SPEAKERS CONTENTS INSERTS Tables
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PRIVATE PROPERTY RIGHTS AND TELECOMMUNICATIONS POLICY
SUBCOMMITTEE ON THE CONSTITUTION
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
MARCH 21, 2000
Serial No. 70
Printed for the use of the Committee on the Judiciary
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Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
DAVID VITTER, Louisiana
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JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
Subcommittee on the Constitution
CHARLES T. CANADY, Florida, Chairman
HENRY J. HYDE, Illinois
ASA HUTCHINSON, Arkansas
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BOB GOODLATTE, Virginia
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
LINDSEY O. GRAHAM, South Carolina
MELVIN L. WATT, North Carolina
MAXINE WATERS, California
BARNEY FRANK, Massachusetts
JOHN CONYERS, Jr., Michigan
JERROLD NADLER, New York
CATHLEEN CLEAVER, Chief Counsel
BRADLEY S. CLANTON, Counsel
JONATHAN A. VOGEL, Counsel
PAUL B. TAYLOR, Counsel
C O N T E N T S
March 21, 2000
Canady, Hon. Charles T., a Representative in Congress from the State of Florida, and chairman, Subcommittee on the Constitution
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Bitz, Brent W., executive vice president of management services, Charles E. Smith Commercial Reality
Dinh, Viet D., associate professor of law, Georgetown University School of Law
Eagle, Steven J., professor of law, George Mason University School of Law
Graham, Timothy R., executive vice president and general counsel, Winstar Communications, Inc.
Haring, John, principal, Strategic Policy Research, Inc.
Hayes, John B., principal, Charles River Associates, Inc.
Rosenthal, Steven R., partner, Cooper, Carvin & Rosenthal
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Bitz, Brent W., executive vice president of management services, Charles E. Smith Commercial Reality: Prepared statement
Page 6 PREV PAGE TOP OF DOC Dinh, Viet D., associate professor of law, Georgetown University School of Law: Prepared statement
Eagle, Steven J., professor of law, George Mason University School of Law: Prepared statement
Graham, Timothy R., executive vice president and general counsel, Winstar Communications, Inc.: Prepared statement
Haring, John, principal, Strategic Policy Research, Inc.: Prepared statement
Hayes, John B., principal, Charles River Associates, Inc.: Prepared statement
Rosenthal, Steven R., partner, Cooper, Carvin & Rosenthal: Prepared statement
PRIVATE PROPERTY RIGHTS AND TELECOMMUNICATIONS POLICY
TUESDAY, MARCH 21, 2000
House of Representatives,
Subcommittee on the Constitution
Committee on the Judiciary,
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The subcommittee met, pursuant to call, at 10:15 a.m., in Room 2237, Rayburn House Office Building, Hon. Charles T. Canady [chairman of the subcommittee] presiding.
Present: Representatives Charles T. Canady, Henry J. Hyde, Asa Hutchinson, Spencer Bachus, Bob Goodlatte, Bob Barr, William L. Jenkins, Lindsey O. Graham, Melvin L. Watt, Maxine Waters, Barney Frank, John Conyers, and Jerrold Nadler.
Staff present: Paul Taylor, counsel, Subcommittee on the Constitution; Jonathan Vogel, counsel, Subcommittee on the Constitution; Susana Gutierrez, clerk; Anthony Foxx, minority counsel, Subcommittee on the Constitution; Cori Flam, minority counsel, Judiciary.
Mr. CANADY. The subcommittee will be in order.
In order to make telecommunications services such as wireless communication services more widely available, the Federal Communications Commission is considering issuing a rule that would require building owners to provide access to their properties to telecommunications service providers under rates, terms and conditions comparable to those they have provided in the past to other telecom providers such as phone and cable companies.
In its notice of proposed rulemaking dated July 7, 1999, the FCC stated, and I quote here at some length: ''we now seek comment on whether building owners who allow access to their premises to any provider of telecommunications services should make comparable access available to all such providers under nondiscriminatory rates, terms and conditions. In light of information indicating that a number of building owners may be imposing unreasonable and discriminatory charges on competitive carriers, we seek comment on whether adoption of this principle may be necessary to ensure that consumers and multiple tenant environments have the ability to access the service provider of their choice.''
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The FCC finds its authority to issue such a rule under section 224 of the Communications Act, which requires utilities, including local exchange carriers, to provide telecom carriers with nondiscriminatory access to any pole, duct, conduit or right of way that they own or control. While section 224 technically applies only to public utilities, the proposed rule necessarily would impact the property rights of building owners. Section 224 requires utilities including local exchange companies to provide cable television systems and telecommunications carriers with nondiscriminatory access to any pole, duct, conduit or right of way that they own or control, and the proposed interpretation would apply this requirement to rights of way and conduits on end user premises. In the notice of proposed rulemaking, the FCC states that it has tentatively concluded that a definition of right of way that includes a publicly or privately granted right to place or transmit or receive antennae on public or private premises is consistent with the common usage of the term.
Some have argued that some property owners are unreasonably denying telecom carriers access to their rooftops for the installation of the microwave dishes and other equipment necessary to construct a wireless network that could effectively compete for the provision of telecom services with traditional wire-based phone service. Others, however, argue that while some landlords may not be providing access to their property in ways acceptable to some telecom companies, the vast majority of landlords provide reasonable and ready access. We will hear that argument going back and forth at the hearing today.
Some of the proposals contained in the FCC's notice of proposed rulemaking, if adopted in a final rule, would require real property owners to acquiesce in the physical presence of uninvited telecom service providers on their private property in order to further a public policy promoting the availability of telecom services. Such a rule would implicate the fifth amendment of the United States Constitution, which states, in part, that private property shall not be taken for public use without just compensation.
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The Supreme Court in Loretto v. Teleprompter, Manhattan CATV Corp., a 1982 case, held that a law authorizing a telecom carrier to effect a permanent physical occupation of private property constituted a per se taking under the takings clause. In that case, a New York statute provided that a landlord would have to permit a cable television company to install its facilities upon his property and could not demand payment from the company in excess of an amount determined to be reasonable by a State commission. As the Supreme Court stated, ''the installation involved a direct physical attachment of plates, boxes, wires, bolts and screws to the building, completely occupying space immediately above and upon the roof and along the building's exterior wall.''
The Loretto decision established that such an invasion of real property always effects a taking, regardless of how small the physical occupation may be in relation to the remainder of the owner's estate. As the court in Loretto stated. ''We have long considered a physical intrusion by government to be a property restriction of an unusually serious character for purposes of the Takings Clause. Our case is further established that when the physical intrusion reaches the extreme form of a permanent physical occupation, a taking has occurred. In such a case, 'the character of the government action' not only is an important factor in resolving whether the action, works as a taking but also is determinative.''
The court in Loretto further stated, ''The historical rule that a permanent physical occupation of another's property is a taking has more than tradition to commend it. Such an appropriation is perhaps the most serious form of invasion of an owner's property interest. The power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights.'' To the extent building owners have ownership under State and local property law of any of the facilities subject to one of the notice of proposed rulemaking's proposed rules, the notice may affect a per se taking of private property under Loretto.
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In his statement accompanying the notice of proposed rulemaking, Commissioner Powell stated that, ''under judicial precedent, this agency should not move toward rules that would effectuate a per se taking without specific authority to do so.'' It is with Commissioner Powell's caution in mind that the Subcommittee on the Constitution proceeds with an inquiry into whether the rules proposed by the FCC in the notice of proposed rulemaking would effect a taking of private property, and if so, whether the FCC has the authority to implement such a rule.
Mr. Conyers is now recognized.
Mr. CONYERS. Thank you, Mr. Chairman. I want to welcome all of the witnesses here on both panels this morning. I think this is an important discussion that we are entering into, and I will get a chance to advance my view that I support competition in all sectors to give consumers access to the greatest selection of options at the best prices.
Now, to this end, it is especially important to foster competition in the provision of broadband services, and I want to encourage the deployment of multiple facilities-based broadband pipes to the home. When we get this type of vibrant competition in the broadband market, we will see better access to advanced services at better prices.
Now we have already seen how competition encourages the rollout of broadband services. The entry of high speed cable Internet access has spurred the Bell companies to deploy their own high speed Internet services in the form of digital subscriber line. There are also new technologies such as fixed wireless and satellite which can provide broadband services in new ways, to reach new customers and to compete with other forms of high speed Internet service.
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Now the new technologies should have a fair chance to compete for broadband customers. Only when we eliminate the World Wide Wait for Internet services in the home will we see e-commerce truly take root.
The provision of new types of broadband technologies has particular significance for addressing the digital divide. Some of the new technologies, fixed wireless, for example, are especially conducive to multi-tenant dwellings and urban environments; likewise, satellite service may become the broadband medium of choice for rural areas. Now if we are going to wire everyone in America regardless of color or economic circumstance or whether they are urban or rural, we need to have numerous technologies competing to reach everyone.
Of course, government actions are always subject to constitutional limits, including the fifth amendment's prohibition on the taking of private property for public use without just compensation. Nevertheless, I do not believe that the fifth amendment is violated by a requirement that building owners give telecommunication providers access to their premises, so long as just compensation is provided. Even some of the most conservative jurists have said that H.R. 3487, the Competitive Broadband Telecommunications Rooftop Access Act, is in full compliance with the fifth amendment.
But I am looking forward to hearing the scholars on our first panel address this Constitutional issue. I am also interested, of course, in hearing about the economic and technological aspects in the issue from our second panel. So I am here to begin this process. I thank you, Mr. Chairman.
Page 12 PREV PAGE TOP OF DOC Mr. CANADY. Thank you, Mr. Conyers. Today, we have divided our witnesses into two separate panels. The first panel will discuss the constitutional issues raised by the FCC's notice of proposed rulemaking. The second panel will speak to the business and economics of the provision of telecommunications services by property owners, which will be relevant to an assessment of the need for the FCC's proposed rule and an analysis of the just compensation that may be required should a final rule be determined by the courts to be a taking under the Constitution.
I would like to ask now that the members of the first panel come forward and take your seats.
On the first panel this morning, we will first here from Steven Rosenthal, who is a partner at the law firm of Cooper, Carvin and Rosenthal. Mr. Rosenthal's practice includes cases involving a broad range of constitutional issues, including questions arising under the Takings Clause of the fifth amendment to the United States Constitution. He is appearing today on behalf of the Real Access Alliance. The alliance represents 11 different national real estate associations.
Next, we will hear from Viet Dinh, who is an associate professor of law at the Georgetown University Law Center. Professor Dinh specializes in constitutional law, international law and development, and corporations. He has also served as a law clerk to Justice Sandra Day O'Connor.
Our final witness on this first panel this morning will be Professor Steven Eagle, who teaches at the George Mason University School of Law. Professor Eagle teaches and writes in the areas of property and constitutional law. He is the author of Regulatory Takings, a treatise on the limits of permissible government regulation of property as well as other scholarly and popular works on property rights. Professor Eagle currently serves as vice chair of the American Bar Association's Committee on Land Use.
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I want to thank you all of you for taking the time to be with us this morning along with the other witnesses. I apologize for the delay in the beginning of the hearing, due to weather conditions. I will ask that you do your best to confine your remarks to 5 minutes. When it turns yellow your time is about up. When it is red, 5 minutes has expired. Although, I don't think that anyone will be likely to insist on strict enforcement of the 5-minute rule. These are complex issues and we understand that, but do your best to stay within 5 minutes, and without objection, the full written statementswill be made a part of the record of the hearing.
With that, we will begin with Mr. Rosenthal.
STATEMENT OF STEVEN R. ROSENTHAL, PARTNER, COOPER, CARVIN & ROSENTHAL
Mr. ROSENTHAL. Thank you very much, Chairman Canady and Congressman Conyers and members of the subcommittee, for this opportunity to speak today. My name is Steven Rosenthal. I am partner at the law firm of Cooper, Carvin and Rosenthal, PLLC. My practice includes cases involving a broad range of constitutional issues including questions arising under the Takings Clause of the fifth amendment to the Constitution. I am here today on behalf of the Real Access Alliance.
My testimony before you today concerns proposals under consideration by the FCC. These proposals, in my view, present very serious issues as to whether they would lead to a taking of property from office, apartment and retail building owners within the clearly established meaning of the takings clause of the fifth amendment. My written testimony was previously provided to the subcommittee, and I ask that it be placed in the hearing record. The following summarizes some of the principal points of my written testimony.
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My comments begin, as the chairman's do, with the Supreme Court's decision in Loretto v. Teleprompter. In that decision, written by Justice Thurgood Marshall, the court held that a New York statute that required building owners to allow cable television wiring on their buildings constituted an automatic or per se taking under the fifth amendment. The court relying on telegraph company cases going back to the 1890's said that placing even one strand of wire on a piece of property constitutes a taking. The court said that a compelled physical occupation of real property is ''perhaps the most serious form of invasion of an owner's property interests.'' The court also wrote that ''the power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights.''
For these reasons, a government authorized physical occupation is a per se taking requiring just compensation. In that way, a permanent, physical occupation is distinguishable from many other categories of takings which are usually subject more to an ad hoc balancing test than a per se test.
Some of the non-Bell companies, some of the advocates of these proposals, have sought to avoid the consequences of Loretto by contending that Loretto does not apply where a landlord already has voluntarily opened its property, for example, to an incumbent local exchange carrier. This argument characterizes the proposed FCC action as merely mandating what is termed a nondiscrimination requirement requiring access to all carriers on the same terms. In other words, the reason there is no taking under this view is that the landlord could have denied all telecommunications providers access, and the landlord, therefore, cannot complain if the government regulates the terms and conditions under which the landlord voluntarily offers access.
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There are at least two important, and I believe fatal, problems with this argument. First, until very recently landlords did not invite providers onto their property. The incumbent phone companies were either monopolists with which the landlords had to deal, or the incumbent carriers forced their way onto the property using eminent domain or threat thereof. But even assuming an initial invitation, the Loretto decision has already rejected the argument that once a landlord invites certain tenants onto her property, she loses the right to exclude others; the court said a landlord cannot be forced by the government to a choice between either not renting its property at all or, if it does, losing its right to just compensation for subsequent takings caused by a government rule requiring that uninvited parties be allowed to physically occupy the property. Simply put, in my view, for constitutional purposes, an uninvited occupation, or indeed an even invited occupation cannot force a piggybackexcuse me, you cannot force an uninvited occupation to piggyback on an invited occupation for constitutional purposes.
Another tack being taken is to concede a taking and to leave it to the FCC to devise a compensation scheme. In my view, in the absence of clear, statutory authority to engage in takings, the FCC is not permitted to endanger the public by regulatory activities that have a fair likelihood of creating takings claims. This is especially true here where the scope of the taking is extremely large. It applies to every multi-tenanted, commercial, industrial and residential building in the United States. In our view, that could impose a taking running into the many billions of dollars.
In my view, the FCC should have at least explicit statutory authority to engage in the taking of this type, and I would contrast the action that the FCC's proposing to take in this case with the authority that Congress granted the FCC for physical co-location under section 251(c)(6). While one may disagree about its scope and about its nature, there is no question that the Congress in that case did expressly permit physical co-location and expressly provided a mechanism in that case for compensating the property owner.
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In conclusion, I would like to emphasize that the value of the property rights in question, they represent the right of building owners to control the aesthetic appearance of their building, to control the right to negotiated access to particular providers of their choosing and even the right, if they choose, to participate in the provision of an integrated telecommunications package for their customers. Because the multi-tenanted buildings that would be covered by the proposal represent 10 billion square feet of commercial office space, over 5 billion square feet of retail space and over 28 percent of the residential market, it certainly doesn't require anything more than a very conservative estimate of average value for these rights to calculate total just compensation that would run into the many billions of dollars.
Let me thank you again, members of the subcommittee, for this opportunity to speak on this important subject today.
Mr. CANADY. Thank you, Mr. Rosenthal.
[The prepared statement of Mr. Rosenthal follows:]
PREPARED STATEMENT OF STEVEN R. ROSENTHAL, PARTNER, COOPER, CARVIN & ROSENTHAL
Good afternoon, Chairman Canady and Members of the Subcommittee. My name is Steven Rosenthal, and I am a partner at the law firm of Cooper, Carvin & Rosenthal. My practice includes cases involving a broad range of constitutional issues, including questions arising under the Takings Clause of the Fifth Amendment to the Constitution.
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I appear before you today on behalf of the Real Access Alliance (''the Alliance'') on the question whether certain proposals raised or discussed in a notice of proposed rulemaking issued by the FCC last year would, if actually promulgated as final rules, constitute a taking of private property under the Takings Clause. The Alliance represents 11 different national real estate associations(see footnote 1) that in turn represent approximately 1 million members who participate in the real estate industry as owners, investors, developers, and managers, situated in every State and the District of Columbia. The Alliance seeks to further the interests of the real estate industry and its customers, and to ensure that the evolving nature of this industry's role in facilitating customer access to telecommunication services is understood by policymakers. In particular, the Alliance has attempted to demonstrate to the FCC that the rights of property owners must be recognized as the Commission seeks to promote competition pursuant to its mandate under the Telecommunications Act of 1996. Just as important, the Alliance has sought to demonstrate that the rights of property owners are in no way incompatible with the proliferation of competitive, state-of-the art telecommunications services.
The most far reaching of the FCC's proposals would require building owners to provide access to their premises to any and all telecommunications providers on what is referred to as a ''nondiscriminatory'' basis. Another proposal would require local incumbent exchange companies (''ILECs'') and other public utilities to make their in-building facilities available to any and all cable companies and telecommunications providers, also on so-called nondiscriminatory terms. Both of these proposals would allow competitors to ''piggyback'' on whatever access rights an incumbent provider, such as a local Bell company, has to a building owner's property. A third proposal would extend a rule issued two years ago prohibiting landlords from setting lease restrictions preventing tenants from installing antennas on any part of their leased premisesthe earlier rule covered antennas only for video services, and the proposed extension would cover antennas for non-video services as well.
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While these rules vary in the nature and extent of the uncompensated taking they would effect, all of them share the characteristic of requiring building owners to acquiesce to an uninvited occupation on their private property.
In this testimony, I will discuss how the proposed rules in the FCC's notice, which I will refer to as the NPRM, would effect a taking of private property within the meaning of the Fifth Amendment of the Constitution. At the outset, however, I would like to make clear what the effect is of concluding that the NPRM effects a taking. The Takings Clause obviously does not prohibit the government from exercising its eminent domain power. Rather, it simply requires that when private property is taken by the government, just compensation must be paid to the owner of that property. It has been suggested that, while the proposals would clearly constitute a taking, the FCC might be able to provide the constitutionally required just compensation by requiring that building owners be paid the equivalent rates they receive from incumbent providers. But this proposal is fatally flawed, both as a constitutional and as a practical matter. Under the Fifth Amendment, just compensation requires an award of fair market value as of the date of the taking, and not a payment based on some past benchmark. More importantly, at the time when most incumbent providers were given access to building facilities, they were part of a monopoly provider, so that building owners had essentially no choice but to provide them access, and in some instances did so pursuant to an actual or threatened exercise of eminent domain.
In addition to the just compensation requirement, the power of the government to take property is also limited by the constraints built into our system of divided government: where an executive agency proposes to act in a manner that triggers the Federal government's liability to pay just compensation under the Takings Clause, it must be clear that the agency was in fact given the power to do so. This concern is especially acute where the potential liability to the government is extremely large.
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In this instance, the aggregate of all the property rights taken by the finalization of the proposed rules in the NPRM would likely exceed the largest single body of damage claims ever asserted against the United States Government under a takings theory. The takings claims of owners of 10 billion square feet of commercial leaseholds and of the 28% of housing units located in multi-tenant environments would give rise to claims that credibly would run in excess of ten billion dollars. This fact deserves to be emphasized and understood as I proceed to analyze why it is that the NPRM, if finalized, would indeed trigger liability to the Federal government under the Takings Clause.
II. THE COMMISSION'S PROPOSALS WOULD LEAD TO THE TAKING OF THE PRIVATE PROPERTY OF BUILDING OWNERS WITHIN THE MEANING OF THE FIFTH AMENDMENT
The Takings Clause is often understood as operating through two distinct doctrines.(see footnote 2) First, it provides an absolute prohibition against uncompensated per se takings, which are defined as occurring whenever there is a government-authorized, permanent physical occupation of private property.(see footnote 3) Central to this doctrine is the principle that if the government overrides a property owner's right to exclude third parties from his property, it has effected a taking, regardless of the level of economic harm suffered by the private party.(see footnote 4) A second category of takings is described as ''regulatory takings,'' which are defined according to a balancing test used to determine when a government regulation goes ''too far'' in burdening a property owner so that ''justice and fairness'' requires payment of just compensation.(see footnote 5) Because determination of a regulatory taking involves a balancing test and a subjective determination, its focus is different from that of a per se taking, relying heavily on the extent of economic harm suffered by the property owner, the interference with investment backed expectations, and the importance of the government interest at stake.(see footnote 6)
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The proposed rules contained in the NPRM would require building owners to acquiesce to the physical presence on their premises of uninvited telecommunications providers, and therefore they fall squarely within the per se takings rule as articulated by the Supreme Court in its famous 1982 decision in Loretto v. Teleprompter Manhattan CATV Corp.(see footnote 7) Moreover, even if analyzed under the different standards of a regulatory taking, these proposals unfairly transfer substantial economic value from building owners to investors in telecommunications businesses, and thereby unreasonably interfere with the investment backed expectations of the real estate industry. In so doing, the NPRM proposes not only to authorize the physical occupation of building owners' property, but also to appropriate assets of substantial economic value to the property owners and to transfer them free of charge, or through inadequate compensation, to telecommunications companies. Absent this governmental action, these companies would have to pay fair market value for the right to have access to private property.
(A) The Supreme Court's Decision in Loretto Demonstrates The Constitution's Absolute Protection Against A Requirement That Building Owners Provide Uncompensated Access To Their Property By Telecommunications Carriers
In the landmark Loretto decision, the Supreme Court held that a New York statute authorizing a cable television company to place cable equipment onto Ms. Loretto's building constituted an automaticor per setaking under the Fifth Amendment. The decision rested upon the following basic principle:
[W]e have long considered a physical intrusion by government to be a property restriction of an unusually serious character for purposes of the Takings Clause. Our cases further establish that when the physical intrusion reaches the extreme form of a permanent physical occupation, a taking has occurred. In such a case, ''the character of the government action'' not only is an important factor in resolving whether the action works a taking but also is determinative.(see footnote 8)
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In reaching this conclusion, the Court emphasized that a physical occupation of another's property ''is perhaps the most serious form of invasion of an owner's property interests,''(see footnote 9) and paid special attention to the importance of protecting a landowner's ''right to exclude.''(see footnote 10) Indeed, the Court reiterated this principle twice, stating that ''[t]he power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights,'' and '' 'one of the most essential sticks in the bundle of rights that are commonly characterized as property.' ''(see footnote 11) The Supreme Court's opinions have consistently returned to this articulation of a property owner's constitutional right to exclude others from his property, including in a decision issued just last term.(see footnote 12)
Moreover, the Loretto decision clearly held that a taking occurred even though the total area occupied was less than two cubic feet, and stated that ''whether the installation is a taking does not depend on whether the volume of space it occupies is bigger than a breadbox.''(see footnote 13) Thus, the Loretto rule cannot be avoided by arguing that the physical intrusion is too small or insignificant to matter.
