Legislature(1995 - 1996)
03/08/1996 03:12 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.