Some states implemented deregulation in advance of the 1996 Telecommunications Act.  Most utilized price cap or so-called incentive regulation plans to reduce explicit pricing obligations. New York's aggressive pro-competition activities are broadly taken as models for several other states around the country, although the size and expertise of its regulatory staff are not duplicated in any other state.  New York was one of the first states to adopt incentive regulation, whereby a carrier would meet certain performance thresholds in one realm and have an incentive to undertake (or to price) other activities without regulatory policies or tariffs defining them; prices for the latter would be set at "market rates" rather than rates determined within a utility commission's hearings.  New York's policies attempted to ease competition into an environment in order to create a level playing field for new entrants.

Ohio joined several other states grappling with a competitive push from the dominant exchange companies.  It deregulated in 1995, and revisited its rules in 1999 in order to make adjustments for a competitive process that seemed to be working for businesses but not for residential users.  Pennsylvania had numerous hearings and regulatory actions around deregulating telecommunications within the state as early as 1993 when it adopted a competitive telephone framework (Chapter 30, Public Utility Code, 66 Pa C. S. Sections 3001-3009) that provided for alternative regulation.  

Subsequent to these deregulation efforts, complaints escalated around the country regarding service quality as well as incumbent reticence to comply with opening their networks to competitors.  CLECs alleged that the Bell Operating Companies were unfairly slow in making their networks available to competitors, and many states held hearings on that matter, levied fines against the incumbents, and attempted to establish standards to cope with the RBOCs' behaviors.   

Since the late 1990s, states have developed a number of regulatory and non-regulatory strategies to expand and extend advanced services to underserved areas. In what follows we offer an industry assessment of state environments for broadband deployment and access and follow with thumbnail sketches of recent state initiatives in the ARC Region.

Assessments of Broadband Activities

The Technology Network (TechNet), with over 200 CEOs and senior executives of the technology and biotechnology industries, released an assessment of state policies that they believe affect broadband deployment. According to the assessment, Michigan was first on the list, while Georgia was not listed in the 25 rankings provided. The report ranks the top 25 states and includes a Best Practices Guide to the most innovative state broadband initiatives.  The report's indicators include: the absence or presence of legislation that streamlines rights-of-way permitting; whether a state has adopted a state-wide broadband strategy and created a broadband agency; whether it has undertaken comprehensive infrastructure mapping; what sorts of policies it has adopted to facilitate municipal networks; how it facilitates increased private sector deployment of broadband; any plans for financial incentives for reaching underserved communities; and its efforts to promote consumer use of broadband, including enhanced e-government. The report breaks out specific rankings in terms of supply-side and demand-side programs, as well as state "regulatory climate."  The ARC states that are noted in the top 25 are:  Ohio at #5; Virginia at #8; North Carolina at #19; South Carolina at #20; Pennsylvania at #22; and Kentucky at #24.  [http://www.technet.org/resources/State_Broadband_Index.pdf] 

Another study focusing specifically broadband deployment in rural regions of the world— many of them in the US—was released by the US Telecommunications Industry Association.  While this study does not offer statistical comparisons, it profiles several efforts to develop broadband.  The cases of LaGrange, Georgia and Danville, Virginia are among the examples offered here.  [See The Telecommunications Industry Association, The Economic and Social Benefits of broadband deployment, October, 2003, available at http://www.tiaonline.org/policy/broadband/Broadbandpaperoct03.pdf.]

Recent State Actions toward Broadband Deployment

Alabama

Alabama has undertaken no new regulatory activity with regards to broadband since 2002.  Currently under comment before the Public Service Commission are two issues that may have implications for telecommunication users, including a tangential impact on broadband users: the commission is taking comments on a policy to clarify rules governing IP telephony, and taking comments on a revision to its price cap and local competition regulatory structure. [ http://www.psc.state.al.us/Telecom/webpage3.htm ]

Georgia

We find no recent broadband policy activity in Georgia.  The FCC granted BellSouth Section 271 entry into the long distance markets in Georgia in May 2002.

Kentucky

With the exception of the low-income housing initiative described below, there have been few notable broadband policy developments in Kentucky in the last two years. 

In February 2003, the Kentucky Housing Corporation mandated that all housing funded with more than 50 percent state funding must be wired for broadband Internet access.  This policy is believed the first policy of its type in the United States. The KHC is also taking steps to get computers and low-cost Internet service to residents so they can find useful information on things such as employment and health care online.

