A proposal by AT&T, CenturyLink and Verizon to transition to using GAAP accounting practices to calculate pole attachment rates has been met with protest from NCTA and Incompas, who said that it runs afoul of the FCC’s goals to reduce rates.
Under the joint plan, price cap carriers opting out of Part 32 Uniform System of Accounts (USOA) reporting could convert to full GAAP accounting and use their GAAP accounting data to calculate their pole attachment rates.
By making this transition, AT&T, Verizon and CenturyLink said that pole attachment rates could increase ... or decrease.
The three telcos said in their initial filing that “it is not clear that potential Part 32 to GAAP changes of a few dollars per year per attachment should be concerning—given that price cap carrier pole attachment rates typically range from less than $1.00 up to approximately $7.00 while the rates of many others can be on a significantly greater order of magnitude.”
However, NCTA said in an FCC filing (PDF) that the telcos have not made a clear argument on how moving from Part 32 accounting to GAAP accounting will ensure reasonable pole attachment rates.
“In particular, they have not provided an estimate of the magnitude of the rate change that attaching parties would be expected to experience,” NTCA said in an FCC filing. “On the current record, the Commission has no idea whether a transition to GAAP principles will result in a rate increase of 5 percent or 50 percent or 500 percent.”
Incompas, the industry group focused on competitive service providers that called on the FCC to adopt a "one-touch make ready" pole attachment policy, agreed.
FCC Chairman Ajit Pai’s creation of the Broadband Deployment Advisory Committee will address pole attachment issues.
“One of the key tasks for the committee is to recommend further reform of the Commission’s pole attachment rules,” Incompas said in its FCC filing (PDF). “Indeed pole attachment costs are a significant portion of broadband deployment costs and Chairman Pai has stated that attaching parties are 'paying too much for pole attachments' even after the recent reform to lower the rates.”
Incompas added that the “Commission needs to ensure no rates increase if they adopt the ILEC proposal.”
According to the 2010 National Broadband Plan, “the expense of obtaining permits and leasing pole attachments and rights-of-way can amount to 20% of the cost of fiber optic deployment.”
Rural area resource squeeze
Pole attachments are not only a pricing issue for service providers in big cities and towns, but also in rural areas where service providers are serving a smaller density of customers and don’t have the requisite resources to build their networks.
NCTA said it is concerned that the ILECs’ proposal could increase rates dramatically for rural providers.
“Given that broadband providers may need thousands of attachments for a single geographic area, the consequences of such a rate increase for attaching parties would be significant, particularly in rural areas where more poles (and pole attachments) are needed to reach each customer,” NCTA said. “Indeed, the potential for harmful increases in pole attachment rates was one of the factors the Commission identified in its previous decision rejecting the use of GAAP for purposes of calculating pole attachment rates, an analysis that was affirmed by the D.C. Circuit when it rejected the incumbent LECs’ appeal of that decision.”
NCTA’s thesis is not far-fetched.
Frontier said in a 2015 FCC filing that the amount of money the telco has to pay to power companies to get necessary rights-of-way to access utility poles is one of the largest costs that it and other broadband providers incur in expanding their networks to more homes and businesses.
Frontier said "these costs are particularly dramatic in the rural areas that Frontier serves, where Frontier must obtain rights to many more additional poles to serve customers spread out over a greater geographic area."
Bringing discipline to pole attachment practices
NCTA said that by maintaining the current USOA accounting (initially Part 31, and today Part 32), the FCC can assure that attaching parties may review pole rental rates and resolve differences with pole owners by using publicly-reported and verifiable information.
FCC’s Part 32 process provides pole investment and expenses that the NCTA said the FCC and other state and local utility commissions cite when a dispute between a pole owner and attacher emerges.
“Part 32 provides consistently-derived plant-specific investment and disaggregated expenses that the Commission, state regulators, and industry analysts currently use to resolve disputes over maximum permitted rates for access to poles, ducts, conduits, and rights-of-way,” NCTA said. “It serves as the foundation for disciplining pole attachment rates and for a regulatory regime that has operated successfully for over three decades.”
NCTA added that the ILEC proposals don’t provide the same “sort of consistently-derived, public and verifiable sources for the data used in the rate formulas, which was an important factor in the Commission’s prior rejection of such an approach and the D.C. Circuit’s decision affirming that decision.”
In the event that the FCC permits the ILECs to migrate from Part 32 to GAAP accounting, the regulator could “freeze” pole attachment rates as a key condition.
NTCA said that by freezing pole attachment rental rates at 2016 levels, the FCC could help parties “avoid pole rent disputes and increases, save the costs of Part 32 accounting, and avoid the need for the detailed investigations, guidance, or rulemaking that would otherwise be required to develop a GAAP-based pole rate methodology.”