Legislature(2003 - 2004)
05/16/2003 01:40 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
May 16, 2003
1:40 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson, Vice Chair
Representative Jim Holm
Representative Dan Ogg
Representative Ralph Samuels
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Nancy Dahlstrom
COMMITTEE CALENDAR
HOUSE BILL NO. 111
"An Act extending the termination date of the Regulatory
Commission of Alaska; and providing for an effective date."
- HEARD AND HELD
CS FOR SENATE BILL NO. 85(STA)
"An Act relating to sentencing and to the earning of good time
deductions for certain sexual offenses."
- BILL HEARING POSTPONED TO 5/18/03
CS FOR SENATE BILL NO. 198(STA)
"An Act relating to recovery of civil damages by a peace officer
or fire fighter; and providing for an effective date."
- BILL HEARING POSTPONED TO 5/18/03
PREVIOUS ACTION
BILL: HB 111
SHORT TITLE:EXTEND REGULATORY COMMISSION OF ALASKA
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
02/19/03 0250 (H) READ THE FIRST TIME -
REFERRALS
02/19/03 0250 (H) L&C, FIN
02/19/03 0250 (H) FN1: (CED)
02/19/03 0250 (H) GOVERNOR'S TRANSMITTAL LETTER
03/10/03 (H) L&C AT 3:15 PM CAPITOL 17
03/10/03 (H) Heard & Held
03/10/03 (H) MINUTE(L&C)
03/17/03 (H) L&C AT 3:15 PM CAPITOL 17
03/17/03 (H) <Bill Hearing Postponed to
3/19>
03/19/03 (H) L&C AT 3:15 PM CAPITOL 17
03/19/03 (H) Heard & Held <Subcommittee
Assigned>
03/19/03 (H) MINUTE(L&C)
03/27/03 (H) L&C AT 1:00 PM CAPITOL 120
<Subcommittee Meeting>
03/27/03 (H) MINUTE(L&C)
04/10/03 (H) L&C AT 2:00 PM CAPITOL 120
04/10/03 (H) <Subcmte Meeting Canceled>
04/15/03 (H) L&C AT 1:00 PM CAPITOL 120
<Subcommittee Meeting>
04/15/03 (H) MINUTE(L&C)
04/23/03 (H) L&C AT 3:15 PM CAPITOL 17
04/23/03 (H) Heard & Held
MINUTE(L&C)
04/25/03 (H) L&C AT 3:15 PM CAPITOL 17
04/25/03 (H) Moved CSHB 111(L&C) Out of
Committee
MINUTE(L&C)
04/28/03 1150 (H) L&C RPT CS(L&C) NT 1DP 1DNP
4NR 1AM
04/28/03 1150 (H) DP: ANDERSON; DNP: LYNN; NR:
CRAWFORD,
04/28/03 1150 (H) GATTO, DAHLSTROM, ROKEBERG;
04/28/03 1150 (H) AM: GUTTENBERG
04/28/03 1151 (H) FN1: (CED)
05/05/03 (H) FIN AT 1:30 PM HOUSE FINANCE
519
05/05/03 (H) <Bill Hearing Postponed>
05/12/03 (H) FIN AT 1:30 PM HOUSE FINANCE
519
05/12/03 (H) Moved Out of Committee
05/12/03 (H) MINUTE(FIN)
05/13/03 1588 (H) FIN RPT 4DP 5NR 1AM
05/13/03 1588 (H) DP: MEYER, WHITAKER, FOSTER,
WILLIAMS;
05/13/03 1588 (H) NR: HAWKER, KERTTULA,
BERKOWITZ,
05/13/03 1588 (H) MOSES, HARRIS; AM: STOLTZE
05/13/03 1588 (H) FN1: (CED)
05/14/03 1661 (H) JUD REFERRAL ADDED AFTER FIN
05/15/03 (H) JUD AT 1:00 PM CAPITOL 120
05/15/03 (H) Meeting Postponed to 5/16
05/16/03 (H) JUD AT 10:00 AM CAPITOL 120
WITNESS REGISTER
BARBARA CRAVER, Attorney
Legislative Legal Counsel
Legislative Legal and Research Services
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Spoke as the drafter of HB 111 and
responded to questions.
LEONARD A. STEINBERG, General Counsel
Alaska Communications Systems, Inc. (ACS)
Anchorage, Alaska
POSITION STATEMENT: During discussion of HB 111, provided
comments and responded to questions.
JAMES ROWE, Executive Director
Alaska Telephone Association (ATA)
Anchorage, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HB 111.
JONATHAN FEIPEL, Assistant Director
Telecommunications Division
Illinois Commerce Commission (ICC)
Springfield, Illinois
POSITION STATEMENT: During discussion of HB 111, provided
comments and responded to questions.
DAVE HARBOUR, Commissioner
Regulatory Commission of Alaska (RCA)
Anchorage, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HB 111.
LORRAINE KENYON, Chief/Common Carrier
Regulatory Commission of Alaska (RCA)
Anchorage, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HB 111.
REPRESENTATIVE DAVID GUTTENBERG
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided a comment during discussion of HB
111.
DANA TINDALL, Senior Vice President
Legal, Regulatory, and Governmental Affairs
General Communications Incorporated (GCI)
Anchorage, Alaska
POSITION STATEMENT: During discussion of HB 111, provided
comments and responded to questions.
CHRISTOPHER J. WRIGHT, former General Counsel
Federal Communications Commission (FCC)
Washington, D.C.
POSITION STATEMENT: Responded to questions during discussion of
HB 111.
ACTION NARRATIVE
TAPE 03-63, SIDE A
Number 0001
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 1:40 p.m. Representatives
McGuire, Anderson, Holm, Ogg, Samuels, and Gara were present at
the call to order. Representative Gruenberg arrived as the
meeting was in progress.
HB 111 - EXTEND REGULATORY COMMISSION OF ALASKA
Number 0027
CHAIR McGUIRE announced that the only order of business would be
HOUSE BILL NO. 111, "An Act extending the termination date of
the Regulatory Commission of Alaska; and providing for an
effective date."
Number 0043
REPRESENTATIVE ANDERSON moved to adopt CSHB 111(L&C) as the
working document.
Number 0051
REPRESENTATIVE GARA objected.
Number 0079
A roll call vote was taken. Representatives Anderson, Ogg,
Samuels, and McGuire voted in favor of adopting CSHB 111(L&C) as
the working document. Representatives Holm and Gara voted
against it. Therefore, CSHB 111(L&C) was before the committee
by a vote of 4-2.
CHAIR McGUIRE indicated that she would accept testimony on both
HB 111 and CSHB 111(L&C).
Number 0301
BARBARA CRAVER, Attorney, Legislative Legal Counsel, Legislative
Legal and Research Services, Legislative Affairs Agency,
explained that Section 1 of CSHB 111(L&C) will become part of
uncodified law, expressing the findings and purpose of the
legislature in enacting this legislation. Section 2 provides
that when a new telecommunications carrier enters a local
market, the Regulatory Commission of Alaska (RCA) is directed
not to designate an incumbent local exchange carrier as the
dominant carrier unless that carrier has a 60 percent market
share.
REPRESENTATIVE GARA opined that in Alaska, if a 60-percent
"statewide" market share is required before the RCA can
designate a carrier as the dominant carrier, then no carrier
would be so designated.
MS. CRAVER acknowledged that the language on page 3, line 31,
does specify a "statewide" market share. She then went on to
say that Section 3 stipulates that with regard to [changing]
standards for services or facilities, any rules, orders, or
regulations issued by the RCA would have only a prospective
effect. Section 4 adds two new subsections to AS 42.05.381.
Proposed subsection (k) allows telephone utilities to use a
depreciation schedule no shorter than one that's allowed under
the federal tax code. Proposed subsection (l) pertains to how
the RCA looks at a telephone utility's current costs when
determining the cost that that utility can charge another
utility for the use of facilities, systems, or services.
MS. CRAVER surmised that this involves network elements that a
utility is required to share and charge another carrier for, and
noted that language in proposed subsection (l) says in part:
"The best evidence of ... it's most current costs, adjusted for
inflation. Capital and depreciation costs may rise to reflect
increased business risk ...." Proposed subsection (l) also
provides that if a carrier that owns facilities incurs costs for
allowing another carrier to come in and use those facilities but
the second carrier - the lessee - cancels the agreement to use
those facilities, the lessee has 90 days to reimburse the
original carrier for capital expenditures that were incurred in
order to accommodate the lessee.
Number 0708
MS. CRAVER said Section 5 provides that if a carrier can
establish that it is operating in a competitive service area, it
can file a certificate, which would be effective upon filing,
with the RCA; the utility then becomes exempt from the "tariff
filing requirement" for rate changes and other rate-related
matters. She indicated that according to what she has been
told, this would "vastly simplify the ratemaking process."
Section 5 also addresses "carrier of last resort" obligations;
she mentioned that under federal law, "somebody" has to provide
phone service in an area - "you can't just pull out if you are
the carrier of last resort." She noted that in order to deny a
certificate and the exemption from tariffs, the RCA must make "a
written finding and order", for example, if the RCA did not
believe that the carrier really was in a competitive service
area.
MS. CRAVER mentioned that under Section 5, if a carrier files
for and receives a tariff exemption, the carrier must make
information about its prices and services available to the
public, both at the carrier's regular place of business and on
the Internet. In addition, the carrier may negotiate
competitive rates, terms, and conditions for service. In
response to a question, she said that according to her
understanding, a tariff is the rate a carrier is allowed to
charge the public for its products and services, adding that it
involves a very large, complicated, regulatory structure. She
mentioned that the RCA gets very involved in the process of
determining whether a particular tariff offered by a carrier is
acceptable. So if a carrier is exempted from filing a tariff,
that carrier simply gets to choose what it will charge the
public.
