Legal Shootout at the Broadband Corral

In the nationwide struggle to preserve cities’ rights to regulate broadband carriers, the city of McAllen, Texas, occupies a singular perch, and its city attorney, Kevin D. Pagan, has achieved a moment in the spotlight.

McAllen is at the top of the list of 31 cities that are plaintiffs in a fight to overturn a recent Texas state law, and its mayor, Jim Darling, is the only individual listed as among those injured by the law. Pagan has pushed the suit with the backing of Darling and the city commission, and has welcomed other city attorneys to join his cause.

The McAllen-Edinburg-Mission metropolitan area, with around 840,000 residents, sits along the Mexican border in the Rio Grande Valley and serves as a good place from which to understand the epic battle that’s playing out between state legislators in Austin and local officials from Sugar Land to Dallas.

Pagan has been at the center of the controversy before and after the legislature passed S.B. 1004 last May. His opposition centers around provisions of the law described by the Texas Municipal League as follows:

• It takes away the ability of cities to control how public rights-of-way are used.
• It mandates the use of street signs, traffic structures, and street lights for antennas for cell phone companies.
• It subsidizes the cell phone industry with below market rental rates and capped application fees.

McAllen, like many other cities and rural areas too, is desperate to give all of its citizens access to high-speed internet. It’s as vital a service as electricity and telephones were to an earlier era. Indeed, as Route Fifty recently reported, Fort Collins, Colorado, is treating broadband as a fifth utility.

But, of course, governments do not themselves string cable or fiber or put in place network nodes or “small-cell” networks or Wi-Fi hotspots. That is usually done by internet service providers like Verizon, AT&T, Sprint and T-Mobile.

At issue in McAllen and other Texas cities are public rights-of-way, where gas, sewer, water, electricity and telephone services are routed. Like the railroads before them, private providers of some of these services pay a fee to the landowner. With broadband installation, the points of tension often involves the leased access to utility poles, streetlight posts, underground conduit or other local infrastructure.

The internet service providers take the view that these rights-of-way have already been developed and that they should not have to pay a hefty fee for providing what they say is a public service—albeit one that charges customers a pretty penny.

But the research from Pagan’s team showed that, long before this argument emerged, cities were renting their utility poles to ISPs for $1,500-$2,500 a year per network node installed.

City of McAllen et. al. vs the State of Texas

In negotiations last year with the major carriers, Pagan and his team were near an agreement that would have charged $1,500 or more per network node. But then, the carriers abruptly ended the negotiations and focused their energies on passing S.B. 1004. By capping the annual fees for installation of wireless facilities at just $20 a year for co-location on an existing pole, and   $250 a year for network nodes in other locations, the legislation stood to save them a lot of money.

The Texas Municipal League and the Texas City Attorneys Association fought the legislation. And shortly after they lost the battle, they resolved to challenge the law on constitutional grounds. The suit, City of McAllen et. al. vs the State of Texas, was filed on Aug. 31 in Travis County District Court. Much of the work on the matter is being conducted by the Austin-based law firm of Bickerstaff, Heath, Delgado and Acosta, whose partner Robert Heath is an expert in complex government litigation.

The Texas Municipal League allocated $50,000 to help finance the litigation, and support has also come from the Texas Coalition of Cities for Utility Issues, whose chairman is Don Knight, assistant city attorney in Dallas. Dallas is the largest of the 33 cities that are party to the suit, and is among 20 cities that are allocating their own funds to help support litigation costs, Knight told Route Fifty.

Pagan explained that his city commission is worried about the precedent the law would set.

“In our legal analysis,” he said, “the law forces us to give gifts to private parties. It is forcing us to give access to our rights-of-way at far less than market value. What about other companies using the rights of way? They are paying higher rates, and why wouldn’t they say, ‘What about us?’”

The wireless telecom companies, he continued, “want access to the rights of way like public utilities, but they don’t want to be regulated like a public utility.” Pagan noted while the companies promote small-cell as cutting-edge wireless technology, the cells rely on a vast fiber cable network that comprises 90 percent of the system, largely strung on poles in the rights of way.

It’s clear the telecom companies have gotten themselves on the wrong side of influential municipal officials in Texas. Knight reflected on the history of Texas state constitutional provisions that sought to control giveaways by cities to railroad entrepreneurs in the 19th century. Some municipalities went bankrupt when their loans or direct investments turned worthless, Knight recalled. History is repeating itself, he said. “The internet is today’s railroads, and now you have trillion-dollar multinational corporations wanting a government giveaway.” The cities, in their legal filings, assert that they stand to lose up to $800 million a year in fees if the law is upheld by the courts.

Fighting for Access

In McAllen, the fight, as in other cities, has long been to make broadband accessible to all. School children, Pagan said, have a particular need if they are going to keep up with their assignments. In 2011, the school district bought 26,000 iPads for its students, and then, in 2016, it upgraded the technology, buying 12,300 Google Chromebooks for middle- and high-school students and 12,300 new iPads for younger students.  

These are useful in the schools and in libraries, where wifi is available. But of course most students do their homework at home, and so the challenge remains of getting them broadband access even if their families do not want or cannot afford to pay for service.

Pagan had a scheme for getting this done for at least some students. He proposed to the telecom company negotiators that they include public hot spots on poles alongside the small-cell nodes they were installing. This was, admittedly, a separate technology, said Pagan, but the city was prepared to offer steep discounts from the network fees it was proposing if the companies would go along. He could find no takers among the telecom firms.

The lawsuit is now in discovery phase. Pagdan anticipates the jury trial will begin in early fall. A decision in the district court could be appealed to the one of the state’s Courts of Appeals and on from there to the Texas Supreme Court. Knight said the cities would appeal if they lost. Less certain, he said, would be the state’s reaction if it lost. The state, unlike the cities, has no money at stake in the conflict.

In the meantime, the law is in effect, in all its complex detail closely regulating what cities can and cannot do.The Texas Municipal League has issued extensive guidance interpreting the law and advising its members on its requirements.

Dallas, for one, is only reluctantly abiding by provisions capping fees it can charge. It has set a standard fee of $2,000 annually per network node. At the same time, it allows companies to build out their networks at the state-imposed cap of $250 per node. But the city has made clear to the companies “that we will be coming after for you for the rest” if the McAllen suit prevails, said Knight. And will it prevail? “I think so,” said Knight. “We have a great legal argument.”

Meantime, the city of Austin has filed its own action against Texas, citing other legal principles and challenging S.B. 1004 on the grounds that it violates the Federal Telecommunications Act. The suit, which is pending in federal district court, charges that the new Texas law “caps certain telecommunications fees at unreasonably low rates while frustrating the City’s ability to safely and efficiently manage public rights-of-way.”

And broadband policy-watchers are awaiting the report of the Federal Communications Commission’s Broadband Deployment Advisory Committee, expected this month. Pagan is one of about four local government officials serving on a committee that is otherwise stacked with industry players. It’s possible that the committee will recommend preemption, and that the commission could approve a regulation on the issue later this year. That, notes Pagan, would be subject to challenge in federal court.