18 States See Major Retail Telecom Deregulation Initiatives in 2005

Major deregulation legislation is pending in Ala., Ill., Mich., Mo., Ore., S.C., Tenn. and Tex. Most of the bills would deregulate bundled telecom services immediately. Some bills also include transition plans leading to complete retail rate deregulation within 3-5 years. The pending bill in S.C. is the most far-reaching; it would deregulate rates for all retail and wholesale telecom services upon enactment and end state regulation of many other aspects of telecom service.

State commissions are considering rate deregulation proposals in Alaska, Cal., Colo., Kan., Mich., Okla. and Wis. The proposals generally would deregulate services other than basic exchange, or deregulate rates only in parts of the state where competitors are providing service. Mich., which authorized rate deregulation in 3 major cities early this year, has both an SBC proposal at the PSC to expand rate deregulation to several additional cities, and a bill to deregulate rates and terms for all retail telecom services pending in the House. (A summary of the status of efforts in each of the 18 states appears at the end of this story.)

NARUC Telecom Committee Chmn. Bob Nelson of Mich. called the seeming rush by so many states to deregulate retail telecom “an odd turn of events.” He said the trend may be driven by several factors. He said federal court decisions restricting the states’ role in network unbundling plus deregulatory sentiments in Congress as it considers rewriting the federal Telecom Act may be leading some states to question whether state telecom regulation is appropriate any more: “It seems strange, but some states may be wanting to take themselves out of the picture before the feds do it.”

Another significant factor, he said, may be that there are fewer strong competitor voices to counter incumbent telcos’ continuing deregulation lobbying efforts. He said there also may be a “feeding frenzy” effect where telecom deregulation becomes the thing to do. He said the states’ current rush to deregulate may offer the nation multiple labs for gaining experience with a massively deregulated retail telecom environment. Nelson said he doubts the retail deregulation trend will put state commissions entirely out of the telecom picture. He said states will still play an important role in policing the wholesale side, and will be on the front lines of consumer protection and dispute resolution.

The arguments for and against retail deregulation have been very similar from state to state. Incumbent telcos and their supporters generally argue that in order to compete, they need the same regulatory freedom as their major rivals. Most states don’t regulate CLEC rates, while rates for intermodal competitors such as wireless and VoIP providers aren’t subject to state regulators’ jurisdiction. Incumbents say state rate regulation retards their ability to respond to competitors’ moves, while notice requirements tip off competitors to incumbents’ market moves.

Consumer and competitor interests, however, say competition in many market areas isn’t robust enough to be an effective substitute for regulation. They argue that incumbents still enjoy an overwhelming market dominance, especially in rural areas, and can use that dominant position to contain and eventually eliminate their competition unless their rates remain regulated. Deregulation opponents also argue that, contrary to incumbents’ claims, deregulation won’t spur rural telecom investment, but rather will lead incumbents to plow their capital into the most contested markets. They also contend that regulators need the club of rate regulation as an “ultimate weapon” enforcement tool to keep errant incumbent telecom providers in line. -- Herb Kirchhoff

Major Telecom Deregulation Initiatives of 2005

Alabama

SB-114 (pending): Would prohibit PSC rate regulation of broadband and deregulate rates for retail telecom service bundles. Definition of bundle would specifically exclude from deregulation situations where customer adds optional features at tariffed per-feature price. Would also deregulate retail rates for basic business services to customers over 4 lines. Passed Senate. Also passed House but with amendments allowing attorney gen. to investigate rates on antitrust grounds, and requiring rural telcos to open themselves to competition as condition for rate deregulation. Bill returned to Senate for concurrence, which is pending.

Alaska

Case R-03-3 (pending): Proposal would end retail rate regulation of incumbent telco in exchanges where local wireline competitor is providing services. Proposal would also permit rate reductions at any time without prior state approval. Incumbents’ profits would remain under rate-of-return constraints, with earnings from rate- deregulated services still counting in rate-of-return calculations. Initial comment/reply cycle to be completed by mid-May.

California

Case R-05-04-005 (pending): PUC has opened major rulemaking to reconsider all regulations currently applied to large landline and wireless telecom carriers. Order contemplates simplified, uniform regulatory framework for telecom carriers in which only basic local services would remain rate-regulated. PUC said changes in state’s telecom marketplace in recent years have created need for comprehensive examination of how it regulates nation’s single largest telecom marketplace. Initial comment/reply cycle to be completed in early June, with additional cycles later in summer; schedule calls for order by early fall.

Colorado

Case 04A-411T (pending): Qwest and major interest groups in April proposed compromise deregulation plan to replace original 2004 Qwest proposal. Compromise would retain price caps on single-line residential basic exchange statewide and on multi-line residential service in rural areas. Caps also would be retained on business basic exchange for customers up to 3 lines. All other retail service rates would be deregulated. Plan also would end current PUC penalty program for enforcing service quality, except that penalties could still be assessed for missing timeliness standards for outage repairs and customer service center answering times. PUC hearings on proposal set for early May.