MS. CRAVER, still referring to Section 5, relayed that proposed
AS 42.05.433(d) says:
A local exchange carrier or an interexchange long
distance carrier granted a tariff exemption under (a)
of this section is exempt from the following
provisions of this chapter: AS 42.05.291, 42.05.301,
42.05.306, 42.05.361, 42.05.371, 42.05.381, 42.05.391,
42.05.411, 42.05.421, 42.05.431, 42.05.451, and
42.05.471.
MS. CRAVER said that the foregoing sections pertain to filing
tariffs. Turning attention, then, to proposed AS 42.05.433(e),
which refers to "shared carrier of last resort obligations", she
said that although she is not sure what those obligations are,
she does know that they are imposed upon telecommunications
providers by federal law.
Number 0978
MS. CRAVER said that proposed AS 42.05.433(f) stipulates that
the local exchange market in Anchorage and the statewide
interexchange long distance market shall be considered
competitive service areas. She relayed that subsection (g)
provides definitions for "eligible telecommunications carrier",
"network element", "competitive service area", "unbundled
network elements", and "facilities-based service provider". For
example, a competitive service area means a service area in
which at least 50 percent of all retail customers have a choice
of facilities-based providers.
MS. CRAVER relayed that a facility-based service provider is
defined as a telephone utility that offers a portion of products
and services by means of the facilities it owns and operates or
by means of facilities and unbundled network elements it leases
from another provider. An eligible telecommunications carrier
is a telephone utility eligible to receive universal service
support under 47 U.S.C. 254. A network element is an item that
an owner has to share with another user, and includes "features,
functions, and capabilities that are provided by means of the
facility or equipment." An unbundled network element is an
element that is detachable; in other words, an element that is
available for sale or lease at a technically feasible point.
Section 5 also adds proposed AS 42.05.435, which would establish
a state telecommunications policy regarding pricing of unbundled
network elements.
MS. CRAVER pointed out that Section 6 adds a new subsection to
AS 42.05.810; this new subsection stipulates that the RCA may
not regulate a long distance carrier as a dominant carrier in
the long distance market if the carrier's statewide market share
- as measured in intrastate minutes of use - is then less than
60 percent. She noted that dominant carrier obligations are
stipulated in federal law, and that for purposes of proposed AS
42.05.810, a dominant carrier shall remain the carrier of last
resort until the RCA orders otherwise.
MS. CRAVER said that Section 7 extends the RCA's sunset to June
30, 2007. Section 8 would add to uncodified law an
applicability section regarding Section 4. Specifically,
Section 8 says that an incumbent local exchange carrier may
immediately adjust and implement new rates. Section 9 would add
to uncodified law a stipulation that the RCA shall, by
regulation, adjust and allocate, based on market share, the
financial obligation of being a carrier of last resort to all
carriers serving a competitive service area. Section 10
provides for an immediate effective date.
Number 1360
LEONARD A. STEINBERG, General Counsel, Alaska Communications
Systems, Inc. (ACS), concurred that Section 1 of CSHB 111(L&C)
contains findings and purpose language.
CHAIR McGUIRE relayed that that language resulted from meetings
held by a subcommittee of the House Labor and Commerce Standing
Committee.
MR. STEINBERG said that the language in Section 2 was proposed
by the Alaska Telephone Association, which is a collection of
small, independent local exchange carriers throughout Alaska.
REPRESENTATIVE SAMUELS, on the issue of a statewide market
share, asked whether 60 percent is a generally accepted [number]
and whether that information is available to the public.
MR. STEINBERG said that there is no general agreement on market
share, and that there are various ways to measure it. In
response to another question, he said that currently there is no
regulatory requirement that carriers report market share
information. However, there are regulations requiring the
filing of other information, and this information would enable
someone to calculate market share. Market share has not
typically been the focus of the RCA, he added.
REPRESENTATIVE GARA opined that Section 2 would exempt carriers
currently considered dominant from that label. He asked what
being a dominant carrier entails, and why it is relevant to
specify that a carrier has to be dominant statewide before being
regulated.
MR. STEINBERG replied that according to his general
understanding, because different rules and regulations govern
competitors coming into an area, and because some view those
differences as providing competitors with an unfair advantage
over incumbent carriers, the objective of Section 2 is to "level
the playing field" for incumbent carriers.
REPRESENTATIVE GARA asked what the current rules are for
dominant carriers.
MR. STEINBERG replied that dominant carriers have more
burdensome requirements regarding filing tariffs and providing
cost justification for rate increases.
Number 1677
JAMES ROWE, Executive Director, Alaska Telephone Association
(ATA), said that essentially, in a monopoly market, incumbent
local exchange carriers that are dominant carriers are currently
being regulated to protect the public. In a competitive market,
however, when another company comes in, competition is what
protects the public. From the perspective of the small carriers
represented by the ATA, he relayed, being the dominant carrier
comes at a cost. This cost includes filing reports with the RCA
and filing tariffs in order to gain permission to recover the
cost of delivering services. He concurred that the goal of
Section 2 is to achieve parity between incumbent carriers and
incoming competitors. Parity, he opined, involves the ability
to lower or raise prices in a timely fashion. Currently,
incumbent carriers are not being given the same flexibility as
incoming competitors.
MR. ROWE remarked that half of the companies represented by the
ATA are cooperatives, which are very sensitive to their
membership. One of the ATA's cooperatives serves less than 200
access lines and another serves 12,300 access lines, which
represents about 9,000 customers. But the concept of dominance
takes on a different meaning when these small cooperatives are
considered dominant carriers by the RCA simply because they are
incumbent carriers and a company such as General Communications
Incorporated (GCI), which has 12,000 employees, comes into those
areas as a competitor and gains pricing advantages from the RCA.
This possibility is quite frightening to the companies
represented by ATA, he said.
MR. ROWE noted that the last sentence in Section 2 says that the
incumbent local exchange carrier shall remain the carrier of
last resort, and that the companies represented by the ATA want
to retain "carrier of last resort" responsibilities. He
mentioned that "60 percent" of a statewide market share was just
a number. What the ATA was looking at was that in the community
of Coldfoot [Camp], for example, Summit Telephone Company, Inc.,
with approximately 12 employees, is the dominant carrier serving
between 20 and 30 customers. In a pure competitive environment,
that type of dominant carrier is not on par with a company of
GCI's size. In such situations, he opined, as soon as the RCA
determines that a competitor can come into an area, both the
competitor and the incumbent should be allowed the same
flexibility with regard to pricing.
Number 1921
JONATHAN FEIPEL, Assistant Director, Telecommunications
Division, Illinois Commerce Commission (ICC), relayed that the
Illinois legislature recently mandated how the ICC will proceed
with certain inputs into a TELRIC, which stands for Total
Element Long-Run Incremental Cost, a cost methodology
established by the Federal Communications Commission (FCC).
CHAIR McGUIRE asked what prompted those legislative mandates,
and how would one force dominant carriers to lease unbundled
network elements. She suggested that the legislation recently
passed in Illinois resembles CSHB 111(L&C).
MR. FEIPEL said that the Illinois legislation was prompted by
the incumbent carrier's claim that the wholesale rates it
charged competitors for access to its network were so low that
it could not recuperate those costs and this would result in
layoffs and job loses. Competitors and consumer groups,
however, argued that the legislation was unnecessary and that
the ICC was setting fair rates in accordance with Illinois law
and the federal Telecommunications Act of 1996. He noted that
the ICC was unable to take a formal position on the Illinois
legislation because the ICC had "a docketed case to set" the
exact same rates mandated by legislation. The ICC did, however,
formally state its concerns regarding [lessening] of the ICC's
ratemaking flexibility, specifically its concern that the due
process rights of all carriers might be impaired if the ICC were
no longer allowed to give consideration to all factors while
setting rates.
REPRESENTATIVE GARA asked whether the incumbent carrier in
Illinois is now allowed to set its own rates.
MR. FEIPEL explained that the Illinois legislation simply
specifies "certain inputs" that the ICC has to apply in
ratemaking. He mentioned accelerated depreciation rates and
actual utilization rates. He also indicated that although the
ICC was working towards the same solution that was ultimately
achieved via legislation, the incumbent carrier was unwilling to
wait for the ICC , so it put pressure on the Illinois
legislature to provide the ICC with legislative guidelines.
CHAIR McGUIRE posited that CSHB 111(L&C) is similar to the
Illinois legislation with regard to goal of providing
guidelines.
REPRESENTATIVE ANDERSON turned attention to paragraphs (3) and
(4) of Section 1, and read:
(3) state law is tailored to the era of monopoly
regulation that existed before passage of the
Telecommunications Act of 1996 and fails to reflect
national policy of achieving modern and efficient
telecommunications systems by way of market incentives
rather than regulatory controls;
TAPE 03-63, SIDE B
Number 2380
(4) state law fails to recognize that policies
designed to encourage new entrants to compete against
the nation's largest carriers, the regional bell
operating companies, are disproportionately burdensome
and financially threatening to Alaska's smaller local
exchange carriers;
REPRESENTATIVE ANDERSON asked Mr. Feipel whether similar
arguments were made during debates on the Illinois legislation.
MR. FEIPEL indicated that similar arguments were made. He said
he agrees that the goal of the Telecommunications Act of 1996
was to replace monopoly regulation with competitive markets. He
added that Illinois statute does grant some pricing flexibility
to dominant carriers if they serve specific geographic areas
that have enough competitive pressure. In areas of the state
that have little or no competition, however, very strict
"monopoly regulations" still apply "in kind of a transition
phase" he added.
CHAIR McGUIRE asked how Illinois defines dominant carriers. Is
the definition based on market penetration, or profitability, or
the number of common lines? She offered her opinion that at one
time, Alaska did have a dominant incumbent carrier, and although
that is no longer the case, among the different competitors
currently serving Alaska, there is one that is approaching the
original carrier's level of market share. She also asked
whether there are carriers in Illinois that were once considered
dominant but are no longer considered such.
MR. FEIPEL, on how to define a dominant carrier, indicated that
there are a couple of options. One way would be to mirror the
definition in the Telecommunications Act of 1996; another way
would be to set statutory criteria regarding geographic area,
market class, type of service, number of carriers, penetration
rates, market share, availability and accessibility of
substitute products, et cetera. He also indicated that the
latter option is what Illinois now uses to define a dominant
carrier.
