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Challenge Paper:
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Introduction
The Federal Telecommunications Act of 1996 (1996 Act) was enacted to remove economic and legal barriers to entry in the telecommunications industry. While Section 253 (a) of the Act proscribes state and local legal requirements that prohibit any entity from providing telecommunications services, Section 253 (b) preserves a state's ability to impose requirements related to universal service, public safety and welfare, consumer protection and quality of services, but on a competitively neutral basis. Section 253 ( c) of the Act also preserves the right of a state or local government to manage its rights-of-way and obtain "fair and reasonable" compensation, again, on a competitively neutral basis.
In response to the 1996 Act, the Federal Highway Administration (FHWA) relaxed its long-standing prohibition on granting longitudinal utility access to Interstate Highway System rights-of-way for telecommunications providers. FHWA left to each state the responsibility for determining the appropriate access policy for its Interstate facilities and other limited access highways. Prior to the 1996 Act, some states such as Missouri, had negotiated access arrangements for non-Interstate limited access highways. However, since the 1996 Act, several states either have enacted legislation or been actively pursuing new access policies. In Colorado, access has been provided with only the recovery of administrative costs, while in both Arizona, with new legislative authority, and Washington under existing air space lease authority, wireless sites are being leased at market rates. A number of other states have taken a more deliberate approach for fear of setting precedents with telecommunications providers which would then open Interstate rights-of-way to all utility providers.
The Western Governors' Association (WGA) and its Transportation Futures Task Force is focusing on how states can respond to the challenges and opportunities created by the 1996 Act and FHWA policy change. The governors through the roundtable are seeking input on how to manage the states' transportation and public rights-of-way while supporting an industry that is critical to the region's future economic development and competitiveness.
In 1996, the Western Governors adopted a wide ranging policy calling for identifying potential solutions to the barriers preventing broader application of telecommunication technology to solve regional problems, and for identifying policies and incentives to encourage telecommunications providers to use public rights-of-way.
"Call together a discussion group on telecommunications to identify potential solutions to the barriers preventing the widespread application of telecommunication technologies. The discussion group is also to investigate and report on the use of technology to address regional issues such as reducing the number of commute trips, and policy, and possible incentives, for telecommunication providers to use public assets and transportation rights-of way." (WGA Policy Resolution 96-001)
This "Challenge Paper" is to begin framing the issues, define the legal and policy options as they are know and to set out initial questions which would be taken up in the discussions. The Paper is not to limit the discussion, but to stimulate an open dialogue among the participants.
Shared Resource Partnerships with the Telecommunications Industry
The 1996 Telecommunications Act created new opportunities for both the public and private sectors. In the "information age," the strength of the private economy is increasingly dependent on high speed and universally available voice, video and data networks at competitive rates. Removal of barriers to entry and the requirement that any regulations be imposed on a competitively neutral basis have helped to stimulate the industry to provide needed infrastructure at a time when the growth in demand for telecommunications related services has surprised even the experts. Both wireless and wireline segments of the industry are responding to the new competitive environment and the evolution in technology. New demands for capacity suggest the industry will remain in flux for some years.
In the public sector, demands for new telecommunications capacity and services are also increasing to support improved productivity and effectiveness in delivering public services and to embrace new initiatives in areas like telemedicine, benefits delivery, and education. Expanded telecommunication networks are connecting schools throughout states and region and is dramatically increasing the educational resources available to even the smallest rural system. In transportation, Intelligent Transportation Systems (ITS) offer a variety of operational and safety enhancements and efficiencies for existing infrastructure at a time when adding new capacity faces significant financial, environmental and social constraints in many areas. Capitalizing on the potential benefits of ITS requires expanded telecommunications capacity in many areas of the West.
The Western Governors face the challenge of how to support development and expansion of the telecommunications industry throughout the West, while at the same time making sure public sector needs for telecommunications capacity and services are met effectively and public resources are managed prudently. The specific questions to be addressed by the WGA Transportation Futures Task Force roundtable on telecommunications and public rights-of-way are by what means can the Governors respond to the recent developments that have made access to Interstate highway (and in some cases other limited access highways) rights-of-way available to the telecommunications industry and how to best exercise the state's options. In doing so, the Governors need to consider how these rights-of-way can be used to support both public and private sector objectives, and how they can be integrated into broader regional economic, telecommunication and service delivery strategies.
