Rural phone competition on horizon? VoIP providers challenge rules protecting carriers
Copyright 2006 Gannett Company, Inc.
All Rights Reserved
April 24, 2006 Monday
By Paul Davidson
From Lexis Nexis
Many rural phone companies -- some backed by their state regulators -- are blocking cable TV providers from competing with them by selling inexpensive Internet-based phone service. The battles have spawned a legal ruckus that could affect millions of customers in less-populated areas.
At the heart of the disputes, likely to be settled by the Federal Communications Commission or Congress, is a seismic collision of policies. While legacy rules protect rural carriers from competition, new policies promote technologies that foster greater consumer choice, even in the countryside.
Voice-over-Internet Protocol service -- VoIP -- from cable companies is becoming the leading alternative to standard local phone service now that companies such as AT&T and MCI have stopped competing with the local phone companies. AT&T and MCI, respectively, were bought last year by SBC and Verizon.
VoIP lets customers get discount phone service by connecting a regular phone and adapter to a high-speed Internet line. Time Warner has signed up 1.1 million customers for its VoIP service, which costs as little as $39.95 a month when bundled with cable and broadband.
In South Carolina, Time Warner Cable wants to offer its VoIP service in towns it already serves with cable TV and broadband services, such as Myrtle Beach and Stateburg.But Time Warner must first set up connections with rural carriers so its VoIP users and rural-phone customers can exchange calls. Rural carriers also must provide Time Warner local phone numbers and 911 services.
Time Warner typically leases these services from phone competitors, like MCI or Sprint, which, in turn, lease them from the local phone companies.
But six rural carriers, including Farmers Telephone Cooperative and Horry Telephone, say they are not required by federal law to provide these services to MCI. They say that MCI would not serve area residents directly and that the service used by residents would not be a "telecommunications service." The FCC, in fact, has signaled it likely will label VoIP an "information service," a move that VoIP providers support because it would keep them unregulated.
Time Warner says that distinction is irrelevant, adding that rural carriers must accommodate MCI because it's providing a wholesale telecom service to Time Warner. Time Warner has similar setups in hundreds of U.S. markets.
The South Carolina Public Service Commission, though, sided with the rural carriers. It also has rebuffed Time Warner in its request to be certified as a telecom carrier so it could buy services from rural carriers directly.
Nebraska regulators backed Southeast Nebraska Telephone in a similar battle against Time Warner and Sprint. Standoffs between Time Warner and rural carriers in Texas and New York are before state regulators or the courts.
And although the Iowa Utilities Board sided with Mediacom in a fracas with about 30 rural companies, the decision likely will be appealed to a federal judge, says David Lynch, board general counsel.
To avoid a nationwide checkerboard of rules, Time Warner asked the FCC last month to decree that the rural companies must make way for the new competition. The FCC's decision could determine whether VoIP will be available to millions of rural residents. Independent VoIP providers like Vonage also have been shut out of most rural areas.
Congress may step in. Part of a House telecom bill would make rural carriers work with VoIP rivals.
Many rural companies would face landline phone competition for the first time. "They probably thought no one would ever come into their bailiwick," Lynch says.
Rural companies get federal subsidies to offset the cost of serving sparsely populated areas. Also, a 1996 federal law limits the ability of local phone rivals to compete with them by leasing the rural companies' networks. Part of the concern is that the rivals could undercut the rural carriers' prices by serving only larger, more lucrative towns and neglecting remote regions.
Cable VoIP providers, though, can skirt that obstacle because they have their own networks. Yet many of their franchises serve only more populated towns, raising concerns for rural carriers.
In a filing with the South Carolina Public Service Commission, Margaret Fox, a lawyer for the six rural companies, said Time Warner's plan "could have a devastating impact on the ability of rural carriers to continue to provide" affordable service in rural areas.
But Time Warner general counsel Marc Lawrence-Apfelbaum says the companies are simply protecting their monopolies. "They don't want anybody to be able to compete with them," he says.
Fox did not return messages.