Eighth Circuit Upholds FCC Pole Attachment Telecom Rate

The U.S. Court of Appeals for the Eighth Circuit has upheld the FCC’s 2015 Order on Reconsideration that revised the FCC’s pole attachment telecom rate formula.

In its decision, the Court denied an appeal filed by a coalition of electric utilities of the FCC’s decision to modify the formula for calculating the cost of providing space on a pole by eliminating the distinction between “urban” and “non-urban” service areas and establishing multiple cost allocators based on the actual number of attaching entities on a pole.

The Court found that the term “cost” in Section 224 is ambiguous and that the statute allows, but does not require, the telecom and cable rates to diverge. The Court held that the FCC made a reasonable policy choice to eliminate the disparity between the cable and telecom rates in order to avoid subjecting cable providers offering broadband service to the higher telecom rate and to avoid disparity between pole attachment rates in FCC and non-FCC regulated states.

Background

In its 2011 Pole Attachment Order, the FCC held that the maximum “just and reasonable” rate for attachments by a telecommunications provider or a cable operator providing telecommunications services is the higher of the rate yielded by two formulas. Under the first telecom rate formula – which remains in effect - costs that can be recovered under the formula include maintenance and administrative carrying charges, but exclude capital costs such as a rate of return, taxes and depreciation. Under the second formula – which the FCC later revised in the 2015 Order on Reconsideration – costs were adjusted to 66 percent of the fully allocated costs (including capital costs) in urban areas and 44 percent of the fully allocated costs in rural areas.

In 2015, the FCC issued the Order on Reconsideration that further revised the second formula to read as follows:

Rate = Space Factor × Cost

Where Cost:

• in Service Areas where the number of Attaching Entities is 5 = 0.66 x (Net Cost of a Bare Pole x Carrying Charge Rate)
• in Service Areas where the number of Attaching Entities is 4 = 0.56 x (Net Cost of a Bare Pole x Carrying Charge Rate)
• in Service Areas where the number of Attaching Entities is 3 = 0.44 x (Net Cost of a Bare Pole x Carrying Charge Rate)
• in Service Areas where the number of Attaching Entities is 2 = 0.31 x (Net Cost of a Bare Pole x Carrying Charge Rate)
• in Service Areas where the number of Attaching Entities is not a whole number = N x (Net Cost of a Bare Pole x Carrying Charge Rate), where N is interpolated from the cost allocator associated with the nearest whole numbers above and below the number of Attaching Entities.

A copy of the Eighth Circuit’s decision is available here.