Earlier this week I attended the PUC meeting where they talked about approving businesses for certification to receive Universal Service Funds and the talked about modifying Frontier’s AFOR. The AFOR – alternative form of regulation – is a contract that allows a company to earn income at a higher rate in trade for adhering to higher service standards.

These are separate issues. I took full notes, which I’ll include below – but I thought most folks might enjoy the Readers Digest version.

First – Eligible Telecommunications Carriers were looking to be approved to be certified to receive USF. There was some hubbub on what kind of information related to USF should be made public – but in the end all were approved.

The second issue was more contentious. I did a quick explanation last week:

Frontier (a wholly owned subsidiary of Citizens Communications Company) has been operating under its own Alternative Form of Regulation (AFOR) since approved in 2007. They would like to join Citizens’ currently active AFOR plan, which was approved in 2008. Apparently Citizens’ AFOR plan was actually adopted from Frontier’s AFOR plan and is active until 2012. Frontier wants to join it and extend it until 2014. One hiccup is that there is supposed to be an expiration date of sorts on these plans, which sounds like 3 years with an option of a one-year extension. The idea being that it requires companies (and interested partied) to reassess the AFOR plan periodically.

Not to ruin the ending – but the ruling was made to hold the decision in abeyance while the Department of Commerce and Frontier worked on updating/modifying the AFOR they would like to adopt.

The PUC Commissioners seemed to focus on a couple of issues to come to this decision:

• Frontier has received very few complaints and has met standards in the past
• Three years is a long time in telecommunications
• The Legislature has set broadband goals since the last AFOR was approved and it was important to revisit the AFOR with that in mind

It was very promising to see the impact of the Broadband Law and state goals!

The representative from Frontier talked about their DSL service, noting a couple of time that they provide broadband to all of their exchanges and reach more than 90 percent of their homes served. The representative from the Department of Commerce mentioned that the State is looking for ubiquitous coverage at speeds of 10-20Mbps down and 5-10 Mbps up. So they may have some challenges ahead of them in terms of creating an AFOR that will make them all happy.

Here are the full notes…

First Topic–
P999/PR-11-329 Local Exchange Companies;
Eligible Telecommunications Carriers
In the Matter of Annual Certifications Related to Eligible Telecommunications Carriers’ (ETCs) Use of the Federal Universal Service Support.
A. Should the Commission approve all petitioning ETCs’ requests for certification?
B. Should the Commission direct all Petitioning ETCs to supply USF support received in the previous year as public information? (PUC: Briefing Papers – Brion)

In short the goal was to approve ETC for certification to receive USF. The one hiccup was that there was some question on private/public info. Someone from the public spoke:
Mark Ayotte – representing a few wireless companies. The wireless folks support the recommendations. The amount of USF support is available on USAC web site so info should not be private. With respect to service improvement plans (how and how much) should be private – both in terms of historical plans and future plans.
The decision was to approve everyone. Also the commission deemed the past USF funding to be public (again not how and how much was spent on service improvement plans).

Second Topic –

P405/AR-11-562 Frontier Communications of Minnesota, Inc.
In the Matter of Frontier Communications of Minnesota’s Proposal to Join an Existing AFOR Plan of its Corporate Affiliate Citizens Telecommunications of Minnesota.
What action should the Commission take regarding Frontier’s proposal to join an existing AFOR plan of Citizens Telecommunications of Minnesota? (PUC: Briefing Papers -Krishnan)

Krichnan – no extra comments (briefing papers stands on its own)
O’Brien – does staff agree with the department recommendations?

Krichnan – The Department would like the PUC to reject the proposal. They suggest that Frontier repetition allowing for more consideration and conversation.

Kevin Saville (Frontier)
Frontier operates on an AFOR plan that was approved. We have been subject to restrictions and 7 service requirement standards. Frontier is in compliance. There’s a provision that stipulates that if one customer is out of service – Frontier is required to make amends (reduced bill or payment from Frontier). There is also an investment plan; Frontier has made plans in infrastructure to provide DSL to customers. They provide DSL in every exchange and 90% of customers.

We think broadband is important and so we provide DSL. We propose to continue this dedication to broadband.

Frontier proposed the new AFOR plan switch more than 5 months ago – well beyond the 90 day requirement. We are again in compliance.

The department (Department of Commerce) has not mentioned objections with this specific transaction. Instead, the Department is considered with public policy – not our specific situation.
The Minnesota Legislature defined a process for this transaction – and we are in compliance. The Department

Question – does the PUC have the right/responsibility to research the public interest?

Frontier – Yes the PUC does. But we feel that since the AFOR plan was addresses just a couple of years ago (2008) we think that the public interest was probably considered at the time. Citizens has 90,000 access lines; Frontier has 80,000. So we’re not sure what would have changed since 2008.

Back to Frontier intro
Interested parties had 30 days to voice concerns one Frontier submitted their proposal. No one did. This summer again, there was an opportunity for public reaction. The Department was the only one who did file a comment. We told our customers of our plans; none have raised concerns.
Public interest evaluation – we think that our proposal is in the public’s interest. If our AFOR plan expires, our service requirements will be reduced. There are reasons to keep the AFORs in place. Also the AFOR change will provide us with flexibility to respond to competition.

We would hope that permission would be granted for our plan to work with Citizens AFOR. Or we might ask the Department to give us specific concerns to address directly.

Question – three years is a short time in telecommunications. We could require the company to make some changes in regard to investment and access.

Frontier – If there are particular public interest issues, we’re very open to discuss those options.

