STATE REGULATORS, LAWMAKERS ACT ON TELECOM FINANCIAL PROBLEMS

State commissions and legislatures are concerned that interdependent nature of telecom industry could mean financial problems of major carrier such as bankrupt WorldCom might have ripple effects that impair ability of other still- solvent carriers to serve their customers. State officials also are concerned about how to handle mass migrations of customers to other carriers when companies leave state’s markets. And they are concerned with identifying financially troubled carriers early enough for effective policy action.

Mo. PSC opened docket investigating effects of telecom bankruptcies. It said it established case because of WorldCom bankruptcy and financial problems at other carriers. Agency said bankruptcy of major player such as WorldCom raised questions about whether there was risk that carriers that wholesaled services to WorldCom or bought facilities from it might suffer impairment of their ability to provide safe, adequate and nondiscriminatory service to their retail customers. Mo. PSC asked WorldCom and its affiliates to appear Sept. 19 for public presentation on status of its bankruptcy case and anticipated effects on state’s other telecom carriers and on retail customers. Agency also directed WorldCom to file quarterly bankruptcy status reports, with first report due Sept. 1, and for carriers that dealt with WorldCom to alert PSC promptly in event of abnormal financial difficulty with WorldCom or any other carrier.

Neb. PSC said WorldCom situation prompted opening of telecom bankruptcy case that focused on effects major telecom bankruptcy such as WorldCom’s could have on maintaining universal service. Agency said it also was concerned about handling mass service terminations, ensuring customers get adequate notice and had adequate opportunity to migrate to other carriers. PSC asked all carriers operating in state to file comments by Sept. 6 addressing potential impact of telecom bankruptcies on access charge revenue of eligible telecom carriers (ETC) who were obligated to offer local services that comprised universal service entitlement. PSC said that as more troubled carriers went bankrupt or exited marginal markets in effort to avoid bankruptcy, ETCs might see access charge revenue decline to point that impaired their ability to make necessary network investments. Commission also asked for comment on what role it should play when informed that carriers were going bankrupt.

States also are addressing efforts by solvent local exchange carriers to insulate themselves from financial distress of troubled carriers through payment assurance mechanisms such as deposits or advance payments. Ore. PUC approved CenturyTel tariff that broadened grounds under which it could ask interexchange carriers and other competitive providers for security deposits. Up to now, deposits were permitted only if carrier had history of late payments with CenturyTel or had no credit history. CenturyTel said it needed change to better manage its credit risk. PUC staff and CenturyTel agreed to amend tariff proposal to clearly spell out circumstances under which deposits would be in order, addressing IXC concerns that deposit tariff could be applied in discriminatory and anticompetitive manner. Tariff now defines “late payment history” as failure to pay 2 monthly access charge bills on time within 12-month period. It specifies that deposits could be required if carrier’s credit rating fell below investment grade as defined by nationally-recognized credit rating organizations. Tariff limits deposit amount to sum equivalent to 2 months’ billings. PUC staff said access charges were significant revenue source for telco, providing roughly 19% of CenturyTel’s total Ore. revenue. CenturyTel has proposed similar tariffs in Ida. and Mo., where they're pending.

In Tex., WorldCom told Tex. PUC it took issue with SBC/Southwestern Bell’s recent request that agency expand its monitoring of carrier’s service quality to include its payments to SBC and other critical suppliers. In letter updating agency on status of bankruptcy case, WorldCom said PUC involvement to assure SBC was paid in future wasn’t necessary at this stage because it and SBC were “already addressing precisely that issue” in bankruptcy court. WorldCom urged PUC “not to lend credence” to any party’s attempts to “forum shop.”

Mass. Dept. of Telecom & Energy (DTE) adopted new mass migration policy for local exchange providers who left state’s markets due to bankruptcy, selloff or any other reason. Under new policy, exiting local carrier must notify DTE 90 days in advance, specifying termination date, identifying wholesale providers and retail customers affected by exit and designating migration manager as point of contact. Departing carrier must give customers 60 days’ notice of termination, and allow them 40 days to select another carrier. If there’s an acquiring carrier, that provider must contact customers 30 days before old carrier’s termination date. Customers who fail to act by 40-day deadline default to acquiring carrier, if there is one, or face “soft” dial tone that allows access only to 911 and to recorded announcement regarding service cutoff during 10 days before service termination. Customers who still fail to respond to soft dial tone will face dead phone on termination date.

On legislative front, state lawmakers are considering measures to facilitate early detection of carriers in financial trouble. Cal. Assembly Judiciary Committee advanced Senate-passed bill (SB-783) that would punish corporate officials who knew about financial misdeeds such as WorldCom’s accounting misstatements but keep silent about them. Measure was referred to Assembly Appropriations Committee, which was to hold hearings on bill this week. Bill would: (1) Make directors, executives and upper-level managers with finance responsibility personally liable for fine up to $100,000 for covering up accounting fraud. (2) Impose fine up to $1 million on corporation that withheld information about financial fraud. (3) Expand legal protections for employees who blew whistle on illegal financial activity at their company. Supporters said bill would encourage early warnings against another WorldCom or Enron.

Conn. Gov. John Rowland (R) said he would sponsor bills in 2003 state legislative session to address corporate accounting frauds and other company misdeeds. Planned package will address increased state oversight, broader authority for Conn. Board of Accountancy and Depts. of Banking and Consumer Protection and impose larger penalties. Rowland said purpose would be to hold corporations and their officers accountable so that public can have confidence in financial statements of public companies.