In 1996, Congress passed the landmark Telecommunications Act, implementing a major restructuring of the telephone industry. As part of the Act, however, Congress included the "Rural Exemption" to protect small phone companies from being required to grant accommodations, otherwise required by the Act for large competitive telecommunications providers. The reason for the Rural Exemption was to assure that the big companies couldn't "cherry-pick" the more profitable customers in the easy-to-reach areas, leaving the small phone companies to service the more rural, more costly customers, which could result in higher rates for the remaining customers and diminish ability of the small phone companies to meet their public service obligations.
But in many cases the Rural Exemption has turned out to be the exception. In the original law, Congress authorized a state PUC to terminate the Rural Exemption if certain criteria were demonstrated by the competitor. This has resulted in many small phone companies across the country losing their exemption, either by declining to litigate against the superior resources of bigger competitors, or by adverse action from their PUCs.
In Maine, as elsewhere, the Rural Exemption has recently been under challenge.
Time Warner Cable, through its wholesale partner, petitioned the Maine Public Utilities Commission (PUC) to terminate the Rural Exemption of five small Maine phone companies in order to obtain certain competitive accommodations in their service areas. Four of the companies, in recognition of the potential economic harm to them and their customers, asked our Energy and Telecommunications practice group to help them fight back.
In deciding to defend their Rural Exemptions, the five Maine companies knew they were bucking a national trend reflected in the discouraging precedent seen in other States. Our attorneys worked closely with the companies and their consultant in developing strategy and presenting their case.
In November 2008, we succeeded in convincing the Maine PUC to grant a motion to dismiss Time Warner Cable original petition for including insufficient testimony.
While this was a victory in itself—and a much-needed upholding of the principle of Rural Exemption—Time Warner and its partner were undeterred. They refiled their request, this time bringing four outside law firms, several consultants, their internal legal departments, and large volumes of testimony and exhibits. The small telephone companies were now looking at a demanding and complex litigation, facing all the firepower of a major international player.
But after two grueling years of litigation, the PUC denied Time Warner's petition. In a ruling of potentially national significance, the Commission rejected Time Warner Cable's arguments and upheld the Rural Exemption for the phone companies. The Commission found that termination of the Rural Exemption would harm the rural carriers' ability both to maintain service quality and to attract capital on reasonable terms in the face of such high-powered competition. In turn, the Commission determined this would not only cause undue economic harm on the small Maine phone companies, but also adversely impact the goals of universal service in their areas. While Time Warner may still compete, it must do so without the special accommodations it sought, because the Rural Exemption and the goals of universal service continue to have life in Maine.