Pole Fees Could Create New ‘Broadband Tax’ in Tennessee

Pole Fees Could Create New ‘Broadband Tax’ in Tennessee
March 28, 2013

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)

Broadband users in Tennessee could soon see a big increase in their monthly bills if legislation now before the state legislature passes. SB 1222 and HB 1111 are companion bills that would allow Tennessee’s electric cooperatives and government-owned utilities to raise the fees they charge telecom companies, including cable providers, to attach fiber optic lines to public utility poles.

The bills’ sponsors argue the fee increases will allow the power companies to better maintain the utility poles and hold down electricity prices.

The current average pole attachment rate paid by cable companies in Tennessee is $17 a pole a year. The national average is $7. Under the proposed bill, the cost of a utility pole would be shared equally among cable companies, Internet providers, and electric companies. Electric utilities could charge telecom companies $33 for each attachment per pole per year, more than four times the national average.

Higher Costs, Slower Development

Critics argue the legislation benefits only the government-owned power providers and would result in increased costs for consumers and slower broadband investment and development.

Bartlett D. Cleland, policy counsel for the Institute for Policy Innovation, argues increasing the pole attachment fee would constitute a broadband tax increase on consumers.

“This proposal would allow rates to rise radically—effectively creating a broadband tax—for pole attachments to 371 percent of the national average, and double the current Tennessee rate, which is already 143 percent higher than the national average,” said Cleland. “Justification for such a stunning increase is scant, since the electric company’s costs do not increase because of the pole attachments.  Of course, higher costs slow investment. All of this results in a big bill, and a big loss, for the consumer.”

Thomas Schatz, president of Citizens Against Government Waste, argues the higher pole attachment fees could harm the state’s economy.

"This legislation also creates a disincentive to providers for further broadband investments in the state of Tennessee, by increasing the costs to broadband providers,” wrote Schatz in a letter to Lt. Governor Ron Ramsey. “As you are aware, Internet access is a key driving force in today`s economy, and access to broadband Internet service provides economic growth and innovation across the nation."

$20 Million in New Costs

According to the Chattanooga Times-Free-Press, the bill could create more than $20 million in new costs statewide. The Tennessee Cable Telecommunications Association told the newspaper fee increase would discourage broadband investment in the state and “erase 1,050 miles of planned broadband deployment.”

In most instances private telecom companies pay pole attachment fees to private power companies. Rates are determined by market forces and FCC regulations. This is not the case with electric cooperatives and government-owned utilities in Tennessee. The government owns the poles, so the rent is not determined by market forces. Cable companies bear the costs of adding fiber to the poles, so any revenue from the fees is pure profit for the government utility.

The electricity market in Tennessee is unique.

“Other states have looked at the issue but I am not sure of final disposition. An important difference in Tennessee is the TVA [Tennessee Valley Authority], which owns many of the poles,” said Cleland. “Tennessee also has a large number of government utilities which compete in broadband so they are pushing to be able to increase fees.”

Third-Party Possibility

Other proposals would take a different approach in determining pole attachment fees. HB 567 and SB 1049 would use a neutral third party to resolve rate disputes, a system in use in several other states.

Despite the high fees in Tennessee, Cleland argues pole tax regulations should remain a state issue.

“As in most things the states are better situated to address problems. Tennessee has some particular challenges to work out. In addition, one of the last things we need is a national rate-setter. The market can and should sort these things out.”

Matthew Glans

Matthew Glans (mglans@heartland.org) joined the staff of The Heartland Institute in November 2007... (read full bio)