Legislature(1995 - 1996)

03/08/1996 03:12 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                          
                         March 8, 1996                                         
                           3:12 p.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Pete Kott, Chairman                                            
 Representative Norman Rokeberg, Vice Chairman                                 
 Representative Beverly Masek                                                  
 Representative Jerry Sanders                                                  
 Representative Brian Porter                                                   
 Representative Kim Elton                                                      
 Representative Gene Kubina                                                    
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 *HOUSE BILL NO. 501                                                           
 "An Act requiring competition in local exchange telephone service."           
                                                                               
      -  HEARD AND HELD                                                        
                                                                               
 *HOUSE BILL NO. 531                                                           
 "An Act relating to telecommunications."                                      
                                                                               
      - HEARD AND HELD                                                         
                                                                               
 HOUSE BILL NO. 526                                                            
 "An Act relating to the financing authority, programs, operations,            
 and projects of the Alaska Industrial Development and Export                  
 Authority; providing an exemption from the procurement code for               
 certain projects of the authority; and providing for an effective             
 date."                                                                        
                                                                               
      - SCHEDULED BUT NOT HEARD                                                
                                                                               
 (* First public hearing)                                                      
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  HB 501                                                               
 SHORT TITLE: COMPETITIVE LOCAL PHONE SERVICES                                 
 SPONSOR(S): REPRESENTATIVE(S) THERRIAULT, Martin, Mulder, Toohey,             
             Vezey                                                             
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 02/12/96      2726    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/12/96      2726    (H)   STATE AFFAIRS, LABOR & COMMERCE, JUD              
 02/27/96              (H)   STA AT  8:30 AM CAPITOL 102                       
 02/27/96              (H)   MINUTE(STA)                                       
 02/28/96      2909    (H)   STA RPT  2NR 3AM                                  
 02/28/96      2909    (H)   NR: JAMES, PORTER                                 
 02/28/96      2909    (H)   AM: GREEN, ROBINSON, WILLIS                       
 02/28/96      2909    (H)   ZERO FISCAL NOTE (H.STA/DCED)                     
 02/28/96      2909    (H)   REFERRED TO LABOR & COMMERCE                      
 03/08/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
                                                                               
 BILL:  HB 531                                                               
 SHORT TITLE: TELECOMMUNICATIONS UTILITIES                                     
 SPONSOR(S): LABOR & COMMERCE BY REQUEST                                       
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 02/28/96      2912    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/28/96      2912    (H)   L&C, STA, FIN                                     
 03/08/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 REPRESENTATIVE GENE THERRIAULT                                                
 Alaska State Legislature                                                      
 Capitol Building, Room 421                                                    
 Juneau, Alaska 99801                                                          
 Telephone:  (907) 465-4797                                                    
 POSITION STATEMENT:  Sponsor of HB 501.                                       
                                                                               
 GEORGE DOZIER, Committee Aide                                                 
 House Labor and Commerce Committee                                            
 Alaska State Legislature                                                      
 Capitol Building, Room 432                                                    
 Juneau, Alaska 99801                                                          
 Telephone:  (907) 465-3306                                                    
 POSITION STATEMENT:  Explained HB 531.                                        
                                                                               
 JACK RHYNER, President                                                        
 TelAlaska, Incorporated                                                       
 2121 Abbott Road                                                              
 Anchorage, Alaska 99515                                                       
 Telephone:  (907) 349-2400                                                    
 POSITION STATEMENT:  Commented on HB 531.                                     
                                                                               
 HARRY M. SHOOSHAN, Consultant                                                 
 Strategic Policy Research, Incorporated                                       
 7500 Old Georgetown Road, Suite 810                                           
 Bethesda, Maryland 20814                                                      
 POSITION STATEMENT:  Testified in support of HB 531.                          
                                                                               
 JAMES ROWE, Executive Director                                                
 Alaska Telephone Association                                                  
 4341 "B" Street, Suite 304                                                    
 Anchorage, Alaska 99503                                                       
 Telephone:  (907) 563-4000                                                    
 POSITION STATEMENT:  Testified in support of HB 531 and against               
                      HB 501.                                                  
                                                                               
 MARK FOSTER, Principal                                                        
 Mark A. Foster and Associates                                                 
 625 West Tenth                                                                
 Juneau, Alaska 99801                                                          
 Telephone:  Not provided                                                      
 POSITION STATEMENT:  Commented on HB 501 and HB 531.                          
                                                                               
 LEW CRAIG                                                                     
 Alaska Public Utilities Commission                                            
 1016 West Sixth                                                               
 Anchorage, Alaska 99501                                                       
 Telephone:  (907) 263-2151                                                    
 POSITION STATEMENT:  Answered questions relating to HB 501 and                
                      HB 531.                                                  
                                                                               
 STEVE HAMLIN, President                                                       
 United Utilities                                                              
 5450 "A" Street                                                               
 Juneau, Alaska 99518                                                          
 Telephone:  (907) 273-5210                                                    
 POSITION STATEMENT:  Testified in support of HB 531 and against               
                      HB 501.                                                  
                                                                               
 DOUGLAS NEAL, General Manager                                                 
 OTZ Telephone Cooperative                                                     
 Box 324                                                                       
 Kotzebue, Alaska 99752                                                        
 Telephone:  (907) 442-3114                                                    
 POSITION STATEMENT:  Testified on HB 531 and HB 501.                          
                                                                               
 JIMMY JACKSON, Attorney                                                       
 GCI                                                                           
 2550 Denali Street                                                            
 Anchorage, Alaska 99503                                                       
 Telephone:  Not available                                                     
 POSITION STATEMENT:  Testified in support of HB 501 and against               
                      HB 531.                                                  
                                                                               
 JIMMY WOODIN, Director                                                        
 Government Affairs                                                            
 AT&T                                                                          
 1934 Lenox Court, N.W.                                                        
 Olympia, Washington 98502                                                     
 Telephone:  (360) 705-3877                                                    
 POSITION STATEMENT:  Testified neutral on HB 501 and against                  
                      HB 531.                                                  
                                                                               
 GREG BERBERICK, Vice President                                                
 Government                                                                    
 Matanuska Telephone Association                                               
 1740 South Chugach Street                                                     
 Palmer, Alaska 99645                                                          
 Telephone:  (907) 745-3211                                                    
 POSITION STATEMENT:  Testified in support of HB 531 and against               
                      HB 501.                                                  
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 96-18, SIDE A                                                            
 Number 001                                                                    
                                                                               
 The House Labor and Commerce Standing Committee was called to order           
 by Chairman Pete Kott at 3:12 p.m..  Members present at the call to           
 order were Representatives Sanders, Elton, Rokeberg and Kott.                 
 Representatives Kubina, Porter                                                
                                                                               
 HB 501 - COMPETITIVE LOCAL PHONE SERVICES                                    
 HB 531 - TELECOMMUNICATIONS UTILITIES                                         
                                                                              
 CHAIRMAN PETE KOTT announced the committee would hear HB 501                  
 "An Act requiring competition in local exchange telephone service,"           
 and HB 531, "An Act relating to telecommunications."  He said the             
 committee may already know that earlier this year the U.S. Congress           
 passed some sweeping measures dealing with telecommunications and             
 telecommunication carriers.  Chairman Kott stated there are a                 
 couple of sections within the bill that are applicable to the state           
 of Alaska.  Section 521 (A) poses a duty to interconnect with other           
 carriers.  He noted this is the Deregulation Competition Act.                 
 Section 521 (B) imposes a duty on local exchange carriers to resell           
 its services, to have number portability and to have dialing                  
 parity.  Section 521 (C) imposes duties on incumbent local carriers           
 to negotiate, in good faith, interconnect, have un-bundled access             
 and to resell at wholesale rates.  Chairman Kott said those are the           
 general provisions; however, the federal act provides certain                 
 exemptions and exceptions.  For instance, rural telephone companies           
 are automatically exempt from the duties imposed in 521 (C) until             
 there is a good faith request for services or interconnection and             
 a state commission finds:  (1) That it would not be unduly                    
 burdensome; (2) That it is technically feasible; and (3) That it is           
 consistent with the act's position concerning universal service.              
 Chairman Kott said local carriers with fewer than 2 percent of the            
 nation's access lines may petition a local commission for a                   
 suspension of its duties under 521 (B) and (C).  The commission               
 must examine whether such an order is needed to avoid:  (1) A                 
 significant adverse impact on the user of services; (2) An unduly             
 burdensome economic impact; and (3) A technically infeasible task.            
 He pointed out that the commission must determine whether the                 
 request is in the public's interest.  He also noted that the                  
 Federal Communications Commission (FCC) shall complete all actions            
 necessary to establish regulations to implement the requirements by           
 August 1, 1996.  He noted that those are his introductory comments            
 as he sees the Federal Telecommunications Act of 1996, affecting              
 the state of Alaska.  Chairman Kott said the intent is to have both           
 of the bills introduced and to review the various sections.                   
                                                                               
 Number 375                                                                    
                                                                               
 REPRESENTATIVE NORMAN ROKEBERG asked if there were Senate companion           
 bills.                                                                        
                                                                               
 CHAIRMAN KOTT said he believes there is a companion bill for HB               
 501.                                                                          
                                                                               
 REPRESENTATIVE GENE THERRIAULT, sponsor of HB 501, said the federal           
 Act allows for an exemption from the competition based on a rural             
 setting.  "Rural" is determined to be an area that serves less than           
 2 percent of hookups on a percentage basis of the nation.  So                 
 basically, that definition would allow all of Alaska to be                    
 blanketed by this definition of "What is rural."  Motions could be            
 made to keep competition out of the entire Alaska market.                     
                                                                               
 REPRESENTATIVE THERRIAULT explained what he did in introducing HB             
 501 was to ask that the legislature make a policy call and a                  
 determination with regard to one of the things that is considered,            
 and that is to try and deal with the question "What is in the                 
 public's best interest.  Is competition in the public's best                  
 interest?"  He said he believes it is.  We've been in this battle             
 before when it came to Alascom versus GCI.  Many of the arguments             
 the committee will hear will be the same kind of arguments heard              
 during that battle.  Representative Therriault said if the                    
 legislature made a policy call that competition is in the public's            
 best interest, the Alaska Public Utilities Commission (APUC) would            
 still have a number of things that they would still be able to make           
 a determination on.  Those are if by allowing the competition                 
 brings significant adverse economic impact, then the competition              
 could still be kept out of the market, if it was going to be unduly           
 economically burdensome or if it was technologically infeasible.              
 What he is asking in the passage of HB 501 is that we narrow the              
 scope of things that the APUC has to consider and take that issue,            
 which is very broad - competition versus non-competition, off the             
 table and make a policy call on it.  Lets leave the other things              
 for APUC to consider.                                                         
                                                                               
