The concrete barrier at the end of the information superhighway: why lack of local rights-of-way access is killing competitive local exchange carriers.

• Author: Day, Christopher R.

1. INTRODUCTION

   The Telecommunications Act of 1996 (1996 Act) (1) contained the promise of a deregulated national telecommunications market with unfettered competition in both the local and long-distance telecommunications markets. Unfortunately, five years after the 1996 Act was signed into law, competition in local telephony is still not a reality in many areas of the United States. While some of the blame for the failure of local competition may be placed on failed business models and the withdrawal of venture capital from the market, (2) a series of regulatory failures have also served to create an inhospitable environment for competitive local exchange carriers ("CLECs"). One of the areas where this failure has been most evident is in Congress and the Federal Communications Commission's ("FCC") failure to adequately address municipal rights-of-way access for CLECs. (3)

   This Article analyzes this regulatory failure, and presents a number of legislative and regulatory suggestions that could lead to a more coherent national scheme of regulation governing public rights-of-way access for telecommunications carriers. The first Section of this Article provides an overview of the two general business models that developed for CLECs in the wake of the 1996 Act, and addresses the general failure of the resale carrier model. The second Section of this Article provides an overview of Section 253 of the 1996 Act, and the various municipal and judicial interpretations of Section 253 that have created a patchwork of local regulation governing rights-of-way access throughout the country. The third Section of this Article provides a series of legislative and administrative proposals that would serve to create a more unified, procompetitive scheme of rights-of-way regulation throughout the United States.

2. COMPETITIVE TELECOMMUNICATIONS CARRIER MODELS

   Under the framework of the 1996 Act, there are two basic ways a new entrant into a local telecommunications market can provide service. The first method is to provide service by "reselling" the services of another carrier. (4) The second method of providing service is through the construction of telecommunications facilities for the provision of services. (5)

   1. Resale Carriers

      Under the 1996 Act, all local telecommunications carriers are required to resell their services to other local telecommunications carriers. (6) Under this model, a new carrier can approach a facilities-based carrier and request that carrier to resell its service at a "discounted" retail rate. (7) This discount, or wholesale rate, is generally set by state regulators. (8) The new carrier then attempts to make a profit on the provision of this resold service by reselling it at a rate that is generally equal to or lower than the rates charged by the incumbent carrier in the market.

      After passage of the 1996 Act, a number of CLECs attempted to provide service using a business model based solely on the provision of resold service. (9) Many of the new entrants, however, soon realized that it was impossible to turn a profit due to administrative costs and other expenses that were higher than the discount spread between the cost of the wholesale rate and the rate that the new entrants marketed the service to end users. (10)

   2. Facilities-Based Carriers

      Another model for new entrants is the facilities-based carrier model. Under this model, a new entrant constructs either some or all of the facilities that are required to operate a telecommunications network. (11) New entrants that only construct switching facilities on private property and utilize the incumbent carrier's facilities in the public rights-of-way are often referred to as "limited" facilities-based carriers, and are often regulated in a somewhat different manner than "full" facilities-based carriers that actually construct facilities in the public rights-of-way. (12)

      In the last two to three years, most new CLECs have embraced the facilities-based model due to the fact that many entrants relying exclusively on the resale model found it difficult, and in some cases impossible, to earn a profit by repackaging and reselling the services of incumbent carriers. (13) While the facilities-based model does offer the opportunity for new carriers to earn a larger profit on their investment, it also presents two regulatory issues that are unique to facilities-based carriers: interconnection and public rights-of-way access. Interconnection is the process by which new entrants "connect" to the networks of incumbent carriers, allowing the new entrants to provide seamless service between the incumbent carrier's customers and the new entrant's customers. (14) Rights-of-way access, on the other hand, generally involves the process of negotiating agreements with local governments to install and utilize fiber-optic cable or other transmission equipment on or below public streets. (15)

      Many basic interconnection issues have been resolved through FCC and state public utility commission rulings concerning the obligations of incumbents to allow CLECs access to necessary facilities. (16) Unfortunately, the legal picture in the rights-of-way area is murkier. While Section 253 of the 1996 Act purports to erase all federal and state impediments to competition in local telephony, many CLECs have gone through the process of obtaining the required state and federal approvals necessary to provide local and interexchange telephone service, only to face the challenge of obtaining "last mile" rights-of-way access from numerous municipalities that each require adherence to jurisdiction-specific regulations and often payment of substantial fees. (17) The next Section of this Article analyzes Section 253, and provides examples of many of the municipal challenges that CLECs and other telecommunications providers face.

3. BARRIERS TO REASONABLE RIGHTS-OF-WAY ACCESS

   1. Section 253 of the Telecommunications Act of 1996

      1. Plain Language

         In many respects, Section 253 is the cornerstone of the 1996 Act for local telecommunications competition, as it sets the basic federal standard prohibiting local and state barriers to entry into the local telecommunications market. (18) Although Section 253 is comprised of six subsections, (a) and (c) are particularly relevant to municipal jurisdiction over public rights-of-way utilized by telecommunications providers. (19)

         Section 253(a) broadly preempts state or local statutes, regulations, or other legal requirements that "may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." (20) Accordingly, the FCC has viewed Section 253(a) as a general proscription on state and local laws and regulations that would interfere with the provision of local telecommunications service. (21)

         Section 253(c), however, contains an exception that allows state and local governments to retain control over certain aspects of rights-of-way management. (22) Section 253(c) states that:

         Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of the public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government. (23) Accordingly, much of the debate over the effect of Section 253 on municipal rights-of-way management activities has focused on the extent to which Section 253(c) actually creates an area for municipalities to regulate use of the public rights-of-way, or whether it merely creates a limited "safe harbor" for municipalities to regulate carefully defined rights-of-way management functions. (24)

      2. Legislative History

         The legislative history underpinning Section 253 suggests that Congress intended for local governments to have a limited role in controlling rights-of-way usage by telecommunications providers. The 1996 Act was cobbled together by a Conference Committee that took various provisions from separate telecommunications reform bills passed by both the House of Representatives and the Senate. (25) In the case of Section 253, the language ultimately adopted was taken almost exclusively from the Senate version of the bill. (26) Therefore, the Senate history of Section 253 is critical to determining the legislative intent of that provision.

         The Conference Report states that Section 20(a) of the Senate Bill, which later became Section 253, "is intended to remove all barriers to entry in the provision of telecommunications services." (27) The Conference Report then lists the provisions of subsections (a) and (c) of new Section 253 by repeating the language contained in the plain language of the statute. Therefore, this language in the Conference Report would appear to support the premise that the overarching intent of Section 253 is to eliminate anything that could constitute a barrier to entry in the newly deregulated telecommunications market. Furthermore, the legislative history appears to support the contention that subsection (c) of Section 253 merely serves as a "safe harbor" to protect the ability of municipalities to manage the public rights-of-way only if such regulation does not prohibit or have the effect of prohibiting entry into a local market.

         Statements by a number of senators who were deeply involved in the negotiations over Section 253 support this premise as well. During the Senate floor debate on Section 253(c), Senator Dianne Feinstein gave examples of the types of rights-of-way management activities that Congress intended to permit under Section 253(c) in support of an unsuccessful amendment that would have eliminated the FCC's authority to preempt certain state or municipal rights-of-way regulations. (28) All of the examples provided by Senator Feinstein dealt with construction and rights-of-way...