Texas Cities Challenge State-Mandated Telecom Rates

AUSTIN, Texas (CN) — Nearly two dozen Texas cities claim that a new state law unconstitutionally requires them to grant wireless providers the use of public right-of-ways at a below-market rate, at a loss of over $800 million per year.

Lead plaintiff the city of McAllen and its mayor Jim Darling sued Texas, Gov. Greg Abbott and Attorney General Ken Paxton in Travis County District Court on Aug. 31.

The other cities suing the state are: Dallas, Irving, Brownsville, Sugar Land, Mission, Pharr, Coppell, Weslaco, Alamo, Midlothian, Highland Village, Seagoville, Alton, Boerne, Roma, Rockport, La Feria, Lucas, Balcones Heights, South Padre Island and Simonton.

The dispute centers on Senate Bill 1004, which created chapter 284 of the Texas Local Government Code. The legislation, which was enacted by state lawmakers this year, governs network providers’ deployment of network nodes in a public right-of-way.

The bill defines a network node as “equipment at a fixed location that enables wireless communications between user equipment and a communications network.” A network node includes a radio transceiver, an antenna, a battery backup power supply and coaxial or fiber-optic cables. It does not include a pole or tower to which the equipment is attached.

The lawsuit says that network nodes are a segment of small-cell technology, which is part of cellular networks that connect smartphones, tablets and other mobile devices.  It says that the increase in sales of mobile devices and the resulting spikes in data traffic will require increased capacity of wireless networks and the need for additional network nodes.

Small-cell network nodes can be placed on street signs, light poles, traffic signal poles or the side of a building. These smaller scale nodes complement the existing macro system, which involves cellular technology provided by tall towers.

The cities say that a 1999 statute establishing chapter 283 of the Local Government Code set up a system in which new entrants to the marketplace would pay fees to cities to use their right-of-ways, based on the amount each city collected from companies under pre-existing franchise agreements. The goal was to encourage competition among telecom providers, according to the complaint.

But SB 1004 is part of a “multi-state push by the wireless industry…to achieve a more relaxed regulatory environment and to obtain a public subsidy,” the cities claim in their 26-page lawsuit.

“In sharp contrast to the approach taken in chapter 283 of the Local Government Code, which was crafted to ensure the fee for the use of public right-of-way was set at fair market value, SB 1004 (chapter 284) imposes maximum charges that are a small fraction of market value, thus, gratuitously, conveying public property to private corporations and providing a public subsidy for a private commercial enterprise” the complaint states. (Parentheses in original.)

The cities note that the standard rate for the use of a public right-of-way is between $1,500 and $2,500 annually per network node.

SB 1004, however, sets an annual maximum fee of $250 per network node. The cities say this amounts to a “gift or grant” to telecom companies of $1,250 to $2,250 per node per year. In total, the bill could result in cities losing more than $800 million annually, they claim.

“Nevertheless, the legislature passed the bill initiating a significant annual wealth transfer from Texas cities to private telecommunications companies of as much as hundreds of millions of dollars each year,” the complaint states.

The Texas cities also take issue with SB 1004 allegedly transferring right-of-way management and related permitting issues to private companies.

“In a word, SB 1004 expressly takes the public right and obligation to manage right-of-way with adequate consideration of zoning and land-use needs from the municipality, and vests such decision making with telecommunications providers, whose applications must be approved without analysis of land-use matters from a public perspective,” the lawsuit states.

As a result, the cities allege that SB 1004 violates the anti-gift and non-delegation provisions of the Texas Constitution.

“SB 1004 requires Texas cities to permit private corporations to use the public right-of-way for a steeply discounted price…This is a grant of public money or thing of value contemplated and prohibited by article III, section 52. Similarly, it is a prohibited donation under article XI, section 3. This amounts to a massive, multi-million-dollar gift to private corporations from the cities of Texas,” according to the complaint.

The cities seek declaratory judgment that SB 1004 violates the Texas Constitution, and injunctive relief stopping the state’s enforcement of the new law.

They are represented by C. Robert Heath with Bickerstaff Heath in Austin, and by McAllen city attorney Kevin Pagan.

The Texas attorney general’s office did not immediately respond Tuesday to an email seeking comment.

On Aug. 18, the city of Austin filed a federal lawsuit challenging SB 1004, claiming it violates the U.S. Constitution’s Supremacy Clause and the Federal Telecommunications Act, which guarantees the city’s authority to manage its public rights-of-way. That lawsuit is still pending, though a judge denied the city a preliminary injunction.

SB 1004 went into effect on Friday.

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