CHAIR McGUIRE surmised, then, that any carriers in Illinois,
even if once considered dominant, can now go before the ICC and
request a reclassification based on the aforementioned statutory
criteria.
Number 2141
MR. FEIPEL said that's right, adding that the criteria is
targeted to specific services. For example, in a particular
geographic area, a carrier might be considered the dominant
carrier for residential services, and yet for business services
in that same area, there could be enough competition for that
same carrier to not be classified as the dominant one. In some
areas of the state, classification is based on the individual
service in an individual geographic area for the individual
market class.
REPRESENTATIVE OGG asked Mr. Feipel how Alaska's RCA statutes
compare with Illinois's ICC statutes.
MR. FEIPEL said he is not familiar with Alaska's RCA statutes.
REPRESENTATIVE OGG asked how "local exchange market" and
"competitive area" are defined in Illinois.
MR. FEIPEL relayed that Illinois statute specifically defines a
local exchange in much the same way that the telecommunications
industry defines it. However, in terms of declaring whether a
service in a particular area is competitive, geographic areas
"are more broadly lumped together." For example, the entire
Springfield metropolitan area is lumped together. He added that
it is the ICC that provides the latter function.
REPRESENTATIVE OGG asked whether Illinois statute allows its
carriers to declare on their own that they are exempt from
tariff filings.
MR. FEIPEL indicated that Illinois statute provides relaxed
tariff filing requirements for carriers that are declared
competitive by the ICC. He added that once the ICC allows a
competitive carrier to charge a certain rate, that rate can't be
suspended until after an investigation is complete, and then any
adjustments to rates can be made retroactively. So, Illinois
statute lays out the differences regarding competitive and
noncompetitive classifications, and a carrier can petition the
ICC for reclassification. In doing so, it is the carrier's
responsibility to show that it meets the different criteria to
justify a reclassification.
MR. FEIPEL, in response to a question, said that Illinois does
not define a dominant carrier by a "60 percent statewide market
share" criteria as is done in CSHB 111(L&C), and reiterated his
explanation of the criteria that Illinois currently uses to
define an incumbent local exchange carrier. In response to
another question, he said that Illinois has been divided into
roughly 400 geographic sections called local exchanges, and that
combinations of those are then referred to as geographic areas;
for example, the city of Chicago is often referred to as its own
geographic area.
Number 1700
CHAIR McGUIRE mentioned that CSHB 111(L&C) has portions that
pertain to small carriers operating in rural areas and portions
that pertain to larger carriers operating in urban areas. She
remarked that the RCA mandates the leasing of all unbundled
network elements, and asked Mr. Feipel to comment on this issue.
MR. FEIPEL relayed how Illinois divides its unbundled network
elements for the purpose of leasing. He added that the FCC lays
out the "necessary/impair test" for the purpose of determining
what must be leased, and that the ICC follows those guidelines
when it looks at each individual unbundled network element.
MR. STEINBERG opined that the level of competition in Alaska is
much greater than what exists in Illinois. He relayed that ACS
- the incumbent - has lost about 50 percent of the local
exchange market in Anchorage, and about 25 percent in Fairbanks;
the market share of ACS is diminishing rapidly in Juneau as
well. To illustrate his point about Alaska's level of
competition, he relayed that in Illinois, only 17 percent of the
state's lines are served by competitors. On the issue of
regulatory relief for specific services, he noted that it is
typical in the Lower 48 for competitors to come in and focus on
a particular type of service; in Alaska, however, ACS's
competitors are competing for all services across the board. He
surmised that this is a testament to the strength of ACS's
competitors, that they have developed as strong a position in
residential markets as in business markets. He went on to
detail the history of the dominant carrier in Illinois, adding
that it now serves approximately 60 million lines; in
comparison, ACS serves approximately 300,000 lines. He
suggested that a company large enough to serve 60 million lines
can withstand competition much better than a company that serves
only 300,000 lines.
Number 1223
REPRESENTATIVE OGG said it would be helpful if they had a chart
showing Alaska's local exchange markets. He asked, "who picks
that?"
MR. STEINBERG said that in Alaska, today's local exchange
markets are "remnants of the legacy of the monopoly era."
Certain areas were defined around certain communities, and now
carriers that come in to serve those areas have to file a
certificate of convenience and public necessity; it is those
certificates that define the boundaries of service areas. The
certificate boundaries can be amended, he added.
REPRESENTATIVE OGG asked for information about Kodiak.
MR. STEINBERG noted that the ATA has a book that identifies all
of Alaska's service areas and the companies that service them.
He offered his belief that the service area around Kodiak
involves the entire island. Additionally, Kodiak is in one of
the areas served by ACS - specifically ACS of the Northland,
Inc., which has two, separately certificated areas called study
areas. The Glacier State study Area includes Kodiak, the
western half of the Kenai Peninsula, Nenana, Delta Junction, and
North Pole. He remarked that these are legacy situations; at
the time that services were first being provided, "somebody
created a map and said, 'I'm going to serve these different
areas; I'm going to call that one company.'" Different areas
being served by one company do not have to be adjacent to each
other, he added.
REPRESENTATIVE GARA asked for the current definition of a
dominant carrier in a local exchange.
MR. STEINBERG said that currently, there is no statutory
definition; it is simply addressed in regulation.
MR. ROWE agreed that there is no statutory definition. He
reiterated that the goal of Section 2 is to achieve parity for
incumbent carriers. He said that the carriers ATA represents
are hoping to get the same flexibility in pricing that any
incoming competitors will get. He remarked that GCI is 60
percent larger than the largest of ATA's carriers, and that one
half of ATA's carriers serve less than 3,000 lines.
REPRESENTATIVE GARA asked how it is currently determined whether
a carrier in a local exchange is the dominant carrier.
MR. ROWE said that currently, the incumbent local exchange
carrier is simply considered the dominant carrier.
Number 0770
DAVE HARBOUR, Commissioner, Regulatory Commission of Alaska
(RCA), concurred that "dominant carrier" is not currently
defined in statute. He explained, however, that determining
whether a carrier is the dominant carrier in a local exchange is
done on a case-by-case basis and [is influenced by] the legacy
origins previously mentioned.
REPRESENTATIVE GARA asked whether the standards used by the RCA
are derived from federal law.
MR. HARBOUR reiterated that determinations are made on a case-
by-case basis, and then he reviewed the stipulations in Section
2.
REPRESENTATIVE GARA clarified that he wants to know whether the
RCA currently uses any standards to make those case-by-case
determinations and, if so, where those standards come from.
Number 0613
LORRAINE KENYON, Chief/Common Carrier, Regulatory Commission of
Alaska (RCA), said that the RCA looks at the services provided
in a market and evaluates whether, by service, there is
effective competition. If the incumbent carrier appears to
retain market power, then the RCA identifies that carrier as
being dominant. Currently, in the Anchorage market, based on
that analysis, regulations specify that ACS of Anchorage, Inc.,
is the dominant carrier, and that Alascom, Inc., is the dominant
carrier in the long distance market.
REPRESENTATIVE SAMUELS asked whether one company's [exceeding]
another company by a percentage point would grant it market
power.
MS. KENYON said not necessarily. She added that percent market
of share by itself is not a recognized criteria that proves the
carrier does or does not have market power. For example, there
could be two carriers with balanced market share acting as
oligopolies. There are a variety of tests, but not one
particular standard. Normally in such a situation, she
remarked, the RCA would evaluate several factors to see whether
sufficient competition exists, so that the level of regulation
is comparable to what is needed to protect the public interest.
In response to a question, she relayed that this process is not
stipulated by federal regulations, and that to her knowledge,
there aren't any federal standards that states must use in
determining dominant carrier status.
MR. STEINBERG opined that all incumbent - or legacy - providers
of telecommunications are considered dominant carriers until the
RCA determines otherwise, and that the RCA has made no such
determinations.
Number 0362
MR. STEINBERG, turning attention to Section 3, concurred with
the drafter that it establishes a prospective effect of the
RCA's rules, orders, and regulations regarding a change in
standards pertaining to services or facilities. He indicated
that the goal of this section is to prevent the RCA from
establishing a rule, order, or regulation that would require a
carrier to retrofit its existing facilities. In monopoly
situations, he relayed, carriers were asked to spend money to
expand and upgrade their networks, but they were also allowed an
opportunity to recover that money plus make what he called a
reasonable return. Those kinds of contracts don't exist in the
competitive marketplace, and so the concern is whether an
incumbent carrier would have an opportunity to recover the costs
- perhaps amounting millions of dollars - associated with being
required to retrofit existing facilities.
REPRESENTATIVE GARA asked whether the language in Section 3
means that the RCA won't be able to regulate an existing service
or facility.
MR. STEINBERG indicated that Section 3 would only apply to
regulations requiring modification of equipment and facilities
already in service, adding that the objective is to prevent the
RCA from requiring large-scale retrofitting of existing
equipment and facilities
REPRESENTATIVE GARA opined that [Section 3] is poorly written,
and suggested that it could be used by carriers to get out of
updating equipment and facilities in rural areas.
MR. STEINBERG suggested that a solution might be to have this
language apply [only] in competitive service areas; in this way,
the RCA could still require monopolies serving Bush communities
to update existing equipment and facilities.
TAPE 03-64, SIDE A
Number 0001
MR. STEINBERG said that ACS's concern is that in a competitive
area, ACS may be compelled to spend money while its competitor
may not be. The way that facility lease rates are set, he
opined, ACS cannot be certain of recovering the costs of
retrofitting facilities.
REPRESENTATIVE GARA indicated that although he understood that
concern, he doesn't see how the language in Section 3 addresses
that concern; rather, it appears to just cause broader mischief.
MR. STEINBERG said that he would be willing to discuss modifying
the language in Section 3.
