CHAIRMAN CORMAN AND MEMBERS OF THE SENATE
COMMUNICATIONS AND HIGH TECHNOLOGY COMMITTEE
My name is Sonny Popowsky. I am the Consumer Advocate of Pennsylvania and I have served in that position since my confirmation by this Senate in June 1990.
I am pleased to appear before this Committee as you begin your examination into what I think is the most important consumer issue that will be addressed by the General Assembly in the next 18 months. That is, the expiration, and possible re-enactment or modification of Chapter 30 of the Public Utility Code by December 31, 2003.
I am particularly pleased by the systematic and wide-ranging review that has been proposed to this Committee by Chairman Corman and Executive Director Murison. This first hearing, dealing with the history, objectives, and goals of Chapter 30 represents a necessary building block toward an understanding of whether that legislation has worked for the benefit of this Commonwealth and its consumers, and, most importantly, what actions the General Assembly should take for the future.
As the statutory representative of Pennsylvania utility consumers, I hope to be of service to this Committee in this endeavor. I had the honor of testifying before this Committee at its first Public Hearing on this topic under the leadership of Senator Bortner on February 24, 1993, and I am glad to be back again.
In the memorandum of June 10, 2002, establishing today’s hearing, Senator Corman stated his intention to address the objectives and goals of Chapter 30. I would have to say though, that Senator Corman’s brief description of Chapter 30 in his June 10 memorandum does as good a job as I could of stating succinctly the primary goals of that legislation. As stated in that memorandum:
The purpose of the law was to create a telecommunications network that offers affordable rates while encouraging the accelerated deployment of a universally available, state-of-the art, interactive, broadband telecommunications network in rural, suburban and urban areas of Pennsylvania. It authorized incumbent local exchange carriers to get out from under earnings regulations in return for a commitment to accelerate modernization of Pennsylvania’s telephone network to a broadband system.
Chapter 30 was in essence a "quid pro quo." Pennsylvania’s incumbent local exchange companies, and particularly Bell Atlantic-Pennsylvania, attained their long-held goal of freedom from profit-based rate regulation. In exchange, they were required to commit to the accelerated deployment of a state-of-the art broadband telecommunications network throughout Pennsylvania by 2015. Importantly and intentionally, the telephone companies would not be permitted to deploy a modern network only in those areas where it was most profitable to do so, but would be required to deploy that network on a balanced basis in urban, suburban, and rural areas of their service territories.
As noted in Chairman Corman’s brief description above, however, Chapter 30 also made it clear that telephone rates were to remain affordable. In 1993, Pennsylvania held an enviable position of ranking at or very near the top of the list of states with respect to the percentage of customers who had telephone service in their homes. The General Assembly, I believe, did not want to jeopardize that position and indeed declared, in the very first words of Chapter 30 that:
The General Assembly finds and declares that it is the policy of this Commonwealth to:
(1) Maintain universal telecommunications service at affordable rates...
Chapter 30 also contains several provisions about competition, but I do not believe that it envisioned the type of full-blown local telephone competition that was subsequently proposed in the federal Telecommunications Act of 1996. The focus of Chapter 30 was on competitive service offerings by the incumbent local exchange companies and the virtual deregulation of long distance service for interexchange carriers, such as AT&T, MCI, and Sprint. There is a provision in the last section of Chapter 30, at Section 3009 (Additional powers and duties), which states that "The commission may certify more than one local exchange telecommunications company to provide local telecommunications service." But this provision was a late-filed amendment to the statute that received little attention or debate. Unlike the dozens of pages of statutory language and hundreds of pages of subsequent regulations resulting from the federal act of 1996, there is little in Chapter 30 that says how such local competition could actually come about.
As noted above, there is a great deal of discussion in Chapter 30 about competitive services, but that was primarily concerned with non-basic voice, data and video services that could be provided by both the incumbent local exchange company and what was hoped to be a wide variety of competitive service providers. I do think Chapter 30 was intended to promote competition in a vast array of services, but at that time I do not believe that the prospect of competition for basic local exchange service was a dominant factor in the minds of most members of the General Assembly who supported that legislation. Indeed, it can be argued -- and was argued by many at the time -- that the basic structure of Chapter 30 was in some ways antithetical to the possibility of full-blown local telecommunications competition. After all, the General Assembly was effectively anointing Bell Atlantic and the rest of the Commonwealth’s 40 or so incumbent monopoly local exchange telephone companies as the entities that would build a universal high-speed communications network. Many people argued at that time that it was inappropriate to "pick a winner" in the technological race among various local, long distance, cable television, wireless, satellite and other providers who, even then, were trying to gain a foothold in at least some segments of the telecommunications market. But ultimately, the General Assembly chose to assign this duty to the one group of entities that already had wires into the homes, schools, and businesses of virtually all Pennsylvanians -- Bell Atlantic and the rest of the incumbent local exchange companies.
