The controversial decision by the FCC to impose a $270 limit on what cities are allowed to charge mobile operators for hosting a 5G cell on their utility poles finally came up for judicial review this week.
The per-pole-per-year fee is only one part of a larger year-long battle between US states and the federal regulator over rules that the FCC adopted in a bid to speed up deployment of the next-generation wireless network. But the $270 has become a focal point for the simple reason that no one has any idea how it was arrived at.
“How did you get to $270?” Judge Bybee of the Ninth Circuit Court of Appeals asked the FCC’s lead lawyer Scott Noveck. “I don’t see much data there.”
And the truth is that there’s isn’t much. In the 116-page document titled “Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Investment” the crucial $270 figure is explained with a single footnote (number 233). “These presumptive fee limits are based on a number of different sources of data,” the footnote states, referencing “many different state small cell bills.”
Judge Bybee noted in the hearing on Monday that it’s not clear if these “bills” have been adopted into law (it turns out that some have been and some haven’t) and that all the states referenced are from “the heartland, not on the coasts.”
And this is the critical point: the FCC’s order is fiercely opposed by a huge number of cities almost all of whom are based on the coast. The reason for this is quite simple: the coasts of America are far more densely populated than in the middle of the country. That leads directly to two things: greater costs and greater revenues.
The five states whose bills were listed as providing guidance for the $270 figure have population densities ranging from 6.6 people per square kilometer (New Mexico) to 22 people per km (Arkansas). By contrast, those opposed have far higher densities: New Jersey with 467 (70 times higher than New Mexico); New York with 161; California with 95.
The coastal cities say, simply, that it costs them far more than the FCC’s seemingly arbitrary $270 figure to run through the process to approve and install a new 5G small cell. When asked about the figure, their attorney, Joseph Van Eaton, said it was “one of many unexplained parts” of the FCC’s order.
Van Eaton also pointed out that it was mildly ridiculous for the FCC to come up with a figure that is disconnected to revenues. With many more people in coastal cities, mobile operators will make more money per 5G cell.
“It actually is a little bit irrational,” he said in response to one of the three judges suggesting the FCC argument that money saved in one area would be put in another area was logical. “You can’t just look at costs divorced from revenues.”
The foundation of the FCC’s order is the argument that local cities shouldn’t be charging mobile operators more than it costs them to install 5G cells; the implication being that high-demand cities like Los Angeles are effectively ripping mobile operators off by charging as much as they think they can get away with. You can see the arguments below.
The follow-on argument from the FCC is that the money “saved” by forcing cities to charge the minimum price will then be used by mobile operators to fund greater roll-out of 5G cells in the rest of the country, where the cost to the mobile operator is possibly higher than they can expect to meet from revenue from the people that live there.
And then the FCC decided that $270 per pole per year was the figure. Any more than that, and the FCC will invoke its authority under Section 253 of the Communications Act and cities will have to explain how those costs are “reasonable and non-discriminatory.” The FCC notes in its order that “there should be only very limited circumstances in which localities can charge higher fees.”
In other words, the FCC decided not only was it allowed to set the market rates but that it had authority over cities’ own property when it came to installing mobile cells. Needless to say, cities and states are not excited about the prospect of regulators in Washington DC deciding what they can do with their own poles, and strenuously deny the FCC has the legal right to do so.
But also, they point out, if the FCC is setting market caps it would be nice to see some actual homework done on figuring out what those rates are, rather than looking at a bunch of bills from other states and then pulling a $270 figure out of its regulatory behind.
Economic theory of non-existence
Van Eaton also pointed out that the economic theory behind the FCC’s claim - that money “saved” in some places would lead to expanded roll-out in other areas doesn’t exist in any real form. Existing FCC services like the Universal Service Fund actually assume the opposite – that companies won’t “take good money and pour into an area where it’s not profitable out of the goodness of their heart.”
In fact, unlike the FCC, Van Eaton has a real-world example of how pricing works when it comes to mobile roll-out: he referenced Lincoln, Nebraska which dropped the per-cell fee to $95 in an effort to get companies to install infrastructure in the low-density city and state (Nebraska: 9.4 people per km). And no one took the city up on the offer.
There were a range of other legal arguments at the hearing covering everything from whether the FCC has any authority over utility poles to whether it should have properly considered health concerns over 5G signals before approving the order. Also discussed was how “reasonable aesthetic” concerns i.e. unsightly lumps of metal everywhere would be defined – it turns out, somewhat bizarrely, the answer is whether it is “technically feasible.” But the $270 figure is likely to prove fundamental because it puts a spotlight on the FCC’s flawed policy processes.
During its public comment process, the FCC's proposals were met with fierce criticism; many cities and states couldn't believe that the FCC had decided, seemingly out of nowhere, to impose flat-fees and review deadlines on the rollout of 5G without even consulting them first. They provided lengthy explanations for why many of its assumptions didn't fit with what happens in the real world.
And the FCC completely ignored them.
FCC’s lawyer Noveck argued that the $270 figure was not a cap but a “safe harbor” and that cities could of course charge more if they wanted to. Well, so long as they were able to justify it. “Nothing precludes them from charging higher fees,” he argued.
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Van Eaton responded that that was not how things were going to go down, in large part because the FCC’s order “is not just guidance; it is purporting to speak with the authority of law.”
His Master's Voice
The FCC’s arguments, not for the first time, sounded exactly like they came from the mouth of a telco lobbyist. “Part of the problem is that many jurisdictions have outdated, ossified laws that are obstructing the deployment of desperately needed, improved wireless networks,” argued Noveck. He also talked about “burdensome requirements” and argued that aesthetic requirements were being “imposed for ulterior reasons.”
As for the fees. “Fees that might otherwise seem small in isolation - they’re usually a few hundred dollars, sometimes a few thousand dollars - when you consider them in the aggregate,” he started, before building on the argument.
“If you need 100 small cells to provide service in a town or part of a city, a few hundred dollars can quickly become tens or hundreds of thousands of dollars per year. And that might just be one city. Consider the effect of every other city started demanding additional fees. Portland might not think its additional fees were too much but if every other city in Oregon were making similar demands or nationwide, this is prohibitive.”
The judge interrupted him: “So how did you get to $270?” We're still waiting for an answer. ®