Cell phone technology causes regulatory confusion

Posted July 16, 2010, at 6:49 p.m.

The advent of the cell phone was big enough, but its ever-increasing technological advancement, adaptability and applications have only increased its stature and influence in the telecommunications arena — and beyond.

“I think the technology changes in wireless have been really significant the last few years,” said Jim Sanborn, president of the Telephone Association of Maine. “It’s very hard for the federal and state legislative branches to keep up with the technological changes.”

That rapid technological pace has led to a lot of gray areas and legal wrangling in the industry.

Land line companies are either the traditional Incumbent Local Exchange Carriers such as FairPoint Communications, which are legally required to make access available to everyone, or Competitive LECs such as Mid-Maine Communications or Oxford Networks. While ILECs account for the vast majority of land lines in Maine, CLECs only have to make service available where it’s profitable or financially feasible to do so.

TAM is an industry association that represents the interests of Maine ILEC land line companies and tries to clear up some of those gray areas by working on operational, regulatory and legislative issues, and occasionally helping draft legislation.

Other entities trying to keep things more black-and-white are the FCC and Maine Public Utilities Commission.

“There are many changes in the regulatory environment and this is one of the things that’s unfolding as far as cell phone competition,” said Evelyn deFrees, spokeswoman for the Maine PUC, which is charged with ensuring universal telephone service access. “We regulate land line companies, but we don’t regulate cell phone companies, just the transmission and distribution companies [like electric companies].

“Regulating only a portion of the landscape is the challenge we face, but we’re up to the challenge.”

The reason for the disparity, according to deFrees and Sanborn, is the monopoly status land line companies have.

“Telephone, water, electrical and gas utilities are regulated because they were deemed monopolies in their service areas and require government regulation since they do not have competition in some or all areas,” deFrees said. “With cell phones, the rates are controlled by the free market and competition.”

Land line companies were given monopoly status to help protect and represent consumers. Many would argue that the land line companies themselves need protection now as they face plenty of competition from cell phone companies, Internet phone companies and satellite phone services.

Although the marketplace has changed, much of it is still regulated by a federal law enacted more than seven decades ago. Even after being somewhat overhauled in 1966, the Communications Act of 1934 still largely governs telecommunications.

“As we look at how the industry is changing, one of the national trends is how we keep the system growing without going back to the old model of how phones were created in the old wire line world,” said K. Dane Snowden, vice president of external and state affairs for the Cellular Telecom and Internet Association.

The CTIA is an international nonprofit membership organization that has represented the wireless communications industry since 1984.

Snowden said there are some net neutrality rules created six or seven years ago that are still in effect and causing debate as to whether those should be applied to cable and wireless companies.

“The problem is those rules were created for an environment that is now stagnant and has been for a little while because people are going away from it,” Snowden added.

There are other issues, most of which boil down to different rules or obligations for cell and land line companies.

“It would help for us as an industry to take a look at the regulations applied to various technologies providing phone service and making those regulation more consistent and certain,” Sanborn said.

TAM is made up of 21 independent phone companies representing 151,486 access lines in Maine.

Sanborn acknowledges the need for ILECs being treated differently because they’re designated as “carriers of last resort” which have to make access available to everyone, unlike CLEC’s or cell companies who have to make service available only where it’s profitable or financially feasible to do so.

Still, he sees financial or governmental restrictions unrelated to COLR status that could be enforced more evenly.

“When ILECs and CLECs experience outages, they have to report those to the FCC and PUC, but reporting by cable companies and cell phones is not the same,” Sanborn said. “[W]e also pay a higher tax rate on our equipment than our competitors.”

Then again, ILEC’s do get financial assistance in the form of universal service funding collected from fees paid by telephone companies and-or their customers.

And, as Snowden points out, cell companies also have government-imposed requirements.

“We do have carrier of last resort obligations on many of us, particularly with ETC [Eligible Telecommunications Carrier] status, which means we provide service to make sure consumers have emergency [911] phone access,” Snowden said.

As far as taxes go, Snowden is in virtual agreement with Sanborn.

“I think consumers are generally taxed too much as it is, but we all pay a universal service fee,” Snowden said. “The average tax in our industry is 15 percent. We are a little lower [11.76 percent] than wireline taxes, but I’d suggest the wireline companies should have their tax rates reduced rather than raise ours.”

For example, a consumer in Maine pays a 7 percent tax on the purchase of an iPod, but 11.76 percent on a cell phone, which are essentially the same electronic units.

“A lot of folks are looking at the wireless industry as a good place to raise taxes, but people don’t want to be treated like cell phones deserve sin taxes or luxury taxes,” Snowden added.

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