Bloomfield Offers Rural Perspective on the Regulatory Landscape

Shirley Bloomfield is vice president of government affairs and association services for the National Telecommunications Cooperative Association (NTCA), which represents rural carriers. She has been with the organization for 19 years and shared her thoughts on the ’96 Act and a pending Telecom Act rewrite with xchange in December 2005. The following is an edited transcript of Online Editor Kelly M. Teal’s conversation with Bloomfield.

NTCA's Shirley Bloomfield

XC: Prior to and during the Telecom Act of 1996’s creation and passage, what was your association looking for as far as new legislation?

SB: The biggest thing for us before the ’96 Act was educating Congress on the fact that independent telecom companies are not Bell companies – that rural markets are different. It was easy for people to lump carriers into two categories: you were either a long-distance provider or you were a Bell company.

We worked with people to help them understand that we weren’t in either of those camps, that our folks were providing local service in very high-cost areas where in many cases they were the sole providers of many different services – they were the cable operators … they were the local telephone company, and in a lot of cases they were doing some bundling of long-distance plans.

So we had to do an education process, and there was a whole need to actually have Congress codify and put in statutory language recognition of the universal service concept and the universal service fund and why it was important and that it should have a legislative basis for continuing its existence. And that will be pretty similar to what we’ll be talking about this next go-around.

It was really just ensuring that rural consumers had access to the same services that those folks in urban areas had, at reasonable and affordable prices.

XC: Just after the time of passage, what was your overall impression of the Telecom Act of 1996 and what it sought to accomplish?

SB: These bills are tough and I will never forget Sen. Larry Pressler, who was subsequently defeated, who was the chairman of the subcommittee from South Dakota, he said, ‘I know we wrote a good bill because nobody likes it.’

I think there’s some truth to the fact that as you’re trying to cut a balance, you want everybody to walk away and feel like it could have been better but also that they have enough to work with. I think that for us and the rural carriers we represent, there was enough to work with to feel like there was some recognition legislatively that small companies had different provisions – there was a rural exemption put into place that basically said unless a rural carrier was going to go out and be competitive in a different market, that rural carrier did not have to abide by the same interconnection agreements that a Bell company had to.

There was also the codification of universal service; there was recognition about toll-rate averaging, which now is probably not as urgent as it was in the mid-'90s, but it’s the entire concept that … you’re not penalizing people based on distance. That was another important provision in the ’96 Act.

And, most symbolically, the Act recognized there were differences in markets and that while competition and opening up the telecom market to competition was certainly a motivation in part for the ’96 Act, there was just as strong a recognition for the need to maintain universal service. So it’s a little bit of a mixed bag. The problem is once a bill gets passed, the second stage is implementation and the devil becomes in the details, of course. So then nobody was happy with the FCC after that.

XC: How did the reality of what happened in the wake of the Telecom Act of 1996 meet up with your expectations?

SB: I think a lot of provisions that were geared toward rural carriers gave rural carriers a sufficient transition time to move from being monopoly entities to being and thinking and acting and behaving like competitive carriers. It’s really quite a transition. I know it doesn’t sound significant, but these were entities that had been monopolies … you think like that, you staff like that, you innovate like that and then suddenly you’ve got somebody else knocking on your customer’s door, and it really does create a culture shift.

I think the Act itself motivated some of my folks to transition and start thinking about, ‘Gee, now the cable guys can do these other things. What does it mean in terms of what I need to be doing, how I need to be upgrading my plant, how I need to stay ahead of the curve?’ The most interesting thing to me was, after the passage of the Act, was the number of our telephone companies that became competitive carriers in large company markets. We probably, at the peak of the CLEC days, had about a hundred of our independent carriers who were actually CLECs in large company territory and doing very well with it. That would not have been a byproduct that I would have actually expected.

One of the things our guys did is they’ve become amazingly innovative. And when we hit the early ’90s and you had folks like Vice President Gore talking about the digital divide, our folks were already there in terms of the Internet.

