Kelley's Big Bill

Politicians get ready to reboot telecommunications law

State senator Steve Kelley absent-mindedly twists his Thai iced tea in one hand and folds the edge of his napkin with the other while discussing the minutiae of telecommunications regulation. It's an easy topic for the third-term DFLer, who comfortably tosses out geek-speak like "overbuilt hybrid fiber-coax systems," then slows down long enough to note that "there is a high learning curve with these issues. It's all very complicated."

A stocky man with thick, curly gray hair, the three-term DFLer recently announced a bid for the U.S. Senate seat currently held by Republican Rod Grams. But to hear him talk, that effort pales in comparison to the 15,000-word-long piece of legislation he wants to introduce in the 2000 legislative session: This, he says, is his "Big Bill," the one he hopes will establish his legacy as a policymaker. The measure would scrap the web of laws--some of them almost a century old--that currently regulate services such as cable television and telephone. In the process, Kelley argues, it could catapult Minnesota to the forefront of a national debate over who delivers the currency of the information age and how.

Not everyone is enamored with Kelley's vision. While most interested parties--cable television and telephone trade associations, local Internet service providers and the League of Minnesota Cities--agree that the current laws need an upgrade, many are worried that the proposed rewrite is too drastic. Some even accuse Kelley of old-fashioned political grandstanding. And no matter what their position, all the stakeholders are busily preparing their responses while waiting to see how Kelley's plan squares with Jesse Ventura's own soon-to-be released telecommunications initiative.

Although Kelley's DFL credentials are impeccable, his proposal--especially when delivered in traditional stump style--sounds almost like a telecommunications version of Steve Forbes's presidential platform. "It's a flat-tax system with a drastically simplified regulatory structure," he announces. "I think if half of this bill is passed, it will be a big deal for the state and a big deal for all Minnesotans. It will attract more technology companies to the state, and consumers will see greatly increased competition and therefore more choices and lower prices."

He stops folding the napkin, pauses, and declares: "We're seeing so much--so much--rapid change in telecommunications that the government can't afford to be this far behind."

Current rules, Kelley argues, are mired in the distant past--the time, less than a decade ago, when "telecommunications" meant either telephone or cable television. One set of companies kept prepubescent lovers in constant contact while the other specialized in filling your screen with reruns of Punky Brewster. Since the two types of firms offered such different services, they were regulated by separate sets of laws at both the state and federal levels.

Since then, however, engineers have figured out that voice, pictures, and just about any other kind of data can be reduced to the same kind of signal and transmitted over the same wires. Thus a cable company like AT&T--the new owner of local cable provider MediaOne--can offer a "broadband" package of cable television, high-speed Internet access, and digital telephony. And a phone company such as US West can offer high-speed Internet access over telephone wires using a technology dubbed digital subscriber line (DSL); one version of the technology offers connection speeds fast enough to deliver high-resolution Punky Brewster episodes. And just to complicate matters, digital wireless companies are exploring the possibility of delivering high-speed Internet access via the airwaves.

Amid that maelstrom of technology, Kelley points out, state telecom laws have stood essentially unchanged since the 1980s. Cable companies are predominantly monitored at the city level: Firms must negotiate franchise agreements and pay fees in each city where they offer service. Phone companies' rates and performance, meanwhile, are overseen by the state Public Utilities Commission. And wireless companies are not regulated by the state at all.

To Kelley, none of this makes sense at a time when telling a phone company from a cable firm is getting harder than sorting out a roomful of Sneetches. "Today, the lines between these different industries are blurring," he says. "My fundamental philosophy is that these guys are all in the business of pushing bits and therefore should all be regulated under one system." Consequently, his plan calls for replacing the city-level cable-franchise fees with a statewide tax. And if phone companies have to open their networks to competitors--as they've been forced to do under the federal Telecommunications Act of 1996--then cable companies will have to do the same.

Not surprisingly, the proposal has raised some eyebrows. "We think Kelley's intentions are good," says Mark Erickson, a member of the League of Minnesota Cities Telecommunications Task Force. "But it's simply too much too soon." Erickson speculates that Kelley, who has previously had trouble drawing attention to the issue--a less sweeping bill he introduced last year never came to a vote--decided to "blow it all up and rewrite the laws." And if the senator sought to get policymakers' attention, Erickson adds, it worked: "He's got us listening."

One of Erickson's numerous concerns is that statewide cable regulation will get rid of protections currently accorded to municipally owned utilities such as the cable company in his western Minnesota hometown of Lakefield. If that happens, he adds, small communities could find themselves without adequate service. "We're at the bottom of the tech food chain out here," he notes. "Economics 101 says [providers] look at the metro first."