The proposals contained in the NPRM require real property owners to acquiesce to the physical presence of uninvited telecommunications service providers on their private property. As the NPRM observes, ''In order to serve customers in multiple tenant environments, telecommunications carriers typically require a means of transporting signals across facilities located within the building or on the landowner's premises to individual units.''(see footnote 14) These facilities consist of, among other things, poles, ducts, conduits, in-building wiring, rights of way, and most importantly, rooftops.(see footnote 15) The NPRM's proposals have as their overarching objective the requirement that all such facilities be made fully available to any and all telecommunications carriersmeaning that these carriers will be relieved of the normal process of actually bargaining for and acquiring access rights to these facilities. Indeed, even though the normal system of free market negotiation is reputedly working very well for competitive telecommunications carriers in all but a very small minority of cases, these carriers have asked the FCC to appropriate the property rights of building owners in order to advance their economic interests and propel their businesses forward.
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Before moving on to discuss the NPRM's proposals in more detail, I want to make two additional points that serve to underscore the full meaning of Loretto and therefore of the Takings Clause as well. The first is that property rights are what they are, and generally find their definition in local lawthey certainly cannot be defined by the federal branch of government seeking to take them away. Second, the unambiguous force of the Loretto holding in this context cannot be avoided by the somewhat naiAE0ve argument that building owners are given a free choice to grant access either to no telecommunications carriers, or to all of them.
The Property Rights Of Each Building Owner Must Be Defined Under Applicable State And Local Property Law, Not Under General Principles Identified By The Commission
In determining whether the interests of a litigant meet the definition of ''property'' so as to warrant the protections of the Takings Clause, the Supreme Court has repeatedly emphasized that courts must look to the traditional sources of property law for guidance as to what constitutes private property. For instance, in one case the Supreme Court stated that:
[W]e are mindful of the basic axiom that '' '[property] interests . . . are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law.' ''(see footnote 16)
In another case, the Court held that ''the logically antecedent inquiry into the nature of the owner's estate'' demonstrated that a prohibition of certain construction was a taking of pre-existing, established property rights.(see footnote 17) This principle is consistent with basic federalism principles reflected in the Constitution. Essentially, those principles reflect the Founders' understanding that the States are the primary source of property rights and that the Federal Government is limited by the Constitution in the manner in which it is permitted to restrict or abrogate those rights. Among those limits are the requirement that if property rights are taken within the meaning of the Takings Clause, then just compensation must be paid.
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In analyzing whether or not the NPRM's proposed rules might lead to the ''permanent physical occupation'' of the ''property'' of certain building owners, it is therefore necessary to determine the scope of the building owners' property rights under local law. Specifically, if a building owner has agreed to allow one telecommunications carrier to have access to his building through certain conduits, ducts, and rights of way, has he retained the right to exclude others from those same facilities, or has he irrevocably ceded that right of access to other carriers? Under the accepted rule as described by the Supreme Court in the cases I just quoted, among others, the question of what rights the building owner has retained must be answered by reference to the terms of the actual agreements he previously made with the carriers to whom he provided access, as those agreements are understood against the ''logically antecedent inquiry into the nature of the owner's estate.''(see footnote 18)
As a general matter, when a building owner agrees to provide access to specific telecommunications and power providers, he is not deemed to have also made a general grant to all similar carriers. Thus, a requirement forcing the building owner to provide nondiscriminatory access to all possible carriers will constitute a taking under the Fifth Amendment. Likewise, when a landowner rents his building to tenants, he may often reserve, either explicitly in the lease or implicitly under the facts and circumstances of the lease as analyzed under local law, the right to prohibit his tenants from affixing telecommunications equipment onto certain parts of the building.(see footnote 19) In short, so long as the building owner is recognized as having retained a property right cognizable under local law, the appropriation of that right through a permanent, physical occupation constitutes a taking.
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(2) A Nondiscriminatory Forced Access Rule Can Only Be Understood As A Forced Access Rule, And Cannot Properly Be Categorized As A Regulation Of The Lessor-Lessee Economic Relationship
Having discussed the importance of Loretto and of the determination of property rights under local law, I next address the argument, advanced by some commenters in front of the Commission, that a nondiscrimination requirement is not like other forced, physical occupations, but instead is part of the general regulation of the landlord-tenant relationship, and hence does not constitute a per se taking.
Five years after declaring the per se takings rule in Loretto, the Supreme Court had an opportunity to define the boundary between a per se taking and a regulatory taking. In FCC v. Florida Power Corp.,(see footnote 20) the Court ruled that an FCC order under the Pole Attachment Act that restricted the rates a utility could charge cable companies for use of its poles did not violate the Takings Clause. The Court distinguished Loretto based on the fact that ''nothing in the Pole Attachment Act as interpreted by the FCC . . . [gave] cable companies any right to occupy space on utility poles, or prohibit[ed] utility companies from refusing to enter into attachment agreements with cable operators.''(see footnote 21) Instead, the rate restrictions had to be analyzed under ''traditional Fifth Amendment standards,'' which dictate that ''regulation of rates chargeable from the employment of private property devoted to public uses is constitutionally permissible'' because ''investors' interests provide only one of the variables in the constitutional calculus of reasonableness.''(see footnote 22) Similarly, in a case called Yee v. Escondido, the Court upheld a rent control statute because ''[p]ut bluntly, no government has required any physical invasion of petitioners' property.''(see footnote 23)
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By contrast, the facts in Loretto, as here, did involve a required physical invasion, rather than a mere regulation of rents or rates. It does no good to describe a requirement that other parties be allowed permanent access as an ''economic term'' of a pre-existing relationship in order to bootstrap Loretto facts into the holding of Florida Power. Loretto itself rejected exactly that approach when it refused to agree that the forced access statute in that case could be avoided by simply not renting out the building to tenants. The Court responded to this argument in a footnote, stating: ''The right of a property owner to exclude a stranger's physical occupation of his land cannot be so easily manipulated.''(see footnote 24) Moreover, the Supreme Court has articulated the distinction with crystal clarity: ''The line which separates these cases [such as Florida Power] from Loretto is the unambiguous distinction between a commercial lessee and an interloper with a government license.''(see footnote 25)
The NPRM proposes rules that are designed to provide telecommunications carriers access to multiple tenant environments to which they do not currently have access without paying some form of negotiated compensation to the owners. It is therefore an attempt to authorize physical presence, rather than an attempt to regulate economic terms. As a result, the proposed restrictions in the NPRM fall plainly on the Loretto side of the line. The decisions in Florida Power and Yee v. Escondido, both of which deal with the economic terms of a relationship between a landowner and an existing ''commercial lessee,'' rather than with the rights of an ''interloper'' to use government authority to gain access, are therefore both inapposite to determining whether the proposals in the NPRM would constitute a taking.
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(B) At Least Three Specific Proposals Contained In The NPRM Will Give Rise To A Taking Of Property Under The Fifth Amendment
At least three specific proposals will effect a taking of private property under the Takings Clause, which will thereby trigger the questions of whether the Commission had statutory authority to issue such rules, and of how the private property owners will receive just compensation.
(1) The NPRM's Proposed Rule Requiring Building Owners To Allow Access To Any Telecommunications Provider To Their Premises On Nondiscriminatory Terms Would Constitute A Taking Of Property
In Paragraph 58 of the NPRM, the Commission asks ''for comment on whether there would be any constitutional impediment to our adoption and enforcement of a nondiscrimination requirement.''(see footnote 26) As summarized in the NPRM, the nondiscrimination requirement would state that ''building owners who allow access to their premises to any provider of telecommunications services should make comparable access available to all such providers under nondiscriminatory rates, terms, and conditions.''(see footnote 27) I believe that the Takings Clause, properly understood, would apply to such a requirement, thereby certainly creating a ''constitutional impediment'' to its adoption and enforcement.
As already explained, the mere fact that a building owner has invited a single carrier onto his property in no way relinquishes the owner's right to exclude others from his property. Under virtually universal state and local property law principles, the terms of the arrangement with the telecommunications provider who was specifically granted access would determine whether or not the building owner had ceded his rights to exclude any other providers. In the absence of a very clear cession of rights, the building owner could not be forced to acquiesce to the presence of any and all other providers without triggering a per se application of the Takings Clause under Loretto. Notwithstanding the importance of the Commission's goal of expanding the nation's telecommunications infrastructure, a nondiscrimination requirement simply cannot be made to ''piggyback'' on prior specific access arrangements without taking the property rights of the building owners.
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Indeed, in a directly analogous context, a federal appeals court has already held such a requirement to constitute a Loretto taking. In Gulf Power Co. v. United States,(see footnote 28) the court considered an FCC rule requiring that '' 'a utility shall provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by it.' ''(see footnote 29)
In affirming the district court, the Eleventh Circuit rejected the assertion that the procompetitive policies behind the authorized occupation cured it of the takings infirmity, and also refused to agree that a permanent occupation authorized through a nondiscriminatory rule was somehow not a taking because the utilities could avoid it by refraining from making their facilities available for any carrier.
Not only are there no grounds for distinguishing the NPRM's proposal from the taking in Gulf Power, if anything, the building owners subject to the Commission's proposed rule would be in a far stronger position to assert their rights under the Fifth Amendment. First, their rights fall squarely within the most protected form of property under the Takings Clausenamely, real property.(see footnote 30) Moreover, there can be no question here, as there was in Gulf Power, of the ''partly public, partly private status of utility property.''(see footnote 31) Private building owners decidedly do not havenor have they ever been found to havethe quasi public status of public utilities or common carriers.
Page 28 PREV PAGE TOP OF DOC In addition to Gulf Power, there are other cases demonstrating that the grant of limited access to one or a limited number of service providers cannot be used to override the Takings Clause problem of a nondiscriminatory, forced access requirement. In interpreting mandatory access provisions from the Cable Act, a number of courts have held that it is only when a landowner has clearly created a ''dedicated legal easement'' that a mandatory access rule, such as the nondiscrimination rule proposed in the NPRM, can be applied without raising ''substantial constitutional difficulties.'' By contrast, applying a mandatory access rule to a landowner who had merely entered into private and limited access arrangements with other carriers would ''effectively permit exactly the same occupation found impermissible in Lorettothe permanent physical presence of a franchised cable company inside private apartment buildings against the express wishes of the property owner.''(see footnote 32)
In sum, a general regulation requiring a building owner who makes her property available to a single telecommunications provider to also make her property available to any and all such providers would effect a ''permanent physical occupation'' of that landowner's property under Loretto. The only conceivable exception to this proposition would arise in the very rare instance where the property owner, under local law, has created a ''dedicated'' legal easement for all utility and communications providers, i.e., where the property owner has effected a complete cession of his rights to that property. In all other cases, the building owner retains his right under local law to exclude others, which is protected by the per se Loretto rule, notwithstanding an invitation and arrangement extended to one or more specific telecommunications providers.
(2) The NPRM's Proposed Extension Of Section 224 To Facilities Located Inside Buildings Will Cause A Taking Of Property
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A very similar analysis applies to the Commission's proposed interpretation of section 224 of the Communications Act.(see footnote 33)
The FCC proposal would require utilities and ILECs to provide nondiscriminatory access to facilities located on the premises of building owners. In so doing, the proposed rule would provide guaranteed access to private property without the permission of the owner of that property. There should be no analytical difference under the Takings Clause between the treatment of the proposed interpretation of Section 224 and the proposed nondiscrimination requirement that would apply directly to building owners. In both cases, the Commission proposes a rule of required access that ignores the extent of the building owner's pre-existing grant of accessgenerally speaking, under local property law, inviting one person onto your property is not equivalent to inviting an unlimited number of people onto your property. In both cases, therefore, the proposal would allow for a permanent physical occupation of the building owners' property, and would thereby constitute a per se taking under the authority of Loretto.
(3) The NPRM's Proposed Extension Of The Rule Requiring Building Owners To Allow Tenants To Place Antennas On Their Premises For Non-Video Services Will Effect A Taking Of Private Property
In 1998, the Commission issued an Order entitled In The Matter of Implementation of Section 207 of the Telecommunications Act of 1996 (''OTARD Ruling''). The OTARD Ruling drew a distinction between requiring building owners to allow tenants to install antennas on their rental property, and requiring building owners to allow tenants to install antennas on common building areas: with respect to the latter, the Commission recognized that the per se takings doctrine applied to protect the property interests of the building owners; with respect to the former, the Commission judged itself able to prohibit building owners from ''lease restrictions that would impair a tenant's ability to install, maintain or use a Section 207 reception device.''(see footnote 34)
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We respectfully disagree with the distinction drawn in the OTARD Ruling, and therefore also disagree with the NPRM's proposal to extend the same rule to antennas for non-video services. As explained above, the baseline for any Takings Clause inquiry is the nature of the underlying property rights as determined in accordance withto use the words of the Supreme Court'' 'existing rules or understandings that stem from an independent source such as state law.' ''(see footnote 35) The Commission simply lacks the power to define, extend, or limit the property interests of landowners. Yet that is exactly what it attempts to do in the OTARD Ruling, by prohibiting landlords from making otherwise permissible restrictionsunder the terms of the lease as interpreted under local lawon the ability of tenants to install antennas or satellite dishes. The ruling states that the ''property owner relinquishes its right to control the use of its property when it leases its property.'' (see footnote 36)
It appears from this statement that the Commission is itself deciding the nature and extent of the respective property rights of all the nation's tenants and landlords.(see footnote 37) Once the Commission has explained the general definitions of what should fall within each category, then it interprets the Takings Clause so as to find that it is not implemented by a prohibition against lease restrictions for areas that the Commission has already determined are not, in its view, really subject to the control of the landlord. It reaches this conclusion without regard to the possibility that the landlord and tenant may well have agreed in a lease provision that is valid under local law, that the landlord in fact retained control over those areas of the premises. This approach is completely at odds with a fundamental principle that the Takings Clause is not itself a source of substantive property rights, but rather a constitutional protection designed to preserve those rights against acts of the Government.
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(C) Even If Analyzed Under The Multi-Factor Balancing Test Applied To Regulatory Takings, The Proposed Rules Would Effect A Taking Of Private Property From The Building Owners
My foregoing testimony has focused on explaining why the NPRM's proposals clearly constitute per se takings of the property of building owners. This conclusion flows directly from the Supreme Court's holding in Loretto. It is also important to note two other, related points, before addressing the question as to whether the Commission has authority to effect these takings. These two points are that the NPRM's proposals would also constitute a ''regulatory taking'' if analyzed under the multi-factor test associated with that doctrine, and that the value of the property at stake is very substantial.
The Supreme Court has held that ''investment-backed expectations'' are the essence of the private property rights protected by the regulatory takings doctrine, and that the interference with such expectations may itself dispose of the regulatory takings analysis.(see footnote 38) Thus, the real estate industry's potential to earn returns on its assets related to the provision of telecommunications services provides the basis for finding that regulations which totally eviscerate and frustrate that potential constitute a regulatory taking.
Recent developments in the real estate industry show that owning a multiple tenant building is no longer simply a business of leasing space to tenants.(see footnote 39) Instead, building owners now seek to provide a comprehensive bundle of services to their ''customers,'' including, at least in some instances, the provision of telecommunications services. Examples of this include real estate businesses that have established joint ventures with telephone carriers to establish a consumer points rebates system or to provide a bundled internet/telecommunications service, that have decided to directly invest in a fiber optic backbone to provide delivery of telephony, high-speed Internet/intranet, and video services to tenants, or that have simply created a telephone service company to provide services directly to tenants on an independent basis.(see footnote 40)
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The real estate industry therefore has already made a substantial investment based on its well-established right to receive substantial telecommunications revenue. The commercial real estate industry has reported that the telecommunications revenue it has received works out to an annual average of approximately $0.12 per rentable square foot.(see footnote 41) One example of this revenue is the market for PCS antennas, which contributes a significant amount to real estate owners, with antenna sites reportedly being leased for as high as $1,500 per month. Given the well-established nature of the telecommunications revenue received by real estate owners, the proposals must be read as seriously interfering with the reasonable investment backed expectations of these owners that they will be able to continue to generate these revenues in the future.
Thus, the Commission's proposals would very likely rise to the level of a regulatory taking even in the absence of the clear-cut Loretto rule. Likewise, these proposals would also have a severe economic impact on building owners, giving rise to a very large liability to pay constitutionally required just compensation for property that is taken. On a going forward basis, the ability to sell access, as well as directly or indirectly to provide telecommunications services, to 28% of all housing units nationwide,(see footnote 42) in addition to the businesses occupying in excess of 10.5 billion square feet(see footnote 43) currently under commercial lease in the United States, will certainly command enormous value. Even beginning with the very conservative information from two years ago showing 12 of telecommunications income per rentable square foot, the present value of the rapidly growing, future stream of telecommunications income is likely to indicate a total fair market valuation for this property right in the many billions of dollars, if not in well excess of $10 billion. For the Commission to take the property at issue in the NPRM without paying just compensation of roughly this amount would be both unjust and unconstitutional. Of course, for the government to trigger this great of a liability without first examining the authority and policy that support such an action would be unwise.
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III. CONGRESS DID NOT PROVIDE STATUTORY AUTHORITY TO THE COMMISSION TO EXERCISE THE POWER OF EMINENT DOMAIN
Given that the proposals contained in the NPRM will effect a widespread and extremely costly taking of the private property of building owners within the meaning of the Fifth Amendment, the relevant inquiry is whether the Telecommunications Act of 1996 (''Telecommunications Act'') granted the Commission the power of eminent domain with respect to these building owners.
(A) No Provision In The 1996 Telecommunications Act Provides The Commission With Authority To Take The Private Property Of Building Owners
As an initial matter, there is no provision in the Telecommunications Act that expressly provides the Commission with the power of eminent domain over the property of building owners. In proposing its general nondiscrimination requirement in the NPRM, the Commission relies upon its general jurisdiction to enforce the Telecommunications Act with respect to ''all interstate and foreign communication by wire or radio,'' and then points out that the definition of both ''wire communication'' and ''radio communication'' include ''all instrumentalities, facilities, apparatus, and services . . . incidental to'' such communication.(see footnote 44) This statutory authority hardly supports the Commission's ability to take private property and to provide just compensation for that property in accordance with the Takings Clause.
Likewise, the statutory authorities relied upon in the NPRM for the extension of section 224 and the OTARD Ruling both involve rules broadly authorizing the Commission to enforce certain access rights, but by no means contemplating that the Commission would or could infringe upon the established property rights of building owners in fulfilling its enforcement duty.(see footnote 45) For example, neither of these rules contain any language that refers to the need to pay just compensation to building owners.
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Accordingly, the Telecommunications Act provides no explicit authority allowing the Commission to promulgate rules that will effect a taking of the private property of building owners, so that if the power of eminent domain is somehow granted by that legislation, it must be implicit rather than explicit.
(B) It Is Well Established That, In The Absence Of Express Statutory Language, Courts Will Avoid Interpreting Legislation In A Manner That Either Raises A Serious Question As To Its Constitutionality Or Otherwise Implicates Constitutional Concerns
The Supreme Court has repeatedly stated that it construes statutes to defeat administrative orders that raise substantial constitutional considerations.(see footnote 46) This doctrine of invalidating constitutionally questionable regulations and orders reflects the broader doctrine of generally interpreting statutes so as to avoid raising serious constitutional questions.(see footnote 47)
This principle must be followed in cases that raise a question whether an administrative order might constitute a taking of private property under the Fifth Amendment, notwithstanding the fact that a taking is not strictly speaking unconstitutional unless it goes uncompensated.(see footnote 48) Thus, the Supreme Court has ruled that whenever ''there is an identifiable class of cases in which application of a [rule] will necessarily constitute a taking,'' courts should adopt a narrowing construction of the rule so as to avoid this outcome.(see footnote 49) Indeed, based in part on this doctrine of construing statutes so as to avoid constitutional questions, the D.C. Circuit decided in the 1994 Bell Atlantic case that the Commission did not have authority to order physical collocation of competitive access providers (''CAPs'') to the central offices of incumbent local exchange companies (''ILECs'').(see footnote 50) The court stated that it would uphold the Commission's authority only if ''any fair reading of the statute would discern the requisite authority,'' or if the Commission's authority would ''as a matter of necessity'' be defeated absent such authority.(see footnote 51)
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In addition to Bell Atlantic, a number of other cases, referenced earlier in my testimony, have narrowly construed the Cable Act in order to avoid possible Takings Clause problems. Indeed, these cases primarily involved the question as to the scope of forced access requirements, and whether they could be read to extend to rights of way that had previously been granted to specific carriers, or applied only to clearly dedicated ''easements.'' Courts have construed the statutes narrowly so as to avoid the question whether the broader construction urged by the plaintiffs would constitute a taking.(see footnote 52)
Because the Telecommunications Act, which was enacted two years after the D.C. Circuit's decision in Bell Atlantic, in no way speaks to the question of how to exercise the power of eminent domain or of how to compensate building owners, it seems very clear that the Commission lacks statutory authority to issue these regulations.
In conclusion I would like to reiterate that, as a general matter under local law, building owners are free to restrict access to their property to specific utilities and telecommunications providers, and to negotiate leases with tenants that restrict the tenants' ability to place telecommunications equipment on the building. If the Commission promulgates a rule that prohibits or abrogates these underlying rights of building owners, then it has effected a taking of their property. Under established Supreme Court precedent, this taking is best analyzed as a per se taking by virtue of the fact that it causes a permanent physical occupation of the property. In addition, however, because the prohibitions essentially disable building owners from being able to generate any telecommunications-related revenue from their otherwise uniquely valuable telecommunications assets, the prohibitions also amount to a regulatory taking.
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But whether viewed as a Loretto taking or a regulatory taking, the regulations proposed by the Commission in the NPRM would trigger a very large financial liability for the Government to pay just compensation to building owners. This liability was certainly not foreseen or intended by Congress when it passed the Communications Act, nor was there any indication at all in the act that Congress meant for the Commission to have the authority to issue regulations restricting the established rights of real property owners.
For these reasons, the Real Access Alliance has submitted comments to the Commission stating that the proposals discussed in its NPRM cause a taking of property under the Fifth Amendment to the Constitution.
Again, thank you for this opportunity to address the Subcommittee on this important subject.
STATEMENT OF VIET D. DINH, ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY SCHOOL OF LAW
Mr. DINH. Thank you, Mr. Chairman. Congressman Conyers, members of the committee, thank you very much for the opportunity to be here, and to Mr. Rosenthal for providing a very thoughtful analysis and framing the issues. I appear today on behalf of the Smart Building Policy Project, although I should note that I appear as an analyst and not as an advocate. So please don't hold what I say against them. These are my positions as to how I see the constitutional issues in this case and not necessarily the position that their counsel, or the members of the Project would necessarily take.
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It seems to me that the issues posed by this hearing and by the FCC's notice of proposed rulemaking are twofold. One, whether there would be an unconstitutional taking of property and, two, whether the FCC has authority to effect such a rule. And I start with the first by noting that Chairman Canady and Mr. Rosenthal are perfectly correct and cogent in their analysis of the Loretto decision, and with that I have absolutely no quibble with the analysis set forth there, nor with the court's decision in Loretto. I think it is correct.
By the same token, I believe that the 11th Circuit's decision on the takings issues in 47 USC section 224, the mandatory access provisions with respect to the utilities, is also correct. That works as a taking because those statutory provisions require the utilities to open up their lines, open up their utilities, their rights of way and their premises which they own or control to uninvited telecommunications providers.
What the FCC proposes, as I understand in this case, is not such a ''mandatory access requirement.'' It is not forcing building owners to open up their doors to uninvited telecommunications providers. Rather, it is simply a requirement that should building owners open up their door to any telecommunications provider, then they would have to open up their door to other telecommunications providers on nondiscriminatory terms.
So in that sense, I think that this case poses a potential conflict, if you will, that requires careful line drawing between two lines of Supreme Court jurisprudence, the Loretto line of cases, which I think is jurisprudentially valid and very sensible, and also another line of cases, cases like Heart of Atlanta Motel, which says that it is not a taking where you open up your premises for public accommodation to require nondiscrimination on bases of race, religion and gender and the like, as announced by Congress in the Civil Rights Act of 1964.
