Tag Archives: rlec

Bringing 21st century broadband to rural California will change a 20th century business (and subsidy) model

by Steve Blum • , , , ,

One of the legacies of state and federal 20th century universal telephone service subsidy programs is an ecosystem of small, independent telephone companies, often owned by families that live in the isolated rural communities that they serve. A California Public Utilities Commission decision, proposed by commissioner Martha Guzman Aceves and due for a vote in August, would begin to allow modern competitors into that ecosystem.

These rural local exchange carriers (RLECs) – serve isolated communities and individual customers in often rugged and sparsely populated terrain that AT&T historically avoided. Or at least that’s how they got their start decades ago, when rotary dial telephones were high tech and one “party line” circuit might serve (and entertain) half a dozen or more homes. Most of California’s independent telephone systems were swallowed up by bigger companies – Frontier Communications has the largest share – but 13 rural telcos, often collectively referred to as the “Small LECs”, remain.

As California’s population grew from 7 million people just before World War 2 to 40 million today, suburban and exurban development sprawled into the borderlands of highly subsidised RLEC territories. Cable companies followed, offering profitable television service to new, densely built homes with enough disposable income to pay for it.

Cable companies can provide broadband and video service wherever they please, but in order to offer full, facilities-based telephone service they need permission – a certificate of public convenience and necessity – from the CPUC. They are allowed to compete with AT&T and mid-sized telcos like Frontier, but not in the remaining RLEC territories where they can generate a sufficient return on their investment by cherry picking affluent new developments and ignoring communities with fewer homes and lower household incomes. The fewer profitable customers an RLEC has, the more taxpayer dollars it needs to serve the remaining ones.

Guzman Aceves’ draft decision tries to mitigate that problem by requiring any company competing with RLECs for telephone customers serve everyone within a “self-designed” service area that has “a proportional number of residential to commercial customers, and a proportional number of low-income and non-low-income customers”.

If approved, the new rules would bring the benefits of 21st century competition to a relative handful of rural Californians. Whether RLECs can do the same for the rest, or even simply survive, is a question that will have to be answered by Californian taxpayers.

Competition means better broadband for a few rural Californians, CPUC draft says. It should be for everyone

by Steve Blum • , , , ,

Digital 395 19sep2013

Faster and higher quality broadband service will reach some rural Californians if cable companies and other “competitive local exchange carriers” (CLECs) are allowed to compete against rural telcos for phone customers, according to a proposed decision under consideration by the California Public Utilities Commission. Cable lobbyists and lawyers have been pushing for permission to pluck profitable customers from highly subsidised rural telcos – Small LECs, in the jargon – leaving taxpayers to pay an even higher tab to serve the rest.

The solution that’s on the table would require cable companies and other CLECs to agree to build out in wider and more inclusive service areas, and serve everyone in them, in exchange for permission to enter Small LEC territories. Authored by commissioner Martha Guzman Aceves, the draft concludes…

Competition by CLECs in the Small LECs‘ service territories should promote increased broadband deployment in remote areas and thereby offer rural customers choices in voice and other broadband services that are already offered to their urban counterparts.

Comcast, Charter Communications, Cox Communications and other Californian cable operators are not champions of an open market. They aggressively lobby against municipal broadband projects and work constantly to cripple infrastructure subsidy programs, sometimes working on their own, but more often under the guise of their Sacramento front organisation, the California Cable and Telecommunications Association, or via friendly (and funded) non-profits like the California Emerging Technology Fund. They’re eager to shift costs onto the public when they gain a competitive advantage, but not when subsidies create competition that benefits taxpayers themselves.

The proposed decision is correct in saying that more competition results in better and, usually, cheaper broadband service. It’s a principle that should be aggressively pursued everywhere in California, and not just in a few affluent exurban developments that suit cable companies’ monopoly business model.

Consumer service versus taxpayer costs: CPUC considers opening rural telco territory to competition

by Steve Blum • , , ,

Tesoro viejo construction 25aug2019

Small telephone companies that serve rural Californians will face direct competition from cable operators and other wireline telecoms companies if the California Public Utilities Commission approves a draft decision posted for review on Monday. Authored by commissioner Martha Guzman Aceves, the proposed new rules would allow competitive local exchange carriers (CLECs) to provide voice telephone service in territories that are reserved exclusively for heavily subsidised, small local exchange carriers (Small LECs).

