Federal appellate judges drilled down into arguments made by local governments and the Federal Communications Commission on Monday, as they considered a challenge to the FCC’s 2018 decision to cap rental rates for locally owned street light poles and other assets in the public right of way, and effectively give mobile carriers unfettered use of public property.
One justification for this preemption of local property ownership was that if big cities with big potential for subscriber revenue charge high fees, then carriers like AT&T and Verizon won’t have money left over to spend in less profitable small cities and rural communities. That prompted a question from judge Jay Bybee about whose rights and whose benefits are being protected…
So the FCC’s theory is that the reason we’re not going to allow costs above a certain level – anything above costs – is prohibited and preempted is because, the theory is, that the carriers could then take that money and invest in rural areas, other cities and so forth.
So if the City of Los Angeles agrees to $400 – the city says it’s $400, it’s our cost – and the carriers all agree, because they’re very anxious to get into Los Angeles immediately, and the City of Fresno comes and says ‘we don’t think it’s above $300’, does the City of Fresno have the right to bring an action, because these carriers are being slow to develop 5G in Fresno?
Joseph Van Eaton, with the Best, Best and Krieger law firm, which represents many cities in California and elsewhere, replied…
No, in fact that’s one of the flaws, the basic flaw in this whole cross subsidy argument, because that’s what this really is, that carriers will take money saved in Los Angeles and invest it in an area that’s not now profitable.
There’s no economic theory that supports that idea. The whole universal service fund is based on the idea that a rational investor will make money where they can make money and then they don’t take good money and pour it into an area where it’s not profitable out of the goodness of their hearts. That’s why we actually have evidence where Lincoln, Nebraska dropped the fee to $95 and said ‘all you have to do is build out these less profitable areas’ and they got no takers.
There’s no evidence that cross subsidy actually results in the impacts, effects the FCC has, and certainly the FCC doesn’t require it, and it doesn’t give anyone any enforceable right to say ’if you’re saving money in LA, you gotta come to our community".
All three judges asked questions of both the FCC and local government challengers during the hearing in Pasadena. Conventional wisdom is that questions asked aren’t a good guide to what judges are thinking – they might be sceptical, or they might be floating conclusions that they’re leaning towards. We’ll have to wait for them to issue their ruling, which is probably three to six months away.
Links to petitions, court documents and background material are here.