Tag Archives: cpuc

No Halloween treat for CenturyLink-Level 3 deal in California

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CenturyLink’s proposed purchase of Level 3 Communications appears likelier than not to be delayed for months. Yesterday, the California Public Utilities Commission set a tentative schedule for completing its review of the deal, with a target date of mid-November. That would mean the two companies will have to agree to extend their self-imposed deadline of 31 October 2017 if they still want to complete the transaction.

That won’t necessarily be the case. The ruling issued by commissioner Martha Guzman Aceves yesterday is vague – in many respects – and leaves room for a faster decision. On the other hand, there’s nothing in it that would keep the process from dragging on longer.

The CPUC has to decide if allowing CenturyLink to buy Level 3 is in the public interest. Yesterday’s ruling appears to take a narrow approach to answering that question. The real problem with the deal – the damage it would do to telecoms competition in California – isn’t explicitly mentioned. Rather than taking a top to bottom look at all the issues involved, the scope of the enquiry is, for now, limited to the settlement that CenturyLink reached with some of the organisations that objected to the deal.

But not all of them. The California Emerging Technology Fund is actively opposing the settlement, arguing it doesn’t go far enough, and a VoIP company – Telnyx – jumped in at the last minute and could yet make its presence felt. So long as the transaction is being actively contested, it is difficult, if not impossible, to short cut the CPUC’s review.

There is virtually no chance that the CPUC will approve the deal before the end of September, an outcome that a CenturyLink lawyer, Norm Curtwright, last week called “almost too awful to contemplate”. The horror of blowing past Halloween must be beyond human imagination, but that’s the reality now facing CenturyLink and Level 3.

No express lane offered for CenturyLink, Level 3 review at CPUC

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“I’m hoping there’s something more that the parties can do to prepare for a decision at a later date”, Regina DeAngelis, an administrative law judge with the California Public Utilities Commission, told lawyers for CenturyLink, Level 3 and a handful of organisations that have involved themselves in the regulatory review of the two companies’ plan to combine into one. She presided over yesterday’s pre-hearing conference at the CPUC’s San Francisco headquarters – the opening event of what could be an enquiry lasting several months.

Which is exactly what CenturyLink and Level 3 are trying to avoid. And what DeAngelis was warning might happen.

The deal they struck last October has CenturyLink buying Level 3 for $34 billion. In order for that to happen, they need to get approval from two federal agencies – the Federal Communications Commission and the justice department – and a couple dozen or so states that have chosen to play an active role in telecoms oversight. They gave themselves a year to finish those reviews and close the sale, but left the door open for extending it by mutual agreement. They also set 30 September 2017 – eleven months – as a benchmark date, when transaction costs begin to creep up.

So they’re trying to push the pace of the CPUC’s review. They started out by asking for commission approval by mid-September, but given mandatory public notice requirements – 30 days before commissioners vote on a proposed decision – DeAngelis threw cold water on that idea, saying “I can tell you that won’t happen”.

It doesn’t seem like two extra weeks will help much, either. That would require turbo-charging standard operating procedures and, as DeAngelis wryly noted, “this commission isn’t often known for moving that quickly”.

That’s particularly true when a merger or other major transaction involving regulated companies attracts formal protests. In this case, five organisations formally challenged it. Three settled their differences with CenturyLink – the CPUC’s independent office of ratepayer advocates (ORA) and two consumer groups, the Greenlining Institute and TURN. Lawyers for Greenlining and ORA were at yesterday’s conference, and endorsed CenturyLink’s push for a fast decision.

Two others are still in the fight, though. The California Emerging Technology Fund wants CenturyLink to spend more money in California, with its guidance, and VoIP provider Telnyx objects to what it says are plans to shut down Level 3’s independent wholesale business after the sale closes. With active third party opposition added to the CPUC’s responsibility to do its own due diligence, an expedited decision is not the way to bet.

The next step is for DeAngelis to issue a scoping memo, which be the roadmap and schedule for the rest of the proceeding.

