NARUC Trips on High-Cost Fund Reform, Advances Other Resolutions

NARUC’s telecom subcommittee narrowly defeated a universal service policy resolution calling for high-cost fund reform to be provider- and technology-neutral. The resolution failed even after revisions to allow the possibility that in some rural area technology-specific remedies might be appropriate to achieve universal service goals. Under NARUC rules, the resolution could be revived Tuesday by the full Telecom Committee.

The failed resolution took up matters that the Federal- State Joint Board should consider in recommending measures to curtail growth of the high-cost fund. A May Joint Board recommendation urged a cap on support to wireless carriers providing universal service. Other amendments made to placate critics included changing a clause citing significant phone penetration declines to make clear declines are not happening in all states, and removing explicit references to wireless universal service recipients. A failed amendment would have called for making fund shrinkage a policy goal of reform.

The resolution’s final form called for universal service support provided in a competitively neutral way that does not unfairly discriminate against any type of provider or technology. But it called competitive neutrality only one of several competing universal service goals. The changes to the resolution did not address state requests that NARUC wait on this matter until final reform recommendations appear in September. A motion to table this resolution until the November annual meeting failed on a tie vote. The resolution then lost by one vote.

Meanwhile, NARUC’s Consumer Affairs Committee advanced a resolution asking that the FCC, with state regulators and business associations, “immediately and aggressively,” alert businesses to frauds using Internet protocol-based relay services. The resolution said IP relay calls are untraceable, and criminals in the U.S. and overseas have abused IP relay to get merchandise by deceit. It said IP relay frauds harm businesses, legitimate IP relay users and the public that supports IP relay services through phone bill surcharges.

Consumer Affairs also approved a digital TV resolution committing NARUC to working with the FCC and National Telecommunications and Information Administration on consumer education programs to teach the public about the February 2009 mandatory transition to digital television (DTV) broadcasting. The resolution also notes the need to obtain a converter box for continued use of analog TV sets for over- the-air viewing. The resolution said the transition could disrupt consumer access to over-the-air television unless consumers learn what they need to do.

Consumer Affairs’ wireless termination fee resolution urged the FCC to revisit a 1992 finding that wireless contract termination fees are an efficient market promotion device that has helped make wireless service more available and affordable to consumers. The resolution said vast changes in wireless the past 15 years call the fees into question. It asked the FCC to revisit the economic assumptions underlying termination fees charged by carriers and their independent retailers and decide whether the fees still produce benefits for consumers and wireless carriers. The panel amended the original resolution to mollify wireless industry representatives who called its wording a prejudgement that termination fees are bad.

Consumer Affairs members heard a panel of speakers agree that it is time the FCC took a fresh look at wireless contract termination penalties. But speakers disagreed sharply on whether termination penalties harm or help wireless customers. Nebraska Public Service Commissioner Anne Boyle said the wireless industry was a fledgling business with only 9 million customers when the FCC in 1992 decided termination fees helped bring down the consumer cost of wireless subscriptions. “Today there are 247 million wireless customers and many carriers. Is it still fair to hold consumers hostage, making them pay a ransom to switch? It’s time to revisit these fees.”

Dane Snowden, vice president for state affairs at CTIA, said that “I don’t find the idea of an FCC review objectionable,” but he expects the FCC to draw the same conclusion about termination fees as in 1992. “Consumers can choose service plans without termination fees, but 80 percent self-select a plan with the fees.” He said only a few hundred of the industry’s millions of customers ever have complained formally about wireless termination fees, and the fees haven’t stopped roughly 25 million wireless numbers from being ported to new carriers the last two years: “The sky is not falling.”

Billy Jack Gregg, consumer advocate director at the West Virginia Public Service Commission, said “consumers hate early termination fees. The 2,000 fee complaints at the FCC last year were 20 percent of all telecom complaints.” He cited consumer group calculations that from 2002 to 2004 termination fees cost Americans $4.6 billion in out-of-pocket costs and lost savings opportunities, and that half of wireless subscribers would change carriers if not for termination fees. He said the wireless industry has a spotty record when it comes to consumer interests, citing a 2005 industry attempt to deprive states of the limited wireless service jurisdiction they still retain.

Mike Bennett, AT&T Mobility director of government affairs, said all major wireless carriers offer service options without termination fees, such as prepaid plans, month-to-month service and fee-less contract plans where consumers pay full retail price for their phones: “Customers voluntarily choose contract plans with an early termination fee.” The wireless industry has not done a good job of explaining to policymakers and consumers how the fees recover the phone set discount and guarantee that customers get the lowest possible rate, he said. He said consumers should be fully informed about the fees at point of sale, and carriers should offer at least a 30-day trial period for cancelling contracts without penalty.

