prompt handling of any disputes that may arise over pole attachments. Should a federal act governing pole attachments be passed it should take effect no sooner than two years after the date of its enactment to enable those state legislatures which meet biennially to enact legislation enabling state regulaory commissions to regulate pole attachments. In conclusion, Carolina Power & Light Company's position on Senate Bill S.1547 is: I. That federal regulation of the pole attachments is neither necessary nor advisable, II. The provisions of Senate Bill S.1547 descriminate against the utilities and their customers, and III. Should regulation of pole attachments be found necessary, the state regulatory commissions are the more appropriate instrument. Hon. ERNEST HOLLINGS, FEDERAL COMMUNICATIONS COMMISSION, Chairman, Subcommittee on Communciations, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: I am pleased to transmit herewith the Office of Plans and Policy's Report on Cable Television Pole Line Attachment Leasing Agreements. As you will recall Chairman Wiley, during his testimony on S. 1547, was asked to make this study available to your subcommittee. I trust the report will be useful to your committee. Should you or your staff have any questions regarding its contents, please feel free to contact Robert Blau of this office. Sincerely, Enclosure. CARLOS ROBERTS, Chief, Office of Plans and Policy. THE CABLE TELEVISION POLE LINE ATTACHMENTS PROBLEM: (A Staff Report Prepared By The Office of Plans and Policy Federal Communications Commission August, 1977) The problem GENERAL SUMMARY Owners of cable television systems have traditionally relied on telephone or power companies to provide leased space on poles (or in conduits) suitable for distribution of CATV cables and lines. Though sharing arrangements minimize unnecessary and costly duplication of facilities, pole line attachment agreements have generated both controversy and concern within the affected industries, regulatory agencies, and the Congress. To date, controversy has principally focused on the concept of "reasonable" charges for pole space used by cable television systems. Current rates and proposed increases Available data on pole attachment fees indicate that cable television systems currently pay an average annual rate of about $3.50 per pole. Rates differ depending on the type and location of utilities which lease available space. Specifically, investor-owned power companies, utilities owned by municipalities and independent telephone companies owned by major holding corporations charge significantly higher rates than do Bell operating companies, REA cooperatives and other independent telephone companies. Rates charged by utilities, regardless of type, located in the East and industrial Midwest also tend to be higher than rates charged in other regions of the country. Differences in rates, however, do not appear to be substantial. Indeed, annual rates charged by investor-owned power companies, which tend to be the highest of all types of utilities, and REA coops, which tend to be the lowest, differ by an average of eight-seven cents when location is taken into account. Moreover, differences in current pole attachment rates seem to correspond with variations in the cost of pole space. Nevertheless, for reasons discussed below, it is impossible to arrive at a definitive conclusion regarding the reasonableness of current fees. What is a "reasonable" charge! Interpretations of "reasonableness" vary and, as might be expected, they are seldom removed from self-interest. Although there is substantial agreement that the "cost" of pole space used should form the basis for equitable charges, the parties periodically disagree on appropriate costing methodologies. Many util ities, for example, appear to favor fully allocated costs based on the replacement value of space used, while cable TV operators prefer out-of-pocket or avoidable costs. If cable operators must pay capacity (capital) costs, they favor use of an embedded cost approach. The costs at issue here can usefully be divided into recurring and non-recurring costs. Non-recurring costs reflect operating expenses which arise as a result of surveys, initial make-ready work, and rearrangement of existing lines necessitated by subsequent installation of new lines by the facilities' owners. With some minor exceptions, the latter can be fairly charged to cable operators on the basis of cost causality. Annually recurring capital costs, however, are common to all users of poles (or ducts), and accordingly must be allocated and recouped through charges to all users. Many cable interests argue that they have no or only limited responsibility for recurring costs (including capital charges), and that these should principally be borne by the owners of the facilities. Ultimately, of course, such costs not incurred by cable systems are passed through to consumers of telephone services and electrical energy. Utilities, therefore, are prone to establish rates which reflect what management regards as an equitable distribution of common costs. Two possible scenarios should be considered in evaluating the reasonable distribution of non-recurring capital costs. In the first instance one can assume that the attachment