefore amounts to a “per se” taking of property under the Fifth Amendment and the Supreme Court’s 1983 Loretto decision. The 11th Circuit rejected the government’s argument that mandatory access to poles was a “regulatory condition designed to prevent utilities from exercising monopoly control” over their poles and conduit and thus foster telecommunications competition, especially given the utilities’ newly created right to enter communications markets. “Characterizing the mandatory access provision as a regulatory condition, even one allegedly designed to foster competition, cannot change the fact that it effects a taking by requiring a utility to submit to a permanent, physical occupation of its property. However laudatory its motive, Congress’ power to regulate utilities does not extend to taking without just compensation the right of a utility to exclude unwanted occupiers of its property.”

On the compensation issue, however, the 11th Circuit rejected the utilities’ renewed arguments and found that the availability of judicial review of the FCC’s rate determinations made the administrative compensation process constitutional. The court stated that its 1985 decision was neither binding nor persuasive now. The 11th Circuit then rejected the utilities’ argument that the FCC’s formula was unconstitutional as “unripe” because no particular rate was at issue in the appeal. The court nonetheless opined that the FCC’s formula was just as likely to give the utilities more than the constitutional minimum. This foreshadows the remaining case in the 11th Circuit, also captioned Gulf Power v. United States, No. 98-6222, in which the utilities are appealing the FCC’s Order establishing the rate formula for utility attachments under Section 224. That proceeding has been briefed, and the 11th Circuit is expected to schedule oral argument for November.

This case, and the district court decision below, have significant competitive implications for cable and telecommunications companies, particularly as electric utilities accelerate their nationwide investment in competitive fiber optic communications networks. We expect that the utilities will petition the Supreme Court for certiorari.

If you have any questions or would like a copy of the court’s 37 page decision, please contact us.