TELECOMi\IUNICATIONS STUDY COi\11\IITTEE Report of the Telecommunications Study Committee to the 2014 Kansas Legislature Co-CHAIRPERSON: Senator Pat Apple CO-CHAIRPERSON: Representative Joe Seiwert LEGISLATIVE MEMBERS: Senators Jay Emler, Marci Francisco, Tom Hawk, Forrest Knox, Jeff Longbine, Julia Lynn, Robert Olson, and Mike Petersen, Representatives Rob Bruchman, Will Carpenter, John Doll, Randy Garber, Ramon Gonzalez, Annie Kuether, Ronald Ryckman Sr., Scott Schwab, Jack Thimesch, and Brandon Whipple STUDY TOPIC OR CHARGE • Study telecommunications issues including funding, uses, and sources of: o The Kansas Universal Service Fund (KUSF); and o The federal Universal Service Fund (FUSF); • Review and make recommendations on the state's public policy on telecommunications; and • Review possible need for funding sources of and uses of a Kansas Broadband Fund. July 2014 Telecommunications Study Committee December 16, 2014 Attachment 3 Telecommunications Study Committee ANNUAL REPORT -·· Conclusions and Recommendations The Committee's final report, which is due December 31, 2014, wiU contain its conclusions and recommendations. Proposed Legislation: None BACKGROUND Coi\IMITTEE ACTIVITI ES The Telecommunications Study Committee The Comm ittee met twice during the 2013 was created by 20 13 HB 2201, a bill which also Legislative Interim on November 6 and December flllther deregulated telecommunications in Kansas, 12. The Committee reviewed its charge and made changes to distributions from the Kansas received presentations on topics including the Universal Service Fund (KUSF), and all owed the history of telecommunications legislation in Board of Regents to charge fees for services Kansas from 1996 through 2013, an overview of provided by the Kan-Ed program. the KUSF, state and federal Do-Not-Call legislation, the process for determining KUSF The Committee's charge is to study high-cost supp01t , and changes to the FUSF. In telecommunications issues, the KUSF, the Federal addition, the Committee received testimony from Universal Service Fund (FUSF), the state's public industry groups on the effects of changes to the pol icy on te lecommunications, the possibility of KUSF and the FUSF, and determined the scope of establishing a Kansas Broadband Fund, and other an audit of the KUSF. issues determined by the Legislative Coordinating Council. In addition, the Committee is charged Telecommunications Legislation in Kansas, with determining the scope of an efficiency and 1996-2013 effectiveness audit of the KUSF. The audit is to be administered by the Kansas Depattment of Staff from the Kansas Legislative Research Revenue and submitted to the Committee by Depattment reviewed maJor telecommunications November I, 2014. bills enacted by the Legislature beginning wi th 1996, the year federal telecommunications law The Committee is req uired to submit an significantly restructured the industry. annual report to the Senate Committee on Util ities and the House Committee on Uti li ties and The telecommunications poli cy framework set Telecommunications and to submit a report and out in the Kansas Telecommunications Act of 1996 policy recommendations for telecommunications remains in effect today. The Act declares it to be to those committees as well as to the Senate the public policy of the State to: Committee on Ways and Means and the House Committee on Appropriations, prior to December 3 1, 20 14. The Telecom mu nications Study • Ensure every Kansan has access to a first Commi ttee sunsets on June 30, 20 15. class telecommuni cations infrastructure that provides exce ll ent se rvices at an affordable price; Kansas Legislative Research Department 5-1 2013 Telecommunications Study Ensure consumers realize the benefits of for telecommunications local exchancre • • 0 competition through increased services servrce providers (SB 397). 2002 Sub. for and improved facilities and infrastructure HB 2754 further addressed access rate at reduced rates; rebalancing by rural telephone companies; developed a procedure for determining affordable local telephone rates for Promote consumer access to a full range • residential and business service; and of telecommunications services, including required rural telephone companies to advanced services that are comparable in _ - --~a l cu!