Keeping an Eye on State Legislatures

By K.C. Neel Regulation of VoIP service, sales taxes on cable services and pole-attachment rates are among the top issues that state cable associations will keep a close watch on this year. If there is one issue that is on the agendas of all state cable associations this year, it is VoIP. State regulators are trying to figure out how to regulate it. Telephone companies are trying to figure out how to keep competitors away from it. And cable operators are trying to figure out how to start making money with it. "States are certainly looking at their role as it pertains to VoIP," says Jadz Janucik, SVP, association affairs, NCTA. "It’s unclear at this point whether states will wait for FCC regulations on VoIP before they make up their own set of rules. We hope they wait, but we recognize that most states want the business to develop." The FCC is expected to rule on how to best to regulate VoIP service by the fall, but that hasn’t stopped some states from acting before the federal rules are hammered out. Most states that have issued decisions chose not to impose the same regulations on VoIP providers that they impose on circuit-switch phone providers, with the exceptions of New York, Tennessee and a Colorado District Court, according to the NCTA. Minnesota legislators voted last year to regulate cable VoIP service as a telecom service, but a federal Appeals Court overturned the law last October. More states are expected to examine the VoIP business this year, which means state associations and the NCTA will be lobbying hard to make sure rulings will be advantageous to the cable industry. Another issue rising to the surface in at least a handful of states is electrical cooperatives’ pole-attachment rates, Janucik says. Although federal laws dictate the rates utilities can charge users of their pole space, local co-ops are not subject to the national regulations, Janucik says. Arizona, for instance, is looking at pushing legislation that would force co-ops to play by the same rules as other utilities. The NCTA polled the state cable association chiefs last fall and found that most of them, once again, expect taxes to be a major issue with legislatures this year. The lackluster economy forced several state legislatures to find new ways of raising money-which generally meant new and higher taxes on goods and services. A number of states tagged sales taxes on cable and DBS services to make up for the financial shortfalls. The DBS services sued the states that taxed their services but didn’t include cable, and the cases could stew in the courts for years. Many lobbyists anticipate another onslaught by regulators this year as budget problems linger well into 2004. Following is a snapshot of what a handful of state cable associations are expecting this year from their legislatures: Strategy Time in Texas The Texas legislature meets every other year; and because 2004 is an off-year, the Texas Cable and Telecommunications Association will have plenty of opportunity to plan, lobby and prepare for the ’05 session, says Kathy Grant, VP, government affairs, TCTA.

Although the state legislature is not in session, it may hold a special session to address tax reform. Grant says the Texas association may introduce the idea of taxing DBS services as a way of leveling the playing field, since cable operators pay 5% of their revenue in franchise fees and DBS does not.

Another area of concern: The Texas Public Utilities Commission’s stats and guidelines on telecommunications is up for review this year, Grant says, and that will keep the association busy as regulators evaluate the guidelines first written in 1995. Grant spends a lot of her time trying to keep the Texas association cohesive. "One of my goals has been to keep the industry together on policy issues," she says. "If we don’t have a unified voice, the opposition will marginalize us and our issues." A Period of Transition in California Although the California Cable Telecommunications Association is keeping its eye on what the state legislature has up its sleeve, it has plenty of internal issues it must also grapple with this year. The association’s chief lobbyist Dennis Mangers is replacing Spencer Kaitz, who is retiring. The CCTA is also moving its headquarters from Oakland to Sacramento. "It makes sense to move our headquarters to the state capital, but we will keep the Oakland office as well so our regulatory folks can have easy access to the PUC, which is located in San Francisco." The CCTA is contemplating new revenue-generating schemes since it can’t count on income from the Western Show anymore. The CCTA began trimming its staff and budget three years ago, as it became clear the Western Show’s days were numbered. The association also is looking for extra revenue through advertising models used by the New York and Florida associations; those associations act as brokers for advertising spots sold to state agencies and nonprofit groups. If that business model pans out, the CCTA’s board probably won’t be forced to "lean down the organization any further," Mangers says. At this point, the California legislature is so engrossed in the state’s fiscal budget crisis that cable issues aren’t on the top of anyone’s list. Of the 8,000 pieces of legislation expected to be introduced this year, about 350 look like they could have some kind of impact on the cable industry, Mangers notes. "We’ll know more in the coming weeks," he says. "We understand SBC may have a legislative package, and the Communications Workers of America is also said to have some kind of legislative package in the works that could affect our members." Like other states, California regulators are expected to take a look at the VoIP business. An informational hearing was scheduled for Jan. 27, and state Senate hearings are expected to follow soon thereafter. Another Taxing Year in Ohio? Ed Kozolek, EVP of the Ohio Cable Telecommunications Association, hopes the state House isn’t as hectic in 2004 as it was in 2003. The legislature last year imposed a sales tax on DBS services; cable avoided the tax after heavy lobbying from cable operators. The satellite providers have sued the state over the issue, and Kozolek doesn’t expect the issue to be resolved for many years. If the state’s economy doesn’t pick up, he says the legislature could reexamine its decision to exempt cable from the sales tax, which would result in another round of frenzied lobbying by the association and its members. Meanwhile, the Ohio Public Utilities Commission approved Time Warner Cable’s application to offer VoIP service. "It will be interesting to see how the competition reacts to this," Kozolek says. "They could try to get some legislative advantage or try to put cable at a disadvantage, and that is something we’re going to watch closely. It’s not that we’re expecting anything, but we need to be prepared and wary of those kinds of things." Peace in Virginia It looks to be a quiet year for cable operators in Virginia, according to Richard Schollman, president of the Virginia Cable Telecommunications Association. "This upcoming legislative session looks pretty tame," he says. "We’re in a wait-and-see mode right now. "
It’s possible the legislature may try to tack on a sales tax to cable and/or DBS service-something that several cash-strapped states have done recently. "But Virginia is typically a good place for companies to do business," Schollman says. "The legislature is good at listening to businesses’ concerns before acting."