Battle Over Telecom Fees Hits Eighth Circuit

ST. PAUL, Minn. (CN) – The Eighth Circuit heard arguments Wednesday over whether Des Moines, Iowa, is allowed to charge telecommunication carriers an increased management fee for the maintenance of public rights-of-way.

Three companies argued the city’s revised annual management fee dramatically increases their costs for operating their telecommunication facilities in public rights-of-way.

Qwest Corporation, Windstream Communications LLC and McLeodUSA Telecommunications Services LLC sued the city in Des Moines federal court in 2015, claiming the fee increase is unlawful because the Communications Act of 1934, as amended, bars unfair or unreasonable fees for the use of rights-of-way.

A federal judge ruled in favor of Des Moines in December 2016, dismissing all six counts and finding that the increased fees would not eliminate the ability to provide telecommunication services.

The carriers appealed to the Eighth Circuit, which heard oral arguments in the case Wednesday. The appellate panel was comprised of U.S. Circuit Judges Duane Benton, Jane Kelly and David Stras. There were about 10 attendees in the gallery.

The carriers’ attorney Thomas Synder argued at the hearing that the increased management fee is illegal under both the Communications Act and state law.

Snyder said Iowa Code Section 480.3 limits fees to the recovery of management costs caused by utilities in public rights-of-way.

The attorney said Des Moines charges an annual fee in addition to its permit fees.

“To us, that has not been an appropriate methodology but it has always been fairly minimal charges so really no harm, no foul,” he said.

Synder said the city recently retained a company called Springsted to do a cost study to determine its management costs, which included a construction costs component that represented 86 percent of all costs in its study.

During Wednesday’s hearing, city attorney John Haraldson relied heavily on Kragnes v. City of Des Moines, in which the Iowa Supreme Court deemed construction costs as expenses recoverable by the city under the regulatory fee standard outlined in Iowa Code Section 364.2.

But Snyder argued that Kragnes was decided under a different standard, in which the court determined all the costs that were incidental to work in the rights-of-way.

Judge Stras questioned whether there were similar limitations on the fees that could be charged in Kragnes, such as management fees.

Synder answered the question by saying that was a different statutory scheme.

“The city has argued that even though they are different statutes they are the same standard,” he said.

He said telecommunication carriers used to be covered under Section 364.2 and subject to franchise fees, but they are now covered under Section 480.3.

Judge Benton fired back to Snyder’s answer and asked whether the Iowa Legislature passed the two statutes in the same bill.

Synder said when lawmakers amended Section 364.2 to omit telecommunication carriers, they added Section 480.3.

“So I bet they used the same term management costs in the same law. I bet. What do you bet? Or do you know?” Benton said in a critical manner.

Snyder questioned what Benton meant when he said “law.”

“A bill that goes through the Legislature that develops at the same time with the same meaning of what’s going on,” Judge Benton replied.

Snyder said he did not know.

“But they dealt with 364 and 480 at the same time is my point, right? Okay, so, I think Kragnes is relevant and aren’t you trying to say Kragnes is not relevant?” Benton asked.

Snyder answered in the affirmative, and said he did not know of any other reason why the law would be passed besides limiting the management fee under Section 480.3.

Judge Stras again returned to the interpretation of Section 480.3 when Haraldson, the city’s attorney, approached the panel.

“I don’t understand, unless you take some of the reasoning with Kragnes, how it can apply here given that management costs weren’t an issue and that there wasn’t a limitation in [364.2] on management costs like there is in [480.3]?” he asked.

Construction costs and engineering costs are reasonably necessary in the management of rights-of-way, Haraldson said.

“The carriers have an overly broad conception of this, saying that you have to be able to manage the carriers sitting in the rights-of-way when this is about managing the rights-of-way themselves,” Judge Stras said. “But I also don’t know how construction costs are directing or overseeing the rights-of-way, which are the synonyms of managing.”

Haraldson said the Kragnes decision is a guide to answer that question. That case looked at a study of construction and engineering costs as part of the management costs of the rights-of-way, the attorney said.

“The presence of utilities causes these additional costs in construction and engineering as well of administrative overhead,” he said.

It is unclear when the Eighth Circuit will make a decision in the case.

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