MR. STEINBERG turned attention to Section 4, and said that
subsection (k) addresses depreciation rates. He offered that
the FCC has indicated that in competitive areas, depreciation
rates should reflect the impacts of competition - the demands
for new investments and innovations - and thus it is appropriate
to provide shorter asset lives. He remarked that the provision
in subsection (k) is similar to the recently passed Illinois
statute, and merely asks that policy be set in Alaska as to
"where the regulators ought to go."
REPRESENTATIVE OGG asked whether Section 3 and subsection (k) of
Section 4 would apply to competitive areas.
MR. STEINBERG replied that that is the intent, that they apply
to competitive areas. In response to other questions, he said
that subsection (k) would allow for accelerated cost recovery.
He added:
We believe that in a competitive environment, ...
regulations have little to do with what the rates are
because the rates are really set by what the market
will bear, what the competitors will allow. We have
experimented, for example, with rate increases in
Anchorage, and found that we lost substantial numbers
of customers. I think ACS has learned that the rates
that we can charge are very directly tied to the rates
that our competitor charges. And it doesn't really
matter what is allowed; what can happen is what the
market will allow.
Number 0369
And moreover, as we go through the legislation, there
is a provision here for tariff exemptions. The whole
purpose of that tariff-exemption section is to put
into practice what I've just discussed, which is to
allow the market to determine rates - rather than
having regulators determine rates - when you have
competition alive and well.
So ... I do not believe that increased depreciation
rates or depreciation expense is likely to have any
impact, really, on customers themselves. I do believe
that this provision does have some significance; it
has significance to providing direction to the
regulators with [regard] to the establishment of
prices for unbundled network elements, for leased
facilities, and it may have some impact on intrastate
access charges as well, which are also determined by
the regulators.
CHAIR McGUIRE noted that the language regarding depreciation
rates is almost identical to Illinois statute. She opined that
this language will require the RCA to consider depreciation
rates when it determines how much a carrier can recapture from
competitors that use its lines and other components.
REPRESENTATIVE GARA asked how a quicker depreciation schedule
lets ACS change its charges to other competitors.
MR. STEINBERG said that it will allow ACS to increase the rates
it charges competitors to use its facilities. He added, "We
believe that today, we have been obligated to lease our
facilities at artificially low rates that are below our costs;
we believe this will allow us to charge rates that more
accurately reflect what the facilities actually cost."
REPRESENTATIVE ANDERSON opined that subsection (k) will result
in lower rates to the consumer.
REPRESENTATIVE GARA asked what the difference is between current
depreciation rules and the depreciation rules that would be in
effect under subsection (k).
MR. STEINBERG replied that currently, there are no specific
rules regarding how depreciation is set by the RCA. There is,
however, a tradition of how it's set, and this tradition is
based on the regulation of monopolies. He said that ACS
believes that the depreciation rates set for monopolies are
substantially different that what depreciation rates ought to be
for competitive companies. He indicated that the current
situation in Anchorage pertaining to depreciation prompted ACS
to propose the language in subsection (k). When there is
competition, he opined, one should increase depreciation
expense, not decrease it.
Number 0705
REPRESENTATIVE OGG suggested that an "expectant market" might
affect what a company pays for its equipment. He asked how
"that" would fit into "cost depreciation."
MR. STEINBERG said that depreciation goes to the net book value
of the assets. If a company pays amounts in excess of the net
book value, it usually shows up as "good will" on the financial
statements. He said that according to his understanding, under
current generally accepted accounting principles (GAAP) rules,
such amounts would not be depreciated.
REPRESENTATIVE HOLM turned attention to subsection (l) of
Section 4, specifically the language that begins: "If a
telephone utility cancels the use of another carrier's
facilities ...." He asked whether there are contracts between
carriers that don't allow for reimbursement.
MR. STEINBERG replied:
Contracts usually suggest that there has been a
willing buyer and a willing seller that have come
together to reach an agreement about something, and
that's what we usually think of as contracts. We have
documents which are labeled "contracts"; those
documents are largely imposed on us by the regulators.
... So I just wanted to set the stage for what it is
that we're referring to as a "contract." ... This is
an area which was not very well defined in some of our
existing contracts, but as a practical matter, the
regulators have told us that we have an obligation to
construct new facilities for our competitor to serve
their customers. So if GCI signs up a new customer
and there's no facilities there today, we have an
obligation to go out and construct those facilities.
Frankly, one of our concerns today is, how do we get
paid for those costs that we have incurred. Well, in
theory, the way we get paid is through the rates at
which we lease our facilities to the competitor. Well
there's two problems we see with that. One is, today
we're forced to lease those facilities at rates that
are below our cost. Perhaps just as importantly, the
way we get our costs recovered is by figuring out what
those costs are and then amortizing those costs over a
lengthy period of time, about 20 years.
Number 0892
Well, our primary competitor, GCI, is now telling us
they intend to deploy cable telephony on their own
network, and move customers - migrate customers - from
our network to their network. So if we spend [$10,000
to $50,000] constructing facilities for GCI to serve
its customers, on the promise that we will get repaid
that investment over a 20-year period, and in 2 or 3
or 4 years, GCI takes its customer and migrates that
customer onto its own network, so that our facilities
are no longer being used, well, we are left with the
bill and no revenue to recover those costs.
MR. STEINBERG said that the Telecommunications Act of 1996
obligated carriers to share their facilities, but had little in
it regarding the pricing of those facilities. The FCC adopted
rules and regulations which in turn adopted broad guidelines for
how those facilities should be priced; the guidelines said that
the facilities should be based on forward-looking economic
costs, and adopted an economic model, the Total Element Long-Run
Incremental Cost (TELRIC) model. But all of that was fairly
general. The FCC delegated to states the job of implementing
the pricing function. In the process of putting the federal
guidelines into practice, he remarked, a number of decisions are
left to the states; ACS feels it is appropriate for the
legislature, in making those decisions regarding pricing, to
provide the RCA with some policy guidelines.
MR. STEINBERG said that there are no provisions in CSHB 111(L&C)
that are inconsistent with, precluded by, or in violation of
federal law. Instead, he opined, the provisions of CSHB
111(L&C) simply provide for how to exercise state discretion in
the areas allowed. The first part of subsection (l) says that a
carrier shall be allowed to recover the costs that it expects to
incur, and reflects the aforementioned forward-looking economic
cost notion. He suggested that there is a lot of discretion
with regard to determining a carrier's future costs, and thus it
is appropriate for the legislature to provide guidance in this
area. He also suggested that in calculating future costs, it is
appropriate to start with current costs.
Number 1138
REPRESENTATIVE ANDERSON opined that the guidelines regarding
pricing ought to be statutory rather than regulatory.
REPRESENTATIVE HOLM suggested that the RCA is part of the
current problem. He asked what the legislature's recourse is if
the RCA decides not to follow the proposed statutory guidelines.
REPRESENTATIVE GARA acknowledged that that concern is a valid
one: "We loose control over our agencies all the time." One
recourse, he suggested, is to challenge the RCA in court for not
implementing a guideline that's defined in statute. Another
option would be for the legislature to involve itself in every
RCA dispute.
REPRESENTATIVE HOLM suggested that they ought to have some sort
of provision in place which will guarantee that the RCA will
follow statutory guidelines.
CHAIR McGUIRE offered her belief that it is well within the
legislature's purview to analyze whether commissions and boards
are functioning properly. She said she has faith that if the
RCA is given standards, it they will follow them. She remarked
that one of the issues they face is that certain carriers are
still considered monopolies even though the market has shifted,
and that there are no current definitions regarding cost
recovery for those situations. She indicated that CSHB 111(L&C)
simply provides the RCA with guidelines on that issue.
REPRESENTATIVE GRUENBERG remarked that if an agency doesn't
follow statute, one recourse is for affected parties to file a
public interest lawsuit.
Number 1392
REPRESENTATIVE DAVID GUTTENBERG, Alaska State Legislature,
offered that when the RCA makes a decision, it is based on law
and justification is provided.
MR. STEINBERG offered that reauthorization hearings provide the
legislature with an opportunity to determine whether an entity
is justified or needs more statutory guidelines.
REPRESENTATIVE OGG asked whether current statute prohibits the
RCA from adopting regulations that would have the same effect as
CSHB 111(L&C).
MR. HARBOUR said that the RCA adopts such regulations on a
regular basis, though it first goes through a public process
that invites public comment from all interested parties. He
indicated that there are currently dockets before the RCA
regarding some of the issues raised by CSHB 111(L&C). He
assured the committee that the RCA would faithfully execute laws
passed by the legislature, and offered to provide the committee
with the RCA's opinion on the impact of the legislation. With
regard to depreciation, he said that although the federal tax
code on this issue is substantial - one publication is
approximately 107 pages long - in contrast, subsection (k)
advocates only one depreciation rule which says that any rate is
justified provided the service life is no shorter than that
which is permitted by the Internal Revenue Service (IRS). The
problem, he remarked, is that accelerated depreciation allows
the carrier to set a high depreciation rate in early years
followed by a low rate in later years, but under subsection (k),
the carrier would not be required to set a lower rate at all
even if the carrier substantially recovers its investment. He
offered that the RCA believes that CSHB 111(L&C) will have a
substantial impact throughout Alaska, particularly rural Alaska.
MS. KENYON added that the RCA currently has the authority to set
in regulation anything currently in CSHB 111(L&C), provided it
is consistent with federal requirements. However, the RCA could
be challenged if it attempted to set a depreciation standard
that is contrary to the FCC's forward-looking economic pricing
standards.
CHAIR McGUIRE noted, however, that the RCA has yet to set any of
the standards proposed by CSHB 111(L&C).
MR. STEINBERG opined that there have been plenty of
opportunities over the years for the RCA to address, via either
regulation or adjudication, the issues raised by CSHB 111(L&C).