CenturyLink will kill telecoms competition if it buys Level 3, VoIP company says

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CenturyLink plans to apply its closed, monopoly-centric business model to wholesale services that Level 3 Communications now sells on the open market, if the two companies are allowed to combine. That’s the gist of an objection filed yesterday to CenturyLink’s planned purchase of Level 3 by a VoIP service provider, Telnyx LLC.

VoIP providers like Telnyx buy wholesale connectivity services that allow subscribers to make calls to the rest of the world via the public switched telephone network (PSTN). That’s the system that makes it possible for you dial a few numbers and reach pretty much any other phone in the world.

Telnyx claims that Level 3 is one of only three companies that sell this service on an unbundled basis to VoIP providers, and one of those – Inteliquent – is pulling out of the market. That meant that Telnyx had to scramble to find a replacement…

In searching for other suppliers, Telnyx contacted Level 3 regarding its competing PSTN Interoperability Services, which Level 3 presently sells to IP service providers including Vonage. Members of Level 3’s sales team informed Telnyx that Level 3 will not sell the product to Telnyx, because after the merger the combined CenturyLink will not offer the product to competing service providers.

That’ll leave Peerless as the only vendor in California, and it doesn’t serve the entire state. Many rural areas, according to the Telnyx filing, are reachable only via Level 3. And, if CenturyLink takes over and runs Level 3 like the monopoly-centric telco that it is, telecoms competition will be seriously damaged in California…

The truth is that the Proposed Transaction will eliminate Level 3 as an aggressive independent competitor in the wholesale space both nationally and in California. In addition to PSTN Interoperability Services, the Joint Applicants provide wholesale intemet access and backhaul services that provide essential middle mile connections that enable other providers to connect California residential and mobile customers to the internet. If the Commission does not take action to prevent Level 3 from removing itself as a potential competitor in the market for any or all of these wholesale services, the Commission may indirectly increase rates for wholesale services and place additional barriers on competitors that will remain in the marketplace.

Telnyx is jumping into the fight late, but that’s not unusual when the California Public Utilities Commission reviews major transactions. CenturyLink’s occasionally hyperbolic pleadings notwithstanding, the CPUC’s consideration of the Level 3 deal is still in an early stage – the scope of the review has not been established yet. It’ll be up to the administrative law judge in charge of the proceeding to decide whether to let Telnyx make its case.

CenturyLink puts the joint back into its venture with Level 3

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Someone at CenturyLink – or maybe Level 3 Communications – finally inhaled deeply, exhaled fully and chanted California’s national mantra: go with the flow, go with the flow. In its latest filing with the California Public Utilities Commission, CenturyLink finally admitted that the September deadline for closing its deal to buy Level 3 that it’s been puffing and huffing about, I’m sorry, huffing and puffing about isn’t a deadline at all.

Since the purchase agreement was announced last October, CenturyLink has been trying to jam it through the necessary regulatory reviews by wailing about a phoney, self-imposed deadline and falsely claiming that the deal won’t hurt competition in what passes for a broadband market in California.

A brief and pleasant walk along railroad right of ways in the Sierra Nevada, the Salinas Valley or other key Californian telecoms corridors is all it takes to put the lie to that nonsense. Typically, you’ll find four fiber optic lines in the ground owned by Level 3, CenturyLink, AT&T and Verizon. Only one of those companies – Level 3 – will lease dark fiber or sell basic wholesale connectivity services to competitive retail broadband providers or private network operators in the normal course of business. The other three are legacy incumbent telcos – the biggest three in the U.S. – with a monopoly business model that’s pretty much limited to selling bandwidth by the bit, the most profitable and expensive way possible.

If you roll Level 3 into CenturyLink, you lose the only competitive, market-based barrier to unlimited rent extraction by incumbent telcos in California’s middle mile broadband sector. That has a direct effect on retail prices and service availability, since competitive last mile providers will either have to jack up their own subscription rates or exit the business altogether.

Heading into a key hearing this week, CenturyLink clearly and honestly conceded, without its customary back pedalling and quibbling footnotes, that 30 September 2017 is no deadline at all, 31 October 2017 is only a deadline if they want it to be and the whole thing could actually wait until next year.

