As legislators gear up for the 2010 short session, budgetary concerns weigh most heavily on their minds. While the number of bills affecting the telecommunications industry may be few in number, the bills which could be introduced present important policy goals and challenges for the industry. In a short session the legislature is generally limited to considering the budget, bills which passed one House in the long session, as well as bills that emerge from study committees. Bills affecting the telecommunication industry this session will most likely concern E-911, broadband deployment, and municipal entry into telecommunications markets.

The House Select Committee on the Use of 911 funds has completed its work. The final bill released by the committee raises significant concerns about the extension of uses for the 911 fund as well as other factors. This committee heard received input from both the E-911 Board, the industry, municipalities, counties and trade associations that support people that work in E-911 centers.. Several issues were included in the committee’s work including the makeup of the 911 Board, acceptable uses of 911 funding, and the creation of a sustainable funding mechanism for E-911 services. The largest battle focused on acceptable uses of E-911 funds. The counties and municipalities argued that the scope of 911 funds should be expanded to include the purchase of radios for first responders. However, the 911 fund was not created in anticipation of funding, dispatch service since those services were already being funding from local resources. There is also a real concern if funds were used to cover these expenses, funding requirements would skyrocket and surcharges of phone bills would increase, damaging the industry’s ability to retain customers in an already crowded marketplace. Further, the radios being considered for use by cities and counties utilize expensive and outdated technologies, which perhaps are not the best decision for the safety and pocketbooks of North Carolina citizens. The industry wishes to control the costs of the 911 fund to help sustain the important role it serves in safeguarding the security of North Carolinians.

It is also apparent that the continuing funding model for the 911 fund is broken or at least in serious need of repair. The current funding model has led to some local areas accumulating massive surpluses while other areas still receive inadequate funding. This runs the clear risk that the funds will be used for purposes other than the funding of E-911 centers, which is clearly what telephone customers, who pay this hidden tax, have every reason to expect. The new funding model must include a mechanism which equally distributes funding between all areas of the state. The current plan proposed by the legislature would delegate that task to the 911 Board, which would be able to consider, population, geographic area, and costs, in creating a new sustainable formula that will avoid the problems seen in the past.

Competitive entry by local governments into businesses generally reserved to private providers continues to be of great concern. Following a decision by the Court of Appeals, municipalities received significantly more power to enter into telecommunications competition with private industry. This is particularly seen in broadband as Wilson and Salisbury have begun plans for municipal broadband service. Some proposals would give county governments the same authority. While this debate remains largely between the cable industry and municipalities, it is certainly a concern that local governments with the power to tax and control right of ways, and subsidize their enterprises through tax revenue and other ventures can use these advantages to compete inequitably with private industry. Many states have rules governing this competition, however, North Carolina has yet to define these rules. While most do not deny the right of municipalities to compete, rules should be made that insure fair competition for all of those involved. One option, which appears to be gaining some traction, is to place a moratorium on further activities by additional local governments until adequate rules are established and existing efforts have been evaluated.

Broadband deployment continues to be a major issue for the legislature. Several bills have been considered by the committee including one which would create “broadband cooperatives”, and another which would further expand the ability of government entities to enter into competition by allowing counties the same power as municipalities currently enjoy. One proposal would give a minimal tax credit to for-profit providers to build last mile services. While broadband deployment is clearly important for the State from issues of economic development to education, the legislature continues to view the problem from the perspective of only the building of infrastructure. While this is important, the fact is the overwhelming majority of North Carolinians have access to broadband. The larger issue, which has been largely ignored, is how to increase the number of people who choose to use broadband.

Just as it did in the 2009 Session, the budget cloud continues to loom over the upcoming session of the General Assembly. The 2010 Session is called a short session and is devoted primary to budget issues and winding up legislative initiatives that passed one but not both houses of the General Assembly in 2009. Although estimates vary, budget shortfalls are estimated to range between approximately $800 million and $1.2 billion. Although there are many reasons for the projected shortfall, perhaps the main reason is that the continuing effects of high unemployment rates have lead to less tax revenue than originally forecasted. The deficit projections could be worse except for increased efforts by the Department of Revenue to resolve some tax disputes with corporations. Those efforts have resulted in higher growth in corporate income tax revenues than originally anticipated.

On April 20, Governor Beverly Purdue unveiled her new $19.1 billion state budget plan. When federal stimulus dollars are added for education and Medicaid , the amount of planned spending increases to $20.6 billion. Although many of the jobs are currently vacant, the Governor’s proposal will eliminate 600 additional state jobs. The plan proposes a slight boost in teacher pay and recommends that last year’s salary reductions for state employees be reinstated. Although the Governor’s proposal will be scrutinized closely by legislative budget writers as well as Republican leadership, it appears to continue the reduced spending policies of the last couple of years by proposing spending that is less than a one percent increase over the current budget.

