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Wednesday, October 12, 2011

FairPoint calling for equal treatment

Before FairPoint Communications took over Verizon’s northern New England landlines in 2009, that means of communication was the “only game in town,” says Teresa Rosenberger, the company’s New Hampshire president. But since that monopoly no longer exists, FairPoint should be treated like any other retail provider, she adds.

Lawmakers and regulators should remove the “shackles on our ankles,” Rosenberger told NHBR last month in a wide-ranging interview. “Let us be like everyone else on the retail level.”

There is no question that the number of people using traditional phone service is dropping like a bad cell call. For one thing, cellular service has tripled in the past decade, while landlines have fallen off by 55 percent. And even within that shrinking landline universe, the share held by FairPoint and other smaller incumbent local exchange carriers (or ILECs, like Weare-based Granite State Telephone), is rapidly declining.

This is particularly true in New Hampshire, where competitors accounted for 51 percent of access lines in 2010, as opposed to 24 percent in 2006, according to a recent Federal Communications Commission report – the second-highest rate in the nation. (Nationwide, the percentage also increased, from 17 percent to 32 percent.) And when it comes to New Hampshire businesses, a whopping 64 percent of the lines are provided by companies that aren’t ILECs.

FairPoint, the biggest ILEC of all, hemorrhaged more than 100,000 lines a year over a three-year period, falling from 1.56 million in the first quarter 2008 to 1.1 million in the second quarter of 2011. Revenue in the second quarter of ’11 was $262.6 million – 9.3 percent lower than the previous year, primarily due to the loss of landlines.

But even though FairPoint doesn’t even have the majority of lines in its territory, “we are regulated like a monopoly, yet we have total competition,” Rosenberger said.

In this respect, she said, New Hampshire’s regulatory environment lags far behind Maine and Vermont, which are both taking more proactive steps to loosen retail telephone regulations.

Pole maintenance

Rosenberger emphasized that FairPoint, which still owns most of the poles and conduits in New Hampshire, isn’t trying to get out of its regulatory obligation to share those wires with the company’s competitors (competitive local exchange carriers, known as CLECs), which she complimented as being good customers.

“They are a big part of our business, and we are looking to serve them well,” she said.

The FairPoint president also didn’t dispute that it should remain as a service provider of last resort. Nor did she dispute the company’s obligations to maintain its poles and wire network, which have costs that range from $200 a line in Manchester to $10,000 a line in the North Country.

Rosenberger did question whether everybody was contributing their fair share to maintain that system, noting that it’s used even by competitors that have laid out their own fiber as well as by cellular providers.

“We lose a ton of money on these poles” when work has to be done on them, she said. “There is the flag rate, the excavation fee, paying for a cop out there – and that’s before taxation and reporting requirements.”

The debate, she said, is somewhat similar and somewhat different from the one going on at the Public Utilities Commission concerning Public Service of New Hampshire, a utility that is also facing stiffer competition, at least at the commercial level, resulting in a massive migration of customers.

In PSNH’s case, the controversy is over whether the company can pass on an additional charge to competitors to maintain generating capacity. Competitors counter that PSNH should simply sell off that capacity so it doesn’t have to pay to maintain it.

But FairPoint doesn’t have such assets to sell off. “Who is going to buy our poles?” asked Rosenberger. “Nobody wants them.”

Rosenberger’s major beef is that an outdated regulatory system is making it difficult to compete fairly on a retail level.

Ultimately, FairPoint wants New Hampshire lawmakers to tell the PUC to stop regulating the company’s retail activities, but for now the company is pushing to eliminate at least some of its regulated requirements, such as filing special contracts reached with customers–a requirement that enables competitors to “steal our business,” said Rosenberger.

State law requires utilities to file such contracts to make sure that they don’t secretly give special rates to preferred customers as a way of yielding economic power and strengthening a monopoly.

