AT&T Uverse 2007 Annual Report Download - page 42

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
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| 2007 AT&T Annual Report
order that would adopt the Joint Board’s recommendation to
cap all competitive ETC high-cost funding. If the FCC adopts
such an order, we anticipate that our company-specific cap on
high-cost support will be replaced with that industrywide cap.
Wireline
Video Service Order In March 2007, the FCC issued an
order adopting rules to implement the Cable Act’s prohibition
against local franchising authorities unreasonably refusing
to award competitive franchises for the delivery of cable
services, which it found had created unreasonable barriers to
entry that impede the goals of increasing competition and
promoting broadband deployment. This order should facilitate
our entry into the video market by reducing or removing
entry barriers posed by municipalities that have refused us
permission to use our existing right-of-ways to deploy or
activate our U-verse-related services and products. This order
does not preempt state laws that streamline the franchising
process by, for example, establishing state-wide cable
franchises. Such laws have been enacted in over half of
the states in which we operate.
Video Program Access Order In October 2007, the FCC
released an order and Further Notice of Proposed Rule Making
addressing video programming issues. The order extends
for five years the exclusive contract prohibition of the
Communications Act, which bans exclusive contracts for
satellite cable programming and satellite broadcast
programming between vertically integrated programming
vendors and cable operators. The order also improves the
FCC’s program access complaint procedures by strengthening
the discovery rules and requiring production of information
necessary to adjudicate a complaint.
Special Access In January 2005, the FCC commenced a
broad examination of the regulatory framework applicable to
interstate special access services provided by price-capped
local exchange carriers. In a July 2007 notice, the FCC invited
interested parties to update the record in that proceeding in
light of industry developments since 2005. If the FCC were
to modify this regulatory framework (such as by mandating
further reductions in special access rates), it might negatively
impact our operating results.
Broadband Forbearance Order In October 2007, the
FCC adopted an order eliminating some regulations and
certain “Computer Inquiry” rules previously applicable to
optical and packet-switched broadband transmission services
provided by our operating companies. Consequently, our
operating companies will no longer be subject to, among
other things, the FCC’s tariff filing requirements or price
cap rules for Frame Relay, ATM, Ethernet, Remote Network
Access, SONET, Optical Network or Wave-based broadband
services. This order gives us substantial flexibility to offer
individually tailored contractual arrangements that better
meet our customers’ needs while enabling us to reduce
costs and operate more efficiently.
Long-Distance Non-Dominance Order In August 2007,
the FCC adopted an order granting regulatory relief to AT&T,
Verizon Communications Inc. (Verizon) and Qwest Communi-
cations International Inc. and their independent incumbent
local exchange carrier affiliates (e.g., AT&T Connecticut).
This relief allows us to provide interstate long-distance
services free from both structural separation requirements
and dominant carrier regulation (e.g., tariffing and price cap
requirements), subject to certain limited conditions. As a result
of the FCC’s order, our business units will be able to integrate
functions across organizations and jointly plan business
operations more efficiently than previously possible. We
anticipate that this relief will lower our administrative costs
and improve our responsiveness to customers. In addition,
the FCC eliminated the equal access scripting requirement,
which had required AT&T’s customer service representatives
to inform new local telephone service customers of the
availability of long-distance service from other carriers and
to read a list of such carriers to the customer upon request.
State Regulation A summary of significant 2007 state
regulatory developments follows.
Video Service Legislation A number of states in which
we operate have adopted legislation or issued clarifying
opinions that will make it easier for telecommunications
companies to offer video service.
California High Cost Fund In June 2006, the California
Public Utilities Commission (CPUC) opened a rulemaking to
review the California High Cost Fund B (CHCF-B). The CHCF-B
program was established in 1996 and was designed to
support universal service goals by ensuring that basic
telephone service remains affordable in high-cost areas
within the service territories of the state’s major incumbent
local exchange carriers, such as our AT&T subsidiaries. In
September 2007, the CPUC adopted a decision that changed
how the CHCF-B was calculated, which we estimate will
reduce our payments from the CHCF-B by approximately
$160 in 2008 and $260 in 2009. In the same decision, the
CPUC stated that AT&T and other carriers could recover lost
payments from the fund by exercising pricing flexibility to
increase rates for services other than the basic residential
rate (such as bundles), authorized an increase in the basic
residential rate by the Consumer Price Index in 2008 and a
lifting of the existing rate cap on the basic residential rate in
2009. In a December 2007 decision in the same proceeding,
the CPUC established a $100 California Advanced Services
Fund to encourage the deployment of broadband facilities
to unserved and underserved areas of California to become
effective sometime in 2008. We are unable at this time
to determine the extent to which AT&T might be able to
qualify for payments from this fund.
COMPETITION
Competition continues to increase for telecommunications
and information services. Technological advances have
expanded the types and uses of services and products
available. In addition, lack of regulation of comparable
alternatives (e.g., cable, wireless and VoIP providers) has
lowered costs for alternative communications service
providers. As a result, we face heightened competition
as well as some new opportunities in significant portions
of our business.
Wireless
We face substantial and increasing competition in all aspects
of the wireless communications industry. Under current FCC
rules, six or more PCS licensees, two cellular licensees and