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Thursday, April 21, 2011

Pole Attachment Fees as Barriers to Broadband Projects

StimulatingBroadband.com 04/21/2011 San Francisco - By Alan D. Mandl, Esq.* -


Attorney Alan D. Mandl
On April 15, 2011, three parties filed a complaint with the New York Public Service Commission against Niagara Mohawk, an affiliate of National Grid USA of National Grid plc (NYSE: NGG), in which they alleged that make ready charges and related administrative charges had been increased by Niagara Mohawk by significant, unreasonable amounts.

The complainants were collective recipients of multi-million dollar RUS and BTOP grants relating to about 1,500 miles of overhead fiber facilities to be attached to about 34,000 Niagara Mohawk poles. The complainants estimated, based on charges for small projects, that their make ready expenses would increase by over $3.5 million.

Individual make ready work item charges were alleged to increase by as much as 759% and the cost of make ready application fees were doubled. The charges for make ready were not subject to tariffing and the Commission had not regulated these charges, according to the Complaint.


The complainants further alleged that their federal grant applications predicated construction costs upon the make ready rates that existed at the time of their grant applications. According to the complainants, the increased make ready charges are “devastating,” may call into question full construction of their projects and are “seriously jeopardizing the ability of [the grantees] to implement the BIP and BTOP Grants as intended by RUS and NTIA.”

The complainants have requested that the New York Public Service Commission bar the increased make ready charges from being applied pending their investigation by the Commission.

Need for State Regulatory Oversight
This complaint highlights the need for state regulators with jurisdiction over pole attachment rates, terms and conditions to take proactive steps to assure that any federal broadband expansion grants are not wasted on unreasonable annual attachment rates and make ready-related charges.

While one cannot expect these rates and charges to remain static during the construction and operation of federally (and state) funded broadband expansion projects, the public should expect that regulators, well aware of the impending and now actual expenditure of public monies to help fund broadband expansion, take all necessary actions to establish a framework that best assures the imposition of cost-based, reasonable and non-discriminatory attachment rates.

Annual attachment rates are tied to the sustainability of broadband expansion projects. While they represent one cost component of an overall pro-forma for such projects, they also affect the cost of broadband services delivered to end users, if not the ability of last mile service providers to attract the customers needed to generate revenues that help pay for the infrastructure built to serve them. Make ready charges, of course, affect the capital costs associated with the original construction of a broadband expansion project as well as periodic costs incurred after original construction.

The need for vigorous oversight of make ready charges can be attested to by the legions of companies that have been subject to these charges.

Applicants for attachment space are subject to an application fee, a fee for the cost of surveying aerial plant to determine how much make ready work will be needed to accommodate the proposed attachments and charges for the performance of the necessary make ready work.

In some cases, the pole owner simply gives the applicant a bottom line number for make ready charges without an itemization of the work to be performed and the related costs. On occasion, pole owners have tried to roll into make ready charges the cost of curing pre-existing safety violations on the poles. In other instances, pole owners have developed detailed schedules of make ready rates by the type of work that may be necessary.

Some attaching parties have favored this unit cost of work approach because it provides them with greater certainty about the cost of make ready work for a given project and the ability to submit capital budget requests internally, without having to go back to higher management for additional capital if the final make ready bill exceeds the make ready cost estimate.

The Unit Cost Approach
As the above complaint illustrates, the use of the unit cost approach does not insulate attaching parties from the risk of charges that they may perceive as unsupported and unreasonable. Even existing unit cost charges may be called into question. Several years ago, the Vermont Public Service Board reviewed the unit cost make ready charges that Verizon Communications (NYSE: VZ) had been charging and that were to be included in a pole attachment tariff.

The consumer intervenor (Vermont Department of Public Service) and the regional cable trade association both questioned different unit cost charges; as a result, several charges were reduced when Verizon was unable to justify them to the satisfaction of the Public Service Board.