of CATV cables to poles will take up space eventually needed for new telephone or electrical lines. Thus, at some time in the future, new poles would have to be installed. Since the CATV cables are at least partially responsible for this increased capital investment, the appropriate ratemaking methodology would incorporate replacement costs, and allocate these costs to CATV, telephone and other users based upon use of available space. In the second case, suppose that poles in place have sufficient capacity to provide space needed for CATV cables over an indefinite period of time. In that event, a range of reasonable rates exists, from avoidable cost at the low end to fully allocated embedded costs based on usable space at the high end. Within that range, the reasonableness of specific rates depends upon considerations of equity and fairness, as determined by local conditions on a case-by-case basis. Because of this need for case-by-case analysis, and because of the need to determine whether CATV attachments will cause additional capital investment, a regulatory agency must have familiarity with local conditions. Accordingly, jurisdiction over pole attachment rates should be vested with local or state authorities. With few exceptions the parties and equities involved are characteristically intrastate and often local in nature. Familiarity with the specific operating environment of individual utilities as well as the needs and interests of local constitutents is indispensable, therefore, to efficient and equitable resolution of controversies surrounding pole line attachment agreements. Unfortunately, in the absence of more precise information on these and related considerations, it is impossible to ascertain the need for regulation. It is apparent, however, that the Commission is not the most appropriate source of arbitration of those disputes which cannot be resolved in the private sector. 1. INTRODUCTION On May 17, 1977, Senator Ernest F. Hollings, Chairman of the Senate Subcommitte on Communications introduced legislation, S. 1547, authorizing the Federal Communications Commission to regulate the rates, terms, and conditions of pole line attachment leasing agreements between cable television systems and public utilities which own pole lines. The legislation, if enacted, would require the Commission to regulate pole line attachment agreements in situations where they are not regulated by the state. Moreover, the bill provides that all rates must fall within a zone of reasonableness as defined by avoidable costs and fully distributed costs based on usable space; regardless of whether those rates are subject to the jurisdiction of state or federal authorities. Similar legislation has also been introduced in the House of Representatives by Congressman Timothy Wirth, a member of the House Subcommittee on Communications. The purpose of this report is to evaluate the need for a federal regulatory response to the pole line attachment problem. The discussion begins with a brief explanation of the nature of pole line attachment agreements between cable television systems and public utilities with particular attention devoted to those terms and conditions of such agreements which have given rise to dispute. Pole attachment rates charged by various types of utilities located in different parts of the country are then reviewed and evaluated with regard to their reasonableness. This includes a description of the appropriate method of distributing pole costs between various users of available space. The paper concludes with a general assessment of the need for federal regulation of pole line attachment agreements. II. THE POLE ATTACHMENT PROBLEM: A REVIEW OF THE SUBSTANTIVE ISSUES A. Introduction Cable television systems, like power and telephone companies, distribute their services via lines and cables which extend through a community either above ground attached to utility poles or below ground through conduits and trenches. Typically, utilities, cable TV systems and other firms offering telecommunication services, share available space on utility poles, or in conduits and trenches. Sharing arrangements are highly advantageous to all users. The cost of a pole, conduit or trench, after installation, is fixed in that it does not vary with the number of users. By sharing space, these costs are spread over a larger number of firms. Accordingly, multiple users are able to acquire needed space at a far lower cost than would be the case if each were required to build and maintain separate facilities. Nevertheless, pole attachment agreements between utilities which own and maintain pole lines, and cable television systems which lease available space have generated considerable and sometimes heated debate. Not surprisingly, conflict stems from efforts by each type of firm to minimize its share of the total fixed costs of jointly used distribution facilities. Approximately 90 to 95 percent of all CATV coaxial cable is strung above ground on utility poles, with the remainder placed under ground in conduits or trenches.1 Trenches usually do not present a problem in this regard since there are no leasing agreements associated with their use. All parties simply share the cost of digging the trench and covering it up once the various