Legislature(1995 - 1996)
02/27/1996 01:30 PM Senate L&C
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SENATE LABOR & COMMERCE COMMITTEE
February 27, 1996
1:30 P.M.
MEMBERS PRESENT
Senator Tim Kelly, Chair
Senator John Torgerson, Vice Chair
Senator Mike Miller
Senator Judy Salo
Senator Jim Duncan
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SENATE BILL NO. 300
"An Act relating to the Uniform Commercial Code, primarily to
investment securities; amending Rule 8(d), Alaska Rules of Civil
Procedure; and providing for an effective date."
SENATE BILL NO. 299
"An Act requiring competition in local exchange telephone service."
SENATE BILL NO. 43
"An Act relating to membership on the Board of Registration for
Architects, Engineers, and Land Surveyors; relating to registration
by the board; clarifying the meaning of practicing or offering to
practice architecture, engineering, or land surveying; deleting
teachers of postsecondary land surveying courses from a
registration exemption; and amending the definition of 'practice of
land surveying.'"
PREVIOUS SENATE COMMITTEE ACTION
SB 300 - No previous Senate committee action.
SB 299 - No previous Senate committee action.
SB 43 - See Labor and Commerce minutes dated 3/7/95 and 2/20/96.
(SCHEDULED BUT NOT HEARD)
WITNESS REGISTER
Art Peterson
350 North Franklin
Juneau, AK 99801
POSITION STATEMENT: Gave summary of SB 300.
Jim Jackson
GCI
2550 Denali St.
Anchorage, AK
POSITION STATEMENT: Supports SB 299.
James Rowe
Alaska Telephone Association
4341 B Street
Anchorage, AK
POSITION STATEMENT: Commented on SB 299.
Mark Foster
625 West 10th
Juneau, Alaska
POSITION STATEMENT: Commented on SB 299.
Dave Fauske
4300 B Street
Anchorage, AK 99503
POSITION STATEMENT: Commented on SB 299.
Dennis Niedermeyer
Bristol Bay Telephone
P.O. Box 413
King Salmon, AK 99613
POSITION STATEMENT: Opposed SB 299.
Dana Tindall, Vice President
Legal and Regulatory Affairs
GCI
2550 Denali, Suite 1000
Anchorage, AK 99503
POSITION STATEMENT: Supported SB 299.
ACTION NARRATIVE
TAPE 96-15, SIDE A
Number 000
CHAIRMAN KELLY called the meeting to order at 1:30 p.m. and
announced SB 300 to be up for consideration. SB 43 was rescheduled
to be heard on Thursday.
SB 300 UNIFORM COMMERCIAL CODE:ART 8(SECURITIES)
SENATOR KELLY informed committee members the Division of Banking
does not object to any of the provisions in SB 300.
ART PETERSON, Uniform Law Commissioner, stated SB 300 was
supported, drafted, and promulgated by the National Conference of
Commissioners on Uniform State Laws (NCCUSL). Article 8 is based
on the 1909 Uniform Stock Transfer Act which was incorporated into
the UCC when it was developed in the 1950s and revised in 1977. SB
300 amends Article 8. However, some of the amendments on page 1
pertain to Article 1 of the UCC. That material, as well as the
material following page 39, are compatibility amendments, therefore
the bulk of the bill is between pages 2 and 39. It recognizes both
the technology, the increase in the number of people buying
investments, and the development of a clearinghouse corporation
system of holding securities. Because it is an indirect way of
holding securities, many of the traditional rules in Article 8 do
not apply. Therefore, new material must be adopted to deal with a
variety of transfer questions that arise because of the indirect
relationship.
The main features of SB 300 are as follows. It establishes
consumer specific rights in one's securities account in
relationship to brokers and dealers. It enables customers to
obtain credit secured by the securities account. It makes it
easier for broker/dealers to obtain secured credit on their
accounts with the securities depositories. It helps avoid a
meltdown because broker/dealers cannot obtain credit when a market
crashes. It gives creditors better control over collateral that
includes securities accounts. It assures smoother function of
securities markets over the long term. It reduces the prospect of
litigation over broker/dealer customer relationships. It assures
that the transfer rules for securities will remain in state law
rather than federal regulation. Last, it makes it easier and less
risky for people to invest through broker/dealers.
There being no further testimony or questions on SB 300, SENATOR
KELLY announced it would be passed out on Thursday unless
opposition to the bill is heard.
Number 200
SB 299 COMPETITIVE LOCAL PHONE SERVICES
Jim Jackson, representing GCI, testified in support of SB 299.
