Policy Initiatives to Increase the Availability of Advanced Telecommunications Services Throughout Washington State

Telecommunications is a highly complex field and the public policy issues surrounding it are daunting for the initiated and uninitiated alike. This paper will explore some of the general issues and themes of the current telecommunications landscape from the point of view of consumers of high bandwidth telecommunications services. We have resisted the urge to make recommendations on exact costing, the specific methods of regulating collocation, or the details of dispute resolution. Rather, this paper attempts to provide some thoughtful commentary and make more general recommendations for policymakers and consumers.

Our committee, listed on the cover of this document, was asked to use its knowledge and background to represent the overall technology sector, and not any particular company or institution. Rather, this report is meant to serve as a fair representation of the collective thinking of a group of fairly sophisticated consumers of telecommunications services. We hope it helps to both inform public debate and inspire positive action.

Executive Summary

The Technology Alliance (TA) is a statewide consortium of technology-based businesses, their trade associations and research institutions dedicated to advancing a healthy technology-based economy in Washington state. In 1998, the Technology Alliance prepared and published a report describing the importance of "world class" telecommunications for the people and economy of Washington state. The Technology Alliance subsequently convened a study group of leaders drawn from business, state government, and academia. During the summer and fall of 1998, this group conducted extensive interviews with representatives of more than a dozen telecommunications companies. These companies covered the spectrum: incumbent and competitive; facilities-based and resale-based; long-haul and local; established and emerging. The study group also consulted with representatives of city, county, and state government. Approaching the issue from a customer’s perspective, the committee queried each group in an effort to determine which government policies supported new investment in broadband telecommunications services and which had a negative effect. The study group organized this input into the broad themes which are presented in this report and its recommendations.

Objective: To identify policies and practices that will increase the availability of advanced telecommunications services throughout Washington state by making our state a more attractive place for telecommunications companies to invest and to market new services.

Rationale: Widespread availability of broadband telecommunications services is essential to the vitality and competitiveness of our state. It has an impact on a wide variety of public and private sectors, including: education, commerce, transportation, entertainment, and health care – just as railroads, highways, and other means of transportation did in previous generations. Intelligent action taken now can improve the state’s ability to attract private investment in broadband services, which in turn can have a positive impact on the sectors mentioned above.

Overview: Broadband services are enormously important to this state and it is in the best interest of the state to actively encourage investment and deployment of these technologies. The impetus for and basis of the 1996 Federal Telecommunications Act was to transition the telecommunications industry from one stifled by regulation to one disciplined by competition, offering a powerful vehicle for achieving innovation and competitive pricing. Both the 1996 Federal Telecommunications Act and the dramatic rise in data traffic, due significantly to new technologies, have led to rapid change in the telecommunications landscape. They have introduced some new hurdles, but also some new opportunities for Washington state.

There is a great deal of telecommunications competition in a few areas of Washington. In particular, the largest consumers of bandwidth (e.g. Boeing, Microsoft) have several fiber optic cables running past their facilities and can choose among a number of competitors for a wide range of services. However, outside this narrow competitive service area, it is both difficult and expensive to get the necessary services for high-technology companies to compete, and, unless some actions are taken, it does not appear that this situation will change significantly in the near term.

Investment by Traditional Providers: At least one of the traditional service providers appears to have under-invested in telecommunications infrastructure in this state. This has led companies and individuals in Washington to be disadvantaged relative to their competitors in other states. Performance of incumbent providers is critical not only for the quality of the services they provide to consumers, but for the quality of the unbundled network elements that they sell to competitors under the provisions of the 1996 Telecommunications Act.

Competition: The ability of new competitors to bring their services to the market is dependent on their ability to interconnect to an incumbent company’s infrastructure. Nearly all the new competitors we interviewed stated that for a variety of reasons, interconnection has been a bigger problem in Washington than in some other states. The barriers repeatedly mentioned by new providers seeking entry into the market were the perceived intentional hurdles erected by the incumbent providers which created unduly long negotiation, arbitration, litigation and adjudication timelines, and therefore added uncertainty and increased costs. It is clear that there is not a climate of cooperation between the incumbent phone companies and the new entrants.

Under-served Areas: The committee also found that rural areas and small cities and towns are significantly under-served, and that if they are to have the opportunity to improve their local economies, healthcare services, and education systems through the use of broadband services, more needs to be done. One crucial factor determining investment into rural areas, and in fact in urban and suburban areas as well, is access to public rights-of-way. Nearly every potential investor found the public policy in this area to be a hindrance to investment.

In response to these and many other findings, which will be detailed later in this report, the study group makes the recommendations set forth below: It should be noted that the initiatives listed below should not be undertaken on a piecemeal basis, but rather implemented together to achieve a balanced transition.