Number 1741
MR. STEINBERG, turning attention to Section 5, concurred with
the drafter that it pertains to tariff exemptions in competitive
service areas. He added that its focus is the retail tariff
faced by consumers. He offered ACS's belief that in competitive
service areas, the role of the RCA ought to be substantially
reduced, the reason being that regulations protect consumers in
monopoly environments by acting as a proxy for market forces,
but are not needed in areas with substantial competition.
Burdening the RCA with establishing rates in those areas is
unnecessary, he added.
MR. STEINBERG relayed that ACS has a series of rate cases before
the RCA, and in one of those cases, rates will likely be set in
2004 but they will be based on what happened in 2000. In a
highly competitive market, he remarked, those rates will have
little relevance; the current process regarding rate setting is
costly, and the cost will eventually be passed onto consumers.
He indicated that ACS believes consumer choice should be the
determining factor in setting rates in competitive service
areas.
MR. STEINBERG, in response to a question about subsection (l) of
Section 4, said that currently, there are no statutory
definitions regarding costs incurred. He opined that on this
issue, the legislature should adopt state policy rather than
simply continuing to allow the RCA to calculate those costs
without specific guidelines.
REPRESENTATIVE GARA asked whether the RCA has adopted any rules
by decision that define "expects to incur".
MR. STEINBERG, in response, offered an example of rates set by
the RCA for ACS in the Fairbanks area: the cost that ACS
calculated for use on its financial statements ranged between
$30 and $34; the cost calculated using the FCC's forward-looking
criteria was $36; the rate set by the RCA was $19. He opined
that in that situation, the RCA made improper policy calls with
regard to its calculations, using an economic model adopted by
the FCC for a different purpose, and using national average-
default cost-inputs as the starting basis. He added that
although the RCA said it would make adjustments to reflect the
"Alaskan cost element," those adjustments were seen by ACS as
totally inadequate.
Number 2087
MR. STEINBERG, in response to a request, reiterated his comments
regarding the second portion of Section 4's subsection (l).
REPRESENTATIVE GARA acknowledged Mr. Steinberg's concern, but
suggested that such language ought to be narrowly drawn so that
it refers only to recovering the cost of improvements made
solely for the benefit of a competitor. He indicated that he
did not want the language to allow an incumbent carrier to
recover improvement costs from a competitor if the incumbent was
going to make those improvements anyway for its own benefit.
MR. STEINBERG acknowledged that perhaps the language in that
portion of subsection (l) could be improved to address members'
concerns.
CHAIR McGUIRE indicated that CSHB 111(L&C) was just the
committee's starting point, and that amendments to it would be
considered in due course.
MR. STEINBERG, in response to a question, said that the prices
at which ACS may lease its facilities to competitors is based on
a fiction, rather than on actual costs; prices are based on
forward-looking economic costs assuming a hypothetical network.
Thus, if ACS incurs upgrade costs for leased facilities, there
is no mechanism, via federal rules, that would allow the company
to pass those costs on to a competitor. He added that because
of this situation, ACS has no incentive to improve its leased
facilities.
REPRESENTATIVE HOLM expressed amazement that the current system
doesn't take actual costs incurred into account. He likened it
to having to sell the tomato plants from his greenhouse to a
competitor without being able to charge what it cost to produce
those plants.
TAPE 03-64, SIDE B
Number 2380
MR. STEINBERG agreed with Representative Holm's example, adding
that ACS doesn't believe that such policies provide a long-term
future for Alaska's telecommunications industry, regardless of
the fact that those policies have kept consumer rates low.
The committee took an at-ease from 4:07 p.m. to 4:08 p.m.
Number 2326
DANA TINDALL, Senior Vice President; Legal, Regulatory, and
Governmental Affairs, General Communications Incorporated (GCI),
noted that former FCC General Counsel, Christopher J. Wright, is
also available to testify. She, too, concurred that Section 1
is the findings section, but remarked that the findings, on
their face, are inconsistent when taken together, and seem to
take up the notion that regulation is somehow holding
competition and investment back. She explained, however, that
the regulator's position is to regulate to the extent that
markets fail. In a "perfect competition" market scenario, a
regulator is not needed because there is perfect competition; in
other words, there is: perfect information, free market flow,
no barriers, and no one company is able to control prices. In a
monopoly market, that's not true, there isn't competition, and
so regulation is supposed to take its place.
MS. TINDALL went on to say:
In an emerging competitive market, which is what we
have here, we have regulation to the extent that there
still remains market power. And make no mistake:
Because the local telephone company - ACS, or any
other one you want to pick around the state - still
controls the network and the only line to the
customer's home, the local telephone company continues
to have market power, and that needs to be regulated.
In addition, ... once you start having competition and
you go from a monopoly market to [an] emerging
competitive market, the regulator uses competition as
a tool to help keep rates down and encourage
incentives for investment. You no longer have to step
in and tell the company what to do, but you do have to
ensure that competition is viable.
The regulation that we have at the RCA is necessary to
continue to ensure that competition is viable and that
there is still fairness, because the incumbent local
telephone company continues to have market power. So
I disagree with the notion that any regulation in
these markets must be holding markets back. That's
simply not true. And there are other inconsistencies
within the face of the findings that I will go into if
there are any questions. ...
Number 2139
REPRESENTATIVE HOLM, noting that Ms. Tindall said that
regulation encourages incentives for investment, and that Mr.
Steinberg said ACS has no incentive to invest because of
regulation, asked Ms. Tindall who she was referring to as being
encouraged to invest.
MS. TINDALL agreed that she had made that statement, adding:
[Alaska Communications Systems, Inc.], as a
monopolist, was encouraged to invest because it earned
a rate of return on its plant in the ground. For
every dollar it spent, it got that back, plus a rate
of return. This (indisc.) it to not only invest, but
to invest heavily in facilities and plant. When you
move to a competitive market, the incumbent is
encouraged to invest, through competitive forces, to
keep up - to provide a decent level of service.
[Alaska Communications Systems, Inc.] would like to
continue to go with the rate of return, or have
regulatory certainty.
The [RCA], the FCC, and ... Congress focus - [the]
entire focus has been - on encouraging competitive
carriers to invest, by pricing the network that the
incumbent carrier leases to competitive carriers at
forward-looking, long-run, incremental costs. What
that means is that the prices that a competitor faces
coming into a market, when it leases unbundled
elements from the existing carrier, are supposed to be
similar to the prices that a competitor would face if
it were building its own network from scratch with the
most modern technology and with the incentive to have
the lowest costs possible, rather than paying for a
monopoly network that was built with incentives to
have the highest costs possible.
So if priced correctly, unbundled elements will make a
competitive entrant indifferent between building their
own network and staying on the incumbent's network.
Now, this was a safeguard, frankly, to protect
incumbents; I'm sure that ... Congress would have
actually liked to encourage them to build a little
more, but if a competitor comes in and takes customers
away from the incumbent carrier - ACS in this example
- and builds its own network, ACS will be getting no
revenue for those lines. So they want it as an
economic principle - as an economic matter; they
wanted a competitive entrant to be indifferent between
building their own network and leasing the
[incumbent's].
Number 2001
MS. TINDALL continued:
And the purpose of this was to jumpstart competition.
Congress determined that competition in local
telephone service was in the consumer's best interest,
that it was the best way to bring new technology and
advanced service and lowest cost to the consumer.
They didn't determine, "We're going to hold back
benefits to the consumers because we have to ensure
monopoly companies price margins." And the reason
they didn't determine that is because the monopoly
companies built their network in the public interest -
they were guaranteed a monopoly, they were guaranteed
a rate of return so that consumers could get served.
They had their opportunity and they were given a
monopoly, a legal monopoly; people were not allowed to
go in and compete with them. In those days, that was
determined to be in the consumer's best interest.
Now, Congress has determined that competition is in
the consumer's interest, and Congress has determined
that it is fair to require the monopoly companies to
lease out their networks because they built those
networks and had those networks paid for through a
guaranteed rate of return in a monopoly system.
CHAIR McGUIRE asked Ms. Tindall whether she believes that ACS is
a monopoly.
MS. TINDALL replied:
I believe that ACS, in the Anchorage market, has
market power over the network that competitors have to
use, both local telephone companies and long distance
competitors. And because I believe that they have
monopoly power - 100 percent monopoly power - over
that network, that that should be regulated. The RCA
is involved in a proceeding to deregulate the local
telephone market where there's competition. [General
Communications Incorporated] has filed a pleading
proposing that the market be looked at in two
segments. One, in the retail market - where it's end-
user rates - that where an incumbent carrier has less
than a 60 percent [share] of the market, that the
incumbent carrier be deregulated for the purpose of
retail rates - free to charge whatever rates they
want, free to bundle, free to do whatever they want.
Number 1857
And by the way, the RCA does have regulations where an
incumbent dominant carrier can come in and be
deregulated as a non-dominant carrier, the same as
Illinois. [General Communications Incorporated], in
the ... network element market, which is a separate
market because ACS has control over a bottleneck
facility, has proposed [that] in the Anchorage market,
for example, if a competitive carrier has greater than
35 percent of the retail market, that they should be
required to contribute to building out a network, or
they should be required to build out pieces of their
own network, to reach new customers. ... Where there
is a ... competitive carrier that has more than a 35-
percent market share, which we do in Anchorage, we are
proposing that we share carrier of last resort
responsibilities. That's Anchorage. And ... we're
proposing that, wherever a market reaches those
standards.
[Alaska Communications Systems, Inc.] has many, many,
many markets. I think I counted over 35 communities
and villages - actually, there were 56 communities and
villages in Telephone Utilities of the Northland
[Inc.], which is all one service area - where there is
no competition. When you deregulate ACS, you
deregulate them for all of those communities where
there is no competition. So, yes, I believe ACS has
market power in the Anchorage unbundled-element market
- I don't believe they have monopoly power in the
retail market - [and] I believe they have monopoly
power throughout the rest of their some 90 communities
and villages.
CHAIR McGUIRE said she'd just received some statistics regarding
market share in the long distance market: ACS has 10 percent,
American Telephone and Telegraph (AT&T) has 37 percent, GCI has
43 percent.
