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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

KRC Testifies Against New AT&T Phone Deregulation Bill  Posted: January 30, 2014

Senate Bill 99 SCS: 2014 Version of AT&T’s Deregulation Bill Fails To Assure Continued Access To Reliable Basic Phone Service For All Kentuckians

Madame Chair, Committee Members:

I appreciate this opportunity to testify against passage of SB 99 SCS.

Current Kentucky law

• assures all Kentuckians access to “basic local exchange service” on a stand-alone basis. Basic local service means unlimited calls within the local exchange area, 911 emergency service, the ability to interconnect with other exchanges, directory assistance, operator services, relay services, and a directory listing.

• The Public Service Commission currently has the power to require phone utilities to provide these services and to require that performance objectives for quality of service meet standards set by the Commission.

• Incumbent Local Exchange Carriers (ILECs) such as AT&T are required to act as “Carriers of Last Resort (COLR),” providing service to any customer requesting basic service, and receiving funding to help defray service costs.

Under the AT&T Bill, SB 99,

• AT&T, Windstream (where it is the ILEC), and Cincinnati Bell could immediately stop offering stand-alone basic telephone service to new and existing customers in many communities in the Commonwealth, including all of some or all of Boone, Kenton, Campbell, Franklin, Scott, Fayette, Clark, Madison, Laurel, Knox, Whitley, Warren, Christian, McCracken, Henderson, Daviess, Hardin, Jefferson, and Oldham Counties (all exchanges with over 15,000 housing units as of the effective date of the bill).

• Their obligation to provide service to any requesting customer on a non-discriminatory basis (known as the “Carrier of Last Resort” or COLR obligation) would be eliminated for those communities, so that no customer would have the right to basic or other service from these incumbent utilities.

• The Public Service Commission would lose jurisdiction over the availability, reliability, and quality of telephone service for these utilities.

For all other exchanges where AT&T, Windstream, or Cincinnati Bell are the incumbent phone utility,

• No new request for basic local service through a landline would have to be honored unless the utility had “installed landline facilities to provide basic local exchange service.” You might have been told that “Granny gets to keep her landline,” but the bill is ambiguous, and could be read to limit the obligation to provide landline service to only those locations where the initial landline was installed to provide “basic local exchange service” rather than any other service; or could be read to mean any location that already has a landline installed, regardless of the functionality of the services. A more clear statement would be “a location where there is no landline.”

• For new requests for service where there is no existing landline, wireless “voice” service could be offered by the utility or an affiliate, and could be bundled with other services that the customer might not need or be able to afford. No aspect of the quality, availability, or reliability of the “voice service” would be regulated by the Public Service Commission, despite the fact that, according to disclaimers by the wireless voice service, the service is not equivalent to wireline service in quality, functionality, and reliability.

• For all other service requests, (including those where a landline exists), the utility can at its option, offer the requesting customer an internet protocol (IP) based or wireless service. If the requesting customer does not order either, the Commission would retain jurisdiction to enforce the utility’s basic service obligation with respect to that customer at that location.

• If the customer requests an IP-enabled service or wireless service, the customer has only 30 days in which to request to switch back to the regulated wireline basic local service, and if not, the obligation to provide basic local service is extinguished.

Throughout the Commonwealth, the Public Service Commission would lose regulatory power to investigate and resolve consumer complaints regarding wireless and broadband services.

The Public Service Commission would also lose regulatory authority over mergers, acquisitions, and consolidations.

Committee members, current regulation of basic local exchange service reflects a judgment in 2006 by the General Assembly that, while other telephony services could be deregulated, basic local exchange service was an essential service that should remain regulated and available to all customers on a stand-alone basis, without the necessity of a contract commitment. This AT&T bill would end that obligation for new requests for service anywhere in the Commonwealth, and for new and existing service in those exchanges with over 15,000 housing units.

This is a time of transition in communications, and it is essential that as this transition occurs, the basic principles that have driven our communications policy for over 100 years be maintained and consumers protected. Those principles are universal service, network reliability, competition, consumer protection, and public safety.

Why are we concerned with this bill?

Because of the elimination of universal access to basic, stand-alone phone service in larger exchanges.

The new bill assumes that in exchanges with over 15,000 housing units, the carrier of last resort obligation and the obligation to provide stand-alone basic local service is no longer needed, presumably because competition is sufficiently robust that basic local exchange service will continue to be available to those who need it as an option without mandate, and that the quality and reliability of the service no longer needs regulatory oversight. There has been no demonstration that this is the case in and throughout each of these exchanges, and there already exists a mechanism in Kentucky law that would allow the Commission to approve deregulation of basic service on the basis of such a showing.

If robust competition for basic service offering exists throughout an exchange, AT&T should be required to demonstrate to the PSC that it does, and the PSC should decide whether relief from the obligation to provide it is in the public interest. If that competition ceases, the PSC should be able to reassert the obligation to be carrier of last resort.

