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Testimony of Paul Chase, J.D., of Citizens Action Coalition Before the Senate Committee on Homeland Security, Utilities and Public Policy In Opposition to SB 245
January 10, 2006
Thank you Mr. Chairman and members of the Committee. My name is Paul Chase. I am the governmental affairs lobbyist for Citizens Action Coalition, a consumer protection and advocacy organization, boasting over 200,000 members statewide, focused on improving the lives of Indiana residents in the area of, among other things, telecommunications policy. I am here today to voice our opposition to SB 245.

I’ll begin by making some over-arching comments about why SB 245 it is not necessary for telecommunications reform, and why the enactment of SB 245 will hurt residential and small business ratepayers. I would like to then turn the podium over to Jerry Polk, of Mullett, Polk and Associates, who has represented Citizens Action Coalition before the Indiana Utility Regulatory Commission (IURC), the body that currently exercises regulatory authority over the telecommunications industry, to address technical problems with SB 245.

My first point is that, contrary to assertions by proponents of SB 245, Indiana law already provides the regulatory flexibility necessary for meaningful competition, hand in hand with strong consumer protection, in the deployment of new technologies in the telecommunications industry. Not only is SB 245 therefore unnecessary, it is at odds with public policy in Indiana that for decades has supported universal service, or service for all, at just and reasonable rates. This concept is under threat by the trend, reflected in SB 245, toward weakened regulatory oversight of monopoly utility companies.

Claims by proponents of SB 245, that Indiana’s telecommunications law was last updated 20 years ago and as such is antiquated, cumbersome and unresponsive to competition for private investment in new technologies, ignores the significant regulatory flexibility afforded the IURC under Indiana’s Alternative Regulation Statute (ARG).

This statutory framework gives the IURC the flexibility it needs “to balance regulatory goals with the need to encourage opening markets to competition” as reflected in the 2005 report of the Indiana Office of Utility Consumer Counselor. Discussing deregulation efforts in other states, the OUCC report notes that

Before these deregulation efforts started . . . , Indiana was well on the road to relaxed regulation. Indiana’s Alternative Regulatory statute helped the telecommunication industry move to a market-based approach. History speaks well for the vision and foresight that went into its drafting. Sufficient flexibility was included, permitting the statute to stand the test of time, even in the face of dramatic technology, market and regulatory changes.

A prime example of Indiana’s Alternative Regulation Statute at work to protect incumbent local exchange carriers (ILECS) from strategies that could reduce competition in the development of competitive markets is the December 9, 2005 unanimous decision of the IURC in Cause No. 42530.

The decision was the culmination of a two-year formal investigation by the IURC to determine the appropriateness of changes to current regulatory guidelines for the telecommunications industry based on the state of competition in Indiana. In discussing its jurisdictional authority, the IURC stated that

. . . the Indiana General Assembly recognized in 1985 that the “regulatory policies and practices and existing statutes are not designed to deal with the competitive environment,” and therefore granted the Commission “flexibility in the regulation of providers of telephone services . . . [and] authorized [us] to formulate and adopt rules and policies as will permit [us], in the exercise of our expertise, to regulate and control the provision of telephone services to the public in an increasingly competitive environment, giving due regard to the interest of consumers and the public and to the continued availability of universal telephone service.” I.C. 8-1-2.6-1.

Following its two-year formal investigation, on December 9, 2005 the IURC concluded that it had insufficient data to assess the status of telecommunications competition in Indiana, and raised concerns about the effects on competition caused by the elimination of unbundled network element-platform (UNE-P) and the “mega-mergers” of SBC/AT&T and Verizon/MCI. It further concluded that continued regulation of the Indiana telecommunications industry is essential, and opened a new investigation into the status of telecommunications competition.

At the same time, however, the IURC also provided relief to incumbent local exchange carriers (ILECS) by extending certain regulatory requirements to both incumbents and competitors to provide parity in the regulations on bundled and packaged services. This provides tangible evidence that Indiana’s Alternative Regulation Statute is well designed to balance competition in emerging markets while furthering the long-standing policy of the Indiana General Assembly to protect the interests of consumers and the public.