At this point today, according to our latest survey, about 95 percent of our folks are offering broadband of service to a vast majority of their service territory. We’ve got a bunch of guys who are VoIP providers … they’re video providers, they’re doing really cool stuff. So, again, I think the Act unleashed a lot of that aggressive creativity and innovation. And because they’re small, you can make that decision pretty quickly. You don’t have to go through eight chains of command and do massive business plans.

XC: What good things did it accomplish?

SB: It codified universal service by saying, ‘Look, it is important to us in Congress that affordable and comparable services be spread among all Americans regardless of where they live.’ We see the positive benefits of that every day.

I do think the Telecom Act really lit a fire under the industry in terms of pushing things like broadband and Internet and taking that technology and almost giving people a reason to be looking to deploy some new technology. I think the Act really was a catalyst for a lot of the things we’ve seen, and I do think consumers have benefited from some of the competition that has arisen in a lot of these markets. For example, I just mentioned how many of our members are broadband providers. Eight-five percent have said they have competition for those services. That’s great for the American consumer. I think consumers stand to benefit as competition comes into some of these markets. As some of the bigger companies move forward, what we see is the trickle-down – I think with the ’96 Act motivating some of the Bell companies to become more competitive and change who they look like, it allows vendors to produce some new technologies … that are good for the rural telecom industry.

When I came to work at NTCA 19 years ago, there were two vendors that made switches that fit our guys. When you’ve got two vendors, first of all, you’re at their mercy in terms of what products they offer and how they’re serviced – the number of vendors … it’s an amazing explosion that allows a lot more innovation and flexibility. So that’s definitely been positive for us.

XC: What negative effects did it have?

SB: … a lot of the decisions that had to go to the FCC … first you had an FCC process and then some of the decisions immediately following the ’96 Act went to an entity that was created, called the Rural Task Force, a comprised body that was supposed to come up with some proposals on how you implement things like universal service, cost recovery, what lines you cover … and the problem with each of these steps is that they’re very slow.

When you do stuff like that, you’ve got telephone companies that are very reliant on universal service or access charges to build out their networks. People are very, very afraid to make financial investments because nothing is really long-term. You’re kind of going from decision to decision. So it’s hard to take a network and make it all-IP, not knowing if another decision 18 months down the road is going to entirely change how your revenue streams work.

The downside is the implementation has not been seamless. It’s been driven by different commissions, you get different time frames, and it just has made rural telephone companies leery about some investment strategies. On the one hand, they have to invest in their networks, and they do invest in their networks, and on the other hand, they become very cautious about what decisions they make.

XC: What are the prospects we’ll see a new Telecom Act in 2006?

SB: I really hate to be the big party pooper, but I can’t foresee it. I look at Congress and this is their schedule: they come in at the very, very end of January for the State of the Union because they’ve worked all December so they’re going to have to go home – they’re not going to be in in January. They’ll come in in February, they get the president’s budget, you’ve got President’s Day, they’re going to start the appropriations process, they’re going to want to get out of here by the first week in October. They’ll be gone in August for their August break to get back home campaigning. When you start to look at that time schedule, and think of the things they need to do – the budget process, appropriations – and then you think about the things you want to do because they’re high-profile issues ….

I think there are two things about telecom legislation. One, why tick off anybody? The telecom industry, other than the rural portion of it, has a lot of money. Who wants to set yourself up on one side of that equation or another during an election year? The second thing is, consumers really don’t care. This isn’t like Medicare, it’s not like pension reform, it just doesn’t hit the consumer radar screen. And because of that, I just don’t think it’s going to be a high-enough profile issue. I think you’ll see a lot of activity. But I’m not sure anybody’s got the stomach or the time to get a rewrite through.

XC: What are you hoping that piece of legislation will address?

SB: We as an association have one overriding goal, and that is why even if there was only piecemeal legislation, I would hope that it would be a universal service piece. And while we were very pleased with what happened in ’96 and that universal service was codified, the world has changed a lot since 1996 in terms of who contributes to universal service, who are carriers that are pulling out of the fund. There is definitely a need for some legislation to revisit universal service now that we’re 11 years out.