Linda Jensen (Dep of Commerce)

The Department says the AFOR statue serve the public interest. It allows the company to get a higher rate of return in exchange for service standards requirements. For example without standards, businesses will invest based on stockholder needs. That may leave rural areas in jeopardy.
Question – please give an example of a rural community where Frontier has no cmpeition and has not elected to upgrade system.

Department – no but I can show a map.
Frontier – we have deployed DSL in all exchanges. Also many communities have cable providers and wireless options. We find that we have competition is virtually every one of our exchanges.

Department –
But you just said there is 10% of your customers that are not served. And DSL will not meet the MN Broadband goals.

Frontier – we have service available to over 90% of households. There are some customers who are beyond the reach of technology plan. Our AFOR plan says if 20 customers come to use with a concern, we will look into providing access in that area.

Department – In the absence of the AFOR, a company will serve the profitable areas. Our recommendation is to reject the proposal and go for option 6.

Option 6 with modification – Full review under MInn. Stat. 237.764

Frontier & the Department had been working together until Frontier seemed to indicate that no further public interest review was necessary.

The Statute requires the PUC to do a public interest review as indicated in Minn. Stat. 237.766 subd 4.

Frontier is asking the PUC to agree to an AFOR that was developed for 2008-2011/12 – now they are asking to use the same AFOR from 2011 potentially up to 2016. One major change has been the Minnesota Broadband Goal. The broadband goal did not exist when the 2008 decision was made.

The first filing raised concern on public interest. The Department does not think that Frontier knows what’s best in terms of public interest. Nor do we think that they necessarily full explained the impact of the AFOR on the customers. Frontier pretty much told them that they were going to the PUC to ensure actions that would keep service at status quo.

Question – So the Department thinks that the AFOR plans are a good chance to refresh public policy in practice?

Department – yes. In this instance it’s more than a refreshment. The plan is very ambiguous. The investment plan is not specific.

Question – You’ve said that plan is too vague. How was that in the public interest in 2008?

Department – the plan that was articulated in 2008 is not reflective of current technology, nor legislation. (Can’t see how we’ll get to broadband goals with current AFOR.)

Working on modifying the AFOR may also be a solution if the PUC is involved.

PUC – the company has met the letter of the law so it’s hard to hold this up.
Other PUC –we have the authority to reject plans as a matter of policy. We need to refresh AFORS because of the rapid change in the industry. We can’t keep rolling over decisions that were made earlier. We should be able to address AFORs even if there aren’t any red flags.

Department –
The commission should be able to define the scope of modifications – not the company.

Question – What did you just suggest a modification on the investment plan?

Department – The Department has suggested modifications.

Question – but why didn’t the Department suggest specific modifications

Department – the onus is on the business to make changes.

Frontier – The plan that we propose to adopt, we plan to adopt wholly – asis. (Save small change such as dates.)
AFOR plans are made to last 3 years. We don’t believe our plan is out of date. We still focus on DSL. We will still look at expansions when we have 20 customers request consideration.

Question/Anderson – There’s a catch 22. You have to propose to adopt wholly; yet we’re all saying that modifications should be made.
The point of the AFOR is to have a bargain – you can earn more if you meet our standards. The statute is clear – objections can be filed. And Frontier is in compliance.
The PUC needs to decide whether it’s in the public interest. That’s important. SO what’s in the public interest? There may be room to make modifications and we need changes to be in compliance with public interest.
There’s not much in terms of infrastructure – and the legislature has determined that there are infrastructure standards to be met. Access charge is also concerning – due to changes in the industry and landscape – not because of anything in the AFOR itself.
What about a settlement conference?

O’Brien – the company feels like this is our plan and it needs to get approved. You don’t have objections – let’s move on with it. The Department has asked us to reject the plan to that we can work together to make modifications.
Phyllis – There has been gridlock in the discussion. There’s no objection in the plan – but it’s still on us to do the public interest review. The company should be required to propose changes in investment and access charges. That would lead to a settlement conference.

Boyd – The adoption statute does have inherent issues. Everyone is waiting for someone else to make changes. I think we all see that we need the investment plan needs to be refreshed. The system isn’t working well here – but the resolution could be straightforward.
O’Brien – Could the company and Department work together to make modifications?

Betty – If they don’t’ come to an agreement – we can choose one, right?

Anderson – the existing plan is about to expire. I don’t want to extend it now but I don’t want this to expire either.

Department – there are companies out there that do not have AFOR plans.

The plan is to hold it in abeyance and solicit modifications.

Frontier – you’re asking about the status of the AFOR – it’s important to us that it’s held in abeyance. We can get more info to the Department within 15 days.

PUC – There’s a proposal in the FCC that would change access & rates.

O’Brien – this is a backstop against federal changes.
Boyd – can we get a list of change topics to Frontier?
Phyllis – service quality seems OK.

Department – There haven’t been many AFORs. Most recently there was Qwest, which was very different. The proposed request for Frontier right now is maybe too tight. Can we send investment and access charges as recommendations but leave the door open for more.

Betty – we might not want to open the door too wide.

Department – there are a few other items – such as language in the AFOR here that we asked Qwest to remove. We may want to hold the door open for things like this.
Maybe we could use Qwest AFOR suggestions for a framework of other potential changes.

Frontier – We don’t know what the Qwest AFOR changes are – but their situation was quite different. This could open a much bigger issue.

Oberlander – We could just add an addendum to look at things that are contrary to law and had been addressed in earlier AFORs.

[Ann’s note: There was a lot of chatter on how the PUC should approach making requests of the modifications]

In the end – they asked the Department and Frontier to go back and work together to address the investment and access charge issues and consider other changes as required by change in the policy since the last AFOR was considered. The decision has been held in abeyance.