New effort to connect on telecom reform

The Colorado Statesman

The Colorado telecommunications industry is hopeful that the reception has cleared enough in the state legislature this year to connect on a package of reform proposals that lawmakers hope to introduce in the next couple of weeks.

Drafts had not yet been presented to industry stakeholders as of press time on Thursday, but Rep. Angela Williams, D-Denver, who is leading the charge, said she plans on presenting them to all stakeholders before the bills are introduced.

Williams, chairwoman of the House Business, Labor, Economic and Workforce Development Committee, said she is passing over an omnibus — as has been proposed in the past — for a package of at least three bills that would be introduced in the House at the same time.

The package aims to modernize the state’s decades-old laws regulating the industry, some of which have not been updated since the 1980s, before the explosion of the Internet and wireless service, making Colorado desperately behind the times.

The push for reform has been buoyed by a call from Gov. John Hickenlooper, a Democrat, who challenged the legislature to make it a priority during his State of the State address this year. The governor’s staff has been participating in most of the conversations, and the governor himself has had discussions with industry executives.

The measures would respectively address broadband development in underserved parts of the state; deregulate IP-enabled services, such as Voice over Internet Protocol, or VoIP; and offer new definitions that govern the industry.

Other telecommunications bills are likely to be introduced separately, but the heart of the reform will take place through Williams’ House bills. She has bipartisan support with Sen. Mark Scheffel, R-Parker, also leading the conversations.

Other lawmakers involved in the process have been Sens. Lois Tochtrop, D-Thornton, Andy Kerr, D-Lakewood, Jeanne Nicholson, D-Black Hawk, Gail Schwartz, D-Snowmass, Larry Crowder, R-Alamosa, and Reps. Carole Murray, R-Castle Rock, and Don Coram, R-Montrose.

“I’ve been communicating with them on a daily basis as to the status of the drafts,” Williams explained of the stakeholder process that began in November. “I’ve asked them to have flexibility and patience as we try to work through a few more of the points of the bills so that we can get them ready for introduction.”

In years past, reform was derailed by contention surrounding broadband development and the so-called High Cost Support Mechanism, a state subsidy of nearly $60 million to support building phone service in underserved areas.

Most recently, former Senate President John Morse, D-Colorado Springs, had made the subsidy a focus, proposing that it be directed toward broadband investments in rural regions.

Mixed into the proposal was an attempt to give the Public Utilities Commission regulatory authority over VoIP, which did not sit well with the industry. Telecom executives cringe at the thought of allowing the government to regulate IP-enabled services, suggesting that the Internet should remain free of regulation. They believe it is a matter of protecting innovation.

A measure last year would have exempted such IP-enabled services. It passed the House unanimously, but then oddly stalled in the Senate under Morse’s leadership.

Morse was recalled from office last year after supporting a package of gun control measures that were opposed by Second Amendment supporters. A grassroots groundswell of anger grew and Morse was ousted in a recall election.

With Morse out of the way this year, telecom executives said the conversation changed and they have found themselves involved in the most open and engaged process since telecom reform discussions began at least four years ago.

“Rep. Williams has done a tremendous job of shepherding this thing and she’s really taken ownership this year,” explained Jim Campbell, regional vice president of legislative affairs for CenturyLink. “It seems like there’s a lot more consensus this year and a lot more dialogue, which I think is fantastic.”

“Chairwoman Williams has done a great job,” added Patrick Fucik, regional director of government affairs for Sprint. “We chatted going back to last fall. There’s obviously a desire on behalf of policymakers to do something in the legislature and I think they’re just realizing that sometimes you don’t want to create winners and losers…”

The new state president for AT&T Colorado, Roberta Robinette, said the progress has been less about Morse being out of the discussions and more about the governor’s office being involved.

“The governor’s office putting it in the State of the State and putting it on their radar, and then the Senate president has put it on her priority list and the House leadership has put it on their priority list,” explained Robinette.

“And there’s bipartisan support in the fact that this is something that needs to be addressed just for the better economic development of the state,” added Amber Tafoya, director of external affairs for AT&T Colorado.

Pete Kirchhof, executive vice president of the Colorado Telecommunications Association, which represents smaller providers, agreed that the governor’s involvement has been a boost to the discussions. But he said most of the work rests with the legislature.

“[The governor’s office has] been very, very active in trying to balance and help to resolve issues, but they’ve been very clear that they’re letting the legislature take the lead,” explained Kirchhof.

While he acknowledges that the conversation has changed since Morse’s departure, Kirchhof remains concerned about what will happen to the bill if it makes its way to the Senate.

“It was a factor because of the way that [Morse] dealt with the issue last year, but I think it still remains to be seen if the bill starts in the House what happens in the Senate,” said Kirchhof.

Senate President Morgan Carroll, D-Aurora, said that she expects to pass the telecom bills this year, especially after the lengthy stakeholder process that took place. She said most of the details are worked out; parties are simply working out some technicalities.

“We’re down to details. Because 100 percent of them aren’t done… it’s just finishing touches on drafts,” Carroll explained as to why the package hasn’t been introduced yet.

Broadband development still a concern

One of the most controversial aspects of the reform effort continues to be broadband development. It is unclear how the legislation would specifically address funding broadband in underserved areas.

Stakeholders expect that the bill would use savings from the High Cost Support Mechanism based on a PUC decision on Feb. 21 that designated 56 CenturyLink wire centers as effective competitive areas, potentially reducing the subsidy paid to CenturyLink. The provider receives the bulk of the subsidy.

There are several factors to consider, perhaps the most important being competition. Controversies surrounding EAGLE-Net Alliance placed a spotlight on the competition issue. The federal program provided more than $100 million to build broadband for Colorado’s rural school districts.