Acknowledging that “wireline competition must be allowed in the service territories of the Small LECs as a matter of law”, the draft tries to balance the benefits of competition to consumers with the potential cost to taxpayers if cable companies skim off profitable neighborhoods, leaving Small LECs increasingly dependent on universal service subsidies to serve the rest.

To gain permission to enter protected territories, CLECs would “be required to serve customers requesting wireline voice service within their self-designated service territories on a non-discriminatory basis”, regardless of how difficult that might be. The proposed decision strikes an old rule that limits that obligation to customers within 300 feet of a CLEC’s existing facilities.

“Cream skimming” would be banned. CLECs wouldn’t be able to draw service boundaries to suit profit-maximising business models. The proposed decision directs that…

A CLEC shall avoid designing a discriminatory self-designated service territory by ensuring that the self-designated service territory represents the demographics of the Small LEC territory it is entering by making a good-faith effort to serve a proportional number of residential to commercial customers, and a proportional number of low-income and non-low-income customers…[to] guard against only sub-sets of wealthy customers being served by the CLEC.

Comcast, for example, wouldn’t be able to cut a deal in a new, upscale development, as it did near Fresno, while ignoring less profitable lower income rural customers in the surrounding area.

CLECs would also have to accept all emergency preparedness obligations that the CPUC has in the pipeline, and meet whatever “location-specific” requirements are imposed on a case by case basis. None of it makes cable companies happy – they’ve paid a lot of money to a lot of politicians to avoid traditional, telco-style regulation.

Guzman Aceves’ proposed decision is on track for a commission vote in August.

“Framework” for telecoms competition in rural telco territories considered by CPUC

by Steve Blum • , , , , ,

Tesoro viejo 2

A rousing and thoroughly disingenuous defence of telecommunications competition doesn’t appear to be enough for Comcast to get permission right now to cherry pick affluent households in Ponderosa Telephone Company’s territory. A pair of California Public Utilities Commission administrative law judges (ALJs) said in a ruling last Friday that even though allowing competitive telecoms companies into the protected service areas of California’s small, rural telcos should be considered on a case by case basis, those decisions should be made within a common framework.

The two ALJs – Mary McKenzie and Hazlyn Fortune – are managing what the CPUC calls a rulemaking proceeding that’s looking at the way California subsidises, and consequently protects, small telephone companies that serve remote and sparse rural communities that aren’t lucrative enough to attract big telecoms service providers. Or at least used to be. As California’s suburbs spread further out from cities, new developments are springing up on farm and ranch land that’s served by rural telcos.

Citing Comcast’s case as an example, they decided that the next step in that process is to establish a general set of rules that will guide future decisions about who should provide telephone service and, in some cases, broadband service in those new communities…

The Commission will first consider adopting general criteria in this Rulemaking as a framework for allowing competition, which will then be evaluated on a case-by-case basis considering local conditions for each individual small [rural telco] service territory where an application is filed by a potential competitive local exchange carrier (CLEC) seeking a certificate of public convenience and necessity (CPCN).

Comcast’s request to be allowed to provide telephone service in the upscale Tesoro Viejo development north of Fresno is being handled by another ALJ, Zhen Zhang, in a separate case. In theory, Zhang doesn’t have to wait for McKenzie and Fortune to finish their work, which could take months. In practice, since ALJ’s produce draft decisions for consideration by CPUC commissioners, it would probably be a waste of time to, as Ponderosa described it, put “the cart before the horse”.

Ponderosa Telephone makes its case for blocking Comcast’s bid to cherrypick “high end” households

by Steve Blum • , , , , ,

Tesoro viejo construction 25aug2019

Ponderosa Telephone shot back at Comcast’s claims that no harm would come from its proposed cherry picking of affluent households in a new, high end development outside of Fresno. In comments filed with the California Public Utilities Commission last week, Ponderosa made its case for denying Comcast permission to offer telephone service in its territory. The company argued that if the CPUC wants to change its current policy of protecting small rural telcos from competition, it should do so on a top level basis, and not on case by case requests from a major telecoms company.

Particularly if that telecoms company’s request for special treatment is “disingenuously misleading”.