My second point is that continued regulation of basic local service (BLS) does not impede broadband development. Proponents of SB 245 assert that regulation of Basic Local Service (BLS) is somehow inhibiting investment in advanced telecommunications technology, particularly with respect to broadband deployment. This argument is without merit, however, as various providers are currently systematically expanding broadband access in Indiana, including the incumbent telephone companies as a result of regulatory oversight in negotiated settlements under the Alternative Regulation Statute.

Others investing in broadband include the Indiana Fiber Network, a consortium of smaller telephone companies, municipalities, and universities. Regulation of Basic Local Service has not impeded broadband deployment in Indiana. Furthermore, investment in broadband is not limited to incumbent telephone companies. According to the 2005 Report of the Indiana Office of Utility Consumer Counselor, “[d]epending on availability, customers can receive broadband through DSL, Cable, Wi-Fi, Satellite, and Broadband-Over Powerlines. Even newer technologies may be on the horizon: Broadband-Over-Gaslines is one technology in the developmental stages.

My third point is that there is no comparable technological, competitive replacement for Basic Local Service (BLS). The proponents of SB 245 premise the need for deregulation on the argument that wireless and voice over Internet protocol (VoIP) service are viable substitutes for Basic Local Service on a technological, competitive and availability basis. However, this argument is widely discredited, as reflected in an April, 2005 report prepared for the National Association of State Utility Consumer Advocates (NASUCA), of which the Indiana Office of Utility Consumer Counselor (OUCC) is a member.
Indeed, on the subject of wireless and voice over Internet protocol as viable competitors for traditional wireline telephone services, the IURC, in its December 9, 2005 Order, stated that

[b]ased on the evidence in the record and our own competition data contained in the Reg Flex Report, there is insufficient data to support a conclusion that there is a broad-based intermodal competition between wireline and wireless carriers in Indiana. For example, SCB’s own evidence shows that today only 6 percent of customers are wireless only. This percentage is too low for us to consider it a viable alternative for all customers. We have noted several times in our Reports to the Regulatory Flexibility Committee of the General Assembly that wireless telecommunications is not a substitute for wireline telecommunications for the overwhelming majority of both business and residential customers at this time.

Basic Local Service is cheaper and more reliable than the newer technologies, and in contrast to those technologies, continues to operate during power outages. Basic Local Service also ensures access to 911 services. Most importantly, Basic Local Service continues to be the mainstay for the vast majority of business and residential customers in Indiana.

This brings me to my forth and final point. Deregulation of Basic Local Service (BLS), also known as Plain Old Telephone Service (POTS), will lead to unjustified rate increases with no regulatory oversight to ensure service quality on a continuous basis. On its face, SB 245, Section 17 (pp. 28-31), permits telephone companies to increase the flat monthly rates they charge their customers by $1.00 per year for a three-year period beginning March 28, 2006. Pursuant to Section 18 of the bill (pp. 31-32), after June 30, 2009 telephone companies will have the sole power to set rates for basic telephone service, completely eliminating the long-standing authority of the IURC to ensure that rate increases are justified and reasonable.

Furthermore, the number of competitive local telephone providers has dropped dramatically since 2000, as noted by the Indiana Office of Utility Consumer Counselor (OUCC) in its 2005 report. According to that report, the SBC/AT&T and Verizon/MCI mergers are changing the competitive landscape even further, such that the competitive to incumbent market share in terms of access lines is decreasing, from 13% competitive and 87% incumbent, to only 7% competitive and 93% incumbent.

In other words, with no meaningful competition for Plain Old Telephone Service (POTS), the free market philosophy of competition to hold down prices is inapplicable, and ratepayers are destined to experience rate increases that no longer have to be justified by any regulatory body. While this will impact all ratepayers, it will hit low-income Hoosiers the hardest.

As previously stated, deployment of broadband technology is not dependent on deregulation of Basic Local Service (BLS). Accordingly, we find the provisions of SB 245 that tie these two concepts together (Sections 17 and 18, pp. 28-32) particularly troubling, and establishing bad public policy for Indiana ratepayers.

Accordingly, for the reasons stated, we urge you to oppose SB 245. Thank you for this opportunity. I now turn the podium over to Jerry Polk.

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