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Slide 1 WHERE ARE WE? HOW DID WE GET HERE? WHERE ARE WE GOING?

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1 Slide 1 WHERE ARE WE? HOW DID WE GET HERE? WHERE ARE WE GOING?

2 WHERE ARE WE? HOW DID WE GET HERE? WHERE ARE WE GOING? NARUC Telecommunications Education Session July 15, 2007

3 Slide 3 Overview 2:00Introduction. Hon. Tony Clark, North Dakota, NARUC Telecommunications Committee Chair and Savant 2:10How to Tell the POTS from the PANS? Dr. Douglas Sicker, University of Colorado 3:10:A Brief History of the Universe (of U.S. Telecommunications Policy), Bob Rowe (formerly honorable) 4:15“Now What Do We Do?” Discussion facilitated by telecommunications celebrities  ETCs and Capital Hill activity. Hon. Phil Jones, Washington State  USF and Intercarrier Compensation. Hon. Ray Baum, Oregon  Special access. Hon. John Burke, Vermont  Video franchising. Hon. Daryl Bassett, Arkansas 5:00Wrap Up. Hon. Tony Clark

4 NARUC Telecommunications Law & Policy Primer July 2007 Bob Rowe Senior Partner Balhoff & Rowe

5 Slide 5 Overview Introduction Early History Communications Act of 1934 to MFJ MFJ to the 1996 Act The Act and its Implementation Recent Developments and Policy Issues Roles and Challenges for State Regulation

6 Introduction

7 Slide 7 Some Candidate Themes Interplay of anti-trust (ex post) and economic regulation (ex ante) Monopoly – competition continuum Jurisdictional tensions and resolutions  Approaches to federalism  Commerce clause Litigiousness  “Lawyers behaving badly”? Universal service  Consistent goals over time, pursued through varying/evolving means Investment and deployment concerns Disruptive effects of technology and economic models on then-current regulatory regimes Different approaches to and assumptions about consumer desires and consumer protections

8 Slide 8 Retail Rates *Rate base/Rate of Return *AFORs *Price cap Customer Customer education Consumer protection Retail service quality Universal Service Customer support – Low Income Loop support – High Cost Fund E911 * Schools & libraries * Rural health care Wholesale *Rates *Terms *Numbering/LNP *Service quality *Interconnection/unbundling *Structural/non-structural safeguards General consumer law*Securities* Uniform Commercial Code*General contract law* Bankruptcy*Anti-trust *Common law (torts/common carriage) Form Contested case Tariff Rulemaking ADR Auctions Collaboration Contract Implicit consensus Forum Legislature Agency Court Standards body Private dispute resolution “The policy pyramid” Level International National Regional State Local State of nature – Hobbes v. Rousseau

9 Slide 9 Stages, Policy and Financial Perspectives

10 Early History

11 Slide 11 Mann-Elkins Act of 1910 Gave interstate jurisdiction to the Interstate Commerce Commission Treated Telcos as “common carriers”  Early goal was to promote “universal service” The term was created by AT&T CEO Theodore Vail in the early 1900s AT&T’s slogan in 1908: “One Policy, One System, Universal Service” A telephone within an arm’s reach of a chicken every pot! Early History

12 Slide 12 US v. AT&T – Round I The Rise of AT&T  Through business savvy, it developed a robust long distance network, providing the inter-city connection for locally owned telcos  AT&T would only interconnect its long distance network with that of local telcos owned by it  The US sued to block AT&T’s purchase of a regional long distance company in Oregon in 1913, arguing anti-trust type issues  AT&T responded with the “Kingsbury Commitment,” a letter from AT&T’s VP Nathan Kingsbury to the US which ultimately led to a consent decree that required AT&T to do the following AT&T required to divest Western Union AT&T had to provide interconnection to independent phone companies AT&T had to stay-out of the “radio” business

13 Slide 13 The Early Years Willis-Graham Act of 1921 Allowed AT&T to flourish, watering-down many of the Kingsbury Commitment’s requirements AT&T continued its dominance in the local and long distance markets Small cooperatives and locally-owned local telcos began appearing throughout the country

