Thursday, July 25, 2013

Phone Deregulation Bill Slips Through Legislature, Awaits Action by Governor

The Supreme Court has observed that "requirements . . .  that common carriers file their rates ... and charge only the filed rate are the centerpiece of the ... regulatory scheme****Rate filings are, in fact, the essential characteristic of a rate-regulated industry."

In the waning days of the recent legislative session, a telephone deregulation bill slipped through that would allow New York phone companies to change their prices, terms and conditions at will, without filing them at the PSC, for undefined "nonbasic" services.

As a substitute, the bill would require companies to post their service offerings and prices at the phone company website and allow them to change prices, terms and conditions by giving customers 30 days notice of a change.  There is no requirement regarding how conspicuous the notice must be.

The fundamental premise of the bill, that it is needed to level the regulatory playing field between traditional phone companies like Verizon and Frontier and cable companies is plainly wrong.  The memo in support of the bill states that "Today the marketplace is highly-competitive, and most of the providers in the market, including large cable providers that offer telephone services, are not required to file or maintain tariffs....

The bill was filed before Time Warner's Voice Over Internet Protocol (VOIP) phone service was recognized to be a fully regulated telephone service.  See PULP Network, Time Warner Asks PSC to Greenlight Friday Afternoon and Saturday Phone Shutoffs for Collection Purposes, and to Relax Other Consumer Protections, June 20, 2013.

Time Warner acknowledges in its petition to waive certain customer protection regulations that it must provide its VOIP telephone service  "as a fully regulated service...."

Thus, the entire thrust of the bill, to level the regulatory playing field with cable company phone services, has been mooted by this recent development, which occurred in March, 2013, after the bill was filed.  The design of the regulatory paradigm for purportedly competitive services should be left to the PSC which is better able to adjust the degree of regulation with changing industry conditions and changing customer preferences.

If  approved by the Governor, the law would allow phone companies the power  to impose contracts of adhesion without an opportunity for review by the PSC.  There is no potential check against luring customers into subscribing to ever-shifting, slightly different, and difficult to compare repackaged service offerings, and then raising prices.

In essence the bill legalizes what would otherwise constitute illegal "bait and switch" tactics.   It allows companies to tout promotional rates for new service packages in flashy advertising, promising savings, but then, after the customers take the "bait", the seller reneges and "switches" their accounts to higher priced plans.

The provision in the bill regarding notice of rate changes merely says
There is no requirement in the bill how this information is to be presented.  There is no requirement that the notice of change that will govern the future price or scope of services be conspicuous, in large type or in plain language. There is nothing to prevent burying notice of price changes or service limits in boilerplate fine print of bills, or put into the fine print bill inserts that often go unread by busy consumers paying their bills. A growing number of utility consumers have chosen automatic payment options offered by the utilities to deduct payments from their checking accounts, so many customers spend little or no time looking at their bills or bill inserts.

Many elderly persons with weak eyesight and non English speaking customers, lured by phone solicitations promising bargain prices, will not get effective notice of the price changes.  More effective notice would require large print, multiple methods (email if the company has the customer's email address), or phone if that is how the customer switched to the service in the first instance.

Even assuming customers are aware of forthcoming price hikes, the notion that abusive bait and switch practices will be deterred by competition -- that informed consumers would bolt to alternative providers when faced with price hikes in the plan to which they subscribed -- is pure fantasy.

There is no real competition in the New York landline phone markets. Rather, these markets are oligopolistic at best.  In most places the market is duopolistic, consisting of the incumbent copper landline phone company (e.g., Verizon) and the local cable provider (e.g., Time Warner).  Game theory teaches that the result will not be competitive prices and service offerings.  Rather, the players will reach Nash equilibria closer to monopolistic pricing.  This leaves customers with little choice but to accept changes in terms and conditions of service, with reduced potential of monitoring by the PSC.

As a substitute for regulation, the bill requires phone companies to publish their rate changes on their websites.  This is not an effective means of information for many New Yorkers because broadband penetration in New York households is woefully far from universal.  According to the State Broadband Office,
An estimated 700,000 New Yorkers (325,000 households) lack access to broadband at home. This is more than the entire population of many States. Many of New York’s gaps in broadband service exist because of the high costs of building networks in areas where population is sparse. For example, in the geographically challenged North Country region of the State, 10% or 43,000 New Yorker’s do not have access high-speed Internet.
Also, many elderly persons do not the internet at all, or only use it for limited purposes such as email.  For those who have broadband, the internet may be an effective way to obtain pricing and service offering information.  But this bill is not needed to accomplish that.The PSC could and should require all utilities to maintain in plain language a description of all service offerings and prices at their websites. This would aid consumers with more transparency regarding prices and terms of competitive offerings, as the PSC  has recently begun with the competitive energy providers (ESCOs).

The bill also is ambiguous because it does not define "nonbasic" service. The PSC regulations, Part 609 define "basic local exchange service" as 

(e) The term basic local exchange service shall include the following charges for residential service:
(1) customer access line, including any usage bundled in this charge;
(2) local measured service;
(3) local measured units;
(4) locality rates;
(5) mileage;
(6) late payment charges on local exchange service;
(7) subscriber line charge;
(8) taxes and surcharges prorated to reflect only the taxes and surcharges associated with local exchange service;
(9) nonpublished service;
(10) touchtone;
(11) local exchange service restoral charge;
(12) NSF check charge for local exchange service or any part of local exchange service;
(13) service order charge for local exchange service;
(14) construction charges for local exchange service; and
(15) intra LATA toll service and interregional calls unless intraLATA prescription is offered and selective intra-
LATA access is available.

Some services are not readily sorted into "basic" and "nonbasic".  The trend in recent years has been to blur the pricing of "basic local exchange service" by combining --"bundling" -- it with long distance, so that the price of the local service is not readily transparent.  Many people now buy flat rate bundled local and long distance services which combine "basic local exchange" service and Intra-LATA and Inter-LATA long distance service at a flat rate, and further bundle that phone service with other services such as DSL or cable broadband, and other services.

Traditionally, the PSC asserts jurisdiction over bills that combine "basic local exchange" service with other offerings, and regulates the allocation priority of payments when customers in arrears make part payments to preserve the more basic communications services. These services may have varying degrees of regulation by different regulators, e.g., the PSC and the FCC, which are in flux.  As a policy matter high speed broadband will eventually be seen as a "basic" telecommunications service too, requiring universal availability, and this is State broadband policy now:
New York State is poised to eliminate the digital divide and ensure every community, business, resident and visitor has the digital resources necessary to live, work and enjoy all that New York has to offer through the Internet.
In sum, the bill would limit future PSC regulation of "nonbasic" service.  What is "basic" and "nonbasic" is not defined in the law.  The degree of regulation over "nonbasic" regulated services is in flux, and may shift over time as state and national policies evolve. The bill unnecessarily adds to ambiguity and may limit future regulatory options.


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