Introduction to
Telecommunications Policy
October 10, 1999
Aspen, Colorado
Glenn H. Brown
gbrown@mcleanbrown.com
1
Agenda
1.The Policy Makers
2.The Telecommunications Act of 1996
3.Regulatory Issues Facing Rural America
4.Keys to Effective Advocacy
2
The Policy Makers
• In This Section We Will Examine:
– The Major Telecom Regulatory Bodies
• Federal Communications Commission (FCC)
• State Regulatory Commissions
• Federal/State Joint Boards
– The Role of Other Governmental Bodies
• United States Congress
• Local and Municipal Government
• The Courts
– How/When to Get Involved
3
Federal Communications Commission
• Established by the Communications Act of 1934
• Five Commissioners
–
–
–
–
Appointed by the President and Confirmed by the Senate
No More Than 3 From The Same Political Party
Five Year Terms
President Designates Chairman
• Six Bureaus
– Organized by Function
– Handle Day-to-Day Responsibilities
• Total Staff of 1755 (Per 1997 Annual Report)
– Highly Qualified
– Generally Lawyers, Accounts & Economists
4
5
COMMON CARRIER BUREAU
• Accounting Policy Division
– Oversees Universal Service Funding
• Accounting Safeguards Division
– Oversees Audits and Cost Accounting Rules
• Network Services Division
– Oversees Numbering, Network Reliability, TRS and Hearing Aid
Compatibility
• Enforcement Division
– Handles Consumer Protection, Complaints and Merger/Acquisition
• Industry Analysis Division
– Collects and Distributes Data on the Telecom Industry
• Competitive Pricing Division
– Develops Pricing Policies for Interstate Services and Interconnection
• Policy and Program Planning Division
– Develops Rules and Regulatory Programs to Facilitate Competition
6
Levels of Entry at FCC
• Commissioner Level
– Commissioner
– Legal Advisor
• Bureau Level
– Bureau Chief
– Bureau Deputy Chief
• Division
– Division Chief/Deputy Chief
– Working Staff
7
How the FCC Works
• Telecom Rules in Code of Federal Regulations (CFR) Title 47
• FCC Processes to Make and/or Modify Rules
– Notice of Inquiry (NOI)
• FCC Considering Possible Action
• Requests Input From Interested Parties
• Written Comments, Reply Comments and Ex-Parte Presentations
– Notice of Proposed Rulemaking (NPRM)
• FCC Proposing Additions or Changes to Rules
• Written Comments, Reply Comments and Ex-Parte Presentations
– Requests for Public Comment
• Requests Comment on Proposals and/or Papers Presented to
Commission
• FCC Processes to Enforce Rules
8
When/How to Work With the FCC
• Before Visiting With Commissioners or Bureau Chief be Sure
Issue is “On the Radar Screen”
• Work With the Lower Level Staff First
• Best Time to Present Views is Before Issue is Put Out For
Comment
– Opportunity to Shape the Notice
– Ex-Parte Filings Not Required
• File Complete and Informative Comments and Replies
– Use Facts and Data
• Make Ex-Parte Contacts to Reinforce Your Advocacy
– Support Your Position
– Address the Issues Presented by Other Parties
– Form Coalitions When Possible
• Contacts Prohibited During “Sunshine” Period
9
State Regulatory Commissions
All 50 States and DC Have Commissions
– From 3 to 7 Commissioners
– Commissioner Selection
• 39 States Appointed
• 12 States Elected
– Staff Size From 11 (RI) to 800 (CA)
– Varied Responsibilities Including Telecom,
Electricity, Gas, Water, Taxi Cabs, Insurance, etc.