[ http://www.kyhousing.org/news/resources/PR10-01-02.pdf ]

In May 2002, the Kentucky Office of the New Economy (established by HB 572, The Kentucky Innovation Act of 2000) , several private companies (including Bellsouth, Qwest, Cincinnati Bell, and others), Kentucky's universities and the Center for Information Technology Enterprise formed connectkentucky to promote high tech within the state.  The connectkentucky project has three goals:  increase public awareness of e-commerce, e-government, and e-learning; create and implement market-driven strategies to increase use of technology; and implement public policy initiatives to promote competition and eliminate regulatory barriers to Internet and broadband.  connectkentucky has implemented a program of e-Business workshops around the state and funded an initiative, KY120, to promote best practices for technology in each of  Kentucky's 120 counties.

[ http://www.connectkentucky.org ]

The FCC granted BellSouth Section 271 entry into the long distance markets in Kentucky in August 2002.  In December 2002, the Kentucky Public Service Commission began a review of the contracting practices of BellSouth in response to complaints from two ISPs, accusing BellSouth of providing preferential pricing to some wholesale and large volume customers.  The Kentucky PSC had earlier alleged in a 2001 ruling that BellSouth was engaged in discriminatory pricing.  No other action on these complaints has been reported.

[ http://psc.ky.gov/agencies/psc/press/122002/1219_r03.pdf ]

The Kentucky General Assembly used a small portion of the state's tobacco settlement money to fund the Rural e-Learning Agricultural Program (REAP) in 2003.  The Center for Information Technology Enterprise will administer the project, which is based on a $48,750 grant to bring computers, high-speed Internet access and online learning to Kentucky tobacco growers dealing with deep quota cuts and attempting to find alternative crops.

[ http://www.connectkentucky.org/Report2003/ruralelearning.html ]

Maryland

Most significant for our purposes, the state legislature passed House Bill 697 in April 2003, which would establish a Task Force on Broadband Communications Deployment in Underserved Rural Areas. The legislation focuses on bringing broadband capabilities to state government units all over the state, and to facilitate providing high bandwidth services to other users as well. The bill states that it does not intend to compete with commercial access providers, "but rather to complement it where it exists, to provide access where commercial access is lacking, and to foster fundamental efficiencies in government and education for the public good" (HB 697, Section 7, 2003). 

Network.Maryland, the statewide fiber backbone built in the late 1990s, had been the focus of some discussion. A 2003 study titled eReadiness Maryland: Assessing our Digital Opportunities, commissioned by Maryland Technology Economic Development Corporation (a task force created by the Governor), concluded that the network is not operational, much of the fiber is still dark, and few public buildings in the state are connected to the network.  [ http://www.marylandtedco.org/programs/eReadiness.html ]  Part of the intent of the HB 697 would be to better manage the state's own telecommunications infrastructure.

The Public Service Commission of Maryland had been engaged in a court action (Verizon Maryland v. Public Service Commission of Maryland) that was argued before the US Supreme Court over federal jurisdiction in state utility board disputes.  On May 20, 2002, the U.S. Supreme Court issued its opinion holding that federal courts have jurisdiction over a claim that a state utility commission decision violates federal law.  The case was based on Verizon's refusal to follow the PSC's order to compensate a competitive carrier for calls routed to the Internet under Verizon's interconnection agreement with MCI Worldcom.  The decision allows PSC orders to be challenged in both state and federal court if an argument can be made that the order violates federal law. [http://www.oyez.org/oyez/resource/case/1481/ ]  This case may be related to telecommunications decisions in the future. 

Mississippi

Following the passage of the Mississippi Broadband Technology

Development Act in 2003, BellSouth announced its intent to extend broadband services throughout the entire state. The new law provides tax credits of up to 10% and sales tax exemptions of up to 100% to companies who expand their broadband capabilities to the least populated areas in the state. BellSouth announced it would invest approximately $10 million dollars in the project. The Mississippi legislation is available at http://www.mississippi.gov/frameset.

[Source: Office of Governor Ronnie Musgrove, USA Today]

New York

Deregulation began in 1985 well before similar efforts at the federal level were successful.  The state opened competition with the local exchange companies by lifting the previous regime of price controls.  In 2001, the New York Public Service Commission created a new incentive regulation framework for Verizon  (formerly Bell-Atlantic). By creating incentive mechanisms and measuring the performance of the carrier in meeting customer satisfaction (as well as other metrics), New York has enhanced its competitive environment and expanded services into underserved areas. An evaluation of the progress of this system can be viewed on the Public Service Commission's website:

(http://www.dps.state.ny.us/telecom/telanalysis.htm).

