View - Arkansas Public Service Commission Website

BEFORE4, THE
ARKA ~ S A SPUBLIC SERVICE ca
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COXCOM, LNC., d/b/a COX
COMMUNICATIONS,
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Compiainan1
V,
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DOCKET NO. 09-333°C
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ARKANSAS V f i L E Y ELECTRIC
COOPERATIVE CORPOIUTION,
Respondent.
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TFSTXMONY
OF
JEFFREU M. TUNG
SUBMITTED ON
BEaALF OF
COXCOM, INC.
March 17,2010
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1
Q,
COMPETENT TO GIVE TDS TESTIMONY.
YOU
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PLEASE STATE YOUR NAME,BUSINESS ADDRESS AND WHETHER
A.
My name is J e h y M. King. My business address is 42476 Lennox Court, South
4
Riding, VA 201524385. I am over the age of 18 and competent to g h e this
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testimony.
PURPOSE OF TRIS TESTIMONY
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7
Q*
PLEASE STATE THE PURPOSE OF YOUR TESTIMONY.
Cox CommunicationsofNorthwest Arkansas (Cox) has requested that I
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A.
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investigate the potential impact of the rate increase on its Arkansas operations and
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ascertain whether there is anything unique or peculiar about Arkansas VaIIey
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Electric Cooperative Corporation’s (AVECC’s) poIes or the shared service
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territories in which Cox and AVECC operate. In a nutshell, I have found nothing
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either with the AVECC poles or where or how they are set that would justify the
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rates that AVECC seeks to charge Cox.
15
Q.
WE€ATRATE DOES AVECC SEEK TO CHARGE?
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A.
Cox has attempted to negotiate reasonabIe pole rates with AVECC for
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approximately one year. Until Iast year, AVECC had been charghg Cox $12.50
18
per pole, but announced its intent to raise the rate to between approximately $22
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to $32 per pole.
20
Q.
DO YOU HAVE A SPECIFIC U T E RECOMMEXDATION?
21
A.
No,X do not. My relevant expertise here is cable communications and cable
22
system operations. But I understand that Cox’s rate and economic expert in this
1
proceeding, Patricia Kravtin, has found that applying the prevaihg pole-
attachment rate formula, commonly referred to as the “FCC Cable Formula,” to
AVECC’s available cost data produces a rate of approximately $3.00 per pole.
This means that rates AVECC seeks to charge Cox are seven to ten times the
regulated investor owned utility rate. The guidelines for investor-owned utilities
have been in pJace for more than 30 years, and have survived multipIe tests before
a wide array of regulatory agencies and courts, inchding the United States
Supreme Court. Again, there is nothing that I couId find that would justify the
dramatically higher rate that AVECC seeks.
10
Q.
M A T IS YOUR CONCLUSION, YOUR ‘CBOTTOM L m ? ”
I1
A.
Stated in coIIoquia1terms, and, after more than 35 years in the cable and
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Broadband business (inchding work on and at utility poles), I have come to this
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basic conclusion: a poIe is a pole is a pole.
14
Q.
PLEASE ELABORATE.
15
A.
Certainly. What I mean is that poles used in Arkansas, by AVECC,other power
76
companies, and by telephone companies, are comparabIe in cost, We, and
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CapabiIities to poles Virtually anywhere. I simpIy cannot see why, as an
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operational matter, AVECC or any other entity would or couId have costs that
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would justirjl a rate seven to ten times the rate that would be produced under the
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prevaihg rate methodology. Thus, it appears to me that a $32 rate, or even a $22
21
rate, is entirely arbitrary, and makes the difficult job ofproviding Broadband even
22
more so.
2
1
Q.
PLEASE PROVIDE RF,LEVANT DETAILS OF YOUR PROFESSIONAL
BACKGROUND.
A.
1 am a communications industry consultant, entrepreneur and expert. In addition
to my work as a consultant, I am also presentIy COO of Invision TechnoIoJ0 es, an
Internet development and consuIting company. Prior to my current position at
Invision, I was CEO of Broadband Networks, a Virginia based Network Facilities
group providing strategic opportunities for cable operators to enter the ceIIular
tower-totower back haul business.
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For the thirty three (33) years prior to Broadband Networks, I was employed in
11
the cable TV sector by Time Wamer Cable and the prior owners of Tima Warner
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Cable, including the origind company, American TeIevision and
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CommunicationsCorporation. My titIe at the end of my tenure with Time Wamer
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Cable was Executive Vice President of Data and Network Operations and
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President of Road Runner High Speed On-Line Internet Service (a wholly owned
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subsidiary of Time Wamer Cable).
17
Q.
HAW YOU EVER BEEN AN EMPLOYEE OF COX
COMMUNICATIONS?
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A.
No.
20
Q.
WEIGT WAS YOUR FIRST JOB IN CABLE?
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1
A.
I started in the cable TV business in 1972 in Fayetteville, North Carolina. This
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small system outside Fort Bragg, N.C.had fewer than 5,000 subscribers - and
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grew to over 15,000 subscribers during my time there. I was part of the team that
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built this first cable system in the community. To give an idea of how far
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technoIogy has advanced over the years, that system in Fort Bragg originally
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operated with vacuum-tube power supplies and ampIifiers, and was gradually
7
changed out to some of the first chip technoIogy communications equipment used
8
in cable TV operations.