14 Slide 14 Rates & Implicit Subsidies State regulation of telcos  State regulation began as early as 1907 in Wisconsin and New York  Focused on local rate setting utilizing the “rate of return” methodology Most states regulate carriers as either “price cap” or “rate of return”  Price Cap = inflation index – productivity offset =/- exogenous factors  Rate of Return: Revenue requirement = rate base x RoR + Expenses BOCs are Price Cap at the federal level Most rural telephone companies are “rate of return” carriers  Approximately 1,300 ILECs Universal Service Many rural ILECs are cooperatives, outside of state commission jurisdiction

15 Slide 15 Rural and Urban Areas Approximately 1,300 incumbent local telephone companies in U.S.  RBOCs serve majority of rural copper lines  “Rural” ILECs serve most of remainder Source: Department of Agriculture

16 Slide 16 Rate & Implicit Subsidies Early regulation allowed for the creation of subsidies between different classes of customers to help create ubiquitous and affordable service  Rates for business customers were generally higher to help keep rates for residential customers lower, often below the cost of providing the service  Intrastate long distance toll and intrastate “access charges” were higher than cost and higher than interstate rates  Later, vertical services became a subsidy source– e.g. Caller ID, last call return, call-blocking, etc.

17 Slide 17 Rates & Implicit Subsidies Rate setting required apportionment of a telco’s costs between intrastate and interstate spheres  In 1930, the US Supreme Court ruled that costs of interstate and intrastate telecommunications plant had to be separated to determine the adequacy of interstate and intrastate rates Smith v. Illinois, 282 U.S. 133 (1930) --e.g. some fraction of a local telephone companies costs had to be allocated to state with the remainder allocated to interstate jurisdiction  Separations requirement recognized in Section 221 of the Communications Act of 1934 Separations essentially requires two sets of books for a single asset Telcos have “traffic sensitive” costs and “non traffic sensitive” costs  Traffic sensitive costs are recovered by metered or per minute of use charges (e.g. per minute long distance toll rates)  Non-traffic sensitive costs may be recovered through flat-rated charges (e.g. flat monthly charges for basic local phone service)  In 1947, NARUC and the FCC developed a “Separations Manual” which assigned “non-traffic sensitive” costs to either state or federal state rate bases

18 Slide 18 Rates & Implicit Subsidies Federal-State Joint Board on Separations established pursuant to the Communications Act of 1934 to determine how costs are allocated between federal and state jurisdiction In 2001, the FCC adopted a 5-year freeze of jurisdictional separations at then current levels  In 2006, FCC released an order extending the freeze and seeking comment on the future of separations FCC and Joint Board currently examining the role of jurisdictional separations in a technologically evolving telecom market

19 Slide 19 Monopoly Model of Support Policymakers regulate carriers to ensure policy- based ubiquitous/affordable services in exchange for economic viability of entire enterprise Historically, residential and high-cost rural consumers benefited from a system of enterprise-based internal cross-subsidies  Support included in access and long distance  Geographic rate averaging  Value-of-service pricing  Residual pricing of value added/”vertical” services  Rate differentials unrelated to cost differences System began to fail when certain sources (lines of business) of internal cross-subsidies became competitive  LD from approximately 1970  Business in the 1990s/2000s  Residential with VoIP in 2000s Long Distance Urban Rural Local Business Residential Consolidated monopoly telecom Lines of business Vertical Basic

20 Communications Act of 1934 to MFJ

21 Slide 21 The Communications Act of 1934 Communications Act of 1934  Established the “Federal Communications Commission” as the regulator that replaced the “Interstate Commerce Commission”  Telecom regulation seen as government controlled monopoly  “Common carriers” must provide service at “just and reasonable” prices

22 Slide 22 US v. AT&T – Round 2 US filed a second anti-trust action against Bell in 1949 (the first resulted in the “Kingsbury Commitment” of 1914) The basis of the suit was Bell’s monopolization of customer premises equipment Result was a 1956 Consent Decree (referred to as the “Final Judgment”) that required AT&T to do the following:  Divest its equipment manufacturing arm, Western Electric  Cancel its exclusive dealings contracts with Western Union required to acquire its equipment via competitive bidding  AT&T would retain Bell Labs but would be required to license its patents on a nondiscriminatory and reasonable royalty basis

