The 2nd meeting of the Kentucky Broadband Task Force was held on Tuesday, July 19, 2005, at<MeetTime> 10:00 AM, in Room 129 of the Capitol Annex. Representative Charlie Hoffman, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Charlie Hoffman, Co-Chair; Senator David E Boswell; Representative Marie L Rader; Gregory Coker, Patsy Judd, Christopher Lilly, Daniel Logsdon, Bill Magruder, Libby Marshall, Darrell Maynard, Andrew McNeill, Tony Taylor, Lizabeth Thacker, and James Welch.
Guests: Prentice Harvey, MCI; Kim Phelps, Joe Mefford, ConnectKentucky; Forest Skaggs, Kentucky Telephone Association; Joan Coleman, Bell South Telecommunications; and Ron Geogheagan, Bell South Telecommunications.
LRC Staff: Bill Bowker and Rhonda Carter.
Chairman Hoffman introduced Ms. Liz Thacker of Qx.net, Inc., as a new member of the Task Force, representing Kentucky Internet Service Providers Association.
Chairman Hoffman stated that the agenda for the meeting was to be a discussion of the recent Supreme Court decision in the Brand X case and effects of government policy and market development and technological developments on broadband deployment in Kentucky and asked Mr. Bowker to summarize the Brand X decision.
Chairman Harris asked if the Brand X decision, by not requiring cable to open its facilities to competitors as a common carrier, would put telecommunications carriers at a competitive disadvantage and if this would affect what the Task Force might do in Kentucky related to the Internet.
Mr. Taylor responded that the decision reaffirms the situation in which the biggest competitor to the Bell companies has a significant advantage. Customers of the Bells and other incumbent local exchange carriers have to pay a significant regulatory cost that cable customers do not have to pay. Mr. Taylor pointed out that, on the other hand, the FCC has before it two additional dockets for determining whether DSL is a telecommunications service or an information service. It would be presumptive to speculate as to what the FCC will rule in these cases, but it seems that the FCC has been awaiting the Supreme Court decision and that the decision may set the stage for some sort of national broadband policy. Mr. Logsdon agreed with Mr. Taylor’s statement and stated further that the Supreme Court decision seems to be further indication that the telecommunications market is moving more toward deregulation.
Mr. McNeill asked for clarification concerning the assumption that cable and telecommunications differ in that the telecommunications infrastructure was created under conditions of regulated monopoly while cable is being developed under competitive conditions and, consequently, is not required to provide access to competitors. Ms. Thacker agreed with the assumption and stated that the ILECs had a head start of many years. Ms. Thacker stated that, although the 1996 Telecommunications Act opened up the market to competitors, ten years has not been sufficient for competition to fully develop. If the FCC extends the Brand X decision to the ILECs, there will be a level playing field between the cable modem industry and the telecommunications industry but not for ISPs, CLECs, and others that need access to the last mile loop to the consumers. Ms. Thacker stated that to have more than two competitors, something will have to be done to protect the ISPs, CLECs, and others who need the access, and that it appears that action will have to come at the state level.
Mr. Maynard stated that the Brand X decision is mainly important at the national level and that the Task Force needs to address what it means at the local level in Kentucky and to focus on the goal of the Task Force. Mr. Maynard cited several potential goals including defining broadband, assessing the degree to which competition exists in Kentucky, and increasing the adoption of broadband in Kentucky. Mr. Maynard stated that the issue seems to be the availability of competition in the urban areas and how to provide some regulatory relief for those that have to compete in those environments. At the same time, the Task Force should not let the national view of regulation affect what is going on in the rural areas of Kentucky that need not only broadband but also competition in broadband. Mr. Maynard stated that the Task Force should not get caught up in the national objective of total deregulation but should look on the local level at what is needed to make Kentucky competitive with other states.