The Wired Buildings program, which was first outlined by Governor Pataki in his 2000 State of the State Address, helps developers to wire and outfit existing buildings to accommodate the needs of small information technology businesses by providing grants for the deployment of advanced telecommunications infrastructure and related amenities necessary for business growth. The program also works in conjunction with the Quality

Communities Technology Advancement Task Force to expand access to broadband services in rural areas of New York. A number of grant projects in the second round of funding will target the North Country and Catskill Watershed regions for demonstration projects.

North Carolina

North Carolina took a detailed approach to infrastructure assessment as it mapped telecommunications infrastructure at the wire exchange level of detail for each county in the state.  This became the basis for a state program attempting to ensure that every county has flat-rate dial-up modem access to the Internet.  In its second phase the program is attempting to insure that each county has broadband access to the Internet through its Rural Internet Access Initiative (created through SB 1343, An Act to Create the North Carolina Rural Internet Access Authority and to Direct the Regional Partnerships, with the Assistance of the North Carolina Rural Economic Development Center, to Study and Report on the Information Technology Infrastructure and Information Technology Needs of the State, passed in August, 2000).  The Rural Internet Access Authority was charged with enabling local dial-up Internet access in every telephone exchange by the close of 2001, making high-speed Internet access available to each NC citizen within three years, and establishing two Telework Centers in the state's most distressed areas. 

In 2002 the legislature approved a bill that expands the definitions for the types of infrastructure that can be funded with money from its Industrial Development Fund (IDF) (Ch. SL 2002-172).  The expanded definition includes expenditures on telecommunications and high-speed broadband lines and equipment.

In 2003, BellSouth teamed with America Connect to test wireless broadband in two rural North Carolina counties. BellSouth holds FCC licenses throughout the Southeast in the 2.3 GHz WCS band, and the two companies will make use of that band to conduct the trials with a view to providing fixed wireless services to underserved rural areas.  The state's Rural Internet Access Authority is helping fund the trial. 

The Internet Access Authority's website at http://www.e-nc.org/ is a resource that allows users to identify public Internet access points in each county and to examine GIS maps of telecommunications infrastructure.  The goal of the e-NC initiative is to work through the social structures in localities to ensure that not only is high quality Internet access available but also that communities learn how to use that access creatively and for their own local development purposes. 

Ohio

 The Ohio Community Computing Network (OCCN) was established in 1995 as the oversight and evaluation organization for the 14-community computing centers created and funded by the Ameritech Advantage Ohio alternative regulation case settlement. This marked the first time in the United States that a settlement before a state public utility commission included the funding of community computing centers in low-income neighborhoods. This settlement has made computers and telecommunications technology accessible to people of all incomes through community technology centers. OCCN has expanded and is currently working with over 40 community technology centers in urban and rural areas of Ohio. The centers are located in libraries, community centers, schools, churches, social service agencies, and residential housing complexes. Since its inception, OCCN has received or distributed to community technology centers $4.45 million from Ameritech and $90,000 from Cincinnati Bell.

Pennsylvania

Pennsylvania joined other states in approving price cap regulation for incumbent local service providers in the early 1990s.  Around the country at that time several telecommunications companies sought to deregulate certain categories of service, and in exchange for opportunities to move into new lines of business with charges that were supposedly responsive to the market, they agreed to cap or freeze their prices on certain other services.  Pennsylvania's rate deregulation is embedded in the Public Utility Code, particularly under Chapter 30, and the incumbents subject to its provisions, particularly Bell Atlantic and later Verizon, have been scrutinized and criticized repeatedly for not conforming to the intent of the reform. 

Pennsylvania adopted a competitive telephone framework in 1993 (Chapter 30, Public Utility Code, 66 Pa C. S. Sections 3001-3009) that provided for alternative regulation.  Even though it contains language regarding competitive local service, the focus of the reform was on non-basic telephone services.  The promises associated with Chapter 30 greatly outstrip the actual language in the legislation. A report on Chapter 30 was issued by the Pennsylvania Legislative Budget and Finance Committee in June, 2003 that elaborates the history and intent of Chapter 30.  

