The Economic Impact of Section 224 Exemption of Municipal and Cooperative Poles

Abstract

Utility poles are essential inputs in communication service providers' networks. Local zoning laws
often prevent the installation of duplicate utility poles. Even when this is not the case, the cost of installing a completely new set of poles is often prohibitive. Hence any communications provider wishing to deploy service to an area must negotiate pole attachment rates with the local pole owners who are usually electric or telephone service providers. Unequal bargaining power led to federal rate regulation in 1978 and is now codified as Section 224 of the Telecommunications Act of 1996. However, municipal and cooperative pole owners are exempt from this regulation.

Municipal and electric cooperative utility pole owners serve 28 percent of the population.
Analyzing 2017 data on over 52.2 million pole attachment rental rates in 50 states and the District of Columbia, I find that on average, cooperative and muni pole owners charge more than twice what investor-owned pole owners charge to attach to their poles. Nationally, the average annual pole attachment rate charged for access to poles of investor-owned utilities was $6.84 per pole, while the average rate charged by cooperatives and municipalities was $15.39 and $14.86, respectively. At the extreme, the average cooperative rate in California was 7.4 times that of the average investor-owned rate and the average municipal rate in Hawaii was 7.8 times that of the average investor-owned rate.

Keywords: pole attachment rates, Section 224 of the Telecommunications Act of 1996, rate regulation, essential inputs

JEL Classification: L51, L86, L88, R11