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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

AT&T Again Seeks To End Obligation To Provide Stand-Alone Basic Phone Service To Kentucky Customers  Posted: January 16, 2013

Preliminary Analysis of Revised AT&T Proposed Bill
Revised January 23, 2013

AT&T has, in a number of states in which it is the “incumbent” telephone utility, been seeking to modify state laws in order to end the obligation to be “carrier of last resort.” At potential risk is the opportunity for existing and new customers, to obtain stand-along basic telephone services from the incumbent telephone utility, or “Plain Old Telephone Service (POTS)” as it is called. Those most adversely affected by this loss of access to basic, stand-alone, telephone service are those least able to obtain affordable and reliable alternatives – those who live in rural, lower density areas, and the poor in dense, urbanized areas who have no affordable alternative priced as low as POTS.

In 2009 comments filed before the FCC on behalf of AT&T, “plain old telephone service” and the public switched telephone network (PSTN) were referred to by the company as “relics of a bygone era.” Yet for many Kentuckians, access to POTS through landlines remains a lifeline. To put a finer point on it, a recent survey conducted regarding the Columbia Gas fuel choice program reflected that some 29.50% of respondents lacked internet access.

The 2012 Regular Session Attempt to End COLR Obligations

KRC opposed the 2012 efforts of AT&T to have the General Assembly enact Senate Bills 135 and 12 during the 2012 Regular Session of the Kentucky General Assembly, for several reasons:

• the risk that stand-alone, reliable basic local exchange service, which includes voice service, operator assistance, directory assistance and accurate 911 assistance, would no longer be available because all other laws and regulations, including the Public Service Commission’s power to hear and resolve complaints regarding the quality and availability of local exchange service, would be swept away.

• the obligation to provide basic stand-alone phone service could be, at the utility’s discretion and without prior PSC approval, terminated if another provider offered voice service (even if that was an affiliate). The potential for cost increases due to lack of effective competition is apparent.

• the incumbent local phone provider could get “off the hook” where another utility (even an affiliate) is providing “broadband,” but broadband access does not assure access to operator assistance, reliable 911 service, or other elements of basic service.

• even if there were no other provider, AT&T, Windstream, or Cincinnati Bell could decide to refuse to offer new landline service if they had available a wireless service, even if the 911 service was not as effective.

• even if there is no other provider, AT&T, Windstream or Cincinnati Bell could decide to continue their obligation as “provider of last resort” using any technology, and that obligation becomes completely deregulated.

In order to protect rural, fixed- and low-income Kentuckians and elders, who rely and depend on high quality basic stand-alone local phone service, KRC argued that a number of protections are needed, including that:

• The Public Service Commission must be the “gatekeeper” who can relieve AT&T, Windstream or Cincinnati Bell of their obligation to offer stand-alone basic local service, and only if they petition the commission to do so, after a case filed with the Commission finds that:

- There is at least one unaffiliated provider other than them offering stand-alone basic service at a comparable cost and rate;

- Relieving them of that obligation is in the public interest considering the extent to which functionally equivalent basic local service is available on a stand-alone basis, the number and size of competitive providers of basic local exchange service, the impact of the proposed change on efforts to promote universal availability of basic telecommunication services; and other factors determined by the Commission to be in the public interest, including whether the obligation to continue to provide basic service inhibits the utility from competing with unregulated providers of similar basic services.

• Second, affordable stand-alone basic service must continue to be provided to all existing customers as of the date the bill becomes effective. Additionally, when there is no longer another provider offering basic local service on an affordable stand-alone basis, the PSC must be able to reimpose the obligation to be carrier of last resort on the incumbent utility.

• Finally, the Commission must continue to have jurisdiction over access and reliability, and other carrier-to-carrier wholesale service issues regardless of the technology used by the incumbent carrier.

Relieving these utilities from the obligation to provide basic local service on a stand-alone basis without the assurance that those services are available with comparable cost, quality, and functionality, from a competitor, risks making basic service unaffordable and functionally unavailable. With local rates for basic service having been deregulated by law in 2011, the only protection that Kentucky’s elderly, low-and fixed-income basic service users have of continued access to stand-alone service is the COLR obligation under current state law, and if that is extinguished, there is no assurance that basic service would be available on a stand-alone basis unless there is in the existence of robust competition at that end of the scale as well as in the high-end services – and there is not such effective competition across many areas of the Commonwealth at his time.

With these principles and background in mind, what does the new AT&T bill do?

The latest draft of the AT&T bill, (December 17 version)immediately ends the Carrier of Last Resort obligation for all existing and new customers, except for those existing customers in exchanges of less than 5,000 housing units. The bill proposes to amend KRS 278.541 and other statutes to provide that:

• At subsection (1), an electing utility may elect to operate under this new bill, which election becomes effective on filing a notice with the commission. Subject to subsection (2), the commission loses all regulatory jurisdiction over terms, rates, conditions and availability of any retail service, but may “assist in the resolution of consumer complaints.”

