Cal. Commissioner Pushes ‘Internet Freedom’ to Replace Conventional Regulation

“The revolution is here,” Kennedy said in the text of remarks to the Cal. Telephone Assn.’s annual conference in Monterey. “Old regimes and old ideas alike are being shattered. The survivors will include the strong, the nimble, the creative and the very, very lucky -- those who happen to be in the right place at the right time.”

Kennedy applauded NARUC’s proposed intercarrier compensation framework that “does not apply with IP-to-IP connections -- leaving those transactions to the market and commercial negotiations between carriers… The fact that there was not even a strong argument presented by state commissioners that we should try to maintain jurisdiction over intrastate IP-to-IP transactions is groundbreaking in its recognition that the current regulatory regime can’t and shouldn’t be applied to these new technologies,” she said.

“This is a seismic shift in regulatory thinking that must not be overlooked,” Kennedy said: “It is a tacit recognition that market forces provide greater benefit to consumers, are more sustainable, and in an IP-based world, more powerful than regulators.” Concerning the Vonage case on VoIP regulation, she said: “I am heartened to see a number of state commissions now recognizing that they must shape their roles to fit an IP world, as opposed to the other way around. This shift… is much more significant given what’s happening -- or not happening -- at the FCC.”

“The FCC left all significant decisions -- IP-enabled services, intercarrier comp, Universal Service reform -- in limbo as the leadership changes and Congress attempts a rewrite of the Telecom Act,” Kennedy said: “That means any significant reform most likely will come from court decisions, state commissions and/or industry itself… While this isn’t optimal, I see this as an opportunity for California and other states to step up and fill the void.”

Three approaches are needed to fill a vacuum that keeps policy-makers “stuck in the same debate” over “whether the competitive market will protect consumers” or regulation must continue to do that, Kennedy said: (1) “Rules that protect a consumer’s right to access the content of their choice over their broadband connection.” (2) “Transparency of information about the services customers select, including any limitations on bandwidth, equipment or applications.” (3) “Market monitoring that punishes anticompetitive behavior and discrimination -- relying on ex-post review rather than heavy-handed regulations -- with state commissions responsible for enforcement, and with expedited appeal to the FCC.”

Kennedy said Cal. should: (1) “Eliminate outdated regulations designed for another era that hurt consumers and hinder investment,” including ILEC tariffing requirements for service bundling and price reductions. (2) Reform, under existing laws, programs such as Universal Service, Lifeline, the Deaf & Disabled Program and 911 by eliminating interstate and intrastate access charge disparities, “ensuring that Public Safety Access Points… conduct the technical upgrades required to facilitate E-911 calls from cellular, cable and VoIP providers,” and “moving to a numbers-based system of funding Universal Service programs.” On the last point, she conceded “it’s uncharted territory as to how far a state can go…, but I see no reason why California shouldn’t move forward with developing a workable model.” (3) “Develop a new framework for consumer protection” that replaces with effective protection of customer choice “the vast majority of regulations and enforcement tools on the books today,” which were “designed to protect the consumer in a monopoly world.”

Kennedy proposes a Cal. PUC “rulemaking to assess and revise regulation of all telecommunications industries in California except for small incumbent local exchange carriers,” an official draft order says. “The primary goal of this proceeding is to develop a uniform regulatory structure for all telecommunications utilities, except small ILECs, to the extent that it is feasible and in the public interest to do so.” The proceeding is premised on “dramatic changes” to the telecom landscape, including wireless replacement, cable telephony, bundling in place of discreet long distance service, text messages and VoIP. Several issues are specified as outside the proceeding’s scope, including the quality of carriers’ service, requests for relief better addressed in narrower proceedings, Lifeline, changing existing prices, and interstate access charges.

The order states a preliminary determination that no evidentiary hearings are needed and the proceeding is “quasi- legislative,” in setting “policy or rules… affecting a class of regulated entities.” Written comments would have to be filed within 45 days and replies within 60 days of the order’s mailing. Any motions for evidentiary hearings would be due in 70 days. “To facilitate broad public participation,” those interested could mail the commission a brief notice of participation, as well as through the usual procedure requiring an appearance in person.

