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Second Statewide Telecommunications Competition Survey for Retail Local Voice Services in Iowa




SECOND STATEWIDE

TELECOMMUNICATIONS COMPETITION SURVEY

FOR RETAIL LOCAL VOICE SERVICES IN IOWA





A Report of the

Iowa Utilities Board









John Norris, Chair
Diane Munns
Curt Stamp






March 2006





SECOND STATEWIDE

TELECOMMUNICATIONS COMPETITION SURVEY

FOR RETAIL LOCAL VOICE SERVICES



A Report of the
Iowa Utilities Board




IUB Project Manager:

Larry M. Stevens
Utility Specialist Policy Development
(515) 281-4725
larry.stevens@iub.state.ia.us




Iowa Utilities Board
350 Maple Street
Des Moines, IA 50319-0069




March 2006

TABLE OF CONTENTS


Page

Executive Summary .......................................................................................i

List of Acronyms and Definitions.............................................................. xiv

I. INTRODUCTION...................................................................................1

A.
Purpose and Design of the Study 1



1. Retail Local Service Connections......2
2.
Retail
Pricing
Information........2
3.
Confidential
Information.. ....3
4.
The
Survey
Process.. ......4
5.
Verification
of
Survey
Responses......4


B.
Background of Telecommunications Regulation in Iowa .....5

1.
Different
Carriers
Are
Subject to Different Regulation .......5
2.
Deregulation
of
Competitive Services.......6
3.
Legislative
Action
on Deregulation ...........9
4.
Interconnection
and
Arbitration...............10


5. Local Number Portability and Local Voice Competition ...11


C.
Description of Relevant Federal Laws .....13



1. The Telecommunications Act of 1996 ....13


2. FCC Actions: TRO Order / Change in Interconnection
Agreements..............................14

II.
VOICE SERVICE MEDIUMS ..............................................................15


A. Traditional
Wireline. ..... 15

B.
Wireless
Service.....17

C.
Cable
Telephony ....19


D.
Voice over Internet Protocol (VoIP). .....20


E.
Broadband Over Power Line. .....23


F.
The Assignment of New Telephone Numbers. ......23


III.
COMPETITION IN ILEC MARKETS.24


A. Overview
of
Survey
Results24

B.
Qwest
Territory. ..26

1.
Background. ....26


2. Survey Results for Qwest Territory.. ...27
3.
Communities
Deregulated under Docket Nos.
INU-04-1 and INU-05-2..................................28


4. Pricing Changes for Single Line Flat Residential and
Business Retail Connections ...........................................28


C.
Iowa Telecom Territory.....29

1.
Background.. ...29
2.
Survey
Results
for
Iowa Telecom Territory...............30
3.
Communities
Deregulated under Docket Nos.
INU-04-1 and INU-05-2..................................31


4. Pricing Changes for Single Line Flat Residential and
Business Retail Connections31

D.
Frontier
Territory ....................................................................33

1.
Background.........................................................................33
2.
Survey
Results
for Frontier Territory ...................................33
3 Communities Deregulated under Docket No.
INU-05-2 .............................................................................34


E.
Independent Telephone Companies .....................................34

1.
Background.........................................................................34
2.
Survey
Results
for Independent Telephone
Company Territories............................................................35

F.
Municipal
Telephone
Utilities ................................................36

1.
Background.........................................................................36
2.
Municipal Utility Vote...........................................................37
3.
Survey
Results
for
Municipal Telephone Companies..........37

IV. CONCLUSIONS..................................................................................38

References .................................................................................................43

Competition Survey Team Members ..........................................................45

ATTACHMENTS

Attachment A September 19, 2005, Docket No. NOI-5-3 Board Order
Attachment B Service Providers Responding to the Survey
Attachment C Non-Responders No Information Received

EXECUTIVE SUMMARY

In September 2005, the Iowa Utilities Board (Board) began a second statewide
inquiry into the competitive nature of local telecommunications voice services.
The purpose of the inquiry was to obtain information on the level of competition
at the community level for local voice services that would provide a snapshot
view of the status of telecommunications competition in Iowa.

The current evaluation (2005 survey) reviews the level of competition to
determine what has changed since the Boards July 2003 survey and to evaluate
the impact of regulatory changes related to local voice services at both the state
and federal level. The results of the Boards 2003 survey were released in a
January 2004 report (2003 survey report).


REGULATORY CHANGES

State

Since the 2003 survey report was issued, the Iowa legislature passed HF 277,
which will eventually deregulate local exchange service retail rates offered by
incumbent local exchange carriers (ILECs). In addition, the Board initiated two
deregulation proceedings resulting in the deregulation of local retail service rates
in 40 Iowa exchanges.
1

In 2003, three of Iowa's largest ILECs, Frontier, Iowa Telecom, and Qwest,
operated under price plan regulation, which set price caps for basic
communications services. These plans were supervised by the Board and were
periodically updated to meet current economic conditions.

In May 2004, the Board initiated a proceeding to consider whether to deregulate
local exchange service rates in 24 Iowa communities and residential second line
service throughout Iowa. At the conclusion of the proceeding, the Board
determined that competitive local exchange carriers (CLECs) in 20 of those
communities were providing service to a substantial number of customers
through the use of their own facilities; i.e., they had overbuilt the ILEC's facilities
in those exchanges. The record demonstrated that due to the overbuilt nature of
those exchanges and the fact that the competitors had obtained more than 50
percent of the market share in those exchanges, effective competition existed
and the Board deregulated all local exchange services in 20 of the 24 proposed
exchanges. The Board did not find, however, that the record demonstrated the
presence of effective competition to warrant the deregulation of residential
second line service.

1
See, Docket No. INU-04-1, In Re: Deregulation of Local Exchange Services in Competitive
Markets; Docket No. INU-05-2, In Re: Deregulation of Single Line Flat-Rate Local Exchange
Service in Competitive Markets.
i
In March 2005, Governor Vilsack signed HF 277 into law, which amended the
statute relating to price regulation and essentially eliminated price cap regulation.
Specifically, the amended statute deregulates retail rates for most local exchange
communications services provided by rate regulated ILECs, with the exception of
single line flat-rate residential and business rates. Rates for these services were
initially set at the corresponding rates charged by each rate-regulated utility as of
January 31, 2005, and these monthly rates may be increased by up to $1 per
year for residential service, or $2 per year for business service, beginning July 1,
2005, until June 30, 2008. However, the residential rate cannot exceed $19 per
month and the rate for single line business service cannot exceed $38 per month
during that time period. According to the amended statute, all rates may be
deregulated as of June 30, 2008, unless the Board determines that competition
has not sufficiently developed during this time, in which case the Board may
extend the basic service rate regulation for two more years.

In May 2005, after HF 277 was enacte