WASHINGTON (Reuters) – A U.S. appeals court on Tuesday rejected the decision of the Federal Communications Commission to declare that states cannot pass their own net neutrality laws and ordered the agency to review some key aspects of its 2017 repeal of rules set by the Obama administration.

The court, which upheld most of the FCC’s December 2017 order, said the agency “failed to examine the implications of its decisions for public safety” and must also review how its decision will impact a government subsidy program for low-income users.

The decision means the more than 10-year-old debate over net neutrality will continue to drag on for months or more likely years. The ruling is a setback to the Trump administration’s efforts to reverse rules adopted under former President Barack Obama in 2015 which barred internet service providers from blocking or throttling traffic, or offering paid fast lanes, also known as paid prioritization.

FCC Chairman Ajit Pai said the decision affirmed the FCC’s “decision to repeal 1930s utility-style regulation of the internet. A free and open internet is what we have today. A free and open internet is what we’ll continue to have going forward.”

Pai added that the FCC would address “the narrow issues that the court identified.”

Championed by large tech companies and consumer groups, net neutrality was formally adopted by the FCC in 2015. Major telecommunications companies argued it limited their ability to offer new services to content providers, and under the Trump administration, the FCC overturned the policy.

California passed sweeping state net neutrality protections but agreed not to enforce the measure pending the court challenge.

The court threw out the part of the order that barred all states from setting net neutrality rules and argued that states were preempted by federal law.

“The commission lacked the legal authority to categorically abolish all 50 states statutorily conferred authority to regulate intrastate communications,” the court said.

The FCC could still make “provision-specific arguments” to seek to block individual aspects of state net neutrality rules.

Judge Stephen Williams wrote in his dissenting opinion that “On my colleagues’ view, state policy trumps federal; or, more precisely, the most draconian state policy trumps all else.”

The Trump administration rules were a win for internet providers like AT&T Inc, Comcast Corp and Verizon Communications Inc but opposed by companies such as Facebook Inc, Amazon.com Inc and Alphabet Inc.

Reporting by David Shepardson; Editing by Paul Simao and Lisa Shumaker

United States Circuit Judge Thomas L. Ambro has sat on the United States Court of Appeals for the Third Circuit hearing countless legal challenges of federal government rules, regulations, and laws since 2000. In fact, he has heard so many cases it might have worried petitioners when he opened his majority-held ruling with the words “Here we are again.”

Ambro (from the court’s decision):

“Here we are again. After our last encounter with the periodic review by the Federal Communications Commission (the “FCC” or the “Commission”) of its broadcast ownership rules and diversity initiatives, the Commission has taken a series of actions that, cumulatively, have substantially changed its approach to regulation of broadcast media ownership. First, it issued an order that retained almost all of its existing rules in their current form, effectively abandoning its long-running efforts to change those rules going back to the first round of this litigation. Then it changed course, granting petitions for rehearing and repealing or otherwise scaling back most of those same rules. It also created a new “incubator” program designed to help new entrants into the broadcast industry. The Commission, in short, has been busy. Its actions unsurprisingly aroused opposition from many of the same groups that have battled it over the past fifteen years, and that opposition has brought the parties back to us.”

FCC Chairman Ajit Pai is presiding over a sweeping deregulatory agenda that critics fear will further consolidate an already corporate dominated media landscape that has given a handful of companies approval to own and operate hundreds of radio and television stations, many in the same profitable media markets. One corporate owner can already own several local radio and TV stations and the FCC is working to further ease already relaxed ownership limits that could allow companies like Sinclair, Nexstar, and iHeartMedia to buy even more radio and TV stations.

The History of Broadcast Deregulation (1996-2019)

Judge Ambro

Deregulators targeting media ownership limits have been on a tear since the mid-1990s, with the first major changes in decades ushered in by the Clinton Administration’s 1996 Telecommunications Act, which required the FCC to conduct a review of media ownership rules every two years. The 1996 law required the FCC to determine “whether any of such rules are necessary in the public interest as the result of competition.” If not, the Commission is required by law to “repeal or modify any regulation it determines to be no longer in the public interest.”

