Legislature seems ready to deregulate at least part of telecom industry
Legislature seems ready to deregulate at least part of telecom industry
FairPoint Communications may soon get what it wants -- deregulation of its retail service. And Comcast may get what it wants -- the New Hampshire Public Utilities Commission off its back.The vehicle to such regulatory freedom is Senate Bill 48, which in January rolled through the state Senate without much resistance, although it still has to make its way through the more volatile House of Representatives.If that fails, another House bill under consideration would allow the company to pursue alternative regulation, a sort of "deregulation light," similar to that being considered in Vermont.Both bills are now in the House Science, Technology and Energy Committee, whose chair is Rep. James Garrity, R-Atkinson."I've read SB 48, and I like it. It's not 100 percent of what we want -- it's well over 90 percent," Garrity said, though he'll have to wait until a public hearing - which won't happen until mid-March - to know for sure.However, this is the same House that overturned a decision by Garrity's committee to reinstate FairPoint's pole tax exemption, costing the company $6 million (or rather its customers a buck minus a penny on their phone bill staring in April).This time the outcome may be different, because FairPoint and Comcast won't be asking for a tax exemption - something opposed by just about every municipality in the state - but regulatory relief.Under SB 48, FairPoint wouldn't have to do nearly as much regulatory reporting. It wouldn't have to pay penalties for poor service. It wouldn't have to get approval for its rates (though there are rate hike caps). It wouldn't have to face PUC regulators for oversight on anything that is not related to basic phone service. And the bill would overturn a recent PUC decision regulating Comcast's phone service for the first time.The bill would "allow us to be quick on our feet, in the sense that new products can get speed to market. It will be a benefit for the state because it furthers competition, and competition is good," said Patrick C. McHugh, FairPoint's new New Hampshire president, in an interview with NHBR.The bill covers other Incumbent Local Exchange Carriers, or ILECS, such as Granite State Telephone, which will be treated for the most part like Competitive Local Exchange Carriers, or CLECs, a category that includes Comcast.The main difference is that FairPoint still has to provide basic service, and its residential rate increases for such service will be capped for the next eight years -- by more than 5 percent for Lifeline Telephone Assistance customers and by more than 10 percent for all other basic service customers.Fierce competitionFairPoint has long complained that it has been losing so much market share - to the CLECs, to cellphones and Internet services like Skype -- that it no longer has a monopoly.Indeed, the unexpected speed of this exodus -- accelerated by the tumultuous transition after the North Carolina-based FairPoint took over Verizon's landlines in 2009 -- helped drive the company into bankruptcy."There is significant amount of competition in the telecommunications industry and in the state of New Hampshire specifically," McHugh said. "The playing field is not level. All of our competitors are either not regulated at all at the state level or are minimally regulated."The regulatory environment that applies to FairPoint, he said, probably dates back to the 60s and 70sThe migration of customers has slowed a bit, but FairPoint still lost as much as 9.3 percent of its customer base in 2011 -- down from 11.6 percent in 2010.FairPoint credits this to its rolling out a number of services that have enabled it to win back customers, particularly small businesses.But even among landline providers competition is fierce. Here, FairPoint's biggest competitor is Comcast, whose cable TV service is regulated at the federal and local levels, but whose phone service is essentially left alone.The various small rural landline companies cried foul over this, via a filing with the PUC in March 2009, arguing that phones that use Comcast lines look like a telephone, when picked up there's a dial tone, and the call feels like a phone conversation, so Comcast should be regulated like any other phone company.But Comcast argued it is providing information, not phone service, since the phone line is usual bundled with either Internet and/or television services, and the conversation is transmitted via fiberoptic cables, not copper wires, using Voice over Internet Protocol -- and VoIP is the purview of the Federal Communication Commission, not the state PUC.But the phone companies argued, and the PUC agreed, that there is a difference between VoIP that can be accessed via your laptop or mobile device and fixed VoIP, or "cable voice," that can only be accessed though the wall phone in your kitchen."From a user's perspective, the fundamental characteristics of cable voice service are essentially identical to those of traditional telephone service," ruled the PUC in August.But despite the fact that Comcast, like FairPoint, controls many of the lines over which the phone call travels -- including the last mile into many businesses and residential homes -- it would not be treated like an ILEC, like FairPoint, but as a CLEC.SB48 would overturn all of that. "We have been providing telephone service in New Hampshire for 13 years, and suddenly, the PUC wants to regulate our VoIP service for no good reason, and the Legislature agrees with that," said Paul Cianelli, president of the New England Cable & Telecommunications Association, in response to NHBR inquiries to Comcast. "This is 2012, not 1952."As for the difference between fixed and mobile VoIP, "it is one heck of an artificial difference," Cianelli said.Loophole fearsWhether SB 48's restrictions against VoIP regulation overrule some, if not all, of the PUC's August decision is not clear, said Clifton Below, who recently stepped down as a PUC commissioner -- though not before participating in that decision and expressing some of his concerns on behalf of the PUC about the bill in front of the Senate Commerce Committee. (Garrity said that if it isn't clear, it should be. "PUC said it has the authority to regulate VoIP. I believe this bill says they don't.")The bigger concern, however, with the VoIP restrictions is whether the entire industry is moving toward that technology. Below was concerned that it might be become a loophole for FairPoint to get out of even residential regulation, though the company insists that is not its intent -- but, Below said, the company "resisted language that made that more clear."Below had other concerns as well. Under SB 48, the PUC would only regulate basic service. (The bill spells out what those 16 things include, such as daily parity, number portability, access to directory assistance and caller ID blocking. What is not included are such things as voicemail, call waiting and DSL service.)Complaints about basic service would go to the PUC. Complaints about everything else would go to the Attorney General's Office. And unlike complaints about cell calls, which the PUC can't handle but can expedite by forwarding them to the Federal Communications Commission, there doesn't seem to be a similar mechanism spelled out in this bill, Below said.Finally, Below said he's particularly worried about this clause in the bill: "Any combination of basic service along with any other service offered by the telecommunications service provider is non-basic service."Below said that this appears to mean that if you add voicemail to your basic service, it's no longer basic, and you can't even go to PUC if you don't get a dial tone."I'm not sure the senators understood this," Below said.FairPoint seemed ready to fix that part, however, Below said -- all this done at the last minute.There was no public hearing on a complicated amendment, and "there were a few compromises on the fly," he said.As a result, the bill is "ambiguous" in several respects, he said: • Would FairPoint be able at some point to liquidate the company? • Is it clear that it still has to provide services at a fair price to the CLECs? • Will PUC be able to regulate CLECS when it came to safety issues on the right of FairPoint owns or shares?Several CLECs contacted for this article either did not respond or could not be reached by NHBR deadline. But Brian Susnock, president of Nashua-based Destek Group, an Internet service provider, opposed the bill.Independent ISPs have had a tough time surviving, under Verizon and then FairPoint, because they didn't get equal access to the lines, he said. Instead, Verizon used its clout to undercut them when it came to pursuing the educational market with special contracts, Susnock said, and removing those requirements would make matters even worse."Competition will be lost without some degree of regulation, and with that loss of competition will go the number of choices available and the quality of those choices. The only thing that gets better for anyone with deregulation is that the price and the profits of the utility/monopoly go up," Susnock said.Susnock was also not happy about FairPoint getting out of paying penalties for providing poor service, although Below called that a "reasonable policy choice."It appears, however, that the exemption from penalties will be for complaints going forward, not previous penalties.
This article appears in the February 24 2012 issue of New Hampshire Business Review