• Under subsection (2), an electing utility may cease providing basic local exchange service for existing residences in exchanges with less than 5,000 housing units, where it offers “an alternative voice service,” which could include wireless rather than landline service. No provision is made for prior PSC review or a demonstration that the “alternative voice service” is of comparable quality or reliability.

• Alternatively, subsection (2)(b) allows the electing utility to be relieved of the obligation to provide “basic local exchange service” to existing residences in exchanges with less than 5,000 housing units, by filing a petition with the Commission showing that:

• At least 2 unaffiliated providers offer “voice service” in the exchange and that one is a facilities-based provider serving residential customers; or

• There is at least one broadband service provider other than the electing utility that is “capable of delivering voice service.”

• Ninety days after the filing, the Commission must issue an order relieving the utility of the obligation to provide “basic local exchange service.”

In subsection (3) what constitutes “voice service” is defined by the bill with reference to federal regulation, rather than existing state law. No definition is provided of what constitutes “alternative” voice service.

In subsection (4), electing utilities are exempted, after the rate cap period (which has already expired for the three utilities that have elected to deregulate all but basic service delivery), from PSC oversight of mergers and acquisitions, consolidations of utilities, PSC auditing and inspections.

In subsection (5), the bill provides a savings clause that nothing in the bill “affects the obligations of an electing utility under any applicable provisions of federal law in 47 U.S.C. sec. 214(e).”

Other proposed modifications are made to state law. KRS 278.54611 removes the ability of the Commission to develop ETC standards, and instead references FCC eligible telecommunications carrier rules. KRS 278.5462 weakens the authority of the Commission with respect to resolution of complaints regarding broadband services by removing the Commission “jurisdiction to investigate and resolve” consumer service complaints and providing only that the Commission may “assist in the resolution” of such complaints.

Concerns With the Bill:

1. As of the effective date of the Act, except for exchanges with less than 5,000 housing units, basic local exchange service would no longer have to be provided for existing new housing units.

For residences built after the effective date of the act, there is no obligation to provide the service to new residences even in exchanges of less than 5,000 housing units.

The bill allows abandonment of the “Carrier of Last Resort” obligation for exchanges with fewer than 5,000 housing units, with no prior review or approval by the Commission, where an affiliated or unaffiliated provider offers “alternative voice service.” For example, AT&T could cease providing stand-alone basic local exchange service through the landline network if its’ affiliate offered a wireless service with the same functions, but not necessarily the same reliability or quality of signal.

The primary “voice service” on which the bill hinges the ability to abandon offering stand-alone POTS, especially in low-density areas, is wireless service. In many of these areas, wireless service will be spotty and unreliable, and likely more expensive than POTS.

Since AT&T is one of the largest wireless providers, and has indicated a desire to migrate customers to higher-priced plans, access to stand-alone, reliable, basic local telephone service is at risk.

The ability to demand relief from the COLR obligation for exchanges with less than 5,000 housing units, is not predicated on the ability of all residential customers to access alternative stand-alone basic telephone service that is of comparable price, quality and reliability.

Instead, under subsection (2)(a), the electing utility may cease providing basic local exchange service if it offers wireless service in the area. Under subsection 2(b), the electing utility may file a petition, which the Commission is obligated to approve under the bill, simply by providing evidence that two providers offer “voice service” within the exchange (and not throughout the exchange), or that one other provider offers broadband service that is “capable of delivering voice service.”

Reference to 47 C.F.R. 54.101(a), without including a date for the regulation, violates the nondelegation doctrine of the Kentucky Constitution and risks tying the definition of basic telephone service to a federal regulation that may be modified or repealed in the future.

The reference to what is basic telephone service should be to KRS 278.541, which defines "basic local exchange service" to mean:

a retail telecommunications service consisting of a primary, single, voice-grade line provided to the premises of residential or business customers with the following features and functions only:
(a) Unlimited calls within the telephone utility's local exchange area;
(b) Dual-tone multifrequency dialing; and
(c) Access to the following:
1. Emergency 911 telephone service;
2. All locally available interexchange companies;
3. Directory assistance;
4. Operator services;
5. Relay services; and
6. A standard alphabetical directory listing that includes names, addresses, and telephone numbers at no additional charge.

There is no obligation to demonstrate that throughout the exchange, basic residential service is available on a stand-alone basis at comparable price, quality, and functionality (for example, wireless 911 in rural areas does not result in accurate identification of caller location often).

