 take us on to the next agenda item which is analysis of the financial viability of public educational and government access television known as the pig study and if you remember we all agreed that something needed to be done but we didn't know what it was we sent it over to appropriations they found some money and we're back and I've got Ken on on the agenda first is that is the way I've got Ken Jones Peter Blum Dr. Robert Lube and Lauren Glendavidian in that order is that the order that works best for the presenters or do you have an order all right Lauren says that works okay so I guess and I think I saw Peter with the thumbs up so can I guess the floor is yours and I thank you Madam Chair I won't need the floor for long but it is just to kind of recount the history that last year we were asked the agency oh yeah Ken Jones economic research agency of commerce and community development and the legislature asked us last year to carry out a study on the future financial viability for peg for the public educational government television services and we did we put out an RFP in the late fall and had two respondents and one of them was Berkshire telecommunications which is represented today by both Peter Blum and Dr. Lube and they we gave them the assignment largely taken from the text of the legislation to explore the options and that's the report that you have in front of you and with that I would like Peter Peter's prepared to go through that report and so that's what I'd like to do at this point okay Peter welcome back the floor is yours thank you madam chair madam chair I know many many members of the committee but not all and I just want to take a moment to introduce myself to those whom I haven't met before I am a retiree of the state of Vermont I worked for some years for the legislative council and some years for the governor and quite a number of years for the public service board which has since been renamed and I now live in Massachusetts which is almost like Vermont and today with me is Bob Lowe who is actually Dr. Bob Lowe who is a PhD economist he is a partner in an organization called Volca Lowe which is as a business operates the federal communication commission's TRS programs telecommunications relay service they're the financial advisor for the financial manager for the TRS programs under contract with the FCC and Bob formerly worked for a variety of state utility commissions and where I first met him a number of years ago was he was a staff economist at the FCC so I've asked Bob as my co-author to come in today in case you have any questions about his part of the report which is the financial forecast for the PEG organizations so now if I'm allowed and I think I am I'm going to bring up the committee to introduce themselves to you. Hello again Peter Blum, Mark McDonnell. Hi Mark. He started it so we'll go around I'm not sure how to go if no one says anything Hi Peter, Chris Pearson from Chilling Center. Randy Brock from Franklin County. Okay. Rick Hardy from Addison County, nice to meet you. Hi Peter, Michael Sorokin, nice to see you again. Hi Senator Sorokin. And Chris Spring also from Addison County. I heard you on LPR the other night so that was like the teaser I'm ready now. Your cross examination is probably all set. All right so here we go I'm going to put my screen up if I can do it and you should see that in a moment and I have about 20, 25 slides to show you let's see has it appeared yet? It is there. Okay so this is just the title slide and so a lot of these preliminary slides you'll already know a lot of this stuff. Peg means public educational and governmental programming and the goal of this study as you stated in the legislation you passed last summer was to look at options to quote ensure the financial stability and viability of peg channels. We looked at the likely financial future. We looked at possible efficiencies in forms of organization and we looked at possible new financing mechanisms. So an overview of the slides that I'm going to do today just quickly we've talked about the background some there'll be a little more of that there'll be the revenue forecast which Dr. Lowe did and is available here for questions and then we'll talk about efficiency options business model options the many constraints that are in federal law five suggested revenue enhancement options and finally a recommendation. So I'll begin with some history some of you may know this already cable companies started as what we're called community antenna services serving small areas and over the 80s and thereafter many of them were acquired by larger companies and merged it began peg peg began as a mandated FCC service it was an initial and initially an analogy to the quote public interest obligations of commercial broadcasters you may remember public service messages appearing on television at nine o'clock or 11 o'clock at night well peg was the cable analogy to that originally and the pegs peg organizations are called all sorts of different things one common term is AMO which if you read in the law in the Vermont law means administrative management organization I think probably nobody knows that but me but I think it's often called access media organizations also and we're going to go forward here I hope today Vermont has 11 cable companies Concast has the great majority of the customers and there are 25 AMOs serving a good portion of the state but not all of the state all are non well let me correct that not officially serving all the state they do serve really the whole world through the internet but their footprint service areas but does not cover the full map of the state and their their formal coverage area is limited to the area served by cable but as I said the actual service area can be larger depending on the community of interest so a rural peg organization might broadcast a graduation for a regional high school that could be of interest to many people some of whom are cable customers and in the peg service area and some of whom live outside that service area but are just as interested in watching their children march across the stage peg financing is controlled by Vermont statute and specifically by PUC rule 8000 which was an active pursuant to Vermont statute in the 1990s and to my surprise I learned that the AMOs are certified by the cable company not by the state so the process is that when they first were setting up individuals in the communities foreign groups formed a corporation and they went to the cable companies the cable companies determined whether the the proposal met the qualifications and then at that point the cable companies certified the AMO and AMO became eligible for funding once that's happened the cable companies must provide channels for the AMO programs they must pay for AMO operating expenses with a limit of five percent of the cable companies operating cable revenues that's an important word cable and they must pay capital expenses enough for the AMO to operate and in actuality in Vermont right now the capital payments to AMO's vary from zero to one point two five percent but most receive zero point five percent of cable revenues as capital payments and these the amount of these payments are negotiated periodically between the AMO's and the cable companies the AMO's also required and do file detailed annual annual reports with information about their finances and operations and that's that fact simplified my study quite a bit like I learned a great deal from these reports they are available I think on request I'm not sure if they're available online they're very available on request from the Department of Public Service and the Lawrence Glen Davidian's organization and the AMO's made a set of them a multi-year set of them available to Bob Lowe and myself which greatly helped us out in doing the study so the AMO's perform multiple