23 Slide 23 Beginnings of Competition The FCC’s Carterfone Decision, 15 FCC2nd 605 (1968), allowed non-monopoly (non-AT&T) equipment attachments for private company networks  The beginnings of un-regulated customer premises equipment (“CPE”) The FCC approved Microwave Communication, Inc.’s, application to operate a long-distance telephone system between Chicago and St. Louis, 18 FCC 2 nd 953 (1969)  MCI a “law firm with an antenna”

24 Slide 24 Beginnings of Competition MCI decision resulted in a flood of applications from MCI-affiliated companies and others seeking designation as “specialized common carriers” The FCC concluded that the entry of such “specialized common carriers” into the market would serve the public interest, indicating a pro- competition policy Establishment of Policies and Procedures for Consideration of Application to Provide Specialized Common Carrier Services in the Domestic Point-to-Point Mircrowave Radio Service, First Report and Order, 29 FCC 2 nd 870 (1971)

25 Slide 25 Beginnings of Competition In 1973, the Bell companies filed tariffs in each state in which MCI sought interconnection to its local networks The FCC ultimately determined that such interconnection of local facilities to its long distance network was a matter of interstate jurisdiction Bell Companies subsequently filed these same “private line” tariffs with the FCC

26 Slide 26 MCI and Sprint v. AT&T MCI and others, including Southern Pacific Communications, Co. (later renamed Sprint) began filing anti-trust and predatory pricing lawsuits against the Bell System in the mid-1970s Competitors arguments were based on the “essential facilities doctrine”  AT&T was misusing its power over its local affiliates to have preferential interconnection to local networks

27 Slide 27 MCI and Sprint v. AT&T In 1974, MCI won a $1.8 billion jury verdict (at the time, the largest jury verdict in US history) against the Bell Companies for predatory pricing of inter-city access services  The jury award was later reduced to $113 million  MCI was entitled to interconnect for the full array of services  See MCI v. AT&T, 708 F.2d 1081 Southern Pacific Communications (later Sprint) also sued the Bell Companies on anti-trust issues but with only limited success

28 MFJ to the 1996 Act

29 Slide 29 US v. AT&T – Round 3 In 1974, the US Justice Department filed its own anti-trust suit against the Bell Companies alleging Sherman Act violations DOJ alleged Bell was stifling competition in the long distance market with a two-pronged approach  Discriminatory interconnection and exchange access policies  Predatory pricing subsidized by regulated local exchange revenues

30 Slide 30 US v. AT&T – Round 3 Discovery in the governments case lasted nearly six years The trial started on January 15, 1981, with the Honorable Harold Green of the Federal District of the District of Columbia presiding Bell argued all of its actions had been sanctioned by the FCC and state regulators After a year at trial, the parties entered into a consent decree that contained four general principles  AT&T had to divest its local operating affiliates  The local affiliates a.k.a the Bell Operating Companies had to provide equal interconnection to all long distance providers  It prohibited the BOCs from providing long distance, information service, or customer premises equipment  Freed AT&T from the conditions of the 1956 decree

31 Slide 31 Breaking up Ma Bell Judge Greene made some minor modifications to this decree and ultimately entered the “Modified Final Judgment” or “MFJ”—the legal instrument that broke-up the Bell monopoly and which is still in effect today  Judge Greene wrote of the need to break up the Bell System because of its “domination of the telecommunications industry in general.” Judge Greene supervised the implementation of the MFJ which included the following  First, the US was divided into LATAs (Local Access and Transport Areas), geographic service areas  Second, AT&T assets, customers and employees were divided among the corresponding LATAs  On December 31, 1983, the transfer of assets was complete, the BOCs were divided into seven separate regional companies, and Ma Bell was no more  AT&T was freed of obligations of previous consent decrees and allowed to do whatever it wanted, except acquire any of the seven regional BOCs.

