Legislature(1999 - 2000)
03/23/1999 01:40 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 52-LOCAL EXCHANGE TELEPHONE SERVICE
CHAIRMAN MACKIE announced SB 52 to be up for consideration.
SENATOR PETE KELLY, sponsor, explained that nine or 10 years ago a
decision was made by the Legislature to deregulate long distance
service in Alaska and allow for long distance competition. At the
time, companies who are beneficiaries of state sanctioned
monopolies claim that to allow competition would destroy Alaskan's
access to affordable long distance, raise prices, and reduce
services.
In fact, in the years since, the opposite has been true. Prices
have gone down; access has been unaffected and services have
increased. SB 52, deregulating local telephone exchange, has drawn
the same debate. These monopolies are engaged in the same counter
intuitive arguments. Opponents have brought up some meaningful
objections that are addressed in the bill. One was a concern about
universal services. On page 2, line 9 that is addressed so that
the APUC can take that into consideration when they are considering
competition. On page 2, line 14 reference is made to the
Telecommunications Act which allows the APUC to protect incumbent
exchange owners, if hooking up to another system would be
economically burdensome as far as technologically feasible and
whether they could actually hook fiber optic lines to copper lines
and those kinds of issues when a new player comes in to assist.
The APUC can still regulate that. Cherry picking is addressed on
page 2, line 22.
There were concerns that the smaller utilities just couldn't handle
competition and the number of lines the bill affects addresses
that. The current bill has 5,000 lines and he will recommend a
conceptual amendment to change it to 23,000 lines.
SB 52 recognizes the role of the APUC in regulating local phone
exchanges. As a regulatory agency, they will still make critical
calls, but this will take the policy call away from them, because
it is more appropriate for the Legislature.
Number 315
SENATOR HOFFMAN said in the last meeting a list of subscriber
access lines showed that GTE was at 58,738 and the current list
shows them at 21,000.
SENATOR KELLY said the 58,738 was a misprint.
SENATOR LEMAN asked why the line restrictions were defined as the
size of the local exchange carrier rather than have some type of
community based limit like the number of lines of that carrier in
a single community.
SENATOR KELLY responded that as he understands it, it can't be done
by community, because they are part of overall exchanges. They
wanted competitors not to compete for the most appealing community.
For instance, Fairbanks includes Barrow, Ketchikan, and Kwithluk.
If you wanted to compete and could just do Fairbanks, you would be
taking the best customer base and leaving the high cost low revenue
subscribers to basically fend for themselves.
SENATOR TIM KELLY said it looks like PTI in Fairbanks is awfully
low in terms of subscriber lines compared to the Matanuska Valley
or Kenai.
SENATOR PETE KELLY clarified that Matanuska Valley includes Eagle
River. Fairbanks includes North Pole and Fort Wainwright.
SENATOR DONLEY asked how a different numerical number affect those
other subdivisions if they are really in the same community.
SENATOR PETE KELLY answered that in Fairbanks, essentially three
different companies are owned by the same one.
SENATOR TIM KELLY asked if they were all accounted for on the list
before the committee.
CHAIRMAN MACKIE asked if the 37,000 represented all three
companies' access lines in the Fairbanks area.
SENATOR PETE KELLY responded that he would go through the list and
get that information.
SENATOR HOFFMAN said he was concerned with the number primarily
because of GTE that's in Nome, Bethel, and a few other communities.
How soon would GTE pass the 2,300 access lines, he asked.
SENATOR PETE KELLY replied that he didn't know what the growth rate
is. He said that the Nome Assembly has passed a resolution in
favor of this bill.
CHAIRMAN MACKIE asked how they decided on the 23,000 number.
SENATOR PETE KELLY answered that some of the larger communities are
more capable of taking on competition than smaller communities.
There might not be enough money to handle two companies and one
will go out of business and you're stuck with a monopoly again. He
wanted to provide competition in the state for the larger
communities and see how that works and wait on the smaller ones.
