CenturyLink's Jones on net neutrality, special access and the $500M Connect America Fund opportunity

John Jones, CenturyLink SVP

Jones

with John Jones, Senior Vice President of Public Policy & Government Relations, CenturyLink

John Jones may have only taken up his post as CenturyLink's (NYSE: CTL) senior vice president of public policy and government relations in recent months, but he's a 21-year company veteran who has spent that tenure leading state and federal regulatory and legislative initiatives, government relations activities, external communication and policy development and state and local economic development issues. Sean Buckley, senior editor of FierceTelecom, recently sat down with Jones to get his take on a number of issues, including the FCC's new net neutrality rules, special access, video franchising and Connect America Fund-II.

FierceTelecom: One of the most pressing issues for CenturyLink and the other telcos is net neutrality. Can you talk about your take on the net neutrality ruling and the potential effect the rules could have on CenturyLink?

John Jones: It's an important issue and we're in line with the other carriers. It's really an industry issue. I think the telling point is we have pretty much all come to the same conclusion to where the issues are. One is a policy issue in that it opens the door really for a lot more regulation, which is not good in an infrastructure investing environment like ours. The overreach possibly by the commission that the order provides them is telling, long-term, that's not favorable for us.

The Title II aspect is probably the egregious piece of this, for the abuse alleged to occur has not occurred in terms of blocking and throttling. Service providers are not doing that today, and the current rules govern that pretty well. The other issue is we'll have to invest in a lot of compliance issues when the new order goes into effect. If the order was overturned, companies like ours are out a significant amount of money for transparency aspects of this. The stay makes sense from that standpoint, but the likelihood of a stay is debatable from a legal standpoint, but it puts down a pretty strong marker for our segment of the industry that this is not good policy for us or consumers long-term.

FierceTelecom: Do you think the new rules will create uncertainty for large carriers like CenturyLink to invest in new networks, products, and services?

Jones: Financially, it is something we have to be aware of as we go forward. It puts more of a cloud of uncertainty that does not help things at all if you're trying to be nimble and quick--it's another regulatory impediment to address. I think where we have to stop and pause on what are we doing and (ask) how does the open Internet order affect what we're doing? I would say it's more a cloud of uncertainty that does not help things at all if you're trying to be nimble and quick to move forward. From that standpoint it is something we have to consider. I think where companies are going to find the most confusion is on the interconnection and peering issue.

There seems to be a lack of clarity and uncertainty on how that's going to work. It's going to force all of us to go back and look at our interconnection agreements and our peering agreements to determine, are we following the rules the FCC proposed? Are we going to get pulled in on a case by case basis, and what does that mean? How many resources will it take to address those, and can anyone file a complaint and trigger a proceeding? All of that goes right to the heart of this in terms of how we have to look at it from a business standpoint.

FierceTelecom: Another element of the net neutrality you mentioned was interconnection. Where does CenturyLink stand on that issue?

Jones: We're not the only one dealing with this issue, but it forces us to go back and look at what's in place. It also gives those we interconnect with as well as us the ability to challenge an existing agreement. There's already enough going with peering, as it was, by trying to work out peering arrangements with those who don't want to peer with you, which would be the content providers who are not as encumbered by the rules as the incumbents are. In that area alone, the confusion is going to take a while to sort out.

FierceTelecom: Being a relatively new pay-TV provider, CenturyLink is also challenged by rising content costs. What are the regulatory challenges and what are you looking to change to get more competitive rates?

Jones: We obviously have state issues and local issues. You have the franchise negotiations as a latecomer ... and no surprise, cable is our biggest stumbling block to get these. We have had pretty good success, but if you're trying to launch a product and it takes two years to just clear the legal hurdles at a local level then you're not getting to market very quickly.