32 Slide 32 Breaking Up Ma Bell The net result of the MFJ created competition in the long distance (aka the inter-exchange market) BOCs still retained a monopoly over the local exchange markets AT&T was allowed to enter into competition with the BOCs, if it chose to do so BOCs were prohibited from entering the long distance market  Only allowed to provide intraLATA services

33 Slide 33 Competition Begins to Take Hold Access Charges  The “per minute of use” charges local phone companies charge long distance companies to originate and terminate traffic  Such traffic is known as “access traffic”  Ozark Plan (1970) -- state and federal regulators formalized a policy that long-distance rates should be used to subsidize local service  AT&T paid its local affiliates per minute of use access charges that were much higher than the actual costs associated with originating and terminating such traffic  Local phone companies used this money to carry out the national policy of universal service—e.g. ensuring all Americans, regardless of where they lived, had access to basic telephone service

34 Slide 34 Competition Begins To Take Hold The MFJ required BOCs to offer “equal access”  The ability for all requesting long distance carriers to connect to the BOC network on a reasonable and non-discriminatory basis  BOCs’ were required to file federal and state access tariffs stating the terms and conditions by which they would offer access services  MFJ resulted in the emergence of robust competition in the long distance (IXC) market in the late 80s through the 90s

35 Slide 35 Competitive Access Providers Beginning in the mid-80s, competitive access providers (CAPs) began appearing in metro areas CAPs built alternative local networks linked large businesses directly to IXCs, thus bypassing the BOC local network In 1992, the FCC allowed CAPs to interconnect directly with the BOCs to exchange local traffic  Interconnection occurred via “collocation”—the CAP placed its own equipment within the BOC central office and directly interconnected to BOC facilities  The BOCs were allowed to charge the CAPs cost-based rates for collocation  CAPs treated as “non-dominant” carriers and only regulated lightly by the FCC  State commissions began regulating  Expanded Interconnection Order, 8 FCC Rcd 7374 (1993)

36 The Act and its Implementation

37 Slide 37 Competition in the Local Exchange In the early 90s, some states began exploring laws and rules that would allow for competition in the local exchange markets  New York, Texas, Illinois, California, others  NARUC local competition project ( ) Comprehensive NARUC report released in February 1996

38 Slide 38 The 1996 Telecom Act Principles...  Competition (Section 251) Open the BOC networks to allow competitors to utilize their network elements to offer competitive services If the BOCs open their local networks, they would get to compete in the lucrative long distance market (Section 271)  Universal Service (Section 254) Make universal service support explicit Broaden universal service support program to ensure schools, libraries, and rural health care providers have access to communications facilities Set up the Lifeline and Link Up program to ensure low income consumers have access to basic communications services  Broadband (to a limited extent)—Section 706

39 Slide 39 The 1996 Telecom Act Competition  Section 251(c) of the 96 Act requires the BOCs to “unbundle” network elements  The FCC determines which elements are unbundled based on whether access to such elements is “necessary” and whether competitors’ inability to gain access to such element would “impair” its ability to compete  Unbundling allows competing LECs access to individual network pieces of the BOCs “local loop” (the copper/fiber facility that connects the end user to the BOC central office) is generally considered one of the most crucial elements needed to allow for competition as it is the most capital intensive facility to construct “switching” and the “UNE-P” – allowed carriers to resell BOCs service at cost-based pricing

40 Slide 40 The 1996 Act Competition  State commission may set rates for interconnection, UNES, transport and termination  Wholesale rate formula = retail rates less costs that will be avoided by the incumbent

41 Slide 41 The 1996 Act Competition  BOC had to allow for collocation and direct interconnection of facilities with competitors  Section 271 of the Act said that if a BOC’s service territory is irreversibly open to competition, then the BOC can enter the long-distance market BOCs had to meet a 14-point check-list of items listed in the statute  FCC determined if a state’s market was irreversibly open Statute requires consultation with FCC and DOJ to determine if market is open  First to get 271 approval was Bell Atlantic in New York in 1998; Qwest in Arizona was the final BOC in 2003 Qwest 13 state collaboratives

42 Slide 42 The 1996 Act Competition  Competitors negotiate interconnection agreements for UNES and interconnection These Agreements must be approved and filed with state utility commission If a dispute during negotiations, the state utility commission serves as arbitrator  Rural local exchange carriers are exempt from the unbundling and most of the interconnection requirements of Section 251

