On March 30, 2017 the Texas Public Utilities Commission will decide whether companies with certificates of public convenience and necessity from the Commission may place their facilities in local rights-of-way and provide wireline backhaul and Distributed Antenna Systems (DAS) service without additional local authority or the obligation to pay fees.  DAS providers say “yes” while local governments contend that such companies must negotiate separate license agreements and fees with individual cities to access their rights of way.  The Commission will be voting on the recommendation of two Texas administrative law judges to side with the companies.

The case arises from a complaint filed by ExteNet Network Systems, Inc. in response to the City of Houston’s demand for a license agreement and fees for ExteNet’s deployment of backhaul lines to wireless sites in Houston.  ExteNet argued that its status as a Certified Telecommunications Provider entitled it to access the City’s rights of way under Chapter 283 of the Texas Local Government Code regardless whether it also provided local voice or other services traditionally envisioned for municipal end users.  The Texas Legislature enacted Chapter 283 in 1999 to encourage the entry of competitive communications service providers and the deployment of new communications facilities in Texas.   Under Chapter 283, CTPs are not required to negotiate individual local franchises, but instead remit payment to each municipality on a quarterly basis based on the number of “access lines” the service provider has within each municipality.  Chapter 283 also prohibits municipalities from charging CTPs additional fees for the right to use the public right of way to provide their services.

ExteNet argues that it is not required to obtain local franchises to construct its system and provide its services, and also that it is not required to pay fees because it does not provide access lines.  Although ExteNet’s state certificate is based on a decade-old request to provide local exchange services, it has never provided them.  Nevertheless, ExteNet argues, and the Administrative Law Judges have agreed, that to qualify as a CTP, a service provider must only be authorized to offer local services, and need  not actually provide them, as the PUC ruled in a 2001 dispute between Metromedia Fiber Network Services, Inc. and the City of Carrollton (Docket No. 24480).  The City of Houston disagrees, arguing that ExteNet’s services do not qualify for coverage under Chapter 283 because ExteNet does not provide local services and its lines cannot be characterized as “access lines.”  The City’s argument that not all services qualify for the benefits and protections of Chapter 283 has some precedent, as the PUC has determined, for example, that long-haul lines not terminating at an end-user premises do not qualify (Project No. 22909).

The Administrative Law Judges reviewing this matter issued a proposed decision on February 24, 2017 in favor of ExteNet, finding that Chapter 283 defines a CTP as one with operating authority to offer local telephone exchange service, and that the provisions of Chapter 283 apply regardless of what service the CTP actually provides at any given time.

Although the proposed decision favors ExteNet (and similarly situated providers), PUC staff have other ideas.  PUC staff’s March 10 Exceptions argue that allowing service providers like ExteNet the protections of Chapter 283 would lead to an absurd result because such providers do not pay any fees under Chapter 283, which is intended to provide compensation to municipalities for use of the public right-of-way. Staff warns that ExteNet and other providers like it would receive an anti-competitive subsidy under a statute that was intended to promote fair competition in the Texas telecommunications market. Incumbent service providers offering service under other regulatory schemes in which they must negotiate franchise agreements and fees with individual cities could express the same concern.

This case represents but one move of a larger nationwide chess match between cities wanting to maximize not only their control over their rights of way and compensation for their use and new service providers wanting to minimize the financial and administrative costs of deploying services. This proceeding is certainly being carefully monitored by service providers across several industry sectors, each with its own set of particular concerns.

We would anticipate that the losing party will either appeal or find other avenues to address its concerns (such as resorting to legislative solutions).  Meanwhile, various states are considering legislation addressing access to municipal rights of way for wireless communications service providers, and Mobilitie has a pending petition at the Federal Communications Commission seeking federal preemption of state and local authority over rights of way for such services.  Regardless of the PUC’s final decision, the ExteNet proceeding in Texas will not close the issue.