FairPoint Seeks $67 Million Subsidy to Provide Landline Service

The subsidy would come from the Maine Universal Service Fund (MUSF), the state’s version of the USF. It’s funded through a surcharge on FairPoint’s competitors, and they're not enthusiastic about the idea. “FairPoint should not be allowed to place such a significant burden on a fund that draws from its competitors’ customers,” commented AT&T, CTIA, Sprint, U.S. Cellular and Virgin Mobile to the PUC (http://1.usa.gov/PRWdUQ). The competitors said FairPoint’s subsidy would amount to an additional $51.54-a-year for each customer.

The issue has caught the attention of Maine lawmakers, who have acted on two FairPoint measures in the past week, including the House’s passage of Legislative Document-1479 (http://bit.ly/1erkbfp) Tuesday. The measure, pending in the Senate, would require any PUC decision go back to the legislature for approval, delaying any MUSF payment for at least a year. The measure LD-1761 (http://bit.ly/1sAQZf2), sent to Republican Gov. Paul LePage April 4, would raise the standard for state approval of a FairPoint sale or merger from “do no harm” to whether a transfer would “advance the economic development and information access goals of the State."

FairPoint’s proposal comes as landline providers nationally grapple with the costs of maintaining the service, as phone customers switch from landline to wireless and IP. In Maine, the issue is raising broad questions about how to handle the IP transition. LD-1479 calls for the PUC to return to lawmakers with recommendations on a series of questions including whether the state should lift landline requirements for carriers of last resort (COLRs) in areas served by wireless and IP competitors. FairPoint Maine President Michael Reed in an interview Wednesday called the measure “absurd” because it would take the decision away from a commission designed to make telecommunications decisions.

A ‘Big Number’

Sen. John Cleveland, Democrat and chairman of the joint House and Senate Committee on Energy, Utilities and Technology, said “$67 million is a big number” that deserves legislative scrutiny. National Regulatory Research Institute Principal Sherry Lichtenberg, who tracks state measures, said she’s heard of no other statewide request.

As a provider of last resort (POLR), FairPoint is responsible for providing landline service in sparsely populated and expensive to maintain rural areas of the state, Reed said. Traditionally, POLRs could direct profits from highly populated areas to subsidize rural costs, he said, but increased competition from wireless and IP companies has cut profit from urban areas. The $67 million is the difference in what the company can make from serving high-cost areas and what it costs to serve those areas, he said. “Large cities paying for rural areas, all that is gone,” Reed said. “The question is what is the state going to do?” Though competitors compensate FairPoint for using its network, Reed said they benefit from having FairPoint as the POLR. “They still need a switch. They still need a cable. They still need a pole,” he said. Fairpoint said the $700,000 raised by the $2 monthly increase “will not be nearly enough to adequately compensate the Company ... for meeting its POLR obligations,” in an Oct. 30 PUC petition (http://1.usa.gov/1i1Qgip).

State lawmakers in 2011 lifted regulatory requirements on FairPoint, but in return said the company had to provide “affordable, high quality basic level of service,” regardless of location or the cost of providing service, Reed said in written testimony (http://1.usa.gov/1gLGoED) to the PUC. Approving the subsidy would require the PUC to change rules that allow only rural providers to receive MUSF money -- which would be “inappropriate,” said CTIA and FairPoint rivals. “FairPoint suggests there is some ‘emergency,’ but if so it is entirely of FairPoint’s own making.” The competitors also said FairPoint hasn’t shown it has tried to cut costs. The competitors did not object to the $2 landline increase. Maine Public Advocate Tim Schneider doesn’t object to FairPoint’s receiving some subsidy to preserve landline service, but told us he questions the amount FairPoint is seeking.

FairPoint isn’t asking to stop landline service, said Reed. “We want to serve the landline customers,” he said. “But Maine has a lot of rural areas. We have to serve that island ten miles off the coast that’s out of the reach of any cellphone towers. No one else has to serve it.” The state isn’t ready to do away with requiring landlines, Cleveland said. “Some customers have no other options [to landline] in rural areas of the state. Cellphones may go down.”

Maine now requires POLRs to provide landline service to any customer who wants it, regardless of whether the customer is in an area served by other landline and non-landline companies. A question is whether the state should allow POLRs to stop serving those areas, Cleveland said. “It’s an uncharted area,” he said. “It’s not just Maine, but all over the country.”