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Kentucky Resources Council, PO Box 1070, Frankfort, KY 40602 Phone [502] 875-2428

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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

TELEPHONE DEREGULATION BILL IS BAD NEWS FOR THE AVERAGE CONSUMER  Posted: March 17, 2006
TELEPHONE DEREGULATION BILL IS BAD NEWS FOR THE AVERAGE CONSUMER

HB 337GA has significant flaws as currently drafted, and KRC believes that if passed the bill will result in the less-savvy consumer and consumers outside of the major urban areas bearing a disproportionate burden of costs of services in a deregulated marketplace. The bill assumes robust competition in a marketplace that is in fact dominated by two companies, who will be able to wield market power in order to eliminate, rather than foster healthy competition.

The essence of the bill is to allow an “electing utility” to opt out of the current regulatory framework for providing many telephone services. KRC, which represents without charge low- to moderate-income individuals on environmental matters, has these concerns with HB 337:

* The bill curtails the Public Service Commission’s existing jurisdiction over basic local exchange service obligations in several ways, including the elimination of the ability of the Public Service Commission to modify or add standards for performance as to basic local exchange service. Also, the authority of the Public Service Commission to enforce compliance by a utility with consumer protection requirements is unclear.

* Perhaps the greatest flaw is that the bill assumes truly competitive markets when in fact most of the state’s markets lack robust competition. The proponents cite a number of competitors in most markets in the state, but the degree of market penetration by most of those outside of the urban areas is minimal. Even in areas with cable competition, the cable companies do not generally serve business customers with phone service. The existence of wireless competition is likewise overstated since rarely does a customer go completely wireless, and because much of the market share that the dominant regulated landline company loses goes to its affiliated wireless entity.

KRC has suggested, and the utilities rejected, the idea of the PSC having a gatekeeper function to allow deregulation only where and for so long as the Commission finds that a sufficiently robust competitive marketplace exists – measured not by the number of providers but by the extent of penetration of the market by competitors to the dominant telephone utility.

* Discrimination in pricing and services based on low- or fixed-income status is not prohibited. Missing is any protection for those customers that the utility may not find as desirable as the affluent high-end users. No customer should be discriminated against in terms of cost and availability of options based on fixed- or low-to-moderate income status.

* Protections against predatory pricing are weakened. In a marketplace where a very few companies hold a lion’s share of the market, the potential for pricing below wholesale for a period of time in order to eliminate competition is a very real threat. The bill eliminates specific state remedies against predatory pricing, leaving only the unwieldy remedy of a federal anti-trust action and general state law. Additionally, the lack of transparency in pricing makes enforcement of antitrust and other consumer protection laws problematic at best, since the Commission and third-parties will lack the ability to track pricing activity and market manipulation.

* There is no transparency in the pricing of stand-alone services and of packages, so that the companies could vary those prices and price services among identically-situated consumers very differently and without disclosure. This lack of transparency in pricing makes enforcement of fair business practices by the Commission impossible, and leads to a two-tiered system where the less sophisticated consumer or the consumer in less-robustly competitive marketplace pays an inflated price relative to the consumer that the company finds more attractive or who lives in as major urban area with more competitive markets.

* The bill deems rates that have never been reviewed by the PSC to be “just and reasonable,” thus preventing PSC scrutiny of those rates if the utility elects to return to the regulatory fold. In essence, the electing utility gets the benefits of the filed tariff doctrine without actually filing a tariff!

* The bill exempts telephone utilities from a series of reporting requirements, making it very difficult for the PSC or third parties to police compliance with consumer protection laws. The authority of the Commission to investigate and make orders concerning service that is unjust, unreasonable, unsafe, improper, inadequate or insufficient would be lost.

* Small electing utilities would be allows to increase rates after one year by up to the CPI for urban consumers, regardless of whether the increase is justified based on the utility’s performance and costs.

* Customers terminating basic or nonbasic services are not adequately protected against termination chargers or penalties.

The announcement recently that AT&T, the largest U.S. Telephone company, has agreed to buy BellSouth Corp. for about $65 billion in order to gain control of their shared wireless company (Cingular Wireless LLC) heightens concern with the proposed elimination of regulatory control over rates in a marketplace where mergers and acquisitions are diminishing effective competition.

The suggestion by proponents of the bill that a "level playing field" is needed is laughable, given the dominance of the two giants in the telecommunications field over their cable and wireless competitors. Deregulation should occur in a thoughtful and deliberate manner, and this bill provides neither.


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