Chairman Hoffman stated that he agrees that the Task Force needs to focus its efforts on its defined task, but policy decisions like Brand X and rapid changes in technology are affecting the perspective of the Task Force and will continue to do so. Senator Boswell agreed and stated that the work of ConnectKentucky in West Kentucky was focusing on availability in the rural areas.
Mr. Logsdon cited an article in the Seattle Times opined that Brand X makes it more likely that consumers will in the long run get service from additional networks which are needed more than more consumers on existing networks.
Mr. Taylor stated he agreed with Mr. Maynard that an important focus for the Task Force should be how to increase the adoption of broadband service through all media. Ms. Judd stated that the Brand X decision provides incentive for the cable industry to increase its investment in infrastructure which since 1995 has totaled over $95 billion of private capital without guaranteed return. Mr. Maynard recommended that the Task Force define some kind of overall direction that would be good for the whole of Kentucky and weigh in on the anticipated FCC decision-making concerning regulation of broadband. Mr. Taylor stated that the Task Force is required to make its initial report in November, 2005, and its final report a year later. This provides time to await the developments in national policy and assess their implications for Kentucky and more immediately focus on how to increase adoption of broadband in Kentucky. Ms. Marshall stated Kentucky must chart its own course rather than await federal direction and find all means of getting broadband deployed across the state. Ms. Marshall stated that Kentucky is already behind in terms of sophistication of the broadband services offered and must move quickly and in total self-interest. Ms. Thacker stated that ISP experience with HB 627’s ensuring that DSL would be available at federally-tariffed rates showed that waiting is often not a good strategy. Mr. Magruder stated that some areas have 100 percent coverage and he sees some significant deployments going forward, but adoption is slow. The focus should be on how to increase adoption; the market will follow. Mr. Magruder stated that the General Assembly must be sure that it does nothing from a policy perspective to keep the initial provider from investing more or upgrading the existing platform. Mr. Maynard responded that all investments are not coming from incumbents, and there must be emphasis on encouraging new competitor investment in rural Kentucky as well as further investment by incumbents and also balance between achieving ubiquity and creating an environment spurring competition.
Chairman Harris asked what percentage of people in Kentucky have broadband access. Mr. Joe Mefford, Broadband Project Director, ConnectKentucky, answered from the audience that the figure is about 75 percent. Senator Harris stated that he is not sure what the Task Force can do about adoption and asked for ideas as to how regulation might increase competition in a rural area while not applying to an urban area. Mr. Maynard responded that this is the crux of the failure of federal law and regulation to enable either the FCC or the states to determine the “granular view” of the types and degrees of competition existing in each state and then to determine how regulation should be applied and at what geographical level (e.g., county, municipality, region) to encourage competition. Mr. Taylor stated that this applied more to unbundled network elements for putting together telecommunications systems and not necessarily to broadband systems. Mr. Taylor stated that he recalled that ConnectKentucky had spoken about its developing a program for increasing demand and investment. Chairman Hoffman invited Mr. Joe Mefford to come to the table and address the Task Force concerning this. Mr. Mefford reported that ConnectKentucky is indeed developing such a program and explained how the mapping project is showing today where the gaps in service are and how ConnectKentucky is working to develop a strategy for filling the gaps. Mr. Mefford pointed out that the mapping project is generating household level market data that providers have never before had for making investment decisions. ConnectKentucky is focusing on the gap areas and is committed to getting at least one source of broadband to every Kentuckian by 2007. Mr. Mefford stated that there will be some areas for which a business case cannot be made to invest in the area. For such areas, one might have to decide what kind of subsidy or support might be offered. Mr. Mefford pointed out that there are also other technologies that might fill the gaps; a satellite company is now providing service in Colorado very comparable to DSL and cable and at a similar cost. These are the kinds of decisions that ConnectKentucky will be helping to make with the input of all the providers. Every solution will have a part in the overall coverage.
