Rural Exemption upheld by Maine PUC. Decision protects five Maine telephone companies from undue competition by Time Warner Cable

June 14, 2010 (Augusta, ME) – Preti Flaherty is pleased to announce that the firm's Energy and Telecommunications Group successfully represented four Maine local telephone companies in obtaining a nationally significant ruling from the Maine Public Utilities Commission. The four Maine companies represented by Preti Flaherty are Lincolnville Networks, Tidewater Telecom, Oxford Telephone Company and Oxford West Telephone Company. On June 8, 2010, the Maine PUC voted to deny a request on behalf of Time Warner Cable to terminate the "Rural Exemption" under Section 251(f) of the national Telecommunications Act as it applies to five rural telephone companies in Maine. Time Warner Cable sought to terminate the Rural Exemption in order to facilitate its digital phone service in portions of the service areas of the local companies. The decision of the Maine PUC may signal a change to a history of the Rural Exemption being seldom upheld by state regulators.

The Rural Exemption was adopted by Congress in 1996 to protect small rural telephone companies from the adverse effects of competition by large competitive telephone companies, such as Time Warner Cable's digital phone service. Congress was concerned about the economic effect on the small rural companies and on their ability to continue to serve all customers at reasonable rates. These concerns are particularly at risk when the competitor would serve only community centers and leave the more rural and costly areas to be served by the small telephone company. Congress authorized state PUCs to terminate the Rural Exemption, but only if it would not result in undue economic burden on the local telephone company and if termination is consistent with the goals of universal telephone service.

Over the past decade many local telephone companies across the country have lost their rural exemptions, either because they chose not to litigate the issue against the competitors or because their state PUC did not uphold the exemption. In 2008, Time Warner Cable, through its wholesale partner, initiated litigation before the Maine PUC to terminate the Rural Exemption of five Maine telcos. This was the first case of this kind in Maine. Rather than concede in light of the discouraging precedent in other states, the Maine telephone companies chose to defend their Rural Exemptions and retained Preti Flaherty to assist them. In November 2008, the Maine PUC granted a preliminary motion filed by Preti Flaherty's attorneys to dismiss Time Warner Cable's case for insufficient testimony. The Maine PUC's decision stated that Time Warner Cable had to meet a substantial burden of proof in order to justify the termination of the Rural Exemptions of the Maine telcos.

In early 2009, Time Warner Cable refiled its request, with additional consultants and large volumes of testimonies. Throughout 2009 and much of 2010, the local telcos found themselves as the subject of demanding and complex litigation against a large telecommunications company.

Attorney Joe Donahue of the Augusta office of Preti Flaherty represented four of the rural telephone companies with the assistance of their clients and one consultant. In addition to its consultants, Time Warner Cable and its partner were represented by four law firms, including a large international law firm, and internal lawyers.

The case came to a conclusion at the Maine PUC this week. In denying Time Warner Cable's request, the Maine PUC sifted through hundreds of pages of evidence and studies and found that the request created an undue economic burden on the Maine telcos. The Maine Commission followed a standard similar to that recently approved by the U.S. District Court in North Dakota, focusing on the potential impact of competitive entry on the rural carriers' ability to maintain service quality and attract capital on reasonable terms. The PUC rejected Time Warner Cable's positions that the Commission should adopt an "economic viability" standard, should consider revenues from the carriers' affiliated companies, and should apply a presumption favoring competition in such cases. The PUC also found that terminating the Rural Exemption was not consistent with the principles and objectives of universal service policy, which is to assure that all customers, even the most rural customers, receive quality telephone service at reasonable rates.

Attorney Donahue was pleased with the results for his clients. Attorney Donahue stated: "This is a great victory for our clients and the rural telephone industry as a whole. It will promote and enhance universal telephone and internet service objectives for all customers of rural telephone companies."

In addition, the decision may signal a change in the paucity of cases nationally which have denied similar requests to terminate the rural carrier exemption. The reversal of the trend would give renewed recognition to the critical role that rural carriers play in ensuring access to universal telephone and broadband service that would otherwise be threatened by the weakening of these companies.

Attorney Donahue added that the Maine telephone companies that successfully defended their Rural Exemptions "should be commended for their commitment to the principles of universal service and to the interests of all of their customers. Their steadfastness during a grueling two years of litigation demonstrates this commitment and to their resiliency, creativity and resourcefulness."

For further information, please contact:

Joe Donahue at: [email protected]