– Varied Rules and Procedures
10
State Commissions
STATE
NUMBER TYPE
STAFF
Alabama
3
Elected
140
Alaska
5
Appointed
42
Arizona
3
Elected
250
Arkansas
3
Appointed
101
California
5
Appointed
800
Colorado
3
Appointed
93
Connecticut
5
Appointed
156
Delaware
5
Appointed
26
District of Columbia
3
Appointed
57
Florida
5
Appointed
370
Georgia
5
Elected
148
Hawaii
3
Appointed
31
Idaho
3
Appointed
55
Illinois
5
Appointed
300
Indiana
5
Appointed
85
Iowa
3
Appointed
75
Kansas
3
Appointed
213
Kentucky
3
Appointed
121
Louisiana
5
Elected
85
Maine
3
Appointed
65
Maryland
5
Appointed
128
Massachusetts
5
Appointed
134
Michigan
3
Appointed
150
Minnesota
5
Appointed
43
Mississippi
3
Elected
145
STATE
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
NUMBER
5
5
3
3
3
5
5
7
3
5
3
3
5
3
7
3
3
3
3
3
3
3
3
3
3
TYPE
STAFF
Elected
43
Elected
42
Appointed
88
Appointed
78
Appointed
289
Appointed
NA
Appointed
700
Appointed
139
Elected
43
Appointed
370
Elected
460
Appointed
109
Appointed
538
Appointed
11
Elected
72
Elected
23
Elected
253
Appointed
245
Appointed
15
Appointed
23
Appointed
550
Appointed
156
Appointed
235
Appointed
180
Appointed
29
11
Major Differences
FCC
State PUCs
Responsibilities
Interstate Services
Intrastate Services
Operating Mode
Paper Proceedings
Live Hearings
Staff Resources
Significant
Generally Less
Local Service Rates
Local Competition
Universal Service
Access Rates
Local Competition
Individual Parties
Coalitions
Major Issues
Advocacy
12
The Joint Board Process
• For Issues That Cross Jurisdictional Boundaries
– Jurisdictional Separations
– Universal Service
• Makeup of Joint Board
– Three Federal Commissioners
– Four State Regulators
– (Universal Service Joint Board Includes a Public Advocate)
• Joint Board Recommends, FCC Decides
• Mixed History
13
The Role of Congress
• Congress Oversees the FCC and Approves Its
Budget
• Congress Passed The Telecommunications Act of
1996
– Directed the Introduction of Local Competition
– Mandated Universal Service Protection
– Called For Eventual Deregulation
• Senators and Representatives are not Shy!
– In 1998 Chairman Kennard Received Over 1800 Letters
From Congress
• Politics Often Gets Involved
14
Congressional Committees
• United States Senate
– Commerce, Science & Transportation Committee
• John McCain (R - AZ), Chairman
• Ernest F. Hollings (D - SC), Ranking Member
– Communications Subcommittee
• Conrad Burns (R - MT), Chairman
• Ernest F. Hollings (D -SC), Ranking Member
– The “Farm Team”
• House of Representatives
– Committee on Commerce
• Tom Bliley (R - VA), Chairman
• John D. Dingell (D - MI), Ranking Member
– Subcommittee on Telecommunications
• W. J. “Billy” Tauzin (R - LA), Chairman)
• Edward J. Markey (D - MA), Ranking Member
15
The Role of Local Government
• Traditionally Telecom Regulated at State and Federal
Level
• Industry is Changing and Converging
– Digital revolution blurs boundaries between telecom, cable
and Internet
– Wireless services growing geometrically
• Local Governments Becoming More Involved
– Cable regulation has traditionally been local
– Local zoning issues with tower siting
– Sales tax issues with e-commerce
• Will Federal Government Preempt?