roles they record government activity in events of public interest like graduations and sport events they also in many cases will routinely record school board meetings and select men's meetings and that sort of thing public hearings they train video volunteers and they do this in a lot of ways they take interns they some some of them have joint programs with high schools some of them just have people who walk in and want to learn how to do this and the AMO is generally accommodate those people train them on how to be video producers and then give them a forum to produce shows of their own I in my report I concluded that the role that they perform is something like a combination of town hall town library public school and the speakers corner which is famous in England in Hyde Park the speakers corner maybe I should have been a little bit explained that a little better some of the AMO directors and I guess I talked to about 18 or 20 of them some of them are quite passionate about their role in promoting free speech they feel a real sense of obligation to make sure that people in their communities have a way to get their thoughts and opinions out broadly to the community the funding sources for the AMO is is 92 percent from the cable companies the remaining eight percent comes from their own activities fees memberships what they call underwriting organizations and other sources the expenditure of the AMO's for all statewide is about eight million the size of the budgets vary quite a bit from one place to another the largest budget is about eight hundred thousand the smallest budget is seventy five thousand the peg organizations are rapidly and in many cases really already have shifted to digital technology and internet streaming now in originally what they had was a wire from the cable company that if they put signals into it would appear on people's televisions that was an analog signal meaning it was a voltage that went up and down over time but with the advent of digitization and the internet they have been able to produce higher quality video store it and transmit it in lots of new ways so this increases customer convenience and it also allows them to extend the benefit of their service outside the cable footprint to the larger region the federal regulation of cable has a lot of detail in it the original law that was passed actually the FCC regulated cable sort of on its own motion originally but in 1984 congress weighed in with a major piece of legislation and it's today called title six of the communications act and it allocates responsibility between the federal government and so-called franchising authorities in most of the country the franchising authorities are cities counties and towns in knowing what its towns in the midwest and west its counties and cities but they also the act the 1984 act also greatly limited the authority of the states over rates and subsequent amendments in 94 and other times further limited the ability of the state utility commission to regulate rates title six sets a limit on franchise fees the limit is five percent of cable operating revenues is the maximum that can be required to be paid as a franchise fee for the use of the public rights away and in vermont all of that money is sent to the AMOs directly without passing through the state treasury no added contribution says the FCC can be required from internet or from telephone service revenues now when the 1984 act passed of course cable telephone and digital communications were all separate industries but that's no longer true capital expenses so-called are excluded from the five percent maximum in many states or at least a few there's an additional one percent contribution that's routinely required for capital expenses so in california for example in many places five percent is required of the operating revenues to be paid to in california's case municipalities plus an additional uniform one percent is charged it's paid to the cable companies which are obligated to certified or to show somehow that it's used only for capital and not for operating general taxes such as the sales tax are not counted as franchise fees there's some information in my report about viewership i found information very useful information in the department of public services telecommunications plan and even more useful information in detail in the recent covid response plan that was done quickly over the fall and there was quite a bit of detail in there about peg viewership overall some of it a little surprising to me i'll read to you the quote here overall peg viewership has been steady or increasing and in many cases that the mon community's engagement with peg resources has increased significantly with many stations reporting spikes in facebook views youtube views and google website traffic during the pandemic months and that of course reflects the fact that the peg uh programming is not just appearing on cable television but is appearing on social media and on websites this is the surprising one to me how far along this has gotten the the consultant who did that covid response report said that far more respondents in their survey said that they had access peg content using their broadband connection than using the local cable channels so the the tail is now wagging the dog in terms of which is the larger market it seems the AMO role in disseminating information was particularly useful for this other consultant because many municipalities have struggled to engage citizens and elected officials via online tools and have made plans for larger engagement challenges like town meeting day so i did run across studies uh incidental reports where people have said gee you know we we uh we had trouble during the covid experience figuring out how to do town meeting but we use the the peg facilities and people were very very appreciative of of the filming of it now i'm going to move into the revenue history and the forecast the recent revenue of the AMO's has generally been stable over the last five years there's was one exception in 2018-19 because there was a national change in accounting rules for how companies like Comcast are supposed to account for their cable revenues and i can answer in more detail and Bob Lowe can answer in more detail if you wish but just in summary the accounting change reduced the proportion of total cable company revenue that was allocated as cable revenue and then therefore since peg revenue is proportional to cable revenue and we use peg revenue and here's a chart that shows what the last five years look like you can see the top blue line is a total revenue which is bounced around a little bit dipped in 2016 and 2018 but it's been fairly consistent the amount of cable fees again as i said earlier is 92% of that and that's the dashed line below that the amount paid by Comcast is a high percentage of that which is the dotted line below that and the other revenue generated by the AMO's is at the bottom in the long purple dashes so for the revenue forecast what we used was two primary variables we looked at the average revenue per unit that the cable companies earn and the number of cable subscribers that they have Bob Lowe produced a high normal estimate for 2026 showing total peg payments declining from 7.82 million to 7.46 a loss of about 0.4 million that was with an optimistic picture from the cable company's point of view about the loss of subscribers with a more pessimistic view of loss of subscribers we estimated a loss of 0.8 million when you combine that with inflation which we estimated at 1% we saw that that by the 2026 the AMO's could be facing a 1.4 million deficit or 17% of the current spending level and i want to make this looks like a a fairly stable environment compared to a lot of things that are going on in their month's budget i'm sure but there were a lot of risks that were not