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Analogously, if you open up a mall to public access, as Pruneyard Shopping Center v. Robbins, the court says you cannot discriminate against certain speech because you happen to disagree with that speech. If you open it up, you have to open it up equally, and that is simply a condition of the access provisions.
In that sense I think that the case of Yee v. Escondido is quite apt, and that case specifically addressed the the discussion in footnote 17 of Loretto, which Mr. Rosenthal referred to regarding the conditioning of access on a nonpayment of rental for the cable television line that case. In Yee v. Escondido, the court made very clear that the Loretto does not seek to address cases like Heart of Atlanta Motel. Indeed, it cited it, or cases like the cases that uphold rent control laws or fire codes, which, in some sense, require a physical intrusion. By requiring a fire detector to be on a property, that is a physical occupation of space, yet those cases are looked under a regulatory taking point of view as the court did in Yee v. Escondido rather than on a physical taking line of case as in Loretto. And the court in Yee specifically distinguished those cases.
Indeed, Yee itself concerned a statutory and ordinance scheme whereby the landowner in that case, an owner of mobile home parks, did not have an opportunity to object to the tenants in the mobile home park, and so it specifically addresses the points that are relevant to this case.
That said, I think it is a very hard constitutional question, and the task of line drawing rests with the Supreme Court. So I do not venture to propose a conclusion here. What I do note, however, is that even if there is a physical taking or a taking of any type, there is adequate provision in the FCC's contemplation for just compensation. I suspect that that would be where most of your questions would be: how the FCC would be able to effect such a just compensation under a nondiscriminatory regime. I am sure that all three of us would be happy to answer questions in that regard, and I am sure the economists in the next panel would be happy to provide the details in that regard.
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Mr. CANADY. Thank you, Professor Dinh.
[The prepared statement of Mr. Dinh follows:]
PREPARED STATEMENT OF VIET D. DINH, ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY SCHOOL OF LAW
Mr. Chairman and Members of the Subcommittee,
Thank you very much for this opportunity to comment on the constitutional issues raised by the pending FCC Notice of Proposed Rulemaking on nondiscriminatory telecommunications access to multi-tenant environments. I note that there are several bills pending in Congress that seek to ensure the same result as the proposals under consideration by the FCC.
I am an Associate Professor of Law at the Georgetown University Law Center where I specialize in constitutional law, among other things. Prior to joining the faculty, I was a law clerk to Justice Sandra Day O'Connor on the U.S. Supreme Court, and to Judge Laurence Silberman on the Court of Appeals for the D. C. Circuit. I am currently writing JUDICIAL AUTHORITY AND SEPARATION OF POWERS; A REFERENCE GUIDE TO THE U.S. CONSTITUTION, to by published by Greenwood Press.
Although I appear on behalf of the Smart Building Policy Project,(see footnote 53) I am here as an analyst and not an advocate. My analysis, therefore, is not necessarily the position of the Project or any of its members; rather, it is simply how I see the constitutional issues in this matter.
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The takings issue posed by this hearing's inquiry concerning the FCC's Notice consists of two principal questions: (1) whether a nondiscriminatory access requirement constitutes a taking of private property for public use without just compensation in violation of the Fifth Amendment; and (2) even if such a requirement is constitutionally sound, whether the FCC has authority to promulgate the proposed rules. I will address each question in turn. For the reasons detailed below, I conclude that the nondiscriminatory access proposals are constitutionally sound and that the FCC has the statutory authority to promulgate them.
I. The Constitutionality of a Nondiscriminatory Access Requirement
The Fifth Amendment to the Constitution guarantees that private property shall not ''be taken for public use, without just compensation.'' U.S. Const. amend. V. The proper analysis of the proposed FCC action, accordingly, has two component steps: (A) whether a nondiscriminatory access requirement constitutes a taking of private property; and (B) if it is a taking of property, whether the property owners would not receive just compensation. Only if both inquiries yield affirmative answers would there be a violation of the Fifth Amendment.
The Supreme Court has established two tests to determine whether a government action constitutes a taking. A permanent physical occupation of private property is a taking per se, see, e.g., Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 426 (1982); the only question is whether there would be adequate compensation. By contrast, other government regulations not involving a permanent physical occupation, such as conditions on the use of private property, are takings only if they fail the multifactor balancing test applicable to regulatory takings. See, e.g., Penn Central Transportation Co. v. New York City, 438 U.S. 104, 12425 (1978).
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Whether a nondiscriminatory access requirement constitutes a permanent physical occupation that is a per se taking under Loretto is a close question, one that the Supreme Court has not directly addressed. Nor has my research revealed any holding or discussion in lower court opinions directly on point.
Unlike the proposed nondiscriminatory access requirement, if the FCC were to require building owners to open up their property for any and all telecommunications companies to install their equipment, such a requirement would constitute a per se taking. That much is evident from the facts of Loretto itself, and it matters not that the intrusion is minimalthat the ceded area is no ''bigger than a breadbox.'' Loretto, 458 U.S. at 438 n.16. In that regard, I think the Court of Appeals for the Eleventh Circuit correctly held in Gulf Power Co. v. United States, 187 F.3d 1324, 1328 (11th Cir. 1999), that the mandatory access provision of 47 U.S.C. §224 is a per se taking. (The court further held that the taking is constitutional because there are adequate procedures for just compensation, a subject to which I return below in Part B.)
A nondiscriminatory access requirement of the type proposed by the FCC, however, is substantively different. Instead of mandating that a property owner open his property to outsiders, a nondiscrimination provision simply requires that, should the owner open his property to any outsider, he must also entertain others. The proposal, therefore, is analogous to the nondiscrimination requirement of Title VII of the Civil Rights Act of 1964, which the Supreme Court held not to constitute a taking of property in Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 261 (1964). Heart of Atlanta Motel, of course, is not directly apposite because Title VII requires general access to places of public accommodation only, and the FCC proposal would provide limited access to property retained for private use. This distinction, however, turns on the public purpose of the government action. With respect to whether the action constitutes a taking, however, it seems to me that the two nondiscriminatory access requirements are quite analogous.
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So viewed, nondiscrimination is but a governmental condition on a property owner's decision to provide some carriers access to his property. Even where such a condition would work a permanent physical intrusion, the condition would constitute a taking only if there is not a sufficient nexus to the government's authority to regulate the underlying action. Thus, in Nollan v. California Coastal Commission, 483 U.S. 825 (1987), the Commission conditioned the grant of a building permit upon provision of a permanent easement to provide access to public beaches. The Court held that a permanent access easement is a permanent physical occupation under Lorett, see id. at 83132; however, that holding did not end the analysis. The easement requirement constituted a taking only because, as a condition, it did not bear a sufficient nexus to the government's reason for regulating the construction of the residential home. See id. at 83637. The Court later explained that a sufficient nexus exists if there is a ''rough proportionality'' between the ''nature and extent'' of the condition and the ''impact'' of the underlying activity. Dolan v. City of Tigard, 512 U.S. 374, 391 (1994). Following these guidelines, numerous courts have upheld permanent access easements as reasonable conditions. See, e.g., Curtis v. Town of South Thomaston, 708 A.2d 657, 65960 (Me. 1998) (upholding a fire safety regulation that conditioned approval of a subdivision plan upon the developer building a fire pond and granting the town an easement to maintain and use the pond); Grogan v. Zoning Board of Town of East Hampton, 633 N.Y.S.2d 809, 810 (App. Div. 1995) (upholding zoning board's decision to condition grant of permit to build addition onto house upon owner's granting scenic and conservation easement), appeal dismissed, 670 N.E.2d 228 (N.Y. 1996); Sparks v. Douglas County, 904 P.2d 738, 74546 (Wash. 1995) (en banc) (upholding planning commission's decision to condition approval of short plat applications upon dedication of rights of way for road improvement). Just so with the FCC's proposed nondiscriminatory access requirement. Such a nondiscrimination condition bears a sufficient nexus to the FCC's authority to regulate property owners' provision of access to telecommunication carriers; the nondiscrimination condition is proportional to the impact of the landowners' actions, that is perpetuating local telecom monopolies through discriminatory access.
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Another analogous line of cases is the rule in antitrust law that a dominant market participant must provide competitors access to essential facilities it owns. See, e.g., MCI v. AT&T, 708 F.2d 1081, 113234 (7th Cir. 1983). Despite calls from commentators,(see footnote 54) my research has uncovered no case holding that such a requirement constitutes a per se taking under Loretto. In Consolidated Gas Co. of Florida v. City Gas Co. of Florida, 912 F.2d 1262 (11th Cir. 1990) (per curiam), vacated as moot, 499 U.S. 915 (1991), the Eleventh Circuit, sitting en banc, affirmed a district court decision that invoked the essential facilities rationale and ordered the respondent to sell wholesale gas to the petitioner at reasonable pricesover the objections of two dissenting judges that such relief raised Fifth Amendment concerns, see id. at 131220, and specifically that it would work a per se taking under Loretto. See id. at 1315 n.52.
In sum, whether a nondiscriminatory access requirement is a per se taking is an open question. Any unqualified answer in the affirmative is in error because it gives conclusive weight to Loretto and ignores the competing principles set forth in cases like Heart of Atlanta Motel and Nollan. I do not venture a conclusion here because the question requires resolving the conflict between two competing lines of cases, both of which are jurisprudentially sensible and legally valid'a task of line drawing that ultimately rests with the Supreme Court. In any event, such a speculation is not necessary to my ultimate conclusion that the FCC proposals are constitutionally sound.
If a nondiscrimination access requirement does not work a per se taking, the proposed FCC action is likely to be upheld as a permissible regulation of the use of private property under the ''ad hoc, factual inquiries'' into the factors summarized in Penn Central: the character of the government action, the economic impact of that action, and its interference, if any, with investment-backed expectations. See 438 U.S. at 124. First, the proposed regulations are designed to further the public interest, as defined by Congress, ''to foster competition in local telecommunication markets.'' Notice of Proposed Rulemaking, 1 (released July 7, 1999); see 47 U.S.C. §251. The Court ''has often upheld substantial regulation of an owners' use of his own property where deemed necessary to promote the public interest.'' Loretto, 458 U.S. at 426. Second, the economic impact of the proposed regulations is minimal, at most. Property owners will be directly compensated for the use of property they own and control and indirectly compensated, through rents, for the use of property they own but is controlled by a communications carrier. Third, any expectations backed by the owners' investments are in the use of their property as real estate. These expectations are minimal, if not nil, with respect to ducts and roof space dedicated to utility equipment. Any fortuitous opportunity they now have to participate in the telecommunications business (either as competitors or as lessors of facilities) results from the deregulatory program that the FCC has pursued following a congressional directive. In any event, any investment-backed expectations the owners may have in telecommunications are limited because the owners are operating in a field (telecommunications and/or transacting with communications carriers) that is heavily regulated by the federal government. Such regulations are constantly in flux, rendering unreasonable any assumption or expectation that a nondiscriminatory access requirement or other regulation on the use of their property would not be imposed in the future.
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Even if, arguendo, the proposed FCC regulations constitute a taking, the analysis does not end. ''The Fifth Amendment does not proscribe the taking of property; it proscribes taking without just compensation.'' Williamson County Regional Planning Comm'n v. Hamilton Bank, 473 U.S. 172, 194 (1985). ''If the government has provided an adequate process for obtaining compensation, and if resort to that process yields just compensation, then the property owner has no claims against the government for a taking.'' Id. at 195. According to the Notice of Proposed Rulemaking, the FCC contemplates two primary avenues for effecting nondiscriminatory access to multi-tenant environments for communications carriers. First, the FCC may require incumbent local exchange carriers to provide competitors with access, at just, reasonable, and nondiscriminatory rates, to the conduits and rights of way that they control (through leaseholds or other access arrangements) in the buildings. See Notice of Proposed Rulemaking, 36, 48. Second, the FCC may require building owners to provide competitive local exchange carriers equal access, at nondiscriminatory rates, to their property for the purpose of installing transmission equipment to service tenants. See id. 60. Under either avenue, the FCC may ensure ''that a reasonable, certain, and adequate provision for obtaining compensation exist[s] at the time of the taking.'' Wiilliamson County, 473 U.S. at 194.
First, should the FCC require incumbent carriers to provide access to the conduits and rights of way that they control, 47 U.S.C. § 224(e) permits the carriers to assess charges for such access. The statute sets forth a clear formula for the carrier to recover costs of providing access, through an allocation of the costs of providing both usable and unusable space in the conduits and rights of way. The provision further requires the FCC to promulgate regulations to govern the access charges should ''the parties fail to resolve a dispute over such charges.'' Id. §224(e)(1). ''Such regulations shall ensure that a utility charges just, reasonable, and nondiscriminatory rates for pole attachments.'' Id.
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This statutory procedure guarantees the incumbent carrier ample opportunities to obtain just compensation for providing access. In the first instance, it may levy compensatory charges according to the prescribed cost allocation formula. Should there be a dispute as to such charges, it may negotiate at arms length with the competitive carrier to set appropriate rates. Finally, should the dispute not be resolved, the FCC, after appropriate complaints and proceedings, may determine rates that are ''just, reasonable, and nondiscriminatory'' pursuant to duly promulgated regulations. On its face, therefore, the statute satisfies the just compensation requirement of the Fifth Amendment. I suppose that there is a possibility that a particular agency determination of a ''just, reasonable, and nondiscriminatory'' rate would not provide, in the final analysis, ''just compensation'' under the Fifth Amendment. Such risk, however, inheres in every governmental action, and the remote possibility does not render the FCC proposal facially unconstitutional. See Gulf Power, 187 F.3d at 133738. In any event, the FCC's rate determination, like other agency actions, is subject to judicial review; the incumbent carrier, therefore, is afforded full protection against the risk of such administrative error. See id. at 1338.
Second, with respect to access to areas owned and controlled solely by property owners, the FCC proposes that the owners be paid ''nondiscriminatory'' rates for such access. The Commission is currently seeking comments on how such rates should be determined, so the precise parameters of such compensation are not fixed. I note, however, that the Commission proposes that property owners be permitted ''to obtain from a new entrant the same compensation it has voluntarily agreed to accept from an incumbent LEC.'' Notice of Proposed Rulemaking, 60. Such reliance on the arms-length bargain struck with incumbent carriers seems to me a reasonable approximation of the fair market value of access and thus would provide just compensation for any taking of property. To the extent that changed circumstances or different market conditions may render such original compensation an unreliable indicator of fair value, the Commission has also sought comments on how to tailor any nondiscriminatory access requirement to ensure consumer choice ''without infringing on the rights of property owners.'' Id. 55. Thus, at this point, there is little reason to suspect that the procedures for setting nondiscriminatory access charges would not ensure a fair, certain and adequate process for property owners to obtain just compensation for any taking of their property.
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II. The Commission's Authority to Promulgate the Proposed Rules
The nondiscriminatory access proposals by the FCC also raise certain separation of powers considerations concerning the Commission's authority to promulgate the proposed regulations. For reasons outlined below, I conclude that the Commission would likely be found to have such authority.
As an initial matter, there is little question that, shorn of the Fifth Amendment implications of the proposed requirements, the Commission has authority to regulate access to multi-tenant environments for the provision of telecommunications services. With respect to facilities controlled by incumbent carriers, 47 U.S.C. § 224 explicitly authorizes the Commission to require that a utility provide access to any ''duct, conduit, or right-of-way owned or controlled by it,'' id. §224(f)(1), and the statute defines utility to include communications carriers. See id. §24(a)(1). With respect to property owned and controlled by the building owners, 47 U.S.C. §151, 152 grant the Commission authority to regulate the transmission of interstate wire or radio communication. The definition of wire communication includes ''all instrumentalities, facilities, apparatus, and services . . . incidental to such transmission'' and thus contemplates property used for the purpose of providing interstate communication services. Id. § 153(52). And 47 U.S.C. § 151, 152 further grant the Commission authority to regulate persons engaged in interstate wire communication, as that term is defined above. Building owners, accordingly, are persons engaged in interstate wire communication by virtue of their control or denial of access to the facilities incidental to the transmission of such communication. Finally, the Commission has authority under 47 U.S.C. §154(i) to ''make such rules and regulations, . . . not inconsistent with this chapter, as may be necessary in the execution of its functions'' and under 47 U.S.C. § 303(r) to ''[m]ake such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law, as may be necessary to carry out the provisions of this chapter.'' Although the authority under the provisions is frequently termed ''ancillary jurisdiction'' in the telecommunications parlance, it is more aptly analogized to a general necessary and proper authority to effectuate the purposes and provisions of the statute. See PETER HUBER, ET AL., FEDERAL TELECOMMUNICATIONS LAW § 3.3.1, AT 221 (2D ED. 1999).
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The analysis into agency authority, however, is further complicated by the presence of Fifth Amendment considerations as outlined above. In Bell Atlantic Telephone Co. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994), the D.C. Circuit reviewed orders of the Commission that required carriers to set aside a portion of their central offices for use by their competitorsknown as the physical co-location orders. The petitioners challenged the Commission's authority to promulgate the regulations. The court recognized that it would normally defer to the Commission's statutory interpretation under the principles announced in Chevron U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984), but held that it would not do so in this case because the Commission's interpretation raised substantial constitutional questions regarding executive encroachment on Congress' exclusive powers to appropriate funds. See Bell Atlantic, 24 F.3d at 1445. Specifically, the court found that the FCCs orders amounted to a forced access requirement, and thus in all cases ''will necessarily constitute a taking'' under Loretto. See id. at 144546 (quoting United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 128 n.5 (1985)). To avoid this perceived constitutional difficulty, the court held that the Commission's authority to order physical co-location must either be found in express statutory language or must be a necessary implication from that language, such that ''the grant [of authority] itself would be defeated unless [takings] power were implied.'' Id. at 1446 (quoting Western Union Tel. Co. v. Pennsylvania R.R., 120 F. 362, 373 (C.C.W.D.Pa. 1903), aff'd, 195 U.S. 540 (1904)) (alterations in original). Finding this ''strict test of statutory authority made necessary by the constitutional implications of the Commission's action'' not satisfied, the court held that the Commission lacked authority to issue the physical co-location orders. Id. at 1447.
Page 48 PREV PAGE TOP OF DOC Upon closer analysis, however, the holding of Bell Atlantic does not apply to the nondiscriminatory access requirements proposed by the FCC. First, the regulation of areas controlled by a communications carrier follow from the express authorization to order a physical taking found in 47 U.S.C. §224. As to that portion of the proposed rule, therefore, the ''strict test'' of Bell Atlantic is satisfied.(see footnote 55) Second, the requirement of nondiscriminatory access to areas owned and controlled by landlords, unlike the forced access orders at issue in Bell Atlantic, will not ''necessarily constitute a taking.'' As I concluded above, whether the requirement will be judged under the Loretto standard or the competing standards applied in Heart of Atlanta Motel or Nollan is a close question. In Loretto the Court rejected the suggestion that the installation of cable equipment was not a per se taking because the property owner retained the right to cease renting his property to tenants and thereby to avoid the requirement. It explained that ''a landlord's ability to rent his property may not be conditioned on his forfeiting the right to compensation for a physical occupation.'' Loretto, 458 U.S. at 439 n.17. However, the Commission is contemplating regulations that would ensure property owners receive just compensation for any physical occupation of their property. And the Commission has authority to require new entrants into a building to pay just compensation to property owners under 47 U.S.C. §154(i), 303(r), as such regulations are ''reasonably ancillary to the effective performance of the Commission's various responsibilities,'' United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968). In particular, the statute requires the Commission to foster competition in local telecommunications markets. On Bell Atlantic's reasoning, therefore, a reviewing court should grant Chevron deference to the Commission's interpretation of its authority under the statute.
As Professors Baumol and Merrill explained in assessing whether provisions of the Telecommunications Act of 1996 effect an unconstitutional taking: ''[A]s long as the Act includes mechanisms which can provide just compensation for any taking claims found to have merit, these claims, too, should provide no basis to halt the implementation of the Act in the manner deemed most appropriate by regulators to achieve its purpose.'' William J. Baumol & Thomas W. Merrill, Deregulatory Takings, Breach of the Regulatory Contract, and the Telecommunications Act of 1996, 72 N.Y.U. L. Rev. 1037, 1056 (1997).
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* * *
In the final analysis, I conclude that the nondiscriminatory access proposals are constitutionally sound and that the FCC has the statutory authority to promulgate them. Thank you.
Mr. CANADY. Professor Eagle.
STATEMENT OF STEVEN J. EAGLE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW
Mr. EAGLE. Mr. Chairman, Mr. Conyers, I appreciate the opportunity to speak to the subcommittee today. My name is Steven Eagle. I am a professor of law at George Mason University, and I am here today in my capacity as a scholar whose interest is in the intersection of property and constitutional law.
I think that as Mr. Conyers had mentioned earlier, Congress certainly is well advised to try to facilitate ways to have universal access to all kinds of information and an expansion of our telecommunications system to do that. However, we have to do that, of course, within the context of fifth amendment protections for property rights. After all, the purpose of the fifth amendment is not to rule out government activities because they are impermissible but, to the contrary, to reconcile permissible and even laudable government activities with the requirements of the Constitution that the property rights of individuals be respected.
Page 50 PREV PAGE TOP OF DOC Mr. Chairman, in your opening statement, you quoted parts of Justice Marshall's Loretto opinion that I otherwise would have quoted here. Certainly the Loretto case has to be the beginning of our inquiry. The FCC and other groups that wish to impose mandatory access have the obligation, I think, to distinguish why the Loretto case should not be govern in this situation.
Loretto, it is true, does not affect the economic regulation of owners of different aspects of a parcel, such as landlord and tenant, within the context of an ongoing relationship. That was recognized in the telecommunications field by the Supreme Court in FCC v. Florida Power in 1987, where the Court made it clear that the FCC did have the right to regulate a carrier's relationship with a cable company it had voluntarily allowed access to its lines. However, I think it is important to note that Courts of appeals have drawn the line at that. In subsequent cases where there has been a mandated access to utility company lines, the courts have said that this is an impermissible taking, or would be an impermissible taking, unless there were just compensation.
The two leading cases are the Court of Appeals for D.C. Circuit decision in Bell Atlantic v. FCC, which is the co-location case of 1994, and, most on point, Gulf Power Company v. United States, 1999. There, the 11th Circuit adjudicated the extension of the Pole Attachments Act to provide for mandatory access to equipment. The Eleventh Circuit said that it was the voluntary nature of the access in Florida Power was determinative and if there was not a voluntary relationship, the takings clause is violated.
I think that cases like Heart of Atlanta and Yee, with respect, are not quite on point. For instance, in the Heart of Atlanta case, the government was vindicating a Civil Rights statute, and more important for our immediate purpose, it was vindicating a person's right to have a license in a hotel room for a one night period or a few nights. This is not the kind of permanent physical occupation that Loretto contemplated. Likewise, Yee v. City of Escondido, a case reviewed by the Supreme Court only to resolve a conflict between State and Ninth Circuit jurisprudence having to do with mobile homes, is a rather anomalous case. The Court vindicated the right of a mobile homeowner to sell his unit to another and vindicated rent control principles generally. Yee ought not to be extended beyond that.
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I want to emphasize two elements in Professor Dinh's written testimony. The first has to do with exclusivity. He asserts that the FCC could reasonably simply take the charges of an existing carrier as a baseline to determine reasonable charges for a new carrier. Well, you can't unscramble the omelet that easily. Presumably, an exclusive relationship allows all kinds of economic factors at work that piecemeal relationships don't. Pricing is a subject for the next panel, but I suggest that would be extremely difficult.
Second, Professor Dinh says there is little reason to suspect that procedures used by the FCC for just compensation would not be fair. With respect, I have testified before this subcommittee earlier, and many others have as well regarding the problem of providing adequate State procedures to deal with State condemnations or State regulatory takings prior to litigation in the Federal courts. I submit that a procedure where the FCC engages in determinations before Federal courts can hear a case will be, in effect, the creation of another Williamson County ripeness doctrine within the Federal system itself. Certainly, as a practical matter, I think that a fair, quick and efficient resolution of a landowner's rights certainly hasn't been respected in the problems the committee has reviewed regarding Williamson County. It would also not be effectuated if the FCC had a similar role.
