The 3rd meeting of the Kentucky Broadband Task Force was held on Tuesday, October 11, 2005, at 10:00 a.m., in Thoroughbred Room, Lexington Convention Center, Lexington, Kentucky. Senator Ernie Harris, 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; Representatives Marie L Rader; Patsy Judd, Daniel Logsdon, Bill Magruder, Darrell Maynard, Andrew McNeill, Mark Romito, Tony Taylor, Lizabeth Thacker, Brad Tracy, Charles Watkins, and James Welch.
Guests: John Clay Deputy Secretary, EPPC, representing LaJuana Wilcher, Secretary, EPPC, and Kentucky Broadband Task Force member; Denny Nunnelley, Kentucky Association of Counties; Steve Manning, SCT BOCES; Robert Somers, FCC; Jeff Rose, ConnectKentucky; Richard Farmer, Commonwealth News Call; Ned Butler, DACCA; John Penfield, Kentucky Council of ADDS; Patrick Jennings, BCG; Betty Calhoun, Cumberland Valley ADD; Mike Shea, Government Strategies - BellSouth; Ron Geoghegan, BellSouth; Chris Nolan, BellSouth/MMLK Government Relations; Kristyn Hall, ConnectKentucky; Trisha Lawrence, ConnectKentucky; Amy Scarborny, BellSouth; George Hill, BellSouth; William Thompson, BellSouth; Erica Smith, Flint Grove, Inc.; Sim Davenport, BellSouth; Dave Weller, BellSouth; David McFaddin, BellSouth; Dale Hansel; Charlene Davis KDLA; Ernie Wood, ConnectKentucky; Sage Cutler, ConnectKentucky; Eric Mims, ConnectKentucky; Anupa S. Arya, Kentucky Public Service Commission; Craig Harrington, GOLD; Chris Moore, FCC; Jim Nelson, KDLA; Joe Ewalt, Kentucky League of Cities; Chris Brewer, Barbourville Utilities; Jim Keller, SouthEast Telephone; Beth Bowersock, SouthEast Telephone; Frank Dawahare, SouthEast Telephone; Terry Trumbo KV Net Inc.; Cathy Algood Murphy, AARP KY; Myra Lee Smith-Cowley, Government Office for Local Development; Lisa Wilson-Plajer, Boone County; Pedro Gurles, Murray State University; Heather Quirley, Cinergy; Nancy Jarett, BellSouth; Ellen Jones, BellSouth; Mark McElroy, ConnectKentucky; Ed Hancock, Frankfort Plant Board; Tom Glover, TGA, Inc.; Peggy Satterly, GOLD; Richard Zink, Southern Tier West; Sasan Fartharpowr, KIA; Forest Skaggs, KTA; Doyle Friskney, UK; and Gene McLean, SouthEast Telephone.
LRC Staff: Bill Bowker, Todd Littlefield, and Rhonda Carter.
The minutes from the July 19, 2005, meeting were approved.
Co-Chairman Harris welcomed members and the public and stated that he was pleased that the Task Force was able to meet in conjunction with the 9th Annual Rural Telecon Congress conference.
Co-Chairman Harris introduced Mr. Brian Mefford, CEO, ConnectKentucky and asked him to outline, prior to his testimony before the Task Force, what the conference would be offering for members able to stay and participate further. Mr. Mefford did so and then proceeded to his testimony.
Mr. Mefford reported that, since the June, 2005, ConnectKentucky report to the Task Force concerning broadband deployment in Kentucky, the percentage of persons having access to broadband service had increased to 77 percent currently from 60 percent in 2002, and that recent growth and planned expansions indicated that 90 percent accessibility would be reached by the end of 2006. Mr. Mefford reported that ConnectKentucky has developed several policies that it considers vital to ensuring that the rate of growth in deployment continues to occur. Also, adoption rates have increased to unprecedented levels in Kentucky. Currently, about 80 percent of businesses are able to subscribe to broadband service. Mr. Mefford stated that, although the progress is very encouraging, the goal remains 100 percent accessibility for households and businesses.
