Cal. PUC ‘Novice’ Hears Competition is Rampant or Nonexistent

Speakers at the Cal. PUC regulatory conference panel on events and issues driving changes in telecom said fundamental technology and market changes in the sector mean regulators in Cal. and elsewhere must reassess what they do and how much they should regulate. “Regulation hasn’t kept pace with new industry trends but needs to,” said Dick Severy, MCI public policy dir. He said regulatory agencies should do a “bottom up review” of their activities to ensure their policies don’t skew wholesale or retail markets, and that they regulate only where needed.

Consultant Terry Murray said regulators “need better information than you have ever had” to keep up with industry changes: “What’s true today won’t be true tomorrow. Snapshots in time aren’t good enough. You need full motion video from multiple vantage points.” She cited the advent of bundling services, which actually deters customers from changing providers because they have to change everything over, not the element they find unsatisfactory. She said regulators already collect lots of real-time data, “but nobody has the time or the job of looking at the information you're already getting.”

Combatants agreed the commission should get more information on competitive realities, after Grueneich asked if that was the crux of the issue. Mitchell Wilk of LECG consulting, the former PUC president, said he would challenge the industry, which knows the market best, to explain what really drives technology and demand. But he also said the key in such a fast-changing environment was for the commission “to be a bit anticipatory” by considering how big a technology such as VoIP will be 3-5 years out.

Despite a self-professed lack of expertise, Grueneich signaled at the meeting’s start she could be an obstacle to those like fellow new Comr. Susan Kennedy who would be quick to dump the state’s regulatory structure. Grueneich said her main priority was reinstating the “consumer bill of rights” enacted last year by the PUC but recently suspended by a new majority, including Kennedy, which cited companies’ difficulties carrying it out. Grueneich said she was gratified that Kennedy, as the presiding commissioner on the issue, had late Thurs. granted her request to set a schedule to decide promptly which rules might be reinstated immediately. Grueneich said she would hold a conference March 24 on the bill of rights to look at risks to consumer rights and potential regulatory impact on competition, innovation and economic growth. Grueneich said the commission also had to deal with the mergers, complete a broadband report for presentation to the state govt. and close out various pending proceedings.

Grueneich said the PUC’s plate was so full she didn’t favor opening new proceedings. That could be bad news for Kennedy, who proposes to vote as early as the commission’s meeting Thurs. on a reconsideration of the entire telecom regulatory structure.

“There are no more monopolies, and there is no prospect of them returning, despite the recent announcements” of mergers, Wilk said. “This is a huge change.” Besides, telecom “captures the essence of ‘interstate commerce,'” he said. Wilk said the PUC should move toward deregulation and perhaps “rethink” its entire regulatory framework. It shouldn’t “oppose federal authority because it wasn’t invented here.” The commission also should recognize that it “is not a court of law” and that it creates great costs for industry, he said. Verizon Pres.-Pacific Region Tim McCallion said Cal.’s regulatory structure, which started emerging in 1987, was outdated. He called for “competitive parity between technologies,” ending “all vestiges of monopoly era rate-of-return regulation” and price regulation, regulators’ getting “out of our way and letting us bear the risks and rewards of our broadband transformation,” and ensuring “affordable Lifeline access to basic service and emergency services such as E-911.” Replying to claims that the Bells face effective competition in basic consumer service, McCallion waved his cellphone and said, “people actually use cellphones and make phone calls with them.” He noted the Bells had lost access lines since 2000. “To say there’s not any competition out there doesn’t pass the straight-face test.”

But “incumbents have gotten the FCC and courts to select the winner, and the winner is the incumbents,” said Lee Selwyn, pres.-Economics & Technology Inc. He said the Bells’ mantra about the competition they face doesn’t detract from continued “overwhelming domination by the incumbents” of the local market and huge gains in long distance. “I would challenge the industry to come up with solid econometric evidence that so-called intermodal competition matters a whit in terms of constraining prices. I don’t think it does.” The promise of competition underpinning Cal.’s current framework has been betrayed by the FCC’s removal of requirements on Bells to share facilities with competitors, agreed ORA telco and consumer issues branch chief Denise Mann. “We see the ILECs promising benefits from regulatory relaxation” in improved services and prices for consumers, she said. “In most cases these benefits have absolutely failed to materialize” for typical consumers. Wireless and VoIP don’t compete directly with basic wireline phone because they don’t have the reach, pricing or features, Mann said. New services are like premium overnight delivery service vs. the Postal Service, which is analogous to the Bell networks for basic service, she said. ORA Dir. Dana Appling said consumers still need help, such as protection from “rampant market abuses,” but flexible regulation and industry standards could sometimes substitute for traditional regulation.

The PUC should resist Bells’ aggressive push “for full deregulation” and instead reinstate price rules in forms known as “sharing” or a “meaningful control factor,” said lawyer Bill Nussbaum of The Utility Reform Network (TURN).

Sarah DeYoung, exec. dir. of the CLEC trade group CalTel, said regulation should focus on ensuring nondiscriminatory interconnection among telecom providers, competitive access to unbundled network elements at “sustainable” terms and conditions, and an intercarrier compensation system compatible with public goods such as 911 and universal service. Lesla Lehtonen, regulatory vp for the Cal. Cable & Telecom Assn., said legacy regulation has tilted “burdens and benefits” for incumbents and competitive providers, a circumstance any new system should avoid. Chris Veehan of the San Francisco mayor’s office said federal preemption of state and local authority will “leave consumers at the FCC’s mercy” and deny states and localities the ability to respond to the specific effects of industry changes on their constituencies. - Louis Trager, Herb Kirchhoff