MS. TINDALL concurred with those statistics, adding that the
long distance market is a separate market from the local market.
CHAIR McGUIRE offered that in the local market, AT&T has 6
percent of the market share, GCI has 44 percent, and ACS has 50
percent.
MS. TINDALL clarified that in Anchorage, GCI has 45 percent of
the local market. Statewide, however, GCI has 20 percent of the
market. She also concurred with Representative Gara's earlier
comment that no telephone company has a 60-percent statewide
market share as referred to in Section 2.
Number 1739
MS. TINDALL, referring to Section 2, said that from GCI's
perspective, there is only one difference in the RCA's
regulations between dominant carrier regulation and non-dominant
carrier regulation. That difference is the ability to raise
rates. Currently, if a carrier is regulated as a dominant
carrier, it must get permission from the RCA in order to raise
rates. That carrier, however, is free to lower rates all it
wants. If a carrier is regulated as a non-dominant carrier, it
may raise and lower rates as it will because it is presumed to
not have market power. She said that "dominant carrier" is
currently defined in regulation by how much market power a
carrier has. Section 2, she opined, would allow an incumbent
carrier to deregulate its entire service area the minute
competition is approved in a local market, even before a
competitor serves its first customer.
REPRESENTATIVE GARA asked Ms. Tindall whether she is referring
to raising rates to consumers or raising rates to competitors.
MS. TINDALL clarified that she is referring to consumer retail
rates. Returning attention to Section 2, she went on to say:
Telephone Utilities of the Northland [Inc.] serves
Akhiok, Akutan, Allakaket, Angoon, Atka, "Border
City," Chignik, Chignik Lagoon - there's 56 of them
here - all the way down to Yakutat. And Telephone
Utilities of the Northland [Inc.], the minute
competition [is] approved in Kenai, would be
deregulated to raise rates to all of these communities
and villages without RCA oversight whatsoever. That's
what Section 2 does.
And it does it for every telephone utility, by the
way, because there are no telephone utilities that
have ... a 60-percent [statewide] market share. So
since there is no difference between dominant carrier
regulation and non-dominant carrier regulation, other
than the ability to raise rates, I have to assume that
the purpose of Section 2 is so that the local
telephone companies throughout the state may raise
their rates.
Number 1612
MS. TINDALL, turning to Section 3, said:
Section 3 says that any rule, regulation, [or order]
that's not on the books now, that's adopted after this
passes, cannot apply retroactively. I believe that
this ... [proposed provision] stems from a rule that
the RCA passed ordering -- well, the state
telecommunication management plan that was passed some
years ago by the [Telecommunications Information
Council (TIC)] required all of the local telephone-
company utilities to bring their networks up to a
standard that would transmit "28.8" data
transmissions.
[Alaska Communications Systems, Inc.] ... said that
they were not able to meet that standard; ... at the
time, the [Alaska Public Utilities Commission (APUC)]
gave them time to bring their networks up to that
standard. They still haven't brought their networks
up to that standard. I believe the purpose of this
... [proposed provision] is to let them out of ...
bringing their networks up to that standard. I also
believe that this ... [proposed provision], since
there are no regulations on the book regarding carrier
of last resort and requirements to extend services to
new neighborhoods, ... could be used so that carriers
don't have to continue extending their network to
provide service. ...
MS. TINDALL then turned attention to Section 4:
Section 4 deals with proposed depreciation rates. I
think the background of this section is that ... ACS
bought, in the year 2000, the telephone companies
Telephone Utilities of the Northland [Inc.], Telephone
Utilities of Alaska [Inc.], the Fairbanks municipal
telephone systems, and Anchorage Telephone Utility
[ATU]. And these were the telephone companies in
Juneau, Fairbanks, Anchorage, Sitka, and all over. By
the way, they purchased these companies after
competition had been permitted, and there was
competition. As a requirement of their purchase of
these companies, the RCA said that they had to come in
for a rate case; they were going to be regulated ...
such that they were free to lower rates, so they
wanted the company to come in and set its rate.
[Alaska Communications Systems, Inc.] agreed.
Number 1512
[Alaska Communications Systems, Inc.], when it went in
for its rate case, asked - I believe - for a $63-
million rate increase across all of its local
telephone companies as a whole. All of the issues in
that case settled out except for the depreciation
issue. Through discovery, it turns out that ACS has
been over-depreciating its plant equipment, and so had
its previous owners; ACS has, in fact, been over-
earning. And because it has over-depreciated its
plant and equipment, there is very little money left
on the books for this plant and equipment, although
there is quite a bit of lives.
When the RCA set the FCC lives for this plant and
equipment and they put in, as a mathematical equation,
how much the equipment was already amortized, the
depreciation rates that fell out were quite low and
would, in fact, force ACS to decrease rates. ... This
order came out quite a while ago; ACS has asked the
[RCA] to reconsider several times, which is why we are
now in the second year of this rate case and why we
are still using 2000-year test data. And the [RCA]
has yet to do a final rating.
The original purpose of this section is to circumvent
[an RCA] ruling requiring ACS to lower their rates.
However, it has the collateral damage of allowing all
local telephone companies to increase their rates
statewide. We estimate it to be about $100 million,
overnight. If anybody is interested, I have the "per
company, per line, per month amounts." The IRS
depreciation amounts are for companies that are not
rate-based regulated; they are simply a tax mechanism:
how much do you get to write off. If you are a rate-
based regulated company and you have this huge
network, the depreciation rate determines how much of
that network you get to charge your consumers.
REPRESENTATIVE GARA asked why they should worry about any amount
left, assuming that ACS has already depreciated a very
substantial portion of the aforementioned equipment. Won't the
consumer now benefit from lower rates because there is now very
little left to depreciate?
Number 1349
MS. TINDALL replied:
If we were setting rates every year, then that would
be true: ... every year, we'd say, "Okay, you get
this little bit more, this little bit more, and this
little [bit] more," and pretty soon you fall of the
cliff and there is nothing to depreciate and rates
drop. Right? But that's not what we're doing. We're
setting rates -- the RCA is setting rates for ACS on a
one-time basis. These rates are never going to be set
again. ... And so ACS, from that point, is free to
lower their rates, but may have to come in for a rate
case if they want to increase their rates. It's in
ACS's interest, on this one-time [only] rate setting
..., to get those rates as high as they can. And so
it does matter. It is the starting point .... And
remember, there's only competition in Anchorage;
there's no competitive forces that would ... affect a
rate increase anywhere else.
REPRESENTATIVE GARA asked for more information regarding the
one-time rate setting. He again asked why the consumer won't
benefit from ACS only having very little left to depreciate.
REPRESENTATIVE ANDERSON asked if it isn't cheaper for GCI to
lease from ACS rather than build its own [network].
MS. TINDALL, responding first to Representative Gara, said:
[Alaska Communications Systems, Inc.] has over-
depreciated and the consumers should benefit by lower
rates. ... They're in a rate case right now. And
[when] you go in and you figure out how much plant's
left and how much should be depreciated in remaining
years, it's a very small amount. ... So that would
drive rates down from where they are. ... That is the
effect of the [RCA's] decision on the depreciation
rate. What Section [4] would do, [is it] would enable
companies - ACS and other companies - to charge
whatever depreciation rate they want, up to the IRS
guidelines, which are quite a bit higher.
Number 1137
I think that the [RCA's] overall composite
depreciation rate came out to something like 3.4
percent - it was really low because of the fact that
the plant was so over-depreciated - which would drive
rates down, consumers would benefit, and there would
have to be a rate decrease. But under ... Section 4,
companies could come in and charge a much higher
depreciation rate, which would drive rates up. ...
[Anchorage Telephone Utility (ATU)] and the other
companies had their rates last set by the APUC, and
now, since [ACS has] bought the companies, they're in
a rate case again - they're setting those rates right
now. That depreciation rate is the rate that will
determine their retail-rate benchmark from now on.
CHAIR McGUIRE offered her belief that Mr. Feipel's testimony
indicated that the Illinois statute pertaining to depreciation
would ultimately benefit the consumer.
MS. TINDALL offered her understanding that those provisions of
Illinois statute apply only to the "UNI" rates that competitors
are charged for leasing elements from an incumbent carrier, not
the retail rates charged to consumers. Subsection (k) of
Section 4 would allow telephone utilities to raise retail rates,
not lease rates, she added. In response to a question, she said
that if Section 4 dealt only with Anchorage, which has a
competitive market, it might be acceptable; however, Section 4
would enable all local telephone companies across the state,
even where there is no competition, to increase retail rates.
REPRESENTATIVE HOLM remarked that if he raises the depreciation
on his business assets, two things happen: he is allowed a
better tax position, and his profitability is lowered. And if
he owns a publicly held company, he remarked, the lower his
profit is, the less attractive the company's stock is.
Conversely, if his depreciation rates are lowered, his taxes are
raised but so is his profitability, which in turn improves his
bottom line. He said he is concerned with how they are to go
about being fair to both the consumer and the company making the
investment - in this case ACS - and suggested that that they
return to and use his example of a tomato grower in order to
explain to him how the interests of both parties can be looked
after fairly.
Number 0641
MS. TINDALL said:
To respond to your tomato-business example, I agree
with everything you said. Now, if the government had
come to you instead - in an alternate universe - and
said: "Representative Holm, you're a good guy.
You're such a good guy, we're going to let you be the
only tomato grower in the state of Alaska. We're not
going to allow anybody else to grow tomatoes in the
state of Alaska, and we're not going to let anybody
import tomatoes from the Lower 48. You,
Representative Holm, are going to be our only source
of tomato." And you say: "Alright! I'm going to
charge $100 a tomato! Those tomatoes are going to be
gold-plated tomatoes!"
And they say: "No. No, no, no. No, no, no.
Representative Holm, ... this is what you get to
charge. ... You have this field where you're growing
your tomatoes, you have all of this plant, literally,
[that] you put in the ground for your tomatoes. We're
going to pay for all that, plus a rate of return; ...
we're going to pay all your expenses. We're going to
take this field and this plant and your tomatoes, and
we're going to let you charge a portion of it for each
tomato ..., plus a rate of return. We're not going to
let you charge the first customer who comes along ...