Issues Covered
This challenge paper discusses five major issues that could be addressed as a regional-state policy strategy is developed for allowing telecommunications access to limited access rights-of-way in a manner which assists the states achieve their telecommunication and information technology objectives. In addition, a number of potential areas for recommendations are identified. Five initial issues are:
- Providing Access to Highway Rights-of-Way
- Compensation for Access
- State Planning Experiences
- Competitive Neutrality
- Industry Stratification and Service Needs
- Technology Evolution
Providing Access to Highway Rights-of-Way
The 1996 Act, and recent changes in FHWA and American Association of State Highway and Transportation Officials (AASHTO) policy now support states having the option to accommodate longitudinal access for the telecommunications industry in limited access highway rights-of-way. While the 1996 Act does not compel a state to provide access to its interstate highway rights-of-way, providing access is consistent with the spirit of the 1996 Act. Providing access supports the development of more telecommunications infrastructure and possibly provides an opportunity to obtain compensation or service considerations in exchange for use of these assets. In fact, most western states have or are developing telecommunications plans to define public sector needs and to support the expansion of telecommunication infrastructure and services.
The state legislatures in some states have defined the boundaries under which municipalities and counties may operate, but have left the state's position unclear. The industry is seeking uniform treatment when accessing either municipal or state rights-of-way. They set forth three general concerns related to accessing highway rights-of-way. First, resource sharing is inherently discriminatory by limiting access based on what a carrier can provide in the form of in-kind or barter and at what cost, which must be passed onto the consumer. The second area of concern is the imposition of restrictions as to who may access the rights-of-way and what is discriminatory under the 1996 Act and many state laws. The third concern is the collection of fees, rents, or other charges above actual administrative costs associated with managing the rights-of-way may be improper under many states' procurement, transportation and telecommunication laws.
If a state grants access to limited access highway rights-of-way, several related questions must be addressed:
- Should all limited access facilities be included or just Interstates? While the primary focus of FHWA and AASHTO policy changes focus on the Interstate system, there is pressure to include all limited access highways. In fact, trying to make any distinction between the Interstates and a state's other limited access highways would be difficult based on physical and operating characteristics.
- How should access to limited access highway rights-of-way be coordinated with
policies governing access to other public rights-of-way or land? In most, if not all,
states, access to local and state roads has been provided to all utilities (e.g., water,
sewer and electricity). It is when limited or controlled access highway rights-of-way are
at issue that there are differing factors which control how access to telecommunications
facilities is granted. While the telecommunications industry has sought a consistent
approach for accessing all highway rights-of-way, the state departments of transportation
and highways believe that limited access highways must be managed under unique state laws
and constitutional provisions related to state highway trust funds, restrictions on use,
and safety and maintenance requirements. Given these characteristics, they believe the
limited access highways to be assets where access bears additional responsibility and
should serve to enhance the state's transportation and telecommunications objectives.
In the debates regarding access to public rights-of-way, a parallel is sometimes drawn with access to other state property. A number of state, federal and tribal agencies own and manage real property for non-transportation purposes. These agencies often enter in to agreements with telecommunication providers to allow access. These lands are usually administered under separate laws and regulations and in many cases are mandated to maximize the return for their use. Attempts to draw parallels should be limited to those cases where direct comparisons can be made within the legal and public policy parameters.
- What is the definition of a telecommunications provider? The boundaries between traditional utilities and telecommunication providers is becoming less clear. "Telecommunications provider," or "carrier" is defined in the 1996 Act as any company, or part of a company, providing telecommunications services. These may include traditional telecommunications companies (i.e., phone companies), as well as cable companies, electric utilities and information services companies (i.e., Internet service providers) if they are providing telecommunication services. The important distinction is that access is being offered to these companies only to support their telecommunications services. A bundled service providing voice, data and video probably would be eligible for access under this definition.
- What is a telecommunications service? A telecommunications service is defined by the 1996 Act as "the offering of telecommunications for a fee directly to the public or to such classes of users to be effectively available directly to the public." Telecommunications is defined as the transmission between points specified by the user, of information of the user's choosing, without changes in the form or content of the information as sent and received. Technically the delivery of cable television service alone would not be included within this definition, since the user does not control the content of the information being transmitted.
- What is a telecommunications facility? While not defined in the 1996 Act, any facility used to provide telecommunications services could be included. This is probably an unworkable definition and it will be one of the first challenges of the roundtable to develop a working definition as telecommunications relates to limited access rights-of-way.
- Can access be limited to just telecommunications providers? Based on the recent changes in FHWA and AASHTO policy make clear that the states have the option of limiting access only to facilities providing telecommunications services. However, the justification for limiting accommodation to telecommunications facilities needs to be clearly articulated. If managed correctly, both wire and wireless facilities should create minimal safety or operational impacts during construction or ongoing operation and maintenance. This justification is strong and is supported by the FHWA and AASHTO policy changes. However, the steps required to ensure that there are no adverse impacts will be different for wire and wireless facilities.