 REPRESENTATIVE THERRIAULT referred to HB 531 and said from                    
 testimony given in the State Affairs Committee, there are some                
 things that he believes the two competing sides in this issue can             
 agree on and that the legislature also needs to put in statute.  He           
 said he knows that the different groups have had informal meetings.           
 Representative Therriault said he believes some of the things we              
 can probably agree on need to be dealt with, but we haven't come up           
 with the language.  One of them would be local rate adjustability             
 for the local exchange carriers to allow them to adjust their rates           
 more quickly as competitive forces come into their market.  He                
 noted we need to be cautious, as currently the local exchange                 
 carriers have a monopoly.  If they suspected that somebody was                
 going to come in and compete in their market, they have the ability           
 to drop the price to rock bottom and squeeze out any competition.             
 So a person wanting to come in and compete in the market would                
 never have a chance to even get a toehold.  Representative                    
 Therriault said he believes the way that the APUC dealt with this             
 when it came to GCI competing in Alascom's market was to allow a              
 greater level of flexibility as GCI picked up more of the market.             
                                                                               
 REPRESENTATIVE THERRIAULT said there are questions about universal            
 service and eligibility for universal service.  Currently, he                 
 believes a determination has to be made that an exchange carrier is           
 eligible for universal service.  He said he thinks the legislature            
 will be asked to do is to consider making a blanket policy call               
 that the local exchange carriers would be eligible to receive                 
 universal service funding.  Representative Therriault said he knows           
 that the local exchange carriers are frustrated, in general, with             
 the length of time that APUC takes to make determinations on rate             
 setting and other aspects that influence their business.  He said             
 he agrees there might be some room for flexibility in the                     
 consideration of crafting language that would be acceptable to the            
 long distance carriers and also the local exchange carriers.                  
                                                                               
 REPRESENTATIVE THERRIAULT said he agrees there are probably ideas             
 put forth in HB 531 that he thinks, if the language was massaged,             
 would lead him to feel very comfortable with having it added to HB            
 501.  He also stated perhaps there is some room that the language             
 in HB 501 could be modified so that we could come up with language            
 that would be acceptable to both sides if each side is willing to             
 give a little bit.  Representative Therriault said what this boils            
 down to is arguing over access to market.  Currently, we have the             
 local exchange carriers who pretty much have a lock on a particular           
 markets.  It is certainly understandable that they want to protect            
 those markets as best they can.  However, he thinks that Congress             
 has made a policy call that competition in those local markets will           
 be good and beneficial to the user, the person who has the                    
 telephone in their home.  He said he thinks the legislature should            
 make a policy call that they agree with Congress and are willing to           
 consider some statutory framework on how that competition is to be            
 allowed and managed.                                                          
                                                                               
 Number 933                                                                    
                                                                               
 REPRESENTATIVE KIM ELTON said if the legislature adopts a policy,             
 would there be any need for the legislature to provide for an                 
 exception in certain circumstances.                                           
                                                                               
 REPRESENTATIVE THERRIAULT said, "Well perhaps in particularly small           
 markets, but even then I would think that the allowance in the                
 federal legislation, you know, if it significant adverse economic             
 impact in that local market, if it is economically burdensome or if           
 it's technically infeasible.  Those allowances to keep competition            
 out would still exist if 501 were to pass.  We would have just                
 dealt with on a policy level here at the legislative level whether            
 competition, you know, that whole competition versus non-                     
 competition - whether the competition is a good thing.  But these             
 specifics -- if somebody could make a showing on these specifics              
 that competition should be kept out of a particular market, they              
 could make that case."                                                        
                                                                               
 Number 1021                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked Representative Therriault to comment            
 on the 2 percent provision.  He asked if the Alaskan delegation had           
 anything to do with that.                                                     
                                                                               
 REPRESENTATIVE THERRIAULT said it is his understanding that                   
 happened at the very end of the deliberation on the federal                   
 legislation.  Representative Therriault referred to when Mr.                  
 Comstock, from Senator Steven's Office, was in Juneau to give his             
 briefing, he wasn't sure exactly how that exemption was written               
 into the federal law.                                                         
                                                                               
 REPRESENTATIVE GENE KUBINA referred to competition in small towns             
 and asked if he means another telecommunications company would be             
 able to offer someone, such as the school district, a package                 
 cheaper than what the local one does.                                         
                                                                               
 REPRESENTATIVE THERRIAULT said he doesn't believe that would be               
 allowed because in order to access the local market, you have to be           
 fit, willing and able to serve the entire market.  For example, in            
 Fairbanks, if GCI or AT&T Alascom felt like the rate that they were           
 being charged for access into that market was too high, they could            
 put together an operation to come in and serve the whole area and             
 do it at a lower level.  Whether they would do that or not, he                
 isn't sure, but the possibility that they would have the right to             
 do that may force FMUS to make sure that the rates they're charging           
 are really competitive.  He noted that by being competitive, they             
 may be able to keep others out because nobody can come in and                 
 actually provide that service to that complete market at a lower              
 rate.                                                                         
                                                                               
 Number 1200                                                                   
                                                                               
 REPRESENTATIVE KUBINA said, "So you think that under this -- you're           
 bill is really a policy statement sort of I think the APUC is at --           
 but by the way it's written, if it would damage the rest of the               
 place -- in other words if you took off the cream of the crop and             
 that would cause residential normal every day people's rates to go            
 up, APUC would not allow that to happen."                                     
                                                                               
 REPRESENTATIVE THERRIAULT said exactly.  If somebody wanted to come           
 in and put together a completely new service in the Fairbanks                 
 market, but it caused people's rates to go up, you could make an              
 argument that this would be a significant adverse economic impact.            
 You would have to argue those economics.                                      
                                                                               
 REPRESENTATIVE KUBINA asked what the APUC's current policy is                 
 towards competition.                                                          
                                                                               
 REPRESENTATIVE THERRIAULT said he isn't sure he could answer that             
 question adequately.  Currently, the competition with the local               
 exchanges have an monopoly.  It wasn't until the change in the                
 federal law that this changed.  He said he is unsure whether they             
 have a policy with regards to local exchange carriers.  It may all            
 be new enough that they haven't developed that policy yet.                    
                                                                               
 Number 1320                                                                   
                                                                               
 GEORGE DOZIER, Committee Aide, House Labor and Commerce Committee,            
 read the following statement into the record:                                 
                                                                               
 "Early this year, Congress passed and the President signed the                
 Telecommunications Act of 1996.  The sweeping provisions of this              
 Act have the potential of revolutionizing the delivery of                     
 telecommunications services throughout the United States.                     
 Injudiciously applied, however, they also have the potential of               
 adversely affecting the delivery of affordable universal service in           
 small markets.  Relatively speaking, Alaska is a small market.                
                                                                               
 "In recognition of the potential for an adverse impact in smaller             
 markets, the federal Act provides exemptions from some of its                 
 provisions, such as the duty to interconnect, for rural telephone             
 companies.  It also establishes criteria by which a local                     
 regulatory board may terminate this exemption.  In addition, the              
 federal Act grants local exchange carriers with fewer than 2                  
 percent of the nation's subscriber lines the ability to petition a            
 local regulatory board to modify or suspend their duty to conform             
 to some of the provisions of the federal Act.  Again, the federal             
 Act establishes criteria for determining whether such petitions are           
 granted.  Alaska telephone companies, under criteria established by           
 the federal Act, can qualify for exemptions, as well as                       
 modifications and suspensions.  The APUC will be faced with these             
 questions in the near future.  Thus, a statutory and regulatory               
 framework must be created.                                                    
                                                                               
 "House Bill 531 is intended to fill the statutory and regulatory              
 void created by the federal Act.  It recognizes that competition is           
 desirable, but it also emphasizes that the state, in moving towards           
 more competition, must not neglect a need to provide universal                
 service at affordable rates.  Its intent is to address issues that            
 have been reserved to the states by the federal Act and thereby               
 assist in making an orderly transition from a regulated industry to           
 a competitive market environment.  Your support is urged."                    
                                                                               
 CHAIRMAN KOTT noted there is a proposed committee substitute dated            
 3/6/96, Cramer, Version F.                                                    
                                                                               
 Number 1434                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG moved that the committee adopt, for                   
 purposes of discussion, CSHB 531(L&C), Version 9-LS1720\F, Cramer,            
 3/6/96.  Hearing no objection, CSHB 531(L&C), Version 9-LS1720\F,             
 Cramer, 3/6/96 was before the committee.                                      
                                                                               
 JACK RHYNER, President, TelAlaska, Incorporated, was came before              
 the committee to address the issue.  He noted his company operates            
 two local exchange companies in 21 communities across the state               
 from Fort Yukon to Little Diomede Island to Kodiak and out to Dutch           
 Harbor.  Mr. Rhyner read the following statement into the record:             
                                                                               
 "I applaud the efforts of this committee to provide the framework             
 for the implementation of the Telecommunications Act of 1996.                 
 Without the legislative guidance and direction provided by HB 531,            
 the Public Utilities Commission will simply be incapable of                   
 responding to the requirements of the new federal Act.  Unless the            
 legislature affirmatively decides the policy questions answered in            
 HB 531, the Public Utilities Commission will be preempted by the              
 Federal Communications Commission as required by the Federal Act              
 and the state will relinquish control over what is in the best                
 interest of the people in the state of Alaska.                                
                                                                               
 "Questions may arise about the necessity of passing this                      
 legislation in this session.  It is vital to promote competition              
 and insure the continued availability of universal service.  There            
 has already been an application by AT&T to compete with the                   
 Anchorage Telephone Utility (ATU) in Anchorage.  In accordance with           
 the federal Act, negotiations on the terms for the use of ATU's               
 facilities must be completed in six months.  At its public meeting            
 on February 27, the APUC discussed these issues and decided that a            
 year is a reasonable amount of time to promulgate regulations to              
 allow for competition.  Given these time frames, ATU will be faced            
 by competition for at least six months and will not be allowed to             
 compete.  Rather than allowing the APUC to apply or disregard                 
 existing regulations where and when it sees fit, the legislature              
 should affirmatively promote and allow competition by allowing the            
 incumbent local exchange carrier to compete.  Competition requires            
 the passage of HB 531.                                                        
                                                                               
 "In the case of the rural areas, the authors of the federal Act               
 provided an absolute mandate to maintain the availability of                  
 universal service at affordable rates.  Toward that end, Congress             
 provided a number of waivers and exceptions whereby the state                 
 Public Utilities Commission must make a public interest                       
 determination based on the conditions in each individual rural                
 serving area.  The reason for this is that most local telephone               
 companies serving rural areas receive support from the universal              
 service fund to maintain affordable rates.  Competition in rural              
 areas would not be in the public interest if it reduced that                  
 support or in any other way raised rates for rural consumers.                 
 Competition does not reduce costs, it moves prices towards cost.              
 In most rural areas the cost of providing service is six to eight             
 times greater than the rates paid by consumers.  It also makes no             
 sense to use a subsidy to fund duplicative facilities or multiple             
 carriers.  The Alaskan legislature should do no less than to                  
 reaffirm the policy to maintain availability of universal service             
 at affordable rates."                                                         
                                                                               
 MR. RHYNER referred to the matter of public interest determination            
 that is proposed in HB 501 would basically gut all the protections            
 that were left in the federal bill for the rural communities.  He             
 noted that attached to his prepared statement is a letter from                
 Senator Ted Stevens which explains that the public interest                   
 determination has to be made on a case by case basis.  Mr. Rhyner             
 said he thinks there was a misunderstanding on what that public               
 interest determination means.  It does not mean you would stop                
 competition.  There can be no barriers to entry.  If someone wants            
 to go out there and serve, they're allowed to do that today under             
 that Act.  Mr. Rhyner said what we're talking about is the                    
 determination as to who will be eligible carriers and able to get             
 universal service funding, the subsidy that flows to keep rates               
 affordable, and exceptions to rules for interconnection.  He stated           
 that is all that determination can do.  It cannot stop anybody from           
 going out and competing in these markets.                                     
                                                                               