9
Q.
YIEARSrN THE CABLE BUSINESS?
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WHAT KWDS OF TASKS DID YOU PERFORM DURING YOUREARLY
A.
My experience in cable TV is far reaching, including but not Iimited to, answering
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tekphones; installing subscriber connections; door-to-door sales; and perhaps
13
most relevant to my testimony here, designing and building aerial and
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underground cabIe TV faciIities in urban and rural communities, as well as
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rebuilding them in such areas.
I6
Q.
PLEASECONTm.
17
A.
I constructed the first TV Receive Only (TVRO) satellite earth station in the US.
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in Jackson, Mississippi in 1975; developed specifications for and launched the
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cable TV personal video recorder (PVR); operated Internet Broadband facilities as
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President of Time Warner Cable's Road Runner division; managed network
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facilities planning and construction for the combined AOL / Time Warner Internet
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inhstructure; made technoIogy and equipment decisions for Time Warner Cable;
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facilitated strategic planning; managed the development, integration and
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depIoyment of Time Warner CabIe’s Voice over IP (VolP) technology and Time
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Warner Cable’s first Internet Protocol Television (IPTV) project in San Diego,
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CA.
4
Q.
EXPE-NCE.
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PLEASE PROVIDE ADDITIONAL EXAMPLES OF YOUR OPERATING
A.
My experience includes building literally thousands of miles of coaxial cable TV
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facilities throughout the Unites States, including aerial and underground facilities,
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attached to power poles and conduits owned by public entities, rural electric
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cooperatives, and municipally owned power providers. In addition, I buiIt some
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of the first Hybrid-Fiber coax cable TV facilities in the US.- inchding
11
overlashing fiber to existing coaxial infrastructures; installing new fiber and
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coaxial cable which often requires the removal of existing plant (often referred to
13
as ‘Wwreck-out”)to provide attachment space for those upgraded facilities. I have
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worked With contractors, utility company personnel, the U.S. Army Corps of
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Engineers, municipal and town engineering offices, fire and police departments,
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local, state and federal highway agencies and personnel in the department of
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transportation of the many states where I have been involved in cable operations.
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Q*
OR OTHER s
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HAVE YOU EVER W O W D ON POLE ATTACHlWENT AGlWEMENTS
A.
m m rssms WITH POLE o m = ?
Yes. I have negotiated pole attachment agreements with investor-owned power
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companies, rural electric cooperatives, and municipal electric companies. I have
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negotiated re-build agreements to allow for overlashing of new facilities to
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existing cabIe TV strand while temporarily displacing the old plant within usable
5
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space on poles. I have compIeted make-ready ride-outs for new and to-be-rebuilt
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cable TV facilities with power companies, telephone companies and joint ride-
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outs with power and telephone companies. I have been present for pole
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inventories as well as for safety audits of power, telephone and cable TV
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company facilities. I have completed ride-out reviews with FCC staff as part of
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that agency’s ongoing review of cable system operations and safety procedures. I
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have provided testimony before city councils, county commissions, PSCs and
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franchise authorities in dozens of communities.
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Q*
ARKANSAS SEES ITS SJURE OF ROUGH WEATHER CONDITIONS.
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DO YOU HAVE EXPERIENCE WITH OUTSIDE PLANT OPERATIONS
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UNDER SUCH CONIIITIONS?
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A.
Yes. One exampIe would be after Hurricane Hugo hit Charlotte, North Carolina
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in 1989. I was directIy involved with the Emergency Operations Coordination
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Center’s (EOCC)coordinated efforts to rebuild over three thousand miles of
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power, telephone and cable facilities. It was my calI that alIowed power and
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telephone companies to “at their will” wreck-out, dismantIe, or destroy cable TV
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facilities that would impair the rapid restoration of power and telephone service to
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a community and its residents that had been hit by the worst natura1 disaster in the
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US.until that time.
20
Q.
PLEASECONTINUE.
21
A.
I was in a vast number of meetings with power, telephone, fire, police, public
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safety, city, county and community leaders. Through this disaster, hundreds of
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utility poles were replaced and new attachments made, by crews fiom over 30
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states working around the dock on power, telephone, city-owned communications
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lines and cabIe TV.
3
Q.
OWNERS INVOLVING OUTSIDE PLANT?
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RAVE YOU E n R BEEN INVOLVED WXTB DISPUTES WITH POLE
A.
Yes. I have been involved in disputes directly related to the attachment of cable
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TV facilities to poles owned by power, telephone, municipal, and private
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companies. I have worked with these entities to review safety and code violations
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of power, telephone, municipaI communications lines and cable TV facilities
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while constructing and rebuiIding cabIe TV facilities in many states, including in
Arkansas.
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11
Q.
HAVE YOU EVER BEEN XWOLJTD IN ANY INDUSTRY GROUPS?
12
A.
Yes. I served as President of the Mississippi and North Carolina Cable TV
Associations, and as Vice President of the Tennessee Cable TV Association.
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14
Q.
WORKED IN THF,CABLE BUSINFSS.
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PLEASE PROVIDE EXAMPLES OF LOCATIONS WHERE YOU HAW
A.