The CPUC has no justification for abdicating its due diligence obligations simply for the pleasure of being “extremely helpful” to a major monopolist. Its responsibility is to Californians, who rightfully expect a competitive broadband market.

Federal court says cable and telcos can pay the same rate for pole access

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Federal law does not require telephone companies to be treated differently from cable companies, when it comes to attaching cables to utility poles. That’s the ruling of a federal appeals court (h/t to Omar Masry at the City and County of San Francisco for the pointer). It rejected a challenge from electric utilities to a 2015 decision by the Federal Communications Commission that equalised the standard charge for utility pole access, and trimmed back an irrelevant distinction. The rate is now the same whether the full service telecommunications company doing the attaching is the descendant of a television service provider or an old school telco.

Before then, telcos paid higher rates, which meant more money for electric utilities that owned poles. But the FCC’s decision to classify broadband as a telecommunications service and put it in the same common carrier regulatory bucket as telephone service created a quandary. Since cable companies are also Internet service providers, could electric companies start charging them the higher rate, and maybe push up broadband access costs in the process?

There was another problem. Or maybe an opportunity, depending on your point of view. Some states, like California, have exercised an option allowed by federal law and set their own rates for utility pole attachments – they were already charging cable and telephone companies the same, lower rate. Which might have given them a competitive advantage over states that relied on the FCC rules.

The court said that the FCC had sufficient reason to make the change…

The FCC sought to eliminate the disparity between the Cable and Telecom Rates in order to avoid subjecting cable providers offering broadband service to the higher Telecom Rate, and to avoid rate disparity between states whose pole attachment rates are regulated by the FCC and those states that had elected to regulate pole attachment rates using the Cable Rate even for telecommunications providers…This approach represents a “reasonable policy” choice, and thus we defer to the FCC’s interpretation.

It’s a good solution, but it misses the central issue. Cable and telephone companies are in the same business: selling television, telephone and broadband service, and buying up content companies to fill the pipeline. There’s no rational reason anymore to treat them differently.

$20 million still available for California broadband subsidies

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There’s about $20 million, plus or minus, left for broadband infrastructure grants in the California Advanced Services Fund (CASF), against pending proposals totalling $5.7 million. That’s without taking into account a possible top-up that’s under consideration in the California legislature, but which might also make spending it on anything other than minimal upgrades by Frontier Communications or AT&T virtually impossible.

Over the years, the California legislature has pumped $315 million into the kitty, with $270 million of that allocated to construction subsidies for broadband systems – middle and last mile – in areas that are either completely unserved or lack service at a minimum of 6 Mbps download and 1.5 Mbps upload speeds. The balance is budgeted for broadband facilities and programs in public housing, regional broadband consortia operations and a lightly used infrastructure loan account.

From the time the CASF program began in 2008 until today, the California Public Utilities Commission has approved grants totalling $225 million for broadband projects. That’s a net figure – it doesn’t include the $4.5 million for grants that were approved but later rescinded, primarily because the projects didn’t happen.

The CPUC also pays for its own overhead out of the infrastructure grant fund, with $15 million either spent or budgeted through the middle of next year. Currently, the annual overhead hit is just north of $3 million. There’s at least four or five more years of administrative oversight required, but as the work shifts from reviewing applications to managing project grants, that yearly figure will probably come down. So to keep the numbers round and on the conservative side, let’s say another $10 million will be needed for CPUC overhead, for a total of $25 million.

That leaves $20 million still available for broadband construction grants. There are four project proposals currently under review – Kennedy Meadows in Tulare County ($2.3 million), Connect Anza Phase 2 in Riverside County ($2.2 million), Las Cumbres in Santa Cruz County ($730,000) and Vandyland in Santa Barbara County ($460,000) – that total $5.7 million.

I’m not betting all of them will be approved as proposed, but any way you look at it, there’s somewhere between $15 million and $20 million in the CASF broadband infrastructure grant program that hasn’t been spoken for. That’s enough for a couple of mid-sized, middle mile projects, one big new fiber to the home build, or maybe even a dozen or so smaller upgrade proposals. But only if California lawmakers don’t turn CASF into a private piggy bank for AT&T and Frontier.

