Competitive dark fiber gets a reprieve in California

by Steve Blum • , , ,

A proposal to flip – and maybe kill – the business model for dark fiber enterprises run by private electric utilities is on hold at the California Public Utilities Commission. It was pulled off today’s CPUC agenda by commission president Michael Picker and tentatively rescheduled for March.

Last year, Southern California Edison asked for permission to do a master fiber lease deal with Verizon. It seemed to be routine. SCE has been negotiating dark fiber leases on terms established by the CPUC for nearly 20 years. But Clifford Rechtschaffen, the commissioner assigned to the case, decided to transform a narrow, course-of-business request into a broad rewrite of established rules.

The result was a proposed decision that, if approved by the full commission, would require SCE to give 75% of its gross revenue from the deal to its electric customers, instead of the customary 10%. Since all operating expenses would have to be paid out of the remaining 25%, that would make the fiber business much less attractive to SCE, perhaps even to the point they’d walk away from it.

The rationale rests on a fundamental misunderstanding of how fiber optic networks are constructed. SCE originally built its fiber network to provide internal communications between its own locations. As is common practice, it installed more fiber strands than it needed – the cost of upsizing a fiber cable, say, from 12 strands to 144 strands is negligible. Nearly all of the expense is labor – including legal and consultant expenses to get through the regulatory hoops – and it’s the same no matter how many strands are in the cable.

The twisted logic at play here is well illustrated by the latest comments filed by TURN, a consumer advocacy organisation…

If SCE’s claim were true, such that it had in the past prudently installed excess fiber optic capacity for future years, then the Commission could reasonably expect that SCE would have stopped installing more fiber optic network facilities of late and instead relied on that excess capacity.

TURN’s argument is nonsense. The “excess capacity” is, so to speak, in upsized cables between points A and B. If SCE needs to get to point C, that excess capacity is useless. It’ll have to build a new line between points B and C, and it would be irresponsible for it to put in the bare minimum of strands it needs at the time. More strands means more open access dark fiber, which in, um, turn means more competition in what passes for a telecoms market in California.

TURN and its fellow travellers need to take the blinders off and understand that what’s good for an electric company can sometimes be good for utility customers, who need energy and telecoms services alike. That’s something the CPUC needs to recognise too.

Reply comments of the Utility Reform Network on the proposed decision on SCE’s’s application to lease fiber optic cables to Verizon wireless under a master lease agreement, 5 February 2018.

Reply comments of Southern California Edison Company on the proposed decision, 5 February 2018.

My clients include Californian cities that have municipal electric utilities with fiber interests. I am not a disinterested commentator. Take it for what it’s worth.