The U.S. Court of Appeals for the Eleventh Circuit yesterday upheld the FCC's formula for calculating pole attachment rates, holding that FCC-regulated pole attachments do not subject utilities to an unconstitutional "taking" of their property without just compensation.

The long-awaited decision in Alabama Power Co. v. FCC, No 00-14763 (11th Cir., Nov. 14, 2002) delivers a blow to attachment-regulated utilities seeking higher, more reasonable, pole attachment rates. In its decision, the court concluded that simply allowing utilities to recover their marginal costs for pole attachments (such as make-ready and maintenance costs), is sufficient to provide just compensation, even without the recovery of fully embedded costs (such as a portion of the capital costs of the pole itself). The court ruled that just compensation is determined not by what the taker has gained, but rather by what the owner has lost. In the court's view, the recovery of marginal costs alone is sufficient to make utilities whole.

The court added a very interesting twist, however, to prevent this decision from being a total loss. The court concluded that a pole rate based on the FCC formula would not be appropriate if the pole were at full capacity and the utility had a better use for the space. This better use could be a use by the utility itself, or a use by an unregulated entity willing to pay more money. In that case, utilities would be entitled to charge a higher rate to recover for their lost opportunity.

This twist justifies higher rates for unregulated attachments. Unregulated attachments include attachments to regulated utilities by wholesale telecom companies, ILECs, and Internet-only companies. They also include all attachments to unregulated munis and co-ops. In essence, the Eleventh Circuit has recognized that pole attachment rates exceeding the FCC's formula can be perfectly appropriate.

The D.C. Circuit held oral argument on similar rate issues last month in the Southern case, and that court may reach a different conclusion. Until then, the Eleventh Circuit's ruling is the law of the land.