Communities Clash with Emerging Wires Industry over the Public Rights of Way

As the telecommunications and energy industries are deregulated, publicly controlled rights of way and the distribution wires that connect long distance carriers and electric transmission lines to our homes and businesses are emerging as billion dollar real estate. As long distance telephone service and power companies face increased competition, previously monopolized access to consumers through these rights of way is emerging as a new profit center and a new industry. The question is, who will control and profit from these rights of way: local communities or private companies? The issue is emerging both at the local and state levels, and in national forums.

A new "wires industry" is being formed as the energy and telecommunications industries piggyback on each others' established rights of way through unprecedented mergers and "strategic alliances" to control the deregulated market. Meanwhile, many cities and towns across America are saying that local communities, and not private companies, should be the gatekeepers of the wires. Dozens of municipalities are considering adoption of ordinances based on cable tv franchise regulations to help stem the efforts of companies to escape payment of existing fees, and some believe that users of public land should also pay rents - as opposed to administrative fees - that reflect their new, deregulated market value.

"Wake Up Cities!" warned Minneapolis lawyer Thomas Creighton before city officials. "The communications industry wants access to and occupancy of our lands for free for the sole purpose of making a profit." Creighton, who represents 400 municipalities on cable and telephone issues, describes deregulation as "the largest land rush since Oklahoma" as corporations seek to use public property as the backbone of a billion dollar industry, while offering the public nothing in return. Creighton is urging cities across America to look at the value being taken by use of public rights of way. Nicholas Miller of Washington law firm Miller & Van Eaton, estimates that the rights of way for national wired telecommunications alone should be valued at $18 billion, about five times what cities currently collect in user fees.

With support from the National League of Cities and the U.S. Conference of Mayors, communities in Maryland, Illinois, New Jersey, Arizona, Minnesota, Michigan, Idaho, and other states are seeking to assert local control and impose fees on telephone companies seeking permits to build wireless towers or bury wires under streets and sidewalks under a federally deregulated industry, as much as $40,000 per tower per year for wireless systems. Some communities have demanded free or discounted community use of fiber-optic network capacity and wireless services in return for permits. Other communities are more concerned about the health and environmental impacts of new construction, and have banned wireless telecommunications tower construction and limited tower heights in residential neighborhoods.

The most documented case of community efforts to seek compensation is the Detroit suburb of Troy, Michigan, which seeks to collect fees from deregulated cable operators, long distance telephone companies and others seeking permits to lay cable in public rights of way. Long distance carrier MCI, in conjunction with the cable industry and TCI, the nation's largest cable corporation, have asked the Federal Communications Commission to strike down Troy's ordinance and declare such efforts illegal as market "barriers to entry" under the Telecommunications Act of 1996.

At stake are billions of dollars in revenue and control of the wires which the booming telecommunications industry is fighting to possess. Much local authority has already been eroded. The Telecommunications Act of 1996 explicitly prohibits communities concerned about the health effects of Radio Frequency Radiation from rejecting new cellular towers. And a state court in Iowa recently ruled that the 1996 Telecommunications Act forces communities to accept new towers unless they can prove that the site will impact them adversely. Des Moines City Attorney Roger Brown said he was blind-sided by the ruling, because the burden of proof has always rested on developers in the past, not the communities they seek to enter.

Meanwhile, the Cellular Telecommunications Industry Association (CTIA) is urging the Federal Communications Commission to call for declaratory rulings to prevent local communities from interfering with system installations. In December, the CTIA called on the FCC to pre-empt local moratoria, or waiting periods many cities have imposed in order to adjust their ordinances to deal with the deregulated telephone industry. The Personal Communications Industry Association (PCIA), formed by companies holding federal licences to build and operate cellular-style digital Personal Communications Services (PCS) systems around the United States, recently asked the FCC for a "global, sweeping rulemaking" to limit local authority on siting and Radio Frequency Radiation emissions.

The telecommunications industry is also lobbying state governments to override local governments. A recently filed Virginia General Assembly bill, Senate 1013, provides that "No city or town...shall require the provision of in-kind services or physical assets as a condition of consent to grant a franchise or to occupy and use the roads and streets in either state highway system or in lieu of fees."

Communities like Troy received welcome news from a federal district court in Tucson, Arizona, which recently ruled that the city could require new telecommunications companies to pay compensation for using the public rights of way on a case-by-case basis. The company, G&T Tucson Lightwave, had argued that the city had violated section 253(c) of the Telecommunications Act of 1996 by requiring it to pay compensation, while not charging the incumbent telephone company, whose franchise began before deregulation. "Local governments do not have to treat each provider exactly the same," said Robert Fogel, Associate Legislative Director of the National Association of Counties. He said the Tucson decision gave local governments authority to manage their rights of way as long as they do not prohibit the "ability of any entity to provide telecommunication service."

Local governments are likely to face increasing pressure from mergers and those who stand to benefit from "wires industry" usurping community control of public rights of way.

New Industry Emerges With Gas and Electric Utility Investment in Telecommunications

The emergence of a "wires industry" has been marked by mergers and "strategic alliances" rather than competition in the private sector; and political initiatives to restrict or usurp historic local community control of utility rights-of-way and permitting powers in the public sector. Following enabling provisions in the federal Telecommunications Act, electric utility companies invested half a billion dollars in the telecommunications industry this past September and October, according to a recent Utility Telecommunications report by Atlanta-based Chartwell Inc., which lists thirty case studies of utility investment.

