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March 13, 2006


Dear Representative:

I am writing to ask that you oppose House Bill 337, a bill that would allow an "electing utility" to opt out of the current regulatory framework for providing many telephone services. The bill lacks sufficient protections for consumers and erodes the ability of the Public Service Commission to assure no loss of quality of existing basic services and to police anticompetitive activities.

KRC appreciates the efforts of the sponsors to craft a bill that both serves the interests of the telephone utilities, and those who represent Kentuckians that, in a deregulated market, those utilities may not "choose" to seek out. Unfortunately, HB 337 fails to provide those assurances.

KRC, on behalf of its members and the low- to moderate-income individuals we represent, has these concerns with HB 337HCS:

* 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.

* 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 state remedies against predatory pricing, leaving only the unwieldy remedy o a federal anti-trust action. Additionally, the lack of transparency in pricing makes enforcement of antitrust and other consumer protection laws problematic at best.

* There is no transparency in the pricing of stand-alone services and packages, so that the companies could vary those prices where necessary to beat other provider quotes, and that they want to have the flexibility to price services among identically-situated consumers 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 assumes truly competitive markets when in fact most of the state's markets lack robust competition. KRC suggested, and the utilities rejected, the idea of the PSC having a gatekeeper function to allow deregulation only where and for so long as 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.

* 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.

* 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 allowed 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. For the reasons outlined above, I urge you to oppose HB 337. Thank you for your consideration of these concerns regarding this important matter.

Tom FitzGerald

By Kentucky Resources Council on 03/13/2006 5:32 PM
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