What is in the “public interest” has historically been in the eye of the beholder. Democrats on the FCC have been wary of media consolidation and take a skeptical view of arguments that consolidation enhances competition and improves the efficiency of radio and television stations that can share resources. Democrats worry about the loss of diversity, cost-cutting, and consolidated control over news gathering operations. Republicans have been traditionally friendly to the argument that consolidation has allowed marginal stations to sell operations to a better funded corporate owner, with healthier broadcast competition the result. Republicans also argue regulation is unnecessary in a diverse media market where consumers have a choice of traditional broadcasters, satellite radio, cable television, internet streaming, etc. That makes strict ownership limits no longer necessary.

Neither side can argue with the fact that as a result of the 1996 Telecommunications Act, over 4,000 local radio stations were purchased from independent and small corporate owners and merged under the umbrella of a handful of giant corporate media companies. Although proponents of the 1996 Act claimed it would increase competition, in fact it did the exact opposite. With many stations now under the ownership of a handful of companies, corporate owners frequently programmed each station with a different format specifically to avoid head-to-head competition. While some listeners felt this increased the diversity of music formats heard on the air, many also noticed local voices began disappearing from those stations, replaced with automation or voices that originated in other cities. Some corporate owners cut costs by hiring a small team of announcers to program dozens of radio stations around the country. Local news coverage was also often among the first things to be cut.

Another consequence of the 1996 Act was a steep decline in minority ownership of stations. In particular, minority ownership of TV stations dropped to an all-time low since the federal government began tracking such data in 1990.

The consolidation wave did some corporate owners no favors either. Clear Channel Communications (now iHeartMedia), became a ripe target for a leveraged buyout after successfully acquiring hundreds of local stations. In 2008, Bain Capital and Thomas H. Lee Partners launched a successful takeover of Clear Channel for $24 billion, largely financed with debt that Bain and THL Partners put on Clear Channel’s books. Over 2,440 employee layoffs and cost cutting quickly followed, while the new owners leveraged the stations it now owned to maintain adequate financing to cover interest payments on its enormous debts. As The Great Recession took hold, advertising revenue diminished and credit markets became stingy and unforgiving. By 2010, the company faced bankruptcy and debt holders were growing impatient. Over the next several years, several debt restructuring efforts were undertaken to help the company pay down its debts, but debt holders finally had enough in 2018, forcing what is now known as iHeartMedia into bankruptcy reorganization.

The FCC itself later admitted that the consolidation frenzy caused negative effects that should be addressed. But the incoming George W. Bush Administration initially had other ideas and under the leadership of FCC Chairman Michael Powell, the majority of Republicans on the Commission supported further relaxation of ownership rules. In early 2003, the FCC held a single public hearing on the matter, which sparked outrage among many Americans concerned about the impact media consolidation had already had on their local stations. By June of that year, nearly two million letters from the public opposing further media consolidation had arrived at the FCC. The Commission, despite the public outcry, ultimately voted 3-2 to repeal a long-standing ban prohibiting a local newspaper from also owning a local television station (or vice versa) and also relaxed other ownership rules, claiming they were no longer necessary to protect competition, localism, or ownership diversity.

Among the changes:

• Any one company could now own up to 45% of local stations in a market (it was 25% in 1985, relaxed to 35% in the 1990s).
• The newspaper/TV station cross-ownership ban was eliminated.
• Alternative forms of media and their popularity would now be considered when determining whether a company owned or controlled too much of a local media market. The FCC would now also consider magazines, cable channels, and internet services to decide if one owner had become too dominant.
• License renewals no longer considered whether a station was adequately serving in the “public interest.”

Community Activists Strike Back at Corporate Consolidation and Media Homogenization

The FCC’s ability to ram through the rules changes, despite public opposition, was immediately met with a formidable 2003 court challenge by the Prometheus Radio Project, a non-profit advocacy and community organizing group that opposed corporate consolidation of radio stations and supported the low-power (LPFM) radio movement, which sought low-cost licensing of community radio stations to preserve localism and provide diverse radio programming.

Prometheus Radio Project v. FCC garnered support from several independent broadcasters and community groups like the Consumer Federation of America, the National Council of Churches of Christ, and the Media Alliance. In 2004, the same U.S. Third Circuit Court of Appeals that heard the most recent case against the FCC’s deregulation efforts ruled 2-1 in favor of Prometheus. The decision was written by the same Judge Ambro that remarked ‘here we are again’ this week. The ruling required the FCC to re-examine its media ownership rules and found the FCC’s justifications for the changes to be inadequate and in one case relied on “irrational assumptions and inconsistencies.” The Supreme Court later affirmed the Court of Appeals’ decision, frustrating the efforts of deregulators.