Mr. CANADY. Thank you, Professor.
[The prepared statement of Mr. Eagle follows:]
Page 52 PREV PAGE TOP OF DOCPREPARED STATEMENT OF STEVEN J. EAGLE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW
Mr. Chairman, distinguished members of the Subcommittee:
My name is Steven J. Eagle. I am a professor of law at George Mason University, in Arlington, Virginia.
I testify today solely in my own behalf, as a teacher of property and constitutional law whose principal interest is the study of the constitutionality of government regulation of private property rights. I am the author of a treatise entitled Regulatory Takings and write extensively on property rights for scholars and the general public. I also lecture at programs for lawyers and judges and serve as vice chair of the Land Use Committee of the American Bar Association. I thank the subcommittee for giving me this opportunity to appear.
SUMMARY OF TESTIMONY
New federal statutes or regulations may attempt to increase competition in the telecommunications industry by requiring landlords to accept the presence of communications carriers other than ones they choose to invite. These carriers may install equipment serving individual tenants in common areas or other landlord-controlled parts of the building. However, such forced access would result in a permanent physical occupation of the landlord's property. This would violate the Takings Clause of the Fifth Amendment unless just compensation was paid, under the Supreme Court's holding in Loretto v. Teleprompter Manhattan CATV Corp. (1982). Neither subsequent cases nor factual distinctions justify a departure from the Loretto just compensation requirement.
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As members of the Subcommittee know, innovations in technology and an enhanced understanding of the benefits of competition have led to a substantial change in the assumptions underlying federal telecommunications policy. Our focus has changed from close regulation of one dominant wireline carrier to facilitation of competition involving local telephone exchange companies (LECs), competitive access providers (CAPs), and long-distance interexchange carriers (IXCs). Much of this competition involves wireless transmission, although wireline communications will continue to have an important role.
The competition of telecommunications companies to serve owner-occupied buildings has no particular effects on private property. However, attempts to enhance competition in serving customers located in multiple tenant environments (MTEs), such as apartment and office buildings, may well have a substantial effect on the property rights of building owners. Last summer the Federal Communications Commission (FCC) issued a Notice of Proposed Rulemaking and Notice of Inquiry, considering and inviting comment on ways it could facilitate competition to local wireline services by giving wireless service providers greater access to, among other things, potential customers in multiple tenant buildings. ''Notice of Proposed Rulemaking and Notice of Inquiry and Third Further Notice of Proposed Rulemaking,'' FCC 99141 (rel. July 7, 1999).
While it is important that administrative agencies consider the property rights in this context, I respectfully submit that it is the responsibility of the Congress, in the first instance, to ensure that federal telecommunications policy adequately protects property rights.
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SCOPE OF TESTIMONY
My testimony relates to the issue of whether a requirement that building owners suffer mandated physical access to premises under their control by uninvited telecommunications carriers violates the Takings Clause of the Fifth Amendment of the Constitution. I conclude that such forced occupation would violate the Takings Clause and would trigger the constitutional mandate for just compensation.
I do not contest that the federal government has the power to impose forced access, given its affirmative power under the Commerce Clause. Whether that power has been delegated to the Federal Communications Commission, whether the use of such power ultimately would help or hinder the development of technology, and whether forced access ultimately would benefit building tenants all are issues beyond the scope of my testimony. I respectfully suggest, however, that in considering these matters, Congress give significant attention to the difficult and complex issues of ascertaining just compensation that this new regime of Constitutional takings would generate.
The Takings Clause of the Fifth Amendment imposes the following mandate upon the federal government: ''[N]or shall private property be taken for public use, except upon just compensation.'' For more than a century this mandate has been imposed on the states as well, under the Fourteenth Amendment's Due Process Clause. Chicago, Burlington & Quincy Railroad Co. v. City of Chicago, 166 U.S. 226 (1897).
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The Supreme Court uses three types of tests to determine if statutes and regulations constitute takings. The first and most general test, enunciated by Justice Brennan in Penn Central Transportation Co. v. City of New York, 438 U.S. 104 (1978), requires courts to make ad hoc decisions. They must treat three factors with ''particular significance.'' Id. at 124. The first two are ''[t]he economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations.'' Id. The third factor is ''the character of the governmental action.'' Id. The Court explained that ''a taking'' ''may more readily be found when the interference with property can be characterized as a physical invasion by government than when interference arises from some public program adjusting the benefits and burdens of economic life to promote the common good.'' Id. (internal citation omitted). Under the Penn Central test, courts generally have deferred to government. Given that deprivations caused by forced access would generally be mild in the context of building owners entire enterprises, it is unlikely forced access would be found a taking by a court making an ad hoc determination using the multiple factors noted in Penn Central.
The Supreme Court also has developed two categorical tests for determining whether a taking has occurred. The first, stated in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), finds a taking when a regulation deprives the owner of ''all economically beneficial or productive use of land.'' Id. at 1015. That test clearly is inapposite here.
Permanent physical occupations are categorical takings under Loretto
Page 56 PREV PAGE TOP OF DOC The other categorical test was developed in Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982). Loretto presented the issue of ''whether a minor but permanent physical occupation of an owner's property authorized by government constitutes a ''taking'' of property for which just compensation is due under the Fifth and Fourteenth Amendments of the Constitution.'' Id. at 421. New York law had required that landlords permit cable television companies to install cable equipment on their buildings. Mrs. Loretto objected to a cable company installation on her small apartment house of 36 feet of one-half inch coaxial cable and two switchboxes, all amounting to about one and one half cubic feet, on her premises. The New York Court of Appeals upheld the regulation under a Penn Central balancing test. 423 N.E.2d 320 (N.Y. 1981). The Supreme Court disagreed, declaring: ''Because we conclude that such a physical occupation of property is a taking, we reverse.'' 458 U.S. at 421.
The Court explained why even a minor permanent invasion constitutes a taking:
Property rights in a physical thing have been described as the rights ''to possess, use and dispose of it.'' To the extent that the government permanently occupies physical property, it effectively destroys each of these rights. First, the owner has no right to possess the occupied space himself, and also has no power to exclude the occupier from possession and use of the space. The power to exclude has traditionally been considered one of the most treasured strands in an owner's bundle of property rights. Second, the permanent physical occupation of property forever denies the owner any power to control the use of the property; he not only cannot exclude others, but can make no nonpossessory use of the property. Although deprivation of the right to use and obtain a profit from property is not, in every case, independently sufficient to establish a taking, it is clearly relevant. Finally, even though the owner may retain the bare legal right to dispose of the occupied space by transfer or sale, the permanent occupation of that space by a stranger will ordinarily empty the right of any value, since the purchaser will also be unable to make any use of the property. Id. at 435436 (internal citations and footnotes omitted).
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Mandated access constitutes a categorical taking unless an exception to Loretto applies.
In considering the takings issue, I respectfully submit that the Subcommittee must determine whether there is a principled basis to distinguish the mandatory access to premises controlled by building owners sought by telecommunications companies from other types of regulations that trigger application of the categorical compensation requirement of Loretto.
Statutory rights of access imposed under the Commerce Clause may not thereby avoid scrutiny under the Takings Clause.
The fact that Congress may regulate private property under the Commerce Clause does not permit it to vitiate an owner's rights protected by the Takings Clause. While Congress might conclude correctly that commerce would be facilitated if property belonging to A were transferred to B, or if C were authorized to erect permanent structures on the lands of D, regulations implementing those conclusions undeniably would be takings. The Takings Clause is not designed to preclude impermissible governmental actions. To the contrary, it is designed to harmonize the permissibleperhaps even laudatoryexercise of governmental powers with the right of individuals to be secure in their property. ''The Fifth Amendment's guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.'' Armstrong v. United States, 364 U.S. 40, 49 (1960).
Page 58 PREV PAGE TOP OF DOC Those seeking statutory authority for the imposition of mandatory access requirements therefore have the burden of demonstrating not merely that such regulation would be appropriate under the Commerce Clause, but also that it passes muster under the Takings Clause. In order to accomplish the latter task, either an effective mechanism for compensation must be put in place or the categorical rule of Loretto that a permanent physical occupation constitutes a taking must be distinguished.
Regulations may change the terms of a property owner's contract with an existing business invitee.
Where a property owner has permitted another to occupy his land or building, government may regulate the economic terms of the relationship under the Supreme Court's current view of the Takings Clause. Under this theory, the Supreme Court long has held rent control to be constitutional. See, e.g., Bowles v. Willingham, 321 U.S. 503 (1944).
Another application of this same principle is FCC v. Florida Power, 480 U.S. 245 (1987). The Court there upheld the Pole Attachments Act (1978), codified at 47 U.S.C. §224. That law provided that utility companies choosing to provide cable companies with access to their facilities had to limit their charges to amounts consistent with FCC regulation. Central to the Court's holding that the Act did not work a physical taking was one crucial distinction between it and the regulation in Loretto:
[W]hile the statute we considered in Loretto specifically required landlords to permit permanent occupation of their property by cable companies, nothing in the Pole Attachments Act as interpreted by the FCC in these cases gives cable companies any right to occupy space on utility poles, or prohibits utility companies from refusing to enter into attachment agreements with cable operators. . . .
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Th[e] element of required acquiescence is at the heart of the concept of occupation. . . . ''Appellees contend, in essence, that it is a taking under Loretto for a tenant invited to lease at a rent of $7.15 to remain at the regulated rent of $1.79. But it is the invitation, not the rent, that makes the difference. The line which separates'' Loretto is the unambiguous distinction between a commercial lessee and an interloper with a government license. . . . Id. at 252253.
THE SUPREME COURT'S DECISION IN YEE.
In 1992, the Supreme Court decided Yee v. City of Escondido, 503 U.S. 519 (1992). Yee addressed a narrow issue: Did a local rent control ordinance, within the context of the California Mobilehome Residency Law, amount to physical occupation of their property allowing mobile home park owners to compensation under the Takings Clause?
The Court took the case in order to resolve the direct conflict between the U. S. Court of Appeals for the Ninth Circuit's decision in Hall v. City of Santa Barbara, 833 F.2d 1270 (9th Cir. 1987), which found a taking, and the California Court of Appeal in Yee, which did not. Judge Alex Kozinski noted in Hall that the state Mobilehome Residency Law forbade the park owner from requiring that a departing tenant take his mobile home with him at the same time that the local rent control ordinance would ensure a prospective new tenant a below-market mobile home pad rent. At the same time, the prospective tenant would be negotiating the purchase price for the mobile home itself.
Page 60 PREV PAGE TOP OF DOC Judge Kozinski reasoned that a physical taking resulted:
[B]ecause of the way the ordinance is alleged to operate, the tenant is able to derive an economic benefit from the statutory leasehold by capturing a rent control premium when he sells his mobile home. In effect, the tenant is given an economic interest in the land that he can use, sell or give away at his pleasure; this interest (or its monetary equivalent) is the tenant's to keep or use, whether or not he continues to be a tenant. If the Hallsallegations are proven true, it would be difficult to say that the ordinance does not transfer an interest in their land to others. Id. at 127677.
The Supreme Court in Yee rejected the theory that capitalization of the rent control premium resulted in a physical taking: ''The mobile home owner's ability to sell the mobile home at a premium may make this wealth transfer more visible than in the ordinary case, but the existence of the transfer in itself does not convert regulation into physical invasion.'' 503 U.S. at 529530 (internal citation omitted).
It is clear from Yee and also from Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 261 (1964) (upholding public accommodations provisions of the Civil Rights Act of 1954 under the Commerce Clause), that under some circumstances government may mandate the use or occupation of private property by individuals who never obtained the owners' consent. Does that principle extend to access to structures by telecommunications companies?
Courts of Appeals have been unwilling to exempt uninvited communications companies from the categorical takings rule of Loretto.
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The two leading cases on the application of Loretto to mandatory access by uninvited carriers make it clear that the Courts of Appeals do not regard Commerce Clause mandates for nondiscriminatory assess as precluding Takings Clause review. They also make clear that the occupation of premises or structures by competing carriers violates the Takings Clause unless just compensation is paid.
In Bell Atlantic v. FCC, 24 F.3d 1441 (D.C. Cir. 1994), the FCC had ordered local exchange companies to set aside portions of their central offices for occupation and use by competitive access providers. The FCC asserted that it had authority under the Communications Act of 1934 to order this co-location. Courts normally defer to an agency's interpretation of its governing statute. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Here, however, the Court of Appeals for the District of Columbia Circuit refused to accord Chevron deference, explaining that ''statutes will be construed to defeat administrative orders that raise substantial constitutional questions.'' The court found that the FCC's decision ''directly implicates the Just Compensation Clause of the Fifth Amendment, under which a ''permanent physical occupation authorized by government is a taking without regard to the public interests that it may serve.' '' 24 F.3d at 1245, quoting Loretto, 458 U.S. at 426.
The Takings Clause does not prohibit takings for which just compensation is paid and a building owner aggrieved by forced access would have a claim for compensation under the Tucker Act, 28 U.S.C. §1491. Strictly speaking, therefore, an FCC ruling that failed to provide compensation would not ipso facto raise a substantial constitutional question. Nevertheless, the court set aside the FCC's co-location order. Its justification for doing so was the Supreme Court's opinion in United States v. Riverside Bayview Homes, Inc., 474 U.S. 121 (1985). In its invocation of Riverside Bayview, the Federal Circuit recognized a principle of judicial review of agency decisionmaking made a substantive determination on the merits of the FCC's contention:
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But precedent instructs that the policy of avoidance should nonetheless take effect when ''there is an identifiable class of cases in which application of a statute will necessarily constitute a taking.'' 24 F.3d at 1245, quoting 474 U.S. at 128 n. 5 (emphasis added).
The other leading case is Gulf Power Co. v. United States, 187 F.3d 1324 (11th Cir. 1999). This case revisited the Pole Attachments Act of 1978, which, as noted earlier, had been sustained in the face of a physical takings challenge in FCC v. Florida Power, 480 U.S. 245 (1987). In 1996, however, the Pole Attachments Act was amended so as to require that a ''utility shall provide a . . . communications carrier with nondiscriminatory access. . . .'' 47 U.S.C. §224(f)(1) (emphasis added). The U. S. Court of Appeals for the Eleventh Circuit noted that Florida Power explicitly had left undecided'' what the application of [Loretto] would be if the FCC in a future case required utilities, over objection to enter into . . . pole attachment agreements.'' 187 F.3d at 1329, quoting 480 U.S. at 251252 n. 6 (brackets in original).
In its consideration of the merits, the court found that in Florida Power the voluntary nature of the agreement by utility companies to permit cable company occupation of their property was determinative.
In reaching that result, the Supreme Court stressed that unlike the statute in Loretto where the landlord was required to submit to permanent, physical occupation, the pre-1996 version of the Act did not require a utility to give a third party access to its property. Without the ''element of required acquiescence,'' there was no taking under Loretto. 187 F.3d at 1329, quoting Florida Power, 480 U.S. at 252.
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Given the Supreme Court's observations in Florida Power that ''it is the invitation, not the rent, that makes the difference,'' and that ''[t]he line which separates . . . Loretto is the unambiguous distinction between a commercial lessee and an interloper with a government license,'' Id. at 252253, I view Gulf Power as correctly decided.
Other issues bearing upon the application of Loretto in the ''multiple tenant environment'' context.
Are landlords burdened with an obligation of nondiscriminatory access by dint of the regulated nature of their industry and the fact that telecommunications services are increasingly valuable to tenants and to society as a whole?
A variant of this argument was raised in Loretto itself, with regard to the importance of access to educational television for the often low- and moderate-income residents of multiple family housing. A similar public benefit argument was made in Gulf Power, with regard to the ''partly public'' status of public utilities. In both cases, the answer is the same:
That argument fails because it ignores the Loretto rule that ''[a] permanent physical occupation authorized by government is a taking without regard to the public interests that it may serve.' '' Gulf Power, 187 F.3d at 1330, quoting Loretto, 458 U.S. at 426.
In fact, Loretto had noted and rejected the notion that one utility might occupy the land belonging to another without having to pay compensation. 458 U.S. at 429430 (discussing approvingly the holding that a telegraph company could not operate lines over a railroad's right of way without compensation in Western Union Telegraph Co. v. Pennsylvania R. Co., 195 U.S. 540 (1904)).
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The ''character'' of a government regulation is one factor that courts must consider in determining whether the regulation works a taking of property under the Supreme Court's ad hoc balancing test of Penn Central. What distinguishes Loretto is that it is not a balancing testit is a categorical test holding that permanent physical occupation is so akin to a taking that the Court will not inquire further.
In any event, of course, office and residential buildings in no way constitute natural monopolies and the level of regulation imposed upon them is vastly less pervasive. Furthermore, owners do not receive the types of public benefits, including the right of eminent domain and protection from competition, that have been enjoyed by regulated utilities.
''Would constitutional problems be mitigated if a requirement were tailored to apply only if the property owner has already permitted another carrier physically to occupy its property, if it enabled a property owner to obtain from a new entrant the same compensation that it has voluntarily agreed to accept from an incumbent LEC . . . ?''
This question is posed by the FCC, in its ''Notice of Proposed Rulemaking and Notice of Inquiry and Third Further Notice of Proposed Rulemaking,'' FCC 99141, para. 60 (rel. July 7, 1999). It raises by inference an array of constitutional doctrines, most of which are not relevant to the permanent physical occupation categorical takings test of Loretto and none of which provide a basis for distinguishing mandatory access for telecommunications companies from Loretto's categorical application.
''Mitigation'' is a concept introduced by Justice Brennan in Penn Central. It refers to a quid pro quo from the government imposing the regulation. As Brennan put it, rights so conferred are not compensation, but ''nevertheless undoubtedly mitigate whatever financial burdens the law has imposed on appellants and, for that reason, are to be taken into account in considering the impact of regulation.'' 438 U.S. at 137. There are two problems with employing the concept of mitigation here. The first is that governmental forbearance from making a regulation more harsh is not a quid pro quo. Second, and more fundamental, mitigation reduces the economic impact of a regulation on the property owner, which gets to the Penn Central balancing test. It has nothing to do with the Loretto categorical test.
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The idea that regulations might be ''tailored'' to ensure constitutionality invokes the concept that laws impinging upon a fundamental personal right will be given strict judicial scrutiny to determine that they are narrowly tailored to a compelling or substantial governmental interest. Again, this concept plays no part in takings determinations under Loretto.
The notion that the owner be forced to accept CAPs on the same terms as LECs builds upon the notion that, having voluntarily invited LECs onto their property, owners have created a physical occupation. Government may now regulate that existing occupation by inviting other telecommunications on the same terms as the owner already has accepted.
There are several problems with this approach.
First, Loretto simply does not distinguish between ''initial'' and ''subsequent'' physical occupations. However, it did discuss ''permanent occupations of land by such installations as telegraph and telephone lines, rails, and underground pipes or wires [that] occupy only relatively insubstantial amounts of space and do not seriously interfere with the landowner's use of the rest of his land.'' 458 U.S. at 430. These, ''relying on the character of a physical occupation'' ''are takings.'' Id. (citing cases). The fact that a subsequent involuntary occupation may result in little interference with an owner's property beyond that produced by the initial voluntary occupation may reduce the economic impact of the regulation under Penn Central but it does not change the regulation's character as a permanent physical occupation under Loretto.
Page 66 PREV PAGE TOP OF DOC To the extent that Yee v. City of Escondido and Heart of Atlanta Motel, Inc. v. United States might be asserted to depart from this analysis, it is important to note the particular property rights that those cases do and do not implicate.
In Yee, the state and city had established regulations ensuring the ability of a mobile home owner to sell his home and of the buyer to enjoy the protection of rent control, respectively. The state was not even a party to the litigation. In this context, the Court held that the assignment of the sitting tenant's contractual rights to occupancy to a successor did not constitute a physical taking. There was no new interest in land created.
In Heart of Atlanta, the Court held that the public accommodations provisions of the Civil Rights Act of 1954 are valid under the Commerce Clause. 379 U.S. at 261. This does not preclude a takings analysis, and there are at least two distinctive aspects of the hotel occupancy that greatly weaken the use of Heart of Atlanta as precedent for the proposition that government can force landlords to accommodate all telecommunications carriers who want admission. First, given the dangers of travel in medieval England and the scarcity of lodgings, the common law required that innkeepers accommodate all unobjectionable persons for whom they had room. This requirement had been maintained in the laws of every state, a proposition for which Heart of Atlanta cited the Court's 1883 opinion in The Civil Rights Cases. 379 U.S. at 260, citing 109 U.S. 3, 25 (1883). While customarily viewed through the lens of civil rights law, the nondiscrimination requirement in Heart of Atlanta might be viewed as an element of the ''background principles'' limiting an owner's property rights. See Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1029 (1992) (asserting in dicta that owners have no takings claim with respect to iterations of ''restrictions that background principles of the State's law of property and nuisance already place upon land ownership''). In addition, the right to occupy a hotel room for a night generally is considered a license and does not include a right to exclude members of the hotel cleaning and maintenance staff. It is certainly not a ''permanent physical occupation'' as described in Loretto.
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More generally, anti-discrimination provisions of civil rights law seek to vindicate the ability of classes that systematically had been excluded from the real estate market to freely purchase and sell real property. As such, they vindicate the right of alienation and also might be thought of as inhering in the property right itself. See, e.g., 1 THOMPSON ON REAL PROPERTY, THOMAS EDITION §29.02 n.83 (David A. Thomas ed., 1994) (citing Coke on Littleton, 201 b. 2 WILLIAM BLACKSTONE, COMMENTARIES ch. 7).
Given that access to modern telecommunications at a reasonable price is of prime importance to many tenants, there is a substantial disincentive for landlords to limit choices arbitrarily or to impose high fees on access the incidence of which ultimately will fall on tenants. Certainly there is no history of regulatory relief from possible systematic discrimination against telecommunications companies that remotely could be considered to inhere in the law of property and thus possibly vitiate landlords' takings claims.
It is, of course, up to the Congress to decide if the benefits of mandatory access legislation outweigh the costs. The arguments just considered, however, do not support the assertion that the cost and complexities of providing just compensation might be avoided.
Given the clarity of the Supreme Court's ''permanent physical invasion'' standard in Loretto v. Teleprompter Manhattan CATV Corp., the interpretation given Loretto in Bell Atlantic and Gulf Power, and the lack of any persuasive rational to distinguish those cases in the matter of mandatory access to buildings for telecommunications companies, I conclude that such forced access would constitute a physical taking and require just compensation.
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Mr. CANADY. Mr. Conyers is recognized.
Mr. CONYERS. I thank you all very much. Are we here on the first panel coming here to tell us that we are not going to be able to easily get to multiple facilities, broadband pipes and to deal with all of the great opportunities in a way under government direction that would benefit all of the citizens in the country, and it seems to me that we have heard some prohibitions and restrictions but we haven't heard anything about how we accomplish what would seem to be a laudable interest of the government on behalf of the citizens.
So let me turn some of these questions around and start off in a more positive mode. How do we accomplish these objectives in a way that will be perfectly acceptable to those who find that they should be accomplished and fulfilled? Would you like to try, Professor Eagle?
Mr. EAGLE. Thank you, Mr. Conyers. I think, sir, that we all wish to move telecommunications in the direction you have indicated. The question is: Can we best do that by pulling the string or by trying to push the string? I think clearly the pull of a free enterprise system will accomplish this much more readily rather than trying to impose government regulations. Landlords have every incentive to please their tenants. In the long run, if landlords do not provide reasonable telecommunications access at reasonable rates, that is going to be one reason why tenants may move elsewhere. And in fact, if there is any pecuniary advantage to be gained within a landlord-tenant relationship, I think it is much more likely that landlords will capture that simply by raising rents than by giving tenants an unattractive package of telecommunications services.
