Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Economic Development and Tourism was held on Monday, July 15, 2013, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Keith Hall, Co-Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Keith Hall, Co-Chair; Senators Perry B. Clark, Denise Harper Angel, Ernie Harris, Jimmy Higdon, Dennis Parrett, and Mike Wilson; Representatives Julie Raque Adams, Lynn Bechler, Kevin D. Bratcher, Larry Clark, Leslie Combs, Tim Couch, Jim DeCesare, Mike Denham, Bob M. DeWeese, Jeffery Donohue, Myron Dossett, Jim Gooch Jr., Jeff Greer, Mike Harmon, Richard Heath, Richard Henderson, Dennis Horlander, Thomas Kerr, Kim King, Martha Jane King, Adam Koenig, Brian Linder, Tom McKee, Terry Mills, David Osborne, Ruth Ann Palumbo, John Short, Arnold Simpson, John Will Stacy, Wilson Stone, Russell Webber, and Jill York.
Guests: Carolyn Ridley, Vice President of Regulatory Affairs, tw telecom; Greg Hale, General Manager, Logan Telephone Cooperative; Randy Hollis, Executive Director, Kentucky Cable Telecommunications Association; Tom FitzGerald, Director, Kentucky Resources Council; and Jeff Derouen, Executive Director, Kyle Willard, Director of Engineering, and Jim Stevens, Financial Analysis, Kentucky Public Service Commission.
LRC Staff: John Buckner, Lou DiBiase, and Dawn Johnson.
Approval of Minutes
A motion by Representative Gooch and a second by Representative Bechler to approve the minutes of the June 19 meeting carried by voice vote.
Telecommunication Issues in the Commonwealth
Co-Chair Hall explained that the purpose of the meeting was to continue discussion on issues relating to Senate Bill 88 of the 2013 Legislative Session.
Carolyn Ridley, Vice President of Regulatory Affairs, tw telecom, said that her comments are from a competing services provider’s perspective. tw telecom is a publicly traded company that offers voice, data, and internet access services to businesses in 40 states and the District of Columbia. It provides services to northern Kentucky, Lexington, and Louisville and has invested over $24 million in the state. It offers a competitive advantage to business customers and plays an important role in the telecommunications industry. About 20 years ago, the legislature gave very broad deregulatory provisions to the Public Service Commission (PSC) that allows it to give a carrier any type of deregulation the data submitted warrants. The PSC determines whether there is enough competition to allow deregulation. The law serves the state well. If AT&T had begun the regulatory process rather than the legislative process two years ago, there may already be deregulation based on the PSC’s determination. Ms. Ridley strongly encouraged the legislature to continue to use the PSC process.
Ms. Ridley said it is important for companies to continue to interconnect networks to allow users of one carrier to communicate with others. The federal Telecommunications Act of 1996 opened the local exchange to competition and determined that all carriers have an obligation to interconnect networks opening the door for smaller carriers to compete. It gave public service commissions the authority to adjudicate any complaints or issues on interconnection. Now, as networks transition to packet technology, larger carriers are advocating that the interconnection obligation should not apply. Any new legislation should include the PSC’s ability to adjudicate all wholesale carrier-to-carrier issues. Since the wholesale market is a monopoly, the PSC plays a vital role.
Responding to Co-Chair Hall’s question, Ms. Ridley said of the seven states tw telecom represents, Louisiana is the only one that has not addressed the deregulation. The remaining states have continued to give their public service commissions some jurisdiction over anticompetitive complaints. Only Florida has addressed the interconnecting issue.
Responding to Senator Harris’ question, Ms. Ridley said any legislative change should include the phrase “…nothing diminishes or expands the Commission’s jurisdiction over all carrier-to-carrier issues under federal and state law provided, however, the Commission has the authority to adjudicate interconnection issues regardless of the underlying technology and complaints regarding anticompetitive practices including but not limited to predatory pricing complaints.” Ms. Ridley said that it is her opinion that AT&T seeks total deregulation. In response to Representative Adams’ question, Ms. Ridley said a coalition of eight competing members agreed that this proposed phrase should be included with any changes be made.
Greg Hale, General Manager of Logan Telephone Cooperative, said the cooperative is one of 13 small providers of landline and broadband services for rural areas that are too costly for larger providers. Small providers are community oriented and create networks that allow businesses to locate in rural areas and thrive. While wireless service is critical, a robust wireless network and a robust fiber optic network are necessary to ensure rural Kentucky is successful. While the Telecommunications Act of 1996 requires the Federal Communications Commission (FCC) to support affordable and comparable services for rural areas, recent reforms have had a negative impact in these areas. While larger service providers seek deregulation, the rural industry is advocating a more balanced approach that would create smart regulation guaranteeing protection of consumers, promotion of competition, and to insure universal service. Consumers recently have complained about long distance carriers dropping calls to areas when they do not want to pay for access to those networks. This impacts rural businesses and is a public safety concern. The best policy is to wait for the FCC’s study on the transition to IP networks.
Responding to Representative DeCesare’s questions, Mr. Hale said broadband is generally defined as four megabits, while smart phone 3G service is approximately one megabit, 4G service is three megabits, and LTE networks are 10 to 12 megabits, although they sometimes spike to 20 megabits or more.
Responding to Representative Stone’s question, Mr. Hale said smaller providers are profitable enough to provide the latest technology to rural areas.
Responding to Representative Henderson’s question, Mr. Hale said that while he has heard anecdotal reports of the effects of removing all landline services on the elderly, it is too soon to see the effects of deregulation.