Summary of Recommendations

Traditionally, the Washington Utilities and Transportation Commission (WTC) has regulated telecommunications pursuant to a monopoly framework, where the state is responsible for protecting consumer interests when essential services are provided by monopoly service providers. While monopolies remain dominant in most areas of local service, market forces are beginning to enter into many areas of the network and these areas should be given more room to grow and attract investment. Currently monopoly powers can still be used by incumbents to deter, delay (or even block) new entrants and maintain market dominance. The legislature should encourage the continued evolution of the WUTC from regulating investment and rates to ensuring a robust competitive market. By giving the WUTC the directive and tools to combat misuse of monopoly powers, the WUTC can hasten the transition from being a regulator of investment to being a regulator of markets. It is the committee’s belief that such a transition will ultimately benefit not only consumers and the new market entrants, but the incumbents as well, through the elimination of historical regulation that is no longer necessary.

In order to convey electronic services, reliable transport from point to point is necessary. Increasingly, that transport is being laid along the public rights-of-way. The importance of public rights-of-way to future services and economies are analogous to the railroad rights-of-way of old. Owning rights-of-way may create some potential short term revenue sources for the public entities that own and manage them, but the prohibitive fees and regulations some of them have implemented are a significant deterrent to new investment. This is especially true for rural areas that can only be reached by one or two corridors. If the state wishes to bring in new services, and especially if it wishes to bring these services to rural areas, it must set a statewide standard covering access to public rights-of-way. This standard should allow local governments the ability to recover costs associated with regulating access to rights-of-way, but it should not allow local governments to charge burdensome fees for companies who need to pass through one community in order to provide service to an adjacent community. This practice limits investment by one community by essentially holding the investment hostage at the expense of its neighbors. At the state level, access to state and federal highways needs to be opened up to all willing providers in order to ensure that rural areas are not left behind. To these ends we suggest that the following policy initiatives be advanced as a comprehensive legislative package.

(I) The regulatory framework should be modernized to ensure the growth of a healthy competitive market in telecommunication services and to increase access to new broadband services for small businesses and residential customers.

Modernize regulatory focus from rate/investment regulation to one ensuring a competitive market by moving from a ‘rate-of-return’ model of regulation to ‘price caps.’ Establishment of "price cap" regulation for Incumbent Local Exchange Carriers (ILECs) needs to be connected with legally enforceable and measurable commitments by the ILECs as to levels of future investment and the rollout of specific broadband service offerings to a broad range of customers around Washington state. (Moving to a ‘price cap’ regulatory model without the accompanying pieces laid out in recommendations #2, #3 and #4 below would not be a desirable action.)
Provide regulators the directive and the resources to quickly and fairly adjudicate interconnection-related disputes, including collocation and the pricing of monopoly local loop elements, in an environment where speedy resolution is not inhibited by excessive discovery proceedings.
Provide regulators the directive and resources to impose meaningful sanctions to remedy anti-competitive practices against new competitors.
Simplify and streamline the process for classifying as ‘competitive’ new high-end telecommunications services offered by Incumbent Local Exchange Carriers (ILECs.)
Encourage local jurisdictions that regulate cable TV companies through franchises to promote open, competitive access to those networks for two-way data, telephony, and video communications in a manner similar to networks regulated by the WUTC.

(II) The deployment of statewide fiber and other wireline backbones needs to be encouraged in order to increase infrastructure deployment in rural and non-urban areas, which will require easing onerous requirements for accessing the public rights-of-way. Other new technologies (e.g. wireless) should be granted similar access.

Declare as a state policy that access to public right-of-way is viewed as a powerful incentive to infrastructure investment instead of as another source of general government revenues. Consider adopting procedures similar to what has been adopted in other states, whereby Washington would have a common set of right-of-way policies and procedures so that a company intending to put in new facilities will know both the cost and time-frame required to gain necessary approvals at the outset.
Stop efforts by Washington State Department of Transportation(WSDOT) to restrict public access to public rights-of-way along state highways to a single monopoly provider and direct WSDOT to elevate the transportation of data via a telecommunications backbone to a level of equal importance with the transportation of other goods and services.
Direct and empower the appropriate state agencies to create, publicly distribute and maintain a ‘map’ of the fiber backbones present in Washington. Establish benchmarks and annual reporting requirements of telecommunications and cable companies for annually measuring the pricing and availability of broad band telecommunications services throughout the state.
Encourage programs by the state and other governmental entities to aggregate demand as has been done with the K-20 network.
Continue to support broadband research and development efforts like the ‘GigaPOP’ and Internet 2.
Establish "telecommunications enterprise zones," where a government-industry partnership causes sufficient demand aggregation to encourage broadband deployment.