When CenturyTel, a Louisiana-based phone service provider, merged with Embarq last year, the state Rate Counsel hammered out an agreement with CenturyTel that required the company to invest heavily in capital improvements over the four years following the deal.
The agreement also included a stipulation that CenturyTel would continue the current staffing level and report back to the rate Counsel quarterly on the number of people employed.
According to Rate Counsel Stefanie Brand, concessions like the ones gained from CenturyTel are integral to her goal of ensuring ratepayers receive a fair shake when telecomm companies change hands.
But a little-talked-about provision of the open Market and Consumer Choices Act that is up before the state Legislature would remove any leverage the state Rate Counsel has to make demands on a telecom company – in this case, Verizon – that sells assets to another provider, leaving rate payers in the state out in the cold.
“Regulation provides protection for consumers, so if something goes wrong like it did in New England, it enables us to step in,” said State Rate Counsel Stefanie Brand. Verizon has sold off land lines in 14 states including New England, Hawaii and Washington State. In those instances, the state negotiated terms of the sale to ensure that ratepayers continued to receive quality service.
In Washington last year, where Verizon sold assets in that state and several others to Frontier Communications, regulators prohibited Frontier from raising local residential and business telephone rates for three years after the sale, required customers to receive credits if service quality fails to meet specific standards, and established a $40 million fund to expand high-speed internet service in un-served and underserved areas.
In New England, regulators forced FairPoint to spend millions in upgrades to DSL service in each state and reduced the sale price FairPoint paid to Verizon in an attempt to ensure the company’s long term survival.
It is the ability to make those types of restrictions Brand wants to preserve in New Jersey.
“You get leverage when you have the ability to review.”
There is another aspect to asset sales of which most people are completely unaware, said Richard Brodsky, a fellow at Demos, who recently wrote a study of the de-regulation act. The assets owned by Verizon were built using ratepayer money under monopoly conditions, Brodsky said.
Allowing only Verizon and its shareholders to benefit from their sale means ratepayers who financed the infrastructure receive nothing in return.
“If you take away regulation, ratepayers won’t get a share of the assets they built,” he said.
In his report, Brodsky highlights the role ratepayer advocates have played in other states where Verizon has sold off assets and the problems that resulted from those sales.
“Nothing highlights the need to maintain regulatory oversight of landline phone service more than the recent history of Verizon merging and selling off parts of its network. Its recent record in other states of network sales, particularly in Hawaii and northern New England, has led to disasters for business and residential consumers. The financial malfeasance involved in those sales also emphasizes the need for regulatory vigilance to protect consumer and taxpayer interests,” Brodsky wrote, citing service issues that resulted when fairPoint took over Verizon’s New England lines. “While Fairpoint fought giving consumers rebates for outages they suffered, the existence of those regulatory standards meant that Fairpoint was required by the bankruptcy court to pay Maine consumers $1.72 per line a month for 12 months as a condition for emerging from bankruptcy, with the Maine Public Utilities Commission overseeing the settlement.”
Several groups, including the American Association of Retired Persons and the State League of Municipalities have already outlined the potential for rate hikes for telephone and cable television service contained in the bill and Brodsky’s report is mainly focused on the impact of deregulation on rates.
But asset sales may also impact rates, he said. Both FairPoint and the successor to the Carlyle Group, which purchased assets from Verizon in Hawaii six years ago, have since gone bankrupt, which sent rates soaring, Brodsky said.
With the focus on what opponents say will be soaring phone rates if the plan is passed, the asset sale provision has gone largely unnoticed. But according to both Brand and Brodsky, the potential issues ariding from the sale of assets could pose an even bigger risk to rates.
“We’re not saying they shouldn’t be able to sell the lines, we are saying that where there are these kinds of issues there ought to be a public interest presence,” Brodsky said.
Verizon has shelled out $2 million over the past two years lobbying lawmakers, a figure opponents say is telling. The company was number two behind the NJEA this year in lobbying costs.
The legislation passed last month in the Assembly 66-7 and awaits voting in the Senate later this month.
But while opponents say the bill creates a “cash cow” for Verizon, officials from the telecomm giant say the company has no plans to sell its infrastructure in New Jersey, where it operates 2.6 million land lines.
“Verizon has invested billions of dollars in New Jersey and its strategy has been to grow those assets, not to sell them,” said Spokesman Lee Gierczynski.
Including cell phones and other carriers there are some 14 million lines in operation in the state, Gierczynski said, of which the Verizon portion amounts to about 14 percent.
“Yet (ours) are the only ones that are regulated,” he said.
Gierczynski said statistics showing huge rate hikes in deregulated states like California and Illinois are misleading because in many cases they were granted by a government entity similar to the state Board of Public Utilities.
“The same thing that has been going on in California has been going on New Jersey. Rates have gone up incrementally over the last three years just to get them in line with market conditions and costs,” he said.