Telecommunications Act of 1996 and Building Leases
By Jo-Ann M. Marzullo and Annie R. George
Anyone who uses a telephone, a mobile telephone, e-mail or the Internet is a "telecommunications user." Given the significant and growing reliance on telecommunications in the business world, real estate lawyers must address telecommunications in their leasing practices.
Telecommunications Act of 1996
The Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996) (also available at www.fcc.gov) (1996 Act), introduced competition and freedom of choice to the telecommunications industry and its customers. The purpose of the 1996 Act was to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Preamble, 1996 Act. Until now, most real estate lawyers have only dealt with the 1996 Act in limited situations such as the interaction of the 1996 Act with local zoning laws (for example, siting cell phone towers) and negotiating rooftop and tower licensing agreements.
The public debate is shifting towards telecommunications providers' access to buildings and away from effects on zoning and rooftop and tower licensing agreements. The proposed regulatory changes are evidenced in the proposed rulemaking by the Federal Communications Commission (FCC), pending bills in Congress and enacted and pending state legislation. These activities are fueling a debate over "forced access" versus "fair access."
The 1996 Act amended the Communications Act of 1934, ch. 652, 48 Stat. 1064 (1934) (Communications Act). The 1996 Act was not separately codified; instead, it appears throughout the Communications Act as a series of amendments. 47 U.S.C. §§ 35, 151-155, 201-221, 224, 301-329, 401-416, 501-505, 601-609. The 1996 Act deals with utilities, cable television and telecommunications carriers. Section 224(f)(i) of the Communications Act now provides in part: "A utility shall provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit or right-of-way owned or controlled by it." This particular section of the Communications Act will have a direct and significant impact on building owners if a certain FCC proposed rulemaking goes into effect.
A "utility" is defined in Communications Act § 224 (a)(1) as:
any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal Government or any State.
The FCC is relying on these broad definitions as the authority for a controversial proposed rulemaking. Notice of Proposed Rulemaking and Notice of Inquiry, WT Docket No. 99-217, and Third Further Notice of Proposed Rulemaking, CC Docket No. 96-98 (available at www.realaccess.org) (FCC 99-141). The FCC is attempting to apply these definitions to cables running through the risers and ceilings of buildings and to satellite dishes on roofs.
Changes can also be seen in the real estate market. Some tenants consider the telecommunications capabilities of a building to be more important than its location. Hence, the mantra "location, location, location" is becoming outdated and is being replaced to some degree with bandwidth and redundancy requirements. It is estimated, however, that only 3% of office buildings in the United States are currently served by fiber optics. Moreover, building owners want to control access of telecommunication providers to their buildings and ensure reasonable compensation for the use of the risers, conduits and utilities closets.
The proposed FCC rule would extend the nondiscriminatory access principle to buildings under Communications Act § 224. It would require incumbent telecommunications providers that currently have lines and other equipment in buildings owned by third parties to permit other telecommunications providers access to their equipment on a nondiscriminatory basis. This requirement would be met by including owners within the definition of utilities. This rulemaking would apply to all buildings and building owners.
To comprehend the forced access/ fair access debate, an alphabet soup of abbreviations and telecommunications jargon must be explained. A TCP is a telecommunications provider; the term encompasses ILECs and CLECs (both defined below), as well as any data/Internet service provider. An ILEC is an incumbent local exchange carrier, such as the local phone company. A CLEC is a competitive local exchange carrier that provides both local and long distance phone service as well as Internet service.
Forced Access/Fair Access Debate
The proposed regulatory changes on the federal and state level have given rise to the forced access/fair access debate. On one side of the debate are the TCPs, the tenants and the government, all of whom generally favor providing TCPs with unrestricted access to buildings. On the other side are the building owners and managers, who are displeased at the prospect of being required to permit access to any TCP that requests or is requested by a tenant to provide service to the building. Building owners, through several trade organizations, have expressed the opinion that the FCC does not have the authority to require such unrestricted access. They assert that such access may be considered a fifth amendment taking of private property.
The forced access proponents say that such access is required for fair competition. CLECs claim that they need access to the buildings to compete with the ILECs, which are already established in buildings.
