05/08/2019 03:15 PM House LABOR & COMMERCE

         SB 83-TELECOMMUNICATIONS REGULATION/EXEMPTIONS                                                                     
                                                                                                                              
5:22:43 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL  announced that  the next order  of business  would be                                                               
SENATE  BILL  NO.   83,  "An  Act  relating   to  the  Regulatory                                                               
Commission of  Alaska; relating to the  public utility regulatory                                                               
cost charge;  relating to  the regulation  of telecommunications;                                                               
relating  to   exemptions,  charges,  and  rates   applicable  to                                                               
telecommunications   utilities;   relating   to   regulation   of                                                               
telephone   services;   and   relating  to   alternate   operator                                                               
services."                                                                                                                      
                                                                                                                                
5:23:45 PM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
5:23:48 PM                                                                                                                    
                                                                                                                                
BOB  PICKETT,  Commissioner,  Regulatory  Commission  of  Alaska,                                                               
addressed the staff  memo [included in the  committee packet] and                                                               
pointed  out that  on February  6,  2019 on  a vote  of 4-1,  the                                                               
commissioners adamantly  rejected that  language and  believed it                                                               
was inappropriate  for a  state regulatory  agency to  "thumb its                                                               
nose" at the  legislature by implying it would  undermine a piece                                                               
of legislation if  it passes.  He further stated  that the Alaska                                                               
Universal Service Fund (AUSF) is not part of SB 83.                                                                             
                                                                                                                                
CHAIR WOOL interjected to ask  for clarification on what the AUSF                                                               
is and how it functions.                                                                                                        
                                                                                                                                
MR. PICKET said  the fund is in statute dating  back to the early                                                               
1990s.    He said  it  was  put  there  to allow  the  Regulatory                                                               
Commission of  Alaska (RCA) permissive  ability to create  a fund                                                               
that ensured  intra-state long-distance  service.  He  noted that                                                               
it's  essentially an  "assessment  on  people's telephone  bills"                                                               
that was less than 1 percent.                                                                                                   
                                                                                                                                
CHAIR WOOL  asked if the  AUSF is a  tax that's applied  to every                                                               
landline bill throughout state.                                                                                                 
                                                                                                                                
MR.  PICKETT  said  yes,  adding  that  wireless  and  voice-over                                                               
internet protocols are funding sources  as well; nonetheless, the                                                               
contribution base  shrank, and the tax  rose to 3 percent  with a                                                               
projection of  growth up  to 25  percent.  In  an attempt  to cap                                                               
that growth,  he said, they added  a sunset provision to  end the                                                               
fund on June  30, 2023 and committed to  complete a comprehensive                                                               
review of the program no later than  June 30, 2021.  At the peak,                                                               
the whole  AUSF program  was approximately  34 million  per year;                                                               
however, with  current caps at  10 percent  it will be  less than                                                               
half of that.                                                                                                                   
                                                                                                                                
5:33:15 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL asked why the fund is decreasing.                                                                                    
                                                                                                                                
MR. PICKETT  explained that the  majority of a cellphone  bill is                                                               
tied  to  data.    The   portion  assigned  to  voice  is  small,                                                               
approximately less than 20 percent of the bill.                                                                                 
                                                                                                                                
CHAIR  WOOL  clarified  that  the   only  taxable  portion  of  a                                                               
cellphone bill is the part that's attributed to voice.                                                                          
                                                                                                                                
MR. PICKETT affirmed that.                                                                                                      
                                                                                                                                
CHAIR WOOL asked  if sunsetting the AUSF program  is the response                                                               
to higher taxes due to the decreasing fund.                                                                                     
                                                                                                                                
MR.  PICKETT  said no,  step  one  was to  cap  [the  tax] at  10                                                               
percent, which went  into effect January 1, 2019.   He added that                                                               
the standalone category of Carrier  of Last Resort (COLR) support                                                               
was replaced with essential network support.                                                                                    
                                                                                                                                
CHAIR WOOL asked how COLR relates to AUSF.                                                                                      
                                                                                                                                
MR. PICKETT  said there was  a specific category in  which direct                                                               
funds  were paid  under  the COLR  category.   He  added that  it                                                               
doesn't exist anymore.                                                                                                          
                                                                                                                                
5:36:48 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL, in  attempt to understand Mr. Pickett,  asked if this                                                               
fund partially subsidizes the industry to maintain COLR.                                                                        
                                                                                                                                
MR. PICKETT said, "not anymore,"  noting that it ended on January                                                               
1, 2019.                                                                                                                        
                                                                                                                                
