Competition and Federal Law Preclude COLR Regulation of Wireless

The California Public Utilities Commission (PUC) has an open rulemaking proceeding in which it is considering whether to impose "carrier of last resort" (COLR) regulation on wireless voice providers. COLR rules are outdated and unjustifiable in today’s competitive market environment. And federal law preempts state COLR regulation of wireless voice providers.

A voice services carrier designated as a COLR typically is required to serve all customers within a territory, even if that means requiring them to build out their networks. COLRs must obtain permission from regulators before exiting the market. Also, COLRs typically are required to charge rates that are limited to what the regulating authority deems “just and reasonable.” 

COLR obligations are premised upon the existence of local monopoly conditions for voice telephone services. But those conditions do not exist anymore. Instead, today's voice market gives consumers choices among competing providers. As comments filed by CTIA on September 30 with the California PUC observed: 

Wireless providers in California operate in an intensely competitive market where “there are multiple providers that compete for wireless subscribers” and “consumers have the ability to switch providers” if they wish to do so. Due to this fierce competition, wireless providers in California experience customer switching rates between 9% and 34%.

FSF President Randolph May made a similar point about the competitive landscape for voice services and the outdatedness of COLR obligations in a blog post from June of this year:

In an era before consumers in almost all areas of the country, including California, had more than a single option from which to choose for the provision of basic voice telephone service, it may have made sense for the government to have the power to require that a service provider be designated as the Carrier of Last Resort. Needless to say, nowadays, consumers in most all areas have several options for acquiring voice telephone service from various providers that employ different technologies – copper wires, coaxial cable, fiber, cellular, satellite, and hybrid networks combining these facilities.

Additionally, Section 332(c)(3)(A) of the Communications Act contains a state preemption provision that effectively precludes states from imposing COLR obligations on wireless providers. The statute provides, in relevant part, that “no State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service.” CTIA’s comments correctly point out that “[r]ate regulation has always been a key element of COLR regulation” and point out various ways that the California PUC regulates the rates of COLRs. Any attempt by California regulators to control the basic rate for wireless service would be preempted by federal law. 

 

Moreover, any COLR obligation that required a wireless provider to build out its network to serve customers surely would be preempted as a regulation of entry under Section 332(c)(3)(A). Indeed, any state COLR regulation regarding wireless providers exit likely would clash with the FCC’s decision, in its 1994 CMRS Order, to forbear from exit approval requirements for wireless providers. As CTIA’s comments described that order:

The FCC specifically elected to forbear from exercising its statutory authority to require CMRS providers to obtain approval for market exit for specific policy reasons, including that “barriers to exit may also deter potential entrants from entering the marketplace” and “the time involved in the decertification process can impose additional losses on a carrier after competitive circumstances have made a particular service uneconomic,” such that “forbearance will better serve the public interest by avoiding the social costs identified in this paragraph.”

COLR obligations impose costs on voice providers, and those costs can undermine a provider’s competitiveness. For the California PUC, the better policy for voice consumers, and the lawful one, would be to promote competition and not undermine it with outdated COLR regulations. 

Court Adopts Pro-Competition, Pro-Innovation Standard on Cell Siting

On July 14, the U.S. Court of Appeals for the Third Circuit issued its decision in Cellco Partnership v. White Deer Township Zoning Hearing Board. The court held that the Zoning Board's denial of Verizon's application to build a cell tower had "the effect of prohibiting the provision of personal wireless services" contrary to the Telecommunications Act of 1996. The Third Circuit's decision is significant because the court applied a pro-competition and pro-innovation interpretation of the "effective prohibition" requirement that the FCC made in a 2018 order. 

At issue in the case was a local zoning board's decision that denied Verizon's application for a zoning variance for purposes of constructing a cell tower. Verizon alleged that the denial of its application was contrary to Section 332(c)(7)(B)(i)(II) of the Telecommunications Act, which states that a local government's actions "shall not prohibit or have the effect of prohibiting the provision of personal wireless services." Verizon prevailed at the District Court, and the zoning board appealed.

 

The Third Circuit concluded that the local zoning board's decision was unlawful under the court's pre-existing APT Pittsburg test for claims that a local government's action violated the "effective prohibition" requirement. Under the APT Pittsburg test: "First, the provider must prove there is a significant gap in wireless service and, second, the provider must show it is filling that gap in the least intrusive manner." 

 

But that did not end the court's analysis. The Third Circuit observed: 

In a declaratory ruling, the Federal Communications Commission (FCC) criticized the APT Pittsburgh test and others like it for being too narrowly focused on coverage gaps and reflecting "an outdated view of the marketplace." Accelerating Wireless Broadband Deployment by Removing Barriers to Infrastructure Inv., 33 FCC Rcd. 9088, 9106-07 [paragraph 40] (2018). Instead, it interpreted the statute to prohibit government action that "materially limits or inhibits the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment." Id. at 9102 [paragraph 35].

