© 2007 AT&T Knowledge Ventures. All rights reserved. AT&T and the AT&T logo are trademarks of AT&T Knowledge Ventures. Confronting Tough Questions About Carriers of Last Resort Ellen Blackler February 20, 2008

Page 2 The Context for AT&T: AT&T is a Major Provider of Service to Rural America AT&T serves 25% of all rural lines in the United States – 7.5 million lines. AT&T serves more rural customers than any other company. AT&T’s commitment to rural America is strong, but regulatory policy must be reformed to allow us to transform that commitment into a modern communications network.

Page 3 Traditional COLR is No Longer the Best Way to Ensure Ubiquitous Service Existing rules can act to constrain a provider’s ability to use new technologies to serve hard to reach customers, driving up costs. Two Prong Approach to Change 1.COLR should be transformed to a flexible, technology neutral service obligation allowing providers to use all available technology tools to provide access. Eliminate it where there is competition. Support it where it is high cost. 2.Promote network investment by – you guessed it – finally addressing implicit subsidies in access, and reforming universal service policies.

Page 4 Flexible Service Obligation Most consumers today have a variety of choices over a variety of technologies – cable, DSL, wireless, POTS, etc. Regulators have recognized the competitiveness and established the competitive classification process to determine when regulation is no longer necessary to protect consumers from price increases. Those same competitive forces mean that COLR is no longer necessary – providers have every incentive to make sure consumers have ample offerings to meet the range of consumer needs. OBJECTIVE: Transform the existing COLR requirements to a flexible service obligation to provide core functionality with the most efficient technology. Where robust competition exists, eliminate COLR entirely

Page 5 Flexible Service Obligation Define service obligation in terms of the core functionality (access to the PSTN, emergency service, operator service, directory assistance, and 711, 8YY, directory listing, lifeline). Eliminate it where there is competition. Where costs of meeting the obligation are high, support to a SINGLE provider should be made available. There could well be pockets of high cost areas in a region otherwise competitive. For these areas, an optional service obligation, supported by universal service, would be created and offered to a single provider who would guarantee service in exchange for the support.

Page 6 Promote Network Investment Funding mechanisms need to promote network evolution and the deployment of advanced services that consumers increasingly rely on without jeopardizing access to basic voice services. Programs to provide one time subsidies to a single provider to deploy infrastructure where it is inadequate should be considered. Subsidies in intrastate access need to be removed. Need to provide rate flexibility for rates in high cost areas.

Page 7 Current State Developments Laws amended to allow COLR obligation to be met with any technology, and protects that technology from the full range of state regulation. Texas, Nevada Adjust line extension obligations to reflect presence of competitors. Mississippi Legislation – line extension requirements do not apply when there is an alternative provider to the premise, or where the incumbent is prohibited from serving. Activity related untangling the damage caused by exclusive access arrangements. Exclusive access arrangements are bad for competition and customer choice – for video, internet or voice. Sticky problems arise where exclusive access arrangements exist for some services like internet access, but COLR for voice remains.