A Kansas utility board overseeing telecommunications regulation in the state is embroiled in scandal after accusations surfaced that AT&T and the Kansas Corporation Commission, the state’s utility board, met secretly to negotiate a custom-written deregulation bill favoring the telephone company.  Senate Bill 384 would deregulate rural telephone exchanges, increase telephone rates for low income families and seniors, allow AT&T to discontinue printing phone directories, and eliminate price caps on basic residential phone service.

Hearings over the proposed legislation exploded when Steve Rarrick, an attorney with the consumer protection Citizens’ Utility Ratepayer Board (CURB), told committee members documents requested by the Board were withheld.  Rarrick also revealed extensive private discussions between AT&T and the KCC to work out the deregulation regulation — negotiations that were kept secret.

“It is disturbing that the KCC believes it is appropriate to meet and communicate in secret with a regulated utility about deregulation legislation the regulated utility is sponsoring,” Rarrick told the Topeka Capital-Journal.

Last week, a KCC board member with direct ties to AT&T resigned from the Commission “for personal reasons.”  In addition to his involvement in AT&T’s regulatory reform agenda, KCC commissioner Michael Moffet of Lawrence had the ultimate conflict of interest — an ongoing personal relationship with a female staff member at the Commission.  Staff members prepare recommendations for the Commission regarding matters coming before it.

Moffet worked for politically-connected Public Strategies, a notorious Texas-based astroturfer and corporate lobbying group hired by SBC Communications (now AT&T) back in 2004 when he was appointed to the Commission by then-governor Kathleen Sebelius.  He was reappointed for a second term by current governor Mark Parkinson, but a hold was placed on his Senate confirmation of a second term.  His biography (since deleted from the Kansas government website – linked to Google cached version) softens his former employer considerably, calling Public Strategies “a Texas public affairs consulting company.”

Moffet

Senate Bill 384 is just the latest in a series of AT&T-sponsored initiatives towards deregulating its operations.  The bill’s provisions would gut decades of regulations covering everything from rates to mandates for Internet access.

AT&T Kansas president Dan Jacobsen defended the 15-page bill, claiming it comes in response to increased competition and a 35 percent loss in landlines.  Jacobsen said AT&T cannot competitively respond tied down with years of “obsolete” regulations.  Jacobsen also proposed expanding what constitutes “effective competition,” a provision that can reduce regulatory oversight once achieved.

Jacobsen claims rural residents will receive the same prices that competition generates in urban areas. Unfortunately for rural residents, urban customers traditionally pay higher phone bills because of extended local calling areas.  Most rural residents pay considerably less because their local calling area is generally much smaller, sometimes only covering a handful of nearby communities.

Jacobsen

Jacobsen also said customers will not be forced into bundled service packages, promising that customers seeking a traditional voice landline will always be able to obtain one from AT&T.

The disposition of Senate Bill 384 is itself creating a number of questions.  Despite clear recommendations in an internal KCC staff report recommending new price caps on the state’s phone companies, the Commission took the direct opposite position, seeming to advocate AT&T’s legislation which would dramatically deregulate providers.  The KCC staff found that competition was more rhetoric than reality, and the lack of it has kept Kansans paying higher phone bills in areas that were previously deemed “competitive” and subject to fewer regulations.

Rarrick warned that supporting AT&T’s custom-written bill would result in much higher bills for state residents.  Rarrick pointed to a similar experience in California, where AT&T pushed through a regulatory scheme that tied prices to an inflation index.  The result was massive rate hikes for residential customers — 23 percent last year and another 22 percent this year.  Since 2006, deregulation has cost Californians plenty — a 226 percent increase in the price of directory assistance calls, 85 percent for call waiting and 345 percent to keep your number unlisted in the phone directory.

“Do we want to move with complete price deregulation when you’re seeing some red flags?” he said.

The Capital-Journal reports consumer groups are also opposed to AT&T’s proposal.

“AARP opposes Senate Bill 384 because it will allow telephone companies to raise rates for service for which there is little competition and eliminate necessary consumer protections and fail to provide a positive benefit for consumers,” said Dave Wilson, state president of AARP Kansas.

This isn’t the first time Moffet has openly supported AT&T’s agenda.

At a 2007 hearing about increasing consumer protections and lowering rates for consumers, Moffet turned the hearing upside down when he asked witnesses to testify about the implications of eliminating state regulatory powers over AT&T.  That’s an AT&T legislative favorite – the elimination of state telecommunications regulations in favor of federal regulations and guidelines widely seen as lacking consumer protections and oversight powers.

The proposal would have made it easier for AT&T to cut off past due customers and raise customer rates.