Media consolidation was once again a priority item on the FCC’s agenda after the election of President Donald Trump. Republican FCC Chairman Ajit Pai once again took aim at the already-relaxed media ownership rules to relax them even further. In a Republican-dominated 3-2 decision in November, 2017, the FCC once again eliminated the newspaper/TV station cross-ownership ban and would now permit one company to own two of the four largest television stations in a market, instead of just one.

Those changes were the ones struck down this week by the Court of Appeals.

FCC and Its Allies: Since You Don’t Stand to Make Millions from Consolidation, You Should Have No Say

An exasperated Judge Ambro repeatedly took the FCC (and indirectly Ajit Pai, the current chairman) to task for ignoring the Court’s instructions on formulating media ownership policies that would survive court challenges.

But first, Ambro’s decision eviscerated attempts by the FCC and interest groups allied with its deregulation policies to undercut public and opposition participation in the debate. First, both argued that the opposition lacked standing to sue the FCC in court over its new deregulation policy because they do not have any business interests at risk and cannot be harmed directly by the decision to deregulate. When the opposition filed legal briefs to prove standing, the FCC and its allies argued it was too late to submit proof and it should not be considered by the court.

Ambro’s decision rejected those arguments, noting “the same parties have been litigating before us for a decade and a half. It was not unreasonable […] to assume that their qualification to continue in the case was readily apparent.”

Ambro also took issue with the FCC’s argument that those in opposition to its new rules were only speculating it would lead to consolidation.

“The problem is that encouraging consolidation is a primary purpose of the new rules. This is made clear throughout the Reconsideration Order, see, e.g., 32 F.C.C.R. at 9811, 9836,” Ambro wrote. “The Government cannot adopt a policy expressly designed to have a certain effect and then, when the policy is challenged in court by those who would be harmed by that effect, respond that the policy’s consequences are entirely speculative.”

But it did not stop the FCC from trying.

The FCC also argued that opponents were worrying too much about the impact of the new rules. FCC lawyers reminded the court the agency would still carefully consider any new merger proposals put before it. Judge Ambro found that argument “immaterial.”

“The point is that, under the new rules, it will approve mergers that it would have rejected previously, with the rule changes in the Reconsideration Order the key factor causing those grants of approval,” Ambro wrote.

“We emerge from the bramble to hold that Regulatory Petitioners have standing,” Ambro concluded, signaling his irritation with attempts to stymie the lawsuit against the FCC.

Why the Top-Four Station Limit Matters

One of the groups allied with the FCC attempted to argue that the “top-four rule” that forbids any one company from owning or controlling more than one of the top-four television stations in a major local market is arbitrary, irrational, and indefensible.

But the court ruling explained why the rule exists and why it matters.

“The basic logic of the top-four rule, as we recognized in 2004, is that while consolidation may offer efficiency gains in general, mergers between the largest stations in a market pose a unique threat to competition. Although there might be other more tailored, and more complex, ways to identify those problematic mergers, the simplest is to declare, as the Commission has done, that mergers between two or more of the largest X stations in a market are not permitted. The choice of X must be somewhat arbitrary: each market’s contours will be slightly different, and no single bright-line rule can capture all this complexity. But the television industry does generally feature a distinct top-four, corresponding to the four major national networks, and four is therefore a sensible number to pick. And this is exactly the kind of line-drawing, where any line drawn may not be perfect, to which courts are the most deferential.

“[…]The Commission has the discretion to adopt a blunt instrument such as the top-four rule if it chooses. Indeed we confronted, and rejected, this exact argument—that treating all top-four stations the same wrongly ignored the variation in market structures—in Prometheus I. Id. at 417–18.

“Nor is it improper that the FCC’s justification for this rule is the same as it was in the 2002 review cycle. Section 202(h) requires only that the Commission think about whether its rules remain necessary every four years. It does not imply that the policy justifications for each regulation have a shelf-life of only four years, after which they expire and must be replaced.”

The fear is that if one company owns the local NBC and CBS affiliate in a large city, that company automatically will control a much larger percentage of the TV audience than any other station in the market. That can directly impact advertising rates charged by those stations, force other stations to consider similar mergers to maintain their market share, and leave many cities with two owners controlling the ABC, CBS, FOX, and NBC stations in a market. That would also put independent stations at a marked disadvantage, unable to attract advertisers that will expect the audience numbers combined stations would get.

