Irvine-based 5 Bars Communities has won contracts with at least three Orange County cities saying it could protect them from the impact of state legislation that would have stripped cities of their power to tell wireless companies where they could put small, new transmitters on street lights, traffic signals and city buildings.
The bill ultimately was vetoed Oct. 15 by Gov. Jerry Brown but could be reintroduced next year, according to supporters of the 5 Bars contracts. Lake Forest decides Nov. 7 whether to handle a Verizon Wireless agreement in house or use 5 Bars, which may affect future contracts.
Supporters of the 5 Bars contracts contend the contracts protect cities from having wireless companies put the transmitters wherever they want. The company won the support of city council members but multiple city staff members, including some speaking on background because they said they feared they’d lose their jobs if their names were used, said 5 Bars didn’t offer anything that the cities couldn’t do on their own.
And Mission Viejo City Attorney Bill Curley said in an Oct. 25 phone interview no contract could have protected cities if the bill became law.
“If it had become law, regardless of any staff member, lawyer or consulting company, (it) would’ve given carriers … the right to put their small cells or whatever array, where they needed to to make their system work,” Curley said. The Mission Viejo City Council gave City Manager Dennis Wilberg the authority to sign a contract with a firm, but didn’t specify 5 Bars. The city still is reviewing what to do.
The three OC cities that signed up with 5 Bars this year are Irvine, Placentia and Lake Forest and 5 Bars has similar contracts with Twentynine Palms, Fresno and Palm Springs.
Furthermore, a contract 5 Bars signed with the city of Sacramento last year gives that city two percent of the monthly gross revenue from all cities across the state that have contracts with 5 Bars.
The bill that Brown vetoed was strongly opposed by cities. In urging cities to sign contracts with 5 Bars, the company said it could protect them from losing control of where telecommunications companies could put the small cell transmitters. But 5 Bars hasn’t publicly said exactly how those protections would work.
An attorney close to 5 Bars, speaking on the condition of anonymity, said the state Constitution’s contract clause would allow cities to keep control of price and location.
Cities that had contracts with wireless carriers before the bill became law would have been exempt from the proposed law, but the bill didn’t spell out what kind of firms would qualify or whether the exemption included marketers or consultants.
The attorney said if cities contracted with 5 Bars, there was good chance the firm could have protected wireless contracts signed after the bill became law because a judge would have been reluctant to create a “domino effect,” nullifying all wireless contracts 5 Bars helped cities get throughout the state. Additionally, the attorney said because there’s such an economic interest in the contracts, it would’ve made it difficult for a judge to overturn them.
But Mission Viejo’s Curley said “even if we would have had 5 Bars or (another firm), it doesn’t matter … none of us could’ve stopped it (the impact of the bill) … we could have politely asked them (wireless companies), but if push came to shove, they would have won.”
The effort in Orange County to win city contracts was led by Newport Beach Mayor Kevin Muldoon, a former 5 Bars executive and former GOP state Sen. Richard Ackerman of Fullerton. Neither Ackerman nor 5 Bars executives responded to multiple telephone calls and emails for comment.
The bill, SB 649 by Democratic Sen. Ben Hueso of San Diego, would have taken nearly all discretionary review away from cities and allowed telecommunications companies like AT&T and Verizon to install small cell wireless transmitters. It would have also capped the income received by cities from the telecommunications companies at $250 per unit a year. Currently, the market rate is about $2,000 a year for each installation.
Small cell transmitters are a new technology being deployed by the wireless industry to help roll in 5G, the next generation of cell phones. The transmitters are being installed on telephone poles, streetlights and city buildings and use relatively low-power frequencies, which is why the industry wants to install a quarter of a million small cells throughout the country in coming years.
The transmitters are about the size of a shoebox and the supporting equipment boxes could be as large as a refrigerator. If Brown had signed the bill, wireless companies would be free to put transmitters on any street lights, poles or traffic lights with little input from cities. The bill allowed 21 cubic feet of equipment on poles and up to 35 cubic feet of ground equipment.