I have worked in the following communities and I or metropolitan areas: (a
representative list)
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Eldorado, AR
West Memphis, AR
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Monroe, LA
Jackson, MS
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Brandon, MS
EI Paso, TX
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Charleston, WV
Birmingham, AL
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Greensboro, NC
Raleigh, NC
7
Durham, NC
Fayetteville, NC
Terne Haute, IN
Kalamazoo, MI
Muncie, DJ
Albany, NY
New York, NY
Dallas, TX
Beaumont, TX
Corpus Christi, TX
Harlingen, TX
Laredo, TX
WHAT EXPEXUENCE DO YOU HAVE WITH BROADBAND?
8
A.
I deIivered one of the first Broadband high speed Internet services in the U.S. in
1996 when Time Warner CabIe provided Road Runner High Speed Internet
3
10
services to customers in Albany, NY as only the 5'h city in the U.S. to have access
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to High Speed Broadband network capacity. I was deeply invohed
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construction, the technological and operations integration and the marketing and
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delivery of this new service. I was abIe to experience consumer adoption first
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hand, as well as the provision of new capabiIities to schools, government offices
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in and around Albany, hospitals, doctors' offices, libraries, and residentia1 and
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business customers.
17
Q.
HAW, YOU FORMMLATED ANY VIEWS OF HOW BROADBAND BAS
AFFJ3CTED EWRYDAY LIFE?
78
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in the design,
A.
Yes. It Iias been revolutionary. Broadband has changed the way peopIe look at
their worIds. Businesses found new ways to
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the Internet, their computers-and
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communicate and web sites soon sprang up at a rate of over 16,000 new web sites
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a day. Broadband services improved the communities where it was delivered, and
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improved the quality of life for the citizens in these communities. At a h e when
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On Line (AOL) was the dominant Internet connection to the world, and
1
America
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service was delivered at 56kBs, billed by the minute, and, frankly,quite
3
unreliable, Broadband Internet services introduced a flat monthly “all you can
4
eat” billing that provided Internet connections at over 100 times the speed of did-
5
up, with improved reliability and greater capacity for the consumer.
6
Q*
HOW DOES CABLE DELIVER BROADBAND?
7
A.
Broadband services are provided over the same coax and fiber cabIes used by
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operators like Cox to deliver traditiond cabIe TV video services. Thus the
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provision ofBroadband services is totalIy dependant on the infrastructure of the
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cable company,its facilities, technoIogy, plant and networks. The existing cable
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TV facilities and network uses wires attached to poles owned by power, teIephone
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and private companies (on streek, highways, roads, campuses, hospitals, State
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Govemment grounds, etc.). Without pole attachments, Broadband Internet
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services could never have started, and the adoption of this new technoIogy would
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have been delayed by years, if not decades.
16
Q.
CABLE INDUSTRY EXECUTIVE?
17
18
WHAT, ULTIMATELY, WERE YOUR RESPONSIBILITLES AS A
A.
When I left Time Warner Cable in JuIy of 2005, I was responsible for the
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technology and technical facilities - inchding coaxiaI and fiber fadities on
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utility poles and underground conduits - that served over 12 million customers,
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and for the thousands oftechnical employees who provided voice, video and
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Broadband data services.
9
HOW DOES YOUR PROFESSIONAL BACKGROUND INFORM YOUR
TESTIMONY?
2
3
A.
I think my background helps me with this testimony in a number of significant
4
ways. Not only have I worked in virtuaIIy every aspect of the indushy, fiom
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installing customer drops and door-to-door sales to negotiating major
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provisioning agreements with hardware manufacturers like Cisco Systems,
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Motoroh and Scientific Atlanta, but I have worked extensively on the ground in
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neighboring states, and in Arkansas. Thus, I have both a “bottom-up” and a “top-
9
down” perspective on cable operations and the effect of poIe costs and the terms
and conditions that poIe owners impose on Broadband providers.
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SUMMARY OF M Y INVESTIGATION AND REPORT
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12
Q.
PRINT.”
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14
IN GENJ3RAL TERMS, PLEASE DESCRIBE COX’S ARKANSAS “FOOT
A.
Cox’s subscribers, for the most part, are found in residential dwellings, Iocated in
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cities, towns and in rural communities in Arkansas. To reach a customer (actual
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or potential), Cox must instal1 - and maintain - facilities at great cost. Those
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facilities are typically deployed on.incumbent utility pole networks, usually
1s
owned by power companies like AVECC.
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In addition to the considerable capital costs associated with new-system
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construction, rebuilds and upgrades, there are considerable recurring costs
21
involved in operating and maintainins a cable system. Pole rental is one such
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recurring cost. Ongoing plant maintenance is another recurring cost. In rural
10
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areas, a cable operator must attach to many more poles to reach many fewer
2
subscribers. Therefore, even modest fluctuations in pole-related costs can have a
3
dramatic impact on cable operations and performance.
4
Q-
TmS =PORT.
5
6
PLEASE DESCRIBE THE PROCESS YOU UNDERTOOK TO PREPARE
A.
In connection with Cox’s request I reviewed materials that were filed by the
7
parties in this proceeding and traveled to Northwest Arkansas to inspect Cox
8
faciIities and AVECC poles, as well as the poles of other providers in the region.
9
I also compared what I saw in Arkansas with poles owned by electric companies
10
near my home in Virginia. I spoke with Cox representatives and others about
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Arkansas system operations. As I have stated, I did not encounter anything that
12
would lead me to condude that AVECC would be justified in seeking a rate many
13
muItiples above prevailing Ievels.
