to the FCC report, are some 15 cases, in nine States. And again, in only one is a telephone company involved, a company which sought to increase its pole attachment charge by 16 cents per month.

On this record, the proposal to vest jurisdiction in the Federal Communications Commission seems strange, to say the least.

Moreover, to present this situation to this Subcommittee, Mr. Chairman, as a national problem of critical significance which threatens the econome viability of the entire CATV industry and requires immediate Federal legislation is, to put it mildly, an overstatement approaching the classic "All Indians walk single file; the only one I ever saw did."

But let us look at this “problem” from the point of view of the economic viability of the CATV industry, and we'll find that the alleged problem assumes no greater proportions.

USITA has calculated the percent of CATV expense represented by pole attachment charges at approximately 3-4 percent. At a recent FCC conference, NCTA officials put the figure at 3-4 percent of CATV revenues. By either calculation, the economic viability issue dims into insignificance. And still another interesting calculation can be made. The average monthly bill to a CATV subscriber appears to be approximately $6.50. Of that sum, approximately 25 cents is expended for pole space rental. And on this 4 percent item has been spent some 11 years of regulatory, industry, and now Congressional effort, while the 96 percent continues in relative obscurity. I might note in passing that under current FCC rules, municipal CATV franchise fees of up to 3 percent of CATV revenue are not questioned by FCC, and higher fees are subject only to adequate explanation. The relatively insignificant portion of CATV expense or revenue now represented by pole attachment charges being undisputed, the CATV supporters of S. 1547 fall back position is to view with alarm the possibility of future increases in pole attachment charges.

In so doing, Mr. Chairman, the CATV entrepreneur is in no different position than the Independent telephone man. Today's telephone company pole expense, a substantial portion of which is the cost of jointly used poles, represents slightly over 8 percent of telephone company revenue from local services (the most appropriate comparison with CATV revenue), and between 4 percent and 5 percent of total revenue. It is said that the past is prologue. In the telephone business the 1976 cost of poles is in many cases double the 1971 cost. Property taxes are up from approximately $170 million in 1971 to almost $240 million in 1975, an increase of about 42 percent. Employer payroll taxes have almost doubled, from $55.4 million in 1971 to $103.2 million in 1975. Payroll costs have increased by some $600 million over the same period, or approximately 53 percent. Maintenance expense has increased from $28.64 per telephone in 1971 to $37.97 per telephone in 1975, or about 33 percent. Depreciation expense is up about the same percentage, an increase of approximately $10 per telephone.

In short, the cost of every item and every aspect of doing the telephone business has felt the effect of double-digit inflation over the past several years. I'm sure that the cost of doing the CATV business has been comparably affected, e.g., has experience increases on the order of 30 percent-50 percent.

While the economists-some at least-see hopeful signs of improvement in the economy in the near term future, it seems reasonable to expect inflation and cost increases in at least some degree to continue. But the CATV complaints and concern over the future is misdirected to the "monopolistic" telephone company. To state the case bluntly, we are aware of nothing that would exempt CATV systems from inflation and resulting cost increases. Indeed, telephone companies and other utilities would find it most difficult to explain to their customers why rates for utility service must be increased, but pole attachment charges must be maintained at, in many cases, pre-1960 levels. The difficulty is compounded, of course, by the fact that if a reasonably compensatory-at today's costs-pole attachment charge is not made, the telephone company is placed in the position of subsidizing an optional service CATV-through the rates charged its customers for a necessity-basic local exchange telephone service.

The optional nature of CATV service has itself contributed significantly to the pole attachment discussion. Presumably, had CATV been accorded public utility status and been fully regulated as such, such matters as use of public rights-ofway by CATV might never have arisen. In this context, the apparent assumption by the proponents of S. 1547 that telephone companies and other utilities are free to allow use of their rights-of-way by CATV operators may not be entirely valid. While the law of real property is not one of my favorite subjects, I am

aware of many cases in which easements are restricted to the original use, and once used are exhausted. In those cases, the placing of another wire or cable would require an additional easement.

While USITA generally opposes S. 1547 in principle, there are several specific items in the bill that are particularly objectionable.

First, USITA has experienced over the last few years a growing tendency on the part of the Federal Communication Commission to expand its jurisdiction into areas formerly regulated exclusively by the States. FCC has done so by preempting State regulation, this in the face of the existing Communications Act provision that “nothing herein contained” shall give the Commission jurisdiction over intrastate and local matters. S. 1547 as drafted provides that FCC "shall regulate . . . in any case . . . not regulated by any State authority," but the spectre of Federal preemption looms larger here than in the cases that have arisen under the existing statute. For while the existing statute denies jurisdiction, S. 1547 confers jurisdiction, leaving the door open for Federal judgment as to whether States are in fact regulating, or are adequately regulating, or are regulating in a manner consistent with Federal policy or objectives.

