House Bill 1627, sponsored by SBC, is currently being debated at the Indiana Statehouse. This bill is detrimental to cities and towns for a variety of reasons. While simplistic in its presentation for parity, the bill ultimately creates an uneven playing field for SBC’s competition as SBC has about 95% market share in local telephony.
The bill, as written, would have the effect of doing the following:
-Keeping competition away from Indiana. This means a loss of new investment into the state and a loss of new jobs. No or little competitive entry as a result of this bill means higher rates for consumers and new incentive to improve customer service by incumbent telecommunication providers. The IURC sets the wholesale rates that SBC and other incumbent telecommunication providers can charge a competitor. This was a hallmark of the Telecommunications Act of 1996. In return, at such point that sufficient competition had developed, then the local phone exchange providers such as SBC and Verizon could enter into the long distance market. Heretofore, Indiana had been very stagnant in local telephone competition until recently. Time Warner Telecomm has been putting a small dent into SBC’s hold on business accounts while MCI’s Neighborhood Plan and AT&T’s announced entrance into local telephony has on the residential side, in large part, motivated SBC’s hand to present this bill.
SBC’s argument has been that it is forced to lease its lines below its actual costs to its competitors and that it is subsidizing its competitors. The IURC notes that SBC is welcome to bring the commission new data to show that their reflected costs should be higher. IURC Chairman Bill McCarty notes that Indiana‘s wholesale rate is on par with neighboring states where SBC is the dominant provider of local service.
Cities and towns also lose out by not having competitive choices for telecommunication providers being able to compete in the RFP process in serving the needs of local government.
-Win-Back Provisions Squashes Competition. The de-regulated win-back provisions simply allows SBC or any incumbent, including cable operators that will provide local telephony in the future, to discriminatory buy back customers taking by competitors. Rather than allowing region or statewide pricing for any given tier of service, this provision allows the incumbent carriers to contact a customer taken away from them and offer cable service, telephone service, any service at unadvertised and unoffered rates to the rest of the customer base. This low balls the competition and drives them out whereby the incumbent then restores the pricing to previous monopolistic rates once that has been accomplished.
TotaLink, as an example, which provides broadband service in Evansville and plans to provide broadband service in Central Indiana, would be adversely affected by this provision of the bill to the extent that it would stay away from the central Indiana market. This would become the growing trend in the State as potential competitors seek other states that have laws more friendly to embracing competition. TotaLink has proven to be a successful model in Evansville and has been a strong head to head competitor to the incumbents Insight in cable TV related service and to SBC in local telephony.
TotaLink has invested nearly $15 million dollars in Marion County and plans to build their own infrastructure to the tune of $350 million dollars over five years and providing over 250 jobs. Heretofore, TotaLink’s only barrier to entry has been the economy and the markets. If HB 1627 passes, State government and SBC will have succeeded in thwarting competitive forces just now entering the State in recent years. TotaLink is a model for the entire country to embrace. Additionally, The Louisville Courier-Journal reports that Evansville-based Cinergy Communications Corp said if HB 1627 becomes law, the company will turn its attention away from Indiana, echoing the sentiments of TotaLink.
-DSL/Cable Modem Service Parity Loses Municipal Revenue. The way the bill is currently worded, municipalities would lose cable modem service revenue via franchise fees should pending court litigation find in our favor. That is being discussed in the 9th Circuit court where NACo, NLC, USCM and a host of other organizations filed suit to defeat the FCC’s March ruling that cable modem service is an information service and not subject therefore to franchise fee revenue. The parity language in this bill would probably trump any favorable court ruling as DSL (digital subscriber line) does not pay and has not previously paid franchise fees on high speed Internet Service in the State of Indiana. Indianapolis estimates that the revenue lost to local government annually on this service is about a million dollars plus. This revenue is due to the cities and towns by virtue of the degradation done to streets and easements as a result of street cuts by providers. This is at the heart of the FCC granting cities and towns to franchise cable TV to recoup some of its costs in paying for and maintaining roads and easements.
Mediating Cable Modem service Complaints. With the DSL parity language in HB 1627, cable operators can make the argument that municipalities can no longer mediate cable modem service complaints on behalf of customers since the IURC no longer has the ability to mediate DSL complaints from customers. Local franchising authorities deal with cable related matters and the IURC should be able to mediate those DSL complaints, as that is dealt with on the telephony side. The FCC, although calling cable modem service an information service has maintained that local franchising authorities should continue to mediate these complaints.
Municipal & Political Subdivision deregulation is sought in this bill. The FCC determines those areas that we are allowed to have authority over. That authority relates to cable TV and even at that, for pricing our authority is limited to lifeline cable service and those issues associated with that. We also are able to enforce the FCC Customer Service Standards as it relates to cable TV. The broadband language in this bill can be construed to pre-empt this ability to serve as a consumer advocate, albeit limited as it is.
Keep in mind too that cable TV programming, at some point, will likely be moved over to the Internet whereby your TV and computer are one. The premise the FCC uses for localities to franchise cable TV is based on multi-channel video service being provided over a wire. The FCC has already declared that cable modem service platform to transmit high speed data is an information service and not a cable service even though it is still using cable plant and thereby utilizing the public right of way. If this declaration is reversed in the courts, this bill would have the effect of removing our ability to franchise cable for multi-channel video under federal law and would serve to block future court decisions that would uphold municipal authority to franchise cable TV. The ability to franchise by cities and towns is provided under federal law to ascertain community needs in the areas of telecommunications and to receive a 5% franchise fee based on gross revenues in return for occupation and degradation of our publicly maintained and paid for streets and easements. To do otherwise is using public money to subsidize for-profit entities. Cities and towns should always be good stewards of public assets and not merely give them away. HB 1627 sets the stage for that not and for the future.
In summary, SBC seeks regulatory parity without competitive parity and the proposed provisions would favor, and are meant to favor, an overwhelmingly dominant and entrenched incumbent, which has already been challenged before by the IURC for its anti-competitive win-back programs. Let the IURC do its job and protect consumers. SBC has repeatedly said that they will not invest in states that do not support their proposed legislation when the opposite is true. SBC is not going to turn its back on its 95% share of the market that it enjoys in local phone exchange to any competitive forces. In fact, with competitive forces at work, SBC will actually invest more into improvements in customer service, technicians and infrastructure to maintain a competitive advantage. That incentive is removed in a monopolistic environment. SBC’s 4th quarter financials for 2002 were glowing as profits had doubled over a year ago. If SBC has job cuts, it won’t be due to the lack of any profitability from the company. The implication that the non-passage of this bill somehow affects SBC jobs is a mute point since the bill offers no job guarantees if it passes in any event.
To fetter out SBC’s true motivations versus their underlying premise for this bill, that being that they are merely seeking some cost analysis considerations for leasing out their plant to competitors, we offer the following:
Take the surrounding states wholesale rates that SBC serves, average them out and let that be Indiana’s wholesale rate. Other than that, everything else about the bill is merely anti-competitive and shold be gutted. If SBC can’t accept that premise then their anti-competitive motivations are revealed.