CenturyLink tones down deadline threat to CPUC

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Okay, maybe not high noon. But can we say twelve-ish?

When CenturyLink and Level 3 Communications signed their marriage license, they set an 11 month time limit to take their vows. That’s common enough in major transactions – setting closing dates makes it easier to structure financial packages and it keeps everyone focused on getting it done. But blowing past such deadlines is not uncommon either, and coming to agreement on extensions is a relatively straightforward process, if the companies involved still want to make it happen.

Nevertheless, CenturyLink has insisted that unless the California Public Utilities Commission approves its purchase of Level 3 no later than its 14 September 2017 meeting, the entire transaction will be in peril and the meaningless concessions it’s made in response to protests by consumer groups will disappear. That claim has always been nonsense, and CenturyLink has begun to slowly back off from it. In a footnote to its latest plea to the CPUC, CenturyLink and Level 3…

…respectfully note that it would be extremely helpful if Commission approval occurred at the September 14, 2017. They note that the Commission’s second September meeting falls on September 28, 2017, only one business day prior to the anticipated Transaction closing date.

An express lane through the CPUC’s normal public review process has gone being an imperative to merely “extremely helpful” to the U.S.’s third largest telco, and the 30 September 2017 brick wall has dissolved into an “anticipated” date.

Even so, CenturyLink couldn’t resist one little head fake away from the truth: yeah, the meeting is one business day before the deadline, but it’s two actual days. And when $34 billion is on the table, no one will mind showing up for work on a Saturday. Not that it’ll be necessary though. Last year, when Charter Communications bought Time Warner Cable – a much bigger deal, as CenturyLink helpfully points out – it closed the day after the CPUC gave its blessing.

It is probably true that pushing the closing date into October or later will cause CenturyLink some grief. But it only has itself to blame. It waited more than two months before it filed its first request for permission, and then dawdled three more months as it tried to slip the deal through administratively. CenturyLink wasted five months between the time it announced the Level 3 purchase and its request for formal approval from the CPUC.

Few would argue that the CPUC’s process moves quickly enough – I sure wouldn’t – but it is what it is. When a deal stinks as badly as this one does, there’s no excuse for the CPUC to abandon its due diligence responsibilities in order to be extremely helpful to a major incumbent telecoms company.

Cable tightens the screws on California public housing broadband

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The California cable industry continues to gain ground in its perverse, and oxymoronic, fight to fence off public housing communities from government subsidies. Last year, cable industry lobbyists convinced a biddable senator to slip a big perk into a bill extending the life of a program that pays for broadband facilities – mostly equipment that’s used to provide free (and slow) WiFi access – in public housing. It was language that limited grants to only “unserved” properties, where residents aren’t offered market rate broadband service at all.

The problem with that is cost. People who are eligible to live in public housing have very low incomes and, in theory, can’t afford to pay the going rate for a lot of the basic services most of us take for granted. In practice, however, cable companies have been successful at upselling residents from basic service to pricey bundles of television and, sometimes, Internet service, which can represent a huge chunk of their monthly disposable income. Since they’re not able, often, to put up antennas or satellite dishes, they have little choice. Which is a monopoly trap cable companies ruthlessly exploit and zealously guard – even from the mild threat posed by free WiFi access.

The California Public Utilities Commission, which runs the program, has just published proposed new rules for public housing broadband grants. At the request of the cable industry’s lobbying front organisation – the California Cable and Telecommunications Association – it tightened up earlier draft language that would have left a window of opportunity open to take income levels into account when deciding whether a public housing community was “unserved”.

Originally, the standard would have been that “a housing unit is ‘not offered broadband Internet service’ if the occupant of the unit cannot access a commercially available broadband Internet service…utilizing the facilities at the premises”. Access is a term of art that can take in a number of factors, including service affordability.

Cable lobbyists objected, saying that shifted “consideration to residents”, rather than just assessing the physical ability to connect. CPUC staff agreed and changed it to read that eligibility depends on Internet service simply being available at a housing unit, regardless of whether a resident can access it.