Idaho

HB-224 (passed March 2005): Ends rate-of-return regulation for Qwest’s retail residential and small- business basic exchange service in favor of temporary price caps that limit local rate increases to 10% annually. Caps are to expire in 2008 unless PUC determines market conditions require a 2-year extension to 2010. After caps expire either in 2008 or 2010, basic exchange rates will be deregulated. All other retail services have been rate deregulated under previous laws.

Illinois

SB-1700 (pending): Would immediately deregulate rates for retail service bundles. Rates for stand-alone services would be regulated by price caps for 3 years, and then would be deregulated. Bill also would deny state regulators any jurisdiction to regulate wholesale network unbundling. This bill would replace existing telecom regulation statute that sunsets in July. Passed Senate, now in House committee.

Iowa

HF-277 (passed March 2005): Creates legal presumption of statewide effective competition. Requires regulators to deregulate retail rates for particular services or markets upon an incumbent telco’s request unless regulators can prove that landline and intermodal competition isn’t sufficient to be an effective constraint on pricing. Iowa Utilities Board this summer is to issue rules for implementing law.

Kansas

Case 05-SWBT-907-PDR (pending): SBC proposed deregulation of basic residential and small-business phone services in Kansas City, Topeka and Wichita metro areas. Proposal would cover basic exchange and associated optional and discretionary services, along with any residential or business bundles assembled from these services. SBC asserted robust competition exists in these markets. Public comment hearings and industry/intervenor briefings to conclude by mid-May.

Michigan

Cases U-14323 & -24 (approved Jan. 2005) and HB- 4600 (pending): SBC business rates deregulated in Detroit, Royal Oak and Southfield metro areas in one-year trial. SBC requested expansion of rate deregulation to include residential and business services in Detroit, Lansing and Grand Rapids metro areas. Record has been completed and PSC is awaiting hearing examiner’s proposed decision. Case must be decided by Aug. Pending bill would immediately deregulate rates and terms for all retail telecom services, leaving PSC with authority over wholesale services and consumer protection. It also would ban municipal provision of telecom services. In House committee.

Missouri

SB-237 (pending): Would end rate regulation of retail service bundles. Services making up bundles would have to continue being offered on stand-alone basis at regulated rates. It also would deregulate as competitive an incumbent telco service available from 2 or more unaffiliated competitors. Bill passed both chambers, but with differing definitions of competitive carrier; now pending in conference committee.

North Carolina

Case P-55, sub 1013 (approved April 2005): Deregulates rates for all new BellSouth services introduced after effective date of new price regulation plan. BellSouth can request rate deregulation of preexisting retail basic and emerging competitive services starting Dec. 2006.

Oklahoma

Case 2004-00605 (pending): SBC proposed plan for rate deregulation of most retail services after current price caps expire this summer. Commission held up proposal pending completion of competition study ordered last year. Report in April 2005 concluded competition is geographically widespread, but competitors haven’t yet made major inroads against incumbents. Report recommended developing standards for gauging when competition is robust enough to warrant rate deregulation and urged more flexible and proactive regulatory processes that can keep pace with marketplace changes.

Oregon

SB-600 (pending): Would give Ore. PUC new authority to deregulate rates of competitive retail telecom services offered by large incumbent telcos. Current law doesn’t permit full rate deregulation. Bill would require PUC to consider several different indicators of a competitive marketplace in reviewing petitions for rate deregulation. It would provide for re-regulation in the event of market failure. Passed Senate, now in House committee.

South Carolina

HB-3633 (pending): Would immediately deregulate all retail and wholesale telecom service rates and terms. Would also end PSC oversight over telecom facilities, franchises, affiliate transactions and property. In House committee.

Tennessee

SB-182 (pending): Would deregulate retail rates and service quality for residential and business telecom service bundles of incumbents. It would require consumers be notified of different bundled and stand-alone prices and would put limits on free-service promotions. Passed Senate, now in House committee.

Texas

HB-789 (pending): Would immediately deregulate rates for retail telecom service bundles. Rates for stand-alone services would be frozen at current levels until 2008. After that, stand-alone rates would be deregulated for any incumbent telco reducing intrastate access charges to interstate levels by that time. Controversial amendment would prohibit municipal provision of wireless services, except for projects completed or begun by mid-2006. Passed House, now in Senate committee.

Utah

SB-108 (passed Feb. 2005): Deregulates rates for all retail Qwest telecom services other than residential basic exchange, which will remain under price caps until 2007. Other incumbents can elect to switch to this program. After 2007, PSC must lift residential price cap in exchanges where local competitor services are available. PSC can reimpose rate regulation via price caps on proof of market failure.

Wisconsin

Case 6720-TI-196 (pending): SBC has proposed residential rate deregulation in the state’s 17 largest cities including Milwaukee, Green Bay and Appleton. SBC asserted robust competition exists in these markets. Business service rates deregulated under previous orders. Initial briefing cycle to be completed in May with summer hearings expected.