SB 135 May Adversely Affect Basic Phone Service

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Council Expresses Concern That SB 135 May Adversely Affect Basic Phone Service For Rural, Low- and Fixed- Income Kentuckians  Posted: February 14, 2012


Some large telecommunication service providers in Kentucky are advocating the complete deregulation of basic telephone service. Gone by June of 2013 would be any obligation on the part of AT&T or any other “electing” telephone utility to provide basic telephone service to all persons in the geographic area served by that utility. Gone also would be the power of the Public Service Commission to independently investigate consumer complaints regarding the adequacy of telephone service

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 that the Commission would not be able to control or regulate.

In requiring that access to basic telephone service continue to be regulated, the General Assembly recognized that basic telephone service is, for many Kentuckians, an essential service. In comments before the Federal Communications Commission, AT&T has called “plain-old telephone service” a “relic[] of a by-gone era.” Yet while access to broadband and cellular communication services is taken for granted in major urban areas, for many residents of the 48th poorest state in our nation, access to cellular and broadband services is limited, due to location, to limited income, or both, and reliable 911 emergency service is largely limited to landlines.

The Council is concerned that deregulating basic phone service may result in a loss of service accessibility to low- and fixed-income Kentuckians, and to those whom it is more costly to provide service, and may increase the divide between Kentuckians that are linked to broadband and cellular communications, and those who are left behind.

Ending the “Regulatory Compact”

Traditionally, telephone companies were franchised by the Public Service Commission to provide service within a set geographic area, and were given a monopoly on providing local service in return for regulation of rates and service and an “obligation to serve” all customers. These regulated telecommunications providers are called the “Incumbent Local Exchange Carrier” (ILEC). In order to assure that costs for service those living in more remote areas were affordable, the costs of service were “averaged.” With deregulation of the industry, other companies may now offer services within an area, and are called “Competitive Local Exchange Carriers.”

Currently, “basic local exchange service” for non-electing carriers is regulated in the Commonwealth. In return for an approved rate of return on investment and a geographic monopoly service area, telephone companies agree to meet service obligations, to provide service to anyone requesting that service at rates that are fair, just and reasonable, and to provide special services to those in need.

“Basic local exchange service" is a single, voice-grade line provided to residential or business customers with unlimited calls within the telephone utility's local exchange area and access to emergency 911 telephone service, directory assistance, and operators services. For non-electing carriers, the rates that can be charged for the basic service are regulated at cost plus a reasonable return on investment and cannot exceed rates that the Public Service Commission deems to be “fair, just, and reasonable.”

In 2006, the Kentucky General Assembly allowed ILECs to elect to be deregulated for all services other than basic local telephone service, and the three largest carriers in the Commonwealth, AT&T, Cincinnati Bell, and Windstream, elected to do so. For an “electing” utility, the basic service rates were capped for five years and thereafter are deregulated – they are set by the utility and the Commission has no authority to approve or reject them. (For small electing utilities, the service rates were capped for one year and increases were limited thereafter to the consumer price index.)

What would happen to access to local telephone service under the bill?

AT&T and other electing ILECs would no longer be required to provide basic service to all persons in a service area. Six years after electing to deregulate all other services, and no later than June 30, 2013, the obligation to provide basic local service would be extinguished and Kentuckians would no longer be assured of access to reliable basic phone service.

By June 30, 2013, 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 ILEC to provide service would be gone. Once the sunset provision takes effect, an electing utility could eliminate service to any areas that were not profitable enough to service, potentially leaving higher-cost and low-income areas without access to basic phone service.

Even before that time, in any area where two or more service providers offer a voice service of any kind, whether a landline, voice-over-internet-protocol, or wireless service (one of which can be an affiliate of the utility), or where there is one other company providing broadband service, the utility is relieved of any obligation to provide service. There are at least two providers of service in every area of the Commonwealth today, though effective competition is not universal.

Also, even if there is no competitive offering of voice service, the utility may choose to satisfy the obligation to provide voice service through any technology or through any affiliate, and by doing so becomes completely deregulated as to rates, terms, conditions and availability of service. As written, AT&T and other electing ILECs could decide to cease providing hardwired landline service in an area and offer instead to provide basic service through cellular phones or broadband services only, and the customer would no longer be assured of access to basic landline service.

Five years after the utility elected to deregulate the utility would no longer be required to file the tariff showing the costs for basic services, so that the public would not be able to monitor cost increases that now must be disclosed.

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.

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.

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.

What protections would be lost?

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, 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 is concerned that completing the deregulation of the three electing telephone companies may result in a loss of access to basic telephone service 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. The Council urges careful consideration of the effects of eliminating the obligation to serve as “carrier of last resort” for the most vulnerable of Kentuckians, and 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.
By Kentucky Resources Council on 02/14/2012 5:32 PM
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