Washington, DC Joseph Van Eaton April 20, 2010 THE NEW YORK STATE THRUWAY CASE - A THREAT TO LOCAL PROPERTY AND BROADBAND DEPLOYMENT Washington, DC Joseph Van Eaton April 20, 2010 Miller & Van Eaton P.L.L.C. P Washington, D.C. P San Francisco, CA. P 202-785-0600

The Key Statutory Provision – 47 USC 253 (a) - No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

The Key Statutory Provision – 47 USC 253 (b) - Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.

The Key Statutory Provision – 47 USC 253 (c) - 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 public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

The Key Statutory Provision – 47 USC 253 (d) - If, after notice and an opportunity for public comment, the Commission determines that a State or local government has permitted or imposed any statute, regulation, or legal requirement that violates subsection (a) or (b) of this section, the Commission shall preempt the enforcement… to the extent necessary to correct such violation or inconsistency.

Key Questions What is a “legal requirement?” Does the provision reach contracts? What does it mean to “effectively prohibit” the “ability” to “provide” telecommunications services? What is fair and reasonable compensation? Who decides what is fair and reasonable?

Possible answers Contracts are generally not covered. Otherwise every contract for communications services would be subject to selective preemption; but “contracts” that effectively cede regulatory control to third parties may be subject to Section 253. What is a prohibition? a requirement that materially inhibit or limit the ability of a provider to compete. FCC has required complainant to show it faced prohibition. Fair and Reasonable Compensation: What was agreed? What are others paying? Problem: what about monopoly pricing concerns? Who Decides? Generally, the courts have decided cases involving 253(c) issues on a case by case basis.

Key FCC Case In re Level 3 Commc’ns, L.L.C. Petition for Declaratory Ruling That Certain Right-of-Way Rents Imposed by the New York State Thruway Authority Are Preempted Under Section 253, Docket No. 09-153 (July 23, 2009)

Facts NYSTA allowed third party to install conduit in thruway; third party leased to others by contract; NYSTA subsequently succeeds to the third party’s interests. Contracts provide for cheap access to conduit and to right-of-way, but with limited number of exits from the Thruway (safety concerns, Federal Highway requirements)

Facts Williams agrees to a contract that provides it access to the Thruway conduit, but decides it wants more “exits ramps.” The negotiations were complex, involving hard compensation issues. Williams agreed to contract for new access points based upon agreements it had reached elsewhere. Almost a decade later, Williams successor Level 3 claims the contracts violate Section 253

What is Level 3 Asking? Level 3 asks the FCC to preempt provisions of its contract containing fees it contends are excessive for the new “exit ramps,” leaving it with the benefits of the agreement, but not the agreed burdens. IF GRANTED: Other providers disadvantaged Localities may be reluctant to enter into innovative arrangements for sharing facilities. See, e.g., National Broadband Plan, § 16.1 (discussing benefits of infrastructure sharing).

What is Level 3 Asking? Level 3 asks the FCC to establish a new test for prohibition under Section 253(a): A franchise fee or rent (or other material obligation) is prohibitory if “applied more broadly by a significant percentage of state and local governments, would materially inhibit or limit the ability of any competitor or potential competitor to offer telecommunications services….” IF GRANTED: Would render the 253(a) test completely hypothetical, and highly difficult to litigate based on the facts Would lower the prices in Manhattan, New York to the prices that can be charged in Manhattan, KS. Assumes rents are prohibitory unless low. Almost certain to have a negative effect on rural deployment (why build in low density areas if urban areas must charge the same prices as rural areas?)

What is Level 3 Asking? Level 3 asks the FCC to establish a new test for fair and reasonable compensation under Section 253(c): Fee must either be limited to a state or local government’s “costs” or based on an appraisal that assumes “competitive, non-monopoly conditions and willing, knowledgeable and unpressured market participants.” IF GRANTED: Fees in Texas and other states not based on cost would immediately become unlawful with resulting loss of jobs. Localities would spend hundreds of thousands of dollars to develop studies, then litigate at FCC or in the courts. Years of disruption/budget uncertainty guaranteed. Funds for municipal broadband would disappear.

What is Level 3 Asking? Level 3 asks the FCC to declare that it may establish national compensation standards, and resolve cases involving Section 253(c). IF GRANTED: Compromise critical to 1996 Act will be gone. To protect interests, states and localities will need to mount a concerted challenge in courts, in Congress and at the White House to restore local rights. Will localities be able to devote resources to the intergovernmental “best practices” panel envisioned by the National Broadband Plan while the FCC is asserting control over, and limiting fees for local property?

An Alternative There is a case pending in state court between the NYSTA and Level 3. The FCC – based on the relief sought – could decide to dismiss the pending FCC case, finding that it raises factual issues best resolved in the court The NBP intergovernmental panel could go forward, and the FCC and localities could begin to develop models for approaches to regulation and to compensation.