Telecommunications Act Angers All

November 23, 2005
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LANSING — There might be no greater testament to the political impact and lobbying efforts of an industry than the number of angered constituents the passage of a major piece of legislation can produce.

Take, for instance, the rewrite of the set of bills commonly known as the Michigan Telecommunications Act. With the notable exception of incumbent telecommunication providers such as AT&T (formerly SBC Communications) — which dished out $139,965 to 339 state campaigns in 2004 and roughly $350,000 over the past three election cycles, according to The Center for Public Integrity — the legislation was all but universally despised.

“Our challenge was that the Michigan Telecommunications Act was, in my opinion, not clearly thought out,” said Vic Shepherd, CEO of Grand Rapids ISP and technology firm Iserv Technology Group. “This clearly favors the Bell companies. In the future, if enacted the way it is currently written, it will put a crimp on competition and force people like us to raise our rates.”

Plus, he believes it is going to hurt people in outlying areas — where it’s tough to get any type of telecommunications as it is — and “is clearly the result of the huge budget figures for lobbyists to influence the writing of law.”

“The shame is (that) Michigan was really leading the country in its groundbreaking thought process toward open competition,” he said. “This will significantly curtail that.”

Shepherd spent a fair amount of time in Lansing this fall speaking to senators and representatives about his views, particularly about one provision concerning a product called virtual NXX that could have a tremendous impact on his company.

Iserv has local phone numbers across the state that allow customers to call its Grand Rapids headquarters locally and not incur a long-distance charge. Called virtual NXX, the practice consists of using a code (called an NPA-NXX code) at a local Incumbent Local Exchange Carrier (ILEC) exchange.

The Competitive Local Exchange Carrier (CLEC), often an ISP such as Iserv, then leases dedicated transportation facilities to its primarily locations. Iserv ends up paying only for the cost of transporting the numbers back to Grand Rapids. This is why the competitive exchange carriers often have so many NXX codes, so they can be local to many different locales.

However, the ILECs such as AT&T argue that virtual NXX is actually a long-distance call.

“They’d like to levy a long distance call on people like Iserv or the end user,” Shepherd said. “That’s ridiculous in my mind.”

As the telecommunications act is written, ILECs could begin assessing fees as early as January 2008, even though the Michigan Public Service Commission has ruled nine times that the ILECs incur no additional cost from the use of virtual NXX.

Virtual NXX wasn’t nearly the most controversial of ILEC wins. That was the decision to completely deregulate the price of most telephone service. Normal consumer protections remain, but as of March, the commission will no longer set prices.

“It’s a step backward,” said Bill Knox, lobbyist for AARP Michigan.

According to the commission, under current law it regulates rates for various kinds of call plans, as well as wholesale line rates for CLECs. Under the new law, only the 100-call plan will be regulated. Small businesses have no rate regulation in any plan.

“The argument is that people are going to cell phones in droves,” Knox said. “That’s basically foolish when you’re talking about older people. And No. 2, businesses can’t operate using cell phones.”

So, Knox argues, small businesses, senior citizens and rural residents, where cell phone coverage is spotty, are especially subject to rate increases.

“There is this argument that it could promote the use of new technology,” Knox said, referring to Voice over Internet Protocol (VoIP). “The law doesn’t regulate any technology other than landline, so that argument seems to be kind of bogus.”

Knox expects rates will remain steady until the 2006 election, after which he predicts a steady rise.

With the advent of landline competition, local phone rates plummeted from 2000-2005. In 2000, $40 barely covered the cost of a standard local plan. Today, an unlimited local and long-distance call plan is roughly the same price.

But because of an 11th-hour compromise, the CLEC trade association, the Michigan Alliance for Competitive Telecommunications, took a neutral position on the law.

“We’ll be watching very closely to what happens after Jan. 1 to Michigan’s telecommunications system,” said association spokesman David Waymire. “There are some that are concerned that a lack of competitive landline competition will allow huge increases in phone rates. But it may also spur new forms of telecommunications services; we’ll have to wait and see.”

Of local note is a provision that prohibits municipalities from providing telecommunications service. For any project not under way by Nov. 1, the municipality must accept bids for any such project to be privately owned and operated. Only if there are less than three bids can the municipality proceed with a self-contained project.

This halts several initiatives across the state that, unlike the majority of those in West Michigan, had intended to establish nonprofit authorities to own and operate wireless broadband Internet networks.

Joe Fivas, manager of state and federal affairs for the Michigan Municipal League, said local residents and communities should be able to petition their local government to provide certain services. The most disconcerting part of the bill, he said, is that there were communities that had already invested money into feasibility projects.

“It’s not good policy to ask local governments to be more efficient and effective, and pass a bill that essentially wastes their money,” he said.

Fivas doesn’t agree with the argument of telecommunications companies against competition from local governments because, he said, no government would invest in such an initiative unless asked to by its businesses and residents.

“Clearly SBC and Verizon don’t want that kind of competition coming in,” said Waymire of the trade association. “It could make it easier to do VoIP phones … and (ILECs) strongly opposed that wherever they could. So did cable companies, obviously.”    

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