A separate issue which appears to be emerging is whether states should bundle wire and wireless requests for procurement. The wireless industry has assented to paying "fair market rent" for access to rights-of-way, while the wire segment has not. This seems to be based on the fact that towers require a small amount of real estate, while wire requires a significant amount of land. Additionally, the wire segment believes that court cases favoring "cost" over "fair market" for the use of municipal and county rights-of-way should also apply to state limited access and Interstate highway rights-of-way.
The exclusion of other utilities (e.g., water, sewer, gas, etc.) could be based on the impacts they could potentially create along limited access facilities, including safety, operating and cost impacts.
Compensation for Access
The Section 253 (c) of the 1996 Act specifically allows for "fair and reasonable" compensation for access to rights-of-way. Though the 1996 Act does not define "fair and reasonable," it is believed by some that fair market value is consistent with the intent of the 1996 Act. Capitalizing on the market value of limited access highway rights-of-way is a primary incentive for the states to consider changing existing accommodation policies. However, there may be a short window of opportunity based on the industry's interest in access to limited access highway rights-of-way and the availability of other options, e.g. railroad and pipeline rights-of-way. In many states, access to non-limited access highway rights-of-way is allowed under state laws for all utilities, and compensation is limited to only administrative and permitting costs.
If compensation above administrative costs is allowed, there are three traditional forms of compensation that can be obtained; cash or barter or a combination of cash and barter. Some states have negotiated just lease payments, others have bartered for some telecommunications capacity for the public sector and still others have adopted a mixed approach. Often it has been legal restrictions on the form of compensation or agency priorities that have dictated the strategy. While many of the existing arrangements were negotiated prior to the 1996 Act, they provide an indication of the potential value that longitudinal access in limited access rights-of-way has to the telecommunications industry, and the variety of compensation mechanisms available to the states. One clear lesson seems to be that the marginal cost to the industry to provide telecommunications capacity to the public sector as part of a shared resource project is relatively low. Stated another way, the additional cash payment that might be negotiated if bartering is ruled out is likely to be a lot lower than the value of additional telecommunications capacity, assuming the public sector has potential operational uses for such capacity. However, some telecommunication experts have pointed out that providing in-kind services in trade for access may be inappropriate under state procurement laws and regulations, and may also be inherently discriminatory to the universe of potential providers (thereby, not meeting the competitively neutral test in the 1996 Act).
There are several options for establishing value but of course the pragmatic answer is that public rights-of-way are worth whatever a state can convince someone to pay for them. Indications from a variety of states are that the rights-of-way have real value and that the telecommunications industry is prepared to negotiate a fair price. Options for establishing the value of access might include:
- Arms length negotiations with individual firms or consortia similar to the manner that air space leases are handled now in many states.
- Competitive bid, including competitive bidding with the minimum acceptable bid imposed by the agency owning the right-of-way. In this case, the value of the right-of-way is determined by the bids received in a competitive process.
- Analysis of the market value of the right-of-way established through negotiations or an appraisal process.
- Cost of the "next best" alternative (i.e., presumably negotiating with many abutters and local communities or possibly railroads or other utilities that have rights-of-way or easements).
- Needs based (i.e., the likely cost to the public sector of providing the telecommunications capacity required to support public sector needs directly).
- Future costs for removing and/or salvage of the infrastructure and restoration of the rights-of-way need to be included in the contract negotiations.
Experience Of Other States
While the competitive bid option seems most attractive and least likely to create an "under sell" situation, it may be challenged by the industry as a violation of the competitive neutrality requirement. As a result, firm-by-firm negotiations within a defined regulatory process may be the most effective approach. It should be noted that in some states, any compensation received for highway rights-of-way may be restricted to highway or other transportation purposes.
Competitive Neutrality
There are two access issues that have been generally identified:
- Access to the limited access highway rights-of-way that a state owns and controls and must provide to the industry on a competitively neutral basis or in a manner that does not favor a particular firm or segment of the industry over others.
- Access to the telecommunications facility or capacity once it is in place is normally controlled by the firm or consortium owning the facility. This issue has created significant problems for those who may lease capacity on these facilities in that they have a legal standards which must be met for reliability and quality of service. If access to facilities is limited to a single operator or consortium, this leaves reliability and quality of service in the hands of another organization and cannot be guaranteed by the lessee.
The states have an obligation to address this issue as part of the procurement process or contractual arrangements. The states' obligation, at a minimum, would be to use a procurement process and contractual arrangements that do not preclude future access to all providers and lessees.
The issue here is not favoring one company over others or unduly restricting access and capacity for multiple providers. However, states can restrict where facilities can be located and require co-location as long as there is a consistent rationale for any restrictions or requirements and they apply equally to all firms seeking access.