The group opposed to this rule also claimed that the FCC must reaffirm and defend the very existence of this rule during each regulatory review period, an argument that was also rejected by the court decision. A FCC hostile to the rule would likely not mount much of a defense to justify it.

The FCC’s Newest Loophole: Alleged Diversity

One FCC proposal that partly escaped criticism from the court was a new radio “incubator” program that would relax ownership limits for radio station owners participating in the project. The incubator program is designed to “support new and diverse entrants in the radio broadcasting industry by encouraging larger, experienced broadcasters to assist small, aspiring or struggling broadcasters that otherwise lack the financing or operational expertise necessary to own and operate a full-service radio station.”

Critics contend the incubator program is a giant ownership limit loophole waiting to be exploited by large corporate station owners. Although initially protecting the new station’s independence for at least two years, the large corporate owner “helping” the new station become established can later buy the station, or manage the station’s programming and advertising inventory as soon as two years after the station gets on the air. Further, the corporate owner that will receive a waiver on station ownership limits for participating can ‘cash in’ that voucher in any market of “a similar proportion” to the one where the new station is launching. Most assumed that meant a market similar in size to population. But in fact it was defined as a market with a similar number of licensed radio stations.

The “market size” epic loophole would allow a corporate entity to set up a station in a relatively small sized city with a lot of licensed radio stations, such as Wilkes-Barre, Pa., which has 45, and take the resulting ownership waiver and “cash it in” by buying up a sixth extraordinarily valuable FM station in New York City, which has around 40 licensed stations on a very crowded radio dial.

The FCC attempted to place some limits on obvious loophole exploitation, like finding a front person to participate in the incubation program but allow the corporate “helper” to silently and secretly operate the station. But there are no obvious limits on allowing family members of corporate entities to participate. A similar loophole allowed Sinclair Broadcasting to acquire a significant number of additional TV stations above ownership caps by claiming they were in fact run independently by a family member of the CEO. There are multiple ways to abuse or exploit the program, but the court found the FCC gave adequate notice of the scope and rules of the project. The program’s impact on minority ownership was another matter, and the incubation program was put on hold as well because the FCC did not provide enough evidence of how the program would impact minority station ownership.

Judge Calls FCC’s Analysis Skills Insubstantial

“Problems abound with the FCC’s analysis,” Ambro wrote regarding the impact the FCC’s rules changes would have on minority ownership. “Most glaring is that, although we instructed it to consider the effect of any rule changes on female as well as minority ownership, the Commission cited no evidence whatsoever regarding gender diversity. It does not contest this. Instead it notes that ‘no data on female ownership was available’ and argues that it ‘reasonably relied on the data that was available and was not required to fund new studies.'”

Judge Ambro warned courts have frequently found certain FCC rules that were introduced without careful consideration of their impact are “arbitrary and capricious” and subject to be overturned at any time.

Ambro told the FCC it must do better.

“The only ‘consideration’ the FCC gave to the question of how its rules would affect female ownership was the conclusion there would be no effect. That was not sufficient, and this alone is enough to justify remand,” Ambro wrote. “Even just focusing on the evidence with regard to ownership by racial minorities, however, the FCC’s analysis is so insubstantial that it would receive a failing grade in any introductory statistics class.”

Ambro called the FCC’s analysis “woefully simplistic” because it attempted to use disparate data from two different federal agencies to measure minority ownership of broadcast stations, but the two entities asked different questions and used different methodologies.

“Attempting to draw a trendline between the [one agency’s data with another’s] is plainly an exercise in comparing apples to oranges, and the Commission does not seem to have recognized that problem or taken any effort to fix it,” Ambro complained.

Ambro also noted the FCC did not bother to estimate the number of minority-owned stations that would theoretically exist if the agency never changed its ownership rules.

Come Back to the Court With Your Homework… Finished

Judge Scirica

Ambro predicted an inevitable appeal of the court decision and additional litigation surrounding this week’s ruling. He warned the FCC that using the current majority to ram new rules through is not adequate and the FCC must prove the merits of its arguments if it wants to survive a court challenge. Ambro “remanded” or sent the proposed new rules back to the FCC to review and revise.