quantified here that we really couldn't get our arms around mathematically one is the changing FCC rules on in-kind cable contributions counting against the 5 cap the FCC under the prior administration issued an order saying that a lot of the things that cable companies have to do as quote in-kind and quote services would be valued and they would be subtracted from the 5% franchise fee limit thereby reducing peg payments or AMO payments that order has not yet gone into effect it was appealed through the federal court of appeals in um sixth circuit and as of this morning i checked again and that case has not yet been decided there was a very broad challenge issue to the FCC's order and it you know nobody really knows what the court will do if the court rules for the appellants then a lot of this will just probably disappear if the court rules for the FCC there could be substantial effects on future AMO payments depending on what the new administration wants to do uh at the FCC right now i believe the FCC is down one seat and it's two democrats and two republicans and president biden no doubt will soon name somebody the two areas where i'm most worried about the future are the the possibility that the FCC might start counting um mandated free internet service and mandated free cable service both of which are requirements in most or all of the cable company cpgs the public service commission the public utilities commission has issued to cable companies a second risk that's not been quantified is increasing cable company losses of video subscribers we our low normal prediction may actually not be so low there are we've encountered some other sources since the report was written suggesting that cable subscribership is dropping rapidly as people switch from cable service to online streaming and the third risk is that um the cable companies at some point might simply decide to let their cable service drift and uh and not really promote it and in that case that would only accelerate the loss of cable subscribers and revenues now this is the end of the part of my report dealing with revenue forecasts and so maybe i should pause madam chair and see if there are any questions about the revenue forecast or anything else that i've covered up to now question senator bray yeah um can you say a little more even though you didn't quantify it about the cable cutting risk for cable companies you know i've heard about people going to other their isp replacing their programming that way and um it's hard to know what their revenues will be and then if the AMOs are downstream of them what it will mean for them over time we uh we tried to get the customer accounts for the vermont cable companies but they consider that confidential and i declined to accept any confidential information in the process of preparing this report so instead we use national figures um and extrapolated from some sec filings but i think the the fear that we have is that the tendency of customers to cut the cable cord um and it's and replace it with streaming video may follow a similar pattern to what happened 10 or 15 years ago with people cutting the telephone landline cord which is that in the beginning a few people cut and then the next year a few more people cut and then at some point you get into a kind of an s-curve and everything you know everything takes a nose dive but i'm going to ask bob lo to address this in more detail okay thank you thank you peter always giving me the one that cannot be answered um that is the problem i think peter outlined it right in that you know if you think back to your usage of your wire line phone and your wireless phone at one time in the past you know you used your wire line phone when you were in the house and then you used your wireless phone when you were out doing shopping or running errands or doing something like that but at some point in time uh you know for each one of us the wire line phone became obsolete and so now you know we use our wireless phone for 90 to 95 percent or even 100 percent of our communications and every once in a while we hear that phone ring in our house and we don't know what we did with it and it's probably somebody who we don't want to talk to anyhow so we don't you know we don't use it and we're steadily trying to get rid of the bill if that happens in this industry what that would mean would be that the we would all you know all consumers would start moving away from cable channels for their video services and into video streaming right now it appears something like where we were in telephone back in the you know 2000 where we everybody used both everybody used the wire line and their wireless then a lot of people didn't even have wireless okay that's where we are now you know and it's very hard to predict when it'll flip when that tipping point will occur when many people say I don't want to pay that $50 cable bill or 70 or $80 cable bill and I'm already paying you know Amazon Prime and streaming is included in that and get rid of the cable now you're asking me to look at my crystal ball and say when that would occur I can't give you a good date for that what I can do is say you know Peter and I took this seriously and we believe it's going to occur and we think that the financial support of the AMOs and the peg channels should recognize that that's what the future is going to be and let's try to come up with a plan that will make the future revenue more secure and independent of that technological and consumer change that we know is coming. Madam Chair can I follow up on that briefly? So the the cable could be supplying you know whatever proprietary Comcast programming or it could be just acting as your ISP or it could be delivering voice over internet protocol so it's making me wonder to what degree if someone is when we say cut the cord in this case it's like well what part of not really cutting the whole cord anymore we're cutting like a piece some functionality. It's just unsubscribing to the cable portion of your bill that's all it is. You would probably be purchasing your internet through the cable company or you know if the telephone company gets its act together then you could purchase it from the internet your internet from your your telephone company where cable companies don't exist mostly people buy their internet through the telephone company and as I heard you discussing before that there's a lot of interest in the rural broadband but the cutting the cord is essentially the cable video portion. The other thing that could occur is that given that the cable company knows people are less interested in their video service package they could reduce the price of that and increase the price of their internet service which in places where they serve where Comcast serves that's a pretty secure revenue stream and if they did that without anybody dropping their cable service that would decrease the revenues to the pet companies also because remember what the pet companies get is the video portion of the bill okay which is what you pay for your cable channels the rental of the equipment and some portion of the video advertising the the peg revenue is not associated with the part of your bill that covers your internet service or your voice service right and they said are we precluded from extending the funding scheme to include those two other services by law currently yes we bob you want to answer it well yes i mean you know it's pretty straightforward you can't do it the the FCC has said that the five percent applies only to cable revenues and cannot be construed to apply to other kinds of revenues that the cable companies get from those same customers okay thanks so much so i'll pick up madam chair again yes i uh am i seeing i lost senator hardy senator did you have a question i did but it was just answered and senator bray had the same question