As discussed above, a one-time competitive bid process may be challenged by the industry as a violation of the "competitive neutrality" requirement. The concern would be based on the restriction imposed on new entrants to the industry or existing firms that chose not to respond to the initial RFP for any reason. While FHWA has taken the position that a RFP process would meet the competitive neutrality requirement, this position has not been subjected to a legal challenge. The concern for late entrants might be addressed by allowing consortia to bid, allowing a lead company to establish cost sharing arrangements for other interested parties, or requiring, or at least encouraging, the successful bidder to provide capacity for others for a fee. A process that issued RFPs on some defined interval (e.g., every two or four years) might also be acceptable.
An alternative approach would be negotiations within a defined regulatory process. This option would allow any firms interested in access to approach the state and negotiate the business terms, including compensation, subject to safety, insurance, performance and reporting standards and other requirements consistent with the state's responsibility and authority to manage its right-of-way. This approach will meet the competitive neutrality requirement, but will place a bigger burden and management cost on the state since different providers are likely to seek access at different times.
Industry Stratification and Service Needs
While the provisions of the 1996 Act apply to the telecommunications industry as a whole, it must be recognized that the industry is quite stratified and different segments of the industry are targeting different services and using different technology. As a result, the states' approach to different segments of the industry may vary and the impacts of accommodation may vary as well. For example, the wireline and wireless segments of the market have different requirements for access and their facilities pose different siting issues. Similarly, different states may have different needs for telecommunications capacity to meet public sector needs if bartering is going to be one form of accommodation. Another segment of the industry is the business of providing wireline capacity and wireless sites for lease to providers as well as public sector customers. In some areas, electric utilities and other organizations which have not been telecommunications providers historically are entering or considering entering the industry and offering a variety of bundled services.
While the stratification of the industry must be recognized as states develop their strategies for access to rights-of-way, a wide range of public sector needs for different telecommunications services and policy objectives must also be reflected in any telecommunications strategy. One of the potential benefits of an increase in telecommunications capacity and service is to give rural regions of each state access to resources that may support economic development and be critical to decisions by firms to locate some operations outside of urban areas or to be able to network "virtual offices" that reduce the requirement that all employees be located at central sites. However, the concern is that there may be cases where an area would welcome additional local connections to enhance the services offered to local businesses and residents, but a provider will resist since they can limit connections to more profitable major markets. The 1996 Act and its concern for universal service may actually strengthen a state's ability to require that firms gaining access to limited access highway rights-of-way provide local access where it is desired. Finally, states need to consider the industry's economic strategies for constructing inter-market systems, which may manifest in building out from large markets centers versus connecting markets.
The WGA is taking a proactive approach to this issue with its Centers of Excellence in Rural America (CERA) pilot program. The objective of the CERA program is to identify and implement pilot applications of information technology in rural communities in areas of employment, family commerce, health, education and recreation. Several communities in North Dakota and Wyoming have been selected as pilot sites. Many states have their own ideas on using telecommunications and information systems technology in education, telemedicine, social service delivery and to support other public initiatives.
Technology Change and Evolution
Another issue confronting the governors as they attempt to develop telecommunications strategies and policies is the rapid change and evolution of telecommunications technology. Satellite technology and changes that may greatly expand the carrying capacity of existing fiber optic networks are but two examples of developments that may occur in the short term and shift industry needs for accommodation. The implications of these changes both for public/private partnerships and resource sharing arrangements as well the appropriate technology strategy to meet public sector needs must be addressed.
Of particular concern is the possibility that new technologies may change the most effective way to meet a variety of public sector needs. The fear is that a strategy to link educational facilities based on a particular technology today may become obsolete or not be cost effective in the near future. Similarly, as technology evolves, the industry's needs for access may change and access policies may need to accommodate the fact that technology changes could create periodic demands for additional or modified access to public rights-of-way.
Potential Recommendations
A number of recommendations for both the states and the industry may emerge from the WGA roundtable discussion. In order to focus the roundtable discussion the following potential recommendations are offered for discussion purposes only.
- Develop model state approaches to telecommunications access to limited access highways that provides fair and reasonable compensation to states and improves connectivity throughout the West;
- Develop a suggested range of approaches to access that are competitively neutral for all elements of the industry and which can accommodate new technologies as they emerge;
- Work closely with all elements of the industry to promote economic development and competitiveness throughout the region and improve telecommunications services in rural as well as urban areas.
- Develop strategies for states and the telecommunications industry to use in defining a partnership to take advantage of opportunities to provide more effective public services in areas such as ITS, telemedicine, education, social service delivery, etc.
- Coordinate access policies on highway rights-of-way with access to other public and tribal lands and rights-of-way.
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trans/year2/communications/chall-2r