CHAIR WOOL  established a scenario in  which a phone line  is run                                                               
out to Chicken, Alaska, which costs  the telecom company a lot of                                                               
money.   He  asked if  that company  would receive  assistance to                                                               
offset  the costs,  since it  wouldn't  be recouped  from the  25                                                               
people that live in Chicken.                                                                                                    
                                                                                                                                
MR.  PICKETT  said  the  reality is  that  the  company  wouldn't                                                               
receive specific COLR  funding, adding that they  would receive a                                                               
declining amount  of network support because  as the contribution                                                               
shrinks the cap will be applied.                                                                                                
                                                                                                                                
5:38:30 PM                                                                                                                    
                                                                                                                                
MR. PICKETT  said he got the  impression that people think  SB 83                                                               
would  take away  cost  of service  ratemaking  ability that  the                                                               
commission  has  in  the  industry;   however,  cost  of  service                                                               
ratemaking  has  been  nonexistent  for   years.    He  said  the                                                               
commission has  no jurisdiction over wireless  rates or broadband                                                               
rates, let alone any packages for videos.                                                                                       
                                                                                                                                
CHAIR   WOOL  questioned   whether   SB  83   would  remove   the                                                               
commission's jurisdiction over landline.                                                                                        
                                                                                                                                
MR. PICKETT  said not  totally.   He noted  that they  still have                                                               
certificate power, ETC certification power with the FCC.                                                                        
                                                                                                                                
CHAIR WOOL sought clarification on certification.                                                                               
                                                                                                                                
MR. PICKETT explained  that there is an  initial determination as                                                               
to  whether  they  are  eligible  for an  ETC  designation.    In                                                               
addition  to   that,  they  have   the  certificates   of  public                                                               
convenience and necessity for which  they must show they are fit,                                                               
willing and  able to provide  the service they are  applying for.                                                               
He  noted  that walking  away  from  the certificate  requires  a                                                               
proceeding as well.                                                                                                             
                                                                                                                                
5:41:08 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL questioned  whether SB 83 would  remove landlines from                                                               
the regulatory purview of the RCA.                                                                                              
                                                                                                                                
MR. PICKETT said that's not a correct assessment.                                                                               
                                                                                                                                
CHAIR WOOL asked what SB 83 does in relation to landlines.                                                                      
                                                                                                                                
MR.  PICKETT explained  that it  cleans up  filings that  are not                                                               
actionable.    He offered  his  belief  that  there should  be  a                                                               
purpose other than collecting  information when filing something.                                                               
He said  that is one of  the frustrations that the  industry has,                                                               
whereas  the  co-ops  can  deregulate  with  the  vote  of  their                                                               
membership.                                                                                                                     
                                                                                                                                
CHAIR WOOL asked if co-ops pay the AUSF.                                                                                        
                                                                                                                                
MR. PICKETT  said yes.  He  reminded the committee that  the AUSF                                                               
is not  to be  confused with the  regulatory cost  charges (RCC).                                                               
He  further  noted  that  the   current  statutory  construct  is                                                               
essentially unfair because if co-ops  deregulate, they do not pay                                                               
regulatory  cost charges  anymore,  even though  they still  have                                                               
proceedings  that use  up the  RCA's staff  time, resources,  and                                                               
legal  expenses.   This  bill, he  said,  makes all  certificated                                                               
telecom companies pay into it.                                                                                                  
                                                                                                                                
CHAIR WOOL deduced that this bill would make co-ops pay the RCC.                                                                
                                                                                                                                
MR. PICKETT replied yes, a small amount.                                                                                        
                                                                                                                                
5:44:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FIELDS referencing a  letter from Stephen McAlpine                                                               
that generally  endorses the  concept of SB  83, asked  about the                                                               
concerns that Mr. McAlpine references.                                                                                          
                                                                                                                                
MR. PICKETT  said he shared  some of those concerns,  adding that                                                               
they  still exist  today with  the existing  statutory construct.                                                               
He  said that  with the  changes in  the federal  subsidy stream,                                                               
these carriers  have been hit  with substantial  reductions while                                                               
still  having to  maintain performance  standards.   He suggested                                                               
that  a  coherent state  telecom  policy  direct AUSF  funds  and                                                               
appropriately apply them                                                                                                        
                                                                                                                                
REPRESENTATIVE  FIELDS asked  if SB  83 would  allow carriers  to                                                               
unilaterally  cut  off  service  to small  communities  with  the                                                               
changes to COLR.                                                                                                                
                                                                                                                                
MR. PICKETT said they would have  to file with the RCA to abandon                                                               
service  or abandon  their  certificate.   Then  it's  up to  the                                                               
commission to approve or deny.                                                                                                  
                                                                                                                                