Should it address the deployment of broadband services? Do people feel strongly enough that that becomes as essential as basic telephone service used to be in the ’70s and ’80s? So I would hope that would be a centerpiece of anything that Congress does.

Universal service will be front and center for us on this bill. We like the revenue-based contribution methodology, but we are politically realistic and know that there may need to be some type of a hybrid solution.

XC: What are the key regulatory issues upon which your sector of the industry is concerned with today and why?

SB: What is being teed up on the Hill also is being teed up at the FCC. When I look at the composition now of the FCC, I think there at least [are] now some folks that are pretty empathetic to some of the special challenges that rural carriers have. You’re going to have things on [Universal Service Fund] contribution, distribution. There also will be discussion of how VoIP is treated; there are some proceedings over there at the FCC right now as to E911 obligations – how they fit into what designation you have, whether you’re an information service provider, whether you’re a telecommunications provider. I don’t even know how the FCC can try to create those silos because the industry is going to such a convergence that the regulatory process creates these designations that I think further silo the industry. I think in terms of some of the other FCC proceedings that are going to be of interest are things in terms of consumer and service quality issues; I know there are a number of video and cable services proceedings that are on the table – the franchising question.

I think Chairman Martin is very ambitious and is going to be looking to move a lot of these things under his watch, which I think will be a challenge.

XC: What is the status of action by governmental bodies to address these?

SB: With some of this stuff, the states are trying to move pretty quickly to take their own cut on it, in part because they want to make sure the localities don’t lose out on any revenue streams. The states are looking to be progressive and encouraging and welcoming to carriers coming in and providing services. For the most part, it seems like things are teed up forever. … For example, there was a public notice put out in August by the FCC about Universal Service; everybody submitted comments on it, but the thing is, when you get a proceeding like that, there’s a notice filed, everybody files comments, then there’s a further notice, then there’s reply comments – it just goes on forever. So what happens is, these issues get teed up out there, but in terms of actual resolution, I can’t think of very many topics that have some final action taking place.

Now, watching Chairman Martin recently, I think he’s moving really close to looking at having one of his next meetings have on the agenda the USF contribution factor. He’s making a lot of speeches about numbers methodology. But even when the FCC comes out with a ruling, four years after the first notice goes out, it’s never over ’til it’s really over. There is something to be said for some finality and a clear decision that will allow people to move forward. So while I get nervous about what kinds of decisions could be made, I think we’re better off having decisions being made.

XC: From your vantage point, what key regulatory issues that remain to be decided today – at the federal, state or local level(s) – will have the most profound effect on the industry in the next 10 years?

SB: Of course I’m going to say universal service. But the other thing I think will change the nature of the industry is when the FCC actually comes to a final resolution on what they’re going to do on intercarrier compensation, and the whole idea of how much everybody in the industry pays one another, how much everybody uses one another’s networks, how you identify phantom traffic and whether people are using your network. What are those ramifications going to be? How will you keep carriers whole or at least from going out of business? To date, there’s no consensus. There’s no consensus among the big players. They don’t call our guys independents for nothing; it’s been hard to get a full industry consensus among the rural carriers on [intercarrier compensation], in part because if you are a co-op in Alaska, your costs, your arrangements with other people, are very different than if you are a company in Georgia. You can’t really do a model that fits all carriers.

Intercarrier compensation has been on the table a long time, and I think it’s been difficult to resolve. The FCC would like to see the industry help to resolve it themselves and come up with their own answers. There are folks we have on staff who are dedicated to working on intercarrier comp, but I’m not sure I see a light at the end of the tunnel in the near future. But when it is resolved, it will have a very, very big impact on the industry because it will change everybody’s relationships with one another.

XC: How do you think those issues will play out on the regulatory front?