 Number 1740                                                                   
                                                                               
 MR. RHYNER said basically the purpose of HB 531 is to encourage               
 competition by allowing the incumbent carriers, where competition             
 develops, to compete and not be held down by regulation.  The idea            
 is to promote advanced telecommunications technology and have the             
 Public Utilities Commission maintain universally affordable                   
 services in the rural areas.  It also shortens time frames for the            
 commission to react and deal with certain situations.  There is a             
 number of different lengths of time for them to do things in the              
 bill.  Mr. Rhyner said currently it takes an inordinate amount of             
 time to get through rate cases, expand your service area, or                  
 resolve any other issue that you take before them.                            
                                                                               
 Number 1813                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Rhyner to educate the committee             
 on the present state of affairs as it relates to universal                    
 services, charges, and subsidies that his business is getting.  He            
 also asked him to explain how that relates to the more urban areas            
 of Alaska.                                                                    
                                                                               
 MR. RHYNER informed the committee that Anchorage doesn't get any              
 universal service support.  He said PTI, which serves in Juneau,              
 does receive support because it serves in other rural areas.  It              
 has to do with how you calculate the cost of providing the service.           
 He explained there is about $50 million annually worth of universal           
 service support flowing into the state of Alaska.  Mr. Rhyner                 
 explained that part of the $50 million is collected in local                  
 service monthly bills and part is collected from the long distance            
 carriers throughout the country.                                              
                                                                               
 Number 1883                                                                   
                                                                               
 CHAIRMAN KOTT asked how many local exchanges there are in Alaska.             
                                                                               
 MR. RHYNER said there are approximately 230.  He noted he would               
 provide the committee of a list of all the exchanges by size and              
 number of lines in each one.                                                  
                                                                               
 Number 1906                                                                   
                                                                               
 REPRESENTATIVE BRIAN PORTER said, "Over simplification, I guess,              
 the position that you're saying so that I'm sure I understand it,             
 in a normal competitive environment if there is one supplier with             
 service and then another one comes in, they will meet the costs of            
 the service by reducing the price, if that is case, if the price is           
 more than the cost to its lowest common denominator and still make            
 a profit and be able to exist.  But what you're saying is in rural            
 Alaska the cost is up here and the price is down here because of              
 the supplemental income to that area because of the universal                 
 service requirement.  And competition where it normally would be a            
 function of reducing prices wouldn't in that situation."                      
                                                                               
 MR. RHYNER said that is exactly right.                                        
                                                                               
 Number 1970                                                                   
                                                                               
 HARRY M. SHOOSHAN, Consultant, Strategic Policy Research,                     
 Incorporated, testified via teleconference.  He said he wants to              
 commend the legislature for providing the teleconference service.             
 He referred to testifying before the committee at an earlier date             
 and said major events have taken place since he last testified.               
 One major event is the enactment of the sweeping new federal                  
 statute, the Telecommunications Act of 1996.  That bill is a                  
 product of over two decades of bipartisan efforts at the federal              
 level to rewrite the Communications Act that has been on the books            
 since 1934, but its root really went back to Nineteenth Century               
 railroad regulations.  The objective of the new law is to open all            
 markets to competition.  He stated all markets and not just local             
 exchange, long distance and video or cable television.  The impact            
 of the new law has been evident already in Alaska as was noted                
 earlier by AT&T Alascom's request to finally enter the local                  
 exchange market in Anchorage.                                                 
                                                                               
 MR. SHOOSHAN said it is important to note that the new federal law            
 doesn't achieve its objective by means of a slash cut.  Rather it             
 seeks to provide a balanced and equitable transition to the world             
 (indisc.) and (indisc.) to (indisc.) full and fair competition.               
 Much of implementation of the legislation is left the Federal                 
 Communications Commission (FCC) and a lesser but still an important           
 amount to state commissions like the APUC.  Mr. Shooshan explained            
 the new law is a clear statement of legislative intent and                    
 direction to the regulators about how Congress wants the transition           
 to take place.  He said he thinks the legislature has done a much             
 better job than Congress in updating the state telecommunications             
 laws, but the time is right to consider further honorization of the           
 Alaska statutes.  Mr. Shooshan said HB 531 has much to recommend              
 and to him is far preferable than the approach taken in HB 501.  He           
 said he believes HB 501 is overly simplistic and obviously focused            
 on one-half of the competitive equation.  It attempts to short                
 circuit federal (indisc.) and to implement a slash cut approach.              
 The nature of competition, whether that competition is (indisc.),             
 fair, encourages only efficient competitors and truly suits service           
 consumers - that is whether competition is in the public interest,            
 will be determined by the nature of regulation.  (Indisc.) is now             
 (indisc.) our competitors are allowed to enter but also by the                
 terms and conditions of entry, for example, it was discussed                  
 earlier, "New entrance in (indisc.) has a duty to serve all."  He             
 said he doesn't think that is by any means clear.  Mr. Shooshan               
 said previously someone suggested, and will probably do so today,             
 that the APUC has all the authority it requires and has all that is           
 needed is an expression of the intent of the legislature.                     
                                                                               
 MR. SHOOSHAN said it is important for the legislature to provide              
 direction and guidance to the APUC on how the legislature wants the           
 transition of competition handled in Alaska, especially given the             
 unique interest of the state with its rural population and physical           
 separation from the Lower 48.  In providing that direction and                
 guidance, Mr. Shooshan urged the committee to seek and achieve the            
 same balance and equity that Congress seeks to achieve in the new             
 federal law.  House Bill 531 addresses a series of important                  
 transitional issues, including price regulation and other                     
 nontraditional forms of regulation.  He referred to pricing                   
 flexibility for competitive services, deregulation yet removal of             
 all regulation where appropriate, preservation of universal service           
 as well as steps used to make certain that the long distance market           
 in Alaska have become competitive and said these are all areas                
 where the new federal law invites the state to take action                    
 consistent with achieving full and fair competition.  He urged the            
 legislature to accept that invitation by enacting legislation along           
 the lines of HB 531.  While the transition itself need not take               
 long, it should be balanced and fair to all parties.  Mr. Shooshan            
 thanked the committee for listening.                                          
 Number 2220                                                                   
                                                                               
 CHAIRMAN KOTT asked Mr. Shooshan to indicate which group he is                
 representing.                                                                 
                                                                               
 MR. SHOOSHAN said he is representing ATU.  He noted his firm                  
 Strategic Policy Research, Incorporated, is a consultant to ATU.              
                                                                               
 CHAIRMAN KOTT asked if other states are proceeding ahead in                   
 implementation of the federal Act.                                            
                                                                               
 MR. SHOOSHAN answered yes.  He said subsequent to the passage of              
 the federal legislation there are several states that have taken up           
 their own legislative initiative.  Mr. Shooshan said while some               
 states are acting in the aftermath of the federal bill to update              
 their statute, many states predated the federal legislation by                
 adopting many of the provisions that are in HB 531.                           
                                                                               
 Number 2438                                                                   
                                                                               
 JAMES ROWE, Executive Director, Alaska Telephone Association, was             
 the next witness to come before the committee.  He stated that the            
 Alaska Telephone Association represents 22 local exchange companies           
 in Alaska.  He said the federal telecommunications legislation that           
 was signed by the President dramatically changes the policy of                
 telecommunications in our country.                                            
                                                                               
 TAPE 96-18, SIDE B                                                            
 Number 001                                                                    
                                                                               
 MR. ROWE indicated he is testifying on behalf of the 22 local                 
 exchange companies in favor of HB 531 and in opposition to HB 501.            
 The said the emphasis of the federal telecommunication legislation            
 is competition, but it is also universal service.  He said                    
 universal service means that there is a package of                            
 telecommunications products goods and services that reaches out and           
 is accessible to virtually all the citizens in our nation.  That is           
 a policy that has not changed through competition.  Competition is            
 a tool just as regulation has been and the goal of both those tools           
 is the same thing and that is to deliver the best                             
 telecommunications service possible to as many citizens of our                
 country as possible.  Mr. Rowe said that is not pure competition.             
 He stated that Reed Hunt, Chairman, FCC, in a speech about ten days           
 ago said that pure competition and universal service are not                  
 compatible.  He said that doesn't negate at all the aspect that we            
 entering a new environment in federal telecommunications, it is               
 competitive built.                                                            
                                                                               
 MR. ROWE said the Alaska Telephone Association has worked very hard           
 to come up with some of the ideas in HB 231.  He pointed out that             
 the federal legislation is over 270 pages long.  The bill that is             
 currently before the committee seems long, yet in comparison it is            
 very small.  There are many intricate issues involved and many will           
 be dealt with before the FCC and the Alaska Legislature has the               
 opportunity to deal with some of them.  However, if the legislature           
 decides not to deal with them, they will still be dealt with before           
 the FCC.  There are federal mandates to the state and if the state            
 doesn't grab hold of them and run with them, the federal government           
 will.  We can be assured there will be changes, and as indicated by           
 AT&T's announcement last week, the changes are already here.  He              
 stated AT&T, under the bill, can come in and compete with ATU.  Mr.           
 Rowe pointed out ATU can't compete because they're still regulated            
 under this commission.  There is only one competitor, per se, in              
 that market and one entity that can be competed with.                         
                                                                               
 MR. ROWE explained HB 531 initiates or puts limits on time frames             
 for the APUC to react in competitive environments.  If they don't             
 react, a regulated utility has no opportunity to compete.  He said            
 they call them monopolies and indeed they are, and yet they were              
 not and are not monopolies by desire.  That has been the regulatory           
 format they've been under.  Oftentimes, as Mr. Rhyner mentioned,              
 many of the customers in Alaska are served in very high cost areas.           
 They're served at costs that are far higher than the rates they are           
 paying, but this is part of the concept of universal service and              
 it's not a universal service to these individuals, but a universal            
 service to the telecommunications network in our country.  For the            
 public good of our country, it is a benefit that all of our                   
 citizens are able to participate.  This is part of our economy,               
 this is part of our social interaction.  For those people in more             
 urban areas of the country that are contributing a very small                 
 amount towards what is the universal support system, they're not              
 subsidizing, they're paying for opportunity to access that rural              
 customer - the person they're doing business with, the grandparent            
 or grandchild who lives in a high cost area.                                  
                                                                               
 MR. ROWE referred to HB 501 and said it suggests that we should               
 determine that competition will always be in the public interest              
 and this will satisfy the federal legislation because public                  
 interest is a criteria of decision making.  He stated if this                 
 legislature decides and writes into statute that competition is in            
 public interest, the federal level will be satisfied.  Mr. Rowe               
 said he would also suggest that in Washington, D.C., we had enough            
 federal legislators that decided that rural communities and high              
 cost areas throughout the United States, not just in Alaska, should           
 be accorded consideration because as Reed Hunt suggested                      
 competition might not be in the public interest in all of these               
 areas.  These area are open to competition.  Mr. Rowe said he would           
 suggest to the committee that he would feel, as an Alaskan citizen,           
 far more comfortable knowing that his state legislature and his               
 public utilities commission is going to decide if it is in his                
 public interest to have competition and that they will take a tool            
 that was given to them by the federal legislature and use it.  He             
 said he hopes that those who are representing him on a far more               
 personal basis will consider that public interest should be a                 
 determining factor before we allow something that is going to be a            
 very significant change.  Mr. Rowe thanked Chairman Kott for the              
 opportunity to come before the committee.                                     
                                                                               