14
Q.
DID YOU FIND ANYTHING IN THE MATERIALS THAT YOU
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EXAMINED, YOUR FIELD OBSERVATIONS,OR IN YOUR
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I N T E R n W S THAT RAISED QUESTIONS FOR YOU?
17
A.
Yes.I found much of the AVECC’s written material to be puzzling. I also found
18
aspects of its outside plant and some of what I leamed about its operations to be
19
equally puzzIing.
20
Q.
PLEASEEXPLAIN.
21
A.
As to the Written materials, my primary observation is that some of this material,
22
which I understand that AVECC may be using to advance its high pole rates, is
1
based on ambitious assumptions, but apparently Iimited hard data. This was
2
borne out to a degree in my field observations and interviews. (Although E should
3
point out that 1did no speak to anyone fiom AVECC). Over the years, I have
4
seen a number of eIectric companies with aerial pIant in comparable condition to
5
that of AVECC. But what was unusual, at least to me, was that AVECC not only
6
could improve markedIy its repair of safety violations and ongoing maintenance
7
of its outside plant, but that it also appeared to have very Iittle in the way of plant
8
records or attachment or joint-use administration. This manifested itself, among
9
other ways, in that (a) nobody with whom I spoke at Cox could recall when either
TO
a safety review or a count of third-party attachments to AVECC poles (prior to the
11
current, ongoing process which began in 2007) was conducted; (b) AVECC is
12
d y i n g on Cox to perform virtually this entire review and remediation project;
13
and (c) AVECC’s rdationship with the tolephone company had degraded to such
14
a point that the phone company would not participate in these inventory and
15
safety initiatives.
1G
Q.
WASTEIISACONCERN?
17
A.
It could be. The confusing and incomplete nature of the data, plus the p e r a l l y
18
poor state ofjoint-use operating affairs, heightens my concern that AVECC is
19
looking to Cox to carry an unfair load hancia1Iy and opemtionalIy.
20
Q.
PLEASE DESCRIBE YOUR FIELD VISITS.
21
A.
On March 8 and March 9 of 201 0 I rode AVECC and Cox cable plant facilities in
22
Greenwood, Arkansas and portions of Ft. Smith, Arkansas. I personally inspected
23
poles owned by AVECC and Southwest Electric Power Company (SWEPCO). I
12
1
inspected poles for violations, safety, life (probing the pole), signs of wear and
2
tear, and made comparisons between poles owned by AVECC and SWEPCO. (In
3
addition, and closer to my home in Northern Virginia, I: have inspected poJes
4
owned by Northern Virginia Electric Co-op (NOVEC) and Dominion Power in
5
Northern Virginia to test and compare what I saw in Arkansas).
6
Q*
WFUT DID YOU CONCLUDE J3ROM THIS COMPARISON?
7
A.
During my reviews I have found the poles owned by AVECC to be entirely
8
sirniIar in size, condition, load (attachments) and location as those owned by
9
SWEPCO and other power company pole owners. These findings are consistent
10
with my 33 years in the Cable TV industry. I found no unique items with the
11
AVECC poles or attachments. I found violations existed on poles whether in
12
Arkansas or Virginia, cooperative or investor-owned. This is consistent with my
13
many years of operating experience. Some poIes had five or more entities, others
14
had fewer. The poles were located in rights-of-way along highways, streets,
15
roads, and residentid Jots. The number of new poles compared to oIder poks
16
seemed consistent with both Arkansas companies and with those in Virginia and
17
the many other states that I have worked in over the years. Attachments space
18
and usable (and unusable) areas were of no perceptibJe difference.
19
Q.
WOULD YOU CHARACTERIZE YOUR COMPARISON O F T m POLES
20
YOU AxiE DESCRIBING AS CLSCIENTXFXC”
OR LcSTATISTICALLY
21
RELIABLE?”
22
23
A.
No. But I believe they were representative and typical. There are certain basic
elements to poles: height, class (generaIly meaning diameter or thickness),
13
1
number and kinds of aftachments, and age. I understand that regulators presume
2
certain characteristics of at. Ieast some of these elements, such as pole height or
3
even number of entities attached. For example, I understand that pole heights are
4
presumed to be 37.5 feet or 40 feet on average in some regulatory formulations.
5
This is consistent with my experience that the vast majority of cable attachments
6
are on poles between 35 and 45 feet. There is nothing I saw that would merit
7
deviation from t h i s understanding.
8
Q*
EXPECTANCY OF AWCC’S POLES?
9
10
WEIAT WERF, YOUR FINDINGS MGAIRDING THF,LWE
A.
Historically, it has been believed that poles have a life of 30 to 40 years. I have
11
observed poIes that have been in place for 20 to 30 years, and show no significant
12
sign of wear or tear. Indeed, I am aware of one study conducted by the
13
Department of Wood Science and Engineering of Oregon State University, that
14
suggested a wood pole may have a life as great as 80 years, and that there are
15
“enomous quantities of lines installed in the 1950’s where the vast majority of
IG
poles remain in service.” See JEFFREYJ. MORRELL,
NORTH
AMERICANWOOD
17
POLE COUNCIL TECHNICAL BULLETN:
ESTIMATED
SERVICE LIFEOF WOOD POLES
18
5 (ZOOS], availuble at http://www.woodpoles.org (follow “Pole Life and Life
19
Cycle Economics” hyperlink, then follow “Estimated Service Life of Wood
20
Poles” hypedink”).
