Minnesota Telecommunications Guide 
Issue No. 
1 January 1998 

Minnesota's telecommunications industry is returning to its competitive roots, with consumers able to purchase telecom services from a number of companies, just as people did prior to 1915. That year, the state began regulating a system where consumers needed to have numerous phones and pay numerous bills just to call everyone locally. The return to competition won't mean the end of state regulation of the telecommunications industry. But before you can look at how that regulation might change, it's a good idea to see what it is now. Here's a snapshot of the state's more than 80-year-old regulation system (and an as yet out-of-focus look at where it might be going). 

Three Agencies Have Oversight 
The state has three "players" in telecommunications regulation today - the Public Utilities Commission (PUC), the Department of Public Service (DPS) and the Office of the Attorney General (OAG). The PUC makes rules, decides cases and issues certificates of authority that allow telephone companies to do business in Minnesota. 
This ensures that companies "have the technical, managerial and financial resources to provide whatever service they propose to offer," says Mark Oberlander, manager of the PUC's telecommunications unit. "We only want sound companies providing services," he adds. "We want to weed out companies that shouldn't be operating in Minnesota." The DPS, with enforcement, investigatory and administrative responsibilities, can also intervene with the PUC on behalf of the public. Recent changes in state laws also allow the department to handle certain changes, many routine, without PUC approval. 
Nelson Updaw manages the DPS telecommunications unit. Whenever he's asked to define the roles of the DPS and the PUC, he simply says, "We're the cops and they're the judges." If that's so, then OAG is the "district attorney," handling referrals when the others need to go to court. The AG's office also has independent authority to focus on consumer protection and prosecute fraud. It also "gets involved in broader regulatory issues," according to Assistant Attorney General Scott Wilensky. Charged by statute to represent residential and small business customers in telecommunications regulation matters, the OAG "picks issues that have the greatest impact on customers," Wilensky says. That translates into appearances before the PUC, being "at the table" when generic rules are made, and providing information to legislators on the impact of proposals, including any generated by the attorney general. 

Who Is Regulated . . . and How? 
Not all telecommunications companies are regulated. For those that are, regulation is not uniform. For instance, cellular, paging, PCS (personal communications services, or digital cellular) and Internet are not regulated at all. Long distance companies need PUC licenses, and must file their rates, abide by service quality rules, and offer the same rates state-wide (except for special promotions). 
Pay phone companies (COCOTs - customer-owned coin-operated telephones) also need licenses and must meet minimum quality standards. Neither long distance nor pay phone companies face price or earnings restrictions, however. Cooperative and municipally-owned local phone companies are "basically complaint-regulated," according to Updaw. 
If there's a complaint, they appear before the PUC to respond. Incumbent local exchange companies (LECs) - whether large (like US West and GTE) or small (less than 50,000 customer lines) - face the most regulation because their rates, earnings and promotions are restricted. They must price above their economic cost (to avoid predatory pricing), but the PUC can also mandate below-cost rates for certain harder-to-serve customers. And if an incumbent local phone company's earnings exceed the percentage of profit set by the PUC, "the company can be ordered to lower its rates," says Updaw. 

Competition Changes the Game 
The new companies emerging to compete with current local phone providers are called competitive local exchange companies (CLECs - pronounced "SEE-lex"). They must abide by the same rules as incumbent local companies, but do not have earnings restrictions. So incumbents can compete fairly, state law allows them to opt for an Alternative Form of Regulation (AFOR) plan. In exchange for freezing rates on certain key services - including basic rates - for at least two years, incumbent LECs can change prices on other services more freely. 
The PUC approves AFOR plans, though only large companies go through a hearing process. Sprint and Frontier operate under AFORs and US West has filed for approval of its plan. Updaw estimates that three-fourths of smaller LECs also have AFORs. While the PUC will ultimately decide the final form of two sets of competition rules - one for large companies and another for small companies - many interested parties take part in the typically lengthy rulemaking process. 
Through most of 1997, the PUC, the DPS, the OAG and telecom industry representatives worked on possible rules governing how CLECs and incumbent LECs will compete. 

The Future 
Everyone's role may change, but state agencies will continue to have one. Wilensky thinks there may actually be more regulatory oversight in the short term because "competition may not be feasible. Competitors may not be able to duplicate local incumbents' infrastructure." Oberlander says the PUC, even as it looks at different ways to create the competition the Legislature wants, will have enough to do. "In the past," he explains, "the PUC focused on the rate levels of independent local phone companies. Now it's moving to alternative forms of regulation to implement competition. But competition is different than de-regulation. In a competitive market, the PUC still exists to ensure fair competition and transactions among companies and high-quality service for the public." 

Profile: New Ulm Telecom 
New Ulm Telecom, Inc., and its 47 employees provide local phone and other telecommunications services to people in the New Ulm area. Incorporated in 1905, the company has over 800 shareholders, many keeping their shares in the family. 

With 13,600 access lines, the company serves New Ulm and the surrounding communities of Courtland, Searles, Klossner, Essig and St. George, as well as Springfield and Sanborn through its subsidiary, Western Telephone Company. New Ulm Telecom brings an annual payroll of about $1.3 million to the state. 

Fully digital - it can provide ISDN lines, SS7 high-speed communications links, custom calling features, Internet access ($15/mo., unlimited use) and more - New Ulm Telecom recently added long distance service to offer customers more choice. "We're outstate," says general manager Bill Otis, "but we're as modern as any telecommunications company in the state." He's optimistic about the future. "Things will change drastically, but we feel we and other independent local companies have an advantage because we're part of our communities. Our customers know us. We've given very good service and been very involved in our communities and we expect to continue our efforts." 

Those efforts, which include donations to all local schools and numerous projects in its communities, along with its significant contributions to the local economy, earned the company the New Ulm Chamber of Commerce's 1995 Industry of the Year award. 

A Minnesota Fact 
Fiber optic cable is considered to be the perfect transmittor for telecommunications. It is made of hair-thin strands of glass and is so pure that you could see through a window of it 70 miles thick. It is virtually unaffected by weather and its capacity is mind-boggling: A single strand of fiber can carry 250,000 times as much as a standard copper wire. What's even more amazing? Minnesota local telephone companies have installed nearly 20,000 miles of fiber optics in Minnesota!