so thank you i'm sad okay good then we can go back committee i won't be able to see you because i have to shut you out so i can see the presentation so holler if you have a question okay here we go again so we asked we were asked to look at efficiency options one option would be horizontal mergers among the 25 peg organizations we we didn't think that or i didn't think and i think bob agreed that there was much to be gained here unless you're willing to accept service cuts the peg organizations in my opinion are very well connected with their local communities some of them are operating on a shoestring some of them have a little bit more generous budgets but they generally have close relationships with their select men with their school committees and and i think that if you force the merger some of that might be lost i having said that that i don't think force mergers are a good idea i think voluntary mergers might be a good idea there are two organizations in chitenden county that are now functionally merged and they're looking at a legal merger lauren glenn devidian can probably tell you more about that when it's her turn also i know that some of the rural amos have been talking informally with others about whether they could manage a merger but i think that in my opinion this is a question best left to the local boards to decide so i i just didn't think that you could get anything out of this by you know if you if you forced a merger you would there'd be two directors in the beginning there'd be one director and a local psych coordinator at the other afterwards and i don't think you'd save much unless you were willing to cut services any questions so okay should i go on sharing resources is something that i think they could improve slightly they are doing through the v an lauren glenn's organization they're doing some sharing of costs their lobbying costs some of their negotiating costs they have a common database for storing programs called vmx the statewide channel is being shared the costs of the statewide channel is being shared somewhat there are some other possibilities that might include accounting payroll services one of the amo directors suggested that they might be able to share some electronics there's something called a video server that is very expensive and costly to maintain that maybe two of them could share i don't have an opinion on it but i i think it would be good to encourage them to keep talking that way and keep looking for those kinds of efficiencies the legislature abandoned the funding for vermont interactive television some years ago i looked at and i asked several times whether they saw any role for themselves in replacing that function and i would say there was a mild level of enthusiasm for that one of the things that's changed of course since v it went away is that now there's a zoom and youtube and all sorts of ways for people to get together electronically which didn't exist 20 or 30 years ago when v it was operating still there might be some room for these amos to maybe enlarge their meeting spaces so that on occasion a group of 10 or 15 people could come in and meet with another group of 10 or 15 people somewhere else an event that once the pandemic is over you know might not be possible in quite the same way using zoom and and finally they could work to expand their miscellaneous revenues as with any group of you know 25 separate organizations some of them are better at this than others have gone have taken it farther some of them have made contracts with municipalities for recording and broadcasting selectments meetings others of them just look for a donation to be voted on a town meeting so i think that they could get together and try to determine a set of best practices but again i don't think it's a topic for legislation we looked also at business model options but there i didn't really find much everywhere the AMO equivalent organizations appear to be non-profit which is what is true in vermont in some states the negotiation for the payment from the cable company goes through the municipality i live now in massachusetts and that's the way it's done here i really can't see an advantage to that i think it works better and more directly for the AMOs to talk to the cable companies using their own representatives rather than trying to put words in the mouth of a committee of towns people i also asked them about joint operations with educational institutions it seemed like this ought to be an area of possibility both secondary and and higher education but i i got a very mixed reaction to that in some places the AMOs are treated very well by the local school boards and the school districts one of them is actually located in a regional high school um but others uh in several cases the the directors told me stories about how they had taken in interns but they couldn't quite get the the local high school even if it was nearby they consider them a full partner in an educational program that so joint enterprise seemed to be sort of beyond their reach and i don't know if there's anything possible there or not but it seemed like the educational community was less interested than the AMO community is and i didn't specifically look at the vermont state colleges although that could be a potential in some cases because i know that vermont state colleges are not looking for any place to expand their expense obligations at the moment we also looked at the possibility of composing a more hierarchical structure like a state agency um but while there's some minor things that could be gained from that in terms of uniformity again i think there's a risk to the local uh accountability and and communications so i just want to in this slide i just want to stop and and explain about how different the world looks of telecommunications from the days when i was working at the public service board trying to get the vermont universal service fund passed through the legislature um there are two major developments that are really important and that are well along now one is digital media and the internet and as we talked about video streaming with fewer cable subscribers less peg revenue we've talked about that in detail um the other one is telecommunications competition and in 1996 congress passed a major telecommunications act it passed uh the senate with only one senator voting no and it was senator lehi i think through his eternal credit personally um and uh but what it did is it it ended the rights of states to control the entry into telecommunications markets and since then everybody is in everybody else's market um the digitization process has made it possible for almost every platform to carry almost every kind of service satellite has some problems because the geostationary satellites have a lag time that they work hard to overcome but all the terrestrial services basically are pushing bits down fiber as far out as they can get them and then using some sort of last mile technology even the even the wireless companies if you looked at how many if you looked at the bit miles of travel of their of their communications almost all of it is through fiber and only the last little bit is between the antenna and your handset so every platform can provide every service and that makes the legal structure which began you know in 1934 at the federal level and in 1980s and 90s in vermont and and at the federal level for cable and in 90s for the vermont universal service fund for telephone all of that now looks excessive to me excessively siloed and dated um it's now a communications network and at the time that we passed these old laws there was a telephone network there was a cable network but they were separate now that's just all communications so that colors the rest of my my presentation so i'm looking for goals for these new revenue options that i've been asked to