$50,000 for that ... first tomato. ... How much you
get to depreciate and allocate [your field and plants]
... is what you're going to charge for each tomato,
and we have to set that charge because there's no
competitive forces; you don't have anyone competing
with you, but this is a deal for you because we're not
going to allow anyone else to sell tomatoes."
Number 0528
MS. TINDALL continued:
So ... how much you get to allocate of [your field and
plants] is real important to what rate you get to
charge people. But you're guaranteed ... a rate of
return; you are guaranteed a profit. ... So this goes
on for a period of years. ... Finally, someone comes
up with a bigger and better tomato, and it turns out
that if the people who eat tomatoes don't get access
to this bigger and better tomato, they're not going to
be as well off. And so, ... by now, you've got tomato
fields across the state. You have every consumer who
eats tomatoes - you know them by name, you have their
billing address, you send them mailings, you send them
Christmas cards, you send their wives flowers, you
know them, they're yours - they're your customers.
[So, the government says:] "We're going to allow this
competitor to grow a tomato plant to try out his new
advanced tomato, but he has to have access to your
dirt because you've taken up all the dirt in the
state. So we're going to let him have access to your
dirt." And you say: "Alright, he gets one plant!
I'm going to charge him $50,000 for that square [plot]
of dirt! And I know all the customers; the customers
are all mine, starting day one." And they say: "No,
no, no. No, no, no. Representative Holm, that's not
fair. You have market power because you have all the
customers from day one; you have 100 percent of the
customers from day one. We're going to tell you how
much you get to charge that competitor because we let
[you] have that monopoly for so long."
And you say: "Well, that's not fair. If competition
gets a foothold, I won't make as much money. I won't
have those guaranteed profits. So why don't we do
this - the minute you say another grower can grow a
tomato in the state of Alaska, then I get to charge
whatever rate I want. I get to drive my rates down; I
get to drive my rates up. Because they are only in
this little ... part of ... Anchorage - the new tomato
grower is only in Anchorage - I can lower my rates
there, and I can raise my rates in Kodiak and make up
the difference."
MS. TINDALL concluded:
That's what we're talking about. That's why - if ...
you're a competitive company, you don't have a
monopoly, you're rates are set by competitive forces -
the depreciation is for tax purposes only; that's why
the IRS guidelines are as high as they are - you can
make the choices you want. If you have a monopoly,
where you are guaranteed to get a rate of return,
where you have all the customers from day one, and you
were given that by the government, then depreciation
serves ... very different purposes because there are
no competitive forces setting rates.
[Chair McGuire turned the gavel over to Vice Chair Anderson.]
Number 0324
MS. TINDALL, in response to further questions, said that market
power is monopoly power - the two are interchangeable, though
there are degrees. Thus, today, ACS has market power everywhere
outside of Anchorage. In Kodiak, for example, there is no
competition; thus, if ACS is deregulated, it would be free to
raise its rates in Kodiak, and those consumers would have no
choice but to pay those increases.
MS. TINDALL relayed that in Anchorage, ACS raised its rates 24
percent. But because GCI did not follow suit, overnight it went
from having a 20 percent market share to having a 45 percent
market share. This increase in GCI's market share had nothing
to do with the prices it was paying ACS to lease its network;
instead, it resulted from ACS raising its rates in a competitive
market. Kodiak customers don't have competitive choice, she
reiterated, and when a telephone company is deregulated, it is
deregulated across the state, even in areas where there is no
competition. Subsection (k) of Section 4 will raise rates
throughout Alaska where there is no competition and there is no
competitive choice, she opined. In response to another
question, she reiterated that GCI has a 20-percent statewide
market share.
MS. TINDALL, turning attention to subsection (l) of Section 4
and, at the request of a member, still using the tomato-grower
example, said:
This goes to [the issue of] setting unbundled network
element rates. The FCC has regulations saying that
the rates that ACS or any other incumbent "tomato
grower" will charge the new competitor shall be those
forward-looking, long-run, incremental cost rates.
And that is so that the new competitor coming in is
indifferent between building its own network and
leasing the [network] from the incumbent company. ...
Long-run incremental - long-run, by its very nature,
means that we are dealing with a hypothetical where
... you're assuming that you had the most advanced
technology at the lowest cost. ...
The FCC has regulated that for all states; it is a
requirement for the states to follow that has been
taken all the way to the United States Supreme Court
and upheld as a fair and reasonable way [of] setting
rates for unbundled network elements. Now, the
latitude that the [RCA] has is in choosing the models
and in arbitrating the inputs that go into the models
that set those rates. This [subsection (l) would be
preempted by federal law; it simply would not be
allowed.] [The previous bracketed portion was not on
tape, but was taken from the Gavel to Gavel recording
on the Internet.]
TAPE 03-65, SIDE A
Number 0001
CHRISTOPHER J. WRIGHT, former General Counsel, Federal
Communications Commission (FCC), offered to respond to any
questions on this issue.
REPRESENTATIVE GARA asked of Ms. Tindall whether there would be
a way to allow ACS to recover its actual costs without going
awry of current federal law.
MS. TINDALL asked to defer that question to Mr. Wright.
REPRESENTATIVE GARA asked Ms. Tindall why, as a matter of
policy, ACS shouldn't be able to recover its costs.
MS. TINDALL, in response, offered the following:
I worked for GCI and was in the same position back
when we were fighting the battle to bring intrastate
competition to the state of Alaska, and the issues
were much the same. And at one point, Julian Mason,
who was their lawyer, and a very good lawyer, turned
to me and laughed at me and said, "Dana, costs are
whatever we say they are." And I have never forgotten
that. So, with that, I'll turn it over to Mr. Wright.
MR. WRIGHT, after noting that he has spent most of the last
seven years litigating this particular issue, concurred with Ms.
Tindall that this issue has already gone to the U.S. Supreme
Court. He elaborated:
The FCC, in 1996, issued what it called the "efficient
network configuration" rule and which companies like
ACS and the other incumbent local exchange carriers
derided as the "hypothetical network" rule. And they
persuaded the [8th Circuit Court of Appeals] to strike
the efficient network configuration rule down - the
forward-looking cost based on the most efficient
telecommunications technology currently available.
And the [U.S.] Supreme Court, last May, overturned the
[8th Circuit Court of Appeals] and upheld the FCC's
rule.
Number 0269
And if I may, for a minute, it has been previously
discussed as if these were guidelines as opposed to
rules. That also was litigated all the way to the
[U.S.] Supreme Court, and in a different case, the
Iowa Utilities Board case, ... the [U.S.] Supreme
Court held that the FCC's pricing rules were rules
that had to be followed, and it also [said] the
following ...: "But the question ... is not whether
the Federal Government has taken the regulation of
local telecommunications competition away from the
States. With regard to the matters addressed by the
1996 Act, it unquestionably has."
And pricing of network elements - and let me hasten to
add, not retail pricing for consumers, but pricing for
network elements - is a matter dealt with by the
federal statutes, dealt with by these extensive
federal regulations, and the methodological questions
have been taken away from the states. The remaining
state role is for the states' commissions to follow
the procedures set out in "Section 252 of the
communications Act" to arbitrate disputes.
MR. WRIGHT continued:
So on the first question, ... I do not believe that a
state legislature has the authority to enact pricing
regulations for network elements - again, I'm not
talking about retail rates for consumers, I'm talking
about prices for network elements - and I think any
attempt to do that would be plainly preempted; that's
a field the federal government has occupied. And with
respect to this particular rule, the ... FCC's rule is
not based on historic costs or actual costs; it is
based on these forward-looking costs.
And turning to the policy justification for that, for
the moment I think Ms. Tindall has largely set it out:
In the past, when they were franchised monopolists,
companies did not have incentive to invest
sufficiently - they had (indisc.) gold plate - and it
would impede competition if they were allowed to
recover all of those costs from competitors. The
proper rule is the so-called hypothetical network
rule, or efficient network rule. That's the rule the
FCC derived from its reading of the economic text.
And in any event, that is now the rule that has been
proved by the [U.S.] Supreme Court, and the [U.S.]
Supreme Court has (indisc. - paper shuffling).
[Vice Chair Anderson returned the gavel to Chair McGuire.]
Number 0541
REPRESENTATIVE GARA asked Ms. Tindall to comment on the second
portion of Section 4's subsection (l).
MS. TINDALL offered her belief that it may be unconstitutional.
But aside from that, she added:
Essentially what this does is take choice away from
the consumers; ... it's an attempt to eliminate
competition. If a competitor knows that it has to pay
ACS for its network if it gets off its network or if
it loses a customer, it will effectively eliminate
competition as well as choice for a new customer. ...
Say you build a new home/a new subdivision, and you
need telephone service to that new home/new
subdivision. ACS right now is saying, "If you choose
GCI, we won't - you're subdivision doesn't get
service." That's what they're telling the customer.
... And so what they're saying now is, "If we build a
new service ... out to you" - and by the way, the
[RCA] ruled against them on that, told them that they
had serve those customers - ... "if you choose GCI and
GCI ever builds it's own network, then GCI has to pay
us for this ... network." And it effectively
forecloses choice to the customer.
CHAIR McGUIRE remarked, however, that she is rubbed the wrong
way by the concept of forcing an incumbent company to go into a
new area and build a network for customers that will be served
by a competitor, a competitor who, theoretically, in a couple of
years, will build its own network and leave the incumbent
company "holding the bag" on its investment. She said she
wanted to know why some would consider that to be an acceptable
situation.
Number 0809
MS. TINDALL said she has a three-part response:
The first part of my answer is, this is for the
[consumer's] benefit. ... Where a company still has
market power, it's required to build out for the
[consumer's] benefit. And what [you've] got to
remember is, ... we're worrying about the consumers
here. The second part of my answer is, where a market
is deregulated - as we've proposed Anchorage be
deregulated, where there isn't as much market power
anymore, and particularly ... we've proposed ... that
the "UNI market" be somewhat deregulated - ... either
the competitive carrier or the incumbent carrier can
be required to build out to that subdivision. ...