43 Slide 43 The 1996 Act Universal Service  Statutory goal is to provide access to basic and advanced services at reasonably comparable rates for all Americans  Universal service support had to become explicit  Pre-1996 Universal Service support was implicitly recovered through LECs charging per MOU “access charges” that were higher than costs

44 Slide 44 The 1996 Act Types of universal service  High cost” support to companies serving rural areas  “Low Income” support to consumers for Lifeline and Link-Up programs  Connect schools, libraries and rural health care providers to global network Universal Service fund administered by the Universal Service Administration Corporation State commissions play role by certifying carriers as “eligible telecommunications carriers”  A carrier must be an ETC to receive USF support

45 Slide 45 The 1996 Act Universal Service  Total USF $7.3 billion in 2007, up from $5.3 billion in 2002  Schools and Libraries received up to $2.25 billion per year  Low Income program received about $800 million in 2006  Rural Heath Care program received about $50 million in 2006  High Cost program received $4 billion + in 2007  Most growth attributable to the growth in the number of competitive providers

46 Slide 46 The 1996 Act Universal Service  Federal-State Joint Board required by statute to conduct universal service proceedings and make recommendations to the FCC  Two types of “high cost” programs Non-rural carriers receive support based on economic model Rural carriers receive support based on actual costs, subject to certain limitations Competitive carriers (mostly wireless) received the identical level of per-line support as incumbents

47 Slide 47 The 1996 Act Universal Service  The 1996 encourages states to enact instrastate universal service programs Many states have legislation Several have implemented programs  Requires all providers of “interstate and international telecommunications services” to contribute to the universal service fund  Carriers recover their contributions via a pass- through to their end user customers

48 Slide 48 The 1996 Act Broadband  Section 706 states that the FCC and each state commission shall encourage the development of advanced telecommunications services  FCC has continued to take steps to remove regulation from DSL and cable modem broadband services  Current definition of broadband is > 200 kps  FCC currently has a proceeding examining whether to increase broadband speeds  FCC has asserted jurisdiction over broadband and Internet services

49 Slide 49 Competitive Model Explicit support mechanisms intended to eliminate internal cross-subsidies  Access systems  Federal/state USF programs  Access reforms Competition targets most profitable business lines, eroding profitability & making cross-subsidies unsustainable  LD market example All lines of business must be economically justifiable  Allow competition to govern competitive markets  Uneconomic regions receive increasingly explicit support  Policy support matches policy duties Long Distance Urban Rural (incl. business) Local Business Residential Explicit Support (USF)

50 Recent Developments and Policy Issues

51 Slide 51 Broadband Broadband Broadband deployment has become of paramount importance among policymakers  OECD rates the US 14 th in the world in broadband penetration  US has the highest total number of broadband connection of any country in the world Approx. 65% via DSL Approx. 30% via cable modem (U.S. cable broadband a competitive strength) Others: Wild Blue, WISPs, etc.

52 Slide 52 Broadband Subs by Technology

53 Slide 53 Broadband Penetration G7 Thank heaven for Italy

54 Slide 54 Penetration and Population Density

55 Slide 55 Penetration and Per Capita GDP

56 Slide 56 VOIP Voice Over Internet Protocol (“VoIP”) providers  Utilize any broadband connection to offer basic voice services Revising notions of pricing, geographic scope Verizon v. Vonage  Verizon sued Vonage for various VoIP patent infringements  Relationship of network to applications Competition over value

57 Slide 57 Retail Regulation and Customer Service Many state commissions and legislators have or are revising their retail regulation systems in response to changing markets and technologies COLR obligations appearing less economic State commissions revising approaches to customer service and service quality issues  Choice among services seen as a consumer goal No more “any phone you want as long as it’s a black rotary”  Slamming  Trouble repair  Customer information  Implications of bundling of regulated and non-regulated services

58 Slide 58 Intercarrier Compensation Intercarrier compensation disputes  Rural carriers rely heavily on intercarrier settlement payments (e.g. interstate and intrastate access charges, reciprocal compensation, etc.) for revenues  Phantom Traffic FCC requires carriers to terminate traffic even if they are unable to bill for it Several proposals at the FCC; some states have implemented solutions of their own