Chapter 30 provisions traded pricing flexibility for the incumbent in some retail service classes in return for promises of substantial infrastructure upgrades throughout the state.  For example, broadband services were supposed to be available throughout the state by 2015; in fact, at the time that Chapter 30 was being formulated, it was sometimes referred to as the 'fiber optics bill.'  The intent of the network upgrade commitment was to improve the voice network (especially by establishing fiber links among central offices) and to eliminate analog switches and multiparty lines, in spite of contemporary interpretations that suggest that network modernization in 1993 had to do with providing DSL service.  (DSL is barely mentioned in Chapter 30.)  The network modernization component thus had more to do with modernizing the existing voice network than with delivering a mass market Internet connection.   The Internet was not mentioned in the legislation, and indeed, with just over 100 sites in 1993, the World Wide Web was inconsequential to this reform at its inception.

When modernization is addressed in Chapter 30, it is in terms of a network reaching speeds of at least 1.5 megabits per second (the maximum speed available on existing copper lines).  Bell Atlantic's 1994 Chapter 30 proceeding discussed a 45 megabit per second network, and partly on that basis the financial terms of its rate reform were generous.  No particular technology is noted in the legislation.  The thrust was to encourage incumbents to innovate in competitive services while shielding basic services from rate increases.  A class of services, including basic local dialtone, was included under "protected" services, and their rates were frozen.  Each telephone company in the state (roughly 40 including Verizon) was supposed to file a Chapter 30 plan, and most of these were approved in July, 2001.  Verizon North was among the last companies to file its Chapter 30 plan (in 1998). 

Chapter 30 provisions were supposed to sunset at the end of 2003, and hearings were held beginning in fall, 2002 to evaluate whether Chapter 30 should be revised and extended or allowed to die.  The Office of the Consumer Advocate in Pennsylvania, for example, has argued that Chapter 30 should be extended but with substantial modifications that would insure broadband deployment (Popowsky, 2002).  That office commented:

…it is not enough to throw ratepayer money at their telephone companies in the hope that some of that money will "stick" and will be spent on providing services to  communities that would not be served under a business-as-usual approach. Chapter 30 tried to impose such a requirement on our telephone companies, but in retrospect it appears that the requirements were so long (from the year 1993 to 2015) and so vague ("access to broadband service  [defined as a bandwidth equal to or greater than 1.544 megabits per second] by each bona fide telephone customer of a local exchange telecommunications company within five day after a request for broadband service is received by any telecommunications company") that it is difficult to assure that these benefits will be achieved in any particular community in a time frame or in a manner that meets that community's needs (Popowsky, 2002, p. 11).

Because competition and infrastructure upgrades did not develop quickly even after Chapter 30 began and because the federal Telecommunication Act required changes in state provisions, the Commission adopted the Global Telephone Order in 1999 to promote additional competition and to adapt its provisions to the new federal law. Its provisions included:

• Capping Bell Atlantic (now Verizon) local rates until the end of 2003;
• Capping the local telephone rates of rural telephone companies at $16/month until the close of 2003;
• Keeping all Internet phone calls local;
• Lowering toll rates;
• Lowered access charges;
• Increasing the number of households eligible for Lifeline service;
• Creating a $30 million universal service fund to offset costs in higher priced areas of the state. 

One issue that has arisen alongside discussion of reforming Chapter 30 concerns the line speed assigned to dial-up modem service.  The PUC regulations do not require that Internet providers guarantee specific line speeds associated with their services.  Consumers, however, have complained to the PUC that their dial-up services for Internet access are sub par, which prompted some critics to query whether guaranteed line speeds should be required under a revised Chapter 30.

The Bell Atlantic-GTE merger in 1999 created another opportunity to examine company commitments to building advanced infrastructure.  As part of the merger approval, the company agreed to deploy a universal broadband network in phases, with 20% of it built 1998, 50% by 2004, and 100% by 2015.  These obligations, however, have come under scrutiny in 2002-2003.

Frustrated with the continuing slow pace of competition, particularly Verizon's practice of slow compliance with competitors' requests to connect to or use elements of its network in March, 2001, the PUC ordered functional structural separation:  Verizon would continue to operate as one company but the wholesale and retail divisions would be required to operate at arms-length pursuant to a code of conduct.   This came on the heels of an earlier decision in 1999 to structurally separate the company into two units, a move that came under fire from Verizon.  The Commission reversed itself on the structural separation and adopted functional separation in its stead. 

