Tag Archives: MN

Access to Rights-of-Way

There is an interesting docket at the FCC that is examining the ability of a City to sign an exclusive agreement with an ISP that keeps other new ISPs out of the market. The case involves Cottage Grove, Minnesota, a suburb of St. Paul with a population of around 43,000. The City of Cottage Grove signed an agreement with Gateway Fiber to build fiber throughout the City. The City’s agreement with Gateway provides a three-year period during which the City would not issue new permits to any other fiber builders in some parts of the City, and five-years elsewhere.

An ISP, Intrepid(2), filed a petition with the FCC asking the agency to overturn that City’s action. My first reaction was that the FCC would probably rule in favor of Intrepid(2), but it turns out that laws in this area are a lot more nuanced than I understood.

The City had already explored its legal rights in this area before issuing the RFP and choosing Gateway to build a fiber network. The City addressed the rights-of-way issue in the following response to a question during the RFP process:

 The City of Cottage Grove is not attempting to restrict or prohibit access to public rights-of-way for broadband companies. The City has simply implemented a fair and efficient manner in which to regulate and manage the installation and maintenance of broadband services through their Request for Proposals. The City’s primary goal is to provide sufficient broadband to each area of the City in an efficient and orderly manner – taking into account the limited space within the public rights-of-ways and the access needs of the community during construction.

 Under Minn. Stat. 237.163, a local government is specifically authorized to manage and regulate the use of public rights of way. . . a local government may exercise the option to regulate the use of public rights-of-way so long as the regulation is carried out in a fair, efficient, competitively neutral, and substantially uniform manner. The City of Cottage Grove has chosen to exercise this option and manage the public rights-of-way pursuant to Cottage Grove City Code § 7-6-2.

The FCC has some jurisdiction in this area. Section 224 of the FCC code was created by the Pole Attachment Act of 1978 and further amended by the Telecommunications Act of 1996. These laws require utilities to provide access to poles, ducts, conduits, and rights-of-way to telecommunications carriers on fair and nondiscriminatory terms. It’s not fully clear the degree to which these provisions apply to local communities.

Cities have routinely entered into agreements with electric companies, gas companies, water companies, cable companies, and telecommunications companies to use public rights-of-way. Such agreements are often referred to as franchise agreements when the facility owner pays a fee to the government for continued use of the rights-of-way. But there are agreements that don’t include compensation.

Many of these agreements have been exclusive, and local governments agreed to not let in another similar provider. Many local governments are concerned about the consequences and problems that come from having too many buried utilities using the same public rights-of-way.

There have been many lawsuits over the years related to exclusive access to rights-of-way. Many such lawsuits centered on the fact that the right-of-way owner didn’t have a clear reason to insist on exclusive access. In this case, Cottage Grove fully researched the issue before granting an exclusive right-of-way. I’m sure the City wasn’t looking for a fight and hoped not to be sued over the issue. But the City has several issues in its favor. The City didn’t want to inconvenience citizens by having multiple companies constructing networks on the same streets. The restriction is also temporary, for up to five years in parts of the City. The City also doesn’t have an absolute prohibition against other fiber builders and will consider applications for right-of-way.

It gets even muddier in that the FCC’s authority to preempt local rules is not absolute. The FCC only has authority to preempt state laws if the FCC asserts jurisdiction over the disputed service. This is where it gets sticky for the FCC. The FCC has gone out of its way in recent years to declare that broadband is not telecommunications but is a service. That throws some doubt on the FCC’s ability to preempt a local law concerning construction of a broadband network. The FCC can’t pick and choose when it wants broadband to be considered telecommunications versus a service.

Past FCC’s have been cautious about overturning the local right to control rights-of-ways, and the FCC may not want to take on all local and state governments based on the facts in this case. Even if the FCC rules against the City, which is not a clear thing, the City could probably appeal the case and tie it up in court long enough to give Gateway a chance to construct the network unimpeded.

Local Government Funding for Fiber

There is an interesting new trend where local government acts as the banker for rural broadband projects. It’s an interesting new twist on public / private partnerships and is a model that more communities should consider.

Consider these rural broadband projects in Minnesota.

  • First is RS Fiber. This is a new broadband cooperative that serves most of Sibley County and some of Renville County in Minnesota. Bonds were approved to fund 25% of a broadband project and those bonds are backed by the counties, some small cities and also by townships that are getting the fiber. The expectation is that the project will make the bond payments.
  • Next is in Swift County Minnesota. Federated Telephone Cooperative, an existing telephone company, was awarded $4.95 million to build fiber to rural homes in the county. The county approved general obligation bonds of $7.8 million to complete the project, or 60% of the funding.

Both projects are classic examples of a public private partnership. In these particular cases the company that will own and operate the network is a cooperative, but these same agreements could have been made with a for-profit telco or some other telecom provider as well.

These kinds of projects make sense for a number of reasons:

  • The process of approving bond financing is far faster than securing traditional funding for these kinds of projects.
  • Bonds for fiber can be financed over a long period of time – 20 to 30 years, while loan terms for commercial loans are usually shorter. Just like with a home mortgage, borrowing for a longer time period means lower annual debt payments, which is essential to make these projects financially feasible.

In both cases the Counties and other local government entities have taken on the role of banker. The local governments will have no operational role in running the fiber business (a role they did not want). The Counties expect for the bond payments to be covered by the fiber project. And since these networks are being built in rural areas with few other broadband alternatives the new fiber ventures should get high customer penetration rates. But if the ventures fail then the local governments are on the hook to cover any shortfalls in the bond payments.

These are both cases of local governments deciding that the need for rural broadband was great enough to risk taxpayer money to get this done. They also decided that the risk of not getting paid is low. The business cases show that even in the worst case the revenues from the projects should cover almost all costs, meaning that the downside risk to the Counties is minimal. In the case of RS Fiber, as a start-up new cooperative, they would not have been able to get any traditional funding without the seed money from the local governments.

This is a model that the rest of rural America should consider. Small ISPs like these cooperatives stand ready to serve a lot of rural America, but they often don’t have the financial wherewithal to do so. In these cases, a public private partnership with local government as the banker seemed to be the only way to make this happen.

Everywhere I travel in rural America homeowners and farmers want good broadband. They understand that it’s costly to build fiber to farms and small rural towns. But they also seem willing to help pay to make this work. I think if more rural counties would listen to their constituents they would take a harder look at this model.

Of course, a county needs to do their homework up front and make sure they know it’s a sound project and that the estimated cost of building the broadband network is accurate. But assuming there is a solid business plan, perhaps the most valuable role a county can tackle is that of being the banker to help new broadband builds get off the ground