Indiana Senate Drops Broadband Bill, Adopts Resolution

The Indiana State Senate introduced a resolution Thursday that asks regulators to support broadband and wireless deregulation and consider various costs SBC Communications Inc. must incur when leasing its local phone network to rivals.

In the resolution, the Senate also said the Indiana Utility Regulatory Commission should review SBC’s pending application to provide long-distance services within the state and report back to the General Assembly no later than June 30.

The resolution was adopted following the decision by a Republican senator, James Merritt, chairman of the Indiana Senate Utility and Regulatory Affairs Committee, to not allow a vote on House Bill 1627.

The bill proposed deregulating the broadband market and requiring Indiana regulators to evaluate actual costs when setting the rates resellers must pay SBC to lease its local phone network, according to SBC spokesman Mike Marker. Under the bill Indiana regulators would have no oversight over broadband services.

In a phone interview Thursday, Merritt said he decided not to introduce the bill for a vote because it would have effectively created a second regulatory body at the Senate. “I think the duties that were in the bill were guidelines that should be established by that commission,” he said.

By advocating a deregulatory approach to broadband services, such as DSL, the senators are “mirroring ourselves” after the Triennial Review order the Federal Communications Commission adopted last month governing broadband policy, Merritt said.

SBC was hoping the commission would introduce a new bill before the legislative session ends April 29, but “that time has gone by,” Merritt said.

Marker said the resolution is “nonbinding.” “It does nothing to put it into law, so that is disappointing from our perspective,” he said.

SBC has not given up on its bid to change the wholesale phone rates in Indiana. The company is set to submit new cost studies to the Indiana URC. After factoring in these costs, SBC hopes the regulator will hike up the rates competitors must pay the phone giant to lease its network.

When setting the price AT&T and others must pay SBC to lease certain components of its local phone network, or all network elements, known as the UNE-P, regulators use a model based on the incumbent’s forward-looking costs.

The Bells say that model is flawed. They maintain they are being forced to subsidize their rivals and that regulators should analyst their actual costs. “The competitors choose for their own purposes to see us as their bankers and as their `capex’ providers,” said SBC spokesman Dave Pacholczyk.

He said the Senate has asked regulators to evaluate other costs they previously have not included during years of analysis. He did not specify what those costs would include. “There are numerous factors. It is going to be an exhaustive cost study,” he said.

The Indiana Senate resolution says regulators should consider “actual fill utilization factors in the pricing mechanism” if they are going to use the national cost-based standard commissions rely on to set the rates. Among regulators, it is simply known as TELRIC, or the total long run increment cost.

Beth Herriman, director of external affairs with the Indiana URC, said the regulator previously analyzed actual fill utilization factors in its last study. The fill costs concerns how much of the incumbent’s equipment, such as a local loop, is being used, Herriman said.

“They [SBC] wanted us to only be able to consider actual fill instead of doing the forward-looking cost considered under TELRIC,” she said. “We are going to follow TELRIC and we are going to continue to examine costs on a forward-looking basis.”

AT&T Corp. spokesman Mike Pruyn said it is too early to speculate on how SBC’s new cost factors could influence the wholesale rates. Indiana regulators said two weeks ago they would take a new look at the rates previously set, and SBC is submitting new data. Indiana last year set the monthly wholesale price at an average of $12.18, Pruyn said.

AT&T entered the local residential phone market Jan. 27, Pruyn said, but he declined to say how many local phone customers the long-distance giant has recruited. SBC is seeking to abolish local phone competition right when it is starting to emerge, he said.

SBC and Verizon Communications Inc., the largest local phone companies in the United States, controlled about 97 percent of the local residential and small business lines in Indiana through the first six months of last year, according to the most recent Federal Communications Commission data available.

But Herriman, of the Indiana URC, said that data might not be indicative of the current level of phone competition following the regulator’s decision last year to lower the wholesale rates. “We think we . are one of the lower states in the nation for UNE-P, and it’s probably improved the competition situation in Indiana since the FCC data came out,” she said.

Regulators in several Midwest states, including Illinois, Indiana, Michigan and Ohio, have set the monthly wholesale rates within $1.50 of each other, Pruyn said.

“Either these commissions have gotten it right or there was a vast conspiracy . that they all were in collusion together to set these rates as a detriment to SBC, which is ludicrous,” he said.

SBC has filed revised cost information with Michigan and Illinois regulators, requesting that they raise the wholesale rates, Pacholczyk said. The San Antonio-based regional Bell operating company also has or plans to file a similar request with California regulators, he said.

“The UNE-P is unhealthy financially not only for us but for the industry,” Pacholczyk said. “Since it hasn’t [gone away] the least we have to do is get the price right.”

Last month the FCC upheld the local phone regulations, granting authority to state regulators to determine whether to eliminate the policies and modify the prices. Once the FCC issues its order, regulators have nine months to conduct an analysis to determine whether competitors are impaired without the UNE-P regulations.

If a regulatory commission finds a competitor is not impaired, a company such as AT&T can still lease the Bell networks through separate resale regulations, though many providers say the rates are too high. Lobbyists expect the FCC to issue its 400-page order in the next few weeks.

Though the FCC upheld the local phone policies, the federal regulator deregulated the broadband market to a large extent — a move the Bells say will give them incentive to build new networks.

Separately, several states within SBC’s 13-state region have bills calling for broadband deregulation. Those states include Connecticut, Illinois, Kansas, Texas, Missouri and Nevada, Pacholczyk said. Last year Oklahoma legislators deregulated the broadband market, taking away oversight from the Oklahoma Corp. Commission.

The legislation states have introduced is based on language the American Legislative Exchange Council proposed, Pacholczyk said.

He said Indiana was the only state to introduce a bill affecting wholesale phone regulations. But SBC’s competitors disagree. The Illinois Senate has introduced a bill that would deregulate the broadband market, curtail the role of state regulators and limit SBC’s resale obligations over broadband lines, said Gary Mack, director of the Illinois Coalition for Competitive Telecommunications.

The way the bill is worded, there is a concern competitors would not be able to lease SBC’s network to provide local phone service at regulated rates if the line is equipped to deliver Internet access at 156kbps or greater, said Ron Walters, vice president of industry policy at Z-Tel Communications Inc., one of the country’s largest UNE-P providers.

Pacholczyk disagrees, saying they would be able to get the line at a regulated rate if it was for voice.

Walters said the Illinois bill is indicative of SBC’s strategy to hamstring the ability of regulators to govern broadband and local phone services.

“It is definitely part of their strategy to introduce state legislation that in essence bypasses the state commissions because they haven’t agreed” to the wholesale prices state regulators have set, he said. “No legislator I ever talked to understood these issues whereas . certainly all the commissioners’ staff do.”