But the requirement only serves to notify CLECs about which customers to go after, meaning competitors could use the information to undercut FairPoint’s deal – and FairPoint in turn couldn’t do the same without filing for another special rate. And a price floor prevents them from going too low.

“We don’t have that flexibility on prices,” she said. “We need that nimbleness.”

Last year, Sen. Bob O’Dell sponsored Senate Bill 48, which would exempt telephone utilities from the special contract regulations, but the full Senate sent it back to the Energy and Natural Resources Committee, which O’Dell chairs.

Other reforms on FairPoint’s wish list would be to do away or lessen retail service standard requirements.

Those indices – such as the amount of time it takes for a FairPoint representative to answer the phone or install a new line – were originally put in place because of complaints lodged against Verizon. When FairPoint took over, they were adopted and toughened up with potentially multimillion-dollar penalties.

Standards practice

Indeed, there were many complaints about FairPoint’s service at both the wholesale and retail levels during the transition – complaints that helped the competition eat into the utility’s market share.

But since then, Rosenberger said, the company has been meeting those standards.

But an audit released in August, conducted for the PUC by The Liberty Consulting Group, takes issue over whether FairPoint’s reporting is accurate enough to show that it is meeting the standards.

The audit questions whether the methods and assumptions used led to misleading results. For instance, FairPoint didn’t initially count abandoned calls as a negative because the company wasn’t sure whether people hung up because they were frustrated. And Liberty’s calculation of percentage of service orders met each month was 67 percent rather than the 96 percent FairPoint claimed.

But Liberty is silent as to whether FairPoint met the standards, a question that is more than academic, since by doing so FairPoint could avoid a $6 million penalty handed out during the transition period in 2009.

FairPoint maintains that such errors were relatively minor and did not materially affect whether the company met its target. It also vehemently disagrees with Liberty’s suggestions that the PUC add more standards for the company to meet.

“The QoS (Quality of Service) process was not intended to be an evolving program for the commission’s management of FairPoint’s customer relations. Moreover, the QoS has become increasingly obsolete in the current competitive environment,” FairPoint said in response to the Liberty audit. “As it is, the current QoS process provides little marginal benefit to FairPoint’s customers while at the same time, it depletes resources that FairPoint could devote to developing new services and meeting an ever increasing level of competition.”

Rosenberger made the same point to NHBR.

There is no need to call for retail service standards as a regulatory requirement, she said, since it is already a competitive necessity.

The report itself proves her point, she said. The company had to spend about $500,000 paying for, cooperating with and responding to the audit – money she said that would be better spent elsewhere.

Rosenberger pointed to Vermont, which is looking at alternatives to such requirements, as well as Maine, where utilities regulators are also discussing parity for telecommunications providers at the retail level.

However, Verizon’s attempt at alternative regulation led to a docket that dragged on for years, ending only when Verizon pulled out of New Hampshire. Rosenberger suggested that it is one of the reasons Verizon left.

Meanwhile, there is some discussion at the PUC about alternative regulation, said Meredith Hatfield, the agency’s consumer advocate.

But it is unlikely that an alternative will sail through any quicker this time, she said, since a competitive market is not a realistic option for all. Not everybody can afford the bundled packages of FairPoint’s competitors, she said. And others need landlines for safety reasons.

And while FairPoint said that it would continue to provide that service, Hatfield said she worried about the quality of that service if it were unregulated.

“We want to make sure that those that don’t have access to competition are protected,” Hatfield said.

FairPoint might find a more receptive ear among conservative lawmakers who currently dominate the state Legislature, like Rep. James Garrity, R-Atkinson, who chairs the House Science, Technology and Energy Committee, which would hear any bill concerning telephone deregulation.

“I think we should get the PUC out of regulating retail communication,” Garrity said. “Let FairPoint, AT&T and Comcast beat each other up and bundle as many services as they want and see who wins. We are living with a 100-year-old regulatory system that ignores the facts on the ground –- there is competition everywhere you look.”