 Number 275                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Rowe if the passage of HB 501               
 would jeopardize universal services.  He questioned if so, how.               
                                                                               
 MR. ROWE said he thinks it would jeopardize universal services                
 because the opportunity for a public interest determination that              
 the federal legislation allows us to make in all rural areas will             
 already be made by statute and it will not be a consideration.  If            
 perhaps we have some rural areas where it would be very much in the           
 public interest in this state for a competitive environment.  He              
 said they would like for our public utilities commission to be able           
 to make that determination.  However, if there is another rural               
 area where it would be disadvantageous for the public and drive               
 costs up so that some of the people would have to drop off the                
 telecommunications system because of cost, they would be likely               
 argue that it is not in their public or personal interest to have             
 competition.                                                                  
                                                                               
 Number 336                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG asked how the federal statute would impact            
 the universal service support nationally or in Alaska.                        
                                                                               
 MR. ROWE said, "There are the opportunities for that fund to grow             
 larger.  That fund is still there.  Carriers designated by public             
 utilities commission as eligible carriers, which is a new term in             
 this legislation, and to be eligible can only be eligible for                 
 something - that is universal service support, whatever that                  
 nature.  Competitors could both have access in an area to universal           
 service support, however, you certainly have some fixed costs and             
 if the rate that the customer is paying for local services lower              
 than the cost of delivery of that service, and you have to                    
 essentially subsidize, two entities out there delivering                      
 competitive services -- certainly the universal service support               
 fund is going to increase.  I would feel like when that gets so               
 large, it is certainly going to be a target and it is already for             
 the FCC to wonder if it is too large, if there is too great a                 
 contribution.  And I would suggest that perhaps we've already met             
 penetration levels in this state that are as high as we're going to           
 see for many years - and penetration level is the percentage of               
 families that have access to a telephone."                                    
                                                                               
 Number 394                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Rowe if he was suggesting, for              
 example, if U.S. West or AT&T wanted to come in and start providing           
 service that the existing local exchange and the large                        
 international type carrier would be both qualified for the                    
 universal service support because they'd be servicing a small area.           
                                                                               
 MR. ROWE said if they are serving it at a cost that is greater than           
 they're able to get they could be designated by the commission as             
 an eligible carrier.  He said it is the geography, the cost and the           
 service area.  Mr. Rowe said Anchorage is not rural it is under a             
 2 percent clause that is in the legislation.  It has other hoops              
 and hurdles it has to jump through for competition than the truly             
 rural areas of Alaska.  He noted that in the federal legislation              
 very explicitly designates the criteria.  He said the 2 percent               
 figure was an amendment that was originally initiated, he believes,           
 by Senator Stevens.                                                           
                                                                               
 Number 470                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG questioned what would be the effect in                
 Alaska if HB 501 or HB 531 isn't passed.                                      
                                                                               
 MR. ROWE said AT&T can come in and compete, ATU is regulated and              
 cannot compete.  He explained that our public utility commission              
 can, under some sections of the federal bill, react and prepare for           
 competition, and will be usurped by the FCC because it hasn't acted           
 in a timely manner.                                                           
                                                                               
 Number 506                                                                    
                                                                               
 REPRESENTATIVE KUBINA asked if the APUC couldn't unilaterally as a            
 commission make a policy decision on their own.                               
                                                                               
 MR. ROWE said, "I think they certainly could.  They make policy               
 decisions all the time.  I absolutely agree with that.  One thing             
 that you will see that House Bill 231 addresses is the time frame             
 it takes our public utility commission to make some time and that             
 was mentioned earlier.  If they don't make it in the appropriate              
 amount of time, they didn't make it at all because it has been                
 usurped, and not only has it been usurped by the FCC but what you             
 now have is your local telephone company that is not allowed to               
 react because they are regulated - might be out of business - will            
 certainly have its service deteriorate.  And rather than (indisc.-            
 coughing) to that company let me say that the customers that are              
 receiving telecommunications from that company, especially in the             
 more rural areas, can be severely disadvantaged."                             
                                                                               
 CHAIRMAN KOTT asked that the record reflect that during Mr. Rowe's            
 testimony, he referred to HB 231 and it should be HB 531.                     
                                                                               
 Number 585                                                                    
                                                                               
 REPRESENTATIVE ELTON said the sponsor of HB 501 seemed to suggest             
 that there may be elements of each that could be married to come up           
 with a more perfect bill.                                                     
 MR. ROWE said as far as merging the bills, the committee members              
 have before them one very neat looking bill and one very cumbersome           
 looking bill.  The very neat looking bill certainly isn't all                 
 encompassing.  He said the very ugly looking bill by its length               
 doesn't answer every question nor does the federal legislation.  As           
 far as merging the bills, he sees only one issue in HB 501 and                
 multitudes of issues that are addressed in HB 531.  Mr. Rowe said             
 he sees no advantage for himself or for the citizens that are                 
 served by the members of the Alaska Telephone Association, to have            
 a public interest determination, disregard it.                                
                                                                               
 Number 657                                                                    
                                                                               
 REPRESENTATIVE THERRIAULT said, "When the legislature involved                
 itself in the GCI and Alascom argument, basically the problem there           
 was the APUC couldn't deal with the question of competition versus            
 non-competition, that there was no forward movement on that.  When            
 the legislature entered in and made that determination - that                 
 policy call, they didn't at that time to my recollection, perhaps             
 you can clarify this, set out a whole -- the concern that Alascom             
 had or GCI has was that AT&T or Alascom controls the market.  Now             
 that you say that there is competition, they'll drop the rates                
 down, they'll do things to keep us out of the market.  The                    
 legislature didn't put out a whole framework on how that                      
 competition was to gradually to be fostered, but the APUC went                
 ahead and did that and as far as you know made adjustability.                 
 Didn't the APUC make determinations on its own without framework by           
 the legislature on how to protect that, you know, bud of                      
 competition and let GCI get into the market and control things --             
 control Alascom for awhile until we actually got competition and              
 we're actually take the rate controls off of Alascom.  And I guess            
 -- I see that -- I understand the issue of rate adjustability and             
 it's important to you.  I think in the case of the long distance              
 carriers competition, APUC stepped in and took care of that.  If it           
 makes you feel more comfortable to put something in statute, I                
 guess I would be agreeable to doing that, but I don't know that it            
 is absolutely necessary.  I think we're (indisc.) with this whole             
 question once before and it all turned out O.K.  If you're a little           
 bit concerned that it might not all turn out O.K. at the local                
 exchange level -- that's why I indicated I'm willing to, you know,            
 add things to the bill and put things in statute.  I don't know               
 that's absolutely necessary though because the same types of issues           
 were dealt with before when it came to the competition of the long            
 distance services.  I guess that's a rambling dissertation, I don't           
 -- and I guess my question is if you felt like the APUC dealt with            
 that issues adequately on its own with regards to the long distance           
 service and is it absolutely necessary that we have a statutory               
 framework to make sure that they do that again?"                              
                                                                               
 MR. ROWE said, "Representative Therriault, Mr. Chairman, very easy            
 question for me to answer.  First of all my history in Alaska                 
 doesn't go back that far, I wasn't here for it, and I think there             
 are people in this room that can more thoroughly and accurately               
 address that.  I will say we have competition in long distance.  We           
 have an oligarchy.  I think you'll find competition in                        
 telecommunications, that has been initiated by the federal bill,              
 will be far more extensive than what we have seen here in long                
 distance.  Did the commission act - I don't think I'm able to                 
 really answer your question since I wasn't here for that time.  I'm           
 sure I've heard different viewpoints on it, but not having been               
 here at the time I don't think I need to tell you what other people           
 have told me.  It is a different scenario than it was then.  It is            
 getting different now.  And do we have to -- do we have to have               
 that protections?  We can all hope and certainly we do - that the             
 APUC will make the correct decision in every instance.  Recognizing           
 human frailty and error sometimes, I would like to think that they            
 have as much help in guidance as is possible and I particularly am            
 concerned that we do have an issue of public interest that we don't           
 take advantage of, that we might have an opportunity for a public             
 interest determination.  And we might say, but we don't really need           
 this.  I'd like to keep it there and if it can in each case be                
 quickly whisked away and say, `Yes, competition is in the public              
 interest in that area,' I think that's fine.  We don't want it to             
 be a stumbling block.  531 is a pro-competition bill, looking at              
 flexible rates as you've noted.  It is looking at shorter time                
 frames for the commission so that we can have competition so that             
 all parties in that market can act.  I'd be very concerned that the           
 incumbent -- my understanding from history, and I might well be               
 wrong was GCI was a small entity coming into a large monopolistic             
 situation.  I really don't see ATU as a large monopolistic entity             
 that is being challenged by a unique little competitor - AT&T.  I             
 don't think those of us that have dwelled on the federal                      
 legislation the last three years and worried about what's going to            
 happen to AT&T and say, `There is a 800 pound gorilla,' I don't               
 think we have any concept of how big that gorilla is and I think              
 that the idea that a carrier is up here in this state, at this                
 time, and that's a dominate carrier, and we have to curtail them if           
 U.S. West wants to come in.  I think we've completely misjudged the           
 situation."                                                                   
                                                                               
 Number 958                                                                    
                                                                               
 MARK FOSTER, Principal, Mark A. Foster and Associates, was next to            
 come before the House Labor and Commerce Committee.  He informed              
 the committee Mark A. Foster and Associates is a consulting firm              
 specializing in utility regulatory matters.  He noted he was a                
 former commissioner for the Alaska Public Utilities Commission                
 during the implementation phase of the opening of the entry into              
 the long distance market in Alaska.  Mr. Foster said he is                    
 appearing on behalf of ATU.                                                   
                                                                               
 MR. FOSTER said he would like to offer the committee sort of a                
 brief general overview of what he calls the "Legislative Phone                
 Wars" that are now on the table.  He said he thinks there are three           
 basic alternatives that the committee has before them.  He stated             
 he thinks there are possibilities for some combinations of the                
 alternatives to occur.  If nothing is done, the federal rules set             
 the boundaries for local phone markets today.  They do that in a              
 couple of ways.  One is the federal rules govern interconnection to           
 the local wireline facilities and talk about the rates that will              
 govern that.  The federal rules have also opened up the local                 
 market by way of cellular franchises and personal communication               
 service (PCS) franchises which are deregulated services that do in            
 fact provide service in local markets today.  Mr. Foster said those           
 are two aspects that are at play if you nothing that competes in              
 the local market.                                                             
                                                                               