to examine and i found in various places a set of goals for attack systems i'm sure your committee is more expert at this than i am here's one that i found from an oklahoma tax study a few years ago they said the tax system should be reliable simple neutral transparent fair and modern but i want to suggest that in this project there's another important one and that is competitive neutrality and that means that you would treat competitors who are working for the same customer against another company should be treated alike for tax purposes to the extent you can and that creates a bias against silo taxes on particularly in this particular industries so now i'm going to shift into a review a quick review i know we're running over time out in cheer i'll try to move along that's fine we've got some flexibility at the end so okay i'm going to run through four or five limitations of federal law that are important it's a little bit like a slalom race when you're as you legislators try to navigate you know your way down this mountain there are a lot of gates that you have to pass through i mentioned earlier that there's a franchise fee limitation of five percent of cable revenues i mentioned that it excludes pay capital costs that excludes general taxes like the sales and use tax i mentioned also that the third order expands the kinds of in-kind services third order was the sec's name for its order that's on appeal in the sixth circuit expands the kind of in-services that are value of which are to be considered franchise fees and i mentioned that mandated cable service and mandated internet service appears to be widespread and a potential candidate for treatment as in kind i also mentioned the third order is still on appeal another constraint is universal service act the federal universal service act which was a section of the 1996 telecommunications act in vermont vermont's universal service fund predated 1996 by a year or two and when you passed that there were no federal restrictions other than what was in the in the constitution the so-called dormant commerce clause and at the time that you passed this you reviewed a recent then um us supreme court decision called goldberg versus suite which had upheld the illinois sales tax on intrastate and interstate retail telecommunications revenues people who are from the the regulation community the telecom regulation community can't understand this still uh how this could be possible they they had this idea that there's a fundamental division between intrastate calls and interstate calls and for a long time that was true in the regulation of telephone uh even even though at the time it was there was a lot of pledges that were necessary to make it even possible but vermont concluded that that was irrelevant to tax purposes and vermont is was never challenged the vermont universal service statute was never challenged in court although some statutes of similar nature in other states were and were overturned so vermont has had this for 26 years without challenge but along came 96 the 96 act which included an apparent authorization for the states to have what we already had uh a university universal service fund and they put a whole bunch of strings on it um the the state rule if any cannot be inconsistent with the commission's rules contributions must be equitable and nondiscriminatory the support mechanisms must be specific predictable and sufficient and the support mechanisms cannot rely on our burden federal universal service support mechanisms these um vague requirements have been a terror over the in litigation um and it's very hard to predict how any given court is going to rule sometimes the courts reach the same conclusion as another court but they rely on a different paragraph or different sentence um the the bottom line for me is that the 96 act basically ruins the possibility of using universal service in any sort of creative way unless the FCC is on your side you probably have a very low chance of success at innovating anything and calling it universal service and i would say at the end i'm saying that the post 1996 litigation did not clarify these concepts and notably the FCC currently and recently it appears strongly opposed in particular to letting states fund universal service by surcharge on internet access the third constraint is barriers to entry this was the the heart really of the 96 act that said that states can't do anything that prevents new entrants from coming into local exchange market and um so it could potentially include a confiscatory charge of tax um there's the statute also includes a safe harbor exemption for management of rights away but there's some uh again some lack of clarity as to how this would be interpreted by the courts it was around the litigation about 20 years ago on this and the courts went sort of all different directions um they um some of the language suggests that if the estate charges something more than their cost of maintaining the right of way that would violate 253 i don't think that's the law but i think a lot of people would say it is i reviewed several case decisions under this section and um there were some cases where the courts invalidated local front now again it's you know local franchising authorities are the ones in most of the country invalidated some local franchising authorities that had reserved to themselves the unlimited discretion to deny a franchise if they so wished and that was clearly held to violate 253 short of that kind of provision um it seems that the states have quite a bit of latitude there was one case where a court held a four percent gross revenue charge on a cable company or a telecommunications company they were seeking to install a couple of dozen miles of underground conduit so again this is not a clear area of law but i think um you have some room to maneuver here without fearing that you're creating a barrier to entry the internet tax freedom act is the fourth area of uh on this slalom course of course you're trying to get down uh states cannot tax internet access and it's now after many times being reenacted with the sunset it's not been permanently inactive and is a permanent part of federal law there are some notable exceptions one is for universal service but again as i said earlier the FCC the FCC has great discretion over what we can call universal service and right now they are not very favorable or have not recently been very favorable to any sort of innovation that involves using the internet um a second exception is for 9-1-1 and e9-1-1 and if time permits i'll do that again in a few slides for now the final uh fifth and final is federal broadband policy and uh under chairman pie who recently left the FCC um they issued something called the restoring internet freedom order in 2017 and this reversed an FCC position i think this was the third reversal on this binary question over the course of the last 25 years and now according to this restoring internet freedom order internet access is not a telecommunication service anymore it is for federal law and information service and this is kind of a theological argument um inside federal law but it has it had immediate effects on the FCC order the order purported to preempt the states from regulating internet access one of the grounds was that the FCC announced that the federal government had a quote preemptive policy of non-regulation and uh it also preempted states taxing internet access for universal service on appeal um the dc circuit um issued a very strong reversal of part of the FCC's decision and basically said okay if it's not going to be a telecommunication service then where where do you get the authority to preempt anything if it's not a telecommunication service most of your chapter in the federal statute doesn't apply and um if the court struck down the FCC's preemption of state regulation