16
The Role of the Courts
• Fish ‘Gotta Swim, Birds ‘Gotta Fly and
Lawyers ‘Gotta Sue
• On Major Telecom Issues the Stakes
are so High Than no Matter Who Wins The Other Guy Takes it to Court
• If a Court Overturns the FCC on an
Issue, it is Remanded Back to the FCC
for Reconsideration
17
1996 Telecom Act
Major Objectives
• Open Local Telephone Markets To Competition
• Incumbent Local Exchange Carriers (LECs) Must Open Their
Networks To Competitors:
– Interconnection
– Wholesale Provisioning Of Services
– Unbundled Network Elements
• RBOCs May Enter Long Distance Markets Upon Meeting A
14-point “Checklist”
• FCC Must Provide For The Provision Of Universal Service
– Rural, Insular & High Cost Areas
– Schools And Libraries
– Rural Health Care
18
1996 Telecom Act
Section 254(b) - Universal Service
(1) Quality and Rates
Quality services should be available at just, reasonable
and affordable prices
(2) Access to Advanced Services
Access to advanced telecommunications and information
services should be provided in all regions of the Nation
(3) Access in Rural and High Cost Areas
Consumers in all regions of the Nation should have access
to services (including advanced services) at rates that
are reasonably comparable to those in urban areas
19
1996 Telecom Act
Section 254(b) - Universal Service
(4) Equitable and Non-Discriminatory Contributions
All telecommunications providers should contribute to the
preservation and advancement of universal service
(5) Specific and Predictable Support Mechanisms
There should be specific, predictable and sufficient Federal
and State mechanisms to preserve and advance universal
service
(6) Access to Advanced Services for Schools,
Health Care and Libraries
Elementary and secondary schools and classrooms, health
care providers, and libraries should have access to advanced
services.
20
1996 Telecom Act
Other Major Provisions
– Creates a Federal/State Joint Board to recommend universal
service solutions to the FCC (254(a))
• Recommendation due November 8, 1996
• FCC to act on recommendations by May 8, 1997
– Defines “Eligible Telecommunications Carriers” (ETC) for receipt of
universal service funds (214(e))
– Differentiates between “Rural” LECs and “Non-Rural” LECs
• Based on size (I.e. < 100,000 lines) and area served (3(37))
• Different market opening requirements (251(f))
• NRLECS shall have multiple ETCs (214(e)(2))
– States that any Federal universal service support “should be
explicit” (254(e))
21
Major Regulatory Issues For
Rural America
• Universal Service
• Access Reform/Rate Rebalancing
• Local Competition
• Broadband Development
22
UNIVERSAL SERVICE
PROBLEM
• Goal of Low Basic Service Prices
• High Degree of Rate Averaging
• Two Sources of Historical Universal
Service Subsidy
1. Explicit
About $1B
2. Implicit
$5B - $19B
Toll/Access
Business
Urban
to
to
to
Local
Residence
Rural
• Telecom Act of 1996 Changed Everything
23
THE 1st FCC’s DECISION
• Issued May 8, 1997
• Schools and Libraries
– $2.25B Fund
– Funding Based on State and Interstate Revenues
– Sliding Scale of Discounts
• Rural, Insular and High Cost Areas
– Funding 75% States / 25% Federal
– “Non-Rural” Telephone Companies
• Support = Forward-Looking Cost - Benchmark
• 14 Month Process to Select Proxy Cost Model
– “Rural” Telephone Companies
• Continue Present Mechanisms
• Transition to Forward-Looking Mechanism Beginning in 2001
24
Major Problems
• Many Rural States Can’t Afford to Pay 75% of HighCost Need
– Key variable is the ratio of low-cost to high-cost customers
• Proxy Models
– Widely divergent positions
– Accuracy of Model for small areas
• Inherent Tensions Between the Players
– High-cost states vs. low cost states
– Local service providers vs. other telecom providers
• Who Will Pay For Universal Service? How?
25
Non-Rural LECs "Common Inputs" (4.5B Fund)
ST USF % 75/25
NATIONAL FUND %
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
WY
ID
MT
MS
SD WV NE ND VT OK MO ME NM AL KS MN AR KY TX AZ LA WA IN NH
Note: This chart assumes a fund size of $4.5B derived from using FCC “common inputs” in the BCPM3 model.
26
The actual fund size will be determined after completion of further proceedings to finalize model inputs.
CO
Non-Rural LECs FCC "Common Inputs ($4.5B Fund)
ST USF % 75/25
NATIONAL FUND %
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
VA WI TN NV
IA
NC OR SC GA UT MI IL OH DE PA HI CA FL MD NY CT RI MA PR AK
Note: This chart assumes a fund size of $4.5B derived from using FCC “common inputs” in the BCPM3 model.