City sources said 5 Bars doesn’t save their city staff any time and staff can handle wireless infrastructure permits and installations in house. One employee said firms like 5 Bars get the applications from wireless carriers and then “drop all the paperwork on your desk.”
According to Placentia public records obtained by Voice of OC, a city employee emailed 5 Bars Vice President Monnie McGaffigan with a question about permits for the wireless carriers in late September.
“Just to clarify, we do not take the place of your permitting process. We will help advise, review ahead applications, etc.” McGaffigan responded Sept. 28.
Additionally, sources said staff from numerous city halls in the county are part of an online group that discusses current city issues. The discussions indicate many don’t think the protections offered by 5 Bars would have worked.
5 Bars doesn’t ask cities for payment up front, but it receives 35 percent of the yearly revenue from all new wireless infrastructure installations and 25 percent on additions to existing infrastructure, according to contracts signed between 5 Bars and Irvine, Placentia and Lake Forest. The cities all entered into five-year contracts with the firm and include four renewal periods of five years each, which could lead to a potential 25-year contract.
Outside of the protections 5 Bars said it offers, the firm provides marketing of city assets, conducts a survey to identify gaps in coverage, develops a master plan for wireless infrastructure and oversees installation of cell equipment.
5 Bars is a member of the Cellular Telecommunications and Internet Association (CTIA), which is a national lobbying group for the wireless industry. CTIA, more commonly known as The Wireless Association, was a major sponsor of SB 649 along with AT&T and Verizon.
In Irvine, council members, acting as the Great Park Board of Directors, voted April 25 to cancel the bid process and go with 5 Bars, even though it was the sixth ranked firm out of eight. The council entered into a contract with 5 Bars July 25.
Mayor Don Wagner and Councilwoman Christina Shea said during Nov. 3 phone interviews, 5 Bars was the only firm that offered any protection against the Hueso bill and could get to work installing small cell sites almost immediately. The other firms, they said, were consultants who would have drawn up a master plan — which could have taken up to 15 months — before securing small cell contracts for the city.
Wagner, a former three-term Assemblyman, said he expects something similar to Hueso’s bill to come back soon.
He also said the other firms in the bid process didn’t mention any potential protection.
“I’m hearing mixed things (about the protections) … As an attorney, there’s a good argument that it could’ve worked, but there’s no guarantee,” Wagner said. “Then there was also the other folks who weren’t the least bit prepared to protect. At least they (5 Bars) were making an offer the other guys didn’t.”
Shea said the city needed to move fast at the time for a best shot at being protected.
“It was really an issue about the timing … We did not see the value in supporting and voting for a consultant to give this big overview … because we need to get a contractor onboard and move quickly,” Shea said. “Knowing, at the time, that this bill was going through the Assembly, we needed to hire a contractor immediately rather than going through this whole overview.”
Additionally, Shea said 5 Bars was ranked lower because the bid was for a consulting firm.
“They weren’t applying as a consultant, they were applying as a contractor,” Shea said.
Yet 5 Bars hasn’t secured any wireless contracts for Irvine as of Oct. 27, according to an email from city spokesman Craig Reem.
In a proposal the firm sends to cities obtained by Voice of OC, 5 Bars cites pension and redevelopment case law as a grounds for setting up a legal defense under the contract clause.
“Using this logic, cities that enter into a commercial agreement with a private party for the management and administration of wireless facilities in the right of way have a strong argument that any state or federal legislation that reduces those fees violates contractual rights,” the proposal reads.
“… setting up a contracts clause arrangement could result in the city being grandfathered out of future preemption laws,” it adds.
While the vetoed bill wouldn’t have affected contracts entered into with “wireless service providers” prior to the bill becoming law, it didn’t mention contracts with wireless marketers.
Ackerman, speaking on behalf of 5 Bars, told the Mission Viejo City Council Sept. 12 the city should contract with the firm immediately.
At the time, the bill was sailing through the Legislature and Ackerman warned Brown could sign it into law within a matter of weeks.