cables and lines are in place. While conduit space is leased from power and telephone companies, its use has been limited by the inability of cable television systems to penetrate densely populated urban areas where power and telephone lines are commonly extended underground. Thus, virtually all disputes between utilities and cable television operators have focused on the use and cost of pole space. Pole line attachment agreements typically specify two distinct types of costs which the cable operator must incur in exchange for leased space. The first type is nonrecurring and generally reflects the initial cost of placing CATV lines and facilities on a series of poles. In addition to non-recurring charges, cable TV systems are also required to pay annual rental fees. Generally speaking, pole attachment fees reflect that proportion of the total annual cost of installing and maintaining a series of poles which the utility believes the cable TV system is responsible for and should be required to bear. Although disagreements have arisen over both types of costs, most disputes have understandably, centered around the reasonableness of the annual fees. Nevertheless, a thorough understanding of problems which the legislation is designed to address necessitates that some attention be paid to the question of non-recurring costs. B. Pole layout-Placement of lines and facilities Placement of all types of lines and facilities on a utility pole are subject to certain technical standards designed to protect the integrity of services provided by all users of pole space as well as the safety of the general public and those persons working on pole lines. Technical standards generally pertain to minimum distances between various types of lines and the ground, and to the strength of the pole. While minimum standards are defined by the National Electrical Safety Code (NESC), more stringent requirements may be imposed by individual util 1 See William S. Comanor and Bridger M. Mitcher "Cable Television and the Impact of Regulation" Bell Journal of Economics and Management Science. Vol. 2 No. 1 (Spring, 1971) p. 179. It is assumed that that proportion of cable placed underground has not changed markedly since 1970. reasonably expect to incur that proportion of the total cost of a new pole not reflected in the annual charge.8 This, of course, raises the issue of annual pole attachment fees which represent the most important and hotly debated aspect of pole line attachment agreements. Accordingly, the discussion will now turn to an explanation of current charges for pole space leased by cable television systems followed by a description of appropriate methods of distributing pole costs between cable TV systems, utilities and other users of available space. III. POLE LINE ATTACHMENT RATES: A REVIEW OF CURRENT CHARGES AND AN ASSESSMENT OF THEIR REASONABLENESS A. Ownership of utility poles used by cable TV systems According to the National Cable Television Association, cable TV systems currently lease space on approximately 10 million utility poles. As the figures in Table One below indicate, fewer than half of these poles are controlled by telephone companies, while 53 percent are controlled by power utilities.9 TABLE 1.-Distribution of the control over pole space leased to cable TV systems by type of utility 1 Major holding companies include the Allied Telephone Co., Central Telephone and Utility Corp., Continental Telephone Corp., General Telephone and Electronics Corp., MidContinental Telephone Corp., and United Telecommunications, Inc. Most cable TV systems also lease space from more than one utility. Indeed, only 26 percent of all cable systems currently have leasing agreements with one utility. An estimated 52 percent lease space from two utilities while 13 percent acquire pole space from three different companies. The remaining six percent of all cable TV systems lease space from four or more utilities. Given these estimates, it can be assumed that there are approximately 7800 CATV pole line attachment agreements currently in effect. Moreover, an estimated 72 percent of all cable TV systems presently in operation lease pole space from Bell Telephone operating companies. Approximately 65 percent have leasing agreements with investor owned power companies. An additional 13 percent lease space from independent telephone companies owned by major holding corporations, while nine percent have leasing agreements with other independent telco's. Finally, an estimated ten percent of all cable systems attach their lines to utility poles owned by REA cooperatives and 14 percent acquire space from utilities owned by municipalities. It would further appear that a relatively small percentage of these agreements have been the subject of formal dispute. As pointed out in a recent survey conducted by the Commission's Cable Television Bureau, cable TV systems are presently contesting proposed rate increases of 16 different utilities in state courts or before public service commissions, 10 Although, many other systems would probably register formal complaints if a state or federal regulatory forum were more A more thorough explanation of the concept of the full costs application to the pricing These figures and subsequent data on pole attachment