Lansing Braces For Rewrite of State Telecom Law

LANSING - The way Michigan businesses communicate - and even compete - is on the line in the state Capitol.

During the next few months, legislators will debate the next generation of Michigan telecommunications law, potentially drafting rules that could touch ventures not even around for the last telecom battle.

"The introduction of new technologies has really blurred what to regulate and what not to regulate," said Mark Wayne, executive vice president of sales and marketing for Southfield-based LDMI Telecommunications Inc. LDMI is being purchased by New Hope, Pa.-based Talk America Holdings Inc. (Nasdaq: TALK).

"There are a lot of different ways to provide telephone service to end users that weren't there the last time this was written."

New broadband players
Jackson-based Consumers Energy Co. doesn't see itself as a telecommunications provider, but a new foray into running high-speed Internet access over its power lines could draw it into lawmakers' sights as they debate ways to regulate - or deregulate - traditional and emerging telecommunications technologies.

Since the 2000 rewrite, much has changed: Wireless and cable phone service has grown, the Internet-based phone service known as Voice over Internet Protocol (VoIP) is spreading, and utilities such as Consumers Energy are testing Broadband over Power Lines (BPL), a service that could become a significant competitor to high-speed Internet access offered through cable modems and digital subscriber lines.

The December expiration of the Michigan Telecommunications Act has competing interests beginning to circle.

SBC Communications Inc., for example, wants to eliminate state price regulation for competitive services, effectively allowing the market to serve that role. The San Antonio-based company sees disparity in the regulation it faces for local phone service, compared with unregulated competitors such as wireless.

One hands-off approach is authored by Rep. Leon Drolet, R-Clinton Township, whose House Bill 4600 would eliminate the Michigan Public Service Commission's role in setting retail and wholesale rates. The bill would retain the PSC's authority to address consumer protections, such as fraud and unauthorized switching of customers among providers.

But LDMI Telecommunications and other companies that compete with SBC say the wholesale prices they pay to access the lines, locations and other network elements making up the final stretch of connections to business and residential customers should fall under PSC purview. Those connections, between a phone company's central office and the customer, are known as the "last mile."

"We believe fundamentally that the Public Service Commission in Michigan must have wholesale authority over SBC's network, because otherwise competitors will be isolated, re-engineered and priced out of the marketplace," said Drew Petersen, director of legislative affairs for TDS Metrocom. TDS is the local-phone subsidiary of Chicago-based Telephone & Data Systems Inc.

Drolet said times have changed, with the rise of competing technologies such as wireless that don't face similar regulation.

"We have this artificial construct of landlines being regulated by the PSC, while the world has passed the PSC by," he said.

Gail Torreano, president of SBC's Michigan operations, said what telecommunications regulation does continue should be equal for all.

"I think if emerging technologies are competing ... they should all be regulated in the same manner," Torreano said.

As it now stands, incumbent local phone providers such as SBC have state-regulated rates they charge business and residential customers and rules by which they must provide access on their networks to competitors - measures designed to both provide a fair return to the incumbent company and to foster competition. The PSC also sets wholesale prices charged competitors.

Competing local-phone service companies have state-regulated rates, but communications providers such as wireless or high-speed Internet companies, industries in which there has not been a traditional monopoly, do not.

To regulate or not
Consumers Energy, which is leasing power lines to a Nyack, N.Y.-based company that will soon offer broadband to Consumers' customers in two mid-Michigan communities, says it's not a telecom provider and BPL doesn't fit into the telecom-law rewrite.

But Robert Nelson, a PSC commissioner, said he thinks BPL will be looked at. "It is an emerging technology that has caught a lot of people's attention," he said.

A task force of the National Association of Regulatory Utility Commissioners in February suggested states take a "light-handed approach" to regulating BPL. And David Shpigler, president of Consumers' partner, The Shpigler Group, agrees.

"Certainly if you want to kill an industry, (the way) is to regulate it right up front," he said. Shpigler will market BPL service Lighthouse Broadband to some 10,000 Consumers Energy residential and business customers in Grand Ledge and St. Johns. BPL uses radio signals to transmit data through electrical wires, giving customers Internet access through potentially any electrical outlet where they plug in a BPL modem.