Regarding the smaller, independent or cooperatively based telephone companies serving regions of Pennsylvania, we could find no publicly available information regarding the extent of their system upgrades or Internet services.  However, smaller telephone companies – many in rural regions – are more likely to offer DSL than are larger companies serving the same sorts of customers.  The National Exchange Carrier Association writes that among the rural companies in its pool, 76% of 1076 smaller telephone companies function as an Internet Service Provider.  This figure is based on a survey of its Traffic Sensitive companies (generally serving rural areas, and having fewer lines in service) (National Exchange Carriers Association, 2000,   Keeping America Connected:  The Broadband Challenge.  Access Market Survey of NECA's Traffic Sensitive Pool Members.  Available at www.neca.org). 

A study by Glasmeier et al. (2003) found that rural Pennsylvania residents and small businesses frequently lack access to broadband facilities.   [http://www.ruralpa.org/broadband_report.pdf ]

South Carolina

In March 2003 the South Carolina General Assembly passed H3344, which defined broadband as exempt from regulation by the state public service commission. 

[ http://www.computeruser.com/news/03/02/19/news2.html ]

Tennessee

Tennessee has enacted no notable broadband policy since 2002.  In August 2002, the FCC granted BellSouth Section 271 entry into the long distance markets in Tennessee.  In 2003, the General Assembly considered a controversial measure (HB 457), one of the so-called "super-DMCA" initiatives that stated "it is an offense for any person to possess, use, make, develop, assemble, sell, lease, distribute, transfer, import into this state or offer, promote or advertise any unlawful communication device for the unauthorized acquisition or theft of any communication service."  The proposed law was vaguely worded, enough that it could apply equally to theft of cable services or commonplace online activities such as the transfer of copyrighted music files.  Activities that involved more than five "devices" were classified as felony offenses.  After much debate, the measure was shelved until the 2004 legislative session. [ http://tndf.net/ ]

The city of Chattanooga announced a major initiative to upgrade its telecommunications infrastructure.  At the Tennessee Valley Summit, the local mayor announced that a report commissioned by a consulting company concluded that the region would enjoy robust technology company-based growth if it invested in improved telecommunications facilities and created an Applied Technology Center, among other things. 

Virginia

Advanced Communications Assistance Fund- Virginia created this program which provides up to $50,000 per award to communities working to improve local telecommunications infrastructure. This is a program to boost connectivity in smaller communities.

Through VirginiaLink, contracted service providers will offer businesses throughout Virginia "one-stop-shopping" access to unbundled, high-capacity telecommunications services. Businesses access the communications services by joining the VirginiaLink, the consortium buyers' group. The VirginiaLink Consortium is administered by the Virginia's Center for Innovative Technology (CIT), a state-charted, nonprofit organization dedicated to the growth of technology and business in Virginia. In order to acquire the discount services obtained by VirginiaLink, a consumer must purchase a one-year membership, which will cost end users $100 per business location, with a maximum fee per firm of $1,000. Service resellers and Internet service providers (ISPs) also will be able to join for a $500 fee per location, with a maximum cost of $2,500.

Virginia also recanted its legislative prohibition on utilities offering telecommunications services, a response to the City of Bristol's initiative to extend fiber-based connectivity to various clients through its region. 

West Virginia

In early 2003 the state's Consumer Advocate's office released its Final Report and Recommendations on Advanced Services from the Advanced Services Task Force in West Virginia (http://www.cad.state.wv.us/Adv%20Services.htm).  The report concludes that the deployment of advanced services in West Virginia lags that of national statistics, but that it is growing quickly.   In West Virginia, 50% of households have access to broadband, with only 7.7% actually subscribing whereas comparable national statistics are 75% and 15%. The report notes that the best way to monitor deployment of broadband in West Virginia is to require periodic reporting to the PSC by broadband providers, and that the major impediment to deployment of advanced services is the absence of a coherent State plan or policy.

The Task Force's recommendations are to let market forces continue to work to spur deployment, but in the long run the State should promote demand for broadband by providing information on broadband deployment and uses, and it should consider using tax credits and grants to suppliers and users of broadband. The taskforce also noted that a state universal service fund should be considered in order to provide the means to address underserved areas in the future.

A pilot effort in Glenville, W.Va., about 160 miles south of Pittsburgh, is testing wireless access capabilities in mountainous, rural areas. The project is funded by grants from the Appalachian Regional Commission and the Benedum Foundation, each contributing $125,000.  The research team will conduct a second pilot in a community in southwestern Pennsylvania. This effort is spearheaded by faculty from Carnegie Mellon University, which established a Center for Appalachian Network Access in 2003.  The center works to bring high-speed Internet access to depressed Appalachian communities.