SB: Intercarrier comp, I think the industry has been doing a good job in the last year working closely together. I think what you’re going to see is a full industry compromise where everybody is going to take some type of a hit. My hope is that whatever they do, they will find a way to keep rural carriers whole financially.

I’m sensing a little bit of a shift on universal service in that I would tell you that five years ago I felt like we were always on the defense – talking about the program, why it is so important, how all Americans benefit as more people are connected to the network. I am actually starting to see, certainly on Capitol Hill, more recognition of that position, and I think members of Congress are starting to understand what the impact is of universal service in their states. And I think as folks are gearing up on the rewrite side of things, it used to be a question of: How can universal service survive? And now it’s: How can universal service be updated to reflect the changed nature of the industry and the new participants.

XC: “Fair use” of broadband networks built by telcos and cablecos and used by both those companies and third-party service providers like VoIP companies has become a hot topic. What are your thoughts on this topic and how it can be handled fairly?

SB: I come down very simplistically on this, and that is that we have an amazing telecommunications infrastructure in this country, and if you look at the amount of technology and electronics that we have, it’s astounding. I fall on the simple principle that whoever builds and owns the network should be compensated for the use of that network. And I think that unless that really is done, you’re going to start to see a deterioration of that network. If the networks are not maintained, they’re going to deteriorate and then all these things that have been riding on them won’t be able to ride on them. So I think it becomes a little bit of a slippery slope. I’m not going to come in and argue on a computer-to-computer basis if you’re not using the network, but where the network is utilized I think there needs to be some recognition and support.

XC: What are your thoughts on the current direction of the FCC and its new lineup of commissioners?

SB: I think you’ve got a very interesting group over there. I think Chairman Martin is really smart, and I think he has done a very good job working with his fellow commissioners to date. The fact that they weren’t frantic about not having a 3-2 majority, I think, speaks highly of his ability to work with his colleagues, and speaks to the collegial factor over there, otherwise I think it would have been a higher priority for the Bush Administration to make sure it was a 3-2 majority over there. But they have been able to do a lot of things by consensus.

I think it’s too soon to know where Ms. Tate will come down on things, but she does have a track record as a state regulator so she certainly has some exposure to some of the issues, so I think she’s going to get up to speed very quickly. I think Mr. Copps will continue his role really promoting broadband deployment and consumer protections and consumer rights. We have a very close working relationship with Commissioner Adelstein, who really understands universal service and rural access to spectrum and content because he’s somebody who’s lived and breathed some of those issues. He knows what it’s like to live in a high-cost state.

I think you’re going to see a pretty proactive commission, to be honest with you. They’ve got one more slot, and that’s the million-dollar question here in Washington: Who will be that fifth commissioner? But I think these four operate very efficiently. I would be surprised if Chairman Martin doesn’t look to try to accomplish a lot under his tenure. I think he’s going to want to be leaving some legacies, and I think resolving universal service and intercarrier comp will be among those issues.

XC: Should telcos offering IPTV be required to get franchises to offer video services?

SB: I’m not sure I can answer that. In part, some of these issues are ones we have yet to tee up formally with our members.

XC: What are your thoughts on FCC Commissioner Martin’s embrace of a la carte programming and what will it mean to your sector of the industry?

SB: That is such a mixed bag. It cuts a little bit both ways. Obviously my guys are so small. I’ve got cable guys providing service over their analog system to 200 people. How do you put together a la carte programming and make money? How do you have the resources when you’ve got eight people on staff, and you’re running a telephone company and a cable operation? To start doing a la carte and trying to do individual packaging for your customers becomes an issue of economies of scale. It’s one thing for Comcast to do it – it’s a different challenge for some of my small guys.

Now, on the flip side, it does alleviate when some of these programmers say if you want Turner Classics, you have to take these 10 other channels. In some ways it gives providers some cover from the pressure they receive from programmers. It does cut both ways, and I’ve heard from my guys who feel all different ways on this.

FCC www.fcc.gov
National Telecommunications Cooperative Association (NTCA) www.ntca.org

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