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Mr. CONYERS. Well, I take it you suggest that the government can't find a role that will be constitutionally acceptable in directing this.
Mr. EAGLE. I think that the government can find a role that would be constitutionally tolerable. I think that having the procedure where there could be rate making by the FCC with review by Federal courts would be constitutionally acceptable in a sense, just as the Williamson County ripeness problem where a landowner has to wait 10 years to get heard in Federal court on many occasions may be constitutionally acceptable. But I think, if I may say with all respect, that Congress' job is not necessarily only to look at the minimum of what is constitutionally acceptable, but to examine whether the cost of achieving that are consistent with Congress' broader weighing of the various needs that our society has. One of those needs is telecommunications access in the short run, and the other is preservation and enhancement of property rights, which will lead to more investment in telecommunications access in the long run.
Mr. CONYERS. What do you see, Professor Dinh?
Mr. DINH. As you know, Congressman, policy is above my pay grade. I suspect it is more toward your pay grade. So I will take your stipulation regarding the need to move telecommunications into a more competitive atmosphere, as Congress has stated in the 1996 Telecommunications Act, as a given, and answer your question as to how we go about solving some of the constitutional difficulties that have been raised. I note that, again, the FCC here is not forcing access on building owners. It is only putting a condition upon the provision of access by the building owners. So in that sense, it may not raise a per se taking under Loretto at all.
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But failing that, it seems to me that the rate making authority of the FCC, as Professor Eagle has commented, is constitutionally permissible. There is no liability for the Federal Government at this point. What is the procedure that is being contemplated? That the telecommunications companies would be the guarantors of any such liability. That is, the rates will be set by the FCC through its regulations. The rates will be paid by telecommunications companies to compensate the building owners for their use of the property. Should those rates be found to be constitutionally defective either under the fifth amendment or under any other procedures for challenging such rates under APA and other statutes, then I presume the FCC would reset those rates to the constitutionally or statutorily mandated standards, and the telecommunications companies would be required to pay those rates. There is no liability to the Federal Government at this point with respect to any compensation that is due to the landowners.
Mr. CANADY. The gentleman's time has expired. The gentleman will have five additional minutes.
Mr. CONYERS. Yes. I just wanted to make sure we had a comment from attorney Rosenthal.
Mr. ROSENTHAL. Thank you very much, Congressman. Again, basically I am a constitutional lawyer, but I have seen a voluminous amount of information to indicate that the market is, in fact, working in this area, that landlords have every incentive to provide their tenants with the services they asked for.
Let me point out one thing which I have not heard from my learned colleagues, and by the way, I want to congratulate my colleagues, who I think have done a superb job in focusing the issue, but one point I haven't heard is the proposal is a very unequal proposal. The telecommunications providers want to require that a landlord give access to their property, but let just say a tenant says I wanta tenant in a very small building says I want a particular telecommunications provider. There is no commensurate duty on the provider to provide them service. In other words, the provider can choose what buildings it wants to have access to, decide I will cherry pick the following five out of 100 buildings and say, look, I don't have the money, I don't have the interest, I don't have the incentive to provide the other 95, and these proposals would require that he have access to the five.
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One of the advantages of the free market, Congressman, is that a landlord who owns fifty buildings and is negotiating with a provider can say to the provider, look, you want buildings 1, 2 and 3, well, you are going to have take all my buildings or none of my buildings, and I would submit Your Honour, Congressman, that that is as much a method of improving access by giving the landlord the incentive to require people to come in as these proposals are.
Mr. CONYERS. Well, let us just go beyond that, because I generally subscribe to trying to let the system work before we rush in with rules, which sometimes may be premature and further complicate the situation, but what I was hoping to hear everyone agree on is that in the event that the market system doesn't work adequately, that there could be crafted a method under the suggestions that are already out there a way for FCC to regulate and move within a constitutional framework to accomplish the same goals. You know, frequently we all want the system to work, but sometimes it doesn't. We have such a combination of forces of mergers and monopolies that are growing up or near monopolies that sometimes I am not sure how well it is going to really work at all. Is there an agreement that there could be fashioned, an FCC process that would meet constitutional muster?
Mr. DINH. As I wrote in my written testimony, I think that the proposals contemplated by FCC are constitutionally sound and within the FCC's powers.
Mr. ROSENTHAL. Congressman, I think our view is that a mechanism could be created which is constitutionally sound, but that we believe that the U.S. Congress should expressly authorize it, that if it doesn't authorize both the taking and the mechanism that there is a danger that administrative agencies, like the FCC, could do things which, A, could create enormous liabilities, and B, go contrary to what you believe and what the Congress believes to be an appropriate scope for its proposals. So although I think it can be done, I think it should be done as Congress did with physical location through a provision in the Communications Act, which directly addresses it.
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Mr. CONYERS. Thank you.
Mr. EAGLE. Mr. Chairman, as in the case of rent controls generally, I believe that this kind of price control could be constitutionally minimally adequate. Whether Congress wishes to impose this kind of price control to alleviate what might be a shortageas in the case of rent control being imposed to alleviate shortagesmay well result in a situation where the medicine is worse than the illness.
Mr. CONYERS. Thank you all for your comments. Thank you, Mr. Chairman.
Mr. CANADY. Thank you. I want to add my compliments to all the members of this panel. I think you, both in your written testimony and your presentation here, have provided a very thoughtful analysis of the issues involved.
Let me read something that you said in your testimony, Professor Dinh. You said in sum, whether a nondiscriminatory access requirement is a per se taking is an open question. Now, Professor Eagle, I think, and Mr. Rosenthal don't think it is an open question, but you believe it is an open question. You go on to say,''any unqualified answer in the affirmative is an error because it gives conclusive weight to Loretto and ignores the competing principles set forth in cases like Heart of Atlanta Motel and Nollan. I do not venture a conclusion here because the question requires resolving the conflict between two competing lines of cases, both of which are jurisprudentially sensible and legally valid, a task of line drawing that only rests with the Supreme Court.''
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I would certainly agree that the line drawing does ultimately rest with the Supreme Court, but I would submit, quite frankly, that when I look at what is proposed here, it looks a whole lot more like Loretto than Heart of Atlanta. It seems very close to what the court was dealing with in Loretto and pretty far afield just factually and contextually from what they were dealing with in Heart of Atlanta This has already been addressed, but if you want to comment on that and if any of the other members want to comment on that, I would appreciate it.
Mr. DINH. I would love to, Mr. Chairman, and thank you very much for the opportunity. First of all, although I note that the final authority is with the Supreme Court, I think you as legislators ought to have the initial authority and a constitutional duty to weigh the constitutional propriety of the legislative actions, certainly an oversight with respect to an agency's actions. So I thank you very much for your thoughtfulness on these issues.
With respect to the characterization of the two competing line of cases, I do agree with you that Loretto is a very, very strong line of case. It is jurisprudentially valid. It affirms a principle that I believe in very deeply as a believer in free enterprise. That said, at the same time I think that the Heart of Atlanta line of cases and the Nollan line of cases, the conditional nexus line of cases, is no question in competition with the Loretto line of cases, and it has to be resolved on a fairly particularistic line-drawing process of the type that Yee v. Escondido had drawn with respect to the rent control of mobile home parks.
I do take your practical sense that really, although the Commission in this case is not technically requiring the building owners to give access to anybody, as a practical matter no building would ever come up without telephone lines and without telecommunications service or, in the very near future, without broadband service. And so in practicality, the buildings will give access permission, even though it is not technically required by the FCC.
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I would note, however, that such conditions are imposed by the market, imposed by the desires of the tenants, either as office lessors or as residential lessees, and not by the Commission itself, which is where we focus our attention with respect to the governmental action, whether or not it has effected a taking or not.
Mr. CANADY. Let me just say, and this may be somewhat afield, but if you follow up on the way I think you are trying to apply Heart of Atlanta, can you make an argument that in Loretto, the landowner should have lost because the landowner had already allowed a telephone company to put lines in the building, and if you allow telephone lines in, you have opened it up. What is the difference between allowing telephone lines in and cable lines?
Mr. DINH. Footnote 17 of Loretto addresses specifically this issue where the argument was that the lanlord was allowing tenants to be in as tenants, and then the city can condition the use of the property as rental property on the instillation of the additional breadbox of the cable company. The court rejected that argument and said you cannot condition the uncompensated, physical taking of the property on the rental permission. I suspect that that footnote, when matched up with cases like Nollan and Dolan, means that the sufficient nexus test would be answered in the negetivethat there was not a sufficient nexus there.
There was not a rough proportionality between the two requirements there, and that is why the court in Yee v. Escondido had to reinterpret note 17, saying, that yes, what we were talking about there is the conditioning of something that is unrelated. Here we were talking about not even a physical taking at all, but simply a regulatory taking in the sense of a regulation between economic relations between landlord and tenant rather than of a physical taking of the type in Loretto.
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Mr. CANADY. Let me give myself an additional 5 minutes and recognize Professor Eagle and Mr. Rosenthal to respond.
Mr. EAGLE. Mr. Chairman, I would like to stress again that Yee was a very anomalous case where the Court ultimately was vindicating the right of the sitting tenant as against a very ever clever scheme by Judge Alex Kozinsky of the ninth circuit to find a wedge to have the court ultimately declare all forms of rent control unconstitutional.
This whole notion, Mr. Chairman, the assertion that once one opens an area, that one has to let everyone in, is something I find highly unusual and just wrong. When I teach my first-year property students about property rights and we discuss easements, if I am the owner of land and give an easement to A to cross my land, A now has what the law deems a property right. But that doesn't mean that the government could then allow B or C or D or the entire public to cross my land without paying compensation.
Ultimately, the question is are we willing to treat Loretto, which is a categorical test, as a categorical test even though there are many who would prefer the result one would have gotten had the general balancing test of Penn Central been in place instead. But it is not.
Mr. CANADY. Mr. Rosenthal.
Page 76 PREV PAGE TOP OF DOC Mr. ROSENTHAL. I agree with what Professor Eagle says, but I would point out one additional aspect, and that is, unlike Heart of Atlanta and even unlike Yee, what we are talking about here is a government regulation which would force a company access onto my property, for that company to gain an economic advantage and profit on my property, and that ought to be at the extreme of what the fifth amendment should protect me from. I mean, it may be one thing when we are dealing with discrimination based on immutable personal characteristics, which is what we are talking about when we are talking about public accommodation.
Mr. CANADY. Of course, that doesn't involve a permanent physical occupation of real property anyway.
Mr. ROSENTHAL. What?
Mr. CANADY. That sort of use of a public accommodation, does not involve a permanent physical occupation of real property.
Mr. ROSENTHAL. Sure. I agree with you wholeheartedly. That is a temporary accommodation and that is another distinction, but what you have is a whole bunch of factors operating in this case. You have the fact that it is a permanent physical occupation. The point I am making is that on top of that, it is a permanent physical occupation for the purpose of permitting that permanent physical occupier to profit off of the use of the property itself. It is not just a passive use of the property to cross the property for some third purpose, which I think would still be a taking, but here you are allowing that third party to actually gain economic advantage from its actual presence on the property, and it strikes me that although all the other characteristics are sufficient, that surely should throw it over any line sufficient to make it a taking and distinguish it from the earlier precedents.
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Mr. CANADY. Let me ask you this, and although this is not the focus of this hearing, reference has been made to H.R. 3487, legislation which Representative Oxley has filed on this subject. Do you, Professor Eagle, or you, Mr. Rosenthal, have any opinion about the constitutionality of that particular legislation that would address this issue?
Mr. EAGLE. No, sir, I am not familiar enough with the legislation to venture an opinion.
Mr. CANADY. That's fair.
Mr. ROSENTHAL. I haven't really focused on it, Mr. Chairman.
Mr. CANADY. Very good. Again, I want to thank the members of this panel for being here. I think you have given us very helpful and thoughtful testimony on these issues that we are considering. Thank you very much.
We will now go to the second panel of witnesses. I want to welcome the members of our second panel and we will proceed with introductions.
On our second panel today we will first hear from Brent Bitz, who is executive vice president of management services at Charles E. Smith Commercial Realty, which owns and manages over 24 million square feet of commercial office space, primarily located in the mid-Atlantic region. Mr. Bitz is speaking on behalf of the Building Owners and Managers Association which represents some 17,000 owners and property management professionals throughout the country.
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Next we will hear from Timothy R. Graham, who is executive vice president and general counsel of Winstar, Inc. Mr. Graham leads the legal, regulatory and government affairs activities for Winstar, both domestically and internationally. He also serves on the company's board of directors. Before joining Winstar, Mr. Graham was partner at the law firm of Nixon, Hargrave, Devans and Doyle, specializing in corporate finance, regulatory and business law.
Next we will hear from John Haring, who is a principal in the economics and public policy consultancy Strategic Policy Research, Inc. Mr. Haring has also served as chief economist for the Federal Communications Commission and as chief of the Commission's Office of Plans and Policy. Mr. Haring has served on the staffs of the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, and at the Civil Aeronautics Board under Alfred Kahn.
Our final witness on this panel and for this hearing will be John Hayes, who is a principal at Charles River Associates Incorporated, where he specializes in the economic analysis of antitrust and regulatory issues in mergers, acquisitions and competition policy. Mr. Hayes has also authored and presented numerous filings before Federal and State competition authorities.
And I thank all of you for being here. Your full written statements will be made a part of the record without objection. I would ask that you do your best to confine your comments now to 5 minutes, although I don't think anybody here is going to insist on strict adherence to the 5-minute rule. So with that we will recognize Mr. Bitz.
Page 79 PREV PAGE TOP OF DOCSTATEMENT OF BRENT W. BITZ, EXECUTIVE VICE PRESIDENT OF MANAGEMENT SERVICES, CHARLES E. SMITH COMMERCIAL REALITY
Mr. BITZ. Chairman Canady and members of the subcommittee, good morning. My name is Brent Bitz. I am executive vice president with Charles E. Smith Commercial Realty. Let me first start by thanking you for holding this hearing this morning. Commercial real estate has long asserted to the Federal Communications Commission that forced access is a property rights issue of constitutional status, and we believe that this hearing affirms that assertion on our part.
While John Haring joins me here at this table to outline the Real Access Alliance's economic and legal analysis, Mr. Chairman, what I seek to impart this morning are the following messages: one, that the marketplace is working on behalf of our tenants and that it does not need government-mandated access. In fact, the telecommunications competition within buildings is thriving; two, forced access is unnecessary, unmanageable and, as other people will have spoken about, unconstitutional. The record will document that the commercial real estate industry desires, needs and has strongly supported over the years a competitive telecommunications industry. Such a marketplace is very important to our tenants which is the fundamental precept for our being in business in the first place; and thirdly, the commercial real estate industry will strongly fight any effort to mandate access to our properties.
Now, this morning I have the privilege of testifying on behalf of my company, Charles E. Smith Commercial Realty. The Building Owners and Managers Association represents approximately 17,000 professionals within our industry, and the Real Access Alliance, which is a coalition of 11 national real estate associations, that represents well one million members within our industry.
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At the instigation of a relatively small number of high profile telecommunications companies the FCC is considering a mandatory access rulemaking. The alleged rationale for this position is that real estate owners will not provide our tenants and our customers with the range of competitive and cost effective telecom services unless the Federal Government mandates that we do so. We believe that the record could not be more clear that this is not the case.
The real estate industry is a highly competitive industry where no single company has any significant market share in virtually any market in the country. We compete against each other on a daily basis, and most recently, and by that I mean over the last 1 to 2 years, the issue of telecommunications has been increasingly raised by our tenants and their brokerage representatives and as an essential element of the service we as an industry are expected to provide.
Our company, the Charles E. Smith Commercial Real Estate Limited Partnership, is a testament to this competitive marketplace. We have approximately 102 buildings within the metropolitan Washington area. We have over 2,000 tenants and we have eight alternative local exchange carriers that we have already signed up to do business in our buildings and are currently negotiating to arrange with others to provide additional services as well, and I can categorically say that over the last several years, I have not received one complaint from our tenants that we have not been able to provide them telecommunications services if the issue was our actions or our policies.
There is a problem, I must be quite frank, that the telecommunications industry is unwilling to provide telecommunications services to some of our smaller buildings. They were quite willing to cherry-pick the most attractive properties, but I even have license agreements with two of the national firms, and they have only wired 75 percent of the properties that they have signed license agreements on, and these agreements are now over 1 1/2 years old. I assume it is because they, in fact, elected not to do so because of their own business reasons. So we have a problem with that regard.
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Another example of how the free market is serving our tenants is that some telecommunications companies are very successful in signing up license agreements with the commercial real estate industry. Most recently, two companies, Allied Riser and Cypress Communications, recently did large deals covering anywhere from 200 million to 300 million square feet, each with multiple landlords. They were able to put these deals together within a matter of months because they putting together a package of services and business terms that were attractive to everyone. So it is quite simple, quite frankly, for successful companies and determined service providers to be successful.
I do not believe that, in fact, there is going to be really any delays in wiring our industry. As a matter of fact, I think over the next 18 to 24 months I think the industry will be well wired throughout the country, especially in quality buildings.
I see that my time is starting to run out, but I would like to make one or two last comments. Firstly, buildings have a very limited market. A 300,000 square foot building only has 10 to 12 tenants. What will happen if a rulemaking such as proposed occurs will likely be that the first service providers in will scoop up the tenants. The market will become saturated. It will only take two or three service providers to saturate the market, and then future companies will have less interest in coming into a saturated market.
I would like to propose, in fact, as an alternative to a forced access rulemaking that we work together with the CLEC industry in an educational effort to work through and educate the members of our industry about the benefits of working with the CLECs and, more specifically, about the rights that the existing members of our industry have in terms of mandating the incumbent carrier with regards to access rights and business terms so that everyone is treated on an equal basis so that we can work together equally and jointly on this rather than in a litigation setting.
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Thank you very much, Mr. Chairman. I would be pleased to answer any questions.
Mr. CANADY. Thank you, Mr. Bitz.
[The prepared statement of Mr. Bitz follows:]
PREPARED STATEMENT OF BRENT W. BITZ, EXECUTIVE VICE PRESIDENT OF MANAGEMENT SERVICES, CHARLES E. SMITH COMMERCIAL REALITY
Chairman Canady, Congressman Watt and members of the Subcommittee, good morning, I am Brent Bitz, Executive Vice President of Charles E. Smith Commercial Realty L.P.
Before moving any further into my testimony, Mr. Chairman, I want to thank you for holding this hearing. Commercial real estate has long asserted to the Federal Communications Commission that forced access is a property rights issue of constitutional status. Your holding this hearing affirms that assertion.
In my testimony I seek to provide an overview of the real life issues underlying the constitutional property rights at stake in the numerous forced access dockets before the Federal Communications Commission. In summary, what I seek to impart this morning is the following message:
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The Marketplace is working and does not need government-mandated access; telecommunications competition is alive and thriving in office buildings. Forced access is unnecessary, unmanageable and unconstitutional. The record will document commercial real estate needs and has supporteda competitive telecommunications marketplace. Such a marketplace is important to our tenants and is, therefore, vital to us.
Commercial real estate has, however, consistently identified opposition to any governmental effort to mandate access to our properties as a leading advocacy issue.
While Steve Rosenthal and John Haring join me here at the table to outline the Real Access Alliance's legal and economic analysis, my testimony seeks not only to clarify to the Subcommittee that the marketplace is working, but more to the point, that the forces in the market not only protect but promote tenant choice in telecommunications.
Today I have the privilege of testifying on behalf of the Charles E Smith Company, the over 17,000 property management professionals that comprise the Building Owners and Managers Association International and the Real Access Alliance, a coalition of 11 national real estate associations, that represents well over 1,000,000 individuals in the real estate business.
The Charles E. Smith Company owns and manages over 25 million square feet of property. We serve in excess of 2,000 tenants, and we employ more than 1150 individuals, either directly or through contracts at our properties.
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At the instigation of a small number of high-profile telecommunications companies, the FCC is considering a mandatory access rulemaking that if promulgated would impose responsibilities and mandates not over telecommunications companies but over the owners of office, retail and apartment buildings across the country. The Commission in this unwarranted and unjustified exercise of authority would unconstitutionally deny property owners two fundamental property rights.
1. Property owners would be denied the right to decide which for-profit commercial businessesin this case which telecommunications companiesmay physically occupy their building's rooftops and riser spaces; and
2. Property owners would be denied their right to set the level of rent, if any, to charge these telecom companies for the privilege of using their private property.
The alleged rationale for these extreme positions is that the real estate owners will not provide their customers with access to a range of competitive and cost-effective telecom services unless the federal government mandates that they do so.
The record could not be stronger to the contrary.
Office Buildings Need Robust Telecommunications Offerings
Page 85 PREV PAGE TOP OF DOC Just as the telecommunications industry has been revolutionized, and ultimately improved, by competition, our industry has recognized the challenges posed by an increase in customer sophistication and customer demands for new telecommunications services. Indeed, these demands will be (and already are) providing opportunities for our businesses to compete, one against the other, for market share. Our members aggressively market the characteristics of their properties, including telecommunications services.
BOMA, in cooperation with the Urban Land Institute, released a study entitled, ''What Office Tenant's Want.'' One portion of the study asked tenants to rank their top three intelligent building features and to indicate whether they would be willing to pay additional rent to have such a missing amenity.
From the array of 13 intelligent building features, survey respondents designated ''Built in Wiring for Internet Access'' as the number one required feature and placed in an almost statistical tie for positions two through five:
Wiring for high speed networks,
Conduits for cabling,
Fiber optics capability,
Seven out of ten survey respondents answered ''yes'' when asked if they would be willing to pay additional rent to have one of these intelligent building features added to their building.
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Number of providers almost as important as number of services
In addition to the BOMA/ULI study, numerous other studies have documented that for an office building to remain competitive in today's marketplace, it must offer tenants not only a wide array of telecommunications services, but also an array of choices in telecommunications service providers. Because the commercial real estate business is fiercely competitive, we must provide our tenants with access to the latest telecommunications services or they will go elsewhere, and our buildings' operations will cease.
Marketplace is working
In short, the marketplace does not need government-mandated access; telecommunications competition is alive and thriving in office buildings. Hundreds of license agreements are being signed by office building owners and telecommunications service providers every day. These transactions are negotiated at arm's length and in a free market environment.
Charles E. Smith Experience
We at the Charles E. Smith Commercial Realty L.P. are a testament to the competitive marketplace. We ensure that office consumers have access not only to the widest array of telecommunications services, but also have access to numerous service providers. At the Charles E. Smith Company today, we have eight alternative local exchange carriers providing service to our portfolio of 102 buildings. As I mentioned earlier, we have approximately 2,000 tenants in the buildings, which we either own or manage. I am not aware of a single incident where a tenant was unable to meet its telecommunications needs because of issues relating to its occupancy in one of our buildings. We have every conceivable type of tenant in our portfolio. Our tenants range from small entrepreneurs through sophisticated professional service firms and major government agencies. I am completely satisfied that the existing telecommunications service environment adequately meets my tenants' needs. In every case, if we were not able to meet a tenant's requirements through existing telecommunications service arrangements, they were able to deal with these service providers on a direct basis. At no time would we ever interfere with a tenant's desire to obtain improved service in this vital business area.
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The market will punish, and punish severely, those building owners that fail to ''get it'' about current telecommunications revolution. Mr. Chairman, every one of our license agreements were executed because they made business sense to all parties involved. Any government action or mandate would disrupt that environment. Moreover, the FCC, in its most recent broadband deployment docket, found no lack of broadband distribution nor competitive choice being offered in office buildings. As an industry, we are; therefore, at a loss to understand how the proponents of forced building entry could ask this Committee and this Congress to interject a static regulatory regime at the intersection of the business and the telecommunications revolution.
