Right-of-Way Valuation

1. Right-of-Way Valuation

2. 2 Valuing Public Rights-of-Way ROW franchisees gain 3 types of rights: option to place facilities in ROW � burden of potential use construction and maintenance rights for facilities actually installed � actual burden use of ROW to do business In a free market, property owner has a right to charge a fair market price

3. 3 Valuing Public Rights-of-Way Three kinds of compensation correspond to the three valuable rights: annual option payment � possibly fixed sum payment for facilities actually installed � possibly linear or cubic measure fair market value for value derived by private user from public property � possibly measured by gross revenue

4. 4 Cost vs. Value Industry argues that under 47 U.S.C. �253 compensation is limited to costs There is no reference to costs in � 253 The legislative history of � 253 refers to gross revenues; does not imply costs Nonetheless, some courts have succumbed to industry�s �access� argument, ignoring property rights

5. 5 Measures of ROW Value Where compensation is permitted, different ways of determining amount may be used (subject to state law): Linear foot fee Gross revenues-based fee Throughput-based fee Access line fee

6. 6 Measures of ROW Value Linear foot fee Reflects direct occupation of ROW Footage: Per strand, per sheath, per conduit or duct (by size) Volume (cubic) measure might make more sense, but seldom used Requires access to map data for footage

7. 7 Measures of ROW Value Gross revenues measure Reflects value realized by user Scales automatically to market share Requires access to revenue records Allocation issues where system extends beyond jurisdiction � particularly where no service is provided in jurisdiction Reseller issue: does lessee of fiber, or capacity, �use� the ROW?

8. 8 Measures of ROW Value Throughput measure (�bits per second�) Could reflect value realized by user, without specifically involving revenues Avoids issue of defining how many cables, or how large a bundle, constitute a �foot� Requires technical data re throughput Seemingly plausible, but not often used

9. 9 Measures of ROW Value Access line measure e.g., Virginia state law Superficially plausible based on traditional telephone service Does not reflect contemporary technology, where connectivity is not always measured in �access lines� Yields no result when system is a �transiting� line with no local access lines

10. 10 Examples State law regimes: OR: business privilege tax as percentage of revenues for LECs, or $3 per linear foot (point-to-point) WA: cities, 6% business privilege tax KS: 5% of revenues billed to local addresses, or $2 per access line/month MI (2002-03): $0.02 per linear foot

11. 11 Examples General ordinances: St. Louis: linear foot charge starting at $1.50 in 1991 with inflation adj., now $1.88 (2004-05) Little Rock, AR: 5% of gross revenues Particular agreements: Los Angeles (through 2002): $5 per linear foot of 6� conduit; $1.25 per linear foot overhead Eugene, OR: $4-5 per linear foot, or in kind

12. 12 Examples Analogous fees: Florida�s charge for laying cable through coral reefs (2003): $5.44 per linear foot NOAA�s charge for federal ROW (1997): over $18 per linear foot Real estate leases: motion picture theaters, 8-12% of gross revenues Alaska oil royalties: 12.5% of value at the wellhead

13. 13 State Law and Costs Some state laws limit local governments to cost recovery Iowa: management costs caused by utility�s occupation of the ROW Missouri: limitations established by SB 369 � scope unclear � some cities grandfathered others: e.g., Alaska, Indiana, Minnesota

14. 14 State Law and Costs In such cases, state law may govern the types of costs that may be considered: Administrative or processing costs Inspection costs Costs of safety precautions for ROW work Costs of locates and conflict resolution Cost of repairing & maintaining the ROW Construction costs for ROW improvements Costs to community from delays, etc.

15. 15 State Law and Costs A cost study may be necessary to identify and support the costs Allocation of costs among users may also be critical

16. 16 Some Practical Guidelines Courts may be affected by how closely a measure (gross revenue vs. linear footage) maps to �usage� of ROW State law restrictions may not be as comprehensive as they appear Lines provided by contract to individual private entities may not be subject to same restrictions as �public utilities�

17. 17 Some Practical Guidelines Ancillary issues such as application procedures may be more significant to a court than compensation levels Whether issue is presented to a court in terms of �access� or property rights may be crucial Vigilance at state legislatures is vital