Senator Boswell asked how competition can be nurtured and initial investment encouraged without some sort of government intervention in providing the platform for the competition to exist, and asked if that should be a be a role of government?
Ms. Marshall asked if adoption has anything to do with cost. Mr. Mefford responded that it does and that ConnectKentucky is addressing the impact of cost and other factors on the adoption rate. ConnectKentucky's strategy is to ensure, first, that there is at least one solution in every area and then to start working with the communities to understand and make known the advantage of broadband. Once there is a value-added, then the price point is a non-issue and the investment can be justified.
Mr. McNeill asked about the business case in terms of infrastructure and sales for satellite technology now being developed and improved. Mr. Mefford responded that, in two cases of which he is aware, a sales outlet similar to satellite television was opened and that the infrastructure investment is relatively small even for very rural area as compared to cable or fiber. Mr. Mefford stated that satellite appears to have good potential for serving the one or two percent of area for which a business case cannot be made for cable or DSL. Mr. McNeill asked if the satellite provider would need multiple satellites to provide service in different parts of the U.S. Mr. Mefford responded that a company with which he is familiar uses five downlinks from one satellite to serve several areas of the U.S. Representative Rader stated that two of her counties have 100 percent availability and asked about the cost of satellite service. Mr. Mefford responded that it is in the range of DSL and cable, although somewhat higher, and reiterated that satelite is one of the many types of solutions that must be considered.
Mr. Maynard stated that companies that serve rural areas and that have limited access to capital are quite concerned about the possibility of the Brand X decision’s being extended to DSL. Mr. Maynard stated that if these companies do not have access to facilities of incumbents, they will have to spread their capital thinner to build facilities in areas where customers have already asked for services from them. This will in turn deny service to many who would have gotten it otherwise, via leased facilities, in a market in which no one else wanted to invest.
Mr. Coker asked about the outlook for broadband over powerlines. Mr. Mefford stated that ConnectKentucky is assessing the potential for rural areas. Today it is more an urban service because it is distance limited at present.
Mr. Taylor asked about wireless broadband such as WiMAX. Mr. Mefford responded that today there is limited wireless deployment but there are exceptions such as Fleming-Mason RECC and the cities of Owensboro and Russellville. Wireless has great potential especially in meeting the demands of a mobile workforce.
Mr. Magruder stated that entertainment companies are beginning to provide service over broadband and that this will help drive demand for broadband and investment by broadband providers.
Ms. Thacker stated that ISPs are looking for alternative means of providing service because of the regulatory environment. About 75 percent of KISPA is looking at wireless as a way to deliver service. Ms. Thacker stated that this will require capital, and the ISPs will continue to need the DSL component of capital coming in while they build out the infrastructure.
Chairman Harris stated that the task of the Task Force, according to the legislation that created it, is to provide two reports concerning the provision of broadband services as this is affected by regulation, cost, access to facilities, and market competition. Chairman Harris stated that, for himself, given his involvement with this issue over the past two years, the goal is to have a legislative framework that encourages broadband expansion and adoption. A main task of the Task Force is to identify any legislative impediments or incentives to encourage the adoption of broadband and, through adoption, to increase expansion. Chairman Harris stated that he would hope that ConnectKentucky, which is made up of entities for whom this is their full time business, would be able to identify some of those incentives and impediments relating to the goal of getting broadband out in the state as far as can be done while providing protection, if possible, for the ISPs and CLECS. Mr. Mefford responded that ConnectKentucky is absolute doing that and will be sharing those findings with the Task Force, probably within the coming thirty days. Chairman Hoffman thanked Mr. Mefford for his assistance in this meeting. Chairman Hoffman stated that some members have asked if the Task Force will participate in the 9th Annual Rural Telecommunications Conference, States as Broadband Laboratories, in Lexington, October 9-12, 2005. Chairman Hoffman and Chairman Harris informed the Task Force that they would look into the matter.
There being no further business, the meeting was adjourned at 11:35 a.m.