Frontier Seeks Rate 'Flexibility' in Arizona, Resists $2.5M Fine in Connecticut

The Arizona Corporation Commission should pull back regulations on Frontier Communications while eliminating Arizona Universal Service Fund (AUSF) subsidies for the wireline carrier, Frontier and commission staff argued at a livestreamed hearing Monday. Meanwhile in Connecticut, Frontier pushed back against a proposed $2.48 million fine for missing certain state service-quality metrics.

Frontier Communications would no longer receive AUSF subsidies under a proposed settlement in a ratemaking case (docket T-03214A-23-0250) at the Arizona commission (see 2409230043). If the proposal is approved, Frontier will forgo collecting any further AUSF funding as well as about $104,000 it's currently owed. Frontier is the only company in the state receiving this high-cost support. In addition, the agreement would adjust Frontier basic service rates that were last revised in 1989. It would designate certain basic telecom services as competitive and deregulate other tariffed intrastate telecom services. Frontier would offer the basic services through a price-cap rate structure.

"Frontier believes that the open and transparent settlement process resulted in a resolution of the issues that both reflects the current competitive telecom environment that Frontier faces and is in the public interest,” said Frontier counsel Michael Patten of Snell & Wilmer. He pointed to "extraordinary change in the telecom industry" since 1989 when the commission last revised Frontier’s basic service rates. The company had about 40,000 landline phone customers in 2005; today it’s fewer than 8,000, said Patten. At the same time, the rates that the company charges for essential services are "very stale" and "artificially low" due to the AUSF subsidies, he added.

The proposed settlement is in the public interest, testified commission staff. “The company faces competition in all of its wire centers” and "has been losing access lines to its competitors,” said Maureen Scott, the Arizona commission’s chief-litigation and appeals. The proposed change to the price-cap structure, which would allow the company to increase rates, will let Frontier more effectively compete, said Scott. "This flexibility should benefit both ratepayers and the company." In addition, eliminating the AUSF means a savings of more than $769,000 in yearly subsidies paid to the company, she said.

Gaining “flexibility” to respond to a competitive marketplace while undergoing significant access line loss is one of the biggest reasons why Frontier is willing to forego AUSF funds, said Ken Mason, a consultant who was formerly Frontier’s vice president-government and regulatory affairs. Mason, who chairs the Universal Service Administrative Co. board, noted that eliminating AUSF has benefits beyond the White Mountains region the company serves. That’s because customers across Arizona foot the bill for the subsidies through monthly AUSF surcharges, he said.

With Frontier pointing to competition from wireless, Administrative Law Judge Julia Matter asked if there remain “pockets” of its territory where there’s no wireless coverage. Mason responded that few areas in the U.S. aren't covered by at least one of the three national carriers. “There's probably some [pockets] but it's closer to seamless today than it's ever been.” Matter asked if the company will eliminate landlines altogether. Mason said he didn't "know the answer" to "the question 10 years from now." While copper could cease to exist depending on the amount of fiber deployment, Mason doesn’t see wired connections going away.

Also, Matter asked about the impact of Verizon’s proposed acquisition of Frontier. Mason said he doesn’t expect it will change anything in the Arizona settlement, but the state commission will have a chance to ask more questions about that when it reviews the Verizon deal in a separate docket.

"If you look at the competitive environment" Frontier is operating in today compared with 1989, "this price-cap structure gives them some flexibility" to manage rates while taking into consideration the proposed elimination of the 35-year-old AUSF, said Ranelle Paladino, a commission Utilities Division co-director. Matter asked if staff had any concerns about Frontier service quality now. Paladino said no.

Conn. Regulator Weighs Fines

In Connecticut, the Public Utilities Regulatory Authority proposed a nearly $2.5 million fine for Frontier after a probe found the carrier repeatedly failed to meet two metrics during a 108-month period (see 2407100043). The civil penalty included a $860,000 fine for violating two service-quality metrics and $1.62 million for failing to file exception reports.

The proposed penalty was "excessive and unreasonable and did not sufficiently consider changes in the competitive marketplace and other important factors,” said Cassandra Knight, Frontier vice president-regulatory reporting, in written testimony Friday (docket 24-01-15RE01).

PURA imposed the maximum penalties allowed "without any analysis related to why the standards were missed by SNET in any particular month or how close (or far) SNET was from making the applicable metric,” said Knight, referring to Southern New England Telephone, which does business in the state as Frontier. She added that “imposing a $1.6 million penalty for not timely filing an administrative exception report that is approximately double the amount of the $860,000 penalty for actual service quality performance is excessive, especially in light of the fact that Frontier received no notification that the reports had not been timely filed and the Authority has not identified any harm associated with the missed report filings.”

Knight asserted, "Frontier’s service quality is quite good.” The carrier consistently meets three of the five service quality metrics that PURA created two decades ago, "prior to the proliferation of competitive communication alternatives in Connecticut,” said the Frontier official. She noted that Frontier lost more than 74% of its landlines during the last decade.

The company has been "close to meeting" the state's "maintenance appointment" metric and "has shown significant improvement" in the out-of-service repair metric since Frontier acquired SNET from AT&T in 2014, said Knight. One standard the company consistently met shows that trouble reports have declined over time, the Frontier official noted: That, by itself, indicates "a strong and reliable network.”