Scaled back telecom reform may be on table

PUC will play major role with its rule-making
The Colorado Statesman

State lawmakers may look at a more narrow focus for telecommunications reform in the upcoming legislative session after a massive undertaking by the legislature earlier this year ended in political gridlock and inter-party fights over subsidies and deregulating telephone service. But legislators are first watching steps being taken by the Colorado Public Utilities Commission to adopt rules that will serve as a framework for similar efforts.

Sponsors hailed a 71-page bill introduced by Reps. Angela Williams, D-Denver, and Carole Murray, R-Castle Rock, and Sens. Mark Scheffel, R-Parker, and Lois Tochtrop, D-Thornton, as the “most important” bill of the previous legislative session. It would have offered the greatest telecommunications reform in over two decades. But concerns over eliminating infrastructure subsidies and broadband funding, as well as apprehensions by some unions and corporations, ultimately doomed the bill. Sponsors asked to kill the measure just days before the session came to an end.

Since then, the PUC has taken up the issue. On Nov. 20, regulators adopted rules that will set a policy framework for looking at competitive areas where rate deregulations could take place.

A written order is expected within the next couple of weeks, and then the commission will begin proceedings to determine where there is effective competition in the state, defined as having three or more service providers.

“That’s kind of where the meat and potatoes will be,” explained Terry Bote, spokesman for the PUC.

By deregulating parts of the industry through eliminating price controls, telecom companies would be able to move towards pricing flexibility.

In those competitive areas, the state would also take steps to eliminate the so-called High Cost Support Mechanism, which provides $54 million in subsidies for infrastructure related to providing phone and Internet services in rural parts of the state. Carriers currently receive the subsidy through a small surcharge on customers’ bills.

The PUC’s work has been ongoing since 2010 when the Colorado Office of Consumer Counsel pushed for a review of the support mechanism. The request also spurred lawmakers to propose reforms this year.

CenturyLink, the state’s largest provider of rural telecom services, receives the bulk of the subsidy. The carrier diligently lobbied against the reform legislation this year, suggesting that eliminating the assistance would result in increased costs for ratepayers and a reduction in services. While CenturyLink agrees that the reform should come from the PUC — not the legislature — it is still expressing concerns about the rulemaking.

“We’re very disappointed in the route they seem to be going…” said Jim Campbell, regional vice president for legislative affairs for CenturyLink. “Everyone is going to have to take a look at what they’re going to do in rural Colorado… the effect of this policy could be eliminating wired service in rural Colorado. If that happens, then these subscribers also are going to lose any chance of getting broadband and advanced services if the networks are not built and maintained.”

CenturyLink does support the intentions of the PUC, which is ultimately to bring reform to an industry that has drastically changed over the past 20 years. As Bote explained, “Because of the technological and competitive changes in the market and in the industry itself, we wanted to look at reforming the regulations. And statute gives us a mandate to encourage competition; encourage innovation, so those are the things that spurred this on.”

An explosion of cell phone and Internet use has forced an evolution. Over the past 10 years broadband subscriptions have risen by over 2,500 percent and wireless subscriptions have jumped by more than 155 percent, according to AT&T Colorado. Meanwhile, landline use has fallen by half.

“The underlying goal of both the legislation… and what the PUC is doing we agree with; we need telecom reform in the state of Colorado; we need to reform the High Cost Support Mechanism… to ensure that those areas that need high cost get it,” said Campbell. “We absolutely agree with the goal. But similar to… the legislation, the framework that the PUC set out… doesn’t accomplish those goals and will have a negative impact on rural Colorado.”

The Colorado Telecommunications Association, which represents smaller rural providers, said it is waiting on the PUC’s written order before officially supporting or opposing the proceedings. The organization, however, released a statement on Nov. 20 expressing concern.

“The Colorado Telecommunications Association remains concerned that its members can continue to provide quality telephone service at an affordable price for rural Colorado residences, farms and ranches, businesses and critical community services,” Pete Kirchhof, CTA’s executive vice president, stated after the PUC’s oral adoption of rules.

“The PUC’s decision to create an effective competition test that can be used to determine funding for rural high-cost areas — especially one that presumes wireless service is substitute for basic telephone service — could have a negative impact on quality of service and price for rural customers,” Kirchhof continued. “The PUC has created a new regulatory scheme that will result in a quagmire of costly legal proceedings for each of CTA’s members that could last up to three years — with little or no benefit to CTA customers.”

Support for telecom reform effort

Bill Soards, president of AT&T Colorado, sees it differently. His company does not receive the high cost subsidy. But Soards said that’s not the reason AT&T is supporting the reform effort. He says the state is simply overdue for an update.

“The fund was created in the mid-’90s to help provide affordable telephone service in high cost rural areas in Colorado. The formula, where these dollars go and even the census numbers — the population numbers of some of these communities — haven’t been updated in decades…” Soards said.

The high cost fund supports areas of the state where there truly is one option for phone service. But it has also gone to support subscribers in parts of the Front Range, including Aurora, Parker and Fort Collins, according to the Denver Post.

Soards, however, says there are bigger issues at play than just deregulation and subsidy funding. He says that while the PUC is addressing some important issues, the legislature in the upcoming session should consider measures that address the future of the telecom industry in Colorado, including broadband expansion.

“In my mind, the PUC is addressing and updating some of the legacy telephone regulations that need to change. The legislature ought to be forward focused, looking at things that are more specific to broadband infrastructure,” said Soards. “We need to make sure that Colorado is as attractive of a place as possible for private investment in broadband and wireless and new technologies to help bring consumers the kind of services that they demand.”

He believes the legislature in the upcoming session — which begins Jan. 9 — will take a more focused approach to telecom reform.

“I don’t think there’s going to be a comprehensive 40-page telecom rewrite like we saw last session,” opined Soards.

Lawmakers considering bills

Murray agreed that it is unlikely that there will be a gigantic reform effort like last session, especially considering the PUC’s work. But she didn’t rule it out.

“We’re waiting to see what the PUC is going to do, which issues they’re going to take on and where they come down on certain kinds of deregulation,” said Murray. “Once we see that, then we’ll move forward if there’s something else that needs to be done. It’s a huge unknown at this point.”

In the meantime, she is working on a bill that would address some of Soards’ thoughts on broadband. Her measure would aim to protect Internet traffic from state regulations.

“We want to be sure that IP-enabled communication doesn’t become another heavily regulated industry,” declared Murray.

But she is still concerned about subsidies, stating, “We want to be sure that the rural areas who deserve some subsidy are getting it, but those areas that are no longer considered rural aren’t being paid for by the taxpayers and benefiting any one phone company that ends up having to compete with others who are not getting that subsidy in the same market.”

Lawmakers are also considering legislation that would shift the high cost fund to support broadband expansion in rural areas. That was a major sticking point in the previous session, as legislators fought over how much money to place in a fund managed by the Governor’s Office of Information Technology.

Tochtrop said she will likely meet with Williams, Murray and Scheffel to consider their options for another go at telecom reform.

“We’re going to look at it very carefully… given the fact that the PUC has addressed some of the issues that we were concerned about last year,” she said. “So, we’re going to look those over and also see if we can do any other statutory changes. There’s nothing drafted right now.”