News

S.C. Court Keeps TWC Off Farm

4/04/2008 8:00 PM Eastern

South Carolina’s highest court last week held that Time Warner Cable can be legally barred from providing digital telephone service in some portions of the state served by rural telephone monopolies.

The South Carolina Supreme Court said, in a 5-0 ruling, that exclusion of Time Warner Cable was justified because new competition, using voice-over-Internet protocol technology, would threaten the revenue base of the rural phone companies, probably causing them to raise rates. “Rural [phone incumbents] rely on revenue from the more densely populated areas to maintain affordable rates for rural subscribers. With the loss of revenue from competition in densely populated areas, rural [phone incumbents] would have to raise rates to rural subscribers who have no access to VoIP,” the court said in a March 31 opinion.

Although South Carolina’s Public Service Commission has allowed Time Warner Cable to enter some markets, the agency bowed to pressure from five rural phone incumbents when the cable company sought to expand its VoIP footprint into rural areas.

“The South Carolina Supreme Court ruling is unfortunate,” said Bob Barlow, Time Warner Cable’s regional vice president of operations in South Carolina. “We hoped to offer the residents of rural South Carolina the same choices made available to residents in the larger metropolitan areas.”

Time Warner Cable’s denial was an attempt by South Carolina regulators to prop up the universal-service program, a legacy mechanism from the days when phone companies had legal monopolies and could overcharge some customers in order to keep rates affordable for others in rural and high-cost areas.

But since passage of the pro-competition Telecommunications Act of 1996, universal service programs have come under assault from an array of providers, including wireless phone carriers, VoIP-providing cable companies, and Internet-based VoIP providers.

“Millions of customers across America have switched to cable’s digital phone service. The court’s decision now makes it harder for South Carolina consumers to benefit from this new competition,” said Brian Dietz, vice president of communications for the National Cable & Telecommunications Association.

With competition raging, it is not even clear whether South Carolina regulators can achieve their monopoly-protection goals by restricting Time Warner Cable’s entry: Subscribers to Time Warner Cable’s high-speed Internet service can sign up for Vonage, an Internet-based VoIP provider, and drop their South Carolina rural phone service, putting the same pressure on universal service that was used to justify the ban on Time Warner Cable.

Under Federal Communications Commission rules, states may not require Vonage to obtain approval to initiate service.

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