A close-up shot of $100 bills.

The Federal Communications Commission has defeated dozens of cities in court, with judges ruling that the FCC can preempt local fees and regulations imposed on wireless carriers deploying 5G networks. The ruling is good news for AT&T, Verizon, and T-Mobile.

The FCC voted to preempt cities and towns in September 2018, saying the move would prevent local governments from charging wireless carriers about $2 billion worth of fees over five years related to deployment of wireless equipment such as small cells. That’s less than 1 percent of the estimated $275 billion that the FCC said carriers would have to spend to deploy 5G small cells throughout the United States.

Cities promptly sued the FCC, but a ruling issued yesterday by the US Court of Appeals for the 9th Circuit went mostly in the FCC’s favor. It wasn’t a complete victory for the FCC, though, as judges overturned a portion of the FCC ruling that limited the kinds of aesthetic requirements cities and towns can impose on carrier deployments.

“The court rightly affirmed the FCC’s efforts to ensure that infrastructure deployment critical to 5G… is not impeded by exorbitant fees imposed by state and local governments, undue delays in local permitting, and unreasonable barriers to pole access,” FCC Chairman Ajit Pai said, calling the court decision “a massive victory for US leadership in 5G, our nation’s economy, and American consumers.”

On the losing side were localities including Portland, Oregon; San Francisco; New York City; Los Angeles; Boston; Chicago; Washington, DC; Las Vegas; Philadelphia; Austin, Texas; and others.

Judges uphold limits on fees charged to carriers

As the judges noted, the FCC declared that small-cell deployment fees charged by localities “are presumptively lawful if, for each wireless facility, application fees are less than $500, and recurring fees are less than $270 per year. If fees exceed those levels, they are not automatically preempted, but they can be justified. Localities may charge fees above these levels where they can demonstrate that their actual costs exceed the presumptive levels.” The $500 limit is basically $100 per small cell, as the FCC order said it covers “a single up-front application that includes up to five Small Wireless Facilities” and $100 for each additional small cell.

The FCC claimed the order would speed up 5G build-outs. As the 9th Circuit judges said, “Statements in the [FCC proceeding’s] record from wireless service providers, and an empirical study, are cited to support the conclusion that limiting fees will lead to additional, faster deployment of 5G technology throughout the country.”

One month after the FCC vote, in October 2018, Verizon Wireless acknowledged in an earnings call with investors that it would not move any faster on building its 5G cellular network because the carrier was already “going as fast as we can” before the FCC preempted cities and towns. Democratic FCC Commissioner Jessica Rosenworcel partially dissented from the small-cell ruling, saying at the time that “three unelected officials on this dais are telling state and local leaders all across the country what they can and cannot do in their own backyards. This is extraordinary federal overreach.”

But the judges ruled yesterday that the Republican-majority FCC provided a reasonable justification for the order and that it had the authority to preempt cities and towns. Among other things, the judges wrote:

We also conclude that the FCC’s fee limitation does not violate Section 253(c) of the [Communications] Act, which ensures that cities receive “fair and reasonable” compensation for use of their rights-of-way. The FCC explained that the calculation of actual, direct costs is a well-accepted method of determining reasonable compensation, and further, that a standard lacking a cost anchor would “have left providers entirely at the mercy of effectively unconstrained requirements of state or local governments.” The statute requires that compensation be “fair and reasonable;” this does not mean that state and local governments should be permitted to make a profit by charging fees above costs. The FCC’s approach to fees is consistent with the language and intent of Section 253(c) and is reasonably explained.

The case was decided by a panel of three judges. The judges were unanimous on most points but not on the fee question, with Circuit Judge Daniel Bress writing, “I join the court’s fine opinion except as to Part III.A.1, which upholds the FCC’s decision to preempt any fees charged to wireless or telecommunications providers that exceed a locality’s costs for hosting communications equipment. In my view, the FCC on this record has not adequately explained how all above-cost fees amount to an ‘effective prohibition’ on telecommunications or wireless service under [US law].”