So he drew the line at 23,000 considering the size of the
communities that were in that system and the size of the system,
itself.
SENATOR HOFFMAN pointed out that he could accomplish the same thing
using 25,000.
SENATOR PETE KELLY said he supposed he could.
MR. JIMMY JACKSON, GCI, explained that on the list where it says
PTI(Fairbanks) that refers to the former municipally owned
utilities, the core. That is what has 37,000 access lines. The
30,000 Juneau access lines is also confusing and he explained that
PTI has three companies recognized by the APUC. One is the former
FMUS, one is called Telephone Utilities of Alaska including Juneau,
Douglas, Eilson and Fort Wainwright. He didn't know why they were
all put in that same group. The other PTI of 58,000 includes
Kenai, Kodiak, North Pole, and a long list of other communities
many. Fairbanks includes part of what says Juneau (Eilson and
Wainwright) and part of the one at the top which has North Pole.
The booklet put out by the Alaska Telephone Association is where
all this information comes from.
MR. JACKSON supported SB 52. He was a hearing officer for the APUC
for ten years which is where he witnessed the battle over
intrastate long distance competition. He said that SB 52
establishes a state policy favoring competition in local exchange
service. GCI provided it in Anchorage for more than a year. It
has brought better service, new services, and lower rates in
Anchorage as long distance competition and lower rates throughout
the state. They seek to bring competition to other areas of the
state including Fairbanks and Juneau. Citizens want competition
because they understand the benefits it will bring. The Assemblies
in Fairbanks, Fairbanks North Star Borough, and the City and
Borough have all passed resolutions supporting local competition.
Newspapers in those areas have consistently supported it in their
editorials.
The APUC has denied their request to extend full local competition
to Fairbanks and Juneau saying that they needed to complete
regulations on universal service and access charges before they
could allow local competition in new areas. Last year, when that
argument was presented, the Legislature deferred action at least in
part to give the APUC time to work on the regulations. They passed
regulations, but at the first opportunity for competition they had
in conjunction with what is happening now, the APUC decided it
wouldn't even consider. This is true, even though the Commission's
staff represented by the Attorney General told the Commission that
they had the authority to do it and that it would be a good idea.
On March 4, Superior Court Judge Murphy in Anchorage reversed the
APUC decision and sent the case back to them to decide on proper
standards. The two important things about what the Judge's
decision was that the Commission should have put the burden of
proof on PTI to show that competition caused harm; whereas, the
Commission had put the burden of proof on GCI to show that it could
not cause harm, very difficult to prove. The second thing was for
the APUC to keep in mind that the national policy established by
the Telecommunications Act is procompetitive. PTI filed a petition
for a review of Murphy's decision and last week the APUC joined
them.
SENATOR DONLEY moved on page 2, line 16 to change 5,000 to 25,000.
There were no objections and it was so ordered.
SENATOR HOFFMAN asked how soon the appeal would be heard.
MR. JACKSON replied that APUC has to ask the Supreme Court to hear
the appeal and the time frame would probably be a couple of months.
PTI is asking for a stay of the Judge's decision in the interim
which will probably happen more quickly.
Number 540
CHAIRMAN MACKIE asked if the APUC could make a decision that would
make this bill unnecessary.
MR. JACKSON said probably not. When it was first remanded they
established a schedule which would have let to a decision within
120 days, beyond the end of session.
SENATOR LEMAN asked if it was reasonable to think the APUC would
adopt the regulations by July 1, 1999.
MR. JACKSON replied that he believed they had already done what
that part of the bill called for.
SENATOR PETE KELLY concurred that the regulations were completed by
January 1.
SENATOR LEMAN asked if Senator Pete Kelly thought they could
complete this work by July 1, 1999.
SENATOR PETE KELLY indicated yes.
MR. MICHAEL BURKE, Vice President, Finance, TelAlaska Inc., said
they are a world telecommunications company that serves about 21
communities scattered across the State of Alaska. He said he is
also representing the Alaska Telephone Association.