_ate revem~ requirements and KUSF rural-and urban-areas throughout the state; support based on embedded costs. --- • Advance development of a statewide • 2006 SB 360 established thresholds for infrastructure capable of supporting price deregulation in exchanges served by applications such as public safety, price-cap carriers (AT&T and telemedicine, services for persons with CenturyLink). Prices were deregulated for special needs, distance learning, public bundled service statewide, individual library services, access to internet components of bundles in urban areas, and providers, and others; and business and residential services in rural areas if the standard for competition was • Protect consumers of telecommunicati ons met. Lifeline services, the initial services from fraudulent business residential li ne, and up to four business practices and practices that are lines at one location remained subject to inconsistent with the public interest, price-cap regulation. convenience and necessity. • 2008 SB 49 required Vo ice over Internet Among its many provisions, the Act required Protocol (Vo!P) service providers to local exchange carriers to change a number of contribute to the KUSF, and SB 570 their business practi ces to increase competition, required broadband service providers to file network infrastructure plans that included report information about service schedules for deploying universal service availability to the KCC, and the KCC to capabilities and the capability to comply with report broadband availability to the quality of service standards, and rebalance Legislature annually. HB 2637 authorized intrastate and interstate switched access charges. local exchange carriers to adjust rates for The bill also required the Kansas Corporation the initial residential line and up to four Commission (KCC) to establish the Kansas business lines at one location without Lifeline Service Program (to help low-income KCC approval, required price deregulated Kansans afford residential local service) and the carriers to automatically enroll eligible KUSF. customers in Lifeline services, and allowed a carrier to be relieved of its Major legislation passed in subsequent years responsibilities as carrier-of-last-resort in included the foll owing: limited circumstances. • 1998 House Sub. for SB 2 12 reduced the • 201 1 Sub. for SB 72 allowed further size ofthe KUSF. deregulation of a price-cap carrier that has deregulated a majority of its local • 2002 Sub. for SB 296 established the exchange access lines (only AT&T met Kansas No-Call Act, wh ile other this criteria). Such carrier, to be known as legislation that year conformed Kansas an "electing carrier" is subj ect to price-cap law to federal law to provide a uniform regulation only for Lifeline services, must method of sourcing tax revenues from all ow reasonable resale of its retail wireless services (SB 372) and created a service, is eligible to receive KUSF new and separate city franchi se procedure fu nd ing, cannot charge more fo r a single Kansas Legislative Research Department 5-2 2013 Telecommunications Study residential or business line in its rural public utility, wireless service provider, and Vo iP exchanges than in its urban exchanges, provider offering intrastate telecommunications could choose to be relieved of its service must contribute to the KUSF, but obligation to serve as carrier-of-last-resott companies can pass the assessment through to in urban exchanges, must offer single customers. residential local access lines in its exchanges, and must allow The assessment rate for 20 13 (assessment interconnection by a telecommunications years run from March I through February 28) is carrier to transm it and route voice traffic. 6.42 percent on intrastate revenue. The rate has ranged from a high of 9.0 percent in the Fund's • 20 13 HB 220 1 created the fi rst year of existence to a low of 3.7 percent in Telecommunications Study Committee 2002. and continued deregulation of the telecommunications industry. The Since the Fund's inception a total of $1. 1 legislation eliminated nearly all regulation billion has been awarded through five programs: of electing caniers and telecommunications carriers and changed • High Cost Support, the largest program, distributions from the KUSF. Price-cap accounts fo r 85.4 percent of total support carriers (CenturyLink) were li mited to the provided since 1997. It provides lesser of 90.0 percent of their 20 I I KUSF affordable services in areas that are costly level of support or $11.4 million. to serve, primaril y because of low Distributions to rate-of-return carriers as a population density; group was limited to $30 mi llion annuall y, with the KCC authorized to modify • Kan-Ed, funded primarily from KUSF fo r carriers' KUSF support only based on State FYs 2004 through 20 13, was changes in embedded costs, revenue requirements, investments, and expenses, created to provide broadband Internet until at least 20 17. The identical support access and distance learning capabilities for schools, libraries, and hospitals. It rule was discontinued for competitive accounted for 8.4 percent of total suppott eligible telecommunications carriers, provided, but KUSF support for Kan-Ed whose KUS