Environment and Utilities and Economic Development

Telecom bill would cut power of state regulators:

January 31, 2005

Legislation backed by SBC Indiana would dial down the state's authority to regulate telecommunications in the face of new competition from wireless and cable TV providers.

House Bill 1518 likely faces static from regulators and consumer interests in its call to block the Indiana Utility Regulatory Commission from setting pricing and terms on basic phone service after 2007, and to strip the agency's leverage over broadband services.

As a practical matter, the IURC already lacks authority on broadband, given previous federal telecom rulings. But the commission and consumer groups have often negotiated with SBC to improve its broadband infrastructure in Indiana, in exchange for more favorable regulatory treatment in areas such as pricing of services and of lines it leases to competitors.

In June, SBC pledged to make high-speed Internet service available to 77 percent of its customers by mid-2008. The agreement required 30 percent of new broadband to be in rural areas that economic development officials say are disadvantaged without the high-speed Internet access.

Under HB 1518, SBC could argue that the state has no authority to seek negotiated improvements to its broadband network, said Jerry Polk, an attorney for Cit-Law updates needed amid competition, SBC says

izens Action Coalition, a not-for-profit group representing consumer interests.

"It would be throwing away a negotiating tool or throwing away the possibility of future commitments" by SBC, Polk said.

As for the Indiana Office of Utility Consumer Counselor, agency head Anne Becker recently resigned as new Gov. Mitch Daniels continues to install his own team.

"We are currently reviewing House Bill 1518, but we have not yet taken a position on the bill," said Anthony Swinger, spokesman for the OUCC.

SBC and other phone companies, including Verizon and Sprint, would be treated like other broadband providers once the company's current regulation plan expires, said SBC spokesman Mike Marker.

"From our perspective, if consumer interests argue that regulation is needed, they are truly missing what's happening in the marketplace. Consumers and businesses have tremendous choice when it comes to broadband products and services," Marker said.

SBC would exceed its pledge to roll out high-speed Internet service agreed to under the current agreement with the state, he said.

SBC has complained of significant market share erosion since deregulation in 1996, saying over one-third of business customers and one-fourth of residential customers in Indiana have switched to competitors for wire line phone service.

The number of competitors has grown for other services, too. For example, Cincinnati-based Cinergy plans to launch in Indiana this year a high-speed Internet service via electric lines. Such broadband-over-power-line service is already offered by rural electric utilities in Lebanon and Martinsville.

Some SBC customers have abandoned their wire line phone service entirely for wireless, "and that is going to do nothing but grow," said George Fleetwood, president of SBC Indiana.

The company points to analysts' projections that cable companies will control 30 percent of the voice market in 10 years.

"Regulation is not keeping pace," Fleetwood said.

Polk said he isn't convinced SBC is in a dire predicament. Phone competitors who began to get a foothold in the market were dealt a setback last year when the IURC allowed SBC to raise the price it can charge competitors to lease its lines by about 30 percent.

Polk also pointed to SBC's expansion in wireless through its joint venture with Cingular Wireless, which acquired AT&T Wireless for $41 billion. "It's very difficult for SBC with a straight face to say that competitors are taking their business and that they're hurting financially because of it," Polk said. "They're trying to do in the Legislature what they've failed to prove to one of the most utility-friendly commissions in the country."

HB 1518 would phase out the commission's pricing controls on residential and business wire line service.

The legislation would take effect after the expiration of current regulation plans with the state: 2007 for SBC and Verizon and 2009 for Sprint. "It's time for Indiana to step forward and put together a telecommunications environment that's conducive to investment," said SBC's Fleetwood.

SBC plans to spend up to $6 billion in 13 states including Indiana to push fiberoptic cable farther out to neighborhoods to provide high-speed Internet, phone and video service.

The bill is sponsored by Republicans Michael Murphy of Indianapolis and Jack Lutz of Anderson; and Democrats Ed Mahern of Indianapolis and Bob Kuzman of Crown Point.
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