“On remand the Commission must ascertain on record evidence the likely effect of any rule changes it proposes and whatever ‘eligible entity’ definition it adopts on ownership by women and minorities, whether through new empirical research or an in depth theoretical analysis. If it finds that a proposed rule change would likely have an adverse effect on ownership diversity but nonetheless believes that rule in the public interest all things considered, it must say so and explain its reasoning,” Ambro wrote. “If it finds that its proposed definition for eligible entities will not meaningfully advance ownership diversity, it must explain why it could not adopt an alternate definition that would do so. Once again we do not prejudge the outcome of any of this, but the Commission must provide a substantial basis and justification for its actions whatever it ultimately decides.”

FCC Chairman Ajit Pai blasted the court decision and vowed an appeal, citing the partial dissent of Judge Anthony Joseph Scirica, who has consistently supported a number of the FCC’s deregulation efforts.

“For more than twenty years, Congress has instructed the Federal Communications Commission to review its media ownership regulations and revise or repeal those rules that are no longer necessary,” Pai said. “But for the last 15 years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace. It’s become quite clear that there is no evidence or reasoning — newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever — that will persuade them to change their minds. We intend to seek further review of today’s decision and are optimistic that the views set forth today in Judge Scirica’s well-reasoned opinion ultimately will carry the day.”

More Californians are complaining to state officials about their cable television, internet, and phone service than the energy utilities implicated in causing deadly wildfires that left customers without power for days or weeks.

California’s Office of Senate Floor Analyses prepared a report for elected officials contemplating extending deregulation of the state’s top telecommunications companies. It found deregulation has not always benefited California consumers, noting that several companies have been fined for allowing traditional phone service to fall below required service quality standards. As service deteriorates, lawmakers have tied the hands of state officials trying to enforce what service standards still exist. The report found that the telecom industry has been especially good at covering itself through lobbying and litigation to isolate and disempower consumers seeking redress.

“Many companies, including telecommunications providers, include arbitration clauses in their contracts that limit a consumer’s ability to form a class with other consumers to seek remedies for unfair business practices related to contracts,” the report notes. “These clauses frequently limit consumers to a specified arbitration process that limits the types of remedies consumers can obtain for unfair business practices.”

Customers with unreliable phone service pursuing complaints on the federal level with the Federal Communications Commission have also been dealt a blow by the Trump Administration and its Republican majority control of the FCC.

“It is unclear what kind of remedies consumers can obtain since the FCC has adopted an order limiting its own ability to establish requirements for these services,” the report found.

Deregulation has not stopped Californians from trying to get help from the California Public Utility Commission (CPUC), however. The CPUC’s Customer Affairs Branch recorded 1,087 complaints about the state’s phone and cable companies in January 2019, compared with 677 complaints against the state’s energy utilities and 53 lodged against water utilities.

The CPUC’s Customer Affairs Branch reported communications-related complaints were significantly higher than other utilities. (Image: California Office of Senate Floor Analyses)

“Despite the occurrence of wildfires in which utility infrastructure was implicated, complaints regarding energy utilities remained largely consistent between November 2018 and January 2019,” the report found. “The data indicates that the communications sector generates a greater number of complaints to the CPUC than other utility sectors on average, and a much greater percentage of those complaints are for customer issues over which the CPUC has no regulatory jurisdiction.”

Earlier this year, California’s largest investor-owned utility, Pacific Gas & Electric (PG&E), filed for bankruptcy protection after estimating it was liable for more than $30 billion in damages from recent wildfires. An investigation found equipment owned by PG&E was responsible for starting the worst wildfire in California history. The November 2018 Camp Fire killed 85 people and destroyed the town of Paradise. Yet the Customer Affairs Branch received fewer complaints about PG&E than it received regarding AT&T, Charter Spectrum, Frontier, Cox, and Comcast XFINITY.

Unintended consequences of deregulation have also caused several high profile scandals among telecom companies in the state. Some of the worst offenses were committed by cable and phone companies that further traumatized victims of catastrophic wildfires. An effort to implement new consumer protections for fire victims forced to relocate met fierce resistance from cable and telephone industry lobbyists. Some of those same telecom companies continued to bill wildfire victims for months for service at addresses that no longer existed. AT&T even billed customers that died in the fires.

