Zero understanding of dark fiber business means zero benefit to Californian consumers

by Steve Blum • , , ,

Southern California Edison is driving home the point that rebating half of its dark fiber leasing revenue to electric customers would kill its ability to compete in the telecoms market. A draft decision by CPUC commissioner Clifford Rechtschaffen would replace a nearly 20 year old gross revenue sharing formula – 90% to SCE, 10% to electric customers – with a 50/50 split.

In closed door meetings with top California Public Utilities Commission staff, an SCE executive and an in-house lobbyist said, in effect, that Rechtschaffen doesn’t understand the dark fiber business…

Contrary to unsupported statements in [Rechtschaffen’s draft decision], a 50/50 gross revenue sharing mechanism would not provide sufficient return to justify shareholder investment. The 50/50 gross revenue sharing implies equal sharing of benefits, but ignores the incremental costs, risks, and business liabilities incurred by shareholders…

Shareholders would have to recover all of their costs through the remaining 50%, if possible, resulting in disproportionally less or negative benefits for shareholders since customers do not incur any incremental costs. There is no evidence in the record that the 50/50 split is an economically viable mechanism to justify shareholder investment.

Both SCE and the Utility Reform Network (TURN), a non-profit organisation that claims to speak for consumers, filed longer written comments about Rechtschaffen’s draft.

TURN shows a similar lack of understanding about telecoms. It argues that SCE’s dark fiber business should micromanaged by the CPUC, similar to the way privately-owned electric utilities are regulated.

That’s nonsense. Electric utilities are monopolies that provide an essential service, and it is rational to regulate them as such. Independent dark fiber companies have to make their living competing against unregulated, monopoly business model telephone companies. Micromanaging one of the few remaining competitive sources of dark fiber in California, while ignoring, if not actively assisting, monopoly telcos is perverse.

Californian consumers need fast and affordable broadband service every bit as much as they need electricity. Thinking that cutting them in on more of SCE’s fiber revenue will be a benefit to them is pure fantasy. SCE put it correctly and succinctly in its comments: “the ‘interests of ratepayers’ are better served by 10% of gross revenues than by 50% of zero”.