The court expressly adopted the FCC's "materially inhibit" standard, concluding that the agency's interpretation is entitled to Chevron deference. In doing so, court noted that the FCC has applied the "materially inhibit" standard to Section 253(a) since its 1997 California Payphone Association Order. Section 253(a) applies to effective prohibitions of "telecommunications services." Based on the canon of statutory construction that identical words in neighboring provisions of the same statute should have the same meaning, the court determined that the "materially inhibit" standard also should apply to the "effect of prohibiting" language found in Section 332(c)(7)(B)(i)(II). 

 

Moreover, upon reviewing the FCC's 2018 order and various court decisions that the order referred to, the Third Circuit derived a few key points: (1) "a prohibition does not need to be complete or 'insurmountable' to run afoul of' § 332"; (2) "local government action which either imposes unreasonable fees or requires a provider to accept unreasonable costs materially inhibits wireless services"; and (3) the "materially inhibit" standard requires us to consider the totality of the circumstances" – meaning that "[a] legal requirement that imposes a reasonable cost on one tower in one jurisdiction may constitute an effective prohibition when aggregated across many towers, or many wireless facilities, in several jurisdictions." 

 

The Third Circuit also recognized the implications of the FCC's "materially inhibit" for wireless competition policy: 

The "materially inhibit" standard is more consistent than the APT Pittsburgh test with the TCA's goals of "promoting competition, securing higher quality services for American telecommunications consumers and encouraging the rapid deployment of new telecommunications technologies." 33 FCC Rcd. at 9105 (quoting Preamble to the Telecommunications Act of 1996, Pub. Law No. 104-104, § 202, 110 Stat. 56 (1996)) (ellipses and brackets omitted). Coverage-gap-based tests are "incompatible with a world where the vast majority of new wireless builds are going to be designed to add network capacity and take advantage of new technologies, rather than plug gaps in network coverage." Id. at 9107-08 (quotation marks and citation omitted). 

Additionally, the Third Circuit acknowledged that the FCC's "materially inhibit" standard constitutes an improvement over the court's pre-existing test for claims that a local government action constitutes an "effective prohibition" on wireless services: 

This case reveals the inadequacy of the APT Pittsburgh test. The Zoning Board plausibly argued that requiring Verizon to remove the property's existing structures or to purchase the property might be less intrusive on the values that the township's set-back requirements sought to serve. But it would be unreasonable for the Zoning Board to require such extreme measures. The APT Pittsburgh test does not clarify how much a local government can reasonably require a provider do to avoid intruding. We think that the "materially inhibit" better answers this question.

The Third Circuit also set forth the implications of the FCC's "materially inhibit" standard for network upgrades to next-generation technologies: 

In light of our decision to adopt the "materially inhibit" standard, not only does "insufficiency in coverage" ordinarily entitle a provider to a variance but so does insufficiency in network capacity, 5G services, or new technology. In the TCA, Congress recognized that "[t]he telecommunications interests of constitutions are . . . statewide, national and international." 33 FCC Rcd. at 9110. Local zoning boards, like White Deer Zoning Board, are prohibited from preventing providers from meeting those broader interests.

The decision in Cellco Partnership v. White Deer Zoning Hearing Board constitutes binding precedent in the Third Circuit. And its reasoning ought to be persuasive to courts in other jurisdictions that face legal challenges to local government denials of wireless infrastructure citing permits.  

 

For additional background on the FCC's 2018 order at issue in Cellco Partnership v. White Deer Zoning Hearing Board, see my September 2020 blog post "Court Decision Will Advance 5G Network Deployment" as well as a June 2022 Perspectives from FSF Scholars, co-authored with Andrew MagLoughlin, "The FCC Should Preserve and Expand Its Broadband Infrastructure Reforms." 

Ninth Circuit Upholds California LifeLine's $0 Rate Requirement

On January 31, the U.S. Court of Appeals for the Ninth Circuit upheld a 2020 order by the California Public Utility Commission' (CPUC) that required all wireless provider participants in the state's LifeLine Program to offer at least one plan with a $0 co-payment to low-income subscribers. In National Lifeline Association v. Batjer, the Ninth Circuit reversed a lower court had ruled that the CPUC's order conflicted with Section 332(c)(3)(A). That section bars states from regulating rates for wireless services. But the Ninth Circuit concluded that the CPUC's $0 co-payment requirement did not amount to rate regulation; instead, it was a condition for a wireless provider's voluntary participation in the California LifeLine Program.

According to the Ninth Circuit's opinion: 

California is not engaged in rate regulation within the meaning of § 332(c)(3)(A) because service providers may leave and set their own rates if they do not wish to comply with the California LifeLine's subsidy requirements. The 2020 Rule sets requirements for voluntary participation in California LifeLine to advance universal service…

 

[T]he 2020 Rule does not require all California service providers to offer certain services to consumers at specific rates; the rule applies only to those that desire a state subsidy. That some NLA members might lose money providing affordable plans to low-income consumers because they cannot charge a co-pay for certain plans is of no moment under § 332(c)(3)(A): service providers may forgo the state subsidy and set their own rates if they do not wish to comply with the 2020 Rule's eligibility conditions. The rule therefore does not directly control—and thus does not impermissibly regulate—the rates that providers may set. 