A recent San Francisco Superior Court decision (Gruber v. Yelp) also found another consequence of deregulation. A judge ruled The California Invasion of Privacy Act (CIPA) does not apply to calls made or received on “digital” phone lines better known as Voice over IP (VoIP). The judge found that since the CPUC does not regulate VoIP calls, and such calls are not legally defined as a traditional phone call, CIPA cannot apply.

More than six months after devastating wildfires swept across the North Bay in 2017, AT&T was still billing customers that died in that fire. KGO-TV reports. (3:31)

After promising to never again erroneously bill wildfire victims, AT&T did it again to those traumatized by the 2018 Camp Fire that killed 85 people and wiped the town of Paradise off the map. KOVR in Sacramento reports on one family pleading with AT&T to stop billing them for landline service at an address that no longer exists. (2:15)

Verizon Wireless has sued the City of Rochester, N.Y. in a potentially precedent-setting case, for demanding excessive and discriminatory fees to use public rights-of-way to deploy a fiber backhaul network and hundreds of small cells to support the introduction of 5G wireless service in the community.

The lawsuit, Cellco Partnership (d/b/a Verizon Wireless) v. City of Rochester seeks a declaratory judgment acknowledging that local laws regarding the use of rights-of-way by telecommunications companies have been largely overridden by the Trump Administration’s Federal Communications Commission. Under FCC guidelines, the maximum compensation rate a city can generally collect is $270 annually for each small cell site, far less than what the City of Rochester hopes to collect from telecommunications companies planning to dig up streets and place hundreds of small cell antennas on utility and light poles across the city.

The two parties are far apart on what defines fair and just compensation. In early 2019, the City of Rochester introduced a new fee schedule that seeks $1,500 annually for the use of each publicly owned utility or light pole, and $1,000 per standalone “smart pole” erected by a wireless company to support a small cell. Verizon Wireless wants to pay no more than $270 annually for either type.

The City also wants compensation to cover “administrative costs for retaining and managing documents and records,” “costs for managing, coordinating and responding to public concerns and complaints,” and “the costs of the City’s self-insurance.” Verizon Wireless’ attorneys argue that the FCC’s “presumptive limit” of $270 annually is all-inclusive, and therefore the fees requested are inherently unreasonable.

The City ordinance is also designed to discourage providers from installing cables on existing utility poles, preferring underground installation.

“Aerial installation of fiber or other telecommunications facilities and accessory equipment strung between poles, buildings, or other facilities, is strongly discouraged due to area weather, safety concerns, limited capacity, and aesthetic disturbances,” the ordinance reads. But Verizon Wireless argues the extra fees demanded by the City for underground burial of fiber optic cable are illegal under federal law.

“The Code’s ‘underground’ fee structure is not a reasonable approximation of actual cost, is not objectively determined, and is discriminatory,” Verizon Wireless argues.

The City’s fees for fiber optic cable installation are significant. Verizon Wireless’ lawsuit notes fees start at $10,000 for up to 2,500 linear feet of installed fiber optic cable, plus an additional $1.50 for each additional foot from 2,500-12,500 feet and $0.75 for each additional foot above 12,500 feet. After the first year, fees continue at $5,000 annually for up to 2,500 feet, $1 for each additional foot from 2,500-12,500 feet, and $0.50 for each additional foot above 12,500 feet. Somewhat lower fees apply if Verizon places its fiber cables in an existing conduit with other cables, or if it uses directional boring to place conduit and wiring without disturbing lawns, roads, or sidewalks.

Curtin

Verizon Wireless’ attorneys argue the fees cannot possibly reflect the City’s true costs because the charges are the same regardless if Verizon installed three feet or 2,000 feet of fiber optic cable.

But City Corporation Counsel Tim Curtin told the Democrat & Chronicle the city’s new fee schedule is comparable to what other cities are charging, and the City is planning more restrictions to keep providers from repeatedly digging up streets and yards to place new cable and equipment.

“This is a serious problem with people digging up the same right of way every other day and not repairing it,” Curtin told the newspaper.

The City is also exploring passing a new “dig once” policy that would incentivize providers to coordinate fiber installation to place wiring and equipment in a single shared conduit in return for lower fees. But providers like Verizon Wireless consider it in their competitive advantage to wire cities like Rochester before their competitors do.