Proposed FCC Rule
The FCC set the forced access/fair access debate into full swing by issuing a notice of proposed rulemaking on July 7, 1999, which deals in part with Communications Act § 224(f). FCC 99-141.
According to the FCC, to develop a true competitive environment for TCPs, TCPs must have access to their potential customers. Otherwise, the ILECs will remain in power. The FCC is considering "actions to help ensure that competitive providers will have reasonable and nondiscriminatory access to rights-of-way, buildings, rooftops and facilities in multiple tenant environments." Id. Essentially, this means that TCPs are entitled to be anywhere in or on a building that an ILEC or a CLEC has a right to be. The FCC argues that consumers would reap the most benefit from "facilities-based" competition, because only facilities-based competitors can break through the ILECs' hold on the telecommunications market without relying on their rivals for critical components of their offerings. The FCC also seeks to lessen the costs of entering the competition (such as creating or duplicating existing networks) and to help give the TCPs access to potential customers.
Under Communications Act § 224, utilities (including ILECs) must provide other telecommunications carriers (as well as cable television systems) with "nondiscriminatory access to any pole, duct, conduit or right-of-way that they own or control." The question is whether section 224(f) also applies to areas within buildings, such as riser conduits and utility closets. Using section 224(f) as authority, the FCC has proposed that the utilities be required to permit access to rooftops and other rights of way and risers that the utilities either own or control in multiple tenant buildings.
The FCC deems a utility to own or control an area in which it has a right to install, for example, an antenna or building riser. The FCC goes further and asserts that a utility has that ownership or control if it holds an easement. Typically, however, a building owner would have granted an easement only to the particular telecommunications provider. The FCC also proposes to include building owners within the definition of utilities and thereby require building owners to grant nondiscriminatory access to TCPs. Aware that there would be a significant impact on building owners and managers, the FCC sought comment on the effects of applying section 224(f) in this manner. If implemented, section 224(f) and its regulations may take away the ability of building owners and managers to control telecommunications in their buildings.
The Real Access Alliance comprises real estate trade organizations such as the Building Owners and Managers Association International (BOMA), National Association of Industrial and Office Properties (NAIOP), International Council of Shopping Centers (ICSC) and Institute of Real Estate Management. The Real Access Alliance issued a joint response to the FCC's notice of proposed rulemaking, asserting that the FCC cannot rely on section 224:
to grant CLECs the ability to place their facilities inside buildings. Section 224 was never intended to apply to in-building facilities. Ducts and conduits inside buildings belong to and are controlled by building owners, not ILECs or electric utilities and there are no rights-of-way inside buildings, because the term "right-of-way" has never been understood to refer to a distribution network inside a building, and because building access rights typically take the form of licenses rather than easements. Even if the term "right-of-way" did include licenses inside buildings, licenses are not apportionable so license holders have no rights that they can share with the CLECs.
Joint Reply Comments of Building Owners and Managers Association, International Institute of Real Estate Management, International Council of Shopping Centers, Manufactured Housing Institute, National Apartment Association, National Association of Home Builders, National Association of Industrial and Office Properties, National Association of Real Estate Investment Trusts, National Association of Realtors, National Multi-Housing Council and National Realty Committee/The Real Estate Round Table. WT Docket No. 99-217, CC Docket No. 96-98, Sept. 27, 1999 (available at www.realaccess.org).
The Real Access Alliance further submitted written comments to the proposed regulations and testimony before the Constitution Subcommittee of the House of Representatives Judiciary Committee held on March 21, 2000. It argued that the FCC has jurisdiction only over persons engaged in communications and that building owners are not engaged in communications or providing telecommunications services but merely manage and charge for the occupancy and use of their property. Additionally, the Real Access Alliance asserted that the FCC does not have the power of eminent domain. The FCC's actions requiring building owners to provide CLECs with access under section 224 and permitting CLECs to place their facilities inside buildings constitutes a taking that triggers just compensation. The Real Access Alliance estimated just compensation to be $10 billion dollars (12¢ per square foot of telecommunications income).