My December 13, 2022 Perspectives from FSF Scholars, "The Ninth Circuit Should Uphold Preemption of State Controls on Wireless Services" analyzed the legal issues raised in Batjer. In that Perspectives, I suggested that the court reach a conclusion that is contrary to the one that it ultimately handed down on January 31. But given the voluntary nature of the California Lifeline Program, the court's decision is understandable. Underscoring the limited applicability of its decision, the court designated its opinion as "not for publication," meaning that it will not be a precedent that may be cited as binding authority in future federal court cases. 

 

Notwithstanding the Ninth Circuit's decision in Batjer, Section 332(c)(3)(A)'s express preemption provision remains an indispensable part of federal policy for wireless services. Barring state regulation of wireless rates and entry has fostered a pro-market environment in which investment, innovation, and competition in wireless services continue to thrive and to benefit consumers with a variety of advanced service options, including 5G. 

Cell Tower Case Shows Wireless Siting Rules Remain a Must for 5G Buildout

On September 26, Verizon Wireless voluntarily dismissed a lawsuit against the City of Fresno, California, as the parties reached an agreement on Verizon's construction of a 5G cell tower. The resolution of the case removes a series of roadblocks to construction of next-generation wireless infrastructure, and it stands as a reminder of the importance of infrastructure siting policies such as "shot clocks" that prohibit unreasonable permit process delays. 

Back in July 2021, Verizon filed a permit application to build an 80-foot tower in the back of a parking lot in the downtown area of Fresno, east of a highway, in order to meet wireless traffic capacity demands. The 150-day "shot clock" in which the city was required to make a decision on the permit application, the shot clock expired on February 28, 2022 without the city having reached any such decision. This despite two separate agreements between Verizon and the city of Fresno to toll the 150-day "shot clock" and thereby extend it for the city's benefit. The city made the Verizon's application the subject of four public hearings without having made any final decision when the wireless carrier finally filed its lawsuit in the U.S. District Court for the Eastern District of California on June 30, 2022. 

 

Under Section 332(c)(7)(B)(ii) of the Telecommunications Act of 1996, a local government must "act on any request for authorization to place, construct, or modify personal wireless facilities within a reasonable period of time." In its 2009 Wireless Infrastructure Order (or Shot Clock Ruling), the FCC used its discretionary authority to interpret that statutory provision by establishing a rebuttable presumption that a "reasonable period of time" is 90 days to process a "collocation" application and 150 days to process all other applications – including the construction of new cell towers like the one Verizon is now going to build in Fresno.
 

On its face, it seems quite unlikely that Fresno would have been able to overcome the presumption that its lengthy and ongoing delay in making any decision about whether to approve or deny Verizon's cell tower permit application was justified. The city almost surely would have taken a loss in court, and Verizon would have obtained judicial relief necessary to build the tower. Now that the matter has been resolved, Verizon will build the tower and expand its 5G network coverage and capacity for residents in Fresno.

 

The lawsuit in Fresno MSA Partnership Limited (Verizon) v. City of Fresno and its result bespeak the continued need for wireless infrastructure citing rules that prohibit unreasonable permit processing delays and other unreasonable local regulatory obstacles to building next-generation wireless infrastructure. If there had been no "shot clock," who knows how long the administrative delay in Fresno would have continued? 

 

My Free State Foundation former colleague Andrew Magloughlin and I made this same basic point in a June 2022 Perspectives from FSF Scholars titled "The FCC Should Preserve and Expand Its Broadband Infrastructure Reforms." In that Perspectives, we wrote: "Local regulatory barriers to broadband infrastructure deployment have come in the forms of moratoria on construction permit approval, lengthy administrative processing periods for permit applications, high fees for filing permits that bear no relation to the costs of reviewing applications, and high recurring fees for providing service." Our Perspectives focused on the infrastructure policy reforms adopted by FCC between 2018 and 2021. As we explained in that paper: 

The Commission's important recently-adopted infrastructure policy reforms preempt such barriers to broadband facilities construction and upgrades. By reducing unnecessary local regulatory costs, the Commission's reforms help preserve provider resources for investment in additional broadband infrastructure, including in harder-to-serve areas. And the elimination or reduction of excessive local administrative delays allows consumers timelier access to 5G, fiber, and gigabit-speed cable broadband services. 

The federal government has allocated $42.45 billion in funds through the Broadband, Equity, Access, and Deployment (BEAD) Program as well as billions more through other programs to subsidize buildout of broadband network facilities to unserved Americans. Having infrastructure siting policies like shot clocks in place will help ensure that those billions achieve their purpose in connecting more Americans and closing the digital divide.