“The bill would not take effect until Jan. 1, but our legal team basically says if you don’t have some contractual obligation before the Governor signs it, that … you’re probably going to lose,” Ackerman said. “The reason why this will give you some protection before is basically contract clause. If cities have some preexisting … contract before the law goes into effect, you got a chance of coming under the old law.”
The council directed staff at that meeting to look into a wireless marketing firm, but Mission Viejo has not entered into a contract with anyone. Curley said the city still is reviewing different wireless marketing firms, including 5 Bars.
Before the Mission Viejo meeting, Ackerman, the 5 Bars lobbyist, had been in contact with Irvine since at least June. Ackerman emailed Irvine’s legislative analyst to set up a conference with the Sacramento lobbying firm Joe A. Gonsalves & Son, which represents Irvine and Mission Viejo, among other cities.
“Here is a backgrounder on my clients (sic) solution to this bad bill,” Ackerman wrote June 5.
Attached to that email is a one-page digital flyer that outlined their protections.
“Maintain control — SB 649 protections,” was written prominently at the top of the flyer. “A proven legal remedy is to have an existing contract with a 3rd party wireless administrator who manages the city’s wireless approvals,” it read.
Placentia Director of Development Services Joe Lambert said in an interview Oct. 23 that while there was an exemption in the bill, it applied to contracts with wireless providers, not wireless marketing firms. 5 Bars told the city a contract with them would have protected them from the bill, even if agreements with telecommunications companies were made after the bill was signed into law.
“Staff doesn’t necessarily agree with that,” Lambert said. Although he did say 5 Bars could help city staff streamline the process for small site installation when the wireless companies begin rolling out 5G.
An attorney who worked closely with 5 Bars said, on the condition of anonymity, the firm probably wouldn’t succeed in a court case over maintaining local control of aesthetics and pricing of the sites. The attorney said the bill put cities in a tough spot which spurred them — mostly out of fear — to sign with 5 Bars.
The Placentia City Council voted July 18 to go with 5 Bars and signed the contract Sept. 19. Lambert and Placentia staff were going to start their “kick off meeting” with 5 Bars Oct. 24 that will begin to map out a permitting and installation process for the city.
An item will be considered at Lake Forest’s Nov. 7 council meeting that could affect its contract with 5 Bars.
The city has been negotiating with Verizon Wireless for months on small cell site installations. Verizon put the negotiations on hold when the bill was making its way through the Legislature. Now that the bill is vetoed, negotiations have resumed and a question on whether to use the city process or go through 5 Bars has come up.
The report, prepared by Assistant to the City Manager Carlo Tomiano, offers a few different approaches to the Verizon wireless light pole and other installations and future small cell sites.
Verizon wants to put 15-20 different cells up immediately, with the potential for up to 50. According to the report, city staff can handle the process and simultaneously begin assuming ownership of Southern California Edison street lights and poles the carriers will want to use. Under this model, the city would keep 100 percent of their profits at $2,000 per installation.
The city can also continue with 5 Bars, which would get a 35 percent revenue share, and also help the public works department obtain the streetlights from Edison. The firm also would develop a master plan for small cell rollout in the city. Additionally, the firm will negotiate prices.
Another option laid out in the report is to let Edison retain ownership of the streetlights and the wireless carriers will deal with them directly. The city currently owns about 70 streetlights.
Lake Forest is the latest city to contract with the firm Oct. 9, before Brown vetoed the bill at the 11th hour Oct. 15.
At the Oct 17 meeting, council members told staff they hope to move quickly with 5 Bars, even though the bill was vetoed. They fear similar legislation will be back — two similar bills have been shot down in the past.
Councilman Dwight Robinson said, after the meeting, while he’s not sure of the protections 5 Bars was offering, he felt the contract limited the city’s risk. If 5 Bars had entered a legal battle over the contract clause, it would have been the firm, not the city, covering the legal costs, Robinson said.
Robinson added that he would have liked more time to negotiate the contract between the city and 5 Bars for a more favorable revenue share for the city. He also said he expects to see legislation again similar to the Hueso bill.
Spencer Custodio is a Voice of OC reporter who covers south Orange County and Fullerton. You can reach him at [email protected]