21
The life expectancy of poles owned by AVECC and SWEPCO would appear to
22
be the same, as there is no evidence that either company’s poles are under severe
23
stress, suffer over-utilization, or have violations that cannot be corrected. PoIe
I4
life is no longer shortened by “pole climbers” using “gaffs” to hook a pole. Cox
uses bucket trucks, and ladders as their primary method of reaching equipment on
a pole or completing installations.
Q.
WHAT WERE YOUR F’IM)INGS REGARDING AVECC’S INITIAL,
POLE COSTS?
A.
The North American Wood Pole Council Iists 5 sources of wood utility poles in
the part of the country where AVECC operates. Prices for poles are competitive,
and through any of these five sources, AVECC,SWEPCO or any other utility can
purchase poles at competitive and comparable prices.
10
It is clear that poles are common to all utilities in Arkansas, and indeed
11
throughout the nation. I am not aware of any greater (or lesser) cost to purchase a
12
pole in Northwest Arkansas than in Shreveport, LA,or for that matter Centrevilk,
13
Virginia.
14
Q.
MAINTENANCE COSTS?
15
16
WHAT WERE YOUR F’INDINGS REGAXU)XNG AVECC’S
A.
I saw no evidence in my field review that suggests that the annual maintenance of
17
a pole in Arkansas is greater than 1have seen elsewhere (Louisiana, Tennessee,
18
West Memphis, AR for exampIe), or that AVECC would have a greater operating
19
cost for maintaining poles than SWEPCO;
20
Telephone; the City of Bentonville Electric; Windstream Arkansas; Silaom
21
Springs; Entergy or TDS TeIecom. It is extremely interesting that Cox records
22
indicate that the average pole rate for these companies is $5.10.
15
Oklahoma Gas and Electric; Century
1
Q.
WHAT IS YOUR OVERALL EVALUATION OF AVECC’S POLES?
2
A.
My onsite evaluation of the AVECC poles in place in Northwest Arkansas is that
3
they are of h e same qualify, life expectancy, load, and general condition as poles
4
used by other utilities in places such as Virginia, Texas, and Mississippi. They
5
are a common utiIity commodity, placed to provide electric service and to
6
generate revenue fkom consnmers of eIectricity. Again, a pole is a pole is a pole.
ELECTRIC AND CABLE SERVICE PROVISIONING MODELS
7
8
Q.
A N D ELECTRIC SERVICE IS PROVIDED?
9
10
ARE THERE DIFFERENCES M TED3 B A S K NATURE OF BOW CABLE
A.
Yes. As reIevant here I think it boils down to this: Cable and Broadband are
I1
essentiaIly competitive services in which an ever-growing and changing fist of
12
competitive substitutes is availabIe, whiIe electric service, and poles, are
13
essentiaIly a monopoly.
14
Q.
POLES ARE A MONOPOLY.
15
1G
PLEASE EXPLAIN WHY YOU BELIEVE ELECTRIC SERVICE AND
A.
I understand that power companies in Northwest Arkansas do not typically
17
compete with each other. This means that there usualIy is only one power
18
provider. This means, moreover, that there is generally only one pole line - and
19
no red choice for wire-based communications anachers (who themselves are
20
competing with one another). Power companies, inchding coops like AVECC,
21
are guaranteed customers and revenues by the mere fact that a certificate of
22
occupancy for a new structure will not be issued unless power-fiom the
1
incumbent grid provider-is operating at the site. Power companies build their
2
Iines to these sites based on cost modeIs that enable that deployment. Important
3
to this analysis is that the costs of the poles are included in the initid investment
4
model on which the power company is guaranteed a rate ofreturn.
5
Efforts of regulators and policymakers to create retail electric service competition
6
notwithstanding, electric power for the most part is supplied by a single provider.
7
This means that once the buildout capital is invested and the facilities are built
8
(investment capital includes the cost of poles), the electric provider has a
9
guaranteed income stream. Moreover, it has been my experience that local
10
building codes require that a structure be connected to the electric provider before
11
a certificate of occupancy is issued.
12
Q.
IS THIS TRUE IN AVECC’S SERVICE AREA AS WELL?
13
A.
It appears so. As part of my investigation in this matter I spoke with an eIectrica1
14
inspector for the City of Fort Smith, Arkansas. This inspector stated that a house
15
cannot be occupied without power fiom the main gid, even if dternative energy
16
sources are avaiIable.
17
occupancy permits require grid power to properly test for Ground Fault Circuit
18
Interrupter (GF1) and other safety devices to protect the home and the potential
19
occupants.
20
A general formuIa for building infrastructure in any area of the country is almost
21
always the same. The fist two or three steps may change order, but by-and-large
22
the formula is as follows:
This inspector stated fbther that inspections of homes for
17
A dwelling is planned.
Access is provided (roads, driveways, cIearhgs, etc.).
The dwelling is built.
Power is provided by a local utility operating under a garanteed fair
“rate-of-return” on their investment including setting, or upgradhg, poles
to provide power to the area or dwelling.
