20060522Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:CECELIA A. GASSNER
DATE:MAY 11, 2006
SUBJECT:CASE NO. CTC-05-
IN THE MATTER OF THE INVESTIGATION TO DETERMINE
WHETHER IT IS REASONABLE FOR FRONTIER COMMUNICATIONS
OF IDAHO TO PROVIDE TELECOMMUNICATIONS SERVICE TO
CUSTOMERS LOCATED IN THE TAMARACK RESORT
In Order No. 29845 issued on August 11 , 2005 , the Idaho Public Utilities
Commission opened this case to investigate whether Citizens Telecommunications Company of
Idaho, Inc. dba Frontier Communications of Idaho ("Frontier ) should be required to provide
telecommunications service to requesting customers located in the Tamarack Resort in Valley
County. In such Order, the Commission directed Frontier to respond to the following questions:
1. Is Frontier willing to provide telephone service to the Tamarack Resort?
a. If yes, under what conditions?
b. If no, then why does Frontier believe it is reasonable to decline the
requests for service?
Further the Commission directed the Staff to conduct an investigation to detennine whether it is
reasonable for Frontier to provide service to the Tamarack Resort. The investigation was to
include detennining the investment required to enable Frontier to provide service and the effect
such investment will have on the rates paid by its customers.
BACKGROUND OF MATTER
On March 15 2005, Tamarack Telecom filed an Application for a Certificate of
Public Convenience and Necessity ("CPCN") to provide facilities-based local exchange
telecommunications services within the Tamarack Resort which is located in Adams and V alley
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Counties. Tamarack filed an Amended Application on April 15, 2005. Tamarack Telecom is
wholly-owned by Tamarack Resort LLP, offering telecommunications services exclusively to
residential and business customers within the Tamarack Resort ("Resort"). The main service
offered by Tamarack is called Triple Play, which includes Voice over Internet Protocol (VoIP) as
well as Internet and video services. This Triple Play service is offered using a technology called
Fiber-to-the-Hbme (FTTH).
On May 12, 2005 , the Commission solicited comments regarding the Company
Application. See Order No. 29783. Comments were received from the Commission Staff, Mr.
Matthew Castrigno, and another private citizen. Only Mr. Castrigno s comments opposed
granting Tamarack Telecom a CPCN. Mr. Castrigno felt that the cost of the bundles using the
FTTH technology was excessive and that he did not necessarily want the all-inclusive package of
video, VoIP and Internet. When Tamarack introduced its Basic Combo Package, it included 32
video channels with two premium channels, VoIP Phone S MBS Internet Access and a fax line.
The installation cost for the Basic Combo Package is $99 with a monthly service fee of $150. To
be responsive to the concerns voiced in the comments about the price of the bundled package, on
or about April 27, 2005, Tamarack introduced a telephone service only package. This package
required an installation fee of $75 (to install the single IP phone) and then a $75 per month
service fee. The $75 monthly fee includes the single line IP phone service as well as all class
and custom calling features.
After reviewing the Application and comments, the Commission approved the
Application, finding that it complied with applicable law Idaho Code 9 62-622 , IDAP
31.01.01.111 and .112, and Procedural Order No. 26665. Order No. 29808 at 3. In approving
the Application, the Commission noted that "there is no actual facilities-based competition in
local telephone service within the Tamarack Resort" and "while the local service offering
appears to be at very high rates, (the Commission has) no ratemaking jurisdiction over
(Tamarack Telecom), a competitive carrier under federal and state telecommunications law. Id.
On June 24, 2005, the Commission issued Order No. 29808 granting Tamarack Video &
Telecom LLC (Tamarack Telecom) a Certificate of Public Convenience and Necessity (CPCN).
On July 13 , 2005, Mr. Matthew Castrigno filed a timely Petition for Reconsideration or in the
Alternative, Petition for Order Requiring Provision of Telecommunications Services. Staff filed
an Answer to the Alternative Petition on July 20 2005, arguing that the Petition for
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Reconsideration should be denied but that the Commission should open a separate docket to
consider the Alternative Petition for telecommunications services from the incumbent local
exchange carrier (ILEC), Frontier Communications of Idaho (Frontier). On July 29, 2005 , Mr.