The actual fund size will be determined after completion of further proceedings to finalize model inputs.
NJ DC
27
Ratio of $100/mo+ Customers to Total
State
Total Lines
Lines Over $100/mo
SD
255,527
MT
311,085
ND
235,548
WY
221,982
NE
792,539
MS
1,185,210
ID
578,972
AR
848,296
MO
2,881,496
OK
1,585,379
NM
725,499
MN
2,352,496
KS
1,222,537
WV
776,326
IA
995,730
AZ
2,225,122
TX
10,449,569
AL
2,101,681
WA
3,044,486
LA
2,161,959
CO
2,270,706
OR
1,376,480
ME
651,597
WI
2,650,099
NV
937,114
KY
1,672,422
Source: BCPM3 with FCC Common Inputs
12,796
13,136
9,079
7,902
25,861
34,457
16,549
18,652
57,617
31,375
13,737
43,453
22,371
13,790
16,129
32,992
116,281
22,103
29,465
17,123
17,160
8,962
4,094
16,074
5,458
9,235
Ratio
20
24
26
28
31
34
35
45
50
51
53
54
55
56
62
67
90
95
103
126
132
154
159
165
172
181
State
IL
UT
VT
GA
SC
NH
MI
IN
VA
TN
CA
NC
AK
FL
OH
PA
HI
NY
MD
DE
MA
RI
NJ
CT
DC
TOTAL
Total Lines
7,378,715
935,397
331,470
3,881,849
1,502,650
724,804
5,755,154
3,168,932
4,029,810
2,713,895
20,521,641
3,950,135
149,078
9,479,041
6,267,407
7,258,883
704,179
11,702,236
3,367,642
509,854
4,272,096
643,137
5,887,531
1,991,162
520,361
152,156,917
Lines Over $100/mo
39,768
4,311
1,501
14,888
5,374
2,320
17,117
8,366
9,352
6,215
45,775
6,827
224
12,555
7,952
7,755
540
7,205
910
95
591
77
191
64
815,824
Ratio
186
217
221
261
280
312
336
379
431
437
448
579
666
755
788
936
1,304
1,624
3,701
5,367
7,229
8,352
30,825
31,112
187
28
Proxy Cost Models
• The Original Contenders
– BCPM
– HAI
– HCPM
BellSouth, Sprint, U S WEST ($4.5B - $9B NRLEC)
AT&T, MCI ($3B - $4.5B NRLEC)
FCC Staff
• Major Model Issues
–
–
–
–
–
Network Design - “Engineer-in-a-Box”
Customer Location
Input Values
Accuracy for Small Geographic Areas
Who Needs Reality?
• Current Status
– FCC finalizing “synthesis model” and inputs for non-rural LECs
– Rural Task Force to address model issues for rural LECs
29
Reconsideration of 1st Decision
• April, 1998 - FCC Reports to Congress
– Will reconsider 75/25 funding
• July, 1998 - FCC Refers Issues to Joint Board
– Alternatives to 75/25 funding
– Report due 11/23/98
– Delays “non-rural” LEC funding to 7/1/99
• October 30, 1998 - Joint Board 2nd Recommendation
– Some states will require additional federal support
– Two-pronged test for support
1. Forward-looking costs >> national average
2. Inability to cover high-cost problem internally
– Fund not “significantly larger” than present (ie. $125M for NRLECs)
– Uses statewide averages of cost
• Continues urban-to-rural implicit subsidies
• Joint board may revisit if “competition threatens affordability”
30
The 2nd FCC Decision
•
•
•
•
Issued May 28, 1999
Delays “Non-Rural” Explicit Fund Until 1/1/00
75/25 Funding Plan is Rejected
Fund Covers State-Wide Average Costs over “Benchmark”
– Uses “Synthesis Model”
– Asks for input on what the benchmark should be
• State Must Provide $X/Line of the Support
– Provides more funding to needy states
– Asks for input on what the per-line amount should be
• Fund “Not Significantly Larger” Than Present ($125M)
• Recipients “Held Harmless” for Current Level of Support
31
Problems With 2nd FCC Decision
• Political Tensions Within the System
– Low-cost states vs. high-cost states
– Local service providers vs. other telecom providers
• Averaging Perpetuates Implicit Support
– High margin urban customers vulnerable to competition
– System will be slow to react in crisis
• Creates “Two-Tier” System for Rural Consumers