REPRESENTATIVE FIELDS asked what the  COLR language in SB 83 does                                                               
if they still have to come before RCA.                                                                                          
                                                                                                                                
MR. PICKETT said it prevents  the RCA from imposing unfunded COLR                                                               
responsibilities that are over and  above their ability to be fit                                                               
willing and able to provide the  service they signed up for or to                                                               
stay in compliance with the federal ETC regulations.                                                                            
                                                                                                                                
REPRESENTATIVE STUTES asked why most co-ops support SB 83.                                                                      
                                                                                                                                
MR. PICKETT  offered his belief  that the co-ops realize  if this                                                               
does  not   happen,  the   RCA  will   start  billing   them  for                                                               
proceedings.                                                                                                                    
                                                                                                                                
5:51:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE STUTES  said it sounds  like passage of  this bill                                                               
could prevent  a huge  increase in the  amount of  people's phone                                                               
bill.                                                                                                                           
                                                                                                                                
MR. PICKETT  said it depends  on the size  and the nature  of the                                                               
proceeding. He added that they  have already seen a decline since                                                               
the  AUSF reform  that  went  into effect  January  1, 2019  that                                                               
dropped the surcharge from 20 percent to 10 percent.                                                                            
                                                                                                                                
5:52:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN sought clarification  on whether the co-ops                                                               
are charged when they come before the RCA board.                                                                                
                                                                                                                                
MR.  PICKETT  said  they  are   not  charged.    Essentially,  he                                                               
explained, the  companies that  are paying  the RCCs  are funding                                                               
the commission's  common carrier  staff and  section, as  well as                                                               
all  the associated  staffing  positions  and the  administrative                                                               
overhead.                                                                                                                       
                                                                                                                                
MR.   PICKETT,   responding   to  a   follow-up   question   from                                                               
Representative   Hannan,  said   as  long   as  the   co-ops  are                                                               
deregulated, they do not have to pay RCCs.                                                                                      
                                                                                                                                
REPRESENTATIVE HANNAN asked what RCCs are.                                                                                      
                                                                                                                                
MR.  PICKETT answered  regulatory cost  charges, which  funds the                                                               
RCA.  He added that the RCA doesn't receive general funds.                                                                      
                                                                                                                                
REPRESENTATIVE   HANNAN  asked   why  co-ops   were  allowed   to                                                               
deregulate several years ago.                                                                                                   
                                                                                                                                
MR.  PICKETT  stated  that the  co-ops  deregulated  under  state                                                               
statute.  He  explained that it's subject to a  vote of the co-op                                                               
members  and approval  from  their  respective governing  boards.                                                               
Nonetheless, the statute very clearly gives them that ability.                                                                  
                                                                                                                                
5:54:15 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL offered his understanding  that if a co-op deregulates                                                               
then the RCA can bill them for any interactions.                                                                                
                                                                                                                                
MR. PICKETT  said the bill  must be cost-based; however,  the RCA                                                               
has not done that.                                                                                                              
                                                                                                                                
CHAIR WOOL  opined that if  a co-op  votes to be  deregulated and                                                               
therefore not  pay RCCs,  it seems  fair that  the RCA  asses the                                                               
charges they have incurred  and send them a bill.   He said it is                                                               
the tradeoff for the co-op being deregulated.                                                                                   
                                                                                                                                
MR. PICKETT  explained that  part of  the challenge  is assessing                                                               
the administrative efficiency because  there is an administrative                                                               
cost to  the proceedings.  He  continued to say that  because the                                                               
RCCs are  so small,  it seems  to be more  effective for  what is                                                               
included in SB 83.                                                                                                              
                                                                                                                                
CHAIR WOOL asked for clarification on what is more effective.                                                                   
                                                                                                                                
MR. PICKETT  said the way they  are proposing to spread  the RCCs                                                               
over all telecom companies.                                                                                                     
                                                                                                                                
CHAIR WOOL  concluded that SB 83  would take RCCs and  apply them                                                               
to every telecom company, regulated or nonregulated.                                                                            
                                                                                                                                
MR. PICKETT said that is correct.                                                                                               
                                                                                                                                
CHAIR WOOL  gathered that  under SB  83, a  telecom co-op  in the                                                               
Matsu that didn't charge RCCs would now have to.                                                                                
                                                                                                                                
MR. PICKETT affirmed that.                                                                                                      
                                                                                                                                
CHAIR WOOL turned attention to public testimony for SB 83.                                                                      
                                                                                                                                