Congress passed, by an overwhelming margin, a rewrite of the
telecommunications law a few weeks ago to open all
telecommunication markets to competition. Whenever segments of
that market have been opened to competition in the past, despite
dire predictions, favorable results have occurred, such as improved
services and lower cost equipment. Competition in the local
service market will bring the same benefits brought to the other
segments of the market. Although the federal legislation opens up
the telecommunication market to competition, it leaves the
implementation to the APUC. It also allows carriers exceptions
from specific rules at the discretion of the APUC. The purpose of
SB 299 is to establish legislative policy supporting competition.
The APUC will then implement the federal legislation recognizing
that support.
Number 267
MR. JACKSON addressed concerns raised about SB 299 in a previous
committee hearing. First, SB 299 should not cost the APUC
anything. Implementing the federal legislation is going to be
costly, however SB 299 will create no additional costs, and should
facilitate implementation. A second concern was whether
competitors could enter a market and choose only the best
customers. The federal legislation contains a protection to
prevent that from occurring; it allows the APUC to require that new
entrants cover the entire service area. A third concern was
whether SB 299 could undermine universal service. The federal law
contains extensive provisions to protect universal service even as
competition is introduced. Additionally, two existing statutes (AS
42.05.145 and AS 42.05.840), require the APUC to consider universal
service in all of its decisions. A fourth concern is that SB 299
promotes competition in local service, but does not address long
distance service. The Legislature addressed that in AS 42.05.800
which established a policy favorable toward competition in long
distance services. The last concern related to a comparison to the
electric utilities. There are very big differences in the two
industries. One of the means by which competition will enter the
phone industry is through the existing cable telephone company
which already has duplicate wires in many locations. It will also
be provided through wireless services which does not require
duplication of facilities and replacement of existing facilities.
Number 336
JAMES ROWE, representing the Alaska Telephone Association (ATA),
stated his opposition to SB 299, because the recently passed
federal legislation took many years to pass, was very contentious
and lengthy, and cannot be addressed at the state level by a one
page bill. The federal bill changes a public policy in existence
since 1934, and addresses universal service. Members of the ATA
feel that if Congress can recognize the difficulties inherent in
providing services to rural areas, the Legislature should do so
too. The federal legislation does not require competition, as SB
299 does, it encourages it. It enables the states to choose how the
public is best served in a particular area. ATA is in the process
of addressing the federal legislation, and believes the issues are
too complex to be addressed by a one page bill, such as SB 299.
SENATOR SALO asked how many local carriers ATA represents. MR.
ROWE replied ATA represents 22 local exchange companies; there is
one circle not represented by ATA. SENATOR SALO asked how the
service area boundaries are established. MR. ROWE explained it is
not clear under the new federal legislation, however present
regulations determine boundaries by using study areas. A local
exchange company has not had the option in the past to choose the
areas it wanted to serve, and was often directed by the APUC to
make investments to reach communities that were not economically
profitable. In the future another carrier could request to compete
in a local service area which might, or might not, have the same
boundaries. He argued if a company can now come into an area to
compete and choose only the densest area of population, the best
interests of the rural customers will not be served.
Number 392
HARRY SHOOSHAN, an ATU consultant, discussed his experience working
on competition issues from a variety of perspectives. The
objective of the new federal statute is to open all markets to
competition, not just local exchange. It grants the FCC the
ability to pre-empt any state regulation that acts as a barrier to
entry or restraint on competition. This ability raises the
question of the need for SB 299, especially since it has been
characterized as an emergency measure that must be acted on in its
current form. The federal act retained substantial powers but gave
the state absolute discretion to decide on alternatives to
traditional public utility style regulation and to implement
pricing flexibility for incumbent firms. He urged committee
members to exercise that discretion and provide the APUC with tools
to adapt regulations to the realities of the 21st Century. He
believed SB 299 is deceptively simple. It is too narrowly
focussed, generally worded, and fails to address the need for
alternative forms of regulation, pricing flexibility and the power
to forebear: critical components of a fair competitive framework.
Regarding federal protections of universal service, the new federal
statute seeks to restructure only federal support mechanisms, not
those existing in the various states. He did not feel existing
statute provides enough stimulation to increase long distance
markets.
MARK FOSTER, a telecommunications consultant and former APUC
commissioner, testified on behalf of ATU. He focussed on one
example of the kind of marketing and pricing flexibility issues
referred to by Mr. Shooshan. When the State of Alaska solicited
new phone services for state offices, it received a number of
offers; the best was from PTI. Because of the regulatory process
and time required to process that contract, the state was unable to
get the service from the preferred vendor, the local phone company,
and was forced to buy equipment from an outside vendor. The new
federal act will allow the APUC to provide needed flexibility to
enable local companies to compete with other competitors in the
local phone markets.
STEVE HAMLIN, President of United Utilities (UU) which provides
services to Western Alaska, noted the APUC has expressly asked for
clear legislative direction in response to the federal act. In
that act, Congress eliminated all barriers to entry into interstate
and intrastate telecommunications services. The act contains an
extensive list referred to as Duties of Local Exchange Carriers.