“To better serve its customers and the City and to begin to serve new customers and provide new services, Verizon Wireless seeks to extend, densify, and upgrade its wireless network infrastructure [in Rochester], including to install additional Small Wireless Facilities to support the provision of current and next-generation telecommunications services such as 5G and to deploy fiber to connect these facilities. To successfully do this, Verizon Wireless requires new approvals from [the City of Rochester] to access City property,” Verizon’s lawsuit states. Because of the City’s fees and policies, “Verizon Wireless has been, and will continue to be, damaged and irreparably harmed, […] [including] an effective prohibition on Verizon Wireless’s ability to provide telecommunications services in the affected area of the City.”

In short, Verizon Wireless is threatening not to deploy 5G service in the area if the City successfully defends its fees and requirements.

Curtin argues Verizon Wireless is the only provider unwilling to comply with the City’s requirements, while others are moving forward under the new ordinance. One provider likely covered by Curtin’s claim is residential fiber overbuilder Greenlight Networks, which has installed fiber to the home service across several city neighborhoods for the past several years. But in 2019, Greenlight began focusing on installations in suburbs west of Rochester, and several city neighborhoods proposed for service have languished for years with “easements required” status, which could reflect Greenlight’s reluctance or ability to pay the City’s new fees.

Verizon has been the most aggressive wireless provider in Western and Central New York with respect to the proposed 5G service expansion. In addition to being the incumbent local telephone company in several New York cities (excluding Rochester), it has also offered spotty FiOS fiber to the home service in several suburbs of Buffalo and Syracuse.

A small cell

In contrast with Rochester, the City of Syracuse decided to effectively “partner” with Verizon Wireless to deploy 5G small cells to be considered America’s “first fully 5G city.” To win Verizon over, the City mothballed its existing fee policy in 2019 that charged $950 per small cell tower, resetting the rate to match the FCC’s presumed maximum of $270 annually. In return, Verizon has tentatively agreed to place up to 600 smart cell poles around the city, paying $162,000 a year. Verizon also agreed to pay a $500 application fee for each pole project (covering up to a maximum of five poles per project). Nobody is certain whether 600 smart cells are enough to saturate the city with 5G coverage, where exactly Verizon will ultimately place the small cells, or exactly when.

Ken Schmidt, president of Steel in the Air, a consultant to public and private landowners and municipalities on matters related to wireless infrastructure valuation, offered to advise the City of Syracuse for free about its agreement with Verizon Wireless, but the City never returned his calls, despite his direct experience working with other cities that negotiated with Verizon Wireless over 5G smart cells, pole attachment fees, and antenna placement rules.

“Syracuse seems to have bent over backward for Verizon,” Schmidt argues on his blog. “Make no mistake, there are benefits to becoming a 5G city, but this agreement does no more for Syracuse than it does for other cities where Verizon promised the same thing. At least some of the other cities didn’t enter into such a one-sided agreement. For example, Sacramento, San Diego and San Jose negotiated better terms and conditions than Syracuse did, and will have a similarly robust small cell deployment.”

Many consultants recommend that cities consider whether Verizon’s threats not to deploy 5G service are real, especially considering the company’s PR claims that moving forward with 5G is essential to Verizon’s network expansion.

Schmidt

Schmidt acknowledges the current FCC has a vested interest in helping large wireless companies deploy 5G infrastructure with a minimum of interference or fees from local governments.

“While the City could have negotiated a higher amount for the pole access rights or permit fees, it would have had to demonstrate that its actual costs in reviewing small cell applications and maintaining the rights-of-way were higher than the nominal fees allowed by the FCC,” Schmidt said.

Verizon’s lawyers appeared to outmaneuver the City’s attorneys by winning a number of concessions for Verizon that Syracuse will have to live with for up to 45 years. Schmidt’s recommendations may be useful to other cities, including Rochester, wrestling with these issues.

Schmidt:

Syracuse granted rights to Verizon for upward of 45 years when it didn’t have to. The city signed a master license agreement for 20 years, which allows Verizon to install poles under individual pole licenses that run up to 25 years from the date the pole was installed. Thus, if a pole is installed in year 20, it will be there for another 25 years. In short, the city is entering a possible 45-year agreement even though there is no legal requirement to do so by the FCC or any other agency. While Verizon surely prefers a much longer agreement, other cities are entering much shorter, 10-year agreements with Verizon. Verizon retained the right to terminate “at any time for any reason or no reason by written notice to the city,” but the city does not have the same right. So, the city is now committed to this specific agreement legally, regardless of what happens with technology in the future.