Agreeing with Representative Martha Jane King, Mr. Hale said wireless networks depend on an interconnected fiber network. As more wireless capacity is required, more fiber optic cable is needed.
Randy Hollis, Executive Director of Kentucky Cable Telecommunications Association (KCTA), said his agency represents investor-owned cable television companies. Cable has driven innovation and transformation in the video business, has made broadcasting better by bringing television to suburban and rural areas, and has invested billions in original content. One in three households has wireless telephone service through cable. The cable industry made the commitment to deliver broadband to residential customers by taking risks and investing billions of dollars. There are nearly 800,000 cable customer households in Kentucky. Nearly 2,800 are employed by Kentucky cable providers, with an additional 23,000 direct and indirect jobs associated with the industry. The total economic impact in Kentucky is $3.4 billion. KCTA gauges whether any legislative proposal will allow the cable industry to maintain an even playing field with competitors and keep customer costs as low as possible. The cable industry is ready to work with the committee and other stakeholders to accomplish this end.
Responding to Co-Chair Hall’s question, Mr. Hollis said his concern with SB 88 is the interconnecting wholesale issue, which could increase prices for cable companies and thus causes price increases for customers. KCTA tried to come to terms with AT&T to maintain customer protection, but they could not reach an agreement therefore had to oppose the bill.
Responding to Representative Osborne’s question, Mr. Hollis said KCTA members are not regulated because they use voice-over-internet-protocol service.
Tom FitzGerald, Director of the Kentucky Resources Council, said the council provides no-cost legal and technical assistance to community groups, individuals, and local governments on a range of environmental and utility issues. Mr. FitzGerald said he opposed SB 88. He said AT&T has requested and received approval from several states to be freed from the obligation to be the carrier of last resort. While investment continues in the most profitable areas, there is a continued gap in the availability of services for rural and higher cost areas. It is important to ensure there is no slippage of services for those who cannot afford or do not need additional services. There should continue to be a gatekeeper function through the PSC. AT&T was asked to sufficiently demonstrate robust competition and public protection but it declined. SB 88 included language allowing wireless service switching by an affiliate of the incumbent utility without any approval or review of whether it would be as reliable and as functional. This issue surfaced in areas affected by Hurricane Sandy. KRC is trying to come to terms with a way Kentucky can move forward responsibly and cautiously because this is an essential service guaranteed under state and federal law. Mr. FitzGerald recommended reserving further action until the FCC makes its decision.
Mr. FitzGerald said that while Kentucky has a good ethics law, he had concern, as a lobbyist, about the lack of reporting of grassroots expenditures.
Representative Gooch suggested in situations like natural disaster reconstruction, communities would be better served by installing current rather than outdated technology. Mr. FitzGerald agreed but cautioned that, as the transition occurs, rural areas should not lose functionality as their service is downgraded from landline to wireless. He said some wireless services do not support faxes and the 911 emergency system.
Jeff Derouen, Executive Director of the Kentucky Public Service Commission, said the PCS’s role is to implement regulatory policies based on the General Assembly’s policy decisions that have been signed into law by the Governor. In the last nine years, the General Assembly has made two substantial changes to telecommunication regulation. In 2004, broadband service was deregulated based on the premise that doing so would foster expansion of high speed internet and provide economic development. In 2006, the General Assembly allowed incumbent local telephone providers to opt out of remaining regulation of rates for basic landline service beginning in mid-2011. Kentucky’s three largest phone companies have opted out and have raised rates without undergoing PSC review.
Mr. Derouen defined the different types of carriers in Kentucky.
Mr. Derouen said that in 2011, the FCC changed the purpose of the Universal Service Fund (USF). The USF, established in 1996 to subsidize voice service to low income or high cost areas, is funded through fees paid by all phone customers in the United States. In 2011, the Connect America Fund was created to replace the high cost support for voice service and shift funding to the expansion of broadband service. It sets minimum service standards for carriers electing to receive the subsidy. No carriers have requested funds under this programming in Kentucky. The second change is the transition from traditional switch-based telephone technology used to make voice calls to IP-based. This is not the same as VoIP. IP-based technologies do not require internet access. The transition may have a significant regulatory implication depending on decisions at the federal level.
Mr. Derouen stressed that the PSC is technology neutral.
Kyle Willard, Director of Engineering, explained the technical aspects of IP- based technologies versus switch-based technology.
Representative DeCesare said the General Assembly lacks education when it comes to current technology. For example, in the budget process, it receives little notice or is overlooked altogether. All state government agencies and universities rely heavily on technology that constantly needs updating. He suggested the legislature change the Economic Development Committee to the Economic Development and Technology Committee. He noted that other states have committees that deal with high-tech issues.
Mr. Derouen explained that the PSC exists to regulate issues that the General Assembly has determined meet two criteria: essential services and natural monopolies. A state law maintaining regulation can be superseded on the federal level.
Responding to Representative Bechler’s question, Mr. Willard said many residential service cable companies use IP protocol. Mr. Derouen added that the PSC does not determine the technology used to switch calls when solving switching disputes between wholesale carriers; however, the FCC is receiving complaints that technology service over the internet should be deregulated. Mr. Willard said surcharges are across the board regardless of the underlying carrier.
Representative Koenig said he would like information on how many customers each carrier has as well as the population data in each service area.
Co-Chair Kerr asked for information on previous legislation that funded a program allowing the visually impaired to receive newspaper service over the telephone. Mr. Willard said the legislation did not come to fruition, and the PSC has not been involved.
There being no further business the meeting adjourned at 3:00 PM.