Some of the duties require carriers to resell services at wholesale
rates and to provide: number portability; dialing parity; access to
rights of ways; physical and virtual co-location for competitors;
and interconnection to competitors. The list also prohibits cross-
subsidation between non-competitive and competitive services, and
establishes procedures and standards for negotiation, arbitration,
and approval of interconnection agreements. The federal act even
describes how competitors can access telephone poles to place
attachments. The FCC has been assigned the responsibility to adopt
regulations to implement the act. FCC regulations for
interconnection for competitors are scheduled to be completed by
August 1, 1996.
MR. HAMLIN said that telecommunications providers, local exchange
companies, and long distance companies want the ability to be one-
stop providers for consumers, however the playing field is uneven.
The duties that now apply to local exchange carriers do not apply
to interexchange carriers, which is why local exchange carriers
need assistance from the Legislature. The 22 local exchange
carriers, in their attempts to provide long distance services, will
be competing with the two existing large companies providing those
services. Those two companies have a substantial advantage over
local carriers in terms of financial resources and capabilities.
SENATOR KELLY asked the names of the two companies. MR. HAMLIN
replied AT&T Alascom and GCI.
MR. HAMLIN explained the first barrier to local carriers is the
requirement to resell services at wholesale rates. Alascom's
wholesale rates are greater than its retail rates but local
carriers are prohibited from charging more for wholesale rates.
Therefore local carriers who want to provide long distance services
cannot compete since Alascom could resell its services to local
carriers at wholesale rates, which are higher than retail rates.
TAPE 96-15, SIDE B
MR. HAMLIN stated a second barrier is access to unbundled network
elements. Both GCI and Alascom are introducing new technology,
called Demand Aside Multiple Assignment (DAMA) technology, to serve
rural Alaska, which will be available next year. A call between
Hooper Bay and Bethel is currently routed to a satellite, to
Anchorage, back to the satellite, then to Bethel, which requires a
double satellite hop. That transmission delay causes problems in
the quality of the circuit including voice, fax, and data
transmission. With DAMA technology, a network controller will be
located in Anchorage, and through a signalling channel, will route
the call from Hooper Bay to the satellite, directly to Bethel.
Local exchange carriers who want to provide such long distance
services will need to capture information from the telephone calls
made for billing purposes. They can provide for that capability at
each rural site, at a cost of $12-14,000 per site, or they can
purchase that capability through Alascom's network controller. The
problem lies in the fact that Alascom is not subject to the same
requirements that the local exchange carriers are, therefore does
not have to provide any services, which is why the playing field is
uneven.
MR. HAMLIN commented on three other areas of concern. The APUC
should be required to act in a timely manner on rate changes and
requests to extend services to new areas. In the past the lack of
timeliness has caused considerable difficulty and will hamper
companies trying to compete. The APUC needs a legislative
directive requiring the creation of a new scheme for local carriers
subject to competition. Local carriers need the ability to notice
the public on rate changes and have the APUC act within 30 days.
Local carriers also want complete rate deregulation once
competition occurs. Last, the federal act has established a
federal-state joint board to ensure rural consumers have access to
telecommunications services at reasonable and affordable rates.
The board must define what universal service is and design a
mechanism to require all providers to fund universal service and
make that cost explicit. He stated places like Hooper Bay have
state-of-the-art telecommunication services available today which
was not made available by competition, but by public policy. He
believes Alascom and GCI want to enter these markets and have
access to the high cost support provided to local carriers to
support facilities in rural areas. Congress left those decisions
up to the states recognizing the amount of money from the federal
jurisdiction to fund universal service will be limited. He stated
to get the most mileage out of that funding, the APUC needs to be
directed to determine whether allowing more than one carrier to be
eligible for high cost assistance will drive up costs and will
ultimately result in fewer, lower quality services because of
uneconomic duplication of facilities. He warned that SB 299 will
result in less competition and fewer choices for consumers, and
consumers will end up being held captive to a few deep pocket
players.
SENATOR DUNCAN asked those testifying to provide position papers on
the bill to committee members.
MR. HAMLIN stated UU is a member of the ATA, and has been working
on draft legislation with Representative Kott in the House Labor
and Commerce Committee which addresses the issues he mentioned.
SENATOR DUNCAN asked if UU is opposed to SB 299 but believes
something needs to be done this session. MR. HAMLIN responded UU
is opposed to SB 299 and definitely believes something needs to be
done this session.
The committee took a 10 minute recess.
