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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

SB 135: Why is Deregulating Basic Telephone Service Bad for Kentucky's Phone Customers?  Posted: February 23, 2012

WHY IS DEREGULATING BASIC TELEPHONE SERVICE BAD FOR KENTUCKY’S PHONE CUSTOMERS?

In 2009 testimony filed with the Federal Communications Commission, AT&T stated that “the public switched telephone network (“PSTN”) and plain-old telephone service (“POTS”)” are “relics of a by-gone era.”

Senate Bill 135, which is being promoted by AT&T, would allow AT&T, Windstream, and Cincinnati Bell to end their obligation as “carriers of last resort.” After June 30, 2013, AT&T and other electing “Incumbent Local Exchange Carriers” (ILECs) would no longer be required to provide basic landline telephone service to all persons in a service area and Kentuckians would no longer be assured of access to reliable basic phone service on a stand-alone basis. After that date, regardless of whether there are other options available for basic phone service in a community, and regardless of whether there is effective competition among suppliers, the obligation of an electing incumbent local exchange carrier to provide basic telephone service on a stand-alone basis would be gone.

After June 30, 2013, AT&T, Windstream, and Cincinnati Bell could eliminate basic stand-alone service to any areas that were not profitable enough to service, and refuse to extend new basic service, potentially leaving higher-cost and low-income residents and rural areas without access to basic phone service on a stand-alone basis.

SB 135 provides no answer for those customers who rely solely on basic landline service, nor for those who may have access to broadband but cannot afford to subscribe to such service. Nor does the bill provide any assurance that, before the obligation to provide basic telephone service is extinguished, that those same basic services – access to 911 emergency services, caller ID and a voice line, will be available at comparable quality and at a reasonable price from another carrier.

In 2006, AT&T and others successfully lobbied the General Assembly to enact HB 337, which allowed telephone companies to “elect” to deregulate all services other than basic telephone service. If the utility “elected” to do so, rates for non-basic services would be set by the market, while rates for basic local service would continue to be controlled by statute for a period of time. After June 30, 2011, the three carriers who chose to elect (AT&T, Cincinnati Bell, and Windstream) were free to adopt new higher market-based rates for basic service that the Commission cannot control or regulate.

In requiring that access to basic telephone service continue to be regulated and offered on a stand-alone basis, the General Assembly recognized in 2006 that basic telephone service is, for many Kentuckians, an essential service. While AT&T may consider “plain-old telephone service” a “relic[] of a by-gone era,” and while access to broadband and cellular communication services is taken for granted in major urban areas, for many residents of the 3rd poorest state in our nation, access to cellular and broadband services is limited, due to location, to income, or both, and reliable 911 emergency service is largely limited to landlines.

What are the Council’s specific concerns with SB 135?

• Loss of service accessibility for low- and fixed-income Kentuckians,
• Lack of assurance that before the “carrier of last resort (COLR)” obligation is ended, that there is sufficient competition throughout each local exchange area so that each customer will have access to service providers and services options that are functionally equivalent, competitively priced, and comparable in quality to that currently provided by the incumbent telephone company,
• No protection for customers against incumbent utilities and affiliated companies exercising market power to raise costs for basic services in an area where no unaffiliated competitor for basic service exists,
• Possible “redlining” of populations or areas where service is more costly or the customer is higher-maintenance,
• Loss of Public Service Commission authority to investigate on its own motion, complaints regarding basic telephone service quality,
• Possible loss of Commission control over carrier-to-carrier relationships, including the ability to set rates, terms and conditions for unbundled network elements, to arbitrate and enforce all interconnections agreements, and to adjudicate all carrier-to-carrier disputes including without limitation, complaints regarding any anti-competitive practices. For those competitive carriers using the incumbent utility network, the elimination of the carrier of last resort obligation could result in abandonment or retirement of wired connections, resulting in loss of access to customers by the competitors,
• No “gatekeeper” function for the PSC to control when there is sufficient competition to allow the COLR obligation to be ended, nor to require it be resumed where competition ceases to exist.
• Even if the June 30, 2013 deadline were removed, allowing AT&T, Windstream, and Cincinnati Bell to cease acting as “carrier of last resort” merely because another service provider offers a voice service (and the other provider can be an affiliate) does not assure that there is effective competition that will assure access to voice service that is functionally equivalent, competitively priced, and comparable in quality and range of basic services. There are at least two providers of service in every area of the Commonwealth today, though effective competition is not universal.