MR. BURKE said this bill would affect the public by bringing about
some of the benefits of competition to consumers without harming
universal service or resulting in unintended consequences.
However, the APUC is currently conducting a number of proceedings
on how the can bring about competition on many areas of the State,
but maybe they have not been moving fast enough for some people.
The Telecommunications Act recognizes that healthy competition will
be developed over time, because of the complexity of the number of
issues involved.
He wasn't sure why the bill is necessary as the information
presented has no direct impact on TelAlaska. However, a lot of
issues and how benefits of competition will be implemented have
been spelled out very clearly in the Telecommunications Act.
TAPE 8, SIDE B
Number 590
This bills seems to try to parallel that. Competition is good in
some instances and in others it's not. Competition is a means to
achieve some goal - more advanced services, lower rates, more
carriers, etc. As a policy standpoint, if the Legislature wants to
enact any kind of policy, it should focus on those types of goals.
He thought it would be better to let the Telecommunications Act run
its course through the regulatory process than to possibly
complicate it further with additional legislation that may
ultimately take more of the process to litigation than is
necessary.
CHAIRMAN MACKIE asked if he lived in Anchorage and what was the
result of competition with his phone bills.
MR. BURKE answered that he currently subscribes to ATU and hadn't
seen any change. They only way he could get a break on his bill is
if he would buy certain services that he's not getting right now
and doesn't want to get.
SENATOR MACKIE asked if his company's offices were located in
Anchorage and if his commercial billing had gone down.
MR. BURKE replied that his business is in Anchorage and his bill
hasn't gone down.
CHAIRMAN MACKIE said he had talked to another person who had a
commercial account in Anchorage and his bill had gone down
substantially because of competition. Everything he has heard is
there is a direct benefit from competition.
MR. BURKE responded that it depends on the circumstance. Looking
at services in rural areas, the price customers typically pay for
their phone service is about 15 - 20 percent of the total cost.
About 80 - 85 percent of the cost is being paid through access
charges that the long distance carriers are paying from high cost
support universal service funding. Those amounts are totally
separate from what the customer is paying. Ultimately competition
won't have that much of an impact on what customers are paying on
a monthly basis.
The changes in long distance pricing has resulted from a shifting
around of some of those cost streams. In other words, a lot of
costs that used to be paid by the long distance carriers through
access charges have been shifted over to universal service and
spread over a bigger base. So that substantially reduced probably
the number one cost to the long distance carriers that are
providing long distance service and, in turn, has led to a big
reduction in their long distance prices.
CHAIRMAN MACKIE asked if it was ATA's position that competition
isn't good for Alaska.
MR. BURKE responded no, in many cases it would be good, but it
should be determined on a case by case basis.
CHAIRMAN MACKIE asked if he agreed that competition would be more
beneficial in the larger areas in terms of the 25,000 number they
set versus with a small utility such as his.
MR. BURKE answered that he thought it lessens some exposure in
terms of cost characteristics of small companies versus large
companies. He would have to look at it on an individual basis and
that is actually the job of the APUC.
CHAIRMAN MACKIE asked if he had suggestions to make this bill
better and allow for the benefits of competition.
MR. BURKE responded that the Telecommunications Act of 1996 was
procompetition directing state commissions to work towards
developing competition as quickly as possible and practical with
the provision that universal service is protected and maintained
and that rural customers are not disaffected. The
Telecommunications Act contains sufficient language and criteria to
do that job which makes this bill unnecessary.
SENATOR TIM KELLY said he wasn't sure how much cost savings has
been realized in Anchorage because of competition, but he thought
it wasn't worth the aggravation of the telemarketing calls you get
which he is very tired of getting.
MR. STEVE HAMLEN thanked the committee members for their
sensitivity and concern for rural companies and for the ongoing
availability of the telecommunication services of our state.
United Utilities provides cell phone service to 58 villages and has
approximately 5,500 access lines. They are a member of the Alaska
Telephone Association. He supported ATA's position statement
endorsing the Telecommunications Act and stated that competition
should be fostered where it's technically feasible, economically
viable, sustainable, and doesn't jeopardize the principals of
universal service.