Elements of proof of cost basis include: the labor time needed to complete a given work task; applicable labor rates and related overheads (e.g., not all make ready worked should be costed out on the basis of  the wage rates for the highest ranking employees); and costs of contract labor (which also may be compared to the cost of using internal employees for the same tasks, where employees are available to do the work and adequately trained).

The fact that an annual attachment fee has been unchanged for a number of years does not mean that the fee is reasonable. In Massachusetts, for example, a cable company that paid a large amount for conduit attachment fees called into question the telephone utility’s annual conduit charges, which had been in effect for over 10 years. The end result, after complaint and hearing, was a ruling by the Massachusetts regulator that the conduit attachment fees were not cost-based, excessive and unreasonable. These fees were rolled back, enabling the cable company to save thousands of dollars annually.

Builders of broadband expansion projects and the parties that help fund these projects have a large stake in assuring that costs of attachment are just and reasonable, as construction is planned and undertaken, and during the life of the broadband project.

This author takes no position on the merits of the recent complaint now pending before the New York Public Service Commission. The Commission is to be commended on its proactive and thorough regulation of the annual attachment rates and terms. Its actions have at times served as models followed by other jurisdictions.

In the present situation, it would have been preferable if, prior to implementing substantial increases in unit cost make ready charges, the pole owner had engaged parties about to incur substantial make ready expenses and existing attachers and provided cost support for its proposed charges. The New York PSC now may have an opportunity to address make ready charge costing methodology and the level of proof required to support make ready input and assumptions.

When pole owners plan to increase annual attachment rates, it is not uncommon for them to raise the issue with cable operators or their trade associations, review supporting cost data and assumptions and attempt to iron out differences before new rates are implemented. Such a process may help avoid time-consuming and costly complaints and allow both stakeholders the ability to focus their resources on construction work and the provision of services. At the very least, issues in dispute can be narrowed.

Regulatory Consistency
Regulators can take steps to reduce the likelihood of complaints by adopting consistent approaches to costing out attachment rates. For example, the Massachusetts Commission, in establishing a conduit rate methodology, created a system under which the telephone company could propose annual increases based upon the established rate methodology, subject to 60 day notice to attaching parties.

During that time frame, this author requested and received from telephone company counsel a workpaper that substantiated the calculation of proposed annual rate increases in accordance with the Commission-approved rate methodology. This same type of approach would work in the case of pole attachments where the pole owner followed a regulator-approved rate methodology and used presumptions established by regulators (for example, the amount of usable space on a pole and the amount of space occupied by an attachment).

Make ready charges may not lend themselves to the same degree of precision as long as pole owners can cost out each job based upon an estimate subject to true-up after the completion of make ready work. To the extent practicable, however, the public interest would be served if state regulators charged with oversight of pole and conduit attachment rates and terms took steps to assure reasonable charges before large sums of taxpayer-supported federal and state grants are expended on broadband expansion projects.

Leaving the matter for dispute results in excessive charges, construction delays and cost increases and complaints. In some cases, projects may be stopped dead in their tracks, given the disparity in resources between pole owners and attachers in most cases and the dependence of attaching parties on access to the pole owner’s facilities.

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Alan D. Mandl is Of Counsel to the Boston and Lincoln, Massachusetts firm, Smith & Duggan LLP. He has worked on cable, wireless and landline telecommunications infrastructure deployments on behalf of private and public clients, including permitting of wireless facilities, construction of intra-municipal fiber facilities, joint and individual conduit build outs, pole attachment agreements and pole and conduit rate issues, and the use of publicly owned conduit infrastructures and rights of way.

Mr. Mandl's other articles for StimulatingBroadband.com are:
Infrastructure Deployment Reform Needed To Achieve Sustainable Broadband Goals and Avoid Waste, and The Broadband Cable Deployment Act of 2009 – A Good Start. Attorney Mandl may be reached at amandl@smithduggan.com 


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