Number 506
DAVE FAUSKE, general manager of Arctic Slope Telephone Association
Cooperative, testified. The Coop serves the North Slope area which
includes seven villages and the Prudhoe Bay/Deadhorse industry
complex. The Arctic Slope Regional Corporation, in 1977, wanted to
develop a phone company in the North Slope Borough. For several
years, a for-profit phone entity was attempted through various
joint ventures, however the only economic way to provide such
service was through a cooperative. The Coop was established in
1980. He did not believe the significant hurdles which prevented
a competitive company from being established initially, have not
been removed. He stated the Legislature needs to pass a bill that
guides the APUC and establishes a reasonable and practical
adjudicatory process in implementing the state's intent, as well as
the federal intent. He did not oppose SB 299 in principal but sees
it as a resolution endorsing an economic principle rather than
legislation providing guidance to the APUC or operating telephone
companies.
Number 461
SENATOR KELLY asked if the Coop is a non-profit company owned by
the subscribers. MR. FAUSKE answered the coop is a subscriber
owned cooperative under the general REA procedure. Its owners are
village residents, ARCO, and BP.
SENATOR KELLY asked if the village of Fort Wainwright belongs to
the Coop. MR. FAUSKE replied the village of Wainwright does, not
Fort Wainwright. SENATOR KELLY asked if Wainwright is hardwired
for telephones. MR. FAUSKE explained Wainwright has an outside
copper plant distributed within the village, and each village has
a "pod" on the tundra which links it to the satellite.
SENATOR KELLY asked a typical monthly subscriber rate for a home in
Wainwright. MR. FAUSKE replied the rate for residential
subscribers is $7.30 per month; the rate for business subscribers
is $15.60 per month. He believed those rates to be the least
costly in the state. SENATOR KELLY asked if the Coop was thinking
of moving into Anchorage.
DENNIS NIEDERMEYER, representing consumers in rural villages, such
as Ekwok, Naknek, and New Stuyahok, testified in opposition to SB
299 because it sidesteps the creation of a process to provide
direction in rural areas envisioned in the federal act. The
direction needs to address issues much more complex than what is
contained in SB 299. Consumers of the coop he represents have
foregone dividends to build up a good system but still need better
long distance service. He stated that although competition sounds
good, it costs more to operate with multiple infrastructures in
small communities than with less. He believes rates will increase
in small communities if SB 299 passes.
SENATOR KELLY asked what a resident subscription rate is in New
Stuyahok. MR. NIEDERMEYER replied he pays $22 per month for basic
service.
SENATOR KELLY asked what the typical resident rate in Anchorage is.
An unidentified ATU representative estimated $9 per month.
MR. NIEDERMEYER felt SB 299 would put at risk the large investment
and commitments to loans that local telephone companies have
incurred by allowing competition with minimal review.
Number 394
HOWARD GARDNER, Executive Vice President of Alaska Power and
Telephone Company, a for-profit company owned primarily by its
employees, testified in opposition to SB 299. Alaska Power and
Telephone serves eight utilities and is concerned about protecting
its investments in Alaska. He urged the Legislature to establish
a clear policy in response to the federal legislation. He did not
believe competition, per se, will improve the level of service or
reduce costs in isolated rural areas.
DANA TINDALL, Senior Vice President for Legal and Regulatory
Affairs for GCI, stated SB 299 is simple in that it merely supports
the philosophy of competition. The federal act mandated that all
telecommunication services be open to competition but does allow
telephone companies with less than two percent of the nationwide
access lines to try to make a burden of proof argument that
interconnecting with competitive local telephone companies is not
in the public interest. Without SB 299 competition will occur
because it is the national policy. Without SB 299 there will also
be 22 separate proceedings and fights before the APUC on whether or
not interconnection with competitive local telephone companies is
in the public interest with the incumbent local telephone companies
having to bear the burden of proof. SB 299 leaves the
implementation of fair competition up to the APUC and sets up the
level playing field in Section 1 (4). The APUC already has the
right to waive any regulations and to adopt pricing flexibility for
local telephone companies. What the APUC lacks is simple policy
guidance on whether or not competition is a good idea.
SENATOR KELLY asked if those opposed to SB 299 agree that APUC will
have to hear 22 cases. MS. TINDALL responded one of the previous
witnesses indicated the APUC would hear each case individually if
a legislative policy was not established.
MS. TINDALL remarked that although some negative impacts may result
from a competitive environment, many safeguards are provided in
federal and state laws to prevent that from occurring. She
explained the universal service mandate requires that everyone have
access to basic telephone service, and in Alaska that service
includes long distance services. It requires telephone companies
to subsidize the costs of universal service. With the exception of
ATU, federal funds are provided to telephone companies in Alaska to
provide those services. She explained SB 299 is very simple only
because the federal act is so comprehensive.
SENATOR KELLY requested a position paper from the APUC by Thursday,
and adjourned the meeting at 3:00 p.m.
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