Delay is the name of the game if you're a competitor trying to keep a new competitor out. Those have a life of their own. We have done pretty well with those, but we still face impediments. Ideally, statewide franchising at the local level would be the best solution, and that takes state legislation to accomplish that, but from a consumer standpoint that also is the fastest way to get video competition into any given market. In the Southeast we have a lot of statewide franchising, which allows us to deploy faster there than in other areas where we're having to do more work at the local level just to get in the door.

FierceTelecom: Do you see any moves made by regulators to help newer players deal with rising content costs?

Jones: The cost of content is rising. One of the problems is that we have is we have rising fees to pay for retransmission and the cost of content. It really harms our ability to provide competitive video services. If the name of the game is to provide consumer choice and your prices points are unusually high, you're not overly competitive in terms of being able to offer the product our customers would want. The work with that's been done on the Hill with the STELA Act have been helpful, but we need it to be more fair and balanced from a retransmission standpoint.

The earlier rules were designed to protect broadcasters back in the day when cable first came in. Now they are at a point where they may be overprotecting broadcasters to a point where it's not consumer friendly and does not recognize the dynamics of today's market. What we're saying in Congress is the laws need to be modernized to reflect today's market conditions. The baseline issue is they have to get to point where we have fair and reasonable terms for new entrants and that translates into benefits for customers.

FierceTelecom: CenturyLink is a large provider of special access circuits to a host of competitive players. What's your take on the work the FCC is doing to realign special access rules?

Jones: That's a very large business for us and we're participating in the data requests like everyone else. I think the good thing that's going on--although it's time sensitive--is all of the entities have to put data on the table to prove their case. That, I think, will help if prices and costs are as high as they say they are. We obviously think we are competitive, and reform for the sake of reform may not make sense in every case.

What I can't judge is how quickly the FCC is going to be able to move on this issue. It's very complex and there are a lot of entities involved in the process. Our goal would be to go with the market-based rates today and are justified and can uphold through the data that we're preparing to show that the markets are competitive and the rates are reasonable. The issue is how fast the commission can really move on it.

FierceTelecom: Another issue tied closely with special access is the IP transition, something CenturyLink is trialing with two CLECs in Las Vegas. Can you share any insights on how this has gone so far?

Jones: The trial is going forward. I am pretty sure we're still waiting for the FCC to sign off that. The trial the way it's presented is more of a business VoIP trial with two CLECs that have agreed to work with us on that. We know it's different from the AT&T (NYSE: T) trial and will probably show a different perspective and cover more ground to determine where any pressure points will be in an IP transition. We believe our IP transition in general is going to be a fairly long process. We have a large number of switches and we have a plan for that, and it will be costly too, but we won't be able to do that at lightning speed. It will be on more of a gradual, per market basis transition. We think this trial in Vegas be a good illustration of what works and what does not.

FierceTelecom: Rural broadband expansion is also key issue for CenturyLink, something you'll be able to work forward with the FCC's Connect America Fund II (CAF II) program. How do you see that playing out and the potential benefits to serve customers you could not before?

Jones: We serve a lot of rural America and have some very remote exchanges and metropolitan ones. Back in 2012 through 2013, CAF-I was one-time funding for broadband deployment, and we accepted about $75 million of that. We're now into CAF-II and this is more of a long-term part of the process. We have spent a long time modeling this for a number of months as the commission made tweaks and changes as they move closer towards releasing an order. It's a very complex process for us and the model was not released until recently, so we had to wait, dancing in the dark, not knowing what we had to work with.

We do have a lot more clarity now, and we think our opportunity is going to be roughly $500 million a year in terms of available money we would have the opportunity to pursue if we want to meet the 10/1 Mbps broadband service commitment that goes with the money. We have a lot of markets to look at, and we're careful to understand the money we would receive, but also the capex we'd have to deploy as part of the match that goes with that. Our goal would be to continue to enable as many households as we can in some of these markets, which for the most part if they were economic we probably would have deployed there by now. 

CenturyLink's Jones on net neutrality, special access and the $500M Connect America Fund opportunity
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