AARP Responds: “Don’t Hang Up on Grandma!”

Ohio has joined a growing list of states that includes Indiana, Mississippi, Colorado, Georgia and Kentucky, where recent legislative initiatives have attempted to deregulate or drastically alter the states' regulation of basic phone service. Kentucky’s Senate Bill 135, dubbed the “AT&T Bill,” was especially worrisome, as it proposed to dismiss large ILECs of COLR obligations. AT&T lobbied hard for an excuse to stop providing basic phone service to unprofitable customers (assuming the customers were served by a competitive provider, even if the competing options were barely usable or too expensive for consumers), but as of March 15 this bill was scrapped due to “terrible public feedback.”

Now Ohio telephone consumers face a very similar situation. According to the Dayton Daily News, “Senate Bill 271 would allow companies to discontinue basic landline service beginning in 2013 if the area is deemed ‘competitive’ by the Public Utilities Commission of Ohio (PUCO).” SB 271 is sponsored by Senator Frank LaRose (R), and like Kentucky SB 135, AT&T loves it. AT&T director of public affairs for Ohio Sarah Briggs commented to the Dayton Daily News, “This bill is about unlocking investment and allowing us to invest in growing areas of our business, which is primarily the wireless side.” Just like in Kentucky, AT&T gives no logical explanation of why it cannot invest in wireless infrastructure and abide by COLR landline obligations.

Akron Legal News further reported an extensive list of comments by AT&T Ohio president Tom Pelto. According to Pelto, “SB 271 is an attempt to further modernize the telecom laws in Ohio and level the playing field in response to rampant competition and the development of new technologies.” Pelto indicated that AT&T no longer wants to invest in landline service because AT&T has lost 64% of its landline customers in Ohio since 2000, and the company would rather invest in wireless and broadband, “the networks of the future.”  Pelto believes that COLR obligations are no longer necessary, but “Even with the advent of competition, and previous legislative reforms, the COLR obligation is still placed on ILECs in state law and in the PUCO’s rules. It is one of the last vestiges of monopoly telecom regulation.”

SB 271, called the Telephone Service Deregulation Act, has reportedly passed in the Senate and will move to the House. The text of SB 271 explains that the bill would “establish certain exemptions, including permitting the withdrawal of services, for incumbent local exchange carriers determined to be fully competitive, and, regarding the provision of basic local exchange service, for other telephone companies in the same areas.” To be a “fully competitive” carrier in Ohio, a company must be deemed such by the PUCO—“Only a handful of companies have been deemed competitive—AT&T, Conneaut, Cincinnati Bell and part of CenturyTel,” according to the Dayton Daily News. On the surface, this appears to mean that RLECs would not be able to wiggle out of COLR obligations, even though their costs to provide landlines in rural and unprofitable areas are likely much greater than AT&T’s. Why can’t RLEC’s escape COLR in order to invest in broadband and wireless, too? Surely, AT&T’s logic for supporting this legislation (that they need to focus on the networks of the future, not “vintage services customers are walking away from”) applies to the small ILECs as well…

So far, no Ohio media outlet has reported on backlash from the independent telecom industry. However, the AARP is fiercely swinging at SB 271 with a web campaign appropriately titled “Don’t Hang Up on Grandma.” The AARP urges concerned citizens to tell their state representative to “Vote NO on SB 271, save basic local phone service.” According to the AARP, “The anti-consumer bill will wipe out important consumer protections that have defended adequate service quality and ensured that everyone who wants a basic, no frills phone line could afford to have one.” Of particular concern, AARP points out that “SB 271 fails to establish an evidence-based standard for determining market competitiveness within phone service territories.” Like the Kentucky legislation, Ohio carriers would just have to show that there are two wireless carriers serving a customer, “even if the reception is spotty or unavailable across the exchange,” according to the Dayton Daily News.

This legislation and its counterparts in other states certainly bring up several issues. First, are the large ILECs right about wanting to end COLR? They have market forces and numbers on their side: customers are indeed abandoning landline service, and it is indeed expensive to maintain a landline network that is rapidly becoming a ghost town. However, has AT&T provided any studies showing how the cost of abiding by COLR obligations is so tremendous that it cannot feasibly invest in wireless and broadband networks? Actually, if AT&T provided such a study, we can probably guess what it would say.

There is also the issue of regulatory parity. Why would the COLR-escape laws only apply to large ILECs? RLECs also serve customers who may have access to at least two wireless carriers and RLECs spend a great deal of money maintaining landline networks, but we don’t see them begging to be released from COLR obligations. If the USF/ICC reform docket is any indication, the opposite is true.

Finally, if passed, this legislation breaks the telecom regulation cardinal rule of picking technology winners and losers (something the FCC has also been forgetting recently). It allows the large ILECs to cherry-pick profitable customers, and it favors wireless networks even if they are sub-par in quality. Senator LaRose argues that the bill is “about making sure Ohio is competitive when it comes to those high-tech jobs that rely on reliable high speed Internet access. We won’t want to leave Ohio in the twentieth century while everyone else is in the twenty-first.” This statement comes nowhere close to answering the question of why providing landline phones to people who want them is a barrier to high-tech job growth and broadband investment.

What do you think of Ohio’s Telecom Service Deregulation Act? How would this legislation play out for rural independent providers?

