Telephone providers and several advocacy groups debated Thursday over whether, and to what extent, the state should require that basic local telephone service be provided to every resident, even those who live miles from the nearest telephone pole.

At issue is a requirement that certain telecommunications companies provide basic phone service to the remotest parts of the state, no matter what the cost to the company. Opponents of a bill that would eliminate the mandate say it would imperil the elderly who live in rural areas, while supporters say the mandate unfairly burdens those companies.

FairPoint Communications, the largest landline telephone provider in the state, would like to eliminate the requirement for basic local service – known as Provider of Last Resort – arguing the requirement is unnecessary and puts it at a competitive disadvantage against companies that aren’t required to offer the service. It drafted a bill, L.D. 1302, that would eliminate the requirement in stages.

“The Legislature can’t keep forcing FairPoint to serve areas where there is absolutely no return, and we as a state need to work it out,” said Mike Reed, president of FairPoint in Maine. “L.D. 1302 doesn’t work out all the details, but it removes a log jam. Right now the PUC and the Legislature are in a stare down and who’s going to blink first? (L.D.) 1302 I think will get the ball rolling.”

FairPoint, which in February settled a four-month strike with its unions in Maine, New Hampshire and Vermont, has struggled financially since it acquired Verizon’s northern New England landline business in 2008 for $2.3 billion. Since then, the company has filed for and emerged from bankruptcy and watched as the number of its landline customers has dropped. FairPoint reports it has 23,000 Provider of Last Resort customers in Maine.

The state requires certain telephone companies – known as incumbent local exchange carriers – to offer basic local service in their territories. In addition to FairPoint, other local exchange carriers include Oxford Networks, Union River Telephone Co. and Mid-Maine Communications, but FairPoint is by far the largest.

STIFF OPPOSITION

The bill would do two things: At the end of 2015, it would eliminate the requirement for these incumbent providers to offer the service in areas where there are competitive alternatives, and it would no longer mandate the service after 2021.

There was stiff opposition to the bill, heard Thursday before the Legislature’s Energy, Utilities and Technology Committee.

Timothy Schneider, Maine’s public advocate, testified “in strong opposition.”

“This bill is an attempt to solve FairPoint’s problem – its belief that it would be more profitable to not be obligated to provide reliable, affordable telephone service in rural Maine,” Schneider said. “It is not an attempt to solve Maine’s problem – ensuring that all Mainers have affordable, reliable access to basic telephone service.”

Lawmakers approved deregulating Maine’s telecommunications industry in 2011, which opened new areas of competition. But they also retained the Provider of Last Resort mandate. The Maine Public Utilities Commission now requires FairPoint to offer basic local service to anyone in its territory, and it sets the prices FairPoint can charge for it. Competitors like Comcast aren’t burdened by the cost of providing basic service in rural areas, but compete with FairPoint for customers in the urban areas that are profit centers for telecom companies.

“There was so much work done by the 125th (Legislature) to deregulate pricing and put all the providers on a more level playing field, and POLR was meant to be a fail-safe mechanism so we didn’t forget anybody out there,” Reed said. “I was one of the people who said, ‘Yep, FairPoint is ready, willing and able to be the POLR provider.'”

Reed said all the stakeholders realized that providing basic local service is expensive and that “there was a recognition in the 125th and the PUC that there’d have to be a funding mechanism.”

That funding mechanism hasn’t materialized. Reed argues that regulatory creep has resulted in FairPoint being more regulated now than lawmakers ever envisioned. As an example, he points out that FairPoint provides Provider of Last Resort service reports to the PUC. But those reports are now being used by the PUC to regulate all of FairPoint’s service, not just basic.

“We have re-regulated what the 125th tried so hard to deregulate and make a level playing field,” Reed said. “So where it’s important to me is I can no longer have that layer of regulation the other providers don’t have.”

A $67 MILLION SUBSIDY

The company last year asked the PUC for a $67 million subsidy from the Maine Universal Service Fund, which subsidizes rural telephone service. While several incumbent carriers with smaller territories receive subsidies from the fund, FairPoint has not.

FairPoint claims it needs the subsidy to stay solvent as it struggles to compete with unregulated competitors.

Before the PUC ruled on FairPoint’s subsidy request, however, the Legislature passed a bill allowing it to weigh in on how the state should regulate basic local service and how subsidies for that service should be allocated. The Legislature received the report from the PUC in January, which included an opinion that FairPoint was not entitled to the $67 million subsidy it had requested.

Other telecommunication companies, including AT&T and wireless carriers such as T-Mobile, have joined FairPoint in support of L.D. 1302.

Michael Mahoney, a lobbyist who represents T-Mobile USA and other wireless operators, said his clients support the bill, especially the part that would stop the flow of subsidies to providers in areas that already have competitive telephone options.

“We believe it’s good policy when there’s that much money on the line that the Legislature should have a say,” Mahoney said, referring to the roughly $8 million in the universal service fund.

Besides Schneider, many other opponents opposed the bill. Representatives from groups such as the AARP, the Maine Council on Aging, Legal Services for the Elderly, Disability Rights Maine, Eastern Maine Healthcare Systems, and the Maine Center on Deafness testified against it, arguing that the elimination of the basic service requirement would put Maine’s most vulnerable residents at risk of not having reliable telephone service.

“Mainers continue to depend on a landline for a number of reasons,” said Amy Gallant, advocacy director at AARP Maine. “Throughout much of Maine, landlines offer a lower price and superior call quality in comparison to wireless service. Landlines provide reliable access to medical alert and alarm systems, increasing the safety and well-being of isolated Mainers.”

Rep. Larry Dunphy, a Republican from Embden and a member of the utilities committee, echoed Gallant’s testimony and said he had “huge concerns” with the bill.

“I need assurances for my constituents who … cannot reach out of their communities without a copper line, without some sort of hand-held telephone connected to utility poles. So I’m not comfortable putting the elderly people in my district at risk, or the hearing-impaired people in my district at risk, or people confined to their homes,” Dunphy said. “They need to communicate. How do we get those assurances with this bill?”