Castrigno filed a Reply to Staffs Answer stating that he had no objection to Staffs
recommendation. Mr. Castrigno s Reply to Staffs Answer stated that
, "
Mr. Castrigno is
satisfied that opening a separate docket would be an appropriate means of proceeding forward
and has no objection to Staffs overall recommendation.Reply at 2. The Commission
subsequently denied the Petition for Reconsideration and opened a separate docket to consider
the Alternative Petition for telecommunications service from Frontier. On August 11 2005, the
Commission issued Order No. 29845 opening Case No. CTC- T-05-
As the incumbent local exchange carrier (ILEC), Frontier is obligated to provide
telecommunications services to any potential customer requesting such service within Frontier
certificated area. Idaho Code 9 61-526. The Commission sought Staff analysis so as to decide
whether it should require Frontier to make any additions, extensions, or improvements to its
facilities that "ought reasonably to be made" or to require new facilities "to promote the security
or convenience of its employees or the public.Idaho Code 9 61-508. The Idaho Supreme
Court has concluded that this requirement applies to areas within a utility's established service
area, and it also requires evidence showing that the utility will be insured a fair return on its
investment. Murray v. Public Utilities Commission 27 Idaho 603 150 P. 47 (1915).
Moreover, as an eligible telecommunications carrier (ETC), Frontier has additional
service obligations it must meet in order to be eligible for federal universal service funding. This
Commission recently detennined that these obligations include the obligation to provide service
upon reasonable request. See Order No. 29841 at 8-
On August 17, 2005 , Qwest Corporation filed a Petition to Intervene. The
Commission granted Qwest's Petition on September 1 , 2005. On August 30, Mr. Matthew
Castrigno filed a Petition to Intervene. The Commission granted Mr. Castrigno' s Petition on
September 30, 2005. No comment or pleading has been filed by Qwest or Mr. Castrigno since
the grants of their respective Petitions.
STAFF INVESTIGATION
On August 22, 2005 , Frontier Communications responded to Order No. 29845
regarding the Company s willingness, and ability, to provide telephone service to Tamarack
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Resort customers. In its response, Frontier stated that it "is willing to serve customers within it's
(sic) certificated areas including Tamarack Resort, to the extent that it can acquire access to the
customers and be compensated for all costs to serve the area." The Company provided two
possible scenarios under which it may be able to provide telecommunications service to the
Tamarack Resort customers.
In its first scenario, Frontier explained that it could provide service within the resort
by overbuilding Tamarack facilities. The Company stated that this would be cost prohibitive
because of the right-of-way issues within the privately-owned resort as well as the extremely
high construction costs necessary to install facilities. Some of the costs discussed included
roads, sidewalks, curbs, gutters and landscaping replacement in addition to "utility lines, cables
pipes, etc., which have already been placed and would have to be identified, marked, worked
around, or possibly moved.
In its second scenario, Frontier explained that it could serve customers of the Resort
by interconnecting with the existing facilities of Tamarack. For this to occur, Tamarack would
need to allow Frontier access to its network at "reasonable rates." Another requirement would be
that Tamarack make personnel available to perfonn troubleshooting and be responsible for its
part of the circuits on a "timely basis.Frontier also explained that it would need to purchase
and install network equipment "to enable Tamarack's fiber-to-the-home facilities to interface
with Frontier s existing network.Frontier pointed out that this scenario would be a workable
solution if, as in scenario one, the Company were allowed to recover all its costs incurred to
serve those customers who live within the Resort area.
Finally, in its August 22, 2005 response to Commission Order No. 29845, Frontier
cautioned that its costs to provide services might be prohibitive because of the lack of facilities
right-of-way access and that the expense of bringing facilities to customers could be excessive.
The Company also indicated that it has no agreement with Tamarack Resort to interconnect with
the resorts facilities and that it has not received expressed interest from enough customers to
justify the investments necessary to warrant the expenditures necessary for the electronic
equipment to collocate.
On August 26, 2005 , Staffs First Production Request was issued to Frontier. In its
request, Staff asked the Company to provide "detailed cost analysis" showing how much the
Company anticipated it would cost to provide telecommunications services to customers within
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the Resort. Specifically, Staff requested engineering diagrams showing plant facilities (conduit
fiber, copper, manhole covers and any other plant) the Company anticipated it would need to
provide facilities-based telecommunications services to the customers within the Tamarack
Resort. Staff also asked the Company to provide another detailed cost analysis for collocating
and interconnecting with Tamarack's PBX and/or other necessary facilities.
