CPUC finds a legal way to treat ISPs as regulated phone companies

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CPUC sends a Schat across incumbents’ bow.

Buried in last week’s California Public Utilities Commission consent agenda was a resolution granting a certificate of public convenience and necessity (CPCN) to Schat Communications, an independent Internet servicer provider based in Bishop, on the eastern side of the Sierra Nevada. Schat applied for the CPCN in order to qualify for California Advanced Services Fund (CASF) grants for two proposed last mile projects in Mono and Inyo Counties.

CASF rules are different now, but back in February, an applicant either needed a CPCN or the mobile telephone equivalent or at least have an active application in front of the commission. Golden Bear, Bright Fiber, Surfnet and Viasat were in the same boat, with CPCN applications pending. If a telecoms company has a CPCN, it means that it is a “telephone corporation” and can be regulated as such by the CPUC.

To one extent or another, all five applications were held up as the CPUC struggled with an institutional history of regulating telephone companies rather than ISPs and a state law, passed last year that expressly forbids the CPUC from exercising control over Internet protocol services, including VoIP as well as pretty much any other broadband-based content or service.

Nearly a year later, Schat is the first one to convince the CPUC that what it does is sufficient for it to be regulated (and given CASF grants)…

Schat Communications argues that its intention to provide “middle-mile transport service” and manage a network consisting of “conduits, ducts, poles, wires, cables and other property” qualifies it as a telephone corporation, and therefore a public utility. Public Utilities Code §710 does not preclude our regulation of “non-VoIP and other non-IP enabled” services such as the middle-mile transport intended by Schat Communications. Therefore, we agree with Schat Communications that it is a telephone corporation, and therefore a public utility subject to our jurisdiction.

It’s good news for the other applicants. Even though the law has since changed, a CASF applicant with a CPCN still has considerable advantages. It also opens up some interesting questions about middle mile service providers – say, AT&T or Verizon – that are moving toward IP-based networks, partly for technical reasons but also partly to escape regulation. It might not be as easy as they seem to think.

Tellus Venture Associates assisted with several CASF proposals in the current round, including Surfnet and Bright Fiber, so I’m not a disinterested commentator. Take it for what it’s worth.

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