Qwest CEO Lauds States for ‘Opening the Industry to Competition’
NEW ORLEANS -- Qwest CEO Ed Mueller said the economic crisis shows that regulation has its place. Lauding state regulators for “successfully opening the industry to competition,” Mueller told NARUC telecommunications committee members Monday that state commissions gave his company and other incumbent providers “the flexibility to offer new services, bundles and promotions and adjust pricing to compete effectively and better serve customers.”
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Challenges facing the industry and regulators include an intercarrier compensation overhaul, ending costs to carriers like Qwest from traffic pumping, and an update of the federal Universal Service Fund that includes in its goals support for broadband, Mueller said.
In revamping intercarrier compensation, the FCC should impose “new rules that treat all minutes and all companies the same,” Mueller said. “Voice or data, IP or switched, wireless or wireline, a minute is a minute and our intercarrier compensation rules should treat them the same.” The update should cut terminating switched access charges, as the FCC has proposed, he said. “These charges greatly exceed their actual costs and vary greatly based upon unrelated factors, such as the type of call, the jurisdiction of the call, or the identity of the carrier. Such distinctions are neither practical not rational in today’s communications industry.”
Mueller took issue with the five to 10 years phase in period that the FCC is considering for the changes discussed. He cited terminating rate arbitrage -- traffic pumping -- as a reason for faster action. Qwest has seen costs from the practice skyrocket, payments to one company ballooning to more than $10 million a year from $100,000. “This increase was not because they had grown their customer base,” he said. “It wasn’t because the quality of their service improved. It wasn’t because they became smarter or better. It was the result of terminating-access rate arbitrage.” The only way to shut down the traffic pumping is for industry and regulators to work together, Mueller said.
Mueller endorsed the FCC’s USF proposals, in particular a shift to numbers-based assessment. The fund’s growth has largely benefitted wireless carriers that provide voice services in areas where customers already could get them, he said. A numbers-based approach for wireline and wireless “would present a more consistent, predictable and equitable recovery methodology than the current 10-11 percent charge on the bottom of everyone’s phone bill,” he said. The agency should phase out wireless support, which exceeds $1 billion yearly and allow only cost-based wireless USF support, he said. “The identical support rule must end,” he added.
USF savings should go to get broadband to unserved areas through a one-shot capital infusion, with the states assigned to oversight using measures set by the FCC, Mueller said. “Identification and prioritization of markets, as well as the bidding process, should be managed by the states,” he said. “They are closer to the customers and better able to identify the need.”
Mueller noted dramatic changes in telecom. In 2002, the U.S. had fewer than 17 million broadband subscribers. That category now exceeds 67 million -- a 400 percent increase, Mueller said. He cited predictions that by 2010 75 percent of U.S. households will have broadband, up from today’s estimate of 60 percent.
The cord-cutting phenomenon continues, unabated and increasingly strong, Mueller said. Wireless customers increased from about 120 million to about 220 million 2002 to 2008, and 15 to 18 percent of residences using only wireless for voice service, he said. That proportion is expected to be 30 percent by 2012, Mueller added. Bell phone lines have decreased more than 25 percent, more than 70 million lines, since 2002. He estimated the annual rate of decline in the conventional landline business as nearing 10 percent.
The competitive landscape that state regulators oversee is “strong and wide-ranging,” Mueller said. He cited the success of Vonage, Skype, Yahoo Voice and other VoIP providers, saying that since its acquisition by eBay, Skype has reported that its enrollment exceeds 370 million. Cable companies that don’t face the same regulation as Qwest also are “aggressively targeting phone and broadband services,” he said. He noted Verizon’s takeover of Alltel, AT&T’s agreement to acquire both Wayport with its 20,000 hotspots and Centennial Communications with its 1.1 million wireless customers. These deals put “the customer in the driver’s seat,” making service the main differentiator, Mueller said.