Back then, Rarrick told the Joplin Globe, “If they go through with that, consumers are going to lose protection they’ve had for 24 years. If I were a telephone company and didn’t want to comply with state rules, I’d be thrilled.”

Our Take — An Editorial

Dampier

This latest in a series of controversies continues to shine a spotlight on the perennial problem of the legislative-private sector revolving door.  It should come as little surprise that a paid lobbyist representing the interests of AT&T/SBC would appear amenable to his former employer’s positions on legislative matters coming up for Commission review.  That then-governor Sibelius would appoint such a industry-connected person to the KCC is political malpractice against her fellow Kansans.  It will also come as no surprise if Moffet finds future employment at AT&T or another telecommunications provider or affiliated consultants group.

Consumers must insist those appointed to oversee the state’s regulated businesses not come from those businesses (or their lobbyists or consultants), or at the very least must be required to recuse themselves from anything involving their former employer.  Also demanding rules that forbid an exiting Commissioner from simply flipping hats to become a lobbyist or paid employee at a business he or she formerly oversaw would dramatically slow the spinning of that revolving door.

An intimate relationship with a staff member and Commissioner is extremely serious, and represents more bad judgment.

As for AT&T’s proposed legislation, it belongs in the shredder.  Even disregarding the controversy coming from the upheaval on the Commission, and the accusations of secret negotiations and withheld documents, ordinary consumers can readily identify sections of the bill that will harm their interests and finances.  Here is just a sampling:

• A provision to strip price caps from any telephone company exchange serving 75,000 or more customers;
• A provision that deregulates phone companies exposed to at least two “competitors,” which in this case are defined as one mobile phone company and one unaffiliated telecommunications provider, regardless of whether it offers equivalent levels of service or even reaches your home, such as the case with cable operators who refuse to wire outlying areas, or cell phone companies that deliver no bars to your neighborhood.
• Permission to jack rural customer rates up $1 a month each year starting back in 1997 (an illustration of how long AT&T has been trying to get away with this) until such time as rates are equalized with the average price charged rural customers across Kansas.  If you’re in a high priced service area, there is no provision to roll back your rates, however.  But if your phone company charges considerably less, it can now charge considerably more until it achieves parity with a statewide average cost for rural phone service.
• AT&T’s idea of a give-back to consumers is a provision requiring free touch tone service for residential customers, like you didn’t have that already in nearly every area.
• Any bundled service packages are automatically price-deregulated;
• The California Trick: “On and after July 1, 2008, the local exchange carrier shall be authorized to adjust such rates without commission approval by not more than the percentage increase in the consumer price index for all urban consumers, as officially reported by the bureau of labor statistics of the United States Department of Labor, or its successor index.”
• The definition of what constitutes a “broadband network” in the eyes of AT&T is any connection that exceeds 200kbps.
• No audit is permitted of the company’s requested initial rates, to determine whether that initial pricing is fair and reasonable.
• Starting in 2012, phone companies no longer have to submit pricing and service information (a tariff) to the KCC for services it sells to residential or business customers.  The KCC would no longer be able to easily red flag problematic pricing.
• Beginning July 1st, phone companies can opt out of state regulations as a “local exchange carrier” and instead receive far easier regulatory treatment under “telecommunications carrier” provisions.
• AT&T is relieved of being the “carrier of last resort,” a provision that guarantees every American access to basic telephone service.  When delivered unprofitably, the Universal Service Fund kicks in a payment to ensure phone companies don’t lose money on very rural, difficult-to-reach customers.  Although AT&T claims it will continue to offer voice service to every customer in “its service area,” what defines a service area could eventually exclude exceptionally rural customers.  AT&T also reserves the right to provide voice service “using any technology” which could convert unprofitable wired customers into being served by a basic wireless radio-based system, which could indefinitely keep those customers from receiving high quality phone service, much less obtaining any broadband service.
• Relieve AT&T of the state requirement to provide at least basic, reasonably-priced “dial-up” Internet access.
• AT&T can quit publishing phone directories any time it chooses.

AT&T couldn’t have done better writing Senate Bill 384 themselves.  Oh wait… they did!

Since utility boards in some states seem to have an inherent inability to read and measure the impact of these company-friendly proposals that do absolutely nothing for consumers but enrich providers and free them from pesky oversight and regulatory requirements, consumers must remain forever vigilant and suspicious of these industry-sponsored giveaways, letting their elected state representatives know they recognize funny business when they see it.  If an ordinary consumer can bullet point more than a dozen bad ideas after less than an hour skimming the bill, why can’t those who purport to serve our interests do likewise?