The adverse economic impact of allowing the electing incumbent utilities to abandon the COLR obligation immediately in larger exchanges and gradually in those with less than 5,000 housing units without first demonstrating the availability of functionally equivalent alternative service, and with no corresponding obligation to extend landline broadband into less dense, more rural areas that will be most significantly impacted by the loss of COLR, will hurt those areas disproportionately and will increase the “digital divide” that now exists between densely-populated areas that have meaningful competition and alternative POTS available at competitive prices, and those areas where the higher cost of deploying landline broadband has caused investment to lag.

2. Commission has no gatekeeper function in determining when to allow electing utility off the “hook” of being COLR; instead the electing utility makes a filing and the Commission “shall” approve the filing. No filing is needed with the Commission if the utility ceases providing stand-alone basic local exchange service under subsection 2(a).

3. ETC obligations are subject to savings clause, and AT&T has argued that the residential customers are protected because they are prohibited from abandoning the TDM network by 47 U.S.C. Section 214(e). What many officials may not be aware of is that AT&T is actively promoting the “reform” of the Section 214 discontinuance procedures and network modification rules “to facilitate retirement/termination and replacement of TDM-based networks and services with IP-based broadband networks and information services.

4. AT&T argues that it must be relieved from the obligation to maintain, and any further investment in what it calls the “legacy” TDM network, and freed to invest in the new wired and wireless IP-based network that it seeks to further develop. It has suggested to the FCC that a date certain be set for sunsetting TDM-based services, after which time it would no longer be required to maintain the PSTN (which it now refers to as the TDM) network, and that all customers would be required to switch to IP services, which it argues should be classified as “information services” and be minimally regulated.

While it is argued that the obligation to maintain the existing network is redundant and inhibits investment in further development of IP-based networks, the reality is that there are areas of higher-cost, usually rural areas, where that investment will not likely be made to an extent that it will be made in areas where demographics and the existence of competitive suppliers will attract more investment, better pricing and availability of an array of services. Absent a continued obligation to be carrier of last resort, whether through the TDM or IP network, and absent any assurance that if relieved of that obligation, all residential customers will have access to stand-alone, affordable POTS from another carrier, access to such essential services is not guaranteed.

Nothing in state law demands that the delivery of basic telephone services be provided by the electing utilities through the existing TDM network; and in fact, as AT&T described in the November 7, 2012 FCC filing on opening a case for the TDM-to-IP transition, higher cost areas could be served by wireless networks integrated with the existing landlines. There is no commitment, and no enforceable obligation absent COLR, that AT&T or other electing utilities would replace the TDM-based basic service with IP-based service of a comparable profile. What AT&T appears to be seeking in federal filings and through bills such as this, is more than the ability to transition from TDM to IP-based telecommunications services and to no longer have to maintain the TDM network. It seeks to extinguish the carrier of last resort obligation, current interconnection obligations under the Telecom Act of 1996, and the core principle of the Telecommunications Act of 1934 that everyone would have access to phone service on a “common carriage” basis.

5. The bill fails to address interconnection issues with other networks, and access for carrier-to-carrier wholesale services. The applicability of FCC interconnection obligations to “all-IP (Internet Protocol)” networks, which is what AT&T wants to move towards, is not currently clear and has yet to be defined by the FCC.

AT&T has made clear, in an August 30, 2012 letter to the FCC Secretary, and in the November 7, 2012 filing of a “Petition To Launch A Petition regarding the TDM-to-IP Transition” that the FCC should “reform or streamline” the obligations of utilities prior to discontinuance of service, (i.e. the obligation to seek prior authorization to build, operate, or discontinue service). If AT&T and other ILECs can abandon service in any part of their network without prior authorization and consideration of the impacts on customers and on interconnected competitors, significant adverse effects on the public may occur. The extinguishment of the Carrier of Last Resort obligation, coupled with AT&T’s desired transition from the TDM to IP network, raises a significant concern that other providers, such municipal utilities, that provide telecommunications or broadband services, may not be able to interconnect with AT&T’s network. The FCC will ultimately determine what interconnection obligations will attach to AT&T’s “all IP” network, and AT&T has petitioned the FCC to open a case on these and other rules related to the transition from TDM to all IP network. Bills like this are intended to speed AT&T’s shift to an all-IP network, by excusing them from the current obligation to provide basic, stand-alone telephone service, and allowing functional (rather than physical) abandonment of landline basic telephone service through the TDM system.

Given the pendency of the FCC petition, and the lack of a replacement source of basic telephone services for many areas of the Commonwealth, and the lack of enforceable commitment to extend all-IP-based basic telephone service to replace the current service availability, excusing the electing incumbent utilities from the COLR obligation is unjustified and dangerous.

In sum, as of the date of the enactment of the bill, for Windstream, Cincinnati Bell and AT&T, no obligation to provide basic telephone service to a new residence would exist, and existing offerings of stand-alone basis telephone service could be terminated under the bill with no assurance of affordable, available, reliable, stand-alone service from any other provider

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