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VII. Easement Pricing: From Across-The-Fence To Across-The-Board

Communications carriers and corridor assemblers often use flat market prices, not land-based valuations, to obtain corridor property rights for buried fiber optic cable, cable hanging easements on transmission towers, and microwave or cellular base station sites. This reflects the “law of one price” in economics, which says that identical goods will sell for identical prices. Such flat market prices for easements or rents might be called “across-the-board” prices, also called “going prices,” in contrast with “across-the-fence” land based valuations.

TABLE 2: Fiber Optic Route “Going Prices”

Source: Vicky Uhland, “The Big Fiber Pull,” ZDNet, Oct. 22, 2000 (http://www.zdnet.com/wweek/stories/main)
Williams Companies Petronet
Property Right Easement Easement
Periodic Payment One-time payment One-time payment
Geographic Routes Long-haul routes Urban routes
Rural Route Unit Price $0.50 per linear foot $0.05 per linear foot
Urban Route Unit Price $2.00 per linear foot $0.20 per linear foot

The reasons for the communications industry using a flat pricing structure are:

  • A flat price structure provides certainty of cost that can attract capital and a uniformly competitive price in the industry that does not create an undue advantage of one business over another for any one business.
  • A flat price structure prevents what is called “arbitraging” whereby easements and rents are paid at cheap prices from unknowledgeable property owners and then re-sold at full market price by “arbitrageurs.” In rural areas, land based valuations would likely be much less than “going prices” for fiber optic easements. If such easements were based on rural land values, the easement could be re-sold for a higher price by opportunists or capitalized into a higher value for the business. This might be the case where rural land is transitioned to urban land uses.
  • Flat “going prices” solve the equitability valuation problem of paying the first landowner, for example, $2 per linear foot and $10 per foot for the last property.
  • A differential flat price structure can be offered for more or less lucrative routes connecting larger or smaller markets.
  • A flat pricing structure can facilitate a business case for the economic feasibility of a business venture. If the market has to depend on capricious court awards or “land appraisal contests,” that risk will be apparent. It may be translated into lowered prices that deregulated network industries are willing to pay for property rights. If the eminent domain model spreads at the expense of flat pricing, another of the risks is lengthened project timelines. Widening a road can take several years. The technology is stable, so no problem. Laying fiber optics is placing a bet on a technology that may become obsolete before installation.

Fiber optic easements and leases that do not affect the existing use of the corridor, or result in damages that are unconnected to the value of the corridor or the land. Thus, “going prices,” or “across-the-board” prices, are believed to be appropriate compensation for fiber optic easements within existing corridors. They are also attractive to reasonable sellers, and thereby save time. However, “going prices” are expressly prohibited under Federal land appraisal standards for eminent domain. The “before and after” appraisal method in one of its manifestations is legally required (Interagency Land Acquisition Task Force, 1992, p. 57). The eminent domain process is explicitly insensitive to measuring the foregone value attributable to the creation of a new use because it excludes “project influence,” the new use of the property.

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