Even assuming adequate protection of State authority from Federal encroachment under the bill as now worded, an interesting array of possible Federal-State problems is presented. Let us assume, for example, that one or a few States conclude that State regulation is unnecessary, impractical, or even unconstitutional under State law. Are we then to have a new Federal bureaucracy to regulate CATV pole attachments in, say, South Carolina? Or would the newly created Bureau of Pole Attachments, finding no problem in South Carolina, seek other fields of action to justify its budget? And might we then have a repetition of the 10 year FCC inquiry into pole attachment policies and practices, an inquiry just concluded this year with a finding by the Commission that it had no jurisdiction over the subject matter?

But let us further assume total Federal restraint and indeed no Federal involvement in the regulation of pole attachments in and by the States. Do we then have in S. 1547 a bill in which the Congress is effectively sitting as the legislature of each of the 50 States and enacting for each State a law not only requiring State regulation of CATV pole attachment rates but also prescribing the formulae to be used in determining what is a just and reasonable rate? Might not this action, by which the justness and reasonableness of a CATV expense is regulated, also suggest that the justness and reasonableness of CATV revenue also be regulated?

The proposition that the Congress of the United States should undertake to prescribe jurisdiction and rate fixing formulae for the regulatory bodies of the several States appears questionable at best. Utility rate approval or prescription is admittedly a legislative function, but one long since delegated by the Congress and State legislature to expert administrative agencies. And while Congressional policy guidance to Federal regulatory agencies is both appropriate and necessary, a Federal effort to dictate to State agencies, not only policy but the precise methodology to be followed in carrying out that policy, would raise most serious questions of infringement on States rights.

The S.1547 ratemaking methodology itself is also a matter of concern to USITA. At best, the minimum-maximum formulae are confusing; at worst, they are totally ambiguous, and could result in litigation expense far more costly than any proposed increase in pole space charges. The phrase "additional costs", for example, could mean out-of-pocket costs, marginal costs (short term or long term) or incremental costs. In this context, of peculiar interest to telephone companies is the recent prescription by the Federal Communications Commission of full-distributed costs as the basis for telephone service ratemaking. Here again would telephone companies be confronted with the difficult task of explaining to their customers why their telephone bills-bills for a necessity-must cover fully distributed costs, when CATV operators providing an optional service are charged only incremental cost.

For all of these reasons, USITA recommends that the pole attachment provisions of S.1547 be not enacted, and respectfully suggests that the Subcommittee's attention and its talents be directed to the more significant and pressing matters on its agenda.

This concludes my prepared statement, Mr. Chairman. I will be glad to respond to any questions you or the members of your Subcommittee may have.

[The following information was subsequently received for the record:]

QUESTIONS OF THE SUBCOMMITTEE AND MR. O'REILLY'S ANSWERS

Question 1. Is the service which you provide to CATV the only or one of the only services which are not generally regulated by public utility commissions? Answer. If this question is intended to refer to pole attachments, we do not consider pole attachments a service, but rather an agreement for the use of telephone company property. The only service provided to CATV companies by Independent telephone companies is channel service, i.e., the furnishing of wideband channels for the transmission of video and audio signals. This service is provided under tariff, and is fully regulated by FCC.

Agreements between telephone companies and other utilities (e.g., electric companies) covering joint use of poles are generally not regulated by public utility commissions. Similarly unregulated are telephone company agreements with municipalities and alarm companies under which fire, police, and burglar alarm circuits are attached to telephone company poles. In some instances, circuits are leased to AT&T and Western Union under inter-carrier contracts, essentially on an unregulated basis.

Some telephone companies are also engaged, normally through subsidiaries, in the manufacture or supply of telephone equipment or the furnishing of data processing services. These activities are also unregulated. Also, the few telephone companies that have been allowed by FCC to remain in the CATV service business are generally not regulated by public utility commissions as to that service. The fundamental distinction between regulated services and other activities engaged in by telephone companies on an unregulated basis lies in the concept of common carriage. Where a telephone company holds itself out as offering (1) a communications service, (2) to the public, (3) "for hire" it is engaged in a public utility function and is regulated by public utility commissions. But telephone companies are not in the lumber, hardware, automobile and truck, or office building business-they do not offer their equipment or facilities to the public for hire. Thus it is the communication service offering, not the equipment and facilities used in providing that service, that is subject to public utility regulation.