 MR. FOSTER said, "If you don't do anything, the existing APUC rules           
 and the way they've interpreted basically keep a fairly heavy break           
 on the local phone companies ability to compete.  It takes a long             
 time to process.  Largely that is the nature of a committee of five           
 dealing with a lot of controversial issues.  It doesn't happen very           
 quickly and there are divisions within the commissioners.  If you             
 do nothing, the in-state long distance market, still governed by              
 the 1990 legislation that was designed to open entry, and based on            
 that legislation the APUC has let GCI, Sprint and some other                  
 resellers into the market, but the APUC has kept the local Alaskan            
 phone companies out of that long distance market based on the the             
 urging of some of the long distance carriers.  There are a number             
 of issues there but the bottom line is today those local companies,           
 some of which who have been interested in going into long distance,           
 haven't been allowed to by the APUC."                                         
                                                                               
 MR. FOSTER said if you do nothing, the status quo holds the local             
 phone companies in a bit of a regulatory vice compared to AT&T and            
 GCI.  Simultaneously the federal rules give AT&T and GCI the                  
 ability to launch assaults on the local market, not only thorough             
 interconnection but also through wireless.                                    
                                                                               
 MR. FOSTER said HB 531 provides some relief to the local phone                
 companies who are caught in this regulatory vice and allows them to           
 begin to respond to some of the competitive forces that they see.             
 Basically, that bill reduces some of the burdens on both the local            
 and long distance carriers because it does apply to both with                 
 respect to regulatory burdens and it allows local phone companies             
 to apply for long distance service on the same basis as other                 
 carriers.                                                                     
                                                                               
 MR. FOSTER referred to HB 501 and said it is really aimed at                  
 tightening the vice a bit on the local phone companies by                     
 eliminating their ability to argue about public interest                      
 considerations with respect to interconnection disputes.                      
                                                                               
 MR. FOSTER said basically all the companies are seeking what he               
 would call a fair advantage over the other guy.  They're all                  
 looking to get a little bit of the edge and they're each going to             
 call it a level playing field in their own way.                               
                                                                               
 MR. FOSTER encouraged the committee to adopt legislation that opens           
 markets and allows people to compete in a rapid manner and in a               
 manner that you think of when you think of competitive markets in             
 other arenas in Alaska.  Mr. Foster said he thinks in order to do             
 that, you have to provide the local phone companies with the                  
 opportunity to have pricing flexibility to be able to compete with            
 some large well healed companies, not just AT&T and GCI but cable             
 companies who are right on the door.                                          
                                                                               
 MR. FOSTER said the legislature also needs to provide the APUC with           
 a clear signal that the local phone companies should be allowed to            
 compete in the long distance markets in Alaska and they shouldn't             
 have to spend years in the hearing room to get there.  That may               
 require some additional negotiations in terms of what terms local             
 companies need to meet in order to get into the long distance                 
 business and that should be accelerated and not stalled as it                 
 appears to be today.  He thanked the committee for listening to his           
 testimony.                                                                    
                                                                               
 Number 1234                                                                   
                                                                               
 CHAIRMAN KOTT said if a long distance company wanted to get into a            
 local market, absent any state legislation, can the APUC grant that           
 authorization based on the requirements in the federal                        
 telecommunications law.                                                       
                                                                               
 MR. FOSTER indicated the APUC could.  He said he thinks ATU falls             
 into a separate category from the rest of the local phone companies           
 by virtue of the way the federal legislation is constructed.  In              
 the case of ATU, anyone can ask for basically interconnection and             
 ATU has the ability to ask for modifications and exemptions from              
 interconnection requirements if they feel they're economically                
 burdensome - technically infeasible, but the burden is on ATU to              
 make that case.  So that is the basic terms of the debate for ATU             
 versus somebody come into their market for wireline facilities.               
 Wireless is basically deregulated and that game is already going              
 on.  With respect to the other smaller local phone companies and              
 people going into their markets for wireline competition, he would            
 suggest that they have a higher burden to get into those markets.             
 He said that is the concern that long distance carriers, such as              
 GCI and AT&T might be looking at - those exceptions, because they             
 have higher requirements to get in there so the burden shifts and             
 the rural companies have more protection.  He said he thinks the              
 aim of HB 501 is to try and reduce that level of protection.                  
                                                                               
 Number 1337                                                                   
                                                                               
 REPRESENTATIVE PORTER said he is hearing from people testifying is            
 that the federal Act does not provide total competition to the                
 extent that ATU without statutory allowance cannot compete with the           
 long distance providers.                                                      
                                                                               
 MR. FOSTER said the state statute provides for open markets.  The             
 commission has interpreted that to be open markets subject to                 
 conditions because of the unique circumstance of the local phone              
 company having control over wireline facilities.  As a result, the            
 APUC has not allowed any of the local phone carriers into long                
 distance under the existing statutory framework.                              
                                                                               
 Number 1395                                                                   
                                                                               
 REPRESENTATIVE PORTER asked Mr. Foster if he is saying that by                
 allowing a local carrier into the long distance it would tilt the             
 playing field to the extent that they would have a definite                   
 advantage over a long distance carrier in competing with those two.           
                                                                               
 MR. FOSTER said if the long distance carrier was not otherwise in             
 the local market, he would say from a business perspective, the               
 local would have the advantage over the long distance carrier.  He            
 said this gets back to the debate at the federal level.  The Bell             
 Operating Companies versus AT&T and MCI, and the cable companies              
 were on the side.  Mr. Foster referred to who gets to go into whose           
 market, and when, was a lot of what the argument was about.  It               
 was, "When can the Bell Operating Company go into long distance               
 against AT&T and MCI versus when does AT&T and MCI get to go into             
 the local."  Mr. Foster said a great deal of legislation at the               
 federal level that was just passed talks about those issues.  He              
 said for Alaska, the federal legislation that just passed provides            
 for interconnection with exceptions because of the size of the                
 carriers are smaller.  The terms of the debate in Alaska are about            
 those exceptions and whether the local phone companies would be               
 able to leverage those exceptions to gain some advantage in the               
 interconnection negotiation or whether the long distance carrier              
 would be able to leverage those exceptions and gain an advantage in           
 a cheap rate, for example, to interconnect to a local phone                   
 company.                                                                      
                                                                               
 Number 1574                                                                   
                                                                               
 REPRESENTATIVE PORTER referred to the issue of the local exchange             
 competing and blossoming out into long distance and asked what in             
 HB 531 provides for that.                                                     
                                                                               
 MR. FOSTER referred to page 15, lines 4 and 5, and said that is the           
 vehicle.                                                                      
                                                                               
 Number 1574                                                                   
                                                                               
 REPRESENTATIVE PORTER said without those two lines, ATU would be              
 precluded from getting into long distance.                                    
                                                                               
 MR. FOSTER said he would characterize it as saying they are not               
 precluded from getting into long distance, but to date the APUC has           
 not allowed other companies in who have sought to get into the long           
 distance business.  He said he thinks that what the ATA is                    
 attempting to do is send a signal to the APUC that says, "Lets                
 advance this discussion, let us in."                                          
                                                                               
 Number 1615                                                                   
                                                                               
 REPRESENTATIVE PORTER asked if APUC has not been tempted to provide           
 this access to ATU because of a perceived realistic or unrealistic            
 advantage that they would have then against their competitors in              
 the long distance area in that they own the local service and have            
 somehow controlled the interconnect charges.                                  
                                                                               
 MR. FOSTER said, to his knowledge, ATU has not applied for                    
 certification nor has the commission ruled on an ATU application              
 for certification of the long distance business.  He said he thinks           
 United Utilities has applied to provide service in Prince William             
 Sound, for example.  Mr. Foster said he thinks United Utilities               
 would say that they attempted to provide service, and GCI                     
 intervened and characterized it as long distance service.  In a two           
 to one decision, the commission said, "No you can't provide this              
 service," even though United wanted to provide it.  He said it is             
 his understanding that is still pending in court.                             
                                                                               
 Number 1763                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG questioned whether after the passage of the           
 federal law, would ATU be worth less than $280 million.                       
                                                                               
 MR. FOSTER said, "I think the value of small local phone companies            
 after the passage of the act is very difficult to determine and               
 it'll largely be based on their ability to use their brand name to            
 hold on market share and to get new market share and new services             
 and, where it's appropriate for them to get into the long distance            
 business, I think largely what they have to offer is their brand              
 name, their ability of their people to provide good service.  And             
 if they can make good on that, I think their value will increase,             
 and if they don't, I think it will decrease."                                 
                                                                               
 Number 1854                                                                   
                                                                               
 LEW CRAIG, Alaska Public Utilities Commission, was next to testify            
 via teleconference from Anchorage.                                            
                                                                               
 CHAIRMAN KOTT said Mr. Craig has heard some of the comments                   
 regarding entry into long distance markets by the regional carriers           
 and asked him to comment.                                                     
                                                                               
 MR. CRAIG said he would like to comment on the fiscal note.                   
                                                                               
 CHAIRMAN KOTT asked him if he could respond to some of the ideas              
 that have been discussed on the entry by the local carriers into              
 the long distance market.                                                     
                                                                               
 MR. CRAIG said he would defer to the commissioners on that.  He               
 noted the commissioners aren't present.                                       
                                                                               
 Number 1918                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG questioned what the APUC is doing in                  
 relation to the federal Act.  He also asked if they are making any            
 recommendations to the legislature or if they are planning to                 
 revisit the existing regulations.                                             
                                                                               
 MR. CRAIG explained that the staff is working on a briefing that              
 will be brought before the commissioners next week.                           
                                                                               
 Number 1975                                                                   
                                                                               
 REPRESENTATIVE ELTON said he would hope that the staff work being             
 done for the commission is done with the idea of providing some               
 input to the committee as the legislature addresses both of the               
 bills.  For example, if there were a change at the federal level              
 with insurance laws, he would expect the Division of Insurance to             
 provide input on how the state could best handle it at the state              
 level.  He said when there is a massive rewrite of federal                    
 telecommunication laws, he would expect that the commission would             
 be able to help the committee and the rest of the legislature in              
 best determining how it is dealt with at the state level.                     
                                                                               
 Number 2067                                                                   
                                                                               
 STEVE HAMLIN, President, United Utilities, was next to testify via            
 teleconference from Anchorage.  He read the following statement               
 into the record:                                                              
                                                                               
 "I'm Steve Hamlin, President of United Utilities.  United Utilities           
 is a small Alaskan Native owned company.  We serve approximately              
 4,600 customers, located in 58 rural communities.  Most of these              
 communities are located in the Yukon Kuskokwim Delta.  They're here           
 today to testify in favor of House Bill 531.                                  
                                                                               
 "House Bill 531 addresses the (indisc.) reserved to the state and             
 in the recently passed federal Telecommunications Act.  House Bill            
 531 has the support of the 22 members of the Alaska Telephone                 
 Association who now provide local telephone services throughout the           
 state.  We're also here to testify in opposition to House Bill 501,           
 legislation that has been introduced at the request of GCI.                   
                                                                               
 "I'll first address the GCI bill.  If you read the sponsor                    
 statement, it declares that House Bill 501 is needed because                  
 without it the entire state could be exempted from competition.               
 This position, however, is in direct conflict with the federal                
 bill.  Section 253 of the federal bill removes all barriers of                
 entry to competition and it preempts the state or local governments           
 from erecting barriers to competition. In other words, GCI's claim            
 that its bill is needed to prevent the entire state from being                
 exempted from competition is incorrect and misleading.                        
                                                                               