but um i think the FCC still retains substantial discretion in the area of universal service i hope that's not too confusing so here i'm going to go into the revenue options now i don't know if you want to pause or should i just keep going and try to finish um i think we're we're in the process of writing a note asking if our next witnesses can come 15 minutes later so i think we'll go through and then okay i'll i'll try to take questions at the end i'll try to keep moving okay so i have five revenue enhancing options assuming that you decide that you want to provide some new funding for AMOs at some point in the future uh i present these five options one would be a new one percent charge on cable revenues and this would be to align vermont with the six percent total charge that's used in california and other places it would slightly increase the burden on the cable companies which are now paying about 5.6 percent roughly um to the AMOs already um it would change um the handling of the money rather than the money going direct from cable company to AMO it would go through the state treasury and it would have to be appropriated and the AMOs would have to use the money for capital expenditures um the net the net increase on burden on the cable companies would be about 0.4 million um up from there at about 8.6 uh advantages are that similar to charges in other states um disadvantages it's not competitively neutral it increases the burden on the cable companies which already have sole responsibility for funding the AMOs and it involves the state treasury in a new kind of transaction with very little marginal effect second option is a streaming video charge this would be a charge on um services like netflix and hulu and amazon prime they'd be paid to the general fund and appropriated AMOs you could also make it apply to satellite services which would otherwise uh perhaps escape the charge um the vermont sales and use tax i understand already covers this and this may solve a lot of administrative problems and scope issues there was a decision of the u.s supreme court a couple of years ago in the so-called may fair versus south dakota or the other way around um which expanded the ability of the states to charge to require out-of-state retailers to collect and submit sales taxes it changed the so-called um nexus requirement which in in prior years had been a substantial barrier to collecting sales taxes from out-of-state sellers this kind of charge has been upheld at least once against the commerce clause challenge and other states are considering this there's a bill in massachusetts that's being promoted by the AMO industry here um i think it could improve the alignment between the vermont residents who benefit from pegs service in the modern age especially through internet streaming with those who pay for that service rather than just requiring cable customers to pay for AMOs it would would spread the burden a little more evenly the disadvantage would be of course the cost of administering new tax third option is to raise the v usf rate um as i mentioned earlier the v usf is a program that was enacted during the euro telephone communications and um but i as i look at it now i'm not sure that it's that incompatible um the the v usf certainly applies to telephone services like e911 to services for the hearing impaired it also recently has been drafted to support payments for broadband expansion and so a payment expansion further for peg would not be completely unprecedented um most of the funding for from v usf now goes to the e911 program but the v usf isn't raising enough money to match the appropriations and you may have to raise that rate anyway disadvantages is that it's funded by telephone surcharges and it may not be fair to customers to add this telephone customers to add the additional burden they're already paying for some broadband costs and now they would have to pay for some peg costs and um federal limitations on universal service which i discussed would prevent you from broadening the base of the usf to include internet access payments um you asked me in the stat legislation to discuss connection charges and because time is short i'm just going to skip quickly through this um the real benefit to connection charges would be if you could define connections to include internet connections and you can't really so there's some um there's some marginal benefit to possibly changing the v usf from a gross revenue charge to a connection charge um some states about a half dozen states have done this but it's outside the scope of my report and i can talk to you later about it if you're if you're interested in pursuing that um you asked me to look at the telephone personal property tax um which provides no revenue currently to peg programs um the current rate is 2.37 percent of net book value of a telephone company um this is uh a rather strange tax because net book value once upon a time was a number readily at hand that had been produced for regulatory purposes but it has major defects it excludes a great deal of investment that is not that is considered non-regulated investment and it also is subject to um high level of depreciation so it's a it's the disadvantages as a peg resource are that it's not competitively neutral because many of the competitors do not pay it and the revenue is declining as illustrated in this chart which shows the last 10 years and two years of forecast and it's almost a straight line decline so i was unable to pursue this any further because the tax department is bound by confidentiality rules but my suspicion is that this pattern is a combination of um the telephone companies that have been paying it are investing more and more in non-regulated assets and their old regulated assets are becoming more and more depreciated but i can't quantify that for you fourth attachment the fourth option is a new idea it's a pole attachment charge and it relies on the fact that Vermont like a lot of new england but unlike a lot of the rest of the country relies heavily on utility poles to transport communication signals vermont as you know has rocky soils lots of ledge and varied cable is is expensive and infrequent in vermont um it would include cell companies that you use cables to reach their antennas so it would be therefore competitively neutral less between the cell companies and the wire line companies we did a a survey around the state of how many pole attachments there are on various kinds of highways i got some gis help from david haley whom you know and uh we figured that there is about 440 000 pole attachments for communications which in a ten dollar charge would produce about four and a half million dollars a year um the advantages are it's more competitively neutral than charges on cable companies alone or on telephone companies alone a disadvantage again it's a new tax but perhaps not that bad because the pole attachments already know about how many attachments they have they pay a pole attachment fee to the pole owners and to comply with federal law and the five percent limit in title six you probably ought to give cable companies a credit for any amount they would pay under this charge and there's a loose end here of possible federal highway restrictions i was told when i checked with the transportation agency that any such charge would have to be set aside and used for the purposes of building highways and um i inquired a little bit into that and asked for the statutory citation i read the statute i read a few cases under it and i did not see how that conclusion was supported by the statute or the cases but it is a little bit of a mess i'm leaving on your hands and finally at the end of the report i have what i call the multi-part option in this one i i did a lot of different pieces trying to produce a comprehensive proposal that would improve