Mr. Mefford called on Ms. Laura Taylor, Director, Research and Governmental Affairs, to discuss the ConnectKentucky broadband deployment GIS mapping project. Ms. Taylor demonstrated the mapping of deployment and reported that ConnectKentucky is now able to start overlaying onto the broadband layer other data relevant to providing incentive for build-out of broadband facilities to unserved areas. Ms. Taylor demonstrated how the addition of demographic data enables ConnectKentucky to work with providers to identify deployment opportunities. Ms. Taylor then demonstrated how the combining of infrastructure data such as planned roads and proposed water and sewer service expansion with the demographic data can show where development is heading and further predict new need and demand for broadband service and also can provide insight into which broadband platforms are most cost effective for certain areas. Ms. Taylor reported, in response to a question from the Co-Chairmen at the first Task Force meeting, that the data show that, in the 40 westernmost counties of Kentucky 26 percent of households do not have access to broadband. In the central 40 counties 15 percent of households do not have access, and in the 40 easternmost counties the number is 40 percent.
In response to a question from Co-Chairman Harris, Mr. Mefford explained that the expansion of infrastructure such as roads, water, and sewer service might provide opportunity for expansion of broadband along the other infrastructure and that there might be ways to provide incentives to help this happen.
Ms. Taylor then discussed the August 5 decision of the FCC to no longer require, after a one-year transition period, telephone companies to provide access to the Internet for competitors at tariffed, discounted rates. Ms. Taylor reported that the stated intention of the FCC was to develop a consistent regulatory framework across broadband platforms, especially concerning cable modem and DSL following the so-called Brand X decision by the Supreme Court in July, 2005, which ruled that cable modem, as an information service, does not have to provide the access.
Ms. Taylor reported on draft federal legislation that, if enacted, would affect the regulation of broadband. One of these, a staff draft from the House Energy and Commerce Committee and backed by its chairman, Representative Joe Barton, would, among other things, put all broadband platforms on equal regulatory footing and prohibit any regulation of the rates, charges, terms, or conditions of any broadband platform providers unless specifically directed by federal law.
Mr. Mefford then presented ConnectKentucky’s policy recommendations for 2006. Mr. Mefford stated that the recommendations are intended to address the remaining 23 percent of Kentuckians who do not have broadband access. The incentives include:
a. Tax incentives for investment in broadband deployment, including income tax credits and sales tax credits;
b. A revolving loan and grant program through the Kentucky Infrastructure Authority;
c. A fund to offset the cost of customer premise installation for advanced technologies, such as satellite, that may be required to provide service to very hard to reach customers;
d. Opening of state-owned rights-of-way for broadband expansion;
e. Focusing upon the broadband needs of rural areas as telephone companies seek further deregulation of telecommunications.
Mr. Mefford explained in reference to item c that satellite technology may be the most effective way to provide service to the last 10 percent of households not having broadband access. Satellite requires very expensive installation of equipment on the customer’s premises, costing from $400 to $800. Mr. Mefford stated that the ConnectKentucky recommendation is to address the up-front installation cost.
Co-Chairman Harris asked if the work that ConnectKentucky is doing with community leaders around the Commonwealth includes leaders of civic and service groups. Mr. Mefford stated that as many as 80 people, including elected leaders, health care leaders, leaders of civic groups, educator, and many others have attended the first meeting in a locale, and that many of these continue to work in subsequent meetings.
Co-Chairman Harris asked if there has been increase in the rate of adoption comparable to the 17-point increase in availability. Mr. Mefford responded that ConnectKentucky is compiling data to address that question and that indications are that the increase in adoption rate will be similar to the increase in availability.
Co-Chairman Harris asked if the funding for broadband through KIA would involve the same type funding as currently, that is, through severance revenues or the tobacco settlement, or if the funding would be more of a revolving loan fund. Mr. Mefford responded that it is envisioned as more of a loan fund.
Co-Chairman Harris asked the broadband providers on the Task Force if they were aware of the tax incentives that are offered in Mississippi or South Carolina and if these are the sorts of incentives that are needed. Mr. Maynard responded that he wanted first to commend the Task Force for its foresight in choosing ConnectKentucky to provide the deployment data and that ConnectKentucky is doing an excellent job of doing so. Mr. Maynard stated that he has not seen the Mississippi or South Carolina programs but he believes that emphasis should on creating demand for broadband in areas in which there is no service or in which broadband has been only recently become available in the expectation that providers would expand into an area if they knew that potential customers were being provided incentives for broadband adoption. Mr. Watkins stated that in the really rural areas, the cost of installing DSL or cable might be prohibitively expensive and that Wi-Max (broadband over radio frequencies) or satellite will be the technologies that have to be employed. These technologies also can overcome the problems of mountainous terrain.