As a provider of commercial office space, one of the greatest challenges we have faced are instances where telecommunications service providers have elected not to do business with us or with the tenants in our buildings. In each case, the reason the CLEC elected to pass on our business was that we did not represent an attractive-enough investment opportunity. As a businessman, while I am not happy with their decision I can accept it.
What I can not accept is the telecommunications industry's one-sided request for forced access, which benefits them with no balancing obligations for service. Since neither tenants nor building owners have the right to demand service from a provider, we do not think that the providers ought to be given the right to forced access. The telecommunications industry cannot have it both ways. They can not cherry pick the best opportunities for business and then unilaterally ignore the rest of our industry's tenants across this nation.
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Unregulated Environment Works Best
We believe that an unregulated environment works best. Commercial tenants may rely upon market forces to ensure their access to not only a wide array of telecommunications services, but also a wide array of telecommunication service providers.
And while tenants may rely upon the marketplace to ensure their rights are protected, building owners look to the U.S. Constitution for our defense. But rather than going on at length about the constitutional protections we enjoy and a discussion of how a one-size-fits-all regulatory scheme for access is unmanageable, both Steve and John are here to outline those issues.
I would like to address how my constitutional rights assist me in managing for the tenant.
How the Right to Manage our Properties Benefits our Customers
The question of mandated access to private property raises a number of serious operational issues for any building owner. To give you a better sense of some of the practical realities underlying this issue, let me touch first on the often overlooked fact that in today's market only a limited number of telecom service providers will ever be interested in serving customers in any one building. In metropolitan Washington, a 300,000 square foot office building would be considered of typical size. Such a building might typically be expected to have somewhere between 10 and 30 commercial tenants. Given that this represents a limited market from the perspective of any individual telecom service provider or ''TSP'', in my experience after a handful (23) of the TSPs have wired the building and started to service tenants other competitive companies will not be interested in entering an already saturated marketplace.
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One of my main responsibilities in dealing with telecommunications services is to try to select the best service providers for the tenants of my buildings. It would put my buildings at a significant disadvantage (from a competitive standpoint) if those TSPs that gained access to my buildings by virtue of a new federal mandate were not the ones who provided the best mix and range of service to my tenants, but instead, were simply the ones lucky enough to get into my buildings first. Potentially better competitors would not have any interest in entering the building, and we, meaning my customers and my company, would be significantly disadvantaged by being stuck with poor quality, or simply outmoded, TSPs.
In addition to the fact that telecom companies are not interested in serving customers in buildings that already have multiple providers, there is the unalterable fact that equipment and riser space in buildings is always limited. It would be virtually impossible for the 1030 tenants in our hypothetical building to be serviced by individual TSPs. The building could not practically accommodate their infrastructure requests. Furthermore, there is the issue of the inevitable complexity of building owner negotiations with TSPs. In every building targeted for access by a telecom company, an equipment room must be identified and the engineering and implementation of vertical wiring attended to. In addition, to protect its own property and that of other tenants in the building, a property owner or manager must monitor the activities of competitive TSPs to ensure that their installation does not conflict with the installation of other TSPs. This type of monitoring generally requires the engagement of professional engineering services. This complexity increases exponentially as the number of TSPs increases.
Another reason I am confident that the existing free market is serving our customers very well is that many TSPs are enjoying a great deal of success negotiating access to building via license agreements that cover 100s of buildings. Both Allied Riser and Cypress Communications have recently signed deals giving them the ability to serve customers in 200 to 300 million square feet of office space owned by multiple landlords. These two telecom companies put together a range of services and business terms that were attractive to property owners and were able to conclude their negotiations over huge portfolios in a matter of months. As a matter of fact, the progress in the wiring of many office portfolios throughout the country is moving so fast, that it would not surprise me to see that the bulk of quality office properties were wired within the next 18 months. Given this, the issue of government regulation and the taking of private property rights may become academic.
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If there is a Right of Access, There should be an Obligation to Serve
As a final operational comment, I would like to make the observation that some TSPs, who are requesting forced access, are in fact the same ones who have failed to take advantage of all the opportunities available to them at this point. We have dealt with TSPs who have refused to provide access to our entire portfolio and only were willing to ''cherry pick'' selected buildings thereby leaving a substantial portion of our portfolio unserved. Even then, we have agreements that are now 18 months old with some of these companies and they have failed to wire approximately 25% of the buildings for which they have signed license agreements. How can a government agency consider asking us to give up our property rights without at the same time ensuring that our customers will get the services they deserve? If there is to be forced access surely there should also be a mandatory obligation on the part of all TSPs to serve any tenants that demand service.
Cooperation & Education
I would like to conclude my testimony with a call for a cooperative relationship with the competitive local exchange industry. Mr. Chairman, we can understand the CLEC industry's desire of a guaranteed marketplace. Some of my colleagues were hoping that perhaps we could have a 100 percent occupancy law passed. But as this Committee and this Congress have stated before: guaranteeing business success is not the role of government.
The CLEC industry claims that it is being treated unfairly or differently from the incumbent local exchange carriers. If that is true, it is a transition issue. One that will work itself out as more and more building owners learn they may demand the same of incumbent providers that they are demanding of competitive providers.
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BOMA would suggest the CLEC industry, rather than force us to spend our time fending off forced building entry legislation, join us in an educational effortan education effort to inform building owners of their right to require incumbent providers to:
Obtain their permission for access, and
Comply with the same rules and regulations for gaining access to any given property that we are today asking of CLECs.
BOMA and other members of the Real Access Alliance are currently engaged in this education program. We have produced ''Wired for Profit'' which, in layman's language explains the world of competitive telecommunications services and then offers model license agreements to govern access to buildings. These license agreements do not discriminate between incumbent and competitive providers. We look forward to the day when all access to our buildings by any telecommunications service provider is governed by such a license.
Thank you for the opportunity to testify, and I welcome your questions.
Mr. CANADY. Mr. Graham.
STATEMENT OF TIMOTHY R. GRAHAM, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, WINSTAR COMMUNICATIONS, INC.
Page 92 PREV PAGE TOP OF DOC Mr. GRAHAM. Good morning, Mr. Chairman, and members of the subcommittee. My name is Tim Graham. I am executive vice president of Winstar Communications, and today I am here on behalf of Winstar and also the Smart Buildings Policy Project. Thank you for the opportunity to address the subcommittee on an issue that is critical to the ability of competitive carriers to provide facilities-based broadband services to millions of Americans that live or work in multi-tenant buildings across the Nation.
Let me say, I am not a constitutional scholar and I will defer to Professor Dinh and Judge Bork, who I believe submitted a letter in connection with this hearing on constitutional issues.
In any event, if it weren't for the fact that in 1996 Congress passed a law calling for competition in telecommunications, we would not be sitting here today. Over the last 4 years, much progress has been made in achieving the important congressional goal of making competitive broadband services available to all Americans, but much remains to be done. There are more than 750,000 commercial office buildings in America, and one-third of all Americans live in apartment buildings. Today only 2 percent of building tenants have access to competitive telecommunications services. Federal legislative and regulatory action is the key to unlocking access to competitive telecommunications services for millions of Americans nationwide.
Winstar is a nationwide competitive provider of broadband communications services. Over the last few years, Winstar has been engaged in building state-of-the-art fixed wireless broadband networks for delivery of these communications services to small- and medium-sized businesses, many of whom effectively have been bypassed by the communications revolution.
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The key element of Winstar's local broadband networks is our wireless fiber service, which is transmitted over microwave radio spectrum using small antennas, approximately 12 to 24 inches in diameter, i.e., the size of a pizza pan. This service establishes broadband connections between our customer buildings and our communications network. Securing building access rights to install our antennas on the roof plus access to risers and conduits, telephone closets and preexisting inside wire are critical steps in the construction and expansion of our local broadband networks.
Typically, fixed wireless broadband capabilities can be brought to consumers much more quickly than cable modem and fibeoptic technologies, and at a substantially lower cost. Moreover, since streets do not have to be excavated, cities and their residents are not inconvenienced by fixed wireless network buildout.
From its inception, more than 6 years ago, Winstar has sought to bring these advantages to consumers. During that period, other companies such as Teligent, Nextlink, AT&T, MCI WorldCom, and Sprint, all of whom are members of the Smart Buildings Policy Project, also have begun aggressive deployment of fixed wireless networks. Nevertheless, the ability of Winstar and other fixed wireless providers to serve customers located in multi-tentant buildings depends, in large part, upon our ability to enter the buildings in which our potential customers are located in order to connect them to our network facilities.
Since 1994, Winstar has successfully negotiated access rights to more than 8,000 buildings nationwide, making us the industry leader. This including, in fact, access rights with Charles Smith. Nevertheless, that number only represents about 1 percent of the estimated 750,000 commercial buildings in the market. Probably the biggest barrier to our ability to access more buildings and serve more customers is the delay that building owners often impose in the negotiation process. On average it takes more than 9 months to negotiate access rights with building owners. On the other hand, the incumbent-lec is almost every building and can offer service to customers almost immediately. When the alternative is a year-long wait for service, this delay creates a burden on new entrants' ability to compete for customers.
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Another major problem facing competitive carriers is the outright denial of access by some building owners. We estimate that in approximately 40 percent of the cases we are denied access outright or access is delayed for so long that it is in reality denied. This statistic is supported by numbers that the building owners provided in response to a Real Access Alliance survey. In still other cases, building owners impose terms and conditions on competitive service providers that make service uneconomic and that effectively deny tenants access to competitive services.
Of course, real estate interests assert there are no building access problems and that the real estate market is competitive and responsive to tenant's desires. They say that if tenants do not have the telecommunications options they desire, they can always move to another building. This proposition is flawed and frankly somewhat disingenuous. Realistically, tenants will not move to another property unless the financial benefits of telecommunications competition exceeds the substantial costs of relocation. Moving is expensive and inconvenient, and most building owners impose significant penalties for early termination of a lease. Consumers should not need to physically relocate as a condition to enjoying the benefits envisioned by the Telecommunications Act of 1996.
Building access is a national problem and a Federal solution is needed. At the present time, only two States have nondiscriminatory access statutes, Texas and Connecticut. Importantly, neither of these statutes have been challenged in court on constitutional or other grounds. A Federal nondiscriminatory access solution not only is sorely needed, it is eminently desirable.
Page 95 PREV PAGE TOP OF DOC In conclusion, I strongly recommend active support for the pending Federal legislative and regulatory measures that attempt to ensure that tenants can choose their telecommunications carrier, enjoy the benefits of competition and can take advantage of the dynamic broadband capabilities that true telecommunications competition can offer. The presence of competitive telecommunications carriers and the availability of broadband services enhance the value of multi-tenant buildings. Unreasonable restrictions and delay on access to multi-tenant buildings is costing the American telecom consumer too much to allow it to continue.
Thank you for your time. I look forward to answering any questions you might have.
Mr. CANADY. Thank you, Mr. Graham.
[The prepared statement of Mr. Graham follows:]
PREPARED STATEMENT OF TIMOTHY R. GRAHAM, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, WINSTAR COMMUNICATIONS, INC.
Good morning Mr. Chairman and members of the Subcommittee. My name is Tim Graham. I am the General Counsel and Executive Vice President of Winstar Communications, Inc. (''WinStar'') and I am here on behalf of the Smart Buildings Policy Project, whose members include, but are not limited to, AT&T, Association for Local Telecommunications Services (ALTS), Information Technology Association of America (ITAA), Winstar Communications, Inc., International Communications Association (ICA), Telecommunications Industry Association (TIA), Competition Policy Institute (CPI), Nextlink, Teligent, MCI-Worldcom, and the Wireless Communications Association (WCA). Thank you for the opportunity to discuss building access issues. Building access is critical to providing the benefits of facilities-based telecommunications competition for over one-third of American residences and those small and medium-sized business located in the nearly 760,000 commercial office buildings across the nation.
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I. DESCRIPTION OF COMPETITIVE PROVIDERS.
Winstar, as an example, is a nationwide competitive carrier with broadband FCC licenses in the electromagnetic spectrum at the 28 and 38 GHz bands. Nextlink, Teligent, AT&T, Advanced Radio Telecommunications Corp. MCI Worldcom, Sprint and others also use electromagnetic spectrum to provide facilities-based fixed wireless broadband communications services, including local and long distance, data, voice and video services, as well as high speed Internet and information services. Winstar currently operates in 42 markets, including, among those, New York City, Washington, D.C., Miami, Orlando, Chicago, Boston, Detroit, Newark, Charlotte, Atlanta, Los Angeles, San Francisco, San Diego and Seattle. Winstar plans to operate in 60 major domestic markets by the end of 2000 and 50 international markets by the end of 2004.
A key element of Winstar's local broadband networks is our Wireless Fiber (SM) service, which is transmitted over microwave radio spectrum, using small antennas approximately 1224 inches in diameter. Our Wireless Fiber (SM) service establishes connections between our customer buildings and our network providing a seamless broadband connection to our customer. Securing building access rights to install our antennas on the roof, plus access to risers and conduits, electricity, telephone closets and pre-existing inside wire, are critical steps in the construction and expansion of our local broadband networks.
Increasingly, fixed wireless technology is being recognized as a significant vehicle for bringing broadband capabilities to U.S. consumers. ''Fixed Wireless'' is the name that's been applied to the communications networks being built principally by companies such as Winstar, Nextlink, Teligent, AT&T, MCI-Worldcom, Sprint, Advanced Radio Telecommunications, and a few others. The ''fixed'' term exists to distinguish these broadband radio networks from the networks built by ''mobile'' wireless companies for cellular telephone service. These advanced fixed radios currently deliver up to 200 megabits per second and this capacity is continually expanding with the development of network technology. For the last few years, fixed wireless carriers have been heavily engaged in constructing state-of-the-art fixed wireless broadband networks around the country for the delivery of data, Internet, voice, and other services to the nation's small and medium-sized business customers that otherwise have been bypassed by the communications revolution.
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The basic design of a wireless fiber network consists of a switch centrally located in a metropolitan area, connected by an intracity fiber network to a series of ''hub'' buildings where traffic is aggregated from a series of end user buildings. Usually the end user buildings are located within one to one-and-a-half miles from a hub site and that have line-of-sight to the hub site building. In the usual case, hub sites will have antennas on the roof that have line-of-sight to between 50 and 250 end user buildings. Each end user building, in turn, has its own roof- mounted antenna with line-of-sight back to the hub site building. The fixed wireless carriers target the end users in the end user buildings. Communications are brought to the roof through internal building facilities (i.e. inside wire) and transmitted from the antenna on the roof back to the hub site. At the hub site, the traffic is aggregated and passed back over lines or via wireless backhaul to the switch site. The fixed wireless carrier switches are interconnected to the public switched telephone networks as well as to any national fiber network the carrier may have constructed, and the traffic received at the switch typically is routed out over the least cost channels to its intended destination. Although the fixed wireless component differentiates fixed wireless carriers from their wireline competitors, fixed wireless networks are equal or superior to wireline fiber networks in terms of functionality and quality of service. Fixed wireless broadband capabilities can be brought to customers much more quickly than cable modem and fiber optic technologies and at a substantially lower cost. Moreover, streets do not have to be excavated, so cities and their residents won't be inconvenienced by fixed wireless network buildout.
From its inception, Winstar has sought to bring these advantages to consumers. More recently, companies like AT&T, MCI WorldCom, and Sprint have begun deploying fixed wireless technology aggressively in local markets as a quick and economic means of delivering broadband capabilities over their own independent networks. In fact, International Data Corporation estimates that the revenue generated by basic services delivered via fixed wireless technologies will grow from $767.3 million in 1999 to $7.4 billion in 2003. Nevertheless, it recognizes that building access restrictions could operate as a constraint on this growth potential.
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Winstar and the other competitive telecommunications carriers owe their existence to the 1996 Telecommunications Act. For example, Section 251 assures that we are able to interconnect with ILECs to provide competitive broadband and local exchange services to consumers. But interconnection with ILECs, important as it is, is only one aspect of providing service. Our ability to serve customers situated in multi-tenant buildings also depends upon our ability to reach them where they are located inside of buildings.
II. ACCESS DELAY IS A PRIMARY IMPEDIMENT TO COMPETITION
Since 1994, Winstar has successfully negotiated access rights to over 8,000 buildings nationwide, making us the industry leader. Winstar employs nearly 200 people in its Winstar for Buildings Division and their primary goal is to secure building access rights for the purpose of providing communications services. However, as there are over 760,000 commercial buildings in these markets the Winstar access rights represent only about 1.1% of the target market. The chief impediment to extending our networks rapidly and bringing a second or third communications pathway to millions of end users is the difficulty of obtaining access rights to every building where we have a potential customer. Unreasonable delay is probably our biggest barrier. In the majority of cases, it takes nine months to two years to negotiate access rights with building owners. At this rate, it will take decades to obtain access rights to all the buildings and customers that our networks are designed to reach. In fact, in their submissions to the FCC, the building owners acknowledge that 20 percent of the members responding to the Real Access Alliance survey had been involved in building access negotiations lasting over a year. Competition delayed is competition denied. The incumbent LEC is in every building and is prepared to offer service to customers immediately. Where the alternative is a yearlong wait for service, it becomes very difficult for new entrants to compete for customers.
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III. UNREASONABLE TERMS AND CONDITIONS FOR ACCESS AND OUTRIGHT DENIAL FORECLOSE COMPETITIVE BENEFITS FOR MANY AMERICANS.
Outright denial of access is another problem. Many building owners do not want to deal with the process of negotiations with competitive carriers and simply refuse access as a result. Indeed, 44 percent of the respondents to the Real Access Alliance survey did or may have denied telecommunications carrier access entirely. Other building owners do not view broadband capabilities at competitive rates as a priority for their tenants so they impose unreasonable conditions or rates that effectively preclude entry by competitive carriers. As an example, one building owner on the East Coast requested $50,000 upon signing of an access contract with Winstar in addition to $1,200 per month. By contrast, the incumbent provider rarely pays anything to the building owner for access to customers in the building. Another major property owner, after entering into an agreement with Winstar to allow access to its entire portfolio, subsequently denied Winstar access to the majority of buildings in that portfolio in clear violation of its contract. That building owner recently announced their involvement in a consortium of building owners established to provide telecommunications services in commercial office buildings. Incidents of denial or unreasonable conditions placed on access have occurred hundreds of times with Winstar. This issue is not unique to us and many of the members of the Smart Buildings Policy Project, and others, have provided detailed information to the Federal Communications Commission (FCC) describing the problem. We have attached articles from the October 1,1999 and March 15, 2000, Wall Street Journal which clearly shows that non-discriminatory access by competitive providers is being openly frustrated across the country.
IV. CONSUMERS SHOULD NOT BE FORCED TO MOVE IN ORDER TO ENJOY THE BENEFITS OF FACILITIES-BASED COMPETITION ENVISIONED BY THE 1996 TELECOMMUNICATIONS ACT.
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Not surprisingly, some real estate interests will assert that there is no building access problemthat the real estate market is competitive and responsive to tenant desires. The implication is that if tenants are not given the telecommunications options they desire, they can always move locations. This proposition is flawed and somewhat disingenuous.
In order for a tenant to actually move his home or residence, the financial benefits of telecommunications competition must exceed the substantial costs of moving locations. Moving is expensive and inconvenient. Realistically, very few consumers would actually move just to take telecommunications service from a competitive carrier. Competitive carriers would need to find zealots to take their service because of the costs and burdens of access while ILECs would merely need to find ordinary customers.
Congress obviously felt that consumers would not take advantage of competitive telecommunications choices if they had to change their telephone number in order to do so. Hence, number portability obligations were included in the 1996 Telecommunications Act. Physically moving locations is much more burdensome than changing telephone numbers and federal measures should be taken to ensure that consumers need not physically move as a precondition to enjoying the benefits of facilities-based telecommunications competition.
V. BUILDING ACCESS RESTRICTIONS ARE COSTING THIS COUNTRY TOO MUCH MONEY.
One of the issues for discussion at today's hearing is the costs involved of requiring nondiscriminatory telecommunications carrier access to multi-tenant buildings. I will explain later why these costs are de minimis and should not preclude the FCC or the Congress from making the policy choices that are best for Americans. But what is often lost in the debate is how much unreasonable terms and rates for building access are costing Americans today and how much Congress could save the country by eliminating these restrictions.
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If you look at the problem from the small business tenant's point of view, the harmful effects of unreasonable access restrictions become apparent. Carriers like Winstar target small businesses and medium-sized businesses as potential customers. Let us assume for the moment that a building owner is willing to grant us access in a timely manner to reach a small business customer in a building. Let us also assume that the access payment that the building owner charges the carrier is $300400 per month. (Remember this is not necessarily an average monthly access fee. The record in the FCC's Competitive Networks rulemaking demonstrates that some building owners demand five to ten times that amount. But, we will work with conservative figures for the sake of discussion.)
Also, assume that Winstar is able to win the service of one other small business tenant in the building that will order another ten lines from Winstar. The $300400 monthly building access fee that the building owner charges must be spread out over just the 20 lines being offered to the customer. The building access fee raises the telecommunications costs of these small business customers by $20 per telephone line per month. The incumbent does not make these access fee payments. And, believe it or not, Winstar is still able to win customers with these built-in discriminatory costs. Imagine doubling that $400/month fee and you see why high building access fees effectively eliminate the benefits of competition for commercial and residential tenants or severely limit the buildings that a competitive carrier can afford to serve.
Unreasonable terms and conditions for access cause serious problems for large businesses too. Texas has a statute that requires building owners to provide nondiscriminatory telecommunications carrier access to their buildings and just and reasonable rates when a tenant requests service. The Texas Public Utilities Commission is in the process of promulgating rules to implement that statute and is holding hearings on the issue as part of that effort. Just last month, a representative from Shell Oil testified before the Texas PUC. Shell had the potential of saving $30,000 a month by taking service from a competitive telecommunications carrier. Notwithstanding the Texas statute, the building owner refused to permit Shell to access the competitive carrier unless it paid $1500 a month for closet space. There were no space constraints or security issues attending the competitive carrier's facility installation. In fact, the building owner would not require Shell to pay this excessive fee if it took the service from Southwestern Bell. In this building, Shell occupies 50 floors, so moving locations to take service from the competitive carrier would have been too expensive to justify. The Shell Oil representative concluded her testimony by asking, ''[w]ho is building management to determine what carrier we should go with and what type of technology we should implement?''
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You have a technology and a group of competitive telecommunications carriers that can provide residences and small and medium-sized businesses with broadband capabilities that even large businesses did not enjoy several years ago. Moreover, the rates of competitive telecommunications carriers are usually a fraction of those offered by the incumbent. Elimination of unreasonable access restrictions will allow Americans to realize these incredible benefits.
VI. THE CONSTITUTIONALLY REQUIRED COMPENSATION FOR ACCESS IS DE MINIMIS.
What will nondiscriminatory access cost? If nondiscriminatory access is considered a taking, I suspect the cost of compensation will be very low. The Supreme Court has repeatedly held that '' 'it is the owner's loss, not the taker's gain, which is the measure of the value of the property taken.' '' First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 319 (1987), quoting United States v. Causby, 328 U.S. 256, 261 (1946). In valuing the compensation due for the taking of an easement for a telecommunications carrier to install its rooftop antenna and string its coaxial cable, the proper measure is the decrease in the value of the building.
In fact, the value of the building will likely experience a net increase from nondiscriminatory access. Building owners themselves have stated to the FCC that the presence of competitive carriers in their buildings and the ability of their tenants to choose among an array of advanced telecommunications services enhances the value of their buildings. This value enhancement must also be taken into account when determining the appropriate value of compensation. Finally, it must be remembered that it is standard industry practice for telecommunications carriers to bear all costs of facility installation and indemnify the building owner for any damage to the property that may inadvertently occur.
