Thursday, January 10, 2019

Maryland Should Reduce Regulations and Fees That Inhibit Broadband Deployment

On January 2, 2018, I published a blog suggesting that Maryland Governor Larry Hogan should reestablish the Regulatory Reform Commission and should specify as one of its tasks identifying unnecessary taxes and fees. More specifically, the Commission and the Maryland General Assembly, which convenes this week for its 2019 legislative session, should focus on reducing regulatory and tax burdens that stifle broadband deployment and slow the delivery of next-generation wireless services. According to two recent reports, Maryland has one of the most burdensome regulatory processes with regard to broadband deployment and some of the highest wireless tax rates in the country.
A new report by the R Street Institute ranks Maryland 45th out of 50 in terms of how conducive its laws are to broadband deployment. Importantly, Maryland presently does not require localities to adopt "shot clocks" to ensure timeliness for the processing of applications or to employ hard caps on fees pertaining to accessing public rights-of-ways, acquiring construction permits, or installing pole or collocation attachments. For example, the fees localities charge for public rights-of-way access are not required to be non-discriminatory or based on an estimation of costs, meaning local governments can charge whatever they want and can charge different prices to different providers despite granting the same level of access. Whether a wireless or wireline provider of broadband access, building and upgrading a network requires a significant number of permits from the local government. Without shot clocks and without hard caps on fees, the regulatory costs imposed by impediments associated with the local government approval process slows broadband deployment.
Deploying communications networks includes heavy capital investments from broadband providers. If fees are excessively high, it will discourage competition from small providers who cannot afford access. Also, if the regulatory costs differ significantly among jurisdictions, it could discourage providers from upgrading networks in certain localities. Although there is high demand in a relatively densely-populated, wealthy state like Maryland, the margin between profit and loss is very small in the dynamically competitive broadband market.
In May 2015, Governor Hogan signed House Bill 541, which required the Public Service Commission to convene a workgroup to study attachments to utility poles in Maryland. The workgroup found in a January 2016 study that the “terms and conditions for pole attachments are adequate” and the “rates charged to pole attachers are reasonable.” But with the emergence of the 5G revolution, small cell deployment in a populated locality will require hundreds if not thousands more pole attachments than 4G, meaning the existing terms and conditions likely are outdated. With 5G deployment, wireless providers will deploy small cells on already existing buildings or utility poles, a practice called “collocation.” Without shot clocks for the review of collocation applications and without hard caps on the fees localities can charge, the regulatory uncertainty will slow 5G investment in Maryland. In 2018, Maryland policymakers introduced small cell legislation to minimize these regulatory barriers and streamline 5G deployment, but the Senate and House bills failed to pass.
If Maryland wants to continue to be considered a prime location for innovative businesses, it should adopt rules that give guidance to local governments regarding streamlining the application and approval processes and charging cost-based fees that properly compensate the local governments without slowing 5G deployment.
Moreover, according to a recent report by the Tax Foundation, Maryland, at an average rate of 13.89%, has the 15th highest combined state and local wireless tax rate in the United States. This means its wireless tax rate is 2.31 times the size of its general sales tax of 6%, which is the 9th highest disparity multiple in the U.S.
Of course, some localities impose higher tax rates than others. In Baltimore, residents pay an effective tax rate of about 25% for wireless services. At the end of 2017, over 68% of all poor adults had wireless-only voice service and nearly 24% of Baltimore’s population falls below the poverty level. Additionally, more and more consumers are substituting mobile wireless broadband for fixed broadband. And while this trend is occurring across all demographics, it is particularly prevalent among low-income and minority consumers. About 31% of U.S. adults making less than $30,000 a year are wireless-only with regard to broadband service. And 35% of Hispanic adults and 24% of black adults also are wireless-only. Maryland’s relatively high wireless tax rates unnecessarily raise the price of wireless services and harm all consumers, but they disproportionately harm low-income and minority consumers.
The Regulatory Reform Commission’s December 2015 report recommended streamlining application review processes, reducing fees and payment frequency, and expanding minority and disadvantaged business opportunities. These recommendations have not been implemented yet with regard to the taxation and regulation of broadband and wireless communication services.
As stated in last week's blog, Governor Hogan’s regulatory reform efforts have improved Maryland’s business climate and its overall fiscal condition. To continue this progress, Governor Hogan should reestablish the Regulatory Reform Commission and task it with identifying more regulations, taxes, and fees that discourage economic activity. The communications and broadband marketplace would be a good place to start.