59 Slide 59 Universal Service  The Joint Board has recommended an “interim cap” on the level of funding going to competitive ETCs, most of which are wireless providers  The FCC has an open proceeding on long- term reform to the high cost universal service fund

60 Slide 60 What is Driving Recent Fund Growth? High-cost fund (HCF)—ILECs Virtually unchanged payouts since 2003—no growth once access reforms completed Low-income program Up mainly due to offsets of higher SLCs in post-2000 reforms Rural Health Care Program size is small at $46 million in 2006 Negligible absolute dollar growth Schools and Libraries Capped at $2.25 billion—program has not paid out total cap Growth is simply because of lower previous payouts Total Universal Service Fund HCF—“competitive” carriers More than $1 billion in funding in 2006 from ~$131 million in 2003—primary source of organic growth -1.8% 12.3% 96.0% 32.2% 724% Growth since $58 million $87 million $22 million $469 million $952 million $ change 2006 v USF payments in 2006 approximately $1.47 billion greater than in 2003 Growth in payouts (post-access reforms) has been driven by …  $469 million increase in the Schools & Libraries program, accounting for approximately 32% of the increase (total 2006 payments still below cap)  $952 million increase in payments to CETCs, accounting for approximately 65% of the total increase in funding – growth to continue absent reform

61 Slide 61 Evolving Role of Wireless The Communications Act of 1934 gave the FCC exclusive jurisdiction over radio, including wireless telephony services Some states have attempted to regulate wireless providers  E.g. California attempted to implement a set of consumer rights for cell phone users Section 332 of the Communications Act requires LECs to offer non- discriminatory interconnection to wireless providers The number of wireless subscribers in the US surpassed the number of wireline access lines a few years ago  Sell handsets, not lines Substitution v. complementarity  Some individuals are opting to forego a wireline connection and simply have a wireless phone  Access substitution (“cutting the cord”) versus service substitution (long distance and second lines)  Lee Selwyn (2003) wireline and wireless have different Functionality Service quality Scope and pricing Cost structure New technology approaches to wireline-wireless relationship

62 Slide 62 What’s Next? Diverse business models allow comparisons  Is broadband a separate network?  Approaches to COLR and rural  Implications for regulation and policy  AT&T is once again the largest local and long distance company in America – and the largest rural carrier Meaningful cross platform competition  CATV providers are offering telephony services  Strong and rapid success  Tend to focus on dense areas, but includes smaller towns as well as larger cities Video products  IPTV- the ability to deliver television content via IP over broadband facilities  Verizon’s FiOS roll-out  Most telcos using last-mile copper  Need to address backbone network as well  Telcos are attempting to get content deals from the media companies Transactions  Sales of rural properties  Wireline spins  Roll ups of smaller companies Spectrum the continuing issue

63 Roles and Challenges for State Regulation

64 Slide 64 Sustainable Policy Sustainability - from the verb to sustain meaning: to hold up; to bear; to support; to provide for; to maintain; to sanction; to keep going; to keep up; to prolong; to support the life of. Sustainable competition – Economic conditions for a viable sector over the long term Innovation Adoption Growth Is sustainability a policy goal? Is one path more sustainable? Is the answer situation dependent? What will we learn from the experiment?

65 Slide 65 Five buckets of policy? FunctionNeeded or not?Who does it and how? “The Price is Right” (Retail rate setting) “Bugsy sent me” (Enforcement) “Can’t we all get along” (Mediation and facilitation) Information Consumer protection Infrastructure support (e.g. 254, 706) Which functions are needed? How are they best performed? By whom? Do some conflict? (E.g., would a strict Sec. 252 filing requirement for services not required under Sec. 251 discourage voluntarily negotiated or mediated outcomes?)

66 Slide 66 Regulatory glide path in converged IP-based world?

67 Slide 67 Combinatorial paths to reform Legislative Likely longer General principles only FCC implements FCC Prolonged Unpredictable Compromise Litigated State Generally shorter More structured Multiple venues Incomplete solutions Industry solution Shorter process More financial focus Enforcement?