On September 16, 2005, Frontier timely responded to Staffs First Production
Request. In its response, the Company indicated that it no longer had engineering diagrams of
the facilities installed within the Resort and that the engineers (with their best estimates) put
together their analysis to provide service within the Resort. The Company concluded that it
would be very costly and time consuming to overbuild Tamarack's facilities. Their initial
analysis is provided below:
FACILITIES-BASED TELECOMMUNICATIONS
SERVICES WITHIN THE RESORT
Using existing conduit within the resort:
Calix C7 equipment in Donnelly office
Calix C7 equipment at Tamarack
Spares for equipment
Site prep Engineering and installation
Copper cable to feed within Tamarack using their conduit
Labor to place in conduit
Splice points
Placement of splice points
$23 000.
000.
000.
000.
200.000.
100 000.
500.
45,000.
TOT AL COSTS $456 500.
The Company pointed out in its response that it would still need to obtain pennission
from Tamarack to access existing conduit from Tamarack Resort in order to place Frontier
facilities within the conduit.
If the permission to utilize Tamarack's existing conduit were not granted, Frontier
would then incur the following costs to place facilities directly in the ground:
Copper cable within Tamarack Resort based on:
Trenching within the complex
Asphalt Restoration
$1.2 - $2.0 MILLION
$61 000.
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In order to place facilities directly in the ground, Frontier would also need to obtain
right-of-way within the Tamarack Resort, which could be another substantial expense that is not
included in this response. Frontier feels that these costs are substantial and may not be prudent
for the minimal number of customers requesting service from Frontier within the Tamarack
Resort.
Costs relating to interfacing with the Tamarack Resort facilities, interconnection
expenses and other incidental costs that Frontier believes it will incur are as follows:
GR 303 bay in Donnelly office
NTI Engineering and Installation
Company Engineering and labor
TOT AL COSTS
$66 900.
000.
000.
$80 900.
It is important to remember that currently, Tamarack Telecom and Frontier do not
have any interconnection agreements between them, and that estimates provided by Frontier do
not reflect charges that Tamarack may impose upon Frontier to interconnect facilities. Until
such time as the Companies negotiate an agreement, these numbers are only estimates.
On August 26, 2005 , Staff contacted Tamarack Resort's IT Director and infonnally
requested some cost estimates to determine what the Resort would charge Frontier for the use of
its network. On September 15, 2005 , Tamarack responded to Staffs infonnal inquiry. In its
response, Tamarack indicated that it had "invested almost $500 000 in infrastructure" to provide
its triple play services to the homes within the resort. Therefore, the Resort detennined that they
would ask "about $IOO/mo/home for someone to use our network." The Resort went on to
explain that this amount would be negotiated "based on the amount of bandwidth they would
require and the number of homes they would service.
Second Production Requests from Staff to Frontier
On November 4, 2005, Staff issued its second set of production requests to Frontier.
In its request Staff was looking to see if any progress had been achieved between the Companies
with respect to interconnection negotiations. Staff was also inquiring as to what costs Frontier
customers would be assessed to recover interconnection expenses and provision of services to
the Tamarack Resort customers. Additionally, Staff asked if Frontier and Tamarack had further
discussed any feasibility factors for interconnecting the two Companies and what costs would be
incurred in that situation.
DECISION MEMORANDUM
On December 1 2005, Frontier responded to Staffs Second Production Request in
timely manner. In its response Frontier explained that it had held preliminary discussions with
Tamarack regarding interconnecting the two Companies' facilities.Tamarack Resort had
indicated that it would require Frontier to "pay approximately $100.00 per line per month to
utilize Tamarack's outside plant facilities." Frontier detennined that this cost, along with better-
understood interconnection expenses that the Company must spend to interconnect with
Tamarack Resort, resulted in expenses considerably higher than originally anticipated. Frontier
had done further research and analysis of the overall costs of investment that would be necessary
to interconnect with Tamarack's unique network.Frontier s new analysis showed that, in
addition to the previous estimates, the Company would also need the following equipment in
order to interconnect and "interface for voice services and co-locate a router for data services at
the Tamarack switching center.
GR-303 software and hardware added to Frontier s Donnelly Central Office
Budgetary quotes from the vendor are as follows:
Hardware and Software loaded costs
Northern Telecom Engineering and Installation
Frontier engineering and labor
TOT AL
$66 120
650
000
$77 770
Cisco 7206 Router placed at the Tamarack switch location to provide high-
speed Internet service
Loaded Material
Frontier engineering and labor
TOT AL
$32 130
000
$33,130
These costs , along with the estimates discussed above and the monthly fee that
Tamarack had determined it would charge for the use of its network, led Frontier to detennine
that it could not provide affordably priced service to Tamarack's residents through this method.
