Catching Up on the Small Cell Order

An Interview with Carl Northrop, Founding Member, Telecommunications Law Professionals PLLC 

By Leslie Stimson, Inside Towers Washington Bureau Chief

In September of 2018, the FCC adopted its Small Cell Order, which, among other things, exercised sweeping federal preemption over the amount that a state or local governmental entity (‘Government Entities”) can charge for a small cell deployment on a public right-of-way (“PROW”). A large number of Government Entities appealed the Small Cell Order and the appeals were consolidated in the U.S. Court of Appeals for the Ninth Circuit. The rules became effective in 2019, even though they were still being appealed.

Pricing standard

“One of the most sweeping holdings in the Small Cell Order is the FCC’s interpretation of the limits on the charges that a Government Entity can impose for small cell deployments,” said Carl Northrop, the founder of communications law firm TLP. The 1996 amendment to the Communications Act empowered the FCC to preempt state and local actions which have the effect of prohibiting the provision of interstate or intrastate telecommunications services. “However,” Northrop points out, “the FCC was not allowed to interfere with the authority of a State or local government to receive ‘fair and reasonable compensation’ from telecommunications providers, on a competitively neutral and nondiscriminatory basis.”

In the Small Cell Orderthe FCC interpreted the right to receive “fair and reasonable compensation” very narrowly, according to Northrop, ruling that Government Entities only were allowed to charge fees that recovered a reasonable approximation of the Government Entities’ “actual and reasonable costs.” In adopting this standard, the Commission specifically rejected claims that Government Entities are entitled to charge “market-based rent” or cost plus a reasonable profit. Northrop says that a Government Entity can only recover the “objectively reasonable costs” of maintaining the PROW, maintaining a structure within the PROW, or processing an application or permit. Any unreasonably high costs, such as excessive charges by third party contractors or consultants, cannot be passed on to carriers even though they are an actual out-of-pocket “cost” to the government.

The Small Cell Order also specified certain “presumptively reasonable fees” for the siting of Small Wireless Facilities. Specifically, says Northrop, “a recurring charge of $270 per annum was deemed reasonable for a small cell site and the burden would be on the Government Entity to demonstrate that a higher charge was cost-based and reasonable.”

The Ninth Circuit Decision

In 2020, a divided Ninth Circuit entered a judgment generally upholding the Small Cell Orderand the FCC’s pricing standard. City of Portland v. United States, 969 F.3d 1020 (9th Cir. 2020)The Court concluded that the Small Cell Order was lawful given the deference owed to the FCC. As to the pricing standard, Northrop notes, a majority found that “above-cost fees were having a prohibitive effect on the provision of telecommunications services.” One judge, however, issued a partial dissent rejecting the contention that all above costs fees have the effect of prohibiting communications services.

Supreme Court Appeal

A large coalition of Government Entities filed a Petition for Writ of Certiorari (the “Petition”) asking the Supreme Court to review the judgment of the Ninth Circuit upholding the FCC’s rulings in the Small Cell Order. One of the principal issues raised in the Petition was whether the Ninth Circuit erred in upholding the “at cost” pricing standard. As explained by Northrop, the Petition argued that this pricing standard, and the FCC’s specification of a single presumptively reasonable fee, “converted the preemption provision into a federal rate regulation scheme that imposes a uniform $270 per year threshold in conflict with the savings clause that was intended to preserve state authority.”

According to Northrop, the Supreme Court appeal of the Small Cell Order was closely watched by the industry because of recent changes in personnel at the FCC. “FCC Commissioner Jessica Rosenworcel issued a partial dissent when the Small Cell Order initially was adopted, arguing that the preemption of the pricing authority of Government Entities was an extraordinary federal overreach. With the election of Joe Biden, Rosenworcel has now become the Acting Chairwoman of the FCC, and there was some speculation that the FCC would not defend the Ninth Circuit decision.” That was not, however, the case. The FCC opposed the certiorari petition and on June 28, 2021, the Supreme Court denied the Petition without comment. Thus, the Small Cell Order became final.

The Current Legal Situation

Northrop, who represents a variety of parties in siting matters, has found that the Small Cell Order “has put downward pressure on rental fees for small cell facilities in PROWs, but did not immediately lead to increased litigation.” There is, however, some evidence that the situation is changing. For example, in New Cingular Wireless PCS, LLC  v. City of Pittsburgh, No. 2:21-cv-443 (W.D. Pa.), AT&T is asking the court to reduce an $850 annual fee per small cell to the $270 presumptively reasonable fee specified in the Small Cell Order.

In this environment, Northrop recommends that “any Government Entity with actual costs higher than the FCC-specified presumptively reasonable rate should put accounting procedures in place so they can identify and document all of the costs associated with maintaining the PROW, maintaining a structure within the PROW, and processing an application or permit. And, to the extent that third party consultants or contractors are being paid to help manage the PROW, these third party arrangements should be let on a competitive basis so that a case can be made that the costs are reasonable and can be passed through to the site renter.”

Carriers seeking to site a small cell in a PROW should, according to Northrop, request access at the presumptively reasonable rate of $270 per annum and ask for a breakdown of actual costs if the Government Entity seeks to charge a higher rate.

Northrop has one final piece of advice for both carriers and Government Entities who are in negotiations over the siting of Small Cells: “It is in both parties’ interest to reach a voluntary agreement rather than having discussions break down. Litigation is expensive, time consuming, and the outcome is often uncertain, particularly when dealing with the inexact task of proving ‘actual costs’ and the reasonableness of a rate. And, while the Ninth Circuit decision should be the leading authority in this area, not all circuits have yet adopted the sweeping view of the FCC’s preemptive authority contained in the Small Cell Order.”

Northrop is the Founding Member of Telecommunications Law Professionals PLLC (TLP). Reach him via email at: [email protected].

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