FCC Circulates Draft FNPRM Seeking Comment on New Rules for Allocating Pole Replacement Costs
The Federal Communications Commission (FCC) has circulated for consideration at its March 16 open meeting a draft Second Further Notice of Proposed Rulemaking (FNPRM) seeking comment on whether the agency should further clarify its pole attachment rules, specifically with regard to the allocation of pole replacement costs.
The FNPRM highlights an ongoing dispute between pole owners and attachers about when a pole replacement is not "necessitated solely" by a new attachment under the FCC's rules and how pole replacement costs are to be allocated among pole owners, existing attachers, and new attachers where pole replacements accommodate new attachers but also upgrade the pole plant.
Accordingly, the FCC has asked commenters to address the types of scenarios where financial responsibility for pole replacements should be shared by pole owners and attachers, how costs should be allocated in those situations, and whether further FCC guidance on pole replacements will actually lessen or increase pole replacement disputes.
In July 2020, NCTA filed a Petition for Expedited Declaratory Ruling with the FCC asking the Commission to declare, among other things, that pole owners are required to share in the cost of pole replacements in unserved areas and that the FCC is authorized to require pole owners to complete pole replacements within a specified time frame. While the FCC's Wireline Competition Bureau (WCB) found that it was more appropriate to address questions concerning the allocation of pole replacement costs in a rulemaking, it also found that the record developed in response to the Petition revealed inconsistent practices by pole owners with regard to cost responsibility for pole replacements.
Accordingly, in January 2021 the WCB issued a Pole Replacement Declaratory Ruling, clarifying that it is unreasonable and inconsistent with Section 224 of the Communications Act and Section 1.1408(b) of the FCC's rules for pole owners to impose the entire cost of a pole replacement on a requesting attacher when the pole replacement is not "necessitated solely" by the attacher. This may include scenarios where the pole is already out of compliance with current safety or construction standards or where it has been "red-tagged" by the pole owner and scheduled for future replacement.
However, as the FNPRM explains, the record developed in response to the NCTA Petition indicates significant continuing disagreement between pole owners and attachers about when a pole replacement is not "necessitated solely" by a new attacher when the circumstances do not involve a preexisting safety/construction issue or a red-tagged pole. And there were also continuing concerns from attachers that pole owners force them to pay pole replacement costs that are not necessary to accommodate the new attachment, such as costs associated with a replacement pole that increase the pole's capacity beyond what the new attachment requires.
The FNPRM seeks comment on these and other make-ready cost allocation issues and how they should be addressed by the FCC moving forward.
Determining When Pole Replacement Cost Sharing Should Apply
The FNPRM largely focuses on the FCC's existing precedent associated with Section 1.1408(b) of the FCC's rules, which sets out the principle of pole replacement cost sharing and has been interpreted to require cost sharing among a pole owner and attacher where a pole replacement has not been "necessitated solely" by an attacher due to a preexisting safety/construction issue or because it has been red-tagged.
The FCC seeks comment on whether there are other situations where a pole replacement should not be deemed "necessitated solely" by an attacher, such as where the utility had already planned to replace that pole in the future. In tandem, the FCC also asks whether it should further clarify and codify definitions of key terms used in Section 1.1408(b) and its implementing orders, including the "necessitated solely" and "red tagging" terms.
Further, the FNPRM recognizes that the FCC previously determined that an "incidental benefit" to existing attachers and pole owners is not sufficient to hold these entities accountable for pole replacement costs necessitated by a new attachment, and that only "direct benefits" should result in cost sharing. The FCC thus asks commenters whether it should revise its cost allocation rules to modify or replace the "direct" versus "incidental" benefit standard for determining cost sharing so as to simplify when cost sharing applies. Relatedly, the FCC asks if a modified cost-sharing standard would promote or deter broadband deployment.
Pole Replacement Cost Allocation
The FNPRM also notes the NCTA Petition record revealed that attachers are being required to absorb costs not caused by their attachments and/or required to assume financial responsibility for pole owner capital assets, which the FCC is concerned could impact future broadband deployment.
Accordingly, the FCC asks whether it should revise existing pole attachment rules to expressly recognize that pole owners directly benefit from pole replacements that are precipitated by a new attachment request and whether it should establish clear standards for when and how pole owners should be required to pay a proportional share of total pole replacement costs, regardless of whether the pole was scheduled for replacement or not.
Specifically, the FCC seeks feedback on how it can reconcile the FCC's existing cost attribution standards in the context of a pole owner using a pole replacement that is "necessitated solely" by a new attachment request as an opportunity to upgrade the new pole for unrelated uses, such as to install a longer pole that provides increased capacity for pole owner equipment or more rental space.
The FNPRM proposes the possibility of adopting a presumption that pole owners directly benefit from pole replacements precipitated by a new attachment when the pole is upgraded or the pole owner's use of the pole is expanded, and the FCC asks whether such a presumption would expedite pole attachment approvals without increasing denials, benefit consumers by connecting more people to broadband, and otherwise be in the public interest.
The FCC also recognizes the tug and pull of arguments surrounding the costs and benefits of early pole retirement, with attachers asserting that pole owners always benefit because replacement allows the pole owner to defer the next scheduled replacement and reduce maintenance costs and with pole owners asserting that any such benefit is countered by its lost value in an asset that otherwise would have remained in service for additional years.
To better judge these positions, the FNPRM asks commenters on both sides to provide the FCC with information and documents that substantiate these economic arguments. Further, to better understand the scale of pole replacement costs, the FCC seeks data from attachers for a broad sample of recent, large broadband network buildouts where they were required to pay the full cost to replace existing poles. It must be remembered that any pole replacement costs incurred by pole owners may still be recovered through annual rents paid by attachers.
Avoiding and Resolving Pole Replacement Disputes
Finally, with an eye toward the significant buildout that is about to occur through various federal and state broadband construction grant programs, the FNPRM asks commenters to propose additional measures the FCC could adopt to better avoid and quickly resolve pole replacement disputes so that networks can be deployed quickly.
Further, the FCC asks whether it should adopt measures to expedite pole attachment complaints that revolve around pole replacement disputes and whether all pole attachment complaints related to pole replacements in unserved areas should be placed under the FCC's accelerated docket. It also asks whether it can provide more clarity with respect to the scope of refunds and payments that may be ordered if the FCC determines that a pole attachment rate, term, or condition is unjust and unreasonable.
Regulations surrounding pole replacements as part of make-ready are consistently a hot-button issue for attaching cable systems and telecommunications service providers as well as pole owners. Twenty years ago, pole-owning utilities successfully challenged the FCC's rule requiring utilities to replace poles that had insufficient capacity to accommodate a new attachment with a taller or larger pole.
The court in Southern Co. v. FCC struck that rule, finding that Section 224 expressly allowed a pole-owning utility to deny access for non-discriminatory reasons, including, inter alia, insufficient capacity, so that the FCC rule requiring a replacement in that circumstance was void as beyond the FCC's authority. A concern raised by the FCC in the FNPRM is that changes in cost recovery mechanisms might lead to the "unintended consequence of increased attachment denials."
We expect the public, stakeholders, and the FCC to be very engaged with the issues identified in the FNPRM, particularly as NTIA and states ramp up their broadband construction grant programs and distribution of taxpayer money to expand and enhance broadband networks.