– “Rural” Companies
• Support at 115% of embedded cost
– “Non-Rural” Companies
• Support no larger than present
• Must rely on implicit subsidies
• Perpetuates the Status Quo
– No more support than present ($125M)
– No one gets less than present
32
Additional Problems
• Funding and the Models
– $125M falls far short of requirements
• HAI w/Defaults
• BCPM w/Defaults
• Either w/FCC “Common”
$3 Billion
$9 Billion
$4.5 Billion
– Output very sensitive to inputs and platform (see above)
– FCC’s “Synthesis” model still not finalized
– If model is delayed, so is funding
• “Non-Rural” vs. “Rural” Issues
– “Non-rural” must be funded at least 115%
– Forward-looking vs. Embedded
• Averaging is Fundamentally Incompatible With Competition
– False entry signals in over-priced areas
– False protection for high-cost rural customers
33
Additional Problems
(Continued)
• A Fund That is Too Small Will Harm Rural America
– Increased reliance on vulnerable access charges
– Investment and advanced services drawn to urban areas
– Rural consumers become “have-nots”
• Advanced Services Will Come Fastest by Letting Markets Work
– Provide sufficient funding to rural areas
– Relax rules that prevent incumbents from delivering services
• Inter-LATA restrictions
• Unnecessary unbundling and separate subsidiary rules
• Universal Service Fills the Gaps
– Fully competitive market delivers advanced services to most
– Universal service fund fills the gaps
– The greater the role of markets, the smaller the fund
34
Schools, Libraries &
Rural Health Care
• Initial FCC Decision Set Funding Targets
– Schools & Libraries
$2.25B
– Rural Health Care
$0.40B
• Sliding Scale For S&L Discounts
– Rural vs. Non-Rural
– Relative Poverty Levels
• Funding Phased In Over Time
35
Access Reform/Rate Rebalancing
• The “Flip-Side” of Universal Service
• As Explicit Support is Increased Rates are Reduced
to Remove Implicit Support
• If Sufficient Explicit Support is not Provided:
– Implicit support remains in rates
– Competition erodes implicit support
– Pressure for rural rate increases
• Implicit Support Distorts Competitive Markets
– False entry signals in low-cost markets
– No incentives for competition in rural markets
36
Broadband Development
• Exciting Technology Developments for Delivery
–
–
–
–
DSL
Cable Modems
Wireless?
Other?
• What Role Should Universal Service Funding Play?
• Should Narrowband Regulatory Model be Applied?
• Should Competitive Markets be Allowed to Work?
37
What Can Concerned Citizens Do?
• Get Informed and Get Involved
• Contact The Following:
–
–
–
–
Your State Public Service Commission
The Federal Communications Commission (FCC)
The Federal/State Joint Board
Your Congressional Delegation
• Major Message Points:
– Universal service is a national priority
– A sufficient federal fund must be established for high-cost areas
– Advanced services will come to rural America through a
combination of targeted supports and free market incentives
– Markets must be allowed to function!
38
Keys to Effective Advocacy
1. Regulators Are People Too
2. Work The Staff First
3. Use Your Time Wisely
4. Listen As Much As You Talk
39
Keys to Effective Advocacy
5. It’s The Public Interest, Stupid
6. Know Who Supports You – Who
Opposes You
7. Acknowledge Other Points Of View
8. Address Holes In Your Argument
40
Keys to Effective Advocacy
9. No Surprises – No Threats
10. Use Facts and Data
11. Keep Your Commitments
12. It Ain’t Over ‘Til Its Over
41