competitive neutrality hold up the um the general fund harmless and provide a little extra funding for the AMO's and it had four parts um given the time i think i probably ought to skip them uh several of them are things that i've already talked about individually um one option is one of the pieces is to repeal the personal property tax and replace it with the new pole attachment tax and i have a in the report i have this table showing all the puts and takes and how the money would move around and uh in the recommendations finally in the report we recommend that the AMO's continue their efforts to improve efficiencies and seek additional sources of funds um i recommend that you give serious consideration to option number five which i just skip through at 100 miles an hour uh it modernizes the telecommunications tax structure and broadens the base in a way that it reflects the increasing use of the internet as a medium for programming including peg video encourages the AMO's to expand their program benefits to surrounding towns that have broadband but lack cable television service and i'd be glad to answer any questions okay and if you take that down i can see people i've got sander bray and our next witness has to leave at 340 so if we want to break i think i'm going to have to wrap this up just dr lube do you have my apologies the next witness leaves needs to leave at 440 oh 440 sorry i read that incorrectly all right we can do questions sander bray yeah quick question is uh are there any it seems like some of the bit of a mess we're in is because of choices made at the federal level constraining how we can act um is the federal government also involved in looking at the the same sort of mess that we're looking at and are they proposing you know are is there any relief there like that they're thinking about reorganizing rethinking how they uh regulate and it is there some possible tool that's not yet on the table that we might reasonably expect to get i i don't think there's any legislative relief in in sight and i don't know about what the sec might do i think they might withdraw from the renewing internet freedom order if they get a majority of democrats on the sec but how much that would open the way for anything you would want to do i i'm not sure yet bob do you have anything you want to add your you keep traps tabs on the sec more than i do yeah the the FCC um has re reserved for itself um regulatory authority over broadband which includes being able to use it as a source of revenue um the states there has been an ongoing discussion between state commissioners and federal commissioners about how to change uh the support of the various universal service programs and one of those recommendations would allow states to put a connection charge on uh internet access but to date um that has been in the background and um no one can predict whether or not the FCC will will go in that direction okay thank you any other questions did you say we were already applying the sales tax to netflix and streaming services yes that is my understanding so you offered that as a solution but of course that we'd have to make up that that revenue to the headphone well i what i suggested would be an additional charge above the sales tax the sales tax revenue is all dedicated as you know to the education fund and so i just sort of kept that all at arm's length um there would have to be a new charge an additional charge okay thank you any other questions okay so dr loop we've you have you got additional testimony no i do not okay lauren glenn hi good afternoon everyone i'm lauren glendividian i'm the executive director of cctv center for media and democracy in berlington and i also represent vermont access network which is 25 community media centers that provide public educational and government access services in vermont so thank you so much we really deeply appreciate the legislative support to have um this economist look until a communication legal look at the question of the future peg funding so we're very excited that this work has been done and i think on the surface this appears as a very dense and uh a very dense document but actually i think it um boils down to some key concepts that i just wanted to raise with you and then um just make a couple of comments about next steps and process questions that i have um so i sent a little picture um in advance i think faith may have shared it with you um but it was meant to kind of give your eyes a rest and also summarize i think the key concepts here in the great work that's been done by peter's team um i think that this study even though it originally took up the question of alternatives to the cable franchise fee for peg access because of the convergence of the industry and because of the economic model um in which siloed uh phone cable internet regulatory units are actually now competing with each other and all in the same business and they are no longer siloed so our regulation overall needs to be modernized in the telecommunications realm and so even though this question was about peg funding and cable franchise fees it inevitably turned over the rock of modernizing the telecommunications regulation framework in the state and it's based on this core concept that we have public rights of way that we give permission to commercial industry commercial companies to operate and in exchange they make a public benefit contribution the only problem is is that there isn't a public benefit contribution on the internet the internet space regulatory space and as peter has outlined and investigated the state's hands are largely tied but not completely tied and i think that's what's really important in this study is that it sheds light on where the state's authority is to create a more modern telecommunications tax and regulation system for the state so um one of the key concepts here and i'm just going to pull out some of the higher level things that peter didn't really have time to go into but one of the core concepts is to create a public benefit fund and it's he calls it the telecommunications public benefit fund and that would include revenue sources that would help provide public benefits for the use of the communications network including not only peg but also e911 because in fact the state as peter outlines the state does have authority to assess a kind of broadband fee for the purposes of funding e911 service so this is i think important i think it feeds into the conversations the state's having about the public safety and how to fund e911 because it faces the same decline in landline revenue that peg faces on the cable side so at some point you may want um Berkshire to go a little bit more detail into the state's authority to do that i think that's really important and then um what the study goes on to outline is these multiple areas of authority that the state has to assess an excise tax which is the example that is raised on a cable an excise fee on cable bills for peg capital funding so that's one idea i think that's an idea that has to be looked at more closely because i'm not sure it actually solves anything because cable revenue is declining so if we put an additional excise fee on cable revenue that's not really an evergreen solution to the the issue of peg funding but as peter says in his report it would generate more funds than the current arrangement does so there are pros and cons on all of these ideas but i think the um the excise tax is an important one and then this right of way fee so um chris you asked about the streaming tax you know there are other states in the country that are looking at a streaming tax as a way to fund peg and as peter points out there is already a sales tax so if there was a streaming tax it would have to be over and above that um i'm not sure that the streaming tax actually is um maybe this is not the right word