Water, sewer, telephone and other essential services are provided (if not
via a well or septic system) where the utility is agah guaranteed a fair
“rate-of-retum” on its investment.
Inspections are completed and a Certificate of Occupancy is provided.
The dwelling is occupied and power and telephone services are “sold” to
each home. Water and sewer connections are “sold” where provided,
usualIy tied to a connection fee paid by the builder or homeowner based
on a flat fee, or a per foot connection charge.
Cable TV facilities are brousht into an area with the cable TV company
bearing the fill cost and fuII financial risk, as there is no guaranteed “rateof-return” on such an investment.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Q.
CABLE OPERATORS RELATIVF, TO POLES?
19
20
DO POWER COMPANlES MCETVE J?INANCIAL BENEFITS FROM
A.
Yes. Because cable TV follows the growth of the residential population, and the
21
dwellings have been built for this growth, it is correct to say that in “most”
22
instances the power company has already built its facilities to serve these homes.
23
Any “additional” or ‘%third party” attachment is of financial benefit to the power
24
company in three (3) ways:
25
26
27
23
29
30
31
32
33
34
As an additional attachment, cable TV “pays” the power company for
ccmake-ready”that the pole owner asserts is necessary to prepare the poIe
for the cable TV attachment. This may include moving existing
connections on a pole; adding new poles; replacing existing poles
(whether or not they are fully depreciated); adding cross-arms;
repositioning other third-party attachments; or repositioning power lines.
Makeready fees frequentIy are set and charged by the power company
without any means ofvalidation as to their true cost. Nonetheless, these
unregdated and uncontrolled fees are paid by the cabIe operator geiieraaling irew inconrefrom poles thut are aireudy a “smk cost” - set for
1s
1
2
provision of power to an end user (thus generating income for the power
company).
3
4
5
6
CabIe TV companies continue to pay for access to the power pole through
“attacIment” fees, or poIe rent. In an unregulated environment, these fees
can generate hundreds of thousands of dolIars annually (or more) for the
power companies - again on poles that were set to provide power service
to end users.
7
Cox and other Cable TV companies follow the National Electrical Safety
Code and other similar engineering and construction standards, and
provides a safe environment for their workers, the utility companies and
the community residents. As a third-party attachment, the safety of
existins conditions is reviewed, and violations are corrected for power and
other third-party attachments, most often at the cost offhe cable TV
8
9
10
11
12
13
14
company.
15
Q.
PLEASE CONTINUE.
16
A.
The cost of servicing broviding npole line) to a dwelling is a %unk cost” for the
17
power company, and may be subsidized (with or without multipIe attachments to
18
the utility pole) by state and federal grants and aid. Moreover, the return to the
19
utility is calculated on their total capita1 expenditures, be they urban high-density
20
areas with significant commercial revenue, or rural residential areas with a
21
“guaranteed income fiom each dwelling.”
22
When a cable TV operator provides service to this same dwelling, attachment
23
fees, and make-ready fees are billed to the cable TV company -forpoles that
24
were required to provide electric service to the dwelling. Such fees also reduce
25
the cost of infrastructures for companies such as AVECC.
26
27
Q.
rs THIS DYNAMIC AFFECTED BY INCREASED DEW
ELECTRTCITY?
19
FOR
I
A.
Yes. According to the revised 2009 Annual Energy Outlook, fiom the Energy
2
Information Administration of the Department of Energy, electricity demand wiII
3
increase by 23 percent from 2007 to 2030, or by an average of .9 percent per year.
4
See NationaI Rural Electric Cooperative Association, Rising Efficiency and
5
Plummeting Economy Drive Down Electricity Demand,http://www.nreca.orgI
6
mai~CAIPublicPolicy/issuespotlight/2O090511AEO.htm (citing the revised
7
2009 Annual Energy Outlook).
8
Increased demand equates to increased Kilowatt Hours (Kw€€)per househdd, or
9
an increase in the use of billable energy. This increase will be served from
10
existing pole Iines, with the cost for the poles already established as a “sunk cost”
11
- thus, power companies will gain even greater revenue fiom existin: poIes for
12
delivering electricity.
13
Q.
COMPETITIVE.
14
15
PLEASE EXPLAIN WHY YOU BELIEVE COX’S B U S W S S IS
A.
Cox (like other cable operators) has always operated in a competitivebusiness
16
environment. And it has always done so with pureIy risk capital. Even with
17
competition fiom CLECs, satellite video companies, over-the-top voice providers
18
(OTT)such as Vonage and, now, even incumbent telephone companies Iike
19
AT&T, Cox has continued to expand its service footprint, add new customers, roll
20
out new technologies - all with E guaranteed return on its investment. Much of
21
this investment has been in rural America, including in Arkansas.
22
Q.
PLEASECONTINUE.
20
1
A.
Cable has succeeded overall, but it is getting even more.difficult. For example, I
2
am aware that at least one Arkansas cable operator was forced to dismantIe two
3
cable systems here because of exorbitant rental and plant maintenance charges
4
imposed upon it by an electric cooperative. This has not happened to Cox, but if
5
power companies are free to dump costs and plant functions on Cox and other
6
Broadband providers, I fear that Broadband wiII not penetrate as deeply as it
7
couId, or should.
8
Q.
ARlE THERE OTHER FACTORS IN THIS MIX?
9
A.
