Telecommunications Competitive Landscape
In recent years, the Commission has substantially modified its approach to regulation to take into account the fact that competition exists in the telecommunications industry and that this competition is continuing to grow. Even before the enactment of the TelAct, the Commission routinely approved requests by competitive long distance carriers to enter the market in Maine, and upon passage of the TelAct the Commission implemented the market-opening provisions of the TelAct by approving interconnection agreements between CLECs and ILECs with prices
established by applying the TELRIC pricing methodology established by the FCC. As discussed above, although it is within the Commission’s jurisdiction and statutory authority to determine whether the retail rates charged by CLECs to their customers are reasonable, the Commission has never set prices for competitive providers of telephone service. The rationale for this approach was two- fold. First is the belief that where competition is able to take root, the market itself will constrain prices. Second was the view that regulatory oversight of the prices charged by new entrants into the local exchange market is unnecessary, even where the market cannot be considered to be “competitive,” because a dissatisfied customer of a CLEC is always free to revert back to service provided by the local ILEC, whose rates, service quality, and consumer protection obligations were fully regulated by the Commission. Dissatisfied CLEC customers have the opportunity to return for service to an ILEC, and customers to whom no CLEC offers service are able to remain customers of an ILEC.
An ILEC’s obligation to serve all customers within its territory has, historically, been sustainable even in the face of new “competitive” entrants into the market because Maine’s regulatory scheme gives to the Commission the authority ensure that rates are set at a level that ensures that the ILEC’s revenues (after
necessary operating expenses) are sufficient to provide it with an opportunity to earn a fair return on its investment in its network. Thus, in addition to ensuring that rates paid by consumers are as low as possible and are applied in a nondiscriminatory fashion, and that the quality and reliability of the ILEC’s service meets the needs of consumers, existing regulatory mechanisms are designed to help ensure that the business of the ILEC, both in terms of current revenues and the opportunity for investment and growth, is a continuing and viable enterprise.
CLECs do not possess the ability to recover revenue that the ILECs have historically enjoyed. Rather, the ability of a CLEC to earn a return sufficient to satisfy investors and attract capital is dependent on its ability to carefully select the geographic areas in which it will offer service, identify the types of services it will offer and the class of customers to whom it will market them, deploy equipment and
personnel in the most cost-efficient manner, and obtain favorable wholesale
agreements with ILECs to obtain access to portions of the ILEC’s network necessary for the CLEC to offer its service.
The regulatory obligations of CLECs have, as a class, been substantially reduced as competition has increased. Thus, CLECs are not required to file tariffs. They are not required to meet formal service quality measures, such as the SQI mechanism which forms a part of the FairPoint-NNE AFOR. Also, the Commission does not generally undertake formal or informal investigations of the quality of service a CLEC is providing. CLECs are not required to obtain Commission approval for the issuance of stocks, bonds, or notes, or for the acquisition of the stock of another public utility. CLECs are, by rule, also exempt from the requirement that they file end-of-year balance statements. Further, as part of its certification process for CLECs, the
Commission waives the requirement that CLECs maintain their accounting records according to the system of accounts established for telephone carriers by the FCC, and that it file annual audited financial reports. CLECs are also exempted, through waiver, from the statutory requirement that they obtain Commission approval of reorganizations. The billing and collection regulations applicable to CLECs are far less comprehensive than those which apply to Maine’s ILECs. Finally, CLECs do not have an obligation to serve every customer in their service areas and, as a consequence, the regulations governing a CLEC’s desire to abandon service or relinquish their operating authority in Maine are substantially relaxed and are geared mainly towards facilitating the transfer of a CLEC’s existing customers to another carrier.
The two-tiered system of Commission oversight, as it developed over the years, resulted in different types and levels of regulation for different types of carriers. This difference reflects the Commission’s observation that CLECs and ILECs are not equal in terms of market share, market power, and the importance of their network facilities to the viability of the public switched network as a whole. Over time, and as competition for voice services has increased, the two-tiered approach of tailoring the Commission’s regulations to each class of carrier has resulted in disparate
regulatory obligations that are viewed by ILECs as contributing to an unlevel competitive playing field. This disparity is even greater in the context of competition between ILECs and wireless providers. Specifically, the State (and therefore the Commission) is
preempted from regulating the terms of entry of wireless providers into the Maine market and the geographic location of where a wireless provider builds out its
transmission towers and other infrastructure. The Commission also may not regulate the price charged for cellular service, or the terms and conditions under which such service is offered. Service quality, consumer protections, and the resolution of consumer complaints involving wireless service are likewise areas beyond the Commission’s jurisdiction to address.
A similar disparity in regulatory obligations exists between ILECs and an ever increasing source of competition in the form of voice service offered by cable television companies. Although 35-A M.R.S.A. § 8301 provides that “[c]able television companies, to the extent they offer services like those of telephone utilities subject to regulation by the commission, shall be subject to the commission's jurisdiction over rates, charges and practices,” in practice, this provision has not been enforced by the Commission and the retail voice services offered by cable companies has not been
the subject of Commission oversight. This is so because there has been considerable, and increasing, disagreement throughout the industry, the FCC, the courts, and state utilities commissions regarding whether the technology used by cable television
companies to deliver voice service – VoIP – falls within the federal regulatory category of “information service” such that enforcement of a state statute such as Section 8301 is preempted by federal law. Although the Commission recently took steps to require that Time Warner and Comcast obtain certificates of public convenience and necessity authorizing them to offer VoIP service (by finding that the services which they offer fall within the state law definition of “telephone service” and are not, as a matter of federal law, “information services”), the Resolve provides that the Commission may not enforce that decision.
The unregulated cable VoIP segment of the market has grown considerably in recent years relative to the regulated ILEC segment and the lightly regulated CLEC segment. Specifically, the cable VoIP share of the intrastate retail market (wireline) in Maine totaled approximately 6% in 2007. By 2010, such services accounted for roughly 13% of all intrastate retail telephone (wireline) revenue. By contrast, during that same period, the Verizon/FairPoint-NNE share of total intrastate revenues (wireline) declined from roughly 60% to approximately 49%, and the
“independent” ILEC share (including the so-called “classic” FairPoint operating
companies) grew modestly, from approximately 11% in 2007 to approximately 13% in 2010, as did the share of total revenues earned by the CLECs as a class, which were roughly 23% in 2007 and 25% in 2010. These figures suggest that the gains in
intrastate revenue share enjoyed by the CLECs and cable television companies came largely at the expense of Verizon and FairPoint-NNE.
In addition, the size of the intrastate retail telephone revenue pie has been steadily decreasing, from approximately $426 million in 2007 to approximately $290 million in 2010 – a 32% decrease in the size of the market. It is likely that
increased wireless substitution for wireline service, and also, to a lesser degree, the substitution of over-the-top (nomadic) VoIP service for wireline service among those with broadband service, accounts for a substantial part of the decline of total intrastate retail telephone revenue during that period.27