68 Slide 68 About Balhoff & Rowe Balhoff & Rowe, LLC, is a specialized professional services firm focused on providing financial-regulatory advice. The principals have more than 40 years of experience in advising investors and regulators on complex investment issues. They have provided services to a wide range of communications companies, including incumbents, competitive carriers, wireless operators and cable operators. Additionally, the firms has expertise in energy and other utility services. The services of Balhoff & Rowe include research, think-tank projects, professional facilitation, advocacy efforts, financial and restructuring advice for various companies, carriers and policymakers. The company offers an unparalleled combination of experience, credibility, strategic insight and access in a rapidly changing environment. Michael J. Balhoff, CFA, Managing Partner Michael J. Balhoff, CFA, is managing partner at Balhoff & Rowe, LLC. Previously, Mr. Balhoff headed for 16 years the Telecommunications Equity Research Group at Legg Mason, which advised investors about equities in media, cable, wireless, telephony, communications equipment and regulation. Prior to joining Legg Mason in 1989, Mr. Balhoff taught at both the graduate and undergraduate levels. He has a doctorate in Canon Law and four master’s degrees, including an M.B.A., concentration in finance, from the University of Maryland. A Chartered Financial Analyst and a member of the Baltimore Security Analysts Society, Mr. Balhoff has been named on six occasions as a Wall Street Journal All-Star Analyst for his telecommunications recommendations. His coverage of telecom was named by Institutional Investor as the top telecommunications boutique in the country in He has also testified multiple times before congressional committees, is regularly a featured speaker at conferences for investors and policymakers, and is widely quoted in the media, including television, newspapers as well as communications and business journals. Robert C. Rowe, Esq., Senior Partner Robert C. Rowe, Esq., is a senior partner at Balhoff & Rowe, LLC. Previously, Mr. Rowe served as the Chairman of the Montana Public Service Commission which was responsible for regulating telecommunications, electricity, natural gas, water, and some transportation services. Mr. Rowe also served as President of the National Association of Regulatory Utility Commissioners, Chairman of the NARUC Telecommunications Committee, member and state chair of the Federal-State Joint Board on Universal Service, member of the Federal-State Joint Conference on Advanced Services, chairman of the thirteen state Operations Support Systems Collaborative working with Qwest and its competitors to achieve compliance with Section 271 of the 1996 Federal Telecommunications Act, and member of various advisory boards for university-affiliated programs. Bradley P. Williams, Esq., Partner Bradley P. Williams joined Balhoff & Rowe as a principal in Previously, Mr. Williams was a member of the Strategic Planning & Business Development group at Lowe’s Companies Inc., the Fortune 50 home improvement retailer. Prior to joining Lowe’s, Brad worked with Mr. Balhoff in the award-winning Telecommunications Equity Research Group at Legg Mason, focusing on incumbent and rural local exchange carriers. Prior to joining Legg Mason, Brad was a co-founder of eSprocket / Beachfire, a venture-backed company that evolved into one of the pioneers in mediation technology solutions for the financial services sector. Previously, he served as a financial executive for Iron Road Railways Incorporated, a Washington, D.C.-based holding company that integrated, through acquisitions, a significant regional freight rail network serving northern New England and eastern Canada. Brad began his career as an investment banker in First Union’s Capital Markets Group. He has a BA in Economics from the University of North Carolina and a JD from the University of North Carolina School of Law.

69 “Now What Do We Do?”

70 Slide 70 If Heisenberg were a regulator “One cannot simultaneously find both the position and momentum of an object to arbitrary accuracy.” -The uncertainty principle “Policy solutions tend to look simple from a distance, and messily complicated up close.” - Regulatory corollary

71 Slide 71  ETCs and Capital Hill activity. Hon. Phil Jones, Washington State  USF and Intercarrier Compensation. Hon. Ray Baum, Oregon  Special access. Hon. John Burke, Vermont  Video franchising. Hon. Daryl Bassett, Arkansas

72 Slide 72 “You got to be careful if you don't know where you're going, because you might not get there.”


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