With regard to technology, it is interesting to note that while the Chapter 30 legislation was often referred to by legislators and the press as the "fiber optics bill", and while a catch phrase of the time was "fiber to the home", Chapter 30 did not in fact mandate a fiber optic distribution network. The only reference in Chapter 30 to fiber is in Section 3003(b)(1) regarding "fiber optic trunk line capability between central offices," not in the distribution network that connects people’s homes, schools and businesses to the central office. Instead, broadband was defined in Chapter 30 as a technology with "a bandwidth equal to or greater than 1.544 megabits per second." The significance of the 1.544 mbps figure was that this was generally considered to be within the capability of the copper wires that were and still are at the heart of the telephone companies’ existing local distribution networks. To put this number in perspective, the typical home modems now in use generally operate at 56 kilobits per second. That is 56,000 bits of information per second, as compared to more than 1.5 million bits of information per second that is possible with a 1.544 mbps technology. We estimated in 1993 that at 1.544 mbps, it is possible to transmit a 1,500 page dictionary in 14 seconds or an X-ray image suitable for diagnostic purposes in 2.1 seconds.
In the period both before and after the enactment of Chapter 30, however, Bell Atlantic was promoting the development of a super fast 45 megabit per second distribution network. Bell Atlantic pointed to independent studies suggesting that accelerated deployment of such a broadband network could result in the potential creation of nearly 200,000 jobs in Pennsylvania. It was my position at the time that a 45 mbps fiber optic distribution network would be extraordinarily expensive and was not needed for the great majority of educational, medical, personal, and business services that the General Assembly wished to see developed throughout urban, suburban, and rural areas of Pennsylvania. In my view, Bell Atlantic sought to develop a 45 mbps fiber distribution network primarily so that it could offer potentially lucrative video entertainment services over the telephone line. (In a subsequent magazine interview in February 1995, Bell Atlantic CEO Ray Smith stated that "by 2000, we’ll have 50 percent of the cable TV business -- no doubt about it.") As I said, however, the fiber distribution system that was discussed by Bell at the time was not required in Chapter 30 and, in fact, is no longer endorsed even by Bell Atlantic’s successor, Verizon.
My own concerns at the time of the legislative debates leading up to Chapter 30 revolved around my skepticism about any suggestion that the General Assembly could somehow legislate a technology plan to the year 2015 and my strenuous opposition to any proposal that would have mandated significant rate increases, particularly for basic local telephone service, that would have been required to pay for such a plan. As I said at the time, I certainly did not oppose the development of new technologies, particularly in areas of the Commonwealth that would not be served under a "business-as-usual" approach. But I strongly opposed any effort to impose substantial mandatory rate increases on basic service telephone customers in order to give incentives to local telephone companies, and in particular Bell Atlantic, to build a network that they wanted to build anyway for their own commercial purposes.
While I did not support the legislation that led up to Chapter 30, I was pleased that the final legislation that came through this Committee and then was passed by the General Assembly did not include the elements that I had thought would be the most potentially harmful for Pennsylvania consumers. Specifically, the final legislation did not include any mandatory rate increases or formulas, but instead gave discretion to the PUC to determine within fairly wide parameters what a just and reasonable alternative ratemaking plan should contain. Also, the final legislation’s decision to define broadband to include any technology able to support speeds that were equal to or greater than 1.544 megabits per second made it possible to meet the requirements of the Act using the existing copper-based distribution network.
The final legislation did contain, in my opinion, one extremely bad provision, in Section 3004(b), which stated with regard to companies’ proposed Chapter 30 plans that "If the commission approves the petition and plan with modifications, the local exchange telecommunications company may, at its option, withdraw its petition and plan and continue to be regulated under its existing form of regulation or a streamlined form of regulation for which it qualifies." The effect of this provision was to give telephone companies a veto power over any plan approved by the Commission that the company didn’t like. Chapter 30 became a game of "heads-I-win, tails-I -tie" for the companies, because they did not have to accept a plan that they did not believe was in their own best interest. In my view, it is the Public Utility Commission, subject to the right of appeal to the courts, that should be the final arbiter of whether a utility’s ratemaking and deployment plan is in the public interest. You will note that there were no similar veto provisions for electric and natural gas utilities in the competitive electricity and natural gas laws, Chapters 28 and 22, that were passed by the General Assembly in 1996 and 1999.
Finally, I think it is interesting that Chapter 30 does not mention the Internet. Indeed, there was very little discussion of Internet access throughout the Chapter 30 debate. The reason I mention the Internet is that while we were discussing technology plans that we believed would be critical to Pennsylvania’s future in the year 2015, the forces of innovation were operating just over the horizon and were not waiting for legislative initiatives. In June, 1993, there were 130 sites on the World Wide Web; by March, 2002, there were over 38 million. I don’t think anyone questions that the Internet and the World Wide Web have had an enormous impact on our lives in ways that very few of us anticipated in 1993. That experience, I believe, is relevant to today’s debate as the General Assembly begins to consider where to go from here in telecommunications policy. There is no question that advances in telecommunications technology have enriched the lives of millions of Pennsylvanians since 1993. There is a question, however, as to whether the passage and implementation of Chapter 30 played a significant role in bringing those advances about.
Thank you again for the opportunity to appear before this Committee. I would be happy to answer any questions you may have at this time.