Erickson's organization is also worried about Kelley's plan to remove cities' cable-franchise contracts. According to Ann Higgins, the league's intergovernmental relations representative, franchise fees generate more than $20 million for cities across Minnesota. Kelley's proposal would allow cities to apply for state reimbursement of the lost revenue, but Higgins says cities would rather just keep the money.

Edie French, the City of Minneapolis's cable officer, agrees. She says that in addition to collecting franchise fees, cities now can prod cable companies to provide services such as municipal electronic networks and public-access channels. Minneapolis, for example, has long been at odds with Paragon Cable (now Time Warner Cable) over the city's share of the cable network's capacity (see "Cable Petty," October 13). If control is moved to the state level, French notes, local officials' bargaining power "would be dramatically hampered."

That prospect might sound sweet to the cable companies' ears. But Mike Martin, executive director of the Minnesota Cable Communications Association, says he has developed a healthy skepticism toward politicians' promises of smaller government. Once the bill has rolled around the Capitol for a couple of months, Martin says, there's a good chance that cable companies will still have to deal with the cities. The only change, he argues, will be that they'll have to negotiate with the state, too.

A bigger concern for the cable companies, says Martin, is Kelley's insistence that they open their networks to local Internet service providers. It's expensive to upgrade the cable infrastructure so it can support Internet access, he argues, and companies need to be protected from competition while they recoup those investments. "In the Internet market, we're the new kids on the block," he notes. "Forced access would greatly slow down the deployment of Internet services."

But telephone companies aren't exactly moved to tears by the cable providers' plight. They have been under orders to let competitors use their wires since 1996--a requirement they claim has cost them money and customers. "We applaud Senator Kelley's effort," says Kim Bothun, spokesperson for US West. "It makes sense that all competitive firms ought to compete on a level playing field."

 

Steve Kelley isn't the only politician with ideas about untangling the wires. The governor's "sweeping strategic plan" for telecom reform is slated to be made public in mid-December; it will constitute one of the first specific proposals to flow from Ventura's Big Plan, says state commerce commissioner Steve Minn. "The governor was criticized for not having specifics," Minn asserts. "Well, the specifics are coming."

Philosophically, Kelley and the Ventura administration seem to be marching almost in lock step: Both agree that deregulation is necessary, both envision similar regulations for companies providing similar services, and both are hell-bent on fostering private-sector competition. And like Kelley, Minn argues that telecom reform will make Minnesota a leader in the field, right up there with New York. "We want to make the state a technological wonderplace," he says.

Still, the commerce commissioner discourages comparisons between the two plans. The administration, he says, has no plan to take franchise fees away from cities. And while his department is pushing for programs that would bring one-megabyte-per-second connections to the farm, Kelley's proposal would start with simple dial-up Internet access for remote areas, with high-speed service to follow later. Fritz Messere, chair of the communications department at the State University of New York-Oswego and a national expert on telecom law, says the Kelley and Ventura plans are similar in one key respect: Both represent "a very aggressive proposal at the state level." In fact, Messere says, both go further than the Federal Communications Commission (FCC), which continues to view the cable and telephone industries as separate sectors. Messere argues that the feds should welcome the Minnesota reform initiatives and treat the state as a kind of lab rat: "The federal government can just sit back and watch how such initiatives pan out."

But Michelle Russo, spokeswoman for the FCC's cable services bureau, warns against such an approach. On the issue of cable monopolies, for instance, she says the FCC favors delaying competition so firms can recoup their digital-technology investments. "We do have a national policy and we think the states should look to the national policy," Russo says.

Earlier this year, when the city of Portland, Oregon, demanded that AT&T open its newly acquired local cable network to competition, the FCC filed a friend-of-the-court brief in favor of AT&T. The case, tied up in appeals after an AT&T loss in the first round, could ultimately decide whether Minnesota--or any other city or state--has the legal authority to mandate open cable networks.

As it stands, the FCC's position remains a suggestion rather than an order, and Kelley maintains that his bill will not run afoul of federal rules. If the cable companies are worried about his proposal, he says, he's willing to listen; the same goes for any of the other interested parties. In fact, Kelley says, he wants to hear as much criticism as possible before he introduces his bill in February. "The biggest obstacle is going to be time," he says. "So we need to get people sitting down together and talking before the legislative session. If it gets moving, it's going to be hot. This is controversial stuff."

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