Mr. Tracey stated that fewer than 10 homes per mile would be too expensive for cable. Ms. Taylor stated that the maps now show population density, and the next step is to show homes per mile in areas not being served.
In response to a question from Co-Chairman Harris about service in a particular area, Mr. Romito responded that any incentive that would help improve the business plan relating to an area would help get investment in the area and that a decision to invest is a function of population and interest among the population. Mr. Tracey stated that population and interest are the major factors in investment decisions for cable also.
Mr. Maynard stated that SouthEast Telephone and other CLECs are actually extending DSL service, with cooperation from the incumbent local exchange carriers such as BellSouth and Alltel, into rural areas out beyond technical distance limitations associated with DSL. Some of the areas, particularly in Eastern Kentucky, will be hard to get to even with wireless, although satellite will be an option
In response to a question from Co-Chairman Harris concerning the feasibility of utilizing cell towers to provide broadband service, Mr. Watkins explained how cell towers could be utilized to provide Wi-Max service, which is broadband over radio frequencies over long distances Mr. Mefford stated that the maps show cell towers and also water towers as part of the help the maps offer entrepreneurs of all sizes in building a business case.
In response to a question from Co-Chairman Harris about the incentive relating to satellite, presuming that satellite installation costs $400. Mr. Mefford replied that if we can bring half of the cost down by an incentive, the other half could be matched by the provider.
In response to a question from Ms. Thacker, Mr. Watkins stated that Wi-Max is increasingly becoming a proven technology, and it has been tested on a small scale in Kentucky. COVAD plans to deploy Wi-Max as it did DSL. Mr. Watkins stated that it is far less expensive to put an antenna on a tower than it is to run wires to every place that you can see from that tower. Mr. Watkins said that his company would deploy first in urban areas and then go to rural areas because its infrastructure is in the urban areas.
Mr. Watkins stated that deployment into rural areas might be increased if companies that are now upgrading their DSL facilities over the coming 10 years or so could be given incentive, or simply asked, to use the spare equipment to expand into the rural areas at reduced investment cost, rather than storing the equipment, disposing of it, or writing it off, Mr. Mefford stated that he would make a note of the idea for further consideration by ConnectKentucky. Mr. Taylor stated that there may indeed be opportunity, but there are also many locales where it is not technically possible to place the equipment required for extending the range of DSL.
Mr. McNeill asked the ILECs how they view the possibility that their business case might be enhanced in areas that they now serve with telephone but not yet with broadband if there were deregulatory measures in addition to those in HB 627. Mr. Taylor responded there inherently are costs due to regulation, and the question is whether the money is an expense or whether it is allowed to be capital to be invested elsewhere.
Mr. Magruder stated that since many rural areas served by cooperatives have 100 percent availability due to capital invested by the cooperatives, it is important to not limit incentives only to unserved areas. Also, incentives should focus on increasing the adoption of broadband in rural areas, even those that currently have broadband service.
Co-Chairman Hoffman asked the providers how issues of local taxation affect the deployment of broadband throughout Kentucky especially in terms of increasing or slowing deployment. Mr. Watkins responded that typically, in drawing up a business plan for deployment of broadband, local taxation is a rather small line item. Mr. Watkins explained that the primary costs are equipment and labor and stated that, as equipment is replaced, there is great opportunity to utilize the DSL equipment being replaced or upgraded in expanding new service to unserved areas.
Mr. Mefford stated that adoption helps the business case greatly. In some areas that have 100 percent accessibility, there is as little as two percent adoption. Mr. Mefford stated that this low rate may relate to affordability, but it also relates to awareness. What is needed is to figure out how to create the value proposition that makes people want broadband service.
Co-Chairman Harris stated, and Co-Chairman Hoffman agreed, that in preparing the interim report that is due on November 15, the Task Force will only report findings concerning the changes that have occurred over the past year and concerns that members have. The report will take the inputs of members and combine those into a written report showing the level of deployment, the state and federal regulatory frameworks that existed at the beginning of the Task Force deliberations, the regulatory situations as they are now, and the different concerns of the members. At this time, the Task Force is not in a position to make any recommendations. Co-Chairman Harris stated that staff will send out a schedule for report preparation and member input. The Task Force members agreed with the approach as presented by the Co-Chairmen.
There being no further business, the meeting was adjourned at 11:40 a.m.