Because of the replacement of highly-reliable landline service with less reliable and functional wireless service.

For all existing and new service in larger exchanges, and at locations in smaller exchanges where there is no current landline, the bill allows the utility at its discretion to offer wireless “voice” service, such as the AT&T Home Phone Service, instead of basic local exchange landline service. Access to stand-alone basic local service would be ended for such locations, as it would for those electing an IP-enabled or wireless service who do not request restoration of wireline service within 30 days after election.

While the functionality and reliability of wireless service will no doubt improve over time, such service is not comparable in quality and functionality to wireline service. The uproar caused by Verizon’s attempt to substitute wireless home service rather than repair landlines in some areas after Hurricane Sandy, and similar problems on Fire Island, underscore that currently, quality, functionality, and reliability of wireless phones are not comparable to landlines.

Thirty days is an insufficient period of time for a consumer to determine whether a wireless or IP-enabled service is comparable in quality and reliability. The consumer must be made aware at the onset of the differences in functionality of the wireless service from the wireline service in such areas as ability to support alarm systems and medical monitoring, fax capability, reliability during natural disasters, etc.

Because consumers are not protected against “slippage” in quality, functionality, and reliability of service during the transition from the TDM to IP-based network, and from wireline to wireless service.

While proponents of deregulation claim that “Kentucky still has rotary dial laws in a smartphone world,” there is nothing in current Kentucky law that inhibits the transition from the “publicly switched telephone network” to an IP-based network, or which has inhibited AT&T investment in Kentucky (which is still on the same pace of $200 million per year that it has been for several years), nor which requires that basic local exchange service be provided by wireline. Current law does not mandate that basic local exchange service be provided by a particular technology; only that it contain certain functionalities and meet certain reliability and safety standards. Eliminating the obligation to provide basic local exchange service, and allowing the replacement of such service with “voice service,” could result in less reliable, less functional, service in areas that are more costly to serve with a wireline.

Irrespective of the technology used, customers should not be faced with a decline in the current standards of reliability, quality, and functionality of basic local exchange service that are the hallmark of the regulated utilities.

Because nothing in the bill advances the extension of high-speed wired broadband in rural areas.

Kentucky has a significant digital divide between urban and rural areas, with high-speed internet access available in many urban markets but with little or no access in rural areas. Nothing in this bill advances the extension of broadband into rural areas; instead, allowing new service requests in rural areas to be met with “wireless voice” service could result in rural users paying significantly more for more limited wireless broadband access than urban users.

Because Public Service Commission authority to assure interconnection obligation continues irrespective of data technology should be underscored.

The bill contains language that indicates that nothing in the bill diminishes or expands the commission’s jurisdiction over carrier-to-carrier issues. KRC is concerned that the language should go further, and reaffirm the obligation to interconnect regardless of the technology used.

The Communications Act imposes upon telecommunications carriers “the duty to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers.” The effort by some carriers to redefine IP-enabled communications as “information services” in order to avoid the obligation to interconnect on a nondiscriminatory basis, suggests that the General Assembly should reaffirm that the duty to interconnect and to allow competing carriers access in a nondiscriminatory manner, is technology-neutral.

Conclusion

Our telephone network is the result of deliberate policies and a regulatory framework that has made access by telephone a universal right. We are used to highly reliable service that works in normal conditions and through many natural disasters due to landline phones being independently powered. We rely on our ability to seamlessly call others without a thought as to whether the other user subscribes to the same carrier, and regardless of where they each live.

The efforts by AT&T at both the state and federal level to deregulate communications services calls into question the future of a telephone system that is accessible to and reliable for all users. KRC believes that the shift from traditional time-division multiplexing (TDM) technology to Internet protocol (IP) technology neither requires nor justifies the abandonment of COLR obligations and the requirement to provide universal access to basic, reliable, phone service. As one observer noted, “neither the make-up of the physical plant nor the protocols used to transport data on the network diminish consumers’ need for basic service—if anything, advances and new efficiencies in technologies may justify raising the standard for what is considered basic service.”

Committee members, many Kentuckians still rely on traditional phone service, and the Federal Communications Commission is in the beginning stages of what will be a years-long process of helping the nation to move to the IP transition. Today’s regulated telephone system includes strong protections for consumers, which are threatened by AT&T and other carriers who seek little or no government oversight of digital communications and elimination of state and federal oversight of IP networks. Carrier of last resort obligations, which is the requirement that local telephone companies make service available to all households in their ervice area, have ensured that affordable and reliable phone service is available on reasonable request to all households. Going forward, access to affordable, high-quality broadband services is as important as access to basic phone service has been, yet broadband services have not been subject to COLR obligations. KRC believes that the definition of basic service should be broadened, not extinguished, to assure that the IP transition will assure that everyone in our Commonwealth continues to have access to one of the most reliable phone networks in the world, rather than hanging up on consumers and broadening the digital divide.

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