Senate Moves Forward on Telecom Reform

Published August 1, 2006

Senate Republicans aim to get a sweeping overhaul of U.S. telecommunications regulation to a floor vote before Congress adjourns for the summer.

On June 19, after three rounds of hearings and substantial input from Republican and Democratic members of the committee, the Senate Energy and Commerce Committee approved by 15-7 a revised version of S. 2686, the Communications, Consumers’ Choice, and Broadband Deployment Act of 2006.

At press time, the bill had not been scheduled for a floor vote. “Chairman Stevens has not discussed floor time with the [Senate Majority] Leader [Bill Frist] because the bill is still in committee,” said Aaron Saunders, Commerce Committee communications director. “Markup will continue,” he added, “but no more hearings are scheduled.”

Other reports say Frist wants to be sure the bill has at least 60 votes in favor before putting it on the calendar.

Offers Franchise Reform

The 159-page bill, jointly sponsored by Committee Chairman Ted Stevens (R-AK) and ranking member Daniel Inouye (D-HI), creates a national video franchising process. Video franchises are the revenue-sharing agreements cable TV companies sign with local governments in return for the right to offer video services to customers.

As the country’s largest telephone companies begin to deploy broadband networks that can support cable TV-like services, they have been pressing for changes in the process that would allow them to apply for a statewide franchise in one fell swoop, eliminating the need to go from municipality to municipality to negotiate individual agreements, as cable companies were required to do in the past.

S. 2686 goes one step further, creating a national franchise process. New entrants would be required to pay 5 percent of their local gross video revenues to a local franchising agency, or the same percentage paid by the incumbent cable TV company, whichever is lower. The bill also calls for an additional 1 percent of revenues to be applied to the support of local public, educational, and government (PEG) channels. The bill mirrors several state legislative initiatives, but differs from most in that it allows cable companies to apply for a national franchise once a competitor enters one of their markets.

The bill also contains provisions for video content, digital television, carrier responsibilities in the enforcement of child pornography laws, and the rates U.S. military personnel abroad pay to call home.

Early Provisions Dropped

Some provisions have been dropped from the original draft introduced in May, including a “Sports Freedom” provision that would have prevented cable companies from entering into exclusive deals with program vendors for sporting events.

Commerce Committee Republicans also beat back attempts to insert a network neutrality amendment into the bill, albeit by an 11-11 vote. One of the more controversial aspects of telecom reform, net neutrality would have regulated the way service providers prioritize third-party content and applications as they move across networks.

The issue may arise again during floor debate. Sen. Ron Wyden (D-OR) has threatened to filibuster in support of a network neutrality amendment. (For more on this issue, see “Property Rights and Network Neutrality,” page 3.)

Universal Service

Tax policy analysts have been eyeing the bill for its changes in universal service and franchise reform mechanisms. Although they apply to different services, both involve government-mandated surcharges consumers and businesses pay on telecommunications and cable services. As new technologies such as Voice over Internet Protocol (VoIP) attract millions of users, and phone and cable companies increasingly compete on each other’s turf, debate over reforming subsidy schemes that date from the monopoly era has intensified.

The U.S. government today funds universal service in two ways. The first is through the Federal Universal Service Fund (USF). Phone companies pay into this fund on a revenue-based formula. Eligible carriers take distributions from the fund to pay for the deployment and provision of services in rural areas.

The USF fee appears on all consumer phone bills. Until June, VoIP service providers such as Vonage, which now claims more than 1.6 million customers, were exempt from the USF obligation. The Federal Communications Commission (FCC) in June extended USF liability to Vonage and other providers of stand-alone service designed to substitute for conventional phone service, but it remains questionable whether the commission can engineer a way to include VoIP services that are more tightly integrated with other Web services, such as those planned by eBay and Google, even under the Senate bill.

The second method of funding universal service, somewhat invisible to consumers, pertains to carrier-to-carrier business and takes the form of a complicated formula of cross-carrier interconnection payments. This is a government-devised tariff structure that sets the rates by which carriers–from AT&T and Verizon down to the smallest cooperatives–compensate each other for transmitting and routing each other’s traffic. This, like the USF, is designed to redistribute funds to rural phone companies.

Call Tracking

Here, too, Internet Protocol has disrupted the regulatory scheme. Since most calls today, even those originating and terminating on conventional phones, use IP when crossing the network, it has become easier for carriers to route calls through networks that have low interconnection tariffs and avoid connecting through networks where rates are high.

Some carriers can even mask information that identifies the origin and content of the IP data. Thus, a carrier network does not even recognize the IP traffic as a phone call from a specific carrier, which has come to be called “phantom traffic.”

To address this issue, the Stevens-Inouye bill calls on the FCC to create enforceable standards for network identification and accountability regarding the origination and transmission of calling traffic.

It remains to be seen if House passage of the Communications Opportunity, Promotion and Enhancement (COPE) Act earlier in June helps get S. 2686 on the calendar. COPE was a smaller telecom reform act, with video franchising its main thrust. Although franchise reform is seen largely as a Republican-led effort, the bill passed 321-101 with strong bipartisan support.

If S. 2686 passes, it will likely go into a joint House-Senate conference with COPE, Saunders said.

Steven Titch ([email protected]) is senior fellow for IT and telecom policy for The Heartland Institute and managing editor of IT&T News.