but philosophically the proper foundation for um a public benefit and the idea of a poll tax or assessing the public right of way in some way that's within the state authority so so poll attachments may be one way to do it um cable miles that run on polls might be another way to do it that that's a very straight line between uh providing public benefits in exchange for commercial use of the public rights of way and as peter points out it it it holds to this very key concept that i just want to make sure is right right in front of you which is competitive neutrality so the point here is not to burden the cable operators more or burden any one telecommunications provider any more than they are currently burdened but to redistribute how the public benefits are funded and yes it will actually result in there being additional fees on top of what the many many the telecommunications providers pay and pass on to their subscribers but the idea is it would provide it would apply to all users of the rights of way and go into a public benefit fund now i know that they're and i'll just got a question from senator bray yeah go ahead senator bray sure i just uh so i appreciate that you're you know uh aiming for comprehensiveness it seems like one of the themes of this committee has somehow become whack-a-mole this year um so if another technology is going to do an end run on what we're currently talking about i mean let's make me think about where are we with satellites because that's another public right-of-way the airwaves and i have are we casting in it broadly enough yet to make sure that there's not another emerging technology that undermines the revenue streams we're talking about now um and leaves us having this conversation seven years from now not that i mean seven buying seven years is good but can we do we how do we dash satellites and is there a way to make sure we don't have another problem coming that we're not quite looking at yet i think that you raise a good point because we're looking for um in order in the in the process of modernizing telecommunications regulation you want something that's actually modern and has some legs in the future which is not to say that it won't need to be modernized again right because technology will change but there's two points one is contained in the study which is even the wireless technologies require fiber to get to the distribution points right so to the extent that internet may be provided through wireless means there will still be a heavy reliance on the wired network to make that happen so i think that that bodes well for this model this emerging model which does need more discussion and satellites are in yet another silo right they're in a in a regulatory silo under broadcasting separate cables separate from phones separate from the internet titles and um if you recall i mean peter has recommended that perhaps satellite be included in that streaming model but if you recall the last time the state wanted to put a tax on satellite there was a huge outcry i do remember that yeah i think we we've been to that rodeo more than once yeah i'm just thinking star link is now coming out right so everyone's starting to hear about star link and right that's another end around the state doesn't have authority over satellite the FCC is straight line authority over satellite and so there is there's no interstate interest state debate there on the satellite side and i bring that up not to discourage us from doing something that might be novel and different but to understand as you very well know there are many parties that are going to be reading this study and have a vested interest in this kind of higher level set of recommendations and i what i'm interested in is um talking with you about the process for bringing these ideas to the public and to the you know the the vested interest in the telecommunications industry so perhaps we can come up with an agreement about what public benefits look like in this era given what the state's authority is and i think um i would just say in conclusion that this basket of public benefits because i i really think that's the key idea here for us to think about um is a subset of all these other things that you're looking at whether it's senator brock's revival of vta or if it's the department's you know broadband fund i mean there's the sort of idea of bringing telecommunications resources you know resources in the state to fund our infrastructure and capacity i mean this is this is great right and a lot of it is on your table and and i think what's important about this study is it underscores that in that conversation the public benefits need to be protected and thought about and reorganized within the state's authority to reflect the contemporary age that we are in i'm watching the time so i'm going to try and wrap this up shortly we are obviously not going to find the solution this afternoon there's a lot of moving parts here and they all fit together if we're going to solve this puzzle and this connects to several other things we're looking at senator pierce and just quickly thank you ma'am chair or glenn knowing you i'm going to guess that you're connected to your counterparts around the country and i hope we can come up with some solutions here in vermont but are you all working on congress i mean they have put so many barriers in our way around just the logic of the approach here uh that any solution the state comes up with is really going to be cobbled together whereas feds could succinctly solve this problem in a very significant way so is there any effort that you're aware of or part of in congress uh or in front of the FCC to to fix this one of the um there's sort of the big the big strategy and the little strategy so one of the biggest threats that peter pointed out is this FCC 621 order where essentially they have enabled the cable operators to say you know those public educational government access channels we're going to put up free market value of hundred thousand dollars on those and we're going to charge you for that right so we're going to reduce your peg franchise fee by the cost of whatever we decide we not whatever but within the realms of the FCC so we're trying to fight that so that doesn't happen and um and we hope with the new FCC with a democratic majority that they may withdraw their um they may change their position on that right so that's one thing that we in the access community are working actively at on and then most recently we are are starting to think about higher level broadband access legislation but it's a really heavy lift you know chris i've been working on reforming the telecommunications policy since i wrote the book on it um almost 20 years ago so it is not likely it's very difficult to get congress to move in this direction and that the forces of capital are so incredibly strong that there is just a very big push against expanding social benefits public benefits so we are working on it main has legislation that that's a kind of streaming legislation streaming tax um massachusetts has one along those lines and new york may be looking at that soon but again i'm not 100 convinced on the streaming option i don't think we should foreclose it but i think that the right-of-way model is one we want to look seriously at we have got some testimony coming in about right of ways later than the week uh committee i'm looking for one final question if not we're going to take a break um thank you everyone um senator bray not a question it's a thank you you're indeed cutting your break now it's not a question it's a thank you to mr ryan for giving us uh eye candy informal infographics you know like we've had we've had a lot of stuff so it's great to have a change of pace thanks for sending your artwork along thank you everyone thank you thank you ma'am Peter and dr lube and lauren glenn