Yes. Competition and market disruption facilitated by technological advances
10
force Cox to make hard choices about technology and infixstructure investments.
11
Expansion of service areas is one key element to new growth, and the slowdown
12
in the national housing market has had a particular impact on cable TV
13
companies, increasing these pressures.
14
To build, Cox must consider not just the costs of deployment but of maintainins
15
its facilities as welI. Cox in Northwest Arkansas competes or will compete with
16
several other Cox regions for scarcely available capital expansion dollars, as well
17
as competing with Cox systems in other states. Expansion means providing not
18
only TV services, but vital Internet and Voice over IP (VoIP) services to
19
communities, and expanding this Broadband capability even deeper into mal
20
areas. Ifthe investment atmosphere is inhospitable, or worse, hostile, then
21
investment will go elscwhere.
21
1
In addition, Cox here is facing unacceptably high and unjustified poIe attachment
2
rates, as well as other terns and conditions. These measures, in my view, are
3
diverting resources that could be used to facilitate and enhance Broadband
4
expansion. This not only is bad for business, but it is bad for pro-Broadband
5
initiatives that are being advocated at almost every level.
6
Q-
HOW WOULD YOU DESCRIBE, OVERALL, THE POLE-
7
A T T A C m N T ENWRONMF,NT IN W C H COX OPERATES lN
8
ARKANSAS?
9
A.
From my investigation and study of this issue, I believe that AVECC’s pole-rate
10
demands are one important component of what is emerging as an increasingly
11
hostile environment for Broadband. I believe that AVECC b o w s or cares little
12
about its actual costs of owning and maintaining a pole and that it seeks to extract
13
the highest possible rent that it can, and othenvise export costs to Cox. Ifthere
14
were many choices for depIoying wire-based communications, AVECC’s and
15
other pole owners’ abiIity to do this would be limited. But there are no choices,
16
and there never has been. That is why AVECC has tried to set its rates so high,
17
and why - fortunately - AVECC’s rates are regulated by this Commission. I
I8
beIieve that it is this power to regulate and the ability to set rates at levels that still
19
compensate the pole owner but do not allow excessive, even abusive rates, that
20
will ensure that aIJ Arkansans will have even greater access to Broadband.
21
22
22
THE IMPERATIVE OF BROADBAND
I
2
Q.
DO YOU BELIEVE BROADBAND EXPANSION IS IMPORTANT?
3
A.
Yes, most certainly. But on this point it is not so important &at 1happen to
4
believe it. The basic notion that expansion of Broadband services is essential to
5
the growth, education and the we11 being of our economy is becoming widely
6
accepted as absolutely true. It reminds me of the imperatives that drove the m a l
7
ekctricification initiatives in the early years of the early 20Lh
century (which,
8
interestingly, created the nation’s electricd cooperatives).
3
For example, on March 28,2007, Governor Beebe signed Act GO4 into law
10
creating the Arkansas Broadband Advisory CounciI (re-named the Arkansas
I1
Broadband Council by Act 947 of 2009) and encouraghg the non-profit Arkansas
12
Capital Corporation to create the non-profit organization Connect Arkansas.
13
While Connect Arkansas’s initiatives are focused on Broadband education and
14
facilitation, the Arkansas Broadband Council advises the Governor and the
15
General Assembly on policies related to making affordable Broadband available
1G
to
17
based development efforts of other states and nations in areas such as business,
18
education, and health.
19
The Arkansas Broadband Council has Written:
20
21
22
23
24
25
every Arkansas home and business. The Council aIso monitors the Broadband
Broadband is a road home for Arkansas graduates.
road to far away places. . . .
No Broadband is a
“Broadband” means high-speed Internet service. In Governor Beebe’s
first State of the State address he stated that “in today’s world, just
learning to type on the keyboard won’t suffice. Our kids deserve
23
Broadband infrastructure that connects them to the Internet and provides
technology equity.” True technoIog equity is not had as long as there is
another state or another nation with better Broadband than Arkansas.
Every person and organization in Arkansas needs access to broadband,
and that means broadband that is fast enough and reliable enough for
Arkansas to compete with any other pIace in the world. This is because
broadband is essential to economic development, job creation, modern
education, health care, and a quality of life that Arkansans deserve. It is
aIso essential to keeping the maximum number of our college graduates in
Arkansas after they graduate. Our Arkansas broadband service providers
are doing a great job in deploying broadband wherever they can find a
reasonable business case, but they need our support. State-wide
broadband efforts in neishboring states and the rapid spread ofbroadband
in other countries make it clear that our State must move more quickly in
order to be competitive in today’s slobal economy.
1
2
3
4
5
G
7
8
9
10
11
12
13
14
15
16
Q.
DO T m S E ECHO FINDINGS AT OTHER LEVELS OF GOVIERNIMENT?
17
A.
Certainly. Just yesterday the FCC released its long-awaited Broadband Report to
Congress. In a very similar vein to these state pronouncements, it said
18
Broadband is the great infrastructure chalIenge of the early 21st century.
13
20
Like electricity a century ago, broadband is a foundation for economic
growth, job creation, global competitiveness and a better way of life. It is
enabling entire new industries and unlocking vast new possibilities for
existing ones. It is changing how we educate chiIdren, deliver heaIth care,
manage energy, ensure pubIic safety, engage government, and access,
organize and disseminate howledge.
