The utility pole dilemma: 21st century broadband faces a 19th century hurdle

If the Federal Communications Commission is serious about wanting to be the regulator of record for net neutrality -- which the FCC defines as guaranteeing the right of equal access -- then it will have to deal with an issue that Congress once tabled in order that the country could fight World War I: In the ultimate example of turnabout-as-fair-play, four of the nation's largest private utility companies are borrowing the newly re-forged principle of net neutrality to argue that they should not be forced by law to charge cable TV broadband and VoIP service providers a lower rate for stringing their equipment on their utility poles, than they charge other utility and telephone companies.

All things being equal, in other words, if a CATV provider should not be allowed to offer content providers discounts for heavy traffic on its pipelines, then a utility provider should not be forced to offer access to its poles -- the pipelines for the pipelines -- to CATV providers for discounts. Currently, a provision in the Telecommunications Act of 1996 ensures that CATV providers get about a one-third discount over market rates for other utilities and telephone companies.

But that law was passed before the rise of Comcast, Cox Communications, and Time Warner as dominant service providers, and before cable TV service also included telephone service. Just one month ago, the DC Circuit Court of Appeals vacated a lower court ruling that upheld an existing law capping a cable operator's share of the national market at 30%. Now, either provider could legally grow to a one-third market share provider, perhaps through something as simple as a single takeover.

If a CATV provider like Comcast were to provide only telephone service in certain areas, the pole attachment rates it would have to pay power companies would be higher -- the same rate the FCC mandates for phone companies. But since Comcast bundles its VoIP phone service with cable TV, the Supreme Court ruled in 2002, it's still entitled to the lower attachment rate mandated for CATV.

With a size eclipsing 30% of the market, why do CATV providers deserve discounts? That's the question asked last month at about the time the Appeals Court made its ruling, by the Southern Company, Xcel Energy, Duke Energy, and American Electric Power Service. Last month, these companies petitioned the FCC (which does not regulate power companies) to relax its regulation of the Telecom Act, arguing that net neutrality should apply to them too.

"It is virtually impossible for an electric utility to determine which pole attachment rate applies to cable attachments on its poles if the attaching cable operator does not identify the nature of the service it offers using those attachments," reads the power companies' petition for declarative ruling to the FCC last August 17 (PDF available here, courtesy Davis Wright Tremaine LLP law firm). "Under the Commission's regulations, cable operators are required to notify the pole owner 'upon offering telecommunications services.' However, in many cases, the only 'notice' the pole owner receives is in the form of advertisements announcing that the cable company now offers a 'triple play' bundle of video, Internet, and voice services in one subscription."

This leads to situations, the power companies continue, where competitive local telcos (CLECs) end up being charged more than CATV providers such as Cox Communications and Comcast to attach to the exact same poles -- situations which they say already violate the FCC's principles of non-discrimination. In one instance the power companies cite with material evidence, a Georgia cable providers' association defended its right to the lower rates by claiming that VoIP service "is not telecommunications," by virtue of the fact that the FCC hasn't gotten around to formally ruling that it is.

In concluding, the power companies state that to the extent they end up giving discounts to CATV providers, they are subsidizing Internet-driven telecommunications; and the extent of that subsidy ends up being passed on to the end customer, in the form of higher electricity bills.

But in its response last Thursday, the National Cable & Telecommunications Association (a group so named because cable provides more telecom services nowadays) argued that the extent to which power companies would be allowed to hike their pole attachment rates, would be passed on to the cable customer in the form of higher broadband bills.

Yet being mindful of the scorching heat of the net neutrality hot button, the NCTA's proposed solution is for power companies to flatten the pole attachment rates to the lowest rate, giving telcos like AT&T and Verizon the same discount they now offer Cox and Comcast.

"As NCTA has demonstrated in the Commission's pending Broadband Pole Attachment rule making, there is no legal, economic or policy basis for such an increase because the existing cable pole attachment regime is fully compensatory to pole owners," its response reads. "Indeed, increasing attachment rates would likely depress broadband deployment and adoption. Rather, the Commission should promote broadband deployment and adoption by preserving the cable attachment regime and extending it to telecommunications carriers."

By contrast, the point of view of the American Cable Association this morning is to urge the FCC to maintain the status quo, saying any rate hike would force broadband providers to suspend rollouts to rural areas -- places in the nation where power company poles are often the only poles there are.

A statement from ACA President and CEO Matthew Polka this afternoon reads, "Hiking pole attachment rates at the request of a few power companies will only make it that much harder for ACA members to deliver affordable broadband access to unserved and underserved areas where it is needed the most. Instead of raising poles fees, the FCC should do everything within its power to keep pole rates where they are, and thereby advance broadband deployment in rural communities where demand for this critical technology is high."

This entire debate quite truly dates back to the 1880s, when states and municipalities sought for and won the right to charge Western Union flat rates for stringing telegraph wires over their poles. That led communications companies (such as they were) to seek the lowest-cost providers of pole space, even if they took serpentine routes to get to them, and even if they had to erect their own poles -- which Bell Telephone eventually did. Postponing the issue for two world wars, the early FCC in the 1950s was granted the right to regulate the prices that Bell and other communications providers (such as they were) could be charged for access to poles belonging to utility companies, or municipalities, or anyone's privately held sticks-in-the-mud.

Extending the FCC's rights in this matter, the Telecom Act of '96 gave the FCC a new formula to work with, giving up-and-coming cable TV providers a discount based on an adjustment of "market rates." When the Act was signed into law, its provisions were set to take effect in five years' time. Probably not coincidentally, power companies across the nation in 2001 reportedly hiked their pole attachment access rates, some by more than 500%.

Meanwhile, the Supreme Court made concrete the FCC's final right to regulate pole attachment rates in 2002, unless certain states continue to lay claim to that right, citing laws set in stone from when the country's railroad network was still under construction. Only 18 states and the District of Columbia claim the right to regulate pole attachment rates, although the courts give the FCC the right to overrule states in such matters where states fail to actually make good on their claims.

With the debate table having already become a minefield, it's likely that the states will stand aside and let FCC Chairman Julius Genachowski come up with a seventh or eighth principle that can rescue the industry from its 140-year old foxhole.