House Energy & Technology Committee Chair Mike Nofs, R-Battle Creek, said technologies such as BPL and Internet-based phone service "do best when we let them flourish without much regulation."

Nofs said he believes competition keeps prices low. He and Senate Technology & Energy Committee Chair Bruce Patterson, R-Canton Township, have been gathering input on the telecom rewrite, and Nofs said he would like to take up bills before the Legislature's summer recess.

It's not just telecom providers with so much at stake. Effective use of new technologies can give businesses a competitive advantage, said Tim McElgunn, program manager of competitive operator strategies for Palo Alto, Calif.-based consulting firm Frost & Sullivan.

He said another consideration for businesses is the extent to which technologies they are already using, such as VoIP, will be affected by a new regulatory framework. "That's something that all businesses have to keep an eye on," he said.

Not just in Michigan
Telecom law debates are being waged in several states, and overlaying that is a potential rewriting of federal telecommunications law. Congressional hearings so far have focused on how to regulate or not regulate VoIP, but Congress could set policies on how to regulate other emerging technologies as well.

The Michigan PSC last month called on lawmakers to draft consumer-protection measures for VoIP, an aspect Michigan's current telecom law doesn't address.

Another new wrinkle in this year's pending telecom debate is SBC's pending $16 billion acquisition of AT&T Corp. San Antonio-based SBC says the Michigan rewrite doesn't need to address its move to create the nation's largest telecommunications company. But one competitor said the merger's a factor to consider, because it enlarges what already is "an 800-pound (SBC) gorilla."

Not everybody thinks a rewrite is urgent. The PSC says that given current review and potential rewrite of federal telecommunications law and other federal action that will define various state authority, enacting a rewritten Michigan law "in anticipation of future federal policy is potentially very risky."

The commission says that if the federal picture is unresolved, the Legislature should consider extending the current Michigan law until jurisdictional issues are clarified.

Torreano said that's "absolutely not" a viable option. "If we're going to be passive, and wait until other people act, then I think we will not be competitive," she said.

Nofs said he is monitoring the federal telecom progress and thinks the U.S. House of Representatives will act promptly. "As we watch that, and move our process, I think there are a lot of things that we can do that won't be in conflict," he said.

But TDS' Petersen said there's merit to simply extending the law, in that it gives businesses predictability.

The Supreme Court's decision last week that high-speed, cable-based Internet service is a lightly regulated information technology might mean that cable broadband providers could duck paying into a fund designed to deliver affordable communications to all Americans. Until the ruling, cable broadband was in regulatory limbo. The industry has not had to contribute to the $6.5 billion Universal Service Fund that subsidizes phone service in low-income and rural areas. Sources said the ruling in the so-called Brand X case leaves it for the FCC or Congress to decide whether cable modem service should be tapped for the fund
 

Until recently, the debate has occurred primarily in the states -- 14 of which have imposed some legal barriers to state-run municipal service. Two rival pieces of federal legislation have been introduced, and some see the conflicting bills as pressuring tech companies to choose between some big customers -- the Bells and cable companies -- and a market opportunity that may be growing, but that is not fully ripe.
 

Two comprehensive universal service overhaul bills are emerging in the House -- with one being drafted by Rep. Lee Terry, R-Neb., and another planned by House Energy and Commerce Chairman Joe Barton, R-Texas.

The lawmakers have discussed their intentions, but Barton did not request Terry's legislation, sources said. The measures would serve as the basis for the House's efforts to overhaul the $6.5 billion program, which subsidizes phone service in rural and low-income areas.
 

From Congress Daily
Plan Would Limit Municipal Networks

Sen. John Ensign, R-Nev., is drafting restrictive language on the creation of municipal broadband networks that might blunt efforts by Sens. John McCain, R-Ariz., and Frank Lautenberg, D-N.J., to allow localities to offer low-cost wireless or wireline service.