Perhaps because 2010 is an election year, the plan does not propose any new tax increases. There are few new spending proposals although the Governor’s plan does propose some economic development support targeted at small businesses. The proposal also recognizes the important role of Community Colleges in training the State’s work force and provides funding to meet increasing Community College enrollment.

Criticism of the plan has already started. Some observers note that the proposed budget, which must be balanced under the terms of the State Constitution, has plugged in money from the federal government that has not yet been approved by Congress. In criticizing the Governor’s proposal, House Republican minority leader, Paul Stam, suggests that “She’s moving things around, but it’s not a cut.” The legislative session should be interesting as those responsible for revenues seek to match available resources with the increasing requests for appropriations.

One interesting fallout of the State budget crunch is the continuing dispute between the on-line retailer, Amazon.com, and the N.C. Department of Revenue. Amazon recently filed suit to block North Carolina, as well as some other states, from obtaining personal information about customers from the on-line shopping site. North Carolina tax returns have a self-reporting requirement that asks taxpayers to pay use taxes on items purchased on line for which no sales tax is paid. Amazon does not collect sales taxes from consumers and argues that collecting the differing state taxes from all 50 states would be burdensome. Its suit also argues that providing the information requested by the Department of Revenue would violate the first amendment rights of its customers. On the other hand, the Department of Revenues says that it is not trying to pry into the personal buying habits of North Carolina citizens but is just seeking enough information to administer the tax system in a manner that is fair to all businesses.

With the passage of HB 1180, the 2009 General Assembly took another step toward the eventual deregulation of the traditional telephone industry. Governor Perdue signed the legislation into law following its passage. North Carolina, through action by both the Utilities Commission and the General Assembly, has always been a leader in the move to a competitive market place as evidenced by earlier changes to introduce long distance competition, price regulation and local competition. Since the adoption of legislation in 1995 to bring competition to the local telephone marketplace (even before the federal change in 1996), competition has continued to expand. As of 2009, traditional telephone companies have lost almost 2.0 million lines to competitors of various types. Although HB 1180 is a significant change, it primarily addresses services at the retail level and is not a complete deregulation bill. Since most companies are now price regulated, the Utilities Commission has not been pervasively regulating retail prices for a number of years. As a result, the role of the Utilities Commission in telecommunications regulation will likely not change very much and consumers are unlikely to experience any significant changes. In some respects, consumers receive more protections under HB 1180. Under the new law, traditional telephone companies must limit increases for stand alone residential service to the rate of inflation, which is less than such rates can be increased under existing price regulation plans. In addition, in order to protect consumers in rural areas, companies must charge rates in rural areas that are comparable to the rates charged to customers in urban areas. Both the Utilities Commission and the Public Staff retain the right to resolve consumer complaints.

Additionally, the Commission retains authority over wholesale matters. Those matters include, among other things, access charges and other compensation that companies pay to use each other’s networks. In addition, the Commission retains authority to arbitrate issues arising under the requirements of the Telecommunications Act of 1996 and to consider issues related to universal service funding. The Commission also retains its authority relating to the Life Line and Link Up programs for low income consumers.

On July 9, 2009, the North Carolina General Assembly in cooperation with the telecommunications industry released the State’s first interactive broadband map. The purpose of this map is to permit consumers to determine the availability of broadband in their area, as well as identify areas that currently have no access to broadband.

The project was begun more than a year ago, as the industry and legislature both recognized that a broadband map is essential for improving North Carolina broadband policy. Several legislators were on hand for the unveiling including, Speaker of the House Joe Hackney and Representatives Bill Faison, Thom Tillis, Kelly Alexander Jr. and Joe Tolson. The map was created by Connected Nation, an organization which has done mapping for several other states. The map contains data from 35 Internet service providers and includes fixed based wireless information, high speed mobile coverage as well as traditional wireline coverage.

The map shows that 92% of North Carolina households currently have access to broadband. That figure is greatly helped by the Coalition companies that provide 100% of their customers with access to broadband. While the 92% number is impressive, several areas in North Carolina, mainly in the West, East, and North, remain unserved. One advantage of this map is that it puts North Carolina on the inside track to receive a share of the $7.2 billion in federal stimulus money for broadband deployment. States are required to have a broadband map in order to qualify for stimulus money.

Despite the challenges that remain ahead, the release of this map was an important step for North Carolina’s broadband policy. It was truly a great example of government and the private sector working together to achieve a goal which will benefit all citizens of this state. If you wish to view the map please visit: http://www.connectnorthcarolina.org/

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