But the subsidy raised flags in Washington, D.C., resulting in a congressional hearing last year in which lawmakers asked why EAGLE-Net was conducting build-out in areas of the state that already had connections, a process known as “over-build.”

Critics believe such subsidies are anti-competitive in that it takes customers away from existing companies and offers an unfair advantage because of the subsidy.

Campbell said CenturyLink is on board with taking the reduction from the High Cost Support Mechanism and applying it to broadband. In previous years, CenturyLink put up a fight over the subsidy issue, pleading with lawmakers not to reduce or eliminate the program.

Campbell said CenturyLink has criteria for a broadband bill, including repurposing the subsidy to target underserved areas so that there are no problems with over-build; focusing on a consumer-driven approach; and requiring providers to add their own investments so that there is skin in the game.

“The idea is to take whatever reductions in high cost and apply that to broadband, which we also agree with that that’s the right policy for the state,” said Campbell.

AT&T Colorado — which does not receive the state subsidy — understands that broadband development is important to citizens, acknowledging that it is one of the most important issues to the governor and lawmakers.

“Rural Colorado has spoken very clearly about a need to increase broadband and I think the legislature has heard that,” said Robinette. “We just don’t want to see a piecemeal approach… and we wouldn’t want to see any unintended consequences or things that might detract from federal… or private money coming into the state.

“We’re pushed by customer demand, and so I think it’s difficult when you have these programs because you’re trying to get to places where it’s expensive to go and where it’s been difficult potentially to make that business case,” added Tafoya. “So, how do you incentivize private investment? How do you get the most money? How do you build on potential federal programs? These are all the questions the legislators are having to answer now.”

Kirchhof said that any subsidy provided should be done on a technology-neutral basis so that it doesn’t favor one technology over another.

His association of smaller rural providers — some of whom receive a smaller portion of the current state subsidy — is also asking for first right of refusal so as to lessen any fears around anti-competition.

“If somebody files an application to this broadband commission, and it’s in our territory, that we’d have X amount of time to review it. If we could do the same thing that they’re proposing, then we ought to have the opportunity to do that,” explained Kirchhof.

Sprint has its own concerns, pointing out that ratepayers pay a small surcharge on their bills for the High Cost Support Mechanism.

“The concern mainly is you’re taking a tax on the telecom user and the end users are going to be paying for broadband deployment, you’re just taking the high cost fund… and putting it on broadband. Why don’t we put a surcharge on Google or Netflix?” asked Fucik. “That could be the holdup…”

Williams acknowledged that the broadband issue has been a tough one to get passed. She believes a fair compromise has been reached by proposing to repurpose the fund.

“We have the High Cost Support Mechanism fund and we know that there are three carriers who mainly benefit from that, so what’s going to happen is we’re going to repurpose that fund based upon areas where there is sufficient competition…” she explained. “We’re going to draw it down. But where there are areas that do not have sufficient competition, they will still get the High Cost Support Mechanism. The savings will come from that.”

Williams applauded stakeholders for understanding that it is time to repurpose the subsidy and for working with her on the proposal. She said every stakeholder realized that they had to give a little.

“I’m just extremely pleased…” she said. “The great thing is we’re making decisions together, and every company has… had to give up something to make sure that this is good for Colorado…”

Deregulation

Williams is also hopeful that she will be able to make progress on deregulation after her IP-enabled bill died last year. The measure this year would be similar.

“The goal here is to make sure that we are able to move Colorado forward…” said Williams.

There could be some contention over regulating emergency services, such as 9-1-1, but for the most part, stakeholders appear to be in agreement.

All of the legislation is expected to be retail focused without affecting the PUC’s jurisdiction over wholesale rates, or charges assessed on other carriers.

“The retail marketplace is competitive…” explained Campbell. “Seventy-five percent of Colorado consumers are purchasing voice product from someone who is completely unregulated, so in our mind, the idea of regulating retail voice service, it’s just not necessary.

“Our position has been with respect to voice, really you ought not look at the technology… voice is voice and treat the market as competitive,” he added.

AT&T believes that deregulation is a matter of creating confidence for investors and innovators to conduct business in the state.

“It’s a key part of the package,” said Tafoya. “It lays the foundation so that everything we’re doing with broadband has that certainty… so that when you’re deploying these networks, there’s the certainty that this technology can grow and develop and will be able to flourish.”

The Colorado Telecommunications Association is also supportive. Kirchhof added. “We’re supportive of that concept just because all the other providers out there today that provide voice service are all deregulated… so for us this is just leveling the playing field.”

Sprint can tolerate the retail deregulation, but the provider says that it is critical to maintain wholesale regulation at the PUC level, especially for smaller companies that pay interconnection and transport fees to larger providers.

“AT&T is saying that everything is going to IP and it’s going to be an IP world… Well, that’s great, but when you’re talking about putting legislation out there like I’ve seen in a couple of other states that says there’s no oversight at the commission level for IP services, that impacts the wholesale level and that’s where we have problems,” explained Fucik.

“If AT&T says, A: We’re not going to interconnect, or B: we’re going to charge you prices through the roof, we go to the state commission and we say this isn’t right, this is impeding competition…” he added. “We’re continuing to knock on that door and we hope that whatever comes out of Colorado will at least maintain the commission’s oversight on the wholesale level…”

Williams says the deregulation bill would specifically address retail, and she is hopeful that she will get the majority of stakeholders on board.

“It’s been a good process…” said Williams. “It’s like if you’re running track and you come around that last curve and you see the finish line. We can see that finish line.”

Peter@coloradostatesman.com