The agreement entered into by the city concedes unnecessary rights to Verizon under contract law. The agreement is substantially the same as other agreements proposed by Verizon to other cities. It attempts to incorporate many of the standards from the FCC Order into the license agreement. From a legal perspective, these clauses did not need to be in the license agreement. If Verizon felt the city was not adhering to the FCC order, Verizon by default has the option of requesting relief from the FCC or filing in federal court for injunction or damages. However, by adding the language in the license agreement, Verizon can now file in state court on a civil claim if Verizon believes the city is in breach of the agreement and collect monetary damages. This is absolutely of no benefit to Syracuse.

Other cities have received additional compensation in the form of public safety or “internet of things” monitoring and services, and higher fees to help pay for additional staff to review small cells applications. Syracuse received nothing. In fairness, the other cities are bigger and more important to Verizon than Syracuse. Nonetheless, the only concession Verizon appears to have made to Syracuse is the requirement for Verizon to monitor a limited set of small cells for compliance with applicable radio frequency emission standards. Verizon did not commit to deploying a certain number of small cells by any date. It is not required to deploy in the poorer areas of the city. And it did not commit to smart city initiatives or research on how 5G can benefit the residents of Syracuse.

The agreement gives the city limited rights to terminate, even if health risks are identified and proven. The city, in what appears to be an effort to appease its citizens that small cells are safe, inserted language that requires Verizon to test up to 5% of the small cells annually to confirm that they meet the minimum applicable health, safety and radio frequency regulations. The city could also test on its own, but only to confirm compliance with applicable FCC standards. By agreeing to a long-term license with limited rights to terminate, the city could be legally committed to Verizon small cells in the public right of way even if there is ample evidence that they should be removed, unless the FCC revokes its order.

By agreeing to such a one-sided agreement, the city has condemned itself to agree to similar agreements with any company providing wireless services who want to deploy in the right-of-way. Under the FCC Order and previous case law regarding the Telecommunications Act of 1996, the city may not discriminate between similar providers of wireless services. By agreeing to the terms with Verizon, the city will have a difficult time agreeing to different terms with other providers.

WASHINGTON, Aug 1 (Reuters) – The U.S. Federal Communications Commission (FCC) last week voted 3-2 to tighten rules governing the franchise fees paid by cable companies to local authorities, a move that cities warn could result in public access channels going off the air or in municipalities losing free service.

Congress previously capped the franchise fees that cable operators pay for using public property, among other factors, at 5% of gross revenue on cable bills. The FCC vote requires non-financial “in kind” contributions made by cable operators must be assigned a value and counted against the cap.

Those costs that now must be counted against the cap include contributions for public, educational, and government access channels, institutional networks and other services like free cable for municipal buildings.

FCC Chairman Ajit Pai said “every dollar paid in excessive fees is a dollar that by definition cannot and will not be invested in upgrading and expanding networks.”

Cable operators pay roughly $3 billion annually in franchise fees to state and local governments.

New York told the FCC all city fire stations get free cable and internet service from cable providers.

“There are no viable alternative services available to the city. The only potential long-term solution would be to build a parallel network which will take years and cost a massive amount of money,” the city said in a July 25 letter.

Pai

The FCC also voted Thursday to bar municipalities from regulating or imposing fees on most non-cable services, including broadband Internet service.

NCTA – the Internet & Television Association representing major cable companies like Comcast Corp, Charter Communications Inc and Cox Communications Inc – said the vote “will help promote broadband investment, deployment, and innovation, to the benefit of all Americans.”

FCC Commissioner Geoffrey Starks said “free or discounted service to cash-strapped schools, provision of critical (institutional network service), discounts to vulnerable communities … are a small imposition given the value received by providers.”

Republicans commissioners point out that cable companies have been forced to fund other events like ice cream socials or offer free service for government-owned golf courses.

Local communities including Atlanta, Boston, Dallas and Los Angeles told the FCC in a joint statement local governments will “be forced to make difficult decisions about reductions in service (i.e., coverage of governmental meetings, community media, and broadband to schools) or increases in local revenue sources.”

Reporting by David Shepardson; Editing by Bernadette Baum