21
22
23
24
25
26
27
28
29
See FEDERALCOMMUNICATIONS
COMMISSION,
NATIONAL
BROADBAND
PLAN,at
xi (2010) (Executive Summary).
Q.
ANY FINDINGS ON POLE ATTAC-NT
ICATES, PARTICULARLY THOSE OF COOPERATIVES LKE AVECC?
30
31
DID THE REPORT
A.
Yes. The National Broadband Plan expresdy recommended that “[t]o support the
32
goal of broadband deployment, rates for pole attachments should be as Iow and 5ts
33
dose to uniform as possible.” FEDERAL
COMMUNlCATIONS COMMISSION,
34
NATIONAL
BROADBAND
PLAN I28 (2070). It also noted that the impact of pole
24
I
attachment rates ‘%anbe particularIy acute in rural areas, where there are often
2
more poles per mile than households,” and that lower pole rates '%auld have the
3
added effect of generating an increase - possibly a significant increase - in rural
4
broadband adoption.” Id. It strikes me that the FCC couId have been talking
5
about Arkansas.
6
Q*
PLEASE DISCUSS COX’S DEPLOYMENT OF BROADBAND AMD HOW
7
THAT SERVICE RELATES TO COX’S ATTACHMENT TO AVECC’S
8
POLES.
3
A.
Cox provides high speed Broadband Internet services along with its video and
10
voice (VolP) operations in Northwest Arkansas, as well as in Cox systems across
12
Arkansas and the nation. In Northwest Arkansas, Broadband smices are
12
attached to poIes owned and operated by many co-opelectric companies
13
including AVECC. I am concerned that AVECC’s pole rate and other initiatives
14
could slow the growth and access for high speed Internet inNorthwest Arkansas.
I5
As CEO of Broadband Networks, I worked first-hand with leaders in wireless
fG
communications including Sprint; Verizon; T-Mobile; Comcast Cable; Cox
17
Communications; Time Warner Cable; Atlantic Broadband and Charter
18
Communications on 3G (third generation) and 4G (fourth generation) technology
19
planning and deployment. Deployment of advanced services foIIows the ability to
20
define a return on the investment, predictable expenses, managing expansion and
21
budgeting for growth. Uncertainty in my of these areas delays the flow of capita1
22
into the region. Reasonable and predictable poIe rates continue to be a major
23
consideration for every company desiring to expand Broadband technoIogy.
25
1
For example, Verizon and SBC started their operations
2
only had telephone senice and existing infrastructure, but where they owned a
3
significant number ofpoIes and had solid relationships regarding pole rates with
4
other utilities. Competition in these areas has spurred advancements in
5
technology - thus creating 4G capabilities for wireless companies Iike SPRINT,
6
and, very soon, 100 MBps speeds for cable operators.
areas where they not
CONCLUSION
7
8
Q.
IS THE POLE RATE THAT AVECC PROPOSES JUSTIFIED?
3
A.
Inmy opinion, no, it is not. AVECC has produced no evidence that justifies a
10
rate of anything near the Ievels that it is demanding. In this testimony I have
11
observed that the average Cox pole attachment rate for other pole owners-many
12
of whose poles are and have been regulated for years-is approximately$5.00.
13
This is in the ballpark of reasonable rates in my experience.
14
As I said at the outset, a pole is a pole is a pole. Gouging on rates is only one area
15
in which a poIe oiwer like AVECC can (ab)use the power of its monopoIy to
16
extract concessions fiom cable operators. The fact that a particular cable system
77
may be part of a larger multi-state operation means nothing in terms of that
18
operator’s leverage or ability to negotiate with a pole owner who seeks to use its
19
poles in this fashion. High cooperative pole rates and other costs have already
20
shuttered at least two cable systems right here in Arkansas and there may be
21
more. That is why pole attachments were regdated in the &st place. But
22
unregulated poIe rates and other terms pIace in poIe owners the power to
26
1
discourage and even prevent Broadband deployment. Whether it intends to do so
2
or not, this appears to be exactIy what AVECC is doing in this case.
3
As I have indicated, operating a Broadband business is a hndamentaIIy
4
competitive and difficult undertaking. Doing so with rates like those that AVECC
5
seeks to impose and under conditions that appear to be deteriorating, in my
6
opinion, threaten to make the difficult task of providing UiversaI Broadband
7
service even more so.
8
UltimateIy, poles are essential to the continuation and expansion of cable TV
9
services - including Broadband - to communities and their residents. It is not a
10
compIex concept: if you raise pole costs, you make it more difficult to deploy
11
Broadband to the next home down the line. This, in my view, cannot stand when
I2
it supposedIy is our national objective to provide Broadband not just to the next
13
home down the line - but to the very Iast home at the
27
of the line.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true copy of the foregoing has been has been served
on all parties of record via first-class mail, hand delivery, facsimile, or eIectronically this
17th day ofMarch, 2010.
A
By:
.Edward Skinner
Wright, Berry & Moore
303 Professional Park D i v e
PO Drawer 947
Arkadelphia AR 77 923
Phone: 870-246-6796
ABN 81 745
J. D.Thomas
PauI A. Werner
HOGAN & HARTSON L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004-1 109
(202)637-5600
(202) 637-59 10
ATTORNEYS FOR COXCOM,INC.