In the December 21, 2009 AT&T Comments to the FCC, the company complained that their competitors were free to focus on the easier-to-serve customers, while they remain bound by the Carrier of Last Resort obligation to “serve the highest-cost and most difficult- to-serve customers.” AT&T encouraged the FCC to free them from the obligation to be Carrier of Last Resort and to make investments in the maintenance of the network, and to allow retirement of the Public Switched Telephone Network. It is apparent that in a deregulated environment, continued provision or extension of service to those who are higher-cost or more difficult-to-serve would no longer be assured.

A 2009 Study entitled “Carriers of Last Resort: Updating a Traditional Doctrine” by Bluhm and Bernt, noted that:

“The move to competition as the preferred telecommunication policy does not mean that COLR policies are no longer needed, because competition by itself cannot ensure broad-based access to essential services. Competitors may avoid serving areas that are high cost or filled with subscribers of limited means, while incumbent providers may seek to discontinue service in those same areas. COLR policies give regulators the tools to assure that at least one carrier is in place to provide essential services in all areas and that necessary carrier-to-carrier services continue.”

Under a regulated framework, rural residents and others living in less-densely populated areas of the Commonwealth are guaranteed access to basic phone services. All customers were promised that if something went wrong with the service, that the state commission would direct that the service be restored and problem resolved. The Public Service Commission was empowered to respond to complaints and to conduct its own investigations into local service safety, availability, and adequacy. Under the bill, the Commission would be stripped of its power to initiate investigations. The Public Service Commission would lose the power to investigate on its own, to set standards for service quality and reliability, and to ensure that the utility furnishes safe, adequate, and reasonable service on a nondiscriminatory basis. An electing utility would be exempt from: the requirement to file schedules of rates and service, the prohibition against discrimination as to rates or service, the regulation of rates, the possibility of being examined or investigated by the Commission, Commission-set performance requirements, and the obligation to disclose the cost of individual optional features for customers who purchase basic service from that utility.

Why is it important that the Commission continue to oversee the provision of basic local service by utilities?

For 2010, 83.04% of telecommunications inquiries across the Commonwealth were concerning local service; in 2011, that percentage was 78.49%. According to the 2010 Consumer Activity Report of the Public Service Commission, which may be viewed at the website of the Commission at www.psc.ky.gov/agencies/psc/consumer/ActivityReports/, the total number of investigations related to the three electing carriers was 997 (according to the report, AT&T topped the list of the 10 most investigated utilities for that year, with 669 inquiries, with 262 for Windstream and 46 for Cincinnati Bell). In 2011, the Commission reported the number of inquiries related to the three utilities as 685 (AT&T), 229 (Windstream) and 42 (Cincinnati Bell). The Commission noted in both reports that “[t]he companies listed aren’t necessarily problem companies. A large company with a large customer base will typically have more complaints registered against them than a smaller company with a smaller customer base.”

In sum, the Council opposes SB 135 because completing the deregulation of the three electing telephone companies may result in a loss of access to basic telephone service on a stand-alone basis for those who the electing utilities determine are not profitable enough to justify serving – those on fixed and low-incomes, those in hard-to-serve locations, and those for whom the cost of service does not justify continued service absent the legal obligation to do so. Deregulation of basic service could impact many aspects of telephone service that we take for granted – the requirement for providing basic service and connection at a regulated and reasonable cost, the requirement that the local phone company interconnect with other companies so that we can complete calls, and reasonably priced service whether in the hills of Harlan County or the floodplain of the Mississippi River in Hickman. The Council believes that rather than enacting SB 135, the Public Service Commission should be requested to open an Administrative Case on the effects of deregulation of basic local service on Kentuckians.

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