The Company also explained to Staff that further discussions (with Tamarack) were considered
unlikely to change this detennination, so no further discussions regarding interconnection were
scheduled to take place.
Staff asked Frontier how it intended to recover its costs associated with providing
telecommunications services to the Tamarack Resort customers should this event occur. The
Company replied that it intended to implement its line extension allowance of $2 560 and then
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all non-recurring facilities charges in excess of this allowance would be due from the
connecting customers within the resort.
On December 6, 2005 , Mr. Castrigno, through his attorney, requested further
infonnation regarding the line extension charge and the possibility of refunds. Mr. Castrigno
also asked why the Commission "doesn t require Tamarack to lower the rate it wants to charge
Frontier. With respect to the issue of line extension charges and the possibility of refunds, Staff
explained that Frontier s tariff language explains the process for applying the credit and provided
Mr. Castrigno with instructions on how to find the tariff for the parties to review. To address
Mr. Castrigno and his attorney s final inquiry as to why the Commission does not require
Tamarack Resort to lower the rate it charges Frontier, Staff explained that it is a matter
jurisdiction and that interconnection between Companies is governed by Section 251 of the
federal Telecommunications Act of 1996. Specifically, Sections 251(a), (b), and (c) spell out the
requirements of local exchange carriers. As a competitive local exchange carrier (CLEC),
Tamarack is subject to Sections 251(a) and (b) but is not subject to (c) which applies only to
incumbent LECs. Because Tamarack is not subject to (c), the loops that it is offering to lease to
Frontier are not subject to the Commission s pricing authority and are market-based.
invitation was offered to Mr. Castrigno and his attorney to meet with Staff to further discuss this
jurisdictional issue if it was deemed necessary for them. Staff has not heard from the parties
since that discussion regarding this offer.
Staffs counsel has spoken with Mr. Castrigno s counsel and conveyed that it is
Staffs belief that the Commission does not possess the authority to order Tamarack to lower its
rates. Counsel for Mr. Castrigno conveyed the Complainant's desire is to maintain the docket in
the hopes for bringing the resolution he sought.
STAFF RECOMMENDATION
Staff, Frontier and Tamarack have been diligent in responding to the issues raised by
Mr. Castrigno and his attorney. Staff appreciates the opportunity to resolve the issues the parties
have raised with respect to alternative telecommunications services within the Tamarack Resort.
However, Staff believes that this case should be closed.
As set out in Staffs investigation, and noted in the Commission s Order granting a
CPCN to Tamarack, this Commission has no ratemaking authority over Tamarack. See Order
No. 29808. See also Telecommunications Act of 1996, 9 251. Moreover, the costs associated
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with the provision of such services would be excessive and imprudent for Frontier to incur in
order to provide service to Mr. Castrigno and perhaps a very small number of customers within
Tamarack Resort.
Staff believes that Tamarack was responsive to the needs of the customers who did
not wish to subscribe to the Basic Combo Package when it offered the alternative telephone
(Single IP Phone) package at a considerably reduced rate. Staff has had further discussions
regarding alternative telephone service offerings within the Resort. According to the Resort
there is a cellular tower across the valley from the Resort where Nextel and Verizon offer
cellular services with a reliable signal. This cellular service allows residents and visitors yet
another alternative telecommunication service.
Staff is satisfied that the Companies have been cooperative and worked very hard to
find an amicable resolution with this case. However, it is Staffs belief that it is neither
reasonable nor prudent for Frontier to provide service to Tamarack Resort. The investment
requirement that would enable Frontier to provide the service would be substantial and would
result in excessive rates paid by only a few customers at Tamarack Resort. Staff further believes
that the Companies as well as the Commission have thoroughly investigated service alternatives
to the Tamarack Resort and that the resolution Mr. Castrigno is seeking cannot be ordered by the
Commission on the facts of this case. Therefore, Staff does not recommend that the Commission
order Frontier to provide service to the Tamarack Resort.
COMMISSION DECISION
Does the Commission desire to close this matter?
If not, how would the Commission like to proceed with further investigation or other
action in this matter?
M:CTC-O5-
DECISION MEMORANDUM