The Real Access Alliance and other similar organizations claim that the proposed rule contains three faults.
- The FCC does not have the authority to require access to risers and rooftops under section 224(f).
- Section 224 was never intended to apply to building owners.
- Any such action mandating access constitutes a taking under the fifth amendment requiring just compensation (fair market value at the time of the taking).
The proponents of the fair access side of the debate also offered testimony at the March 21, 2000 hearing. The proponents asserted that the right to access the risers and rooftops occupied by ILECs is imperative to a competitive telecommunications industry. In his testimony, Timothy Graham, General Counsel and Executive Vice President of WinStar Communications, cited delay in gaining access rights as the largest barrier to expanding its network. The problem, he said, is in negotiating access rights with building owners. The proponents claim that the benefit of fair access is increased value to the building and to the tenants. The proponents point out that the competitors are willing to assume all responsibility and costs associated with the installation and operation of the service, relieving the building owner or manager of any responsibility. Written testimony of Timothy Graham, General Counsel and Executive Vice President, WinStar Communications, Inc., before the House Judiciary Subcommittee on the Constitution, Mar. 21, 2000 (available at www.thomas.loc.gov).
In a May 30, 2000 letter to FCC Chairman William E. Kennard, Henry J. Hyde, Chairman of the House of Representatives Committee on the Judiciary, expressed his opinion that "the marketplace is adequately serving the needs of tenants and telecommunications providers, and that regulatory intervention in the form of forced access is simply not warranted. . . . I cannot support a policy that does not recognize the established private property rights of building owners." Individual members of Congress have also submitted comments to the FCC regarding the proposed rule. An April 11, 2000 letter from 27 members of Congress asked FCC Chairman Kennard to "refrain from advancing any regulation that mandates the terms and conditions under which telecommunications providers would be granted access to private buildings."
Members of the House and Senate continue to express their concern and objection to the proposed rulemaking through letters to Chairman Kennard. In a letter of August 17, 2000 to Chairman Kennard, Congressman W.J. (Billy) Tauzin (R-LA), Chairman of the Subcommittee on Telecommunications, Trade and Consumer Protection of the House Commerce Committee, stated: "Given the dynamics of this issue, I believe it would be in the best interests of the Commission [FCC] to await instructions from the U.S. Congress and perhaps delay action until the next Congress so that a complete airing and hearing of the issue can be accomplished." In his August 4, 2000 letter to Chairman Kennard, Senator Jesse Helms (R-NC) expressed an even stronger opposition to the proposed forced access regulations being considered by the FCC and suggested that the FCC "drop consideration of these regulations."
The House Constitution Subcommittee has not yet issued a report. One can only guess about the outcome if the report is not issued before the end of the second session of the 106th Congress.
Federal Legislative Front
Also driving the forced access/fair access debate is H.R. 2891, 106th Cong. (1999), "Competitive Access to Federal Buildings," introduced September 21, 1999. This bill puts the federal government in the position of an extremely powerful tenant with the ability to manipulate building owners into permitting non-discriminatory access to their buildings. It provides for "nondiscriminatory access" for competitive telecommunications services to federal buildings and commercial property owned or used by the federal government.
The bill provides that no federal agency can enter into a rental agreement unless the building owner permits nondiscriminatory access to any telecommunications provider that has obtained, if required, a "federal or state certificate of public convenience and necessity." The telecommunications provider must satisfy certain prerequisites before the provider can gain access. It must indemnify the building owner for any damage caused by installation and maintenance; it must bear all costs associated with installation and operation and pay a reasonable fee to the owner. An owner or operator that is unable to provide access will not be in violation if it has made "reasonable efforts" to permit access by a requesting telecommunications carrier.