Question 2. You state that the CATV/utility pole attachment dispute can be generally resolved without federal or state intervention. If this is so, what objection do you have to federal or state oversight of that private process to make sure that the rates agreed upon are just and reasonable?

Answer. If by "oversight" is meant that the terms of pole attachment agreements are a matter of public record, telephone company books and records, including pole attachment agreements, are already matters of record with or readily available to State regulatory bodies. And while these bodies may not have direct regulatory jurisdiction, an expression of their views can be quite persuasive.

On the other hand, if by "oversight" is meant some element of control ("oversight. . . to make sure . . . . . rates are just and reasonable") then it appears that oversight becomes regulation, with the overseer performing his traditional role. Where public utility services are involved, the Independent telephone companies have no objection to regulation. It is an obligation voluntarily undertaken in exchange for being granted the privilege of providing utility services.

We do object, however, to the taking of our property (our poles) without due process for the benefit of CATV companies that have not undertaken public utility responsibility and are not subject to public utility regulation.

When to this fact are added the facts that 10 million poles are covered by utility-CATV agreements reached without regulatory intervention (or oversight) and many more millions are the subject of negotiated telephone-electric company agreements, it seems strange to suggest the nonexistence of a problem requiring government intervention as a reason for creating government oversight. Indeed, if creation of an oversight bureau (federal or state) is to be seriously considered, it would seem more appropriate to focus on why such a bureau is needed, rather than why not. In any event, the cost and expense of an unnecessary oversight operation is perhaps the most persuasive reason against its establishment.

Question 3. You refer to rising pole maintenance and operating costs. Does not the bill's formula incorporate inflation factors?

Answer. The principal problem with the S. 1547 formula is that its floor is out-of-pocket costs and its ceiling is below the cost properly allocable to CATV pole attachments on a fully distributed cost basis. The "percent of usable space"

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concept is the villain of the piece.1 If we assume 10 feet of "usable space", the maximum CATV charge would be one-tenth the cost of the pole. If telephone company use equals two feet and electric company use is four feet, allocation of costs on the bill's formula would leave three-tenths of pole cost unassigned, but obviously borne by the telephone or electric company. Division of the total pole cost on the basis of sevenths (1, 2 and 4) would seem more equitable. With regard to inflation, the S. 1547 formula that precludes full recovery of even current embedded cost, can be said to incorporate "inflation factors" only as of the time cost is initially determined, and offers no protection against future inflation. The addition of an escalation clause, keyed to the CPI or some other reputable index, would more properly be termed an inflation factor.

Question 4. You state that proponents of this bill assume that utility pole owners are free to grant cable access to their poles, but that in "many cases" restrictive easements may not permit such grants. Would you please elaborate? Would you please provide additional details of those cases to which you refer of such restrictive easements?

Answer. The reference to "restrictive easements" is made principally in the context of rights-of-way over or along private property. The restrictions generally take two forms.

In one form, the landowner may expressly limit the right-of-way or easement granted to construction of a telephone line, or expressly forbid the construction of electric or CATV facilities. In a second form, widely used in the early years of rural electrification, easements in blank were obtained prior to the staking of the line. As a matter of law, once the line was staked and constructed the easement was exhausted, and no further or additional construction could be undertaken without an amended or additional easement.

A third problem area exists in some states in which construction of a utility pole line within a public highway right-of-way is considered an "additional servitude" on the adjoining private land, requiring the obtaining of an easement from the land owner.

Where a public utility is involved in securing rights-of-way, it is generally empowered under state law to exercise the power of eminent domain. The underlying legal principle is the acquisition of private property for public use. Here again the non-public utility status of CATV companies presents a problem, for private property cannot be condemned for a private use. Thus rights-ofway cannot be condemned by or for a CATV cable.

Question 5. Couldn't we alleviate your concerns as to ever-expanding federal regulation of pole attachments by adopting a case-by-case approach to FCC jurisdiction, whereby the FCC would act only upon request, and upon a showing that no other regulatory body has jurisdiction over the dispute in question? Do you have a specific recommendation?

Answer. We have three problems with the suggestion that FCC act only upon request and a showing of no other regulatory jurisdiction: 1) it is difficult to conceive of a matter more local in nature than utility pole attachments; 2) to be prepared to respond "on request", FCC would necessarily have to create and maintain a pole attachment staff, presumably with skills and data adequate to analyze and resolve the request presented and 3) if CATV systems follow the example of NCTA, every proposal for an increase in pole attachment charges would result in a request for FCC action.

