THE NEW YORK STATE THRUWAY CASE - A THREAT TO LOCAL PROPERTY AND BROADBAND DEPLOYMENT

1. 1 THE NEW YORK STATE THRUWAY CASE - A THREAT TO LOCAL PROPERTY AND BROADBAND DEPLOYMENT Washington, DC Joseph Van Eaton April 20, 2010

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6. 6 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?

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8. 8 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)

9. 9 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)

10. 10 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

11. 11 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).

12. 12 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?)

13. 13 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.

14. 14 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?

15. 15 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.