The proposed order singles out for solicited comment “one possible regulatory framework,” amid 9 sets of issues laid out for phase one of the rulemaking. It “would include the following elements:

“A. No price regulation except for basic exchange local services provided by the large and medium-sized ILECs to residential and business customers. B. No imputation rules except for basic local exchange services provided by the large and medium-sized ILECs. Imputation for basic local exchange services would be set at the UNE-L floor.

“C. Use advice letter filings to revise prices for all services provided by the large and medium-sized ILECs, except basic local exchange services. Price decreases could be implemented on one day’s notice, and price increases after 30 days’ written notice to consumers. D. No limitations on promotions. E. Adopt FCC resale requirements. F. Allow ILECs to keep gain on sale. G. Decouple Yellow Page revenues from ILEC telephone operations. H. Refrain from price regulation of new services and new technologies. I. Conform reporting requirements to ARMIS.”

The rulemaking was on the agenda for Thurs.’s PUC meeting but late Wed. was held for “further review” until at least March 17 at the prerogative of Comr. Geoffrey Brown, the lone holdover from what before this year was a more liberal, proregulatory majority. Brown earlier had put a hold on an effort led by Kennedy to suspend the Commission’s new telecom bill of rights, which covered cellular as well as wireline services. Ultimately, he relented and Kennedy’s effort succeeded 3-1 with the support of one of 2 new commissioners appointed by Gov. Arnold Schwarzenegger (R).

State Sen. Martha Escutia (D-Montebello) introduced an abbreviated version of the commission bill of rights (SB- 1068) in the legislature this week. It’s cosponsored by Sens. Debra Bowen (D-Redondo Beach), Richard Alarcon (D-Los Angeles) and Liz Figueroa (D-Fremont). The bill will go to Senate Energy, Utilities & Telecom Committee, which Escutia chairs, but no action has been scheduled.

At the convention, Kennedy said that “as more and more vertical integration occurs -- with local, long distance and wireless all being offered by the same large company, suddenly the specter of an oligopoly with 2 or maybe 3 large players duking it out is not that hard to imagine.”

The “one thin line that separates this dynamic [communications] market from the oligopoly people fear” is “Internet freedom,” Kennedy said. “Without access to Vonage or 8x8 or Verizon’s VoIP service over my broadband connection, my choices are limited to SBC, Comcast or a few wireless carriers. Now, that’s still a lot of choice, and wireless options will only continue to grow,” with cellular consolidation benefitting competition “by creating national networks strong enough to compete” with the Bells’ wireless outfits. “Rampant innovation will continue to make it hard to exercise a great deal of market power, with the advent of Wi-Fi phones and dual Wi-Fi cellular phones the next new thing coming down the pike.”

But “there are no adequate, technology neutral rules to safeguard consumer access to VoIP services today,” and “there are disturbing reports” of incumbent service providers interfering with VoIP, Kennedy said. She cited Vonage complaints to the FCC and gripes about British Telecom last year, and comments by Nuvio CEO Jason Talley that his engineers had written in less than 5 minutes code to block Net calls from one VoIP provider.

Debate over whether ILECs “should be forced to provide ‘naked DSL’, or whether cable companies should be forced to live by the same open access obligations as common carriers, are part and parcel of the same regulatory dilemma,” Kennedy said. But she said she disagreed with the Cal. PUC’s Brand X position because “applying common carrier open access requirements to cable companies would simply kill investment in broadband.”

Kennedy said she had been encouraged at the NARUC meeting that “state commissioners stepped up to the plate to try their hand at developing a framework to reform this woolly mammoth” of an intercarrier compensation system, “rather than sit back and simply leave it to the FCC or industry to solve the most vexing problem facing regulators today.” But “all the plans seem to move in the same general direction, with different flavors of the same medicine to fix this ailing system.”

Kennedy also applauded that the NARUC “task force agreed, and NARUC didn’t oppose, a framework that essentially gets regulators out of the business of determining costs. Nothing is more fundamental to telecommunications reform in the long run… Even a baby step in this direction is huge.” The task force proposal “takes that baby step by endorsing uniform national rates… It’s not perfect. It’s transitional.”