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Nevertheless, I do not believe a federal nondiscriminatory access requirement will result in judicial challenges. With limited exceptions, I strongly suspect that the mere existence of a nondiscriminatory access requirement with established time frames for negotiation will result in building owners and telecommunications carriers successfully negotiating access agreements with each other. Again, Texas offers an example. A building owner refused to permit Time Warner Telecom access to a building where a tenant had requested Time Warner's service. Time Warner Telecom filed a complaint with the Texas PUC. Within a week, the landlord against whom the complaint was filed apparently changed its policy to allow telecommunications carrier access. I understand that now the landlordafter Time Warner Telecom filed its complainthas begun negotiating not only with Time Warner Telecom, but with other telecommunications carriers as well. Within a week after filing the complaint, Time Warner Telecom requested abatement of its complaint given the landlord's willingness to negotiate. The Texas PUC never had to consider the matter. But, this example indicates that the mere existence of the Texas statute and the availability of the Texas Public Utilities Commission to enforce that statute are having a positive effect on the problem.
VII. A FEDERAL SOLUTION IS NEEDED.
Only two States have nondiscriminatory access statutes. (As an aside, it is worth noting that neither of these statutes have been challenged in court.) Many of the larger real estate interests hold properties across many different States. If carriers insist on enforcing the statutes in Texas and Connecticut, they risk retribution from building owners in States that lack access statutes by building owners with properties nationwide. A federal nondiscriminatory access solution is not only sorely needed, it is eminently possible. In Florida last year, as part of a larger telecommunications bill, the competitive carrier community, along with BOMA and others in the real estate community, agreed to legislative language ensuring non-discriminatory building access. Although the overall bill ultimately was not passed, building owners and competitive carriers did reach agreement, as a group, on legislative language. Thus, no one should tell you today that a legislative or regulatory solution cannot be reached and agreed to throughout the industry. In fact, the Florida experience is evidence that the interests of competitive carriers and real estate holders are complementary and that a win-win solution to the building access issue can be accomplished.
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Indeed, the United States Government encouraged adoption of nondiscriminatory building access requirements in another country. In October 1998, the U.S. Government stated that the Government of Japan should ''establish rules that facilitate access to privately owned buildings, particularly multi-dwelling units, to ensure that cable TV and new telecommunications competitors can reach the same customers as the incumbent carrier.'' Other countries such as Canada and Hong Kong already have requirements that building owners permit telecommunications carrier access to tenants in their buildings. In this regard, the United States is woefully behind in supporting the components of competitive independent network construction necessary for full-blown, dynamic telecommunications competition and the widespread availability of affordable broadband capabilities.
In conclusion, I strongly recommend active support for the FCC's attempts to ensure that commercial and residential tenants can choose their telecommunications carrier, can enjoy the benefits of competition, and can take advantage of the dynamic broadband capabilities that true telecommunications competition can offer. The FCC's proposals and the telecommunications carrier requests are reasonable and should be kept in perspective. Facilities-based competitors are not seeking access to multi-tenant buildings that is not already provided to ILECs. Nor are they seeking access without providing just and reasonable compensation to building owners for access where compensation is appropriate. The facilities-based competitors are willing to assume responsibility for any repairs due to damages caused to a building during installation or operationindeed, they already do. The use of fixed wireless technology can be, and is being, safely managed. The presence of competitive telecommunications carriers and the availability of broadband services enhances the value of multi-tenant buildings. Therefore, it is not a disadvantage for building owners to provide nondiscriminatory access to competitors, such as Winstar, and it is a tremendous advantage to Americans. Unreasonable restrictions on access to multi-tenant buildings is costing America too much to allow it to continue.
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Mr. CANADY. Mr. Haring
STATEMENT OF JOHN HARING, PRINCIPAL, STRATEGIC POLICY RESEARCH, INC.
Mr. HARING. Good morning, Mr. Chairman. My name is John Haring. I am principal in the economics in public policy consultancy Strategic Policy Research Incorporated. As you mentioned, in a previous life I was the chief economist of the FCC and the chief of the Commission's Office of Plans and Policy.
I am appearing today in lieu, of my partner Chip Shooshan, who was originally planning to present our testimony but had a conflict after the hearing was rescheduled. As many of you know, Chip served for several years as chief counsel and staff director of the House Telecom Subcommittee.
Last year Chip and I were asked by the Real Access Alliance to undertake a study analyzing the economic issues surrounding the various Federal legislative and regulatory proposals for forced access to private buildings. Our study has been filed by the alliance in the FCC's proceeding and has been provided for the subcommittee's consideration.
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In that study, we concluded that forced access was a solution in search of a problem and, as such, likely to prove harmful and counterproductive. What I would like to do today is briefly summarize the reasons we came to that conclusion.
Usually government intervention in the economy is premised on the existence of some kind of market failure arising from externalities or some kind of competitive failure. The first thing we were struck by looking at the real estate market is how competitive it is. There are many hundreds of thousands of office buildings in the United States, and the industry is characterized by very low levels of economic concentration, the fifty largest firms accounting for only 22 percent of the commercial revenues. The market is characterized by savvy customers who seek value for money in the absence of any significant barriers to exit or entry.
A significant portion of the total market is in play at any given time, and the average lease has only a relatively short time to run. Indeed, the real estate market is so competitive that in 1996, the Federal Trade Commission decided to exempt real estate companies from premerger filing requirements because, as the FCC remarked, there is little likelihood of about competitive problems or violations of the antitrust laws.
Because the industry is competitively structured, industry participants have strong incentives to identify and address their customers' requirements and needs. To fail to do so means confronting real risks of business and financial loss stemming from failures to lease available space. Thus, as communications capabilities have assumed increasing importance to business tenants, we would expect to find what we, in fact, observe, proliferation of service capabilities with customers afforded access to an expanding array of services and vendors.
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We have attached a chart to our filed testimony, and it shows the average number of buildings in each market served by some of the larger CLECs. The eight firms we looked at have obtained access to nearly 230 buildings in each market in which they operate a local network, and these companies have, of course, rationally focused their network deployments in the densest, most economically-served downtown areas, precisely where the bulk of the traffic resides.
Listen to what Teligent had to say in a press release it issued on December 20th 1999: 40 markets, 7,000 buildings, 10,000 customers, in 14 months, Teligent has signed lease or option agreements with hundreds of individual landlords and more than 35 major real estate concerns and has secured access to more than 700 million square feet of office space throughout the United States. No other local communications companies have launched as many markets in as short a time.
So one is hard-pressed to discern what is the problem to be addressed, unless one decides that the market is failing, unless building affords access to every service, an infeasible result and one, therefore, incapable of being optimal.
This brings me to my second point. If I tried to tell you that the market for toothpaste or baked goods or soda pop was failing because one can't buy every brand of toothpaste or baked goods or soda pop at every drug store or convenience store or supermarket, you would think I was crazy and rightfully so. The fact that one cannot buy every brand of appliance or every maker's automobile at each and every dealer is no evidence that those markets fail to do a satisfactory job of meeting customers needs.
Page 108 PREV PAGE TOP OF DOC Similarly, I do not think the fact that one's choices at any given building are more limited than those available more generally implies a market failure. Private buildings can, by no stretch, be defined as essential facilities as that term is defined for purposes of delineating a right of access.
This brings me to my third and final point. Government intervention to compel forced access is likely to carry some significant disabilities. First, the FCC is having enough trouble trying to manage interconnection by competing telephone companies without their now undertaking to regulate terms and conditions of access to literally hundreds of thousands of commercial office buildings and other types of properties, conditions within which are likely to vary significantly to say the least.
Second, intervention will significantly alter conditions that underlie the many deals that have already been struck, not to mention the business plans of real estate companies who are, themselves, contemplating competitive entry into the telecom business. That will harm competition, not help it.
Third, were forced access found to be an unconstitutional taking, the government could well find itself liable to the tune of billions of dollars. We have examined my colleague Steven Rosenthal's calculation of potential liabilities and conclude that, if anything, it likely represents a lower bound as it is based on quite conservative assumptions.
We therefore conclude that forced access is, in reality, likely to prove a significant source of problems rather than their solution.
Page 109 PREV PAGE TOP OF DOC Mr. Chairman, that concludes my statement. I thank you for your attention and the opportunity to appear.
[The prepared statement of Mr. Haring follows:]
PREPARED STATEMENT OF JOHN HARING, PRINCIPAL, AND HARRY M. SHOOSHAN, CHIEF COUNSEL, STAFF DIRECTOR, STRATEGIC POLICY RESEARCH, INC.
Mr. Chairman, Members of the Subcommittee. My name is John Haring. I am a principal in the economics and public policy consultancy Strategic Policy Research, Inc. (SPR). In a previous life, I served as Chief Economist of the Federal Communications Commission and as Chief of the Commission's Office of Plans and Policy. Before that I taught economics at the University of Virginia and served consecutively on the staffs of the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice and at the Civil Aeronautics Board under Alfred Kahn.
I am appearing today in lieu of my partner Chip Shooshan, who was originally planning to present our testimony, but had a conflict after the Hearing was rescheduled. As many of you know, Chip served for several years as Chief Counsel and Staff Director of what is now the House Telecommunications Subcommittee. Chip was also an adjunct professor at the Georgetown University Law Center for sixteen years where he taught communications law and regulation. I know how much he, as a Hill veteran, regrets his inability to be here today.
Last year, SPR was retained by the Real Access Alliance which represents eleven national real estate associations consisting of about a million real estate owners, investors, developers and managers from throughout the country. We were asked to analyze the economic issues surrounding the various federal legislative and regulatory proposals for forced access to private buildings. Specifically, we examined the competitiveness of real estate market, assessed the financial status of the so-called ''CLEC'' (or competitive local exchange carrier) industry and examined the allegations of discrimination.
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The detailed results of our study and the conclusions we reached are contained in a filing made by the Alliance last year with the Federal Communications Commission. I have provided copies of that study for the Subcommittee's consideration.
I would like to summarize for you today what we found.
Generally speaking, as a matter of economic principles, the free market is best suited to determine entry, pricing and investments short, the most efficient allocation of resources. Government intervention should be limited to instances where there is a market failure; that is, instances where it is clear that competitive forces must be supplemented I emphasize, even then, supplemented, not replaced by regulation. Government intervention in an efficient market actually tends to reduce not enhance the economic efficiency of the market, by, for example, encouraging inefficient entry and investment.
So a good place to start an economic analysis of forced access is to assess how well the markets are working.
The commercial real estate industry is competitively structured. There are over 712,000 commercial office buildings in the United States, accounting for over 10.5 billion square feet. The industry is characterized by very low levels of concentration. In the business sector, the fifty largest firms account for only 22% of revenues. On the residential side, they account for less than 10% of revenues. There are no barriers to entry and exit. And there are savvy customers who are perfectly capable of exploiting the alternative sources of supply.
Page 111 PREV PAGE TOP OF DOC And you don't have to take my word for it. In 1996, the Federal Trade Commission exempted transactions involving business and residential rental properties from pre-merger notification requirements under the Hart-Scott-Rodino Act because they are not ''likely to violate anti-trust laws.''
Regulatory intervention in the form of forced access is, therefore, not only unwarranted, but also could be counterproductive by ''chilling'' innovation and stifling the very creative arrangements currently being negotiated in the competitive marketplace. As building owners compete with each other for tenants, telecommunications capabilities including unique arrangements take on an even greater importance. More and more ''smart'' buildings are coming on the market all the time in an effort to attract high-technology and ''e-commerce'' businesses.
We see pretty much the same picture when we examine the market for local telecommunications services. CLECs, including fixed wireless providers such as Winstar and Teligent (who have been among the leading advocates of imposing forced access), are growing rapidly and about as fast as they can add customers. I have attached a chart to my written testimony that shows the average number of buildings in each market served by some of the larger CLECs. On average, these eight firms have obtained access to nearly 230 buildings in each market in which they operate a local network.
But again, don't take my word for it. Here is what Teligent had to say in a press release it issued on December 20, 1999:
Forty markets. Seven thousand buildings. Ten thousand customers. In 14 months . . . Teligent has . . . signed lease or option agreements . . . with hundreds of individual landlords and more than 35 major real estate concerns [and] has secured access to more than 700 million square feet of office space throughout the United States . . . ''No other local communications company has launched as many markets in as short a time,'' said Teligent Chairman and CEO Alex J. Mandl.
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Those strides have not gone unnoticed. Not only does Teligent count AT&T as a major shareholder, but it also recently attracted a large investment from Microsoft.
Microsoft is also an investor in Teligent's chief wireless competitor, Winstar. On January 7, 2000 Winstar announced that it had added 1,500 buildings in the fourth quarter of 1999 alone, bringing its total to 8,000 buildings.
And it is not just the big name players that are growing. Last year, we reviewed the market capitalization of 20 publicly traded CLECs. Their market capitalization at that time amounted to $92 billion. More recently we identified 34 publicly traded CLECs with a collective market capitalization of $176 billion.
So, if the real estate industry is competitive and CLECs are thriving, what is the problem that forced access is intended to solve?
The record at the FCCsuch as it islargely anecdotal and contains few specific examples of unreasonable conduct on the part of building owners. In our view, it is hardly an adequate basis to justify a regulatory taking that my colleague Steven Rosenthal has estimated could expose the government to a liability of more than $10 billion.
As I see it, the complaints of those CLECs that are leading the forced access fight arise from three circumstances. First, there may well be building owners and managers who, for whatever reason, are denying access to multiple telecommunications providers or who are setting a high price for that access. In my view, although those owners and managers have that right, in the highly competitive real estate market, they may be shooting themselves in the foot by making their properties less attractive.
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Second, newer entrants (and there are hundreds of CLECs nationally) may find that their competitors got to a building first. Where a building already has several providers in place, the owner may quite appropriately decide not to permit additional access; indeed, it may be physically difficult, if not impossible to do so, if all riser space is occupied. There are 14 CLECs certificated in the District of Columbia. Is the intent to ensure that each one of them has access to every building in DC?
Finally, the CLECs argue that they should have access because the incumbent local telephone company (for example, Bell Atlantic here in Washington) has access. Why shouldn't government ''level the playing field'' if it wants to promote local competition? There are two fundamental problems with this superficially appealing argument. First, as I noted earlier and as our study demonstrates, local competition is alive and well. The CLEC industry as a whole is flourishing. Our national telecommunications policy is to promote competition, not to ensure that every competitor succeeds. Second, the CLECs want the benefits of forced access without the responsibility of providing universal service. Incumbents, such as Bell Atlantic, are under a legal obligation to serve every business and residence customer. New entrants bear no such burden; indeed, they are free to pick and choose among locations they want to serve.
With regard to the value of the potential takings were the federal government to impose a forced access policy, we have reviewed the discussion of potential damage claims presented by Steven Rosenthal in his testimony. The number of commercial office square feet in the U.S. in 1995 was $10.5 billion. The telecommunications revenues per rentable square foot were about $0.12 in 1997. Thus, telecommunications revenues were about $1 billion per year in 1997 for commercial office space alonei.e., this estimate does not consider residential rental property. This amount has been growing and can be expected to continue to grow rapidly as businesses intensify their use of communications capabilities and there is growth in the total amount of space. Telecommunications is obviously assuming an ever increasing importance in the way people do business. Tenants increasingly demand more telecommunications services. Forced access can therefore be expected to reduce the anticipated revenue stream significantly. Taking these growth factors into account, a multiplier significantly greater than 10 is required to convert the stream of lost revenues into a discounted present value. We thus conclude that Rosenthal's illustrative reference to the value of lost revenues is not only reasonable, but, if anything, likely to understate actual ''takings.''
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In conclusion, I urge this Subcommittee to consider not only the compelling Constitutional arguments against forced access, but also the overwhelming evidence that the marketplace is working. In my opinion, government intervention is unwarranted and is likely to be counterproductive.
Mr. CANADY. Thank you, Mr. Haring.
STATEMENT OF JOHN B. HAYES, PRINCIPAL, CHA RLES RIVER ASSOCIATES, INC.
Mr. HAYES. Good morning, Mr. Chairman, and thank you for the opportunity to discuss the important economic issues surrounding the FCC's competitive networks rulemaking. My name is John Hayes, and I am an economist with Charles River Associates, where I specialize in economic analyses of antitrust and regulatory issues in the computer and communications industries.
I have four points that I would like to stress today. First point is that, based on the record that I have seen, the evidence I have seen in the FCC proceeding and the Texas proceeding on this issue, building owners possess market power over access by telecommunications carriers to the tenants in their building.
Page 115 PREV PAGE TOP OF DOC Second point is that this market power harms consumers and competition by increasing the cost of providing service and slowing the development of competition. Third, a nondiscriminatory access rule such as is under consideration at the FCC would diminish this market power with minimal cost to the government. And, finally the market left to itself will not constrain building owners' exercise of market power in a timely manner.
Under the current rules governing access to multi-tenant buildings, building owners are permitted to deny access, deny carriers access to the space necessary for the provision of telecommunications services. There is no substitute for these facilities in the building, and consequently, if competitive carriers are denied access they cannot provide facilities based service to the tenants, for the customers, in those buildings. As a result, building owners possess considerable control over the pace and form of local exchange competition. That control or that market power is most easily observed in the high prices that some building owners have demanded for access to their buildings, and the FCC and Texas records contain many examples of such excessive fees, and I am not going to recite those again today because I believe they have already been discussed here before.
However, the market power can be expressed in other ways, such as by restricting the number of firms that are allowed to access building, and that practice has been evident as well, and I will talk about that in a little more detail.
Consumers in competition are harmed by the market power over access because they are unable to benefit fully from the price reductions and improved service available in a competitive telecommunications market. Teligent, who is one of the Smart Building Policy Project members, routinely prices its service 30 percent or more below the incumbent's rate. Other carriers offer similar discounts. In addition, the competitive carriers are at the forefront of providing new and exciting broadband services, and these may arrive more slowly if competition is denied.
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The evidence suggests that a substantial portion of customers may be prevented from accessing the savings and advanced services available in competitive telecommunications markets. The data that I have looked at here was supplied in the FCC proceeding by the Real Access Alliance. Those data indicate that more than fifty percent, more than half, of the requests for access that competitive carriers have placed have ultimately failed. Another way of looking at that same information is that nearly 10 percent of building owners have denied all requests for access that they received from competitive carriers. As I read that data, there is a significant proportion, substantial portion of the market that does not have access to the carrier of their choice.
Finally, I think it is also important to recognize that the excessive prices for access are particularly damaging to competitors because the incumbent local service provider, their main competitor, typically is not assessed any charge for access, and this places those carriers at an immediate competitive disadvantage.
In contrast to my colleague, I don't believe that the costs of a nondiscriminatory access rule are going to be substantial. We can talk about that in more detail in a moment, but I think that the analysis that was in their testimony based on revenues as opposed to profits is flawed. And I am additionally troubled by the assumption that owners should get all of the revenues that are available in the telecommunications market. This seems to imply that owners are monopolists and able to capture, therefore, all of the telecommunications revenues that the customers in their buildings spend.
Under the current regime, the only significant constraint on the profitability of restricting competitive carrier access to buildings is the willingness and ability of tenants to move to another building, and frankly I don't think this is a realistic proposition. First, the direct costs and other barriers associated with moving are prohibitive. These costs include relocation expenses, lost productivity, potentially the loss of potential customers. In the tight real estate markets that are currently existing in many communities, tenants can expect to pay more for new space if they have to move to another space. And while it is difficult to quantify relocation costs precisely, one estimate that I have seen in the literature is that the total cost to relocate could equal a full year's rent, and at that kind of expense, it would take years, decades to pay for the move based on the telecommunications savings, cost savings, that one could anticipate.
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In addition, I think it is important to recognize that leases average 5 to 10 years in length and seriously limit tenant mobility.
Finally, I would point out the parallels between the debates over number portability and nondiscriminatory access to buildings. Opponents of the rule requiring number portability argue that local exchange competition could flourish without such a requirement. Congress disagreed with this proposition and included number portability in the Telecommunications Act of 1996. I believe that following the same reasoning underlying that number portability requirement, Congress should support a nondiscriminatory access requirement for multi-tenant buildings.
In conclusion, based on the review of the facts regarding tenant mobility, I don't think there is any realistic prospect that tenant moves are a significant constraint on building owners market power over access. Under the current regime market forces are unlikely to drive prices for access down to costs in a timely manner, and consequently, consumers may not realize the full benefits of competitive telecommunications market. The nondiscriminatory access proposals considered in the FCC's rulemaking can correct this market failure and encourage the development of vigorous competition in multi-tenant buildings.
Mr. CANADY. Thank you.
[The prepared statement of Mr. Hayes follows:]
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PREPARED STATEMENT OF JOHN B. HAYES, PRINCIPAL, CHARLES RIVER ASSOCIATES, INC.
Good morning Mr. Chairman and members of the Subcommittee. My name is John Hayes, and I am an economist employed by Charles River Associates where I specialize in economic analyses of antitrust and regulatory issues in the computer and communications industries. I previously worked as an economist with the Antitrust Division of the U.S. Department of Justice. During that time, I also served as an Adjunct Professor of Economics at Georgetown University. A copy of my C.V. and a list of publications are attached. Thank you for the opportunity to discuss, on behalf of the Smart Building Policy Project, the economic issues surrounding the FCC's Competitive Networks rulemaking and building access generally.(see footnote 56)
The absence of federal rules governing access to multi-tenant buildings permits building owners to deny facilities-based competitive carriers access to space necessary for the provision of facilities-based telecommunications services. Competitive carriers cannot turn to a substitute for these intra-building facilities in order to provide facilities-based service to customers located in multi-tenant buildings. Consequently, if competitive carriers are denied access to multi-tenant buildings, they cannot provide facilities-based service to those customers.
II. BUILDING OWNERS POSSESS AND EXPLOIT MARKET POWER OVER COMPETITIVE CARRIER ACCESS TO TENANTS IN MULTI-TENANT BUILDINGS.
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Absent a nondiscriminatory access requirement as contemplated by the FCC, building owners possess considerable control over the development of telecommunications competition in their buildings. By controlling the access bottleneck, building owners can influence both the pace and form of local exchange competition. They can control the pace of competition by limiting facilities-based service provision to certain favored providers or by slowing the rollout of competitive networks. And they can control the form of competition by denying access and effectively forcing competitive carriers to provide service through resale or unbundled elements, if they choose to provide service at all. The Telecommunications Act of 1996 contemplates three forms of competitive entry: resale, unbundled network elements, and facilities-based entry. Hence this control over access can impede a central goal of the Act.
From an economic perspective, building owners possess market power over competitive carrier access to multi-tenant buildings. This market power is most easily understood as the power to raise access prices above the cost of providing access. However, the market power also can be expressed in other ways, such as by restricting the number of firms that are allowed access to buildings. Elementary economics teaches us that building owners will undertake such practices if they are profitable. In fact just last week, the Wall Street Journal reported that some building owners intend to provide telecommunications services to tenants themselves while simultaneously restricting access to buildings by competing carriers.
The FCC and Texas PUC records together contain many examples of multi-tenant building owners demanding excessive fees for access to their buildings. These examples demonstrate that some building owners have found it profitable to exercise significant market power.
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III. CONSUMERS AND COMPETITION ARE HARMED BY BUILDING OWNERS' MARKET POWER OVER ACCESS.
The exercise of market power by building owners imposes real costs on consumers in the form of higher telecommunications prices and reduced access to advanced telecommunications services. The ability of building owners to restrict access and raise access prices has slowed realization of the goals of the 1996 Telecommunications Act and will continue to impede the development of dynamic local exchange competition if allowed to continue.