Florida Public Service Commissioner Katrina Mcmurray said the case against termination fees isn’t clear-cut. “These fees aren’t inherently anti-consumer. Those who have to pay them hate them, but if they help keep wireless costs down, then people should be able to live with them.” She said the regulatory issue with termination fees is whether they are applied appropriately: “It could be considered unreasonable to impose new fees for contract amendments, or refuse to prorate fees, or impose fees when a customer moves to an area where the carrier’s service isn’t available.”

In response to a question, AT&T’s Bennett noted that some carriers already prorate termination fees, as AT&T may do. “The vast majority of customers are not affected by termination fees because they allow their contracts to run to term,” he said. CTIA’s Snowden said the market is the best way to resolve the termination fee issue, but Nebraska’s Commissioner Boyle said the wireless industry’s pro-consumer moves “were as much a response to regulatory pressures as they were to market demands.”

NARUC’s Telecom Committee is to take up Tuesday resolutions urging the FCC to require VoIP providers and other noncertificated telecom providers to report their phone number use, accepting a discussion paper on cost accounting issues associated with broadband over power line implementation, urging the FCC to develop a comprehensive, uniform method for collecting broadband deployment data and to empower states to collect the data, and endorsing the Consumer Affairs resolution on IP relay fraud. -- Herb Kirchhoff

NARUC Notebook

John Kneuer, head of the National Telecom and Information Administration in the U.S. Department of Commerce, told state regulators at NARUC that the nation’s relaxed broadband regulatory policy has started up “a broadband flywheel whose spinning is sustained by market forces.” He said broadband deregulation led to investment that expanded access that fueled demand that encouraged still more investment in a cycle that shows no signs of stopping. He said 94 percent of the U.S. population will have some form of broadband available to them by the end of this year. He said AT&T, Verizon and cable companies will be investing a total $43 billion this year to expand broadband availability. He said government’s relaxed spectrum policies have produced 51,800 WiFi hotspots around the country, expected to grow to 65,000 within three years. He said technical problems with broadband over power lines (BPL) are being overcome, and he expects to see BPL subscribership increase at least fivefold by 2011. “The United States has the world’s most fertile environment for broadband innovation and competitiveness,” he said. “Our role as regulators will pale before the power of the market forces we've unleashed.” In response to a question, Kneuer said vigorous competition among broadband technologies will bring forth ways to profitably serve many low-density rural areas. But he acknowledged there may be some “trailing pockets” where broadband market forces fail to work and bringing broadband to those areas may require some regulatory intervention.

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Speakers at a NARUC panel on broadband deployment Sunday said improving speed is an important policy goal, but it’s equally important to get some type of broadband service to areas that lack any broadband access. Billy Jack Gregg, consumer advocate director at the West Virginia Public Service Commission, said broadband speed doesn’t matter to a household that can’t get it or afford it. He said some form of landline broadband service is available to 86 percent of households, but only about 50 percent of households subscribe. Still, “broadband has been adopted at a faster pace than any other new telecom technology, even wireless.” He said only 69 percent of U.S. households own a computer, a major limiting factor to broadband expansion. Ken Kuchno, broadband development director for the Rural Utilities Service (RUS), said since 2002 when its broadband development programs began, the RUS has made 72 broadband loans totaling $1.5 billion and has another 21 in review for $963 million. He said RUS denied 110 applications totaling $2.2 billion. He said 40 percent of approved loans were to bring broadband to unserved areas and 15 percent were for areas with only one broadband provider. He said in the programs’ early years, most projects involved either fiber to the home or DSL. In more recent years, he said DSL has been displaced by fixed wireless. None of the pending applications at RUS are for DSL, he said. He said improving broadband speed comes down to money: “The faster you go, costs go up.” Roy Lathrop, state affairs director for the National Cable and Telecom Association (NCTA) said public subsidies should focus on unserved areas, and let market forces work to increase speeds. He said average broadband speeds have increased fivefold since 2000, driven by killer applications such as YouTube. He said YouTube “uses more bandwidth today than the entire United States did in 2000.” Jim Forcier, president of the 3,500-line Chazy-Westport Telephone Co. in rural upstate New York, said rural areas have more use for broadband than urban because of distance to stores, jobs and communities, but existing infrastructure in many places can’t support high-speed broadband: “That has to change.” He also said broadband is a constantly moving target and users’ demand for higher speeds is all but insatiable. He said his company has DSL available on all its lines but is in process of upgrading from DSL to fiber to the home. He said about 20 percent of his customers subscribe to his company’s broadband, but most people in his service area have cable modem service as an alternative. Link Hoewing, Verizon assistant vice president for Internet technology policy, agreed that “job one for broadband policy is rural areas.” He said the U.S. has multiple platforms for broadband delivery, but DSL “is still the ubiquitous broadband workhorse” that’s available to over 80 percent of Verizon customers. He said fiber is the coming thing, though, and Verizon’s FiOS service passes 9 million homes, with plans to double that number by 2010.