Roger Gale, president of the Washington International Energy Group, recently predicted that electric restructuring will result in the convergence of the electric, natural gas and telecommunications industries. Chartwell president Philip Dunklin told Wireless Week that the marriage between wireless telecommunications companies and utilities are "a logical fit...a way to solidify your customer base and...to add new revenue."

"What the utility brings to the wireless company is that they have the right of way and siting," said Dunklin.

_____________________________________ Wires Industry Pushes Unrestricted Mergers and Trusts as "Consumer Benefit"

At a recent conference of the National Association of Regulated Utility Commissioners (NARUC), a panel predicted that deregulation of the electric industry, by far the nation's largest ($300 billion in annual revenues) and the last to be deregulated, will usher in a Brave New World of "bundled services." In the future, predicted panelist Edward Tirello of NatWest Securities, "you will get one bill in the mail for electricity, gas, telephone, cable, insurance, home mortgage payments, home security," and other corporate services in package deals assembled on the "Frequent Flyer" model in which consumers subscribe to many services under one package and are rewarded for consumption of one service with "credits" in another. "Earn a trip to Tahiti by turning on the lights," he said. "The more you use, the faster you get there."

Tirello's "bundled services" would be marketed by merged megacompanies or "strategic alliances" of electric companies with telephone companies, cable companies, banks, insurance companies, airlines, and electronic security firms, based on access to the public rights of way that reach every American. Such trusts have been illegal under federal anti-trust laws since the Great Depression. Tirello and others are lobbying for repeal of anti-trust laws, such as the Public Utilities Holding Company Act of 1935, to legalize such trusts among America's largest corporations.

The "bundled services" predicted by Tirello are a positive spin on increasing concerns about unprecedented "merger mania" amid heavy lobbying efforts in Washington to eliminate federal anti-trust laws, and the emergence of mega-corporations in the energy and telecommunications industries. In 1995 the electric industry led all other industries in its rate of asset privatization at $12.9 billion, with $15 billion in gas and electric mergers. Gas and electric mergers reached a record 69 mergers at $23 billion in 1996, leading some analysts to predict that the 175 private utilities now controlling 75 percent of the U.S. market will merge into a few "mega-companies." The telecommunications industry has undergone similar consolidation since passage of the Telecommunications Act of 1996. On the West Coast, Pacific Telesis merged with S.B.C. Communications. On the East Coast, Bell Atlantic's merger with NYNEX is expected to be approved this year. And United Kingdom-based British Telecom is on the verge of acquiring Texas-based Sprint.

Tirello predicted that the unprecedented flurry of mergers in the telecommunications and electric industries will result in thirty to forty major wires companies nationwide providing these bundled distribution services. He has been a proponent of this model for the last ten years, and has authored reports celebrating the efficiency of mega-companies. In the atmosphere of deregulation, many major companies are now echoing his rationale. "The large electric companies' idea is to go national," he said.

The question on one level is whether fewer competitors will undermine competition. On another level, it is one of how local communities will contend with the onslaught of such giants. While one of the panelists, Commissioner William Massey of the Federal Energy Regulatory Commission (FERC) said "the anti-trust issue is key" because mergers may be used to amass market power by eliminating competitors, Tirello and the other panelists such as John Hayes, CEO of gas and electric holding company Western Resources Inc., argued that government should not interfere with mergers on that basis. "We have too many anti-trust reviews of mergers," he complained. Edward Young III, Vice President of Bell Atlantic, went so far as to say that "the purpose of mergers is to benefit customers" by enabling corporations to offer these new, bundled services.

While Young and other industry representatives say mergers benefit consumers, critics say the massive regional corporations will limit and undermine competition. From the onset, the rhetoric of deregulation has been to get government out of the way to allow "competition" to bring down costs and increase choice for consumers. But what has been a boom for telecommunications and technology stock on Wall Street has delivered negative results for consumers, as increased competition, customer choice and lower rates promised by proponents of the federal Telecommunications Act have not emerged. Promises that cable companies would compete in each others' markets have been withdrawn, and companies like TCI, Time-Warner and Pacific Telesis have defunded or abandoned pilot programs. Meanwhile, the nation's average long-distance phone call and cable rates have increased by ten per cent since the Telecommunications Act was passed last year. Most telling, fewer than one per cent of America's residential customers have any choice for local phone service, according to a recent report by the Washington-based Economic Strategy Institute. Industry representatives on the NARUC panel countered these criticisms, stating that the increased rates and lack of choice in deregulated industries are "transitional," and that "the size of the companies controlling the wires is not relevant."

"If a retail chain were to build a supermarket on public land, it is unthinkable that they could do it for free," says Creighton. "But when USWEST comes to town, it is assumed that they will enjoy privileged access to public lands for nothing, and they will fight any effort to make them pay as if it were a violation of their rights." As the energy and telecommunications industries are deregulated, many cities and towns are not waiting for the questionable benefits promised by wires industry representatives like Tirello. Instead, they are using the public rights of way to protect public health and the environment, and to maintain or expand franchise revenues from use of the wires that reach every American home and business.


Copyright (c) 1997 by the American Local Power Project.