In the majority opinion, Circuit Judges Mary Schroeder and Jay Bybee wrote that the FCC did not issue an automatic preemption of all non-cost based fees. The FCC’s regulation, issued “after careful study and notice and comment,” preempts “only those fees above the safe harbor that exceed municipalities’ costs,” the judges wrote.

FCC loses one part of the case

Rather than give the FCC a complete victory, the judges’ panel overturned the commission’s preemption of certain aesthetic requirements that cities and towns impose on cellular installations. The FCC ruled that “aesthetics requirements are not preempted if they are (1) reasonable, (2) no more burdensome than those applied to other types of infrastructure deployments, and (3) objective and published in advance.”

Disputing the FCC’s reasoning, the judges wrote that the “no more burdensome” requirement “is not consistent with the more lenient statutory standard that regulations not ‘unreasonably discriminate.'” The judges also found that the FCC’s requirement that aesthetic rules be “objective” was not adequately defined or its purpose adequately explained. The judges continued:

Local Government Petitioners point out that the FCC’s standard amounts to requiring similar treatment and does not take into account the differences among technologies. The FCC’s own justification for its provision bears this out. The FCC asserts that any application of different aesthetic standards to 5G small cells necessarily “evidences that the requirements are not, in fact, reasonable and directed at remedying the impact of the wireless infrastructure deployment.” Thus, in the FCC’s view, when a state or local government imposes different aesthetic requirements on 5G technology, those requirements are pretextual, unrelated to legitimate aesthetic goals, and must be preempted.

Yet the statute [Section 332 of the Telecommunications Act] expressly permits some difference in the treatment of different providers, so long as the treatment is reasonable… The Supreme Court has told us that “an agency may not rewrite clear statutory terms” and that this is a “core administrative-law principle.” The FCC has contravened this principle here by placing a limitation on local zoning authority that departs from the explicit directive of Congress in Section 332.

FCC can require shorter “shot clocks”

The judges upheld the FCC’s changes to “shot clocks” that give local authorities a set amount of time to act on carriers’ applications to deploy small cells. The FCC’s 2018 order gave state and local governments 60 days—instead of the 90-day limit imposed in 2009—to decide on applications for installations on existing infrastructure. The shot clock for all other applications was lowered from 150 to 90 days. The FCC also “expanded the application of shot clock timing requirements from zoning applications to include all permitting decisions,” the judges wrote.

Local governments argued that the shorter shot clocks “arbitrarily restrict municipalities’ ability to conduct traditional zoning review that may take longer” and “criticize[d] the FCC’s reliance on a limited survey of state and local laws, contending that those laws had unusual, shorter time frame requirements,” the judges wrote.

The judges explained why they upheld the shot-clock changes here:

The FCC’s reliance on the survey of local laws and practices was reasonable, however, because it served only a limited purpose. The FCC used the survey only to support its unremarkable assertion that some municipalities “can complete reviews more quickly than was the case when the existing Section 332 shot clocks were adopted” in 2009. It must be remembered that the shot clock requirements create only presumptions. As under the 2009 Order, if permit applicants seek an injunction to force a faster decision, local officials can show that additional time is necessary under the circumstances.

Judges also upheld the FCC’s “Moratoria Order,” which generally barred state and local ordinances that effectively “prevent or suspend the acceptance, processing, or approval of applications or permits necessary for deploying telecommunications services.” The FCC said that both “express” and “de facto” moratoria are disallowed, and that de facto moratoria are outlawed when they “unreasonably or indefinitely delay deployment.” The judges rejected an argument made by Portland, Oregon that the moratoria definitions are overly broad.

The judges also ruled for the FCC in a separate lawsuit filed by private utility companies against some aspects of the commission’s One Touch Make Ready (OTMR) order, which lets ISPs attach wires to utility poles without waiting for the other users of the pole to move their own wires. The judges fully upheld the FCC order, saying it was a reasonable interpretation of US law and that it wasn’t arbitrary or capricious. They noted that the FCC’s OTMR order “was intended to prevent owners and operators of utility poles from discriminatorily denying or delaying 5G and broadband service providers access to the poles.”