Ensign, who favors a pro-business agenda as chairman of the Senate Commerce Technology Subcommittee and the Senate Republican High Tech Task Force, will insert his provisions into a comprehensive deregulatory telecommunications bill he is drafting, aides said. McCain and Lautenberg introduced their bill last Thursday. The conflicting bills address one of the most heavily lobbied issues in this year's rewrite of 1996 telecommunications law -- whether municipalities can compete with private enterprise and offer broadband services

LDMI Telecommunications Inc., a longtime Michigan telecom provider is being bought out by New Hope, Pa.-based Talk America Inc. (NASDAQ: TALK) in a $48 million transaction. Established in 1992, LDMI currently serves more than 131,000 voice lines and 27,000 data lines, mostly in Michigan and Ohio.

The company has networking systems in 83 phone company central offices. It has more than 2,300 T-1 customers and offers a full range of voice and data services. Talk America said LDMI posted $121 million in revenue last year, and earnings before interest, taxes and depreciation was $5.9 million.

Talk America said it expects LDMI to generate earnings of $8 million this year and $14 million next year. The companies said the transaction will bring $4 million in capital expenditure savings between now and 2006. The companies said they expect the deal to close in the third quarter, and to roll out Talk America's voice over Internet Protocol services to LDMI business customers in the fourth quarter.

There was no word on the impact of the buyout on LDMI employees (but if it meant more jobs and clout where the headquarters isn't, well, that would be real news). More at www.ldmi.com or www.talkamerica.com.

“Today the FCC adopted a rule requiring VoIP providers to provide emergency 911 calling services and they will have only 120 days to comply. This order sets a precedent for future technologies, because it is of a mindset that once a service begins to reach critical mass, it is ripe for burdensome regulations.

Such a belief ignores the reasons why such services are popular in the first place. Low cost and new features exist because the market, not government, was the driver of the new service. Instead of forcing a one-size-fits-all emergency contact system onto each new technology, let’s revisit how communications providers can achieve social goals like 911 in ways that provide consumers with options and the ability to decide for themselves what is important.

The United States lags 15 other countries in broadband coverage, according to international statistics, but U.S. officials stressed that some countries subsidize deployment and are more densely populated in smaller areas. Approximately 5.4 million subscribers were added during the second half of 2004, according to a new Federal Communications Commission report.

The agency had previously reported adding 4.3 million broadband lines in the first half of the year. More consumers picked high-speed Internet from cable companies last year than broadband from local telephone companies, known as digital subscriber line service (DSL), according to the FCC report. Cable companies added about 5 million customers during the year, a 30 percent increase to 21.4 million lines, while the number of DSL subscribers climbed about 45 percent, or 4.3 million lines, to 13.8 million lines

The venture, called Disney Mobile, will sell mobile service, custom handsets, and premium phone content like downloadable ring tones, games and applications featuring Disney characters. The media and entertainment company will use the Sprint (nyse: FON - news - people ) national cellular network to carry calls, allowing it to skip the expensive process of building a national phone network.

By becoming a "mobile virtual network operator," or MVNO, Disney will be able to gain access to a dedicated, direct marketing channel to kids. Mobile networks have proven to be a strong new revenue stream for both content and service providers, and Disney has been a pioneer in the market, using cellular platforms both to promote new movies and profit from its broad archives of characters and content (see: "An 'Incredible' Marketing Ploy").

The new Disney network isn't the company's first foray into mobile networks; since 2000, The Walt Disney Internet Group has sold Disney content through existing cellular carriers including Sprint, Japan's NTT DoCoMo (nyse: DCM - news - people ), and Verizon Wireless, a joint venture of Verizon Communications (nyse: VZ - news - people ) and Vodafone Group (nyse: VOD - news - people ).

In December, Disney subsidiary ESPN launched its own MVNO. Both networks follow the lead of the Virgin Group, which launched its own service using the Sprint PCS network in 2002. Virgin Mobile USA already has more than 3 million subscribers, and is reportedly considering an IPO later this year, which could find the company valued at as much as $2 billion.

DALLAS - Heidi Hess has spent $578 to build her desktop computer, $50 a month for high-speed Internet service, about $20 for a headset and $30 for a business phone line with unlimited long-distance.