rates were derived from information collected through telephone interviews with the operators of 253 randomly explanation of the sample employed for this purpose. It should also be understood that many utility poles are jointly owned by power and telephone companies. In those instances, one of the parties usually retains responsibility of establishing rates for leased space, prepared by the Cable Television Attachment mately, the staff was unable 10 See FCC staff report. Cable Television Pole attachment: State Law and Court Cases to ascertain the number of cable TV systems affected by contested rate increases. of pole space can be found in Section III which follows. We want to clearly state that our member cooperatives support Cable TV for rural areas as evidenced by NRECA membership resolutions at annual meetings. The 1977 Resolution favors financing Cable TV by the use of the existing financing authority of the Rural Development Act. This matter was covered in depth by our Legislative Specialist, William E. Murray, in a statement presented to the Subcommittee on April 6, 1977. NRECA is opposed to the enactment of S. 1547, which would amend the Federal Communications Act of 1934, so as to have the Federal Communications Commission compel utilities to provide space for CATV cables and regulate the rates, terms and conditions for the use of rights-of-way for wire communications. On February 24, 1977, at our 35th Annual Meeting in Atlanta, Georgia, our membership adopted unanimously the following resolution on the Federal Communications Commission and Pole Line Attachments: Efforts are being undertaken to require the Federal Communications Commission to assert jurisdiction over Pole Line Attachment matters and rates thereof, and/or to secure legislation to require the Federal Communications Commission to assert such jurisdiction. Under existing law, the FCC does not have authority to impose such jurisdiction over Pole Line Attachment rates. We urge the Utilities Telecommunications Council (UTC) to continue to oppose such efforts to the fullest extent possible. We urge the NRECA staff, through its regular program efforts, to lend every possible assistance and support to UTC in this regard, and to take such other measures as may be necessary to maintain this position. We believe that enactment of this bill will establish very stringent Federal regulations over CATV pole line attachment matters. It would also result in stringent regulations by the Federal Government over the pole line attachment arrangements which the rural electric cooperatives might have with telephone carriers. Basically, NRECA feels that the matter of pole line attachment is simply one of contractual agreements between the participating entities. However, if regulation is required it would be far better to handle it at the state level. State and local authorities are better able to know and handle the interest of their respective community services for farmers' communications demands, closed circuit systems for public schools and other CATV needs, and to set equitable rates for such services. S. 1547 would place immediate jurisdiction over pole attachments in the FCC except where states already regulate them. This would deter, not encourafe, state legislature to provide these regulatory agencies with such jurisdiction. We also note that the legislation, as drafted, places an upper limit on the charges for pole line attachments whch is the incremental cost. This, in effect, presumes that the cost to be borne by the CATV Co. should not exceed the cost of attaching the cable to the pole or only the cost of that small increment of space on the pole or in the duct which the CATV Cable occupies. This allows nothing toward the erection of the pole, or its operation and maintenance, or any inconvenience which might be suffered by the Utility because the CATV cable is attached. We also anticipate the need to consider safety related conditions that could add to the operation and maintenance requirements and costs of rural electric distribution systems. Again, these are matters which NRECA believes can best be dealt with by contracts. In 1976, the House Committee on Interstate and Foreign Commerce adopted an amendment which provided that the FCC should not be granted jurisdiction over pole attachment agreements executed by rural cooperatives and publicly owned utility systems. H.R. 15327 defined “utility" as follows: The term "utility" means any person whose rates or charges are regulated by a State or any political subdivision, agency, or instrumentality thereof, or the Federal Government and who owns or controls poles, ducts, conduits, or rightsof-way used in whole or in part, for wire communication. Such term does not include any railroad. any person which is cooperatively organized, or any person owned by the Federal Government or any State or political subdivision, agency, or instrumentality thereof. (H.R. 15327, 94th Congress, Section 204 (a) (1)) This exclusion is not contained in this bill (S. 1547). In summary. NRECA opposes the enactment of this pole line legislation for the following reasons: (a) The rural cooperatives own and operate about 4% of the electric distribution lines in the United States and have always demonstrated a willingness |