Maine PUC: FairPoint failed to show need for $62.8 million phone subsidy

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PORTLAND — The Maine Public Utilities Commission has dealt a setback to FairPoint Communications’ request for a subsidy of $62.8 million to provide phone service to areas of the state that don’t necessarily turn a profit for the company.

The PUC ruled that FairPoint had not adequately demonstrated that it needs the subsidy to continue to support “provider of last resort” service to about 29,000 customers. However, the three-member state regulatory commission did not rule out some type of additional subsidy for the company in the future.

FairPoint was seeking the funds from the Maine Universal Service Fund, which collects about $8.3 million from cellphone customers to give to smaller telephone companies providing provider of last resort service. Early calculations indicated the request would result in an additional $5 charge on all cellphone bills in the state.

In May, the PUC approved the company raising its provider of last resort rates by $2, to $16.69 per month for residential customers and $34.28 for business customers, to help make up costs.

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The PUC’s deliberations in the latest provider of last resort case will filter into how the Legislature tackles the issue during its next session, which begins in January, when FairPoint intends to argue the ruling does not leave it out of the running for universal service fund money.

In a filing on Tuesday, an attorney for the company contested that the decision rules out any subsidy for FairPoint, saying it only found it could not determine whether FairPoint should get any subsidy based on the evidence in the case. The attorney also argued that the company was not aware of the cost-analysis method the commission would use to make that ruling.

In requesting the subsidy, FairPoint has said that its profit margins have been squeezed by competition in deregulated areas of the state from other telecommunications companies that are not, such as FairPoint, required to provide provider of last resort service.

The company argued that it was entitled to broad compensation for operational costs, “such that it is ready, willing and able to provide (provider of last resort) service to each of the approximately 630,000 customer locations in FairPoint’s service territory.”

It based that argument in the “takings” clause of the Fifth Amendment, saying that its requirement to provide provider of last resort service imposed a burden equivalent to the taking of private property for public use.

In their opinion, PUC commissioners did not buy the argument, writing that the company could not show the provider of last resort requirement results in its property being taken for a public purpose and that the service “occupies only a small fraction of the overall revenue-producing capability of the company’s network.”

The subsidy request had other hurdles to clear, including a PUC rule that prevents disbursing any of the universal service fund to nonrural phone carriers and a moratorium in state law against providing such funds to FairPoint.

The company has separately fought new service quality requirements for its provider of last resort customers, which took effect earlier this year and could result in financial penalties if not met.

The company’s two unions have been on strike for nearly two months, and union officials have said the company is facing an increase in the number of service complaints across its networks. The company has said that it is implementing contingency plans to hire replacement workers, but it has not yet revealed what impact that has had on service quality.

The company will file its next quarterly service quality report to the PUC in January, detailing its performance for most of its landline customers.

Internet and broadband services are not regulated or subject to service quality standards.

The company has struggled financially in recent quarters, posting $92.7 million in losses through the third quarter of the year.

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