The commission is scheduled to vote on the new rules at its 24 August 2017 meeting, and they’re taking public comments until 14 August 2017.

CenturyLink defends Level 3 deal with Trumpian flourish

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They could have just tweeted it.

Sean Spicer has a new gig, ghostwriting legal briefs for CenturyLink. There’s no other way to read CenturyLink’s latest filing with the California Public Utilities Commission. It’s a whingeing, self-contradictory and occasionally bitter reply to the California Emerging Technology Fund’s (CETF) continued opposition to CenturyLink’s proposed purchase of Level 3 Communications.

CETF’s objections weren’t particularly on point – they were more concerned with spending CenturyLink’s money than maintaining a competitive fiber market in California – so it’s no surprise that the rebuttal skids and spins like a Lada sedan in a Moscow ice storm. It collides with itself, jabbing a finger toward a woolly promise to spend big on California infrastructure and work with CETF and others to “identify projects for such investment”, but quibbling in the fine print of a footnote that those are merely “possible locations”.

On the central question before the CPUCwill the transaction cripple wholesale fiber competition in California? – CenturyLink offers facts and alternative facts. It first says, okay, so we’re taking out a competitor

The instant transaction involves the transfer of control at the parent level of the Level 3 Operating Entities that provide services to a (limited) number of wholesale and enterprise customers only. The transfer is to CenturyLink, the parent company of a non- dominant carrier in California that also provides competitive services to wholesale and enterprise customers.

But, it continues, fewer competitors doesn’t mean less competition

By any measure, the Level 3 Operating Entities, even when combined with the CenturyLink Operating Entities, will remain a non-dominant competitive provider without any particular market power in any relevant telecommunications market (e.g., backhaul, long haul, enterprise, etc.).

Nonsense.

Both have considerable market power now, as two of the four major long haul fiber owners on key California routes, and Level 3 is the only independent operator. Rolling it into the monopoly business model embraced by AT&T and Verizon – the other two – and by CenturyLink will only add to the wholesale fiber crunch identified by the CPUC as a root cause of California’s “highly concentrated” residential broadband market.

The CPUC needs to separate truth from fiction, and base its decision on broadband market realities and not on corporate bluster or well-meaning wishful thinking.

CenturyLink and Level 3 joint reply to CETF comments, 25 July 2017
CETF comments on CenturyLink purchase of Level 3, 21 July 2017

AT&T paints false fiber picture with official service reports

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Fiber claims but copper service levels.

There’s something odd about the broadband availability data that AT&T submits to the California Public Utilities Commission. While doing research for the Broadband Infrastructure Assessment and Action Plan I recently completed for the City of West Sacramento (and from which this blog post liberally borrows), I noticed that AT&T claims to provide fiber-to-the-premise service (FTTP), and only FTTP service, in 31 West Sacramento census blocks, which represents 6% of AT&T’s service area.

These census blocks generally correspond to recently developed areas or areas that are targeted for future development. The kind of greenfield construction work where AT&T and other telecoms companies routinely use fiber. But it seems that FTTP coverage in these blocks is partial at best, and many, if not most, homes still receive service via copper wires.

In effect, AT&T is inaccurately reporting that all 31 of these census blocks are completely served by fiber infrastructure, and is not reporting the other types of technologies present. By contrast, in census blocks where only copper-based service is available, AT&T will report multiple technologies, for example VDSL and legacy DSL, if both are present.

A couple of things might be going on. It’s possible that AT&T is just being lazy and only reporting its marquee service levels in any given census block. But it’s also possible that it reflects the new and misleading “Fiber” brand it’s slapping on copper-based service. Or rather foreshadows it, since the reports predated the rebranding. The rationale appears to be that the service is delivered via fiber to central locations within neighborhoods – often referred to as nodes – with the final link accomplished using copper wires. But that’s fiber-to-the-node – FTTN – and not FTTP.

It’s probably a lost cause to try to get AT&T and other telecoms companies from playing these kinds of word games, but that doesn’t mean everyone else has to play them too. Insist on the truth.