California has 13 rural telephone companies that serve remote communities. Or in some cases, communities that used to be reckoned as remote, before the arrival of suburban and exurban sprawl. Rural telecoms service can be expensive – miles and miles of lines are needed to reach scattered homes and businesses. Low population density means low revenue density, so to keep telephone service affordable both the CPUC and the Federal Communications Commission back fill rural telco’s budgets with subsidies from universal service funds. To keep the tab for taxpayers as low as possible, the CPUC doesn’t allow competitive telephone companies, or big incumbents who want to exert their monopoly model might, to carve off service areas where the revenue potential is the highest and the need for subsidies is the lowest. If there’s a need at all.

That policy is under review, in a CPUC proceeding that could take years to resolve. Meanwhile, Comcast wants permission to add telephone service – it already can offer broadband and TV service – to newcomers able to afford a home in the (relatively) pricey Tesoro Viejo development, just north of Fresno. That would be costly to taxpayers, Ponderosa said…

Comcast seeks to raid the most profitable consumers in Ponderosa’s service territory. This “cherry-picking” concern by [non-carrier of last resort telcos] operating in [rural telco] territories was a factor that led the Commission to conclude that wireline competition would “leave behind residential, small business, and community anchor institution customers in more scattered and harder to serve areas of the rural carrier’s territory”; “adversely affect the bulk of the hard-to-serve and high cost customers”; and “result in the [small rural telcos] losing revenue and needing to seek a larger draw from the [California High Cost Fund rural subsidy] program.”

Abandoning, or at least substantially modifying, decades-old rural telecoms policy might be necessary, as 21st century digital services replace legacy telephone technology and business models that, in some respects, date back to the 19th century. It needs to be done thoughtfully and carefully, and not on the basis of requests for case by case special treatment by telecoms giants.

Comcast games expiring VoIP regulation ban to win CPUC permission to cherry pick suburbs

by Steve Blum • , , , , ,

Tesoro viejo 25aug2019

Comcast’s sideways pleading for permission to compete against a subsidised rural telephone company demonstrates why it was wise to allow California’s ban on voice over Internet protocol (VoIP) service regulation to expire. And why Comcast, along with Charter Communications, AT&T and Frontier Communications, handed so much cash offered highly intellectual arguments to California legislators in their failed (so far) attempt to extend the ban.

Ponderosa Telephone Company offers service in the foothills and the Sierra generally north and east of Fresno. It’s one of 13 small telephone companies that serve rural California, and that depend on state and federal universal service subsidies to survive. As Fresno grows, suburban development is creeping into Ponderosa’s service territory. Tesoro Viejo is one such subdivision under construction along State Route 41, just beyond Fresno’s current development limit.

Comcast offers cable television and Internet service in Tesoro Viejo – households and disposable income are now dense enough to meet its return-on-investment objectives in an area it previously ignored. To offer phone service, though, it needs to connect its currently unregulated VoIP facilities to the traditional public telephone network. Comcast wants to do that via a legally isolated subsidiary that was specifically created to operate in that regulated environment, without creating any regulatory inconvenience for the rest of the company.

But that legally isolated subsidiary needs permission to set up shop in Ponderosa’s territory. The California Public Utilities Commission generally doesn’t allow competitors to cherry pick rural phone companies’ most lucrative customers, because it’s worried that doing so would result in ever increasing public subsidies to deliver retail service to poorer and more isolated people that don’t interest the likes of Comcast.

Nevertheless, Comcast asked for special permission to enter Ponderosa’s territory, and the CPUC is considering it. In support, Comcast is now citing the still current ban on VoIP regulation by the CPUC (it doesn’t expire until January) and disingenuously arguing that its regulated subsidiary only provides wholesale phone service, which doesn’t compete against Ponderosa’s retail offerings. The fact that its retail VoIP subsidiary would use that wholesale service to wholeheartedly compete against Ponderosa is irrelevant, Comcast’s argument goes, because it’s unregulated. At least for the present.

The CPUC has an inquiry under way that, eventually, could decide how it will protect, or not, California’s small telephone companies: should it allow competition, and the consumer benefits it brings, in affluent exurbs while spending more subsidy dollars to maintain service in communities with fewer people with less money to spend, or continue to try to maintain economic feasibility and baseline service availability, and minimise public subsidies by fencing off rural service territories?

It’s an important and timely question, not least because the telecoms industry is in the middle of a major, analog-to-digital shift. It’s the sort of technological revolution that only comes along every century or so. The answer should not come in bits and pieces, as major incumbents like Comcast (and AT&T, Charter and the rest) try to game the system with political and legal maneuvers based on irrelevant technological distinctions between otherwise identical services, and with falsehoods and evasions regarding their true intentions.