On the first point, the local nature of pole attachments, it is doubtful that there are two utilities in the country (out of 3,000 electric and over 1,600 telephone) that would have the same pole line costs. Thus in each case the facts would be different and the result reached would necessarily reflect the local conditions and circumstances. This is hardly a task for which Federal regulators can be said to possess any degree of expertise or experience. Much of the pertinent data, however, is already known and available locally. Federal regulation might be a boon to the transportation industry, with the local people being required to come to Washington-or the Federal bureaucrats traveling to South Carolina, Missouri, Montana and points west-but no other benefit would be derived from Federal regulation.

Secondly, even a "stand-by for requests" Federal regulatory bureaucracy does not come without cost to the taxpayer and to regulated industry. And surely

1 The NCTA concept of "usable space" adds confusion to the bill's formula, since it includes space that cannot be used because of clearance requirements. On the typical joint use pole (35 foot, class 5), for example, a minimum of 1 foot clearance is required between telephone and CATV cable, and about 3% feet must be allowed between communications cable and power lines.

it is reasonable to assume that the "available on request" staff would add to the Federal paperwork and reports problem, unless it chose to remain totally ignorant of the matter subject to its jurisdiction.

Thirdly, in recent Congressional hearings it has become apparent that in NCTA's view, any suggestion of an increase in pole attachment charges is automatically characterized as a "problem" case which must be listed and reported. The submission of a "request" for FCC action would require little, if any, greater effort, with the far greater burden of responding being thrust on the pole owners.

In terms of a specific recommendation, USITA strongly urges that there be no Federal involvement in the pole attachment area.

Question 6. Should the rate making standard incorporated into this bill be merely advisory not mandatory upon the states?

Answer. The essentially incremental cost rate making standard of S. 1547 should be deleted entirely. State regulators have been in the utility regulatory business for many, many years. In the rate making area, most have operated efficiently and effectively under the traditional “just and reasonable" rate standard. USITA is firmly convinced that where rate regulation is needed, the "just and reasonable" test is entirely adequate. As set forth in USITA's policy resolution, the charge for pole attachments should be "reasonably compensatory to the telephone company for the costs and expenses properly allocable to the use of its poles or conduits by the CATV operator.”

Question 7. What positive incentives could be adopted to encourage state action in this area?

Answer. It has been USITA's experience that when the existence of a problem of such significance as to warrant legislative action is brought to the attention of a State legislature, action is generally more quickly taken there than at the Federal level.

We respectfully suggest that lack of State action in many states is attributable not to lack of incentive, but to lack of a problem requiring action. Using NCTA's classification of a proposed increase as a problem, by NCTA's classification of a proposed increase as a problem, by NCTA's own count 23 states have no problem. NCTA views with alarm the "announcement" by 41 utilities in 27 states of proposed increases in pole attachment charges. Precisely what the status of an “announced" increase is NCTA does not tell us. USITA has knowledge of only one NOTA reported announcement, that of Rochester Telephone Corporation, which according to NCTA “announced a rate increase from $7.40 to $11.39 per pole." The fact of this particular matter is that Rochester's newest CATV pole attachment agreement (dated as of July 1, 1977) provides for a charge of 65.6 cents per pole per month, or $7.87 annually.

Parenthetically, USITA is advised that 169 electric utilities, faced with costs that have more than doubled since 1970, found it necessary to file electric rate increase requests with regulatory bodies during 1976. Under the circumstances, that 33 of the over 3,000 electric utilities are negotiating with CATVs for pole attachment increases does not appear startling. The surprise, if any, is that there are so few.

Question 8. What are the appropriate components of the bill's terms "additional costs" and "actual capital and operating expenses?

Answer. A part of USITA's difficulty with S. 1547 is the ambiguity of the terms "additional costs" and "actual capital and operating expenses."

We assume that the phrase "additional costs" would include those costs that would not be incurred "but for" the CATV attachment, such as survey, engineering, make-ready and change-out costs. The phrase is susceptible to the interpretation that no part of the annual recurring costs of the pole, e.g., depreciation, maintenance, tree clearing, general and administrative (other than billing and record keeping directly related to the CATV attachments) would be considered "additional costs," on the theory that those costs would be incurred anyway without regard to the CATV attachment. Thus it would seem that were charges to be fixed at "additional costs", CATV systems would arguably pay a one-time charge at the time of attachment plus a presumably nominal recurring amount to cover billing and record keeping expense. Debate might well occur, however, over the proposition that the presence of the CATV cable does result in additional maintenance and depreciation costs. As a matter of fact the phrase "full additional cost" was the subject of considerable debate at FCC some years ago in an AT&T rate case (Docket No. 16258), in which a panel of the country's leading economists appeared unable to reach agreement on the components of the term.