NATOA 2011 Conference - Gigabit Communities San Francisco September 20-23, 2011

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1 NATOA 2011 Conference - Gigabit Communities San Francisco September 20-23, 2011 The View from Washington and the State Capitals: A Legislative and Regulatory Update Gabriel Garcia Assistant City Attorney City of San Antonio

2 Telecom Policy-Making Has Shifted to Federal Level Over the last two decades telecom policy-making has shifted to federal level. Key drivers accounting for shift: State Deregulation Transition to IP/Broadband Networks Network Convergence Expansion of Wireless Service Shift has been accompanied by reduction in municipal franchise fee payments and erosion in local authority. 2

3 State Deregulation - Texas Overview of telecom deregulation in Texas: 1995: HB 2128 eliminated telecom monopoly regulation and introduced incentive regulation. 1999: HB 1777 eased the entry of new competitors into telecom market by eliminating authority of cities to grant telephone franchise agreements. 2005: SB 5 facilitated the entry of telecom companies into the cable industry by eliminating authority of cities to grant cable franchise agreements. 2011: SB 980 eliminates authority of Texas PUC to regulate all rates, tariffs, terms and conditions of service for telecom companies under incentive regulation. Prevents any governmental entity from regulating VoIP services. 3

4 Transition of IP/Broadband Networks Telecom companies are in the process of transitioning to Internet Protocol (IP) networks. On 12/1/09, the FCC issued Public Notice, Comments Sought on Transition from Circuit-Switched Network to All-IP Network, GN Docket Nos , 09-51, Evolution of Public Switched Telephone Network (PSTN) to IP Network: More efficient use of network resources Intelligence resides on the edge of the network in servers and computers (not centralized in telephone switches) Promotes innovation by end-users as evident from creation of web services, wireless applications, and new hand-held devices 4

5 Network Convergence The convergence of telecom and information technology has introduced disruptive communications applications. End-use devices can provide multiple services (voice, data and video). Computer applications can provide the same services as switched telephone networks (Voice over Internet Protocol VoIP). Computer ship storage capacity continues to expand exponentially with dramatic results for consumers: Hand-held devices are getting smaller and smarter (laptops, cell phones) Reduced costs for data back-up and network redundancy Promotes wireless mobility work anywhere & always in touch New services do not fall neatly into the old regulatory structure. VoIP, Internet access & wireless services fall under FCC jurisdiction. 5

6 Expansion of Wireless Services Between , the annual contribution of wireless services to Gross Domestic Product was 16%, compared to 3% for the rest of the economy. CDC study found the percentage of U.S. homes with only wireless services is 24.5% The explosive growth of wireless services is leading residential consumers to drop landlines. As consumers migrate to wireless services, right-ofway contributions from providers to cities go down. 6

7 Telecom Industry Reduces Municipal Franchise Fee Payments Telecom industry (telephone, wireless & cable) has been working to reduce municipal franchise fees paid for use of rights-of-way (ROW). Cable Modem: FCC ruled it is not a cable service, therefore cable companies need not pay franchise fees on cable modem revenues. Service uses municipal ROW. DSL Service: FCC ruled it is an information service not a telecommunications service, thus telephone companies need not pay franchise fees on DSL service revenues. Service uses municipal ROW. Over-the-Top VoIP Service: FCC ruled it is an interstate service within its jurisdiction. Service rides on existing broadband connection (cable modem or DSL). ROW NOI: FCC may assert jurisdiction to determine payment for access to municipal ROW base on maintenance cost methodology. Proceeding pending at FCC. 7

8 Initial Local Government Reaction to Industry Changes Local government reaction to state deregulation, network convergence, and transition to IP networks: Activities previously regulated were transitioned to IT department. Regulatory oversight was eliminated, reduced, or retargeted elsewhere. Lack of regulatory oversight led to reduced interdepartmental coordination. Contracting for converged telecom/information technology services was approached as technology procurement. 8

9 Practical Response to Industry Changes Practical response to deregulation, network convergence and transition to IP networks: Recognize that deregulation does not mean the absence of regulation, but rather a shift to federal activities. Participate in advocacy at FCC, Congress and federal courts. Procurement of converged telecom and information technology requires staff to understands service offerings, evolving network architecture, legal framework, and regulatory landscape. Staff needs to acquire new skill set through training or new hires. Contracts need to include quality of service standards (SLAs), consumer protections and other items previously mandated by state regulation. Telecom procurement and deployment requires closer interdepartmental cooperation. In response to this new reality, San Antonio created a new governance structure to prioritize and align IT investments with the needs of the city. All major IT investments must be approved by governance board. 9

10 Policy Implications and Response to Industry Changes Policy implications resulting from industry changes: Cities are receiving ROW compensation based on yesterday s telecom technology and regulatory definitions. City franchise revenues are not benefiting from growth in new broadband technologies although broadband infrastructure uses municipal ROW. Policy response to industry changes: Cities should call for new regulatory structure that will allow them to share in the revenues from tomorrow s broadband technology that uses municipal ROW. New regulatory structure should recognize that wireless towers use municipal ROW to connect to central offices and other towers for which cities should be compensated. This will require advocacy before Congress, Capitol Hill and FCC. NATOA is poised to take the lead. 10

11 Telecom Industry Erodes Local Government Authority Telecom industry has successfully eroded local government authority: State Cable/Video Franchising Laws: Many states, including Texas, have passed laws eliminating the authority of cities to grant cable franchise agreements and established statewide licensing processes. PEG Funding: Elimination of municipal franchise agreements has limited the used of PEG funds to capital expenditures. FCC Cable Franchising Order: FCC order requiring local governments to take action on a request for a cable franchise agreement within 90 days for providers with ROW authority (ILECs) and 180 days for others. Reiterates that cable providers need not pay franchise fees on non-cable services. FCC Tower Siting Order: FCC order requiring cities to take action on a new tower siting request within 180 days, and collocation application within 90 days. 11

12 Response to Erosion of Local Authority Cities response to erosion of their local authority: Unsuccessfully opposed many state efforts to eliminate local franchising authority. Unsuccessfully challenged FCC Cable Franchising Order in federal court. Supporting Community Access Preservation (CAP) Act in Congress which would allow PEG funds to be used for operational expenses. Currently challenging FCC Tower Siting Order in federal court. Engaged in filing comments at FCC in ROW NOI proceeding. Prospectively, expect deployment of many more wireless towers and outdoor Distributed Antenna Systems (DAS). 12

13 Closing Observations Telecom policy-making has shifted to the federal level as a result of state deregulation, network convergence and transition to IP networks. As a result of changes in telecom industry, cities should take a more comprehensive approach to telecom/it procurement. Telecom industry has successfully eliminated franchising payments to local governments for broadband services that use city ROW. Telecom industry has successfully eroded local government authority over cable franchising and tower siting. Cities are receiving franchise payments based on yesterday s technology. Cities should call for new regulatory structure that will allow them to receive franchise payments based on tomorrow s technology. NATOA is poised to take the lead on this issue. Expect deployment of many more wireless towers and outdoor DAS systems, and work for new regulatory structure to recognize that these wireless facilities uses city ROW. 13