Comcast tells CPUC it must say yes to rural cherrypicking because it can’t say no

by Steve Blum • , , , , ,

Paicines pole route

Comcast took its best shot at explaining why it should be allowed to jump the queue and start competing against Ponderosa Telephone before the California Public Utilities Commission decides what the future will be for small, rural telephone companies. The answer: because the developer wants us and the Federal Communications Commission says we can.

The dispute centers on Tesoro Viejo, an upscale master planned community under construction in the foothills of Madera County. Comcast claims the developers offered Tesoro Viejo as a cherry ripe for picking, and it wants to oblige them. There’s nothing preventing Comcast from providing video and broadband service, but if it wants to bundle in telephone service and offer the full triple play, it needs the CPUC’s permission.

That’s because Ponderosa Telephone serves the foothills of Madera and Fresno counties, as well as more remote communities further up in the Sierra Nevada. It’s one of ten small, highly subsidised telephone companies that serve deeply rural areas of California, the edges of which are now right in the path of exurban development. The CPUC protects those rural telcos from competition in an effort to minimise the amount of taxpayer dollars it takes to keep them afloat.

That policy is under review, but Comcast doesn’t want to wait. Ponderosa, on the other hand, doesn’t want to be nibbled to death. It argues that top level policy has to be decided first “because competition raises public policy questions with a collective impact on stakeholders throughout the state”.

It’s a tough question. Comcast is an unlikely champion. It moves quickly to kill potential competition whenever its territory is threatened. But regardless of how disingenuous it’s being, Comcast is correct in saying that more choice brings greater benefits to consumers. Once its process is complete, the CPUC might trim, or even eliminate, the privileges that rural telcos enjoy.

Might.

That’s a decision that needs to be taken deliberately and with the full consequences for all – rural residents, exurban immigrants, California taxpayers – in mind. Doing it reactively in response to rich targets of opportunity is a disservice to everyone.

Collected documents regarding Comcast’s expansion into Ponderosa’s territory are here.

Comcast has to explain why it’s okay to start cherry picking rich, rural customers right now

by Steve Blum • , , , , ,

Tesoro viejo youtube

The California Public Utilities Commission won’t jump the gun and give Comcast permission to compete directly with the Ponderosa Telephone Company. At least not yet. Comcast has to first explain why past CPUC decisions don’t apply to its request for permission to offer telephone service in Tesoro Viejo, an upscale master planned community of 5,200 homes in Madera County. Among other things, those rules protect highly subsidised rural telephone companies from competitors that want to cherry pick affluent customers in densely populated exurban developments, and ignore people in poorer and more sparsely populated communities.

The CPUC has been thinking about changing those rules for the past twelve years, with no decision yet on the horizon. It’s the normal course of business for the commission, which considers these kinds of issues in excruciating detail via an adversarial process that includes anyone with an interest in the outcome. It doesn’t happen quickly.

In a ruling last week, commissioner Liane Randolph rejected Comcast’s request for an immediate exception to current policy, saying that questions about why those rules do or don’t apply have to be answered first. That means considering a study of rural broadband and telephone competition completed last year, and a 2014 CPUC decision that concluded that companies like Comcast…

…may tend to serve only small portions of any of the [rural telco] service areas with high quality, high reliable voice service and…may be likely to “cherry pick” business customers rather than serve significant portions of rural service territories, particularly customers whose cost to serve is high.

That’s exactly what Comcast proposes to do in Madera County. It’s been clear that its ambitions are limited to the newly built homes, and that it does not plan to offer service to homes and businesses in the surrounding area. Ponderosa’s service territory includes traditional foothill ranch lands and remote Sierra Nevada towns, as well as new and wealthier exurbs.

Comcast and Ponderosa have two weeks to answer Randolph’s questions.

Collected documents regarding Comcast’s expansion into Ponderosa’s territory are here.

Comcast protests we’re not cherrypicking, it’s our cherry that’s been picked

by Steve Blum • , , , , ,

Comcast tried to paint itself as a champion consumer choice, as its lawyers clashed with those representing Ponderosa Telephone at the California Public Utilities Commission last week. The question is whether Comcast should be allowed to compete as a telephone company against Ponderosa, which is a small, heavily subsidised rural telco. But the core issue is whether allowing wireline telephone competitors to target high revenue potential customers in rural telco service areas will lead to even greater taxpayer subsidies for less affluent and less densely populated communities that companies like Ponderosa are required to serve.