 "If the GCI bill is not needed to provide for competition, then why           
 is GCI seeking legislation.  To answer this question you need to              
 carefully look at the federal Act and ask yourself, `What is it in            
 the federal Act that GCI doesn't like?'  I refer you Section 251 of           
 the Act, this section gives the state the ability to determine                
 whether it is in the public interest to require a rural telephone             
 company to make investments so that GCI or another competitor can             
 use the rural telephone companies network to compete with it for              
 federal high cost assistance.  GCI unsuccessfully lobbied Congress            
 to be entitled to force a rural company, even though it may not be            
 in the public interest, to make these investments and provide                 
 interconnection.  Now GCI is asking a state legislature for this              
 same entitlement.                                                             
                                                                               
 "Would the public interest be served by requiring United Utilities            
 to make investments in its facilities in communities like Arctic              
 Village where we have 27 customers so that GCI can compete with               
 United for federal high cost assistance.  The state is fortunate to           
 have any federal high cost support for telephone service at Arctic            
 Village and the over 200 other similar locations throughout the               
 state.  There has been and there will continue to be a limited                
 amount of federal high cost assistance available to provide                   
 telecommunication services in rural Alaska.  The state, under the             
 federal Act, has some ability to ensure that this federal and also            
 state high cost assistance isn't wasted on duplicate facilities and           
 services.  GCI clearly wants to be able to gain the high cost                 
 assistance mechanisms so that it can take this assistance from                
 existing carriers."                                                           
                                                                               
 MR. HAMLIN informed the committee that last week I had discussions            
 with GCI personnel and if you look closely at the GCI bill, House             
 Bill 501, number (2) under the findings, it says, "facilities-                
 based, local exchange telephone service should be provided                    
 competitively throughout the state;".  This includes Arctic Village           
 and the other over 200 locations where there is hand full of                  
 customers.  Mr. Hamlin gave testimony as follows:                             
                                                                               
 "It is clear to us that House Bill 501 should be dropped from any             
 further consideration unless this language can be tempered.  We               
 asked GCI if that language could be tempered and their answer was             
 `No.'                                                                         
                                                                               
 "The federal (indisc.) has reserved to the state a number of areas            
 that the state now needs to address to implement the act.  These              
 areas include eliminating barriers of entry to the instate long               
 distance market to moving (indisc.) APUC regulations that do not              
 permit pricing flexibility and timely processing of utility                   
 applications in universal services.                                           
                                                                               
 "House Bill 531 addresses all these areas.  One example of the                
 inequities between existing state policies in the federal Act is              
 the pricing of wholesale services.  Under the existing policies,              
 long distance carriers are able to establish wholesale rates that             
 are greater than their retail rate.  Both exchange carriers,                  
 however, are prohibited by the federal act [End of tape...]                   
                                                                               
 TAPE 96-19, SIDE A                                                            
 Number 001                                                                    
                                                                               
 MR. HAMLIN continued, "...playing field larger companies like AT&T            
 and GCI will be able to drive small companies, including United               
 Utilities and other customer owned businesses out of business which           
 will result in the long term with less competition, fewer customer            
 choices and more costly service.  Since the FCC will be adopting              
 regulations in August to implement the interconnection provisions             
 of the federal Act, it is imperative that the legislature draft, in           
 this session, the state's responsibilities and eliminate the                  
 barriers of entry to long distance, provide existing carriers with            
 the ability to compete by doing away with monopoly based                      
 regulations and ensuring the universal service.                               
                                                                               
 "House Bill 531 clearly addresses these issues and we                         
 wholeheartedly support its passage.  Thank you for this                       
 opportunity, Mr. Chairman and committee members.  United would like           
 work closely with the committee on this important piece of                    
 legislation.  I'm now available to answer any questions that you              
 may have."                                                                    
                                                                               
 Number 151                                                                    
                                                                               
 DOUGLAS NEAL, General Manager, OTZ Telephone Cooperative, testified           
 via teleconference from Kotzebue.  He said HB 501 looks as if will            
 openly disconnect many of the members of OTZ Telephone Cooperative            
 to the rest of the world.  Because this will happen under the feel            
 good title of competition, it will be O.K.  If we really want to              
 keep rural Alaska connected to the rest of the world, there needs             
 to be some safeguards that doesn't allow that to happen.  Mr. Neal            
 said the concern he has is mostly in the area of bypass.  He                  
 pointed out that OTZ Telephone only has a couple of high volume               
 users in Kotzebue and his concern is that even a competitor that              
 comes in to compete with them by resale -- the offer, for example,            
 a competitor who intends to cherry pick their high volume business            
 users could offer local telephone service at $30 per month which is           
 significantly higher than what is currently being charged.  Their             
 intent is not to pick any of the residential subscribers or the               
 business in the villages, but with the intent of picking up OTZ's             
 three high volume users in Kotzebue.  This competitive access                 
 provider will then bypass OTZ's footage and, therefore, not have to           
 pay any of the access fees that are generated by those minutes of             
 use.  The competitor makes his money by paying himself the access             
 charge that he would have paid OTZ.  OTZ will still have the same             
 switch, the (indic.) plant and will still be responsible for                  
 serving the villages.  The net effect of competition, in his area,            
 if it is not done right will be that local rates will rise and many           
 people will be unable to afford a telephone.  The rural exemptions            
 and safeguards that are included in the recently passed federal               
 legislation needs be part of any serous state telecommunication               
 bills.                                                                        
                                                                               
 MR. NEAL referred to local rate adjustability and said that sounds            
 good if you're in Anchorage.  He explained expenditures for OTZ               
 Telephone last year was approximately $2.1 million only $500,000 of           
 that actually came from the local users.  The other came from                 
 access revenues.  If someone interconnects with them, their resale            
 (indisc.) are on a wholesale basis and then still manages to take             
 their high volume users in Kotzebue, they will still (indisc.).               
 Mr. Neal also pointed out they are trying to offer internet.  He              
 stated he is personally taking names of people in Kotzebue who are            
 willing to spend $45 a month to connect to the internet.  Mr. Neal            
 said they are trying to do a lot of things in the rural areas and             
 unless they have the financial support to do it, they are going to            
 be in real trouble.  He thanked the committee for listening to him.           
                                                                               
 Number 500                                                                    
                                                                               
 JIMMY JACKSON, Attorney, GCI, said he is in support of HB 501 and             
 is against HB 531.  Mr. Jackson read a statement into the record:             
                                                                               
 "I am here to testify in favor of House Bill 501 and against HB               
 531.  As it has been pointed out, the telecommunications bill has             
 passed Congress.  It did so by overwhelming margins and it did so             
 with the strong support of Senator Stevens.  The central purpose of           
 that bill is to open all telecommunication market to competition.             
 Why did they do that?  Because in the past 20 years, piece by piece           
 the telecommunications market has been opened up to competition and           
 in every single instance, that has resulted in lower prices and               
 better service in an expansion of the market.  There have always              
 been people who say it would be a disaster but they have always               
 been wrong.                                                                   
                                                                               
 "Looking at what has happened so far, Congress determined in the              
 remaining (indisc.) markets, including local the local service                
 market, competition will bring the same benefits it has brought to            
 the other markets.  And we're not just talking about maybe getting            
 a local phone for $1 a month less.  Just as competition has taken             
 us from the black rotary dial phone, which used to be your only               
 choice, to fax machines and computers hooked up to your phone line,           
 competition in local services will bring new services and better              
 quality services.                                                             
                                                                               
 "So the federal bill opens all markets to competition, but it                 
 allows implementation of that to the state and to the state APUC,             
 and there will be people who will go into the state APUC and say,             
 `But those people in Washington don't understand Alaska so you                
 should put as many roadblocks as you can in the way of competition            
 in Alaska.'  They cannot forbid it but they put up barriers.                  
                                                                               
 "The purpose of this legislation is to make policy decisions.                 
 Competition and local services will have a beneficial affect.                 
 There has been a lot of talk about the exemptions.  This bill does            
 not take away any of the exemptions that are in the federal bill.             
 The APUC will have to address those exemptions, but it will do so             
 if the state policy, in its mind, that competition is in the public           
 interest.  The standards are technical standards such as, `Is it              
 technically feasible and is it economically burdensome.'  Those are           
 good standards but they're going to have some discretion, and                 
 someone who looks at that question through the eyes that                      
 competition is good, in general, may come to a different result               
 than someone who looks at that question through the eyes of                   
 thinking competition is going to be a bad idea.  So this makes the            
 policy statement which the APUC will keep in mind as it addresses             
 those exemptions but it does not take any of those exemptions away            
 from anybody.  Those exemptions are not exemptions to competition.            
 Those exemptions are exemptions from the particular interconnection           
 modes and number portability and dialing parity which will make               
 competition look better, but they're not competition itself."                 
                                                                               
 Number 765                                                                    
                                                                               
 MR. JACKSON said there has been legitimate concerns expressed                 
 regarding cherry picking.  The federal legislation, Section 253,              
 has specific protection against cherry picking.  It says that when            
 ever someone comes to the APUC and asks to provide local servicing            
 competition in a rural market, the APUC can say, "You are required            
 to serve the entire market if you're going to go into competition             
 with that company.  He noted the APUC has specifically been given             
 that authority to require any competitor to serve the entire                  
 market.  Mr. Jackson referred to the universal service fund and               
 said there is extensive language in the federal legislation                   
 designed to protect universal service even with competition.  He              
 noted Alaska also has two statutes, AS 42.05.145 and 42.05. 840, on           
 universal service.                                                            
                                                                               
 MR. JACKSON referred to long distance competition and said there              
 has never been an application by a local exchange company to                  
 provide long distance service filed at the APUC until recently by             
 United Utilities and that is still pending.  Mr. Jackson referred             
 to when the commission adopted regulations pursuant to the                    
 legislation passed by the legislature in 1990, they made sort of a            
 short form application for entering into the long distance market.            
 They said, "Local companies can apply, but they can't use this                
 short form.  They have to use a longer form."  They didn't say,               
 "The local exchanges can't compete," they said, "When you come in,            
 there is a couple extra things we're going to have to look at."               
 Mr. Jackson said there are no barriers in law to ATU or others                
 going into interstate state long distance competition.                        
                                                                               
 MR. JACKSON said there was the question about if you're talking               
 about an area where it's already getting a subsidy and the price is           
 below the cost, how can a competitor coming into that market help             
 anything.  He said it can help a lot because in economic terms, if            
 not legal terms, the universal service fund is a tax.  People all             
 over the U.S. pay a little more on their phone bill to support                
 places where it's expensive.  Mr. Jackson continued to give an                
 example of how this would work.                                               
                                                                               
 MR. JACKSON said an excuse used for a long time to keep GCI                   
 entirely from providing long distance was, "Can't work in rural               
 Alaska."  That phrase was also used later to keep GCI out of the              
 smaller area in Alaska.  GCI is currently in the process of                   
 investing between $50 and $20 million in the upcoming summer to put           
 in facilities in 50 very rural villages in Alaska which will                  
 upgrade the long distance phone service that they have to be better           
 than they have ever had before.  It will eliminate double saddle              
 hops in the rural villages where it is installed.                             
                                                                               