MR. HAMLEN explained that a telephone bill has a charge called
"universal service surcharge." Currently, the State of Alaska gets
in excess of $50 million per year from the federal jurisdiction for
basic telephone service in Alaska. Future models of the funding
are based on having a single provider service an area. One of the
difficult issues that is going to have to be dealt with, once the
FCC has completed their deliberations, is how much sense does it
make to provide multiple carriers with access to a limited amount
of support to accomplish a given purpose. The issues surrounding
universal service are complex and he thinks the best way to resolve
those in the consumer's interest is before the APUC where there is
the opportunity to have a deliberative process.
CHAIRMAN MACKIE asked if he felt different now that he isn't
subject to the bill since they established a cap of 25,000 lines.
MR. HAMLEN said he appreciated their recognition of the
difficulties surrounding the competition in the more costly areas
in the state.
Number 459
MR. DON REED, MTA, said he supported the comments of the Alaska
Telephone Association as Mr. Burke set forth. They believe SB 52
circumvents the rural exemption clause purposely built into the
Telecommunications Act. These safeguards ensure that rural
customers will continue to enjoy affordable local service rates and
high quality service as the nation's telephone industry moves
toward the competitive market system.
The Telephone Act has two specific objectives: promoting local
competition and maintaining universal affordable service while that
takes place. The Act sets forth three ways that companies can
compete to enter rural markets. First, building their own
facilities; second, buying the services of the local phone company
that's already there and reselling those services; and thirdly,
unbundled network competition (Section 251 C competition).
The 251 C competition is the area in which MTA has the most
difficulty. The price incumbent phone companies must lease
facilities to competitors might not cover the cost of those assets.
Furthermore, when competitive phone companies enter the market,
they most likely target the highest revenue producing customers,
leaving the incumbent carriers to serve the remaining high cost low
revenue subscribers. Congress recognized those problems, but went
ahead for large urban areas thinking the markets and the companies
were large enough to work themselves out. At the same time,
Congress made it clear that the consequences of allowing 251 C
competition in smaller rural markets of less than 100,000 access
lines might jeopardize universal service. The Telecommunications
Act specifically exempts rural markets, defined as 100,000 lines
or less, until the state commissions can affirmatively determine
that type of competition will not unduly economically burden the
local exchange company, is technically feasible, and is consistent
with the universal service provision of the Act.
SB 52 attempts to bypass the critical inquiry by mandating that the
APUC adopts regulations that will allow 251 C competition in rural
markets over 25,000 regardless of consequences or the outcome of
the rural exemption proceedings. SB 52 conflicts with the
safeguards intended by the rural exemption provisions of the Act
and inappropriately accelerates the completion of all these dockets
by July 1999. The only thing that will be accomplished by this
form of rush to judgement will be that many parties will not be
heard which is not good public policy.
CHAIRMAN MACKIE thanked him for his testimony saying that he is the
only person affected by this bill that has offered testimony.
Number 400
SENATOR PETE KELLY responded that the Telecommunications Act allows
the regulatory bodies of the state to provide for competition. The
conditions are that it is not economically burdensome, technically
feasible, and we have to protect universal services. This bill
does all that.
The regulatory body can still make the regulatory calls that will
protect smaller operators from the possible down sides of
competition. The APUC is stuck on deciding a policy call, if
competition is good or bad. They are not capable of doing that
because they are not the appropriate body to discuss policy. This
Legislature is.
CHAIRMAN MACKIE noted that he has had the bill for two months since
it is such a huge issue. He is concerned that PTI is affected the
most and they haven't even come to talk to him.
SENATOR DONLEY moved to pass CSSB 52(L&C) and accompanying fiscal
notes with individual recommendations. There were no objections
and it was so ordered.
CHAIRMAN MACKIE adjourned the meeting at 3:00 p.m.
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