In this case, the wrangling is mostly about Tesoro Viejo, a new, upscale master planned community of 5,200 homes in Madera County, although Comcast also hinted that other areas that are lucrative enough to meet its return on investment model will likewise be targeted. Ponderosa wants Comcast’s application for permission to enter its market to be iced until the CPUC makes a cosmic decision as to whether the dozen or so rural telcos remaining in California will face such competition. The commission’s concern is that competitors will cherrypick customers on the high side of the digital divide and leave the rest even worse off than before.

In a completely disingenuous argument – and that’s the kindest way to characterise it – Zeb Zankel, a lawyer representing Comcast, tried to make the administrative law judge hearing the case to believe that corporate strategy has nothing to do with it

We didn’t reach out. We didn’t pick. Comcast did not pick. We were picked. And we were picked presumably because Comcast has service offerings that presumably Tesoro Viejo just sought its service offerings in addition to Ponderosa, as it should. Consumers should have choice. So I think this repeated allegation of cherry picking is simply untrue.

What Zankel, um, neglected to mention was that redlined communities routinely reach out to Comcast and other cable companies for service, and are just as routinely turned down. Unless the potential customers can afford a sufficiently hefty monthly bill and they are densely packed enough to keep the cost of delivering service low.

If what Zankel said is true, then Comcast would be jumping on the chance to extend service throughout southern Madera County. But it’s not. It wants to serve Tesoro Viejo, with the income levels and household density of a suburb, and ignore the surrounding rural residents.

That’s cherrypicking.

Collected documents regarding Comcast’s expansion into Ponderosa’s territory are here.

Comcast reveals plan to pick a juicy cherry in Madera County

by Steve Blum • , , , , ,

Tesoro viejo

Comcast wants permission to offer phone service to a new Madera County development in Ponderosa Telephone’s territory. In a required public disclosure of a private meeting between a California Public Utilities Commission staffer and a lobbyist and a lawyer for Comcast, the company revealed that it is targeting Tesoro Viejo, a master planned community of 5,200 upscale homes on two and a half square miles of rural land in southern Madera County.

According to the filing, Comcast says that if it offers phone service in the development, it would create “additional consumer choice” but “would have limited effect on Ponderosa and its draw on [a rural telco subsidy] fund”. As a matter of general policy, the CPUC doesn’t authorise competitive phone service in areas where small, heavily subsidised rural telcos, like Ponderosa, operate. That policy is under review, but Comcast doesn’t want to wait, presumably because it’s already put out a press release saying it will provide…

A wide range of innovative and advanced technology solutions, including high speed broadband, WiFi, video entertainment and “smart home/smart business” security/automation offerings, to homes, businesses and public spaces throughout the new Tesoro Viejo master-planned community.

Telephone service isn’t specifically mentioned – it would make for an awkward conversation at the CPUC – but the press release’s boilerplate includes phone service in the list of Comcast’s otherwise unregulated offerings.

Ponderosa wants to block Comcast, arguing that the CPUC already has concerns about competing telephone service leading to higher subsidy costs in rural areas, and if Comcast is allowed to pursue its plan, “the cherry-picking problem will be exacerbated”.

Comcast’s claim of a “limited effect” on CPUC subsidy requirements is disingenuous. The effect will be limited to the relatively affluent and densely packed customers in the development, who would otherwise be paying Ponderosa for phone and, perhaps, broadband, service. The CPUC will still have to help keep Ponderosa afloat so that its less well off and more scattered rural customers can continue to be served. Less revenue from the most profitable customers means more subsidies than would otherwise be required.

On the other hand, Comcast is correct when it says that allowing it to compete with Ponderosa will lead to greater consumer choice. At least for consumers who 1. have sufficient income to meet its revenue targets, and 2. are close enough together to minimise its cost and maximise its profit.

The CPUC has a hard decision to make: limit consumer choice and the need for taxpayer subsidies for all, or pick up the increased tab for rural residents while their new, more affluent neighbors reap the benefits of an open market. It’s a question that should be deliberatively answered at a top policy level, and not ad hoc in response to a company’s target of opportunity.

Collected documents regarding Comcast’s expansion into Ponderosa’s territory are here.