Big telecom pushes de-regulation bill in California

Posted on: September 10th, 2012 by Siddhartha Mahanta 1 Comment

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California could be the latest state to enact a law that dramatically curbs regulatory oversight of telecommunications services in the state, handing a significant victory to the industry players that have lobbied for the bill’s passage.

On its face, SB 1161 seems simple enough. The text of the bill explains that it seeks only to “preserve the future of the Internet by encouraging continued investment and technological advances” and “supporting continued consumer choice.” But to achieve that, the measure would gut the regulatory authority of the California Public Utilities Commission, a key state oversight body, over many Internet-based communications technologies.

What that means: California customers would no longer have an official regulatory body to address their concerns over the quality and affordability of these new, emerging services, which would not be bound to the same consumer protections that apply to traditional, wire-based telephone systems. To date, the commission has not signaled a strong intention to regulate this growing sector of the communications industry. By preventing it from doing so in the future, critics say, SB 1161 addresses a problem—an overeager regulatory commission—that does not exist.

Consumer advocates argue that SB 1161 would bar the CPUC from keeping close tabs on big telecommunications companies like AT&T and Verizon—two of the bill’s big backers—and safeguarding customer protections. Supporters, meanwhile, say that the CPUC and any regulations it might pass will only hinder the tech industry and stymie job creation. Proponents like tech industry analyst and columnist Larry Downes say that Governor Jerry Brown should quickly sign SB 1161 into law and begin to roll back the authority of a commission whose budget has risen by $300 million over the past year.

The state assembly and senate passed the bill in late August. Now, Gov. Brown has until September 30 to decide whether to sign the measure into law.

Voice-over IP

Two parts of SB 1161 are of particular concern for its critics. Section 710(a) would prevent the CPUC from enacting new regulations that affect Internet-based phone services, such as Skype and Google Voice. These services fall under the rubric of what’s known as voice over Internet protocol (VoIP), a rapidly growing segment of the communications market. Meanwhile, section 710(b) of the bill would pre-empt any department, agency, commission, or “political subdivision of the state” from passing new laws or rules that regulate VoIP.

But this vaguely worded section also goes one sizable step further: it would keep localities from issuing new rules on any other Internet protocol (IP)-enabled service—potentially, a far broader de-regulatory stroke. In a memo written in June, Lynn Sadler, the CPUC’s director of governmental affairs, sharply criticized SB 1161, writing that it would  “tie the Commission’s hands if it decides in the future that there is a need to reassess its regulatory role over VoIP.”

Grasping the implications of this provision requires a basic understanding of the quickly shifting landscape for traditional, wire-based phone service. Increasingly, these networks are using IP to expedite the distribution and transmission of phone signals. Meanwhile, two of the entrenched telecommunications providers, AT&T and Verizon, have publicly announced their intentions to gradually shift their customers out of wire-based service and into more IP-enabled networks.

But if these companies begin shifting to newer, more internet-based modes of communication, state regulators would be prevented by the new legislation from stepping in to address consumer complaints. Given the growing prominence of IP in basic telecommunications services, any law that cuts regulatory supervision over this technology is likely to register a strong impact on the future telecommunications environment. In other words: as providers move towards a more IP-centric model, SB 1161 could prevent the CPUC and local jurisdictions from issuing regulations that keep the industry in check.

Under current law, a traditional telephone customer can file a complaint with the commission and receive a hearing, after which the commission votes on the validity of the complaint. But under SB 1161, that chain of oversight and responsiveness would be in peril. While the bill would allow the commission to “continue to monitor and discuss VoIP services,” it would only be allowed to issue reports to the FCC and the legislature, and take no formal action. Instead, the commission would be able to respond “informally” to complaints, and provide information on how to contact the proper state and federal authorities. A source connected with the commission who asked not to be identified described this as a substantial step down for the body.

SB 1161 does preserve the commission’s authority over state emergency telephone services, universal service programs, existing requirements for backup power systems, and the ability “to address or affect the resolution of disputes” over intercarrier compensation, or the charges paid by one carrier to another to originate, carry, or terminate telecommunications traffic. It also maintains the commission’s authority over support structures and other facilities involved in the transmission of signals—a key concession extracted from the bill’s proponents, according to an official familiar with the matter.

The commission did manage to successfully lobby for several amendments in the final version of the bill, including a provision that the bill would not impact its “existing regulation of, proceedings governing, or existing commission authority over, non-VoIP and other non-IP enabled” phone service, “including regulations governing universal service and the offering of basic service and lifeline service, and any obligations to offer basic service.” But this could mean little in a communications environment where IP-enabled communication has displaced traditional, wire-based service.

For the commission, the concern is that as non-VoIP and non-IP enabled, traditional phone services become a thing of the past, this exception would basically become meaningless over time. The CPUC would have the power to address issues related to a sector of service that is quickly shrinking.

In April, the Los Angeles Times reported that Michael Peevey, the commission’s president, had broken with the rest of the body, which opposed the SB 1161. “We should be very careful before we jump off the cliff here as commissioners and say we oppose this,” Peevey said at a meeting of the group. “My view is that Silicon Valley is the economic engine of the state…I don’t want to support anything that in any way would diminish that.”

But Lynn Sadler’s June memo asserted that concerns like Peevey’s could be overblown. “There is no current problem addressed by the bill,” Sadler wrote. “Rather, the author and supporters of the bill fear that the CPUC will impose unnecessary regulations on providers of IP-enabled services if this bill is not enacted.”

In an August 18 interview with the San Francisco Chronicle, CPUC commissioner Mike Florio suggested SB 1161 could pose dangers to consumers, and argued that the commission has made no moves to restrict VoIP that should be of concern to the industry.

“It’s not at all clear under this bill that we’d be able to touch anything having to do with quality-of-service problems,” Florio warned. “It’s going to mean lawyers and lawsuits and a lot of time and money and energy that doesn’t need to be spent. We’ve done nothing to regulate computer applications like Skype, have no desire to do so, and that’s not what this is about.” AT&T declined to comment for this story, and Verizon did not respond to a request for comment.  

Industry analyst Larry Downes views the regulations of a body like the CPUC as costly impositions on the growth of a new technology—one that it is unqualified to regulate. In a recent column urging Gov. Brown to sign the bill, Downes pointed out that wire-based phone service in California has decreased by 17 percent between 2008 and 2010, versus a 46 percent increase in VoIP accounts over that period.

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