That investment is half what it would have been several years ago when technology costs were higher, Hess said from her home office in Plano, Texas, where she performs contract call-center duties.

And it's the kind of commitment analysts say is making telecommuting increasingly accessible to hourly wage earners - not just executives looking to trim their commutes.

"People with lower-end job titles and lower-end wages had a hard time breaking into that - until now," said Tim Houlne, chief executive of Plano-based Working Solutions Inc., which employs 22

"As telecommuting gained momentum, now you have this lower-wage employee that is able to work in the home."

Costs vary depending on the sophistication of the computer equipment and telecommunication services, but millions of people in hourly wage categories are setting up shop as independent contractors or home-office employees.

The growth of broadband Internet service in the home has helped drive the number of contract telecommuters to 16.5 million in 2004 from 9.2 million in 2001, said the Dieringer Research Group Inc. of Milwaukee.

"First it was laptop computers, then along came broadband, which means it's just as easy to work down the road as it is down the hall because you can move a lot of information quickly," Dieringer analyst Tom Miller said.

The number of people with broadband at home rose from 2.8 million in 2001 to 8.1 million in 2004, he said.

Call-center work leads this paradigm shift with about 100,000 at-home operators, but other workers - transcribers, medical coders, proofreaders, administrative assistants and data entry specialists among them - are increasingly operating in home settings.

This won't keep jobs from being transferred offshore, analysts and telework executives say, but it could expand the work force as computers and high-speed Internet connections become household fixtures.

Most workers earn $10 to $14 an hour, though there are exceptions that can push the wages to as high as $20 per hour.

Meanwhile, businesses are cutting office-space expenses and labor costs by farming out this work to contractors or letting their employees work at home.

The market for telework contractors is becoming "very competitive - almost more than the on-site job," said Pamela La Gioia, president of Kentucky-based Telework Recruiting Inc. "There is nothing you can't do from home."

This groundswell of work-at-home activity has broadened the definition of the telecommuter, Miller said.

"People are leveraging the technology not so much to overcome commuting but to be sole proprietors, consultants or contractors," he said. "It's becoming more and more about empowerment of the individual worker than it is about displacing driving time."

Hess, 39, says that empowerment works two ways. Not only does she have a flexible work schedule, she also has consumer choices when setting up shop.

"If I start having problems with my (Internet service provider), there are so many more options to get high-speed connections that I can just switch," she said. "Years ago, you used to have to sign long-term contracts for service, and now I don't even have to pay for instant messaging anymore."

Hess spends most of her workweek taking calls on behalf of two Working Solutions clients, Florida-based retailer Office Depot Inc. and San Francisco-based delivery services company Ensenda Inc.

Office Depot this year closed 10 of 12 call centers and switched to home-based employees.

That will save the company $15 million a year, said Julian Carter, Office Depot's senior director of operations.

In addition to the savings, the company is getting a consistently higher-quality work force, he said.

"These people are more motivated, generally more mature, more educated and generally have a background in leadership," Carter said. "Many people view what they do as a more entrepreneurial venture because so many work in a contract capacity."

Other Dallas area employers, including Harris Methodist Fort Worth Hospital, offer medical transcriptionists and other employees the chance to work at home.

The hospital provides a $1,500 computer and lets the employee establish a home office, enabling the hospital to free up space for patient care.

"What we see is their productivity increases, because they don't have the distractions found at the office setting," said Diann Brown, the hospital's director of health information services. "If we have an ice day during the winter, our work carries on."

For hospital transcriber Brenda Sholtis, the $50 investment in a high-speed line is offset by money not spent on gas or car maintenance.

"If you're healthier and happier, your whole life is better," she said. "I can handle being alone and working because I'm still being productive."

As technology becomes ubiquitous, the lines of telecommuting will continue to blur between highly paid executives and the hourly wage earners, experts say.

And employers will continually review what work can be completed at home either by a full-time employee or a contractor.

"You'll find companies taking a look at other areas that make sense: real-time transcription, accounting, billing, collections, human resources," Working Solutions' Houlne said.

"As this new work force grows, there is more empowerment being given these people because companies want to manage results, not people."