AUSTIN — State lawmakers recently capped the amount cities can charge companies that erect small-cell wireless “nodes” in public rights of way, but a lawsuit says the statute robs cities and taxpayers.

Small-cell network nodes are radio/antenna units, about the size of an electrical transformer, that go on utility poles, light poles or buildings close to the ground, typically in high-traffic areas.

They’re designed to meet the growing demand for wireless coverage and boost capacity for video streaming and other services.

But opponents of the Texas law that took effect in September argue that capping the amount cities may collect to $250 per network node violates the state constitution and represents a fraction of what cities have been getting from private companies.

“The problem is, the Texas constitution doesn’t allow rights of way to be given away,” said Bennett Sandlin, executive director of the Texas Municipal League. “You have to compensate the taxpayers.”

In committee hearings, AT&T testified in favor of Senate Bill 1004, which became the fee-cap law.

Adrianna Bernal, AT&T’s assistant vice president for public affairs in Texas, said in a subsequent statement the law “helps consumers and small businesses by improving the quality of the networks where they live, work and play.”

Ken Schmidt, a Florida-based expert in wireless-lease rates, said in an interview that Texas law is “decidedly one sided” and “does not fairly compensate cities.”

His research shows the fair market value for attaching a network node to a pole in a municipal right of way falls within the $1,500 to $2,500 range.

State Sen. Kelly Hancock, R-North Richland Hills, authored the legislation.

Hancock does not comment on pending litigation, but a spokeswoman emailed a comment he’d made previously about the bill.

“Wireless technology is the future of telecommunications. Currently, Texas doesn’t have a legal framework for small cell wireless providers to gain access to public rights of way,” Hancock wrote. “SB 1004 provides the framework to build a telecom infrastructure that will help our state maintain its status as a global economic leader.”

About three dozen cities across Texas are suing in state court to halt enforcement of the statute.

The TML estimates the law will cost Texas cities $813 million annually.

Don Knight, a city of Dallas senior assistant attorney, said the law not only hits cities, but also cuts private property owners out of potential deals.

“The companies could put them on private property but then they’d have to deal with property owners,” Knight said. “It deprives property owners of business they could get.”

Schmidt said, “what they found in negotiating leases with private owners is, it’s expensive and time consuming. It was cheaper to get legislation passed at the state level.”

In an affidavit, Schmidt said that private small-cell leases between property owners and wireless companies usually range from $4,200 to $8,400 per year.

“By establishing such a low and far-below market rate for small-cell leases in the public right of way, Texas will largely eliminate the use of private property for small cells,” according to the affidavit.

Some 20 to 25 states have seen attempts to preempt city rate-making authority, and a total of 12 have laws that are “very similar” to Texas’, Schmidt said.

McAllen’s city attorney, Kevin Pagan, questioned why wireless companies should be different from gas companies and others that have to negotiate arm’s-length deals to use the public right of way.

Capping the fees cities can charge could cost McAllen up to $1 million a year, he said.

Pagan said that while proponents argued a statewide rate is less burdensome, “we made it clear that once McAllen reached an agreement, they could have used it all across the valley.”

A hearing on the lawsuit is set for next month, Pagan said.

In a separate challenge, Austin is suing in federal court, arguing that Texas is trying to take its authority under the Telecommunications Act to manage public rights of way.

“By imposing artificially low caps on the fees that cities can charge wireless companies, the state is effectively forcing the city of Austin to subsidize the private cellular industry by several million dollars a year,” Andy Tate, a spokesman for the city of Austin, said in a statement.

John Austin covers the Texas Statehouse for CNHI LLC’s newspapers and websites. Reach him at jaustin@cnhi.com.

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