Another House bill, H.R. 3487, 106th Cong. (1999), entitled "Competitive Broadband Telecommunications Rooftop Access Act," was introduced on November 18, 1999. This proposed bill addresses "forced access" within limited spaces. It provides for a maximum of six systems providers to be permitted in a building and limits the availability of roof area. The purpose of this bill is "to provide consumers in multi-tenant buildings with the benefits of competition among providers of telecommunications services by insuring reasonable and nondiscriminatory access to rooftops of multi-tenant buildings by competitive telecommunications carriers, and promote the development of fixed wireless, local telephony and broadband infrastructure, and for other purposes." At a tenant's request for service for a particular telecommunications provider, the owner of a multi-tenant building is to permit access to the rooftop, as well as vertical and horizontal risers, so that antennas and other appropriate equipment may be installed.
This bill contains prerequisites similar to those of H.R. 2891. The provider must assume all costs associated with installation and maintenance and must indemnify the building owner. The owner is not required to accommodate more than six telecommunications carriers and is not obligated to grant access if it is technically infeasible. Furthermore, under this bill, the owner is entitled to and may receive a reasonable fee for permitting access. The bill is unclear about damage caused by the removal of telecommunications equipment or a failure to maintain service for other tenants if a TCP is no longer providing service to the building.
If Congress does not enact the bills before the end of the second session of the 106th Congress, the bills will probably be reintroduced in January 2001 during the first session of the 107th Congress.
State Legislative Front
At the same time that the forced access/fair access debate is being pushed at the federal level, some states are independently involved in the debate. At least three states-California, Connecticut and Texas-have passed statutes requiring nondiscriminatory access. Cal Pub. Utilities Code § 626 (1999, effective Jan. 1, 2000); Conn. Gen. Stat. § 16-2471 (1994); Tex. Utilities Code § 54.259 (1997, effective Sept. 1, 1997). California has additional pending legislation on the topic. The statutes in Connecticut and California prohibit an exclusive agreement. This prohibition should caution landlords in other states not to enter into exclusive agreements. Instead, landlords should consider most favored nation agreements, because other states may enact similar nondiscriminatory access legislation.
Presently, there is no case law addressing the applicability of the 1996 Act to individual building owners. Most, if not all, of the case law focuses on the fifth amendment takings clause aspect of requiring utilities to allow nondiscriminatory access to other providers.
A significant case is Gulf Power Co. v. United States, 187 F.3d 1324 (11th Cir. 1999). The plaintiffs, electrical utility companies, sued the FCC and others, seeking a declaratory judgment that the Pole Attachment Act, as amended in 1996, 47 U.S.C. § 224(f), constitutes a taking without a method to obtain just compensation under the fifth amendment. Gulf Power Co., 187 F.3d at 1326. The Pole Attachment Act, as amended, requires utilities to provide access to their property to any cable service or telecommunications provider; the FCC has the authority to set the amount of compensation to a utility for providing that access. Id. at 1327. The district court deemed the amendment to be a taking but held that there was a method to obtain just compensation. Id. The Eleventh Circuit agreed that section 224(f) does constitute a taking and determined that, in most cases, there is a sufficient process for providing or determining just compensation.
Presently, a building owner or manager can charge any amount to a telecommunications provider to occupy space in the utilities closets, risers and ceilings in buildings. The brave new world proposed under the 1996 Act may change that situation. The near future will bring more statutory and regulatory framework to the forced access/fair access debate. It is anyone's guess as to which side will prevail, because both sides have powerful and persuasive lobbyists and sufficient funds for the battle. Regardless of the outcome, those annoying risers in offices and apartments no longer simply take up space. They are a potential source of revenue and debate, as well as a potential target for the taking of property rights. If the laws are silent on fair access to buildings and on removal of wires and other telecommunications equipment, then leases and license agreements will need to address the cost of removal and damages as well as potential interruption of services to other tenants caused by the removal.
To keep track of the fast-breaking developments in the forced access/fair access debate, readers can visit the Real Access Alliance's Web site ( www. realaccess.org) and the FCC's Web site ( www.fcc.gov). Both Web sites are excellent resources for information. A list of those and other helpful Web sites accompanies this article.
Jo-Ann M. Marzullo is a partner with Posternak, Blankstein & Lund, L.L.P. in Boston, Massachusetts, and is Chair of the Real Property Division's Emerging Issues (K-10) Committee. Annie R. George is a lawyer in Charlotte, North Carolina.
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