A competitive telecommunications market will drive prices toward the cost of providing service. When competition is restricted or costs are increased by artificial barriers to entry, those price reductions that predictably result from competition are reduced or eliminated altogether. Experts agree that there is considerable scope for price reductions in local telecommunications service. Teligent, for example, routinely prices its service 30% below the incumbent's rates. Other competitive carriers offer similar discounts. Tenants in buildings where competitive carriers are denied access may not be able to realize these savings. Data supplied to the FCC suggest that nearly 10% of building owners have denied all requests for access received from competitive carriers. These same data further indicate that more than 50% of competitive carrier's requests for access are ultimately unsuccessful. Thus, the absence of a nondiscriminatory access requirement denies many tenants the full benefits of a competitive telecommunications market.
The effects of building owners' market power over access are not limited to the multi- tenant buildings where competition is directly limited. All telecommunications customers, including those not residing in multi-tenant buildings, are harmed if competitive carrier entry is slowed by restrictive access policies. As competitive carriers more efficiently utilize their networks, the cost savings predictably will be passed on to all customers as lower prices for service. Barriers to efficient network utilizationsuch as eliminating access to a portion of the potential marketwill prevent consumers from realizing the full benefits of these efficiencies. Similarly, as competitive carriers obtain additional customers and deploy more equipment, equipment costs per unit should fall, resulting in lower costs and additional savings for all customers. Hence access restrictions to multi-tenant buildings can reduce the benefits of telecommunications competition for all consumers.
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Finally, competitive telecommunications carriers are directly harmed when they are overcharged or denied timely access to their customers. Excessive prices for access are particularly damaging to competitors because the incumbent local service providertheir main competitortypically is not assessed charges for access to multi-tenant buildings, placing new entrants at an immediate cost disadvantage.
IV. THE COSTS OF REQUIRING NONDISCRIMINATORY TELECOMMUNICATIONS CARRIER ACCESS TO MULTI-TENANT BUILDINGS ARE MINIMAL.
Weighed against the potential benefits of a nondiscriminatory access rule, the costs of such a rule are comparatively small. The nondiscriminatory access rule proposals under consideration offer building owners reasonable compensation for the loss of use of the property occupied by the telecommunications carriers' equipment. As the carriers will pay this fee, potentially together with a bond to indemnify building owners against specified carrier failures to perform, the Federal government should incur no costs related to a taking. Moreover, the advanced telecommunications capabilities installed by competitive carriers can increase the value of multi-tenant buildings, further mitigating any potential harm to the building owner from a reduction in the space available for lease to tenants.
In addition, there is no reason to expect that a nondiscriminatory access rule will limit creative and innovative access arrangements, as some have argued. Investments in telecommunications facilities in multi-tenant buildings, like other investments in building features and functionality, can be recovered through rent. Moreover, there is no reason to expect superior innovation performance in telecommunications markets where competition is restricted. The real danger of reduced innovation is that multi-tenant building owners will exercise market power over access and thereby limit CLEC entry and investment.
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Admittedly, some implementation and enforcement costs will be caused by a nondiscriminatory access rule, but these are likely to be comparatively small. We are fortunate in this case to have direct experience with nondiscriminatory access rules in the states of Texas and Connecticut, and we can evaluate the experiences of those states to assess the magnitude of these types of costs. The evidence from Texas and Connecticut suggests that the implementation and enforcement costs of a nondiscriminatory access rule are quite limited. In those states, nondiscriminatory access rules have been or are being implemented with minimal disruption and cost.
V. MARKET IMPERFECTIONS PREVENT TENANTS FROM IMPOSING DISCIPLINE ON BUILDING OWNER BEHAVIOR.
There is no dispute that under the current regime, the only significant constraint on the profitability of restricting competitive carrier access to multi-tenant buildings is the willingness and ability of tenants to move to another building. A central question, therefore, in the policy discussion of nondiscriminatory access rules is whether tenant moves will prevent multi-tenant building owners from exercising significant market power over access. We can address the empirical importance of tenant moves as a constraint on building owner market power by assessing directly the costs incurred by tenants when moving.
The direct costs and other barriers associated with moving are prohibitively large. These costs may include relocation expenses, lost productivity, and potentially the loss of existing customers. In tight real estate markets, such as currently exist in many communities, tenants can expect to pay more for new space. In addition, leases average 5 to 10 years in length and seriously limit tenant mobility. Although it is difficult to quantify relocation costs precisely, one estimate is that the total cost to relocate could equal a full year's rent. Few tenants would find it economical to move in order to purchase a competitive carrier's service given these costs. A simple example can illustrate the problem. Suppose telecommunications expenditures are 20 percent of rent and that CLEC service can save tenants 30 percent on their telecommunications bills. Under these conditions, it would take more than 16 years (ignoring discounting) for the savings on telecommunications services to pay for a move that cost one year's rent. This is longer than the term of most leases and far too long for most businesses to cost justify the move.
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The Real Access Alliance has argued that because a significant proportion of tenants move each year, there is on-going pressure on building owners to offer nondiscriminatory access. This argument assumes too much. While tenant churn likely does constrain the profitability of overcharging for access, it cannot eliminate it. Clearly, most tenant moves occur for reasons unrelated to telecommunications services. Such moves are unlikely to put significant downward pressure on building access prices. The evidence shows that, on balance, tenant churn has not been a sufficient constraint on multi-tenant building owner's market power. For this reason, the assertion that tenant churn will discipline the exercise of market power over access should be regarded with skepticism.
There are important parallels between the debates over number portability and nondiscriminatory access to multi-tenant buildings. In the debate about number portability, some opponents of a rule requiring number portability argued that local exchange competition could flourish without such regulatory intervention. In contrast, the proponents of a rule argued that if customers had to change telephone numbers to access competitive carriers, the development of competition would be slowed because changing telephone numbers was too inconvenient and costly for customers. Congress apparently agreed with this latter assessment, and included number portability in the Telecommunications Act of 1996. The cost and inconvenience of moving are substantially larger than the cost and inconvenience of getting a new phone number. Following the same reasoning underlying the number portability requirement in the Act, Congress should support a nondiscriminatory access requirement for multi-tenant buildings.
Page 124 PREV PAGE TOP OF DOC In conclusion, and based on this review of the facts regarding tenant moves, there is no realistic prospect that tenant moves are a significant constraint on building owners' market power over access to multi-tenant buildings. Under the current regime, market forces are unlikely to drive prices for access down to costs, and consequently consumers may not realize the full benefits of a competitive telecommunications market. The nondiscriminatory access proposals considered in the FCC's Competitive Networks rulemaking can correct this market failure and encourage the development of vigorous telecommunications competition in multi-tenant buildings.
Mr. CANADY. I recognize myself. Let me go back to something that Mr. Rosenthal raised and may have been touched on already and on this panel as well. Mr. Rosenthal pointed out that the proposal that is now under consideration is kind of a one-way street. It forces access but it doesn't impose any duty to serve. So it allows this kind of cherry-picking, and I think Mr. Bitz' testimony directly relates to this. It seems to me that if you do that, impose that sort of requirement, then it really undermines the ability of property owners who may have multiple buildings to negotiate and get the best deal they can get for themselves and for their tenants. I just wondered if anyMr. Hayes, Mr. Graham, you would like to comment on why it is you should be able to force your way in but you only go where you want to go?
Mr. GRAHAM. Well, to be honest, to start off with, the common carriers you are talking about here, the CLECs, are all common carriers. They are all certified in the States, and we are really talking about a different economic model. The economic model we have.
Page 125 PREV PAGE TOP OF DOC Mr. CANADY. First of all, when you say they are all common carriers.
Mr. GRAHAM. You are certified as a common carrier in the State by the PSC. So you have common carrier obligations to serve where you can.
Mr. CANADY. Let me follow up on that. What does that mean? Mr. Bitz says you have entered, not you, but somebody has entered agreements with him to provide service and they have only provided 75 percent of what they said they were going to provide.
Mr. GRAHAM. One of the differences, when you think of it, think of an ILEC an incumbent local exchange carrier. They built out over a hundred years so they pretty much have ubiquitous coverage over the Nation. With respect to CLECs, we are just in the process of building out our networks. We presumably would like to go to every place we can, but we are starting, at least in our case, Winstar, because I can speak to Winstar, we are starting in the urban areas and we are building out from the urban areas.
Mr. CANADY. So the fact that you are a common carrier really doesn't mean much?
Mr. GRAHAM. If we are in a building and if somebody requests service, we provide service to the people in that building because we can reach that building. Once we have established service we must serve those we can, and in the end from our perspective, it comes down to the fact we are supposed to be providing telecommunications choice to the end user, which is the customer.
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Mr. CANADY. But if there is a building across the street and for business reasons you don't want to go in there.
Mr. GRAHAM. I may not be able to reach that building. For example, a lot of the carriers referred to here are fixed wireless providers. We may not be able to get a line of sight to that building, and therefore, we won't be able to connect. To the extent that we can reach it, I can't see any reason why we wouldn't service it if we could.
Mr. CANADY. Do you think you have a legal obligation to provide it?
Mr. GRAHAM. If we can't service it, we wouldn't have a legal obligation.
Mr. CANADY. I understand that, but if there is a building you are not currently serving.
Mr. GRAHAM. We wouldn't have a legal obligation to go there.
Mr. CANADY. Anybody else?
Mr. HAYES. I think I would add that the market is operating much as one would expect it to, and the carriers are seeking the highest value customers to begin with, and that is appropriate and that is an efficient entry strategy for the carriers, and I don't think that we should see problems in that entry policy.
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Mr. CANADY. Mr. Bitz.
Mr. BITZ. If I could just address this, I am charged in my day-to-day responsibilities, perhaps the only one who is speaking here this morning for actually taking care of the tenants' needs as they come and request as a real estate service provider, and one of the concerns I really have with a forced access rulemaking is that I am being pressured by my tenants today in a normal competitive marketplace to provide telecommunications services, even though I am just a real estate company. My solution to that is to go out and try to find telecommunications agreements that will come into our buildings and serve those buildings. I mentioned that we were cherry-picked, which was absolutely the fact, and the company shall remain nameless to protect the innocent, but.
Mr. CANADY. Or the guilty.
Mr. BITZ. Or the guilty, because I wouldn't want to embarrass anyone in this room, but.
Mr. CANADY. Not to say at that table.
Mr. BITZ. I wouldn't want to say that, but in fact we maybe are slow learners in our industry, but we do learn, and frequently we in the industry have been able to work with other competitive exchange carriers to market our entire portfolio because we have gone to them now and said if you want the cream of the crop, perhaps buildings that have high-tech tenants in them, et cetera, et cetera, then you have got to take our small buildings, you have got to take the wheat with the chaff. If there was a forced building access requirement, my ability to negotiate that portfolio-wide deal would be completely taken away from me, and we would be back to the situation that I was in with these firms 2 years ago where they simply elected to go into buildings they wanted to, thereby leaving substantial portions of my portfolio and substantial portions of my tenant mix unserved. So we have a very strong concern about this that we will then be in a noncompetitive environment with significant portions of our portfolio, and I believe what I would say for my company to be equally true for my colleagues across the country.
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Mr. CANADY. Mr. Haring.
Mr. HARING. Let me offer two differing perspectives. First, I would refer back to former Chairman Hund of the FCC. In implementing the Communications Act, he talked about three legs of the stool that needed to be put in place to have the Act work as it was presumably intended to work. One was input pricing, which the Commission has spent a lot of time on, and which this might well be an example of were it decided that this was an essential facility. The second was reform of output pricing and the third was the reform of the subsidy scheme.
The FCC has spent a lot of time on the first leg of the stool, but never gets around to the second two legs of the stool. So when Congressman Conyers rightfully worries about the provision of these services to all and how it is we are going to do that, I don't believe you can do it through input pricing. We are putting all the weight on input pricing and access to inputs as opposed to the reform of the other things that need to be reformed.
And the second perspective I would offer you is after I left the FCC, one of my clients became the British Government's FCC, Oftel, and it has dealt with the same set of issues the FCC has over the last 10 years in implementing a competitive telecommunications regime. Indeed, I think the UK has one of the more liberal telecom regimes in the world and has put a great emphasis on facilities-based competition, and again, I was struck by Congressman Conyers' reference to the importance of facilities-based competition.
They take great difference, however, with the U.S. approach in that we in an excess of trying to, in my view, ''promote competition'' have made access to other people's facilities very cheap. That makes competition with those facilities very difficult. So I think in terms of, if we are going to extend the facilities to which we are going to afford easy access, treat them as if they were common property, we are going to disincent investments in facilities. And I don't think that is what you want to do.
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Mr. CANADY. Okay. Thank you. Anybody else want to make any closing comments? This is your chance.
Mr. GRAHAM. I guess my closing comment would be that when you passed the Telecom Act of 1996, the intention was to provide choice to the consumer, and the only way to provide choice to the consumer is to allow telecom carriers to get to the consumer. Unfortunately, there are issues that have arisen in certain instances where there have been difficulties getting to the consumer because of the position of the landlord, and I will agree that, by the way, that is in the distinct minority of cases. Generally, it is not a question of absolute denial. It is a question of the time to get into the building. But in those cases, it demonstrates that contrary to the policy of the United States as evidenced by the Telecom Act of 1996, competition in communications is being hindered.
Mr. CANADY. Mr. Bitz.
Mr. BITZ. If I could just reiterate one opening comment I made, Mr. Chairman. It is our industry's feeling that forced access in the final analysis really is unnecessary because competition is thriving within industry. Our tenants are rapidly benefiting from the very successful rollout of our friends in the CLEC industry. Forced access would be unmanageable. I couldn't foresee how the FCC could actually regulate the economic relationships among several hundred thousand office buildings in vastly different circumstances across the country, and while I am not a constitutional expert and will certainly rely on far more knowledgeable people than myself on that topic, we believe it is unconstitutional in the final analysis, and we wish to thank you for your kind attention to our comments.
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Mr. CANADY. I appreciate that and I want to thank all the members of this panel. Of course, our purpose here was primarily to examine the constitutional issues. So some of the policy issues that you have raised, while they do provide a context for looking at the constitutional issues are really somebody else's primary responsibility in the Commerce Committee, and we understand that and would not presume to get into those policy issues. It is the constitutional issue that causes us to have this hearing, and let me just say that I think there are serious constitutional issues here which have been illuminated in the discussion, and I want to thank you for helping provide some context for that discussion of the constitutional issues, and thank the other panelists who testified earlier.
I think we will be hearing more about this, although who knows, maybe there will be a technology not too distant where we won't to have worry about these wires going through people's property, and this ay become a moot point. I think probably 20 years ago or less than that, we would have had a hard time envisioning having this kind of conflict or discussion. So maybe it will be superceded by technological advances, but I am sure in the meantime there will be a raging battle. But with that we will adjourn.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
(Footnote 1 return)
Building Owners and Managers Association International, Institute of Real Estate Management, International Council of Shopping Centers, Manufactured Housing Institute, National Apartment Association, National Association of Home Builders, National Association of Industrial and Office Properties, National Association of Real Estate Investment Trusts, National Association of Realtors, National Multi Housing Council, and National Realty Committee/the Real Estate Roundtable.
(Footnote 2 return)
See, e.g., Penn Cent. Transp. Co. v. New York City, 438 U.S. 104 (1978).
(Footnote 3 return)
Of more recent vintage is a second category of per se takings. ''When the owner of real property has been called upon to sacrifice all economically beneficial use in the name of the common good, that is, to leave his property economically idle, he has suffered a taking.'' Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1019 (1992) (emphasis added); see also Agins v. Tiburon, 447 U.S. 255, 260 (1980).
(Footnote 4 return)
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).
(Footnote 5 return)
See Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922).
(Footnote 6 return)
See, e.g., Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211 (1986).
(Footnote 7 return)
458 U.S. 419 (1982).
(Footnote 8 return)
Loretto, 458 U.S. at 426.
(Footnote 9 return)
Id. at 435.
(Footnote 10 return)
Id. at 426.
(Footnote 11 return)
See Id. at 433, 435 (quoting Kaiser Aetna v. United States, 444 U.S. 164, 176 (1979)).
(Footnote 12 return)
College Sav. Bank v. Florida Prepaid Postsecondary Ed. Expense Bd., 144 L.Ed. 2d 605, 614615 (1999).
(Footnote 13 return)
Loretto, 458 U.S. at 438 n.16.
(Footnote 14 return)
NPRM, 30 (emphasis added).
(Footnote 15 return)
See, e.g. NPRM, 28, 36, 44.
(Footnote 16 return)
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984) (citing Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980), quoting Board of Regents v. Roth, 408 U.S. 564 (1972)).
(Footnote 17 return)
Lucas, 505 U.S. at 1027.
(Footnote 18 return)
Lucas, 505 U.S. at 1027.
(Footnote 19 return)
It should be noted that the Supreme Court in Loretto chose not to ''hazard an opinion'' on the respective rights of the tenant and the owner to the use of the rooftop of Ms. Loretto's building, as that opinion was not necessary because the New York law at issue did not require the landlord to provide cable installation ''if the tenant so desires,'' but simply required the landlord to have the cables installed irrespective of any tenant's desires. See Loretto, 458 U.S. at 439 nn. 18, 19. Nevertheless, it is obvious that underlying the decision in Loretto was the assumption that Ms. Loretto had a property interest in the rooftop which included the right to exclude the cable company's equipment.
(Footnote 20 return)
480 U.S. 245 (1987).
(Footnote 21 return)
Id. at 251 (emphasis added).
(Footnote 22 return)
Id. at 253 (citations omitted).
(Footnote 23 return)
Yee v. City of Escondido, 503 U.S. 519, 528 (1992).
(Footnote 24 return)
Loretto, 458 U.S. at 439 n. 16.
(Footnote 25 return)
Florida Power, 480 U.S. at 25253 (emphasis added).
(Footnote 26 return)
See generally NPRM, 5860.
(Footnote 27 return)
(Footnote 28 return)
187 F. 3d 1324 (11th Cir. 1999).
(Footnote 29 return)
Id. at 1328 (quoting 47 U.S.C. §224(f)(1)).
(Footnote 30 return)
See generally Lucas, 505 U.S. at 1027.
(Footnote 31 return)
See, e.g., Gulf Power Co. v. United States, 998 F. Supp. 1386, 1394 (N.D. Fla. 1998).
(Footnote 32 return)
Cable Holdings of Georgia, Inc. v. McNeil Real Estate Fund VI, Ltd., 953 F.2d 600, 605 (11th Cir. 1992); see also TCI of North Dakota, Inc. v. Schriock Holding Co., 11 F.3d 812 (8th Cir. 1993) (rejecting the plaintiffs broad interpretation of ''dedicated'' easement as raising ''serious questions'' under the Takings clause); Media Gen. Cable of Fairfax, Inc. v. Sequoyah Condominium Council of Co-Owners, 991 F.2d 1169 (4th Cir. 1993) (adopting result of Cable Holdings); Cable Inv., Inc. v. Woolley, 867 F.2d 151 (3rd Cir. 1989) (construing section 621(a)(2) narrowly to avoid constitutional concerns about a potential taking without just compensation).Cf. Centel Cable Television of Florida v. Admiral's Cove Associates, Ltd., 835 F.2d 1359, 1363 n.7 (11th Cir. 1988) (once a developer dedicates easements in a development to utilities, cable operators had right of access to place cable in those easements).
(Footnote 33 return)
See NPRM, 3648.
(Footnote 34 return)
OTARD Ruling, 20.
(Footnote 35 return)
Lucas, 505 U.S. at 1030 (quoting Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577 (1972)).
(Footnote 36 return)
See OTARD Ruling, 19.
(Footnote 37 return)
See OTARD Ruling, 29 (defining leased property as typically including ''balconies, balcony railings, and terraces'').
(Footnote 38 return)
See, e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984).
(Footnote 39 return)
Cf. OTARD Ruling, 19, n. 50.
(Footnote 40 return)
Additional evidence of the changing nature of the real estate business, and its shift to a more ''service-based'' approach, can also be seen in the fact that the Internal Revenue Service has agreed that income earned from providing telecommunications services to tenants will be considered ''good'' income under the tax code's REIT rulesmeaning it will be treated identically to rental income and other traditional sources of REIT revenue. See, e.g., Priv. Ltr. Rul. 9917039 (April 30, 1999); Priv. Ltr. Rul. 9452032 (September 30, 1994).
(Footnote 41 return)
See 1999 BOMA Experience Exchange Report, at 16 (BOMA International, 1999).
(Footnote 42 return)
National Multi-Housing Council, 1998 Annual Report (Research Notes) (1998).
(Footnote 43 return)
America's Real Estate: Natural Resource, National Legacy, at 42 (The Urban Land Institute) (1997).
(Footnote 44 return)
See NPRM, 56.
(Footnote 45 return)
See generally NPRM, 36, 69.
(Footnote 46 return)
See Rust v. Sullivan, 500 U.S. 173 (1991); Edward J. DeBartolo Corp. v. Florida Gulf Coast Trades Council, 485 U.S. 568 (1988).
(Footnote 47 return)
See, e.g., Gregory v. Ashcroft, 501 U.S. 452, 473 (1991).
(Footnote 48 return)
See United States v. Security Industrial Bank, 459 U.S. 70 (1982).
(Footnote 49 return)
See United States v. Riverside Bayview Homes, Inc., 474 U.S. 121, 128 n.5.
(Footnote 50 return)
Bell Atlantic v. FCC, 24 F.3d 1441 (D.C. Cir. 1994).
(Footnote 51 return)
Id. at 144546 (emphasis added).
(Footnote 52 return)
See, e.g. Cable Holdings of Georgia, Inc. v. McNeil Real Estate Fund VI, Ltd., 953 F.2d 600 (11th Cir. 1992); TCI of North Dakota, Inc. v. Schriock Holding Co., 11 F.3d 812 (8th Cir. 1993) (rejecting the plaintiffs broad interpretation of ''dedicated'' easement as raising ''serious questions'' under the Takings clause); Media General Cable of Fairfax, Inc. v. Sequoyah Condominium Council of Co-Owners, 991 F.2d 1169 (4th Cir. 1993) (adopting result of Cable Holdings); Cable Investment Inc. v. Woolley, 867 F.2d 151 (3rd Cir. 1989) (construing section 621(a)(2) narrowly to avoid constitutional concerns about a potential taking without just compensation).
(Footnote 53 return)
The members of the growing Smart Building Policy Project currently include the American Electronics Association, the Association for Local Telecommunications Services, AT&T Corp., the Competition Policy Institute, the Information Technology Association of America, the International Communications Association, MCI WorldCom, NEXTLINK Communications, Teligent, Inc., Winstar Communications, Inc., and the Wireless Communications Association.
(Footnote 54 return)
See Abbott B. Lipsky, Jr. & J. Gregory Sidak, Essential Facilities, 51 Stan. L. Rev. 1187, 122740 (1999) (arguing that if a court were to treat Microsoft's operating system software as an essential facility and were to require Microsoft to include Netscape's internet browser in that operating system, the government would have taken Microsoft's property, under the per se rule in Loretto, and would be required to pay just compensation).
(Footnote 55 return)
Because 47 U.S.C. §224(f)(1) requires a carrier to provide access to ducts and conduits ''owned or controlled'' by it, Congress clearly contemplated that the FCC would regulate property that is merely controlled by a carrier and therefore owned by a third party. Thus, even if the proposed regulations based upon §224 necessarily effect a taking without just compensation to property owners in every case, Congress in §224 has expressly granted the FCC the power to effect such takings and has concomitantly authorized the expenditures needed to satisfy those owners' claims for just compensation.
(Footnote 56 return)
The members of the growing Smart Building Policy Project currently include the American Electronics Association, the Association for Local Telecommunications Services, AT&T Corp., the Competition Policy Institute, the Information Technology Association of America, the International Communications Association, MCI WorldCom, NEXTLINK Communications, Teligent, Inc., Winstar Communications, Inc., and the Wireless Communications Association.