NARUC Notebook...
Speakers at a NARUC panel on issues surrounding large incumbents’ selloffs of rural exchanges said the public policy implications of such transactions remain unsettled. Jessica Zufolo, analyst with Medley Global Advisors, noted investors have been urging Bell companies to sell off their low- or no-profit rural landline exchanges and invest the money in higher-profit wireless, Internet and video ventures. “Wall Street expects to see [rural] divestitures. The question is when, at what price and under what terms.” She said there’s lots of uncertainty that might inhibit potential buyers of Bell rural exchanges. Zufolo said universal service fund requirements might discourage smaller telcos from buying up Bell companies’ rural exchanges, if the new owner is forced into costly upgrades to keep receiving subsidies. She said current uncertainties might lead small companies to bid on only small pieces rather than on an entire market or region, or to sit out altogether for now. Consultant Michael Balhoff said “all companies are doing strategic re-evaluations of their rural exchanges” because of technological and regulatory uncertainties. He said rural line prices have slipped substantially as new technologies expand rural competition opportunities, and potential major changes loom to universal service and intercarrier compensation systems that will greatly effect revenue streams. Bob Udell, western region pres. of rural carrier Consolidated Communications, agreed these factors could be “deal killers,” but said other factors bear on his company’s decisions to buy an exchange. He said overall condition of the physical plant and customer records, extent of competition, potential market demand for new or add-on services, network upgrading costs, and regulatory policy regarding multiple universal service providers in a market all can be deal makers or deal-breakers. He said a run-down, neglected exchange in a stagnant rural market in a state that certifies multiple universal service providers wouldn’t be attractive. He said rural companies also want the best possible return on their investments. Dorothy Atwood, AT&T senior vp-regulatory policy & planning, said her company is committed to its rural markets and to exploring new ways for bringing advanced broadband services to underserved rural areas, including satellite and fixed-wireless broadband service. Atwood said public policy should “encourage the ability and willingness to serve rural areas.” She said rural broadband penetration requires regulatory policies that support ubiquitous broadband. Fierce competition, she said, means large companies no longer can overprice in urban markets to subsidize rural customers. Atwood also challenged cable-industry arguments that large incumbent telcos like AT&T don’t need subsidies: “If your are investing to serve rural customers, then public policy should support you. The cable people aren’t. Who’s serving rural America? It’s the wireline and satellite providers.”
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An advisor to a Ky. state initiative to make broadband universally available throughout the state by the end of next year told a NARUC audience that one of the biggest challenges was finding out where phone companies were providing or planned to provide their own broadband services. Hilda Gay- Legg of Legg Strategies, an advisor to the ConnectKentucky public-private venture launched by Gov. Ernie Fletcher (R) in the fall of 2004, said it was extremely hard to get information from phone companies about where their services were currently available or where they planned to launch within the next 12 months. She said the project required an inventory of existing broadband infrastructure deployment and service availability. “How can we know where we're going until we know where we've been,” she said: “If we know there’s not going to be broadband someplace, then we're going to go out to the community and recruit people to get broadband there.” She didn’t suggest strategies for finding out broadband deployment data but said state efforts to obtain such data could have great value for state and national broadband policy. She said it’s hard to make sound policy from inadequate data.
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State regulators at NARUC’s summer meeting learned of a new radio-based technology that potentially could turn every natural gas line in the country into a cheap broadband pipe into homes and offices, capable of handling multiple providers of telephone, Internet and cable TV services. “Time Warner Cable really hates us,” quipped Pat Nunally, pres. of Nethercomm Corp.: “They think we are the devil because we won’t make exclusive contracts.” Nunally invented a low-power, ultrawideband, high-frequency transmission system that sends radio signals through existing, unmodified natural gas lines. He said his patented, packet-switched, mesh-network system offers huge advantages over BPL, satellite and fixed wireless broadband technologies because it’s cheap. He said it uses mainly off-the-shelf electronics, uses the unmodified gas-line infrastructure existing between sending and receiving points, and has vast capacity. He said that since the radio signal propagates at low power only through the natural gas already in the pipelines, and doesn’t escape into the open air at any point, the Nethercomm system can use the entire radio spectrum. He said he’s asked the FCC for a declaratory ruling allowing “conduit radio” such full-spectrum use. He said his company has a deal with San Diego’s gas utility for a field trial of the technology in a residential neighborhood, possibly in Oct., and has a contract with a cable content provider for trial programming. He said the trial installation will provide 6 GHz of throughput to each house. He said installation of Nethercomm equipment on gas lines employs the hardware and techniques routinely used by the gas industry for installing devices that monitor gas distribution networks. Capital investment for the trial, he said, will be less than $50 per participating household, and estimated the system could be economically viable if only one house in 48 passed took the service. He said the Nethercomm technology also offers gas utilities a cheap new way to monitor gas flows, read meters remotely, and detect line breaks and intrusions. While all this sounds revolutionary, he said there are some key regulatory issues that need to be resolved, such as whether Nethercomm would have to negotiate separate right-of-way agreements with municipalities in order to put its signal through existing gas lines, and whether its regulatory obligations are those of a passive dumb conduit or active wholesale service provider.
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Speakers at a NARUC panel on interconnection in today’s competitive marketplace said ensuring fair and reasonable interconnection rates and terms continues to be a core regulatory responsibility. “Virtually no interconnection occurs today without force of law,” said CompTel Pres. Earl Comstock. He said history has shown that dominant providers won’t connect with new entrants unless forced by law to do so. He said the FCC has been moving more and more communications services from Title II telecom regulation into information service or cable service categories that don’t include interconnection obligations, and that trend might ultimately hurt telecom competition. Doug Garett, Cox west coast regulatory vp, said interconnection is an issue unique to telecom. “Cable TV competition doesn’t require interconnection but telecom competition needs full interconnection.” He said commercial interconnection negotiations with major telecom carriers failed. “Out of 50 interconnection agreements we have with RBOCs, only 3 were commercially negotiated. The rest were forced through arbitration and litigation.” Pete Selinski, Sprint Nextel regulatory policy dir., said cell site access and transit traffic carriage essentially remain monopoly businesses, but said the FCC still persists in deregulating special access and other wholesale services: “Competition requires enforcement of rational, explicit, convergence-friendly, consistent, pro-competitive interconnection regulations.”