Time Warner Cable is taking a North Carolina co-op regulator to court

For the past three years, Time Warner Cable's efforts to launch voice-over-IP service in parts of rural North Carolina have been stunted by three small telephone cooperatives. Now the battle is headed to a federal court, but that trio of small telcos is staying out of it.

In late 2005, Time Warner Cable Information Services, an affiliate of Time Warner Cable, proposed interconnection agreements, including number portability, with three North Carolina co-ops: Atlantic Telephone Membership, Randolph Telephone Membership and Star Telephone Membership. The three refused, and in 2006, they were backed up by the regulatory agency that governs co-ops in the state — the North Carolina Rural Electrification Authority.

The five-member NCREA agreed that co-ops didn't need to interconnect with TWCIS because the Telecom Act of 1996 only requires interconnection with “telecommunications carriers.” And as a VoIP provider, TWCIS didn't qualify, the agency said, citing the fact that the FCC has not yet concluded whether or not VoIP is a telecom service.

But that question is irrelevant, TWCIS said in response, adding that it has no intention of providing VoIP service. Instead, TWCIS said it plans to establish connections to the public telephone network and sell those connections on a wholesale basis to Time Warner Cable — the true VoIP provider. The NCREA wasn't persuaded, reaffirming its decision, and in May, TWCIS took the agency to court.

“The FCC has made clear that a wholesale carrier's rights are wholly unaffected by the classification of a retail service,” TWCIS wrote in its complaint, “both in the FCC interconnection order and in an established line of earlier precedent.”

In its complaint, TWCIS, which has a CLEC certificate in North Carolina, said it will offer wholesale services “indiscriminately to all service providers within the same class as Time Warner Cable … to all members of the public within the relevant service territory.” But the company's critics will likely argue that the distinction being made is just a legal workaround and that TWCIS is an artificial ad-hoc creation.

“Can you do indirectly what the law does not permit you to do directly?” said Dwight Allen, executive vice president of the North Carolina Telephone Cooperatives Coalition, which is not involved in the case.

The NCREA found that TWCIS was “simply transporting VoIP traffic from TWC to the public switched network,” said Dan Higgins, an attorney who has represented the three telcos before the NCREA.

In the absence of a clear ruling from the FCC on this matter, cases similar to the one in North Carolina are progressing with multiple cable operators in Maine, Missouri and Vermont. Some cases are focused on special regulatory protections granted to rural telcos in particular, and those could conceivably come to the forefront in North Carolina if and when the current questions are resolved. In April, the Vermont Telephone Co. directly asked the FCC to help clarify the matter.

The North Carolina case is novel because it involves a regulatory body specific to co-ops. While most state public utility commissions are charged with balancing the public interest with corporate profit motives, often by promoting competition, co-op regulators such as the NCREA may be friendlier because they know co-op customers have more control.

“The theory is they're sort of self-policing because their members own them,” Allen said.

Time Warner Cable now will presumably look for tighter policing of the NCREA.