Multiple Ex Parte Filings Communicate Urgency of RLEC Concerns

Between March 8 and 12, 2012, representatives from NTCA along with individuals from OPASTCO, WTA, NECA, Fred Williamson Associates, and Vantage Point Solutions (collectively the Rural Representatives) spoke to around 20 different individuals at the FCC in at least five separate ex parte meetings on USF/ICC reform. Judging by the filings, it appears that no disparaged USF topic was off-limits, from quantile regression analysis to the waiver process to maintaining rate of return and everything in between.  Here’s a rundown of the ex parte meetings:

March 8 (filed on March 12): This telephone meeting with 11 members of the Wireline Competition Bureau focused on regression analysis, a Connect America Fund for RLECs, reporting requirement concerns, unsubsidized competition, rate of return represcription, and the waiver mechanism. First, the Rural Representatives reiterated that “even the ‘father’ of the Commission’s preferred quantile regression analysis has provided a report indicating that the proposed methodology lacks statistical discipline and introduced arbitrariness into the potential caps.” The Rural Representatives believe the FCC should scrap quantile regression analysis and “consider the alternative submitted by the Rural Representatives last year, which would limit investment based upon a schedule tied to replacement of deprecated plant;” or at the very least, revise the regression caps “in light of the current record.” The Rural Representatives emphasized that regression analysis has discouraged investment, “and has all but frozen broadband investment in early 2012—contrary to the very purpose of the National Broadband Plan and the Commission’s reforms.”

Moving on, the Rural Representatives also argued that the USF/ICC Order does not establish a Connect America Fund for RLECs, rather it “consists entirely (from a USF perspective) of cuts, caps and constraints to existing high-cost mechanisms.” Again, the Rural Representatives urged the FCC to implement the RLEC Plan. As for reporting requirements, the Rural Representatives believe that all RLECs should be allowed to utilize a simple form, “akin to RUS Form 479,” not just RUS borrowers. Furthermore, they do not believe that RLEC financial information should be “placed into the public record”—this requirement is “wholly inappropriate and contrary to standard Commission and federal agency practice.”

The Rural Representatives brought up an important issue regarding the identification of an unsubsidized competitor in a given area: “while the National Broadband Map could be a tool in this process, it was clearly informational and could not be considered dispositive in identifying the precise presence of an ‘unsubsidized competitor’ due to the lingering flaws and the fact that it does nothing to identify where subsidy may or may not exist with respect to a given area.”

Finally, the Rural Associations expressed concern about the burdensome waiver process, explaining how they “observed that the cumbersome nature of the process spelled out in the Order, together with the uncertainty surrounding when the rules (and resulting reductions in support) would be final, was deterring many RLECs from filing waivers at this time notwithstanding substantial concerns about the apparent cuts arising out of the Order.”

March 8 (filed on March 12): The same group participated in another telephone meeting on March 8 with six additional members of the Wireline Competition and Wireless Telecommunications Bureaus. This conversation included originating access charges, IntraMATA calls routed through interexchange carriers, additional ICC reforms, local rate benchmarking clarifications, and Recovery Mechanism clarifications.

Of note, the Rural Representatives talked about the presumed revenue loss that would occur “from applying the originating interstate access rate in lieu of originating intrastate access rates for calls placed to VoIP customers on the distant end within the same state.” Forty percent of approximately $253m (2010) in originating intrastate access revenues is likely from calls to VoIP customers, so “$101.2m of such revenues would be subject to potential reduction.” The debate over originating access rates has been heating up over the last few weeks, and one can certainly expect that the Rural Associations will continue to pressure the FCC to protect this important stream of revenue.

March 9 (filed March 12): In NTCA’s third ex parte meeting in two days, senior vice president of policy Michael Romano met via telephone with Christine Kurth, policy director and wireline counsel to Commissioner Robert McDowell. Romano “highlighted that numerous questions and substantial confusion continue to surround implementation of the Order, and that end users already appear to face the prospect of significant rate increases as a result of the actions just taken.” The FCC should evaluate and respond to the impacts of the USF/ICC Transformation Order before taking any more drastic steps, like reducing rate of return or extending regression analysis to ICLS. Romano stated, “Racing forward to consider yet more changes when those reforms adopted last fall have yet to be implemented or even fully understood undermines the fundamental tenets of universal service, runs contrary to the objectives of promoting broadband deployment, and only perpetuates regulatory uncertainty.”

March 9 (filed March 13): Also on March 9, NTCA ceo Shirley Bloomfield spoke to Michael Steffen, legal advisor to Chairman Julius Genachowski. Bloomfield reiterated many of the issues discussed in the earlier meetings, like the lingering confusion over the new rules. Bloomfield also asserted that the FCC should evaluate the impact of the current rules before making further changes. Bloomfield argued that a thorough evaluation of the current rules would benefit rural consumers, service providers, lenders, and investors.

March 12 (filed March 13): NTCA’s Michael Romano spoke with Angela Kronenberg, wireline legal advisor to Commissioner Mignon Clyburn, where he repeated arguments from the earlier meetings about regression analysis, concerns about further ICC and USF reductions discussed in the FNPRM, and the need for a true RLEC CAF. Romano referenced the recently-released peer reviews of quantile regression analysis, which he believes constitute “a laundry list of concerns and questions with respect to the development of the caps that are ostensibly to be implemented on July 1.”

NTCA and other Rural Representatives appear to be taking a bold strategy of flooding the FCC with information about how both current and proposed USF/ICC reforms will devastate the RLEC industry. At the American Cable Association Summit in DC on Wednesday, March 13, Genachowski mentioned that rural stakeholders should provide data and input to the FCC about broadband deployment and specific concerns. The RLEC industry has been doing this for well over a year, but as evident in the USF/ICC Transformation Order, many of the rural industry input was ignored or otherwise rejected. What more does the FCC want?

The issues discussed in NTCA’s numerous ex parte filings will likely be front-and-center issues at next week’s Legislative and Policy meeting in DC. With hundreds of representatives from the RLEC industry traveling to DC to meet in person with Congressional staff and members of the FCC, the message will hopefully get through loud and clear. JSICA’s Cassandra Heyne will attend this meeting and report on keynote speeches by FCC Commissioner McDowell and Representative Don Young (R-Alaska).