 Number 1107                                                                   
                                                                               
 MR. JACKSON referred to HB 531 and said there has been the idea               
 bounced around that the legislature should give policy direction to           
 the APUC and GCI does agree with that, but HB 531 doesn't give                
 policy direction.  It tells the APUC how to dot its I's and cross             
 its T's.  In fact, it micro manages.  There has been a lot of talk            
 about HB 531 having to do with the federal legislation.  Mr.                  
 Jackson said he sees a number of things in the bill that has                  
 absolutely nothing to do with the federal legislation.  It                    
 reverses, legislatively, existing decisions of the APUC.  It also             
 repeals a key element of the legislation from 1990 that established           
 long distance competition.  If HB 531 becomes law, there will no              
 longer be real competition in the long distance business in Alaska.           
 There are things the bill does do to address the question of local            
 exchange competition.  In short, it is an attempt by the local                
 telephone companies to exempt their market from competition and               
 puts up barriers that go far beyond and are inconsistent with what            
 is in the federal legislation.  Mr. Jackson said the legislation              
 has the theme of rate flexibility to face competition.  He said his           
 company doesn't disagree with the concept that when the companies             
 face competition, they will need some ability to change their                 
 rates.  However, that doesn't mean that when someone starts selling           
 tin cans and string on the corner, that you suddenly deregulate the           
 existing utility.  Mr. Jackson said the APUC dealt with this very             
 well when Alascom and GCI started competing with each other.                  
                                                                               
 Number 1345                                                                   
 MR. JACKSON said, "Without a 26 page bill, but relying on only two            
 things, an existing law that says the commission can waive any rule           
 or regulation that they want to, that is AS 42.05.711(d), relying             
 on that and relying on the language that said, `They should oversee           
 competition to ensure that it is fair to both competitors,' which             
 is a component of our proposed legislation on competition, the APUC           
 established the rule for Alascom and for GCI that either one of us            
 could change our rates on 30 days notice to the commission and that           
 if the commission did nothing the proposed rates went into effect.            
 The only exception to that was if Alascom wanted to raise existing            
 rates.  Any decreases and any rates for new services or repackaged            
 services went into effect - is worked fine.  There have been                  
 extremely few instances which any rates by anybody has been                   
 rejected under that provision.  Did not need a 26 bill in order to            
 do that.  They needed existing law plus the one rule which is also            
 in the proposed 501 that they oversee competition to make sure it             
 fair to both (indisc.)."                                                      
                                                                               
 MR. JACKSON referred to forbearance and said it is frequently                 
 talked about.  It means the APUC shouldn't regulate in instances              
 where it is not needed anymore for competition.  He pointed out               
 711(d) says they can exempt any utility from any requirement of               
 state law or regulations if they find it is no longer needed if the           
 exemption is in the public's interest.                                        
                                                                               
 Number 1357                                                                   
                                                                               
 MR. JACKSON explained HB 531 has instances where it establishes               
 very short time frames for commission action.  Those time frames              
 are meant to address what, to some extent, is a problem.  He said             
 sometime the APUC takes too long to make decisions and there needs            
 to be incentives to speed up.  The problem with the remedy proposed           
 is very short time lines, and if the commission doesn't act within            
 a certain amount of time, the utility automatically gets what they            
 want no matter what they ask for.  Consumers should not be punished           
 because of the fact that the utility hadn't gotten around to doing            
 its job either.                                                               
                                                                               
 MR. JACKSON said if HB 531 passes the following three things will             
 happen.  Real long distance in Alaska will be over.  The service              
 currently provided by Alascom and GCI will be taken over by the               
 local exchange companies and each of them within their own area               
 will provide the functional equivalent of long distance service.              
 They will carry the call and people will have to pay them for doing           
 that.  Mr. Jackson said the second thing that will happen is local            
 competition will be discouraged and Alaskans will be denied the               
 benefit of that competition as the rest of the nation passes us by.           
 Third, even though they may be facing very little actual                      
 competition, local telephone companies will gain a vast amount of             
 freedom to adjust their rates when it is not necessary for them to            
 have the freedom because they don't really face any competition               
 yet.                                                                          
 Number 1471                                                                   
                                                                               
 REPRESENTATIVE PORTER indicated confusion.  He said he has two ares           
 of concern.  He questioned where the three items exist in the bill.           
 He said, "From hearing both sides now on the two issues of `Can               
 local exchanges compete with long distance carriers?'  Kind of what           
 I'm hearing is semantics that this bill, 531, makes it clearer and            
 I did read that in the line that say that they may, but from what             
 I'm hearing, although they've never applied, there isn't a bar -              
 just a couple of extra hoops that they'd have to provide."                    
                                                                               
 MR. JACKSON said that is correct.                                             
                                                                               
 REPRESENTATIVE PORTER said, "To me, having lived on the Anchorage             
 Assembly through phone wars one and two, I'm getting the same                 
 impression what two sides are saying is somewhat the same but a lot           
 of people are making money talking.  Let me just finish.  The                 
 second one - as to the public interest finding basically 531 is               
 gunna require a public interest determination on each case by case            
 bases and the other bill says, `Lets just say that its competition            
 is in the best interest of the public' and let that be done and not           
 have to reprove it on every case.  But if universal service is a              
 requirement, and in those cases where the concern exists that a               
 small local carrier has got a concern that some big GCI, or                   
 somebody like you is gunna come in and cherry pick, there is                  
 provisions that disallow that.  And universal service being                   
 required, would require that you provide service to everyone or a             
 competitor do that anyway."                                                   
                                                                               
 REPRESENTATIVE PORTER said in a case where that is an issue, would            
 the commission be required to make a public interest determination            
 in each case anyway.                                                          
                                                                               
 MR. JACKSON said if someone wants to go in and compete with a rural           
 local company, the question does not come up as to whether or not             
 competition in that locality is in the public interest  in terms of           
 their ability to go in and compete.  He noted that question does              
 not come up under existing federal law.  The federal legislation              
 says there are obligations of local carriers and they have to do              
 with allowing the other person to resell your service.  In other              
 words, he uses your facilities and resells.  It has to do with                
 number portability which means a customer can change from one                 
 carrier to another carrier but keep the same telephone number.  Mr.           
 Jackson also referred to dialing parity, access to rights-of-way              
 and reciprocal compensation and said those are five duties on local           
 exchange carriers.  The exemptions have to do with those five                 
 things and another list that follows of six other things.  The                
 existing carriers can become exempt from the obligation to resell             
 and for the obligation to provide number portability.  It cannot              
 become exempt from the question of whether or not it faces a                  
 competitor.  He indicated if a competitor wants to go into the                
 market without resale and number portability, they have the right             
 to do that and nobody can stop them.  The APUC can require them to            
 serve the entire area rather than cherry pick.                                
                                                                               
 REPRESENTATIVE PORTER asked if the argument isn't going to come               
 down to whether they have to serve the entire area or not.  He then           
 asked if that is the case, whether the competition is good or bad             
 in that particular region.                                                    
                                                                               
 MR. JACKSON said he doesn't think so, but noted he thinks that will           
 be an issue.                                                                  
                                                                               
 REPRESENTATIVE PORTER said, "It would be an issue I would raise and           
 pound hardly on the table to ask APUC to judge on if I were that              
 perceived threatened smaller local carrier."                                  
                                                                               
 MR. JACKSON said it is likely to come to be an issue when someone             
 comes in.  He said what he doesn't think is going to be a major               
 issue is in most instances they're going to make that decision and            
 it is not going to be a real question that the commission is going            
 to require them to serve all the areas.  The state legislation does           
 not affect the commission's ability to make that requirement.                 
                                                                               
 REPRESENTATIVE PORTER said if it doesn't, what's the big deal.                
                                                                               
 MR. JACKSON referred to the items he listed earlier which were the            
 resale, the reciprocal compensation, and said the items where there           
 is an exemption possible a competitor can come in without those               
 things but competition is going to have a real hard time prospering           
 if you don't get some of the items like the number potability.   He           
 said the point of the legislation is for when the local exchange              
 companies in and say, "Don't make us give em number portability,              
 don't make us resell."  The commission approaches that question               
 having the policy guidance that competition will be in the public             
 interest if it is implemented.  They will still look at the                   
 technical feasibility and the economic burden, but will do so                 
 through glasses which have the public policy determination that               
 competition will be in the public interest if it can be                       
 implemented.                                                                  
                                                                               
 MR. JACKSON referred to long distance and said on the federal                 
 level, if the customer wants to make calls to San Francisco or New            
 York, then the extra hurdle in existing state law doesn't apply.              
 He said he guesses there will be some guidance about what is going            
 to happen at the state level after the APUC deals with United's               
 application.  He said he really thinks it is untested as to whether           
 or not the extra hoop they've got to go through is an easy one or             
 a hard one to get through.                                                    
                                                                               
 MR. JACKSON referred to the existing rule on long distance and                
 referred the committee to page 13, Section 22 of HB 531 and said              
 these are the findings that the legislature made five years ago               
 regarding long distance competition.  Number 2 is if facilities               
 based long distance telephone service should be provided                      
 competitively wherever possible.  He said they want to take out               
 "facilities based" which means that GCI can't put in its own                  
 facilities somewhere.  It has to buy the service from someone else.           
 Mr. Jackson referred to page 15, Section 24 (d), and read, "a                 
 telecommunications carrier may designate the first point of                   
 switching where the carrier elects to provide equal access through            
 a centralized equal access arrangement."  He also referred to                 
 subsection (f) and read, "In this section, `centralized equal                 
 access arrangement' means an arrangement in which communications              
 traffic is routed to a centralized equal access switch."  Mr.                 
 Jackson said that is complicated language.  What that language                
 means is the local company can tell GCI and Alascom that you                  
 interconnect with us in Anchorage.  You handle all of the calls off           
 to us in Anchorage and we will carry it to Galena or Bethel or                
 Fairbanks.  We will be the only person who carries that call                  
 between those two locations and you have to pay us.  He said they             
 have created for themselves a monopoly in long distance service.              
                                                                               
 Number 2090                                                                   
                                                                               
 REPRESENTATIVE THERRIAULT referred to Section 4 on page 2 and said            
 it talks about the responsibility of the communications carrier               
 section.  He said the current way he sees things working is the               
 provider comes in and they want the highest rate possible.  The               
 APUC staff, by existing statute, says, "You put together your                 
 recommendation to the commission, the lowest practical rate," and             
 the commission picks something in between.  Representative                    
 Therriault said they probably would pick the just and reasonable              
 rate.  He said, "What this bill asks us to change statutes to is              
 you no longer have the highest thing advocated and the lowest thing           
 advocated and the APUC will pick somewhere in between.  It changes            
 that lowest, moves it up to now the just and reasonable rate.  So             
 it seems like that mixed rate which I think is against the intent             
 of competition, bringing rates down, bringing new services in.  I'm           
 just wondering if I read that right?"                                         
                                                                               
 MR. JACKSON said that is exactly right.  He explained under the               
 present law, the staff of the APUC presents the case against the              
 utility and argues for the lowest that they can reasonably argue              
 for.  The duty of the commission under the law is to set a just and           
 reasonable rate.  He explained the bill shifts the adversarial                
 process.                                                                      
                                                                               
 REPRESENTATIVE THERRIAULT said the only potential benefit he could            
 see is that would help get to a decision or a rate decision                   
 quicker, but possibly a higher rate.                                          
                                                                               