DAVID GUTTENBERG, said that SB  83 is a deregulation bill, adding                                                               
that the  ramifications are not  yet understood.  He  opined that                                                               
with  telecom regulations,  it's  important to  read between  the                                                               
lines  and  often  what's  being inferred  is  significant.    He                                                               
continued by saying  that it's important to pay  attention to the                                                               
way  in which  the AUSF  money is  spent.   He said  there is  no                                                               
accountability for  it and it's not  part of this bill,  but even                                                               
so, he  said that  the RCA  will continue  to allocate  money for                                                               
whatever formula  they want, adding  that it's important  to look                                                               
at  how that  will impact  the industry.   He  said they  are not                                                               
putting  in new  hard lines  so almost  all they  money is  going                                                               
towards internet  expansion and  nobody knows what  that is.   He                                                               
said it is behind a corporate vail.   He added that the nature of                                                               
telecom is changing.   He pointed out that the  late U.S. Senator                                                               
Ted  Stevens set  up  the  AUSF. He  emphasized  that the  reason                                                               
Alaska has its own little version of  that is to take care of the                                                               
small, rural  communities, like  Healy Lake.   He  encouraged the                                                               
committee  members to  fully understand  this bill  and what  the                                                               
ramifications will  be before  passing it out  of committee.   He                                                               
addressed  the  staff  notes [memorandum]  and  said  they  raise                                                               
serious concerns.   One of which, is that the  RCA could sit down                                                               
with  the  industry  and streamline  all  the  regulatory  issues                                                               
together.  He said he questions the public purpose of the bill.                                                                 
                                                                                                                                
6:04:36 PM                                                                                                                    
                                                                                                                                
MR.  PICKETT said  he  respects Mr.  Guttenberg's  comments.   He                                                               
asserted that the  RCA should be involved  with the comprehensive                                                               
review of the AUSF now.                                                                                                         
                                                                                                                                
6:06:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN  asked how long the  comprehensive study of                                                               
the AUSF will take.                                                                                                             
                                                                                                                                
MR. PICKETT said it's in regulation  that the RCA will commence a                                                               
comprehensive review of the AUSF by  no later than June 30, 2021.                                                               
He added  that it  will take two  years of  information gathering                                                               
and working with all impacted  parties before being able to start                                                               
the rulemaking if there is any intention to keep the fund going.                                                                
                                                                                                                                
6:07:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN asked how SB 83 affects that.                                                                             
                                                                                                                                
MR. PICKETT said it doesn't.                                                                                                    
                                                                                                                                
REPRESENTATIVE HANNAN asked  if the AUSF review  will commence in                                                               
2021 to  be completed  by 2023,  regardless of  whether SB  83 is                                                               
passed or not.                                                                                                                  
                                                                                                                                
MR. PICKETT  said SB 83  has nothing to do  with the AUSF  or the                                                               
study related to it.                                                                                                            
                                                                                                                                
6:08:06 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL said  the passage if this bill would  take the RCA out                                                               
of  landline  ratemaking  business;   however,  there  are  still                                                               
federal  laws that  could limit  how much  carriers could  charge                                                               
regarding rates.  He asked if that is correct.                                                                                  
                                                                                                                                
MR. PICKETT  said that the  RCA using cost of  service ratemaking                                                               
for landlines is a theoretical construct.                                                                                       
                                                                                                                                
CHAIR WOOL asked about federal  laws governing how much a telecom                                                               
company can charge for landlines rates.                                                                                         
                                                                                                                                
MR. PICKETT said he does not know.                                                                                              
                                                                                                                                
6:12:47 PM                                                                                                                    
                                                                                                                                
CHRISTINE  OCONNOR,  Alaska  Telecom  Association,  said  she  is                                                               
unaware of any limits on business rates.                                                                                        
                                                                                                                                
CHAIR WOOL asked if a school  in Fort Yukon, Alaska would have to                                                               
operate under any rate caps because they are nonresidential.                                                                    
                                                                                                                                
MS. OCONNOR  said she  believed that  to be  correct, reiterating                                                               
that she is unaware of any federal caps on business rates.                                                                      
                                                                                                                                
CHAIR WOOL questioned whether they  would have any competition in                                                               
that if they were the only carrier.                                                                                             
                                                                                                                                
MS.   OCONNOR  acknowledged   that  they   would  not   have  any                                                               
competition.                                                                                                                    
                                                                                                                                
6:13:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO  observed that  there appears to  be some                                                               
redundancy  with   federal  government  regarding  some   of  the                                                               
services that will be eliminated.   He asked if that is a correct                                                               
assumption.                                                                                                                     
                                                                                                                                
MR. PICKETT said he would not characterize it as a redundancy.                                                                  
                                                                                                                                
6:15:02 PM                                                                                                                    
                                                                                                                                
CHAIR WOOL closed  public testimony and announced that  SB 83 was                                                               
held over.