 MR. JACKSON said that is conceivable.                                         
                                                                               
 Number 2112                                                                   
                                                                               
 JIMMY WOODIN, Director, Government Affairs, AT&T, came before the             
 committee to testify.  He noted he has been coming to Alaska also             
 and has mostly been working with the federal delegation and the               
 state office on the federal legislation.  He said he resides on               
 Olympia, Washington.                                                          
                                                                               
 MR. WOODIN said although his company supports the intent of HB 501            
 and believes in competition, they are not sure the goals are clear.           
 There is a lot of interpretation of what that bill does or doesn't            
 do.  He stated they are neutral on HB 501.                                    
                                                                               
 MR. WOODIN said his company opposes HB 531 because they think it is           
 taking us in the opposite direction from where telecommunications             
 is going throughout the country.  The Telecommunications Act                  
 essentially does three things:  (1) It makes full competition a               
 model for telecommunications markets; (2) It flatly declares                  
 universal service will be maintained; and (3) By achieving these              
 overriding objectives, we get minimal government regulation and we            
 try not to micromanage this industry.  Mr. Woodin explained in the            
 marketplace we have consumer driven markets.  He questioned why we            
 made this policy decision as a country.  We've got to always keep             
 these in line and in front of us.  He said consumers are supposed             
 to be winners.  This isn't about market share, this is about what             
 benefits people the most, how do students learn the best, how do we           
 get the kind of energy in telecommunications that we have in the              
 computer industry these days.  So consumers are intended to be                
 winners, but number two is world class telecommunications are                 
 essential in this next century's economy.  We have to be connected            
 to each other inside our states and we have to be connected to the            
 rest of the world.  This is an enabling industry and a lot of                 
 commerce is going to be supported by this industry and the reason             
 the Telecommunications Act of 1996 was passed to make sure this               
 country and state maintains its lead in telecommunications.                   
                                                                               
 Number 2249                                                                   
                                                                               
 MR. WOODIN explained there are a lot of provisions in addition to             
 the number that have already been testified to, some are even                 
 Alaska specific, to assure that universal service is maintained.              
 The details of that process will be over a 15 month process.  He              
 said we'll see the outline thoroughly from the Joint Board FCC in             
 November.  It is the universal service fund that is supported by              
 all telecommunication providers as well as AT&T and it is likely to           
 be larger.  He stated there are a number of provisions about rate             
 averaging and rate integration that are designed to provide support           
 to high cost areas in Alaska.  He also pointed out that the other             
 thing in the federal legislation is the most careful most lengthy             
 transition from monopoly to competition is really in most of the              
 state of Alaska, the 22 companies we've already talked about.                 
 These process are not automatic, they're lengthy.  This is                    
 important because Alaska's economy is important and the people of             
 Alaska are important.  He said he would like to leave three                   
 principles when deliberation begins on these policy issues.  The              
 first is in each of the issues in question, put the consumers                 
 first.  Is this going to benefit your consumers.  Mr. Woodin said             
 what was really unique about this Act is it is set up to promote              
 cooperation and sharing with the companies.  AT&T getting into                
 local is about reaching an agreement with ATU to buy ATU's services           
 on a wholesale basis and sell them on a resale basis.  The benefit            
 for ATU if they do that they get largely deregulated much sooner.             
                                                                               
 MR. WOODIN said we should be encouraging, as public policy people,            
 that companies cooperate, communicate, interconnect and make their            
 services more useful for their customers in their territories.  He            
 noted the House Republican members really pushed voluntary action             
 over governmental action as it will be the fastest road to minimal            
 government regulation.                                                        
                                                                               
 MR. WOODIN said thirdly, learn carefully about these issues.  A lot           
 of change is happening but it takes a long time for this change to            
 be implemented.  Wise policy decisions need to be made that will              
 stand the test of time.  It really matters because Alaska's economy           
 matters.  Very careful, balanced decisions need to be made.                   
                                                                               
 MR. WOODIN said AT&T is supporting a process where they would like            
 to communicate well to all the telecommunication companies in the             
 state, they would like to get fully informed on where the FCC rule            
 making is going, they would like to understand the Joint Board                
 recommendations on universal services and work in a cooperative way           
 with people to come up with policy recommendations that make sense            
 for Alaska's people and economy.                                              
                                                                               
 REPRESENTATIVE ROKEBERG referred to the Joint Board and asked if it           
 is on the universal service access fund.                                      
                                                                               
 MR. WOODIN said it is a combination of state and FCC commissioners.           
 It is an overall 15 month process.  They make recommendations on              
 the real details of the universal service fund that is intended to            
 have everybody contribute to it.  He said it is likely that the               
 fund will be larger than it is today, but it will be competitively            
 neutral.                                                                      
                                                                               
 TAPE 96-19, SIDE B                                                            
 Number 050                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG referred to the six month window and asked            
 if the APUC is in a position under the federal statute to rule on             
 any controversy between a bargain that is striked between ATU and             
 AT&T.                                                                         
                                                                               
 MR. WOODIN said there are number of scenarios that make the                   
 negotiation process if it is agreeable and people get together                
 quickly, it can be a six month process.  It can also be a two year            
 process with all the contingencies that happen.  The parties are              
 supposed to get together voluntarily, if they can't then they go to           
 government to seek help.                                                      
                                                                               
 REPRESENTATIVE ROKEBERG said barring an agreement between AT&T and            
 ATU for the use of their facilities, can either company file with             
 the APUC for some adjudication of the conflict.                               
                                                                               
 MR. WOODIN said he believes that in 135 days if the commission                
 determined that the waiver provisions and exemptions didn't apply             
 to ATU then AT&T could seek arbitration.  He said he isn't sure               
 that an official negotiation has even began.  He said their                   
 announcement across the country in all 50 states was that on March            
 1, they intended to go into local business.  That announcement for            
 the state of Alaska was limited ATU.                                          
                                                                               
 Number 133                                                                    
                                                                               
 GREG BERBERICK, Vice President, Government, Matanuska Telephone               
 Association (MTA), was next to address the committee.  He read the            
 following statement into the record:                                          
                                                                               
 "I would like to thank the Chairman and the members of this                   
 committee for the opportunity to speak to you about the                       
 responsibilities recently passed to you and state commission under            
 the Federal Telecommunications Act of 1996.  I am here in support             
 of HB 531 and in opposition of HB 501.  I believe this legislature            
 needs to provide the Alaska Public Utilities Commission with the              
 policy framework necessary to successfully implement local                    
 competition in Alaska.  This will not be as simple as the one page            
 bill some have suggested.  It will take a careful and thoughtful              
 approach.  We do not want to leave the job of implementing local              
 competition to the federal government.                                        
                                                                               
 "House Bill 531 attempts to incorporate among others, the issues of           
 maintaining universal service at affordable rates, pricing                    
 flexibility for competitive services and ensuring a fair and level            
 playing field in the long distance markets.                                   
                                                                               
 "Matanuska Telephone Association was incorporated in 1955 under the           
 Rural Electrification Act.  MTA is a REA coop serving approximately           
 38,000 subscribers in eleven different exchanges covering an area             
 of approximately 10,000 square miles.  MTA's service area extends             
 from Clear/Anderson down the Parks Highway through Healy to                   
 Cantwell, Talkeetna, Willow, Big Lake, Wasilla, up the Glen                   
 Highway, or south to Glen Highway Chugiak and Eagle River and north           
 along the Glen Highway, Palmer, Sutton up to Sheep Mountain.  We              
 also serve the remote village of Tyonek.  I mention this to                   
 emphasize the size and diversity of our service area.                         
                                                                               
 "In the past 40 years, MTA has invested nearly 200 million dollars            
 in infrastructure to serve these rural and high cost areas.  We               
 have made that investment under the mandate of providing universal            
 service at affordable rates to all those within our service area.             
 A competitive market changes all of the premises under which we               
 have operated.  The federal legislation and Senator Stevens                   
 specifically both recognize that competition in rural high cost               
 areas must be carefully reviewed by state commissions to assure               
 that it is in the public's  interest.  Alaska's current statutes              
 were not developed with a competitive market in mind.  They need to           
 be updated.  Our commission needs your guidance and direction.                
                                                                               
 "Though there are many issues addressed in HB 531, I would like to            
 emphasize three areas which need attention now.  The first is price           
 flexibility in competitive services.  Local exchange companies must           
 be free to compete in services deemed competitive.  This means both           
 the freedom to price according to the market and the ability to               
 rapidly change offerings without burdensome regulatory filings.               
 The second is ensure that the local phone companies are allowed to            
 compete fairly in a level playing field with the interexchange                
 markets or the long distance markets.  Third, this bill is a                  
 competitive bill which seeks to assure safeguards for rural high              
 cost areas and protect the public interest.                                   
                                                                               
 "Finally, I would like to say that I am not an attorney but I do              
 have twenty years in the telephone business.  I represent the                 
 member/owners of MTA who appreciate what this small local telephone           
 company has done for the communities it serves.  I grew up in                 
 Palmer.  I personally benefited from the 20 years of employment at            
 MTA.  I know what the jobs mean to our communities, I know what               
 affordable telephone service means to the small rural communities             
 we serve.  I know what the personal commitment to service and                 
 quality by MTA and its employees has been.  That personal                     
 commitment is reflected in our response to individual                         
 circumstances, in our community involvement and assistance and in             
 the 240 jobs we provide to these communities.                                 
                                                                               
 "It is unfortunate that we don't have the luxury of time to develop           
 this legislation.  These are not simple issues.  They are complex             
 and will require the work and dedication of many individuals.  I'm            
 here to offer our support to work with you and your staff to craft            
 legislation which will bring about new services, affordable rates,            
 and a continued commitment to universal service and a competitive             
 marketplace which is truly in the public interest."                           
                                                                               
 Number 341                                                                    
                                                                               
 MR. BERBERICK said, "I appreciated the comments of the last                   
 speaker.  I think he did lay out some good principles.  However,              
 when he talked about competition and competition was good for all             
 of us, I see the Alaska telephone companies as a GAV team and I see           
 the AT&Ts of the world - the Chicago Bulls.  We'd like to compete             
 on a fair and level playing field with those folks.  We think                 
 legislation is needed to make that happen.  Thank you very much."             
                                                                               
 Number 384                                                                    
                                                                               
 There being no further witnesses to come before the committee,                
 CHAIRMAN KOTT closed the public hearing.  He said it is not his               
 intent to move either bill as the is issue much too important to              
 act swiftly.  There are many areas within the two bills that                  
 competing sides can find common ground.  There are also a great               
 number of experts and resources within the state that can assist in           
 crafting or amending legislation that will responsibly address the            
 Federal Telecommunications Act.  He then announced the bills would            
 be put in a subcommittee chaired by Representative  Sanders.  The             
 members would be Porter and Kubina.  He asked they report back to             
 the committee not later than April 1.                                         
                                                                               
 Number 480                                                                    
                                                                               
 REPRESENTATIVE THERRIAULT noted his concern regarding the length of           
 time and urged the subcommittee to shoot for something sooner than            
 April 1.                                                                      
                                                                               
 ADJOURNMENT                                                                   
                                                                               
 CHAIRMAN KOTT adjourned the House Labor and Commerce meeting at               
 5:46 p.m.                                                                     
                                                                               

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