This is where - I'm sorry, but we have to leave the
tomato [grower] analogy - because it's a telephone
network ... of one carrier over here and a network of
another carrier over [there], we can't figure out a
way where GCI can go over and build out ACS's network.
One, they'd never let us in door. But, two, how do
you deal with costs and pricing and all of that. So
the choices become, one or the other carrier has to
build out to serve that subdivision. And we've
proposed that the RCA make a decision, where there's a
sharing of carrier of last resort, on which carrier
should build out [to] the subdivision.
MS. TINDALL continued:
And ... if the competitive carrier is not big enough
or [is] technologically unable to build out their
network, yet they have more than a 35 percent market
share, they should have to contribute capital to help
build out ... the incumbent's network. That's what
we've proposed. ... What we envision, as we go forward
and as the market gets more deregulated, is that for
the [consumer's benefit], ... you do it that way and
companies continue to be required to interconnect and
build. [General Communications Incorporated] has also
proposed, in writing - this is in our proposal - that
we give ACS access to our network at the same
unbundled element network rates we get from them.
Number 0943
The answer is not to cut off the consumer, which is
what this does. The answer is to put reciprocal
obligations on competitive carriers and incumbent
carriers alike, so that the consumer continues to get
served. And the third part of my answer is, the
notion that we're not going to build out our network
to a consumer unless we're guaranteed a profit and a
rate of return on it is a very monopolistic mentality.
CHAIR McGUIRE argued that it is simply a business mentality, not
a monopolistic mentality, adding that these are companies which
are in the business of making money.
MS. TINDALL replied:
I believe when you're in a competitive business, you
go out and you try to get the customer. Right? You
build out your networks to reach the customer. Right?
You market the customer; you try to get the customer.
You don't say, "Unless I'm guaranteed a customer, I'm
not going to be in business." That's not what you
say. [But] that's what ACS is saying. We have
actually advised customers to switch to ACS so that
they could get a line to their home.
And ACS's response to that - instead of saying,
"Alright, now I've got a customer; I have an
opportunity to really treat that customer well, and
serve them, and keep that customer" - is to threaten
to take GCI to court and to treat the customer badly
because they feel it's a GCI customer in ACS clothing.
It's not a competitive mindset. You don't refuse to
go into business unless you're guaranteed a profit.
You go out and you try to get the customer. And ACS
is not going out and trying to get the customer.
CHAIR McGUIRE, however, stated:
Well, I don't disagree that the whole thing is a mess,
and I'm not here to assign blame to either party; I
think this whole thing stinks. That's why this bill
is here. I think this is terrible for Alaska. I
think this is slowing down development of our
technological infrastructure in this state, I think
it's slowing down progress for the consumer, I think
it's slowing down progress for businesses, I think
it's terrible, and I feel like it's two teenage kids
in a room scratching each other's eyes out to the
detriment of everybody. And that's how I feel; that's
why this bill is here.
Number 1100
MS. TINDALL responded:
With all due respect, [Chair] McGuire, this year GCI
will invest over $100 million in infrastructure in the
state of Alaska. That is far more than has been
invested in any other year, ever. [Alaska
Communications Systems, Inc.], I believe, will invest
approximately $60 million; I think that's what their
FCC filings show. This is not slowed-down investment.
This is not slowed-down infrastructure. We have spent
a lot of money to build out this state.
CHAIR McGUIRE said that there is significant evidence that
Alaska is well behind the Lower 48 in many of its advances, and
that she is only concerned over what appears to be a built-in
disincentive under current law. She said that she is tired of
simply passing RCA extensions while ignoring the underlying
problems. The legislature, regardless of the controversy, ought
to discuss those underlying problems in an effort to find
solutions, she suggested, adding that it is her hope that both
GCI and ACS would walk away from that process "a little unhappy
- then we'd know we were getting somewhere."
MS. TINDALL expressed concern that too much delay on the issue
of extending the RCA could cause it to sunset.
CHAIR McGUIRE assured Ms. Tindall that it is not her intention
to keep the legislation from moving or to cause the RCA to "go
into wind down."
REPRESENTATIVE SAMUELS opined that catering to consumer
interests should not come at the expense of driving either GCI
or ACS out of business, adding that an incumbent should not be
required to simply absorb the cost of building something for a
competitor. He noted, however, that there doesn't appear to be
an easy answer to the problem.
MS. TINDALL encouraged members to at least keep the consumer in
mind.
REPRESENTATIVE SAMUELS agreed to do so, but added that he also
has to look at the health of the industry.
MS. TINDALL assured Representative Samuels that none of the
companies in question are close to going out of business.
Number 1346
REPRESENTATIVE GARA expressed a desire for representatives from
ACS and GCI to get together after the meeting and come up with
alternatives "out of this mess." He said he thought that in the
situation wherein ACS builds something for GCI, if GCI then goes
and builds it owns lines, then it ought to compensate ACS. He
offered another example of what might happen, however:
[Alaska Communications Systems, Inc.] goes and they
build something. A new entrant comes in ... and then
... has to worry about: "Well, what if I go out of
business, or what if I just can't make it in that
market and I've got to leave? Am I going to have to
pay the costs for those new lines?" And then they
say, "Well, I'm not even going to come into the new
market because I don't want to have to deal with that
problem."
REPRESENTATIVE GARA remarked that it appears as though the
provisions of CSHB 111(L&C) only partially address just some of
the problems that they've heard about. He indicated that he
would not be comfortable passing [the current version of the
bill] out of committee. He added, however, that he does see
problems with the current situation, one of them being that the
RCA is running itself without adopting regulations, but he
indicated that he is reluctant to create policy based simply on
the assertion that ACS is perhaps not able to share as many of
its costs as might be justified. He offered his belief that GCI
has made phone rates much better for consumers. He remarked
that beyond that, however, he cannot say much more, and thus he
feels he is not entitled to "write a new bill regulating phone
rates." He went on to say:
What I do believe is that by the end of this session,
we're either going to adopt a bill like this, to the
detriment of GCI, or not adopt any bill other than a
reauthorization of the RCA, to the detriment of ACS.
And so both of you are playing poker right now, and
one of those things is likely to happen. It's my
belief that we could come up with a bill that charges
the RCA to adopt regulations on certain subjects by
October 15, let's say; certain subjects that maybe
both ACS and GCI would want to be regulated in a fair
way.
Number 1490
I took a first stab at putting together an amendment
that I would propose in some form as attached to just
an RCA reauthorization. And the ... idea of the
amendment is that we would demand that the RCA ...
adopt regulations that provide for a level playing
field and regulations that also protect our consumers.
And I don't know what those regulations are going to
be. But it's clear to me that they're authorized to
adopt regulations on the subjects that we're dealing
with in this bill. It's clear to me that they would
have the capability to decide which of those
regulations violate federal law [and] which ones
don't.
REPRESENTATIVE GARA concluded:
And I ... would just suggest that if representatives
from both phone companies can get together and come up
with a list of subjects that they believe the RCA
should adopt regulations on by a certain date - let's
say, October 15 - we might be way better off than if
we just do nothing and then wait for this legislature
to get into session and do something by next May, or
we may be better off than we would be if we passed
this bill in its current version.
CHAIR McGUIRE sought confirmation that Mr. Harbour heard
Representative Gara's suggestion. She indicated that such
language could include a one-year extension for the RCA and
would require that the RCA implement regulations by a certain
date, for example, October 15, 2003. She suggested that any
such regulations include a definition of "dominant carrier", and
requested that the representatives from GCI and ACS give thought
to what else those regulations might entail.
Number 1570
She offered to fax Mr. Harbour the language Representative Gara
is suggesting as a possible amendment, which read [original
punctuation provided]:
Insert.
Section 1. Statement of purpose. It is the purpose
of this bill to require that the Regulatory Commission
of Alaska thoroughly consider its rules governing
telephone rates, charges between competing companies,
and competition. It is the intent of this section
that the public shall be protected, and that the rates
that they are charged be kept fair. It is also the
intent of this section to ensure that the businesses
that provide local and long distance service be
treated as fairly as possible, and that competition
among companies be encouraged. The legislature
intends to take no position in the propriety of
existing Commission rulings or regulations, but
intends that all such rules governing the
telecommunication industry shall be re-examined, and
that regulations shall be implemented to change any
existing regulation or rule the Commission determines
should be changed in order to fairly implement the law
and the above-stated purposes. The Commission shall
take into consideration the Legislature's
determination that it is desirable to promote
competition, and to take steps, if fair to the public,
to encourage more, rather than fewer, businesses to
enter and remain in the Alaska telecommunications
business.
Section 2. The regulatory Commission of Alaska shall
hold public hearings and review its regulations and
rulings in the area of local and long distance
telecommunications. It shall issue proposed
regulations for review by the public, and legislators,
before October 15, 2003, to address any ruling or
regulation it determines is unfair, or that can be
improved to better meet the purposes stated in section
1.
Number 1647
MR. HARBOUR confirmed that he'd heard Representative Gara's
suggestion, and pointed out that the committee and many other
legislators have gone through a lot of the same process faced by
new RCA commissioners. He remarked that although mid October
will arrive very quickly, given the complexity of the issues and
the different viewpoints held by the interested parties, he
believes it is possible to do what Representative Gara's
suggestion would require. He added that he respects the
committee's discussion of this possible resolution to the issue.
CHAIR McGUIRE opined that the RCA is necessary, and said she
wants to see some action taken regarding the problems presented
to the committee. She asked Mr. Harbour to forward any
additional suggestions to the committee so that they could be
considered for possible inclusion.
MR. HARBOUR noted that the original legislation contained a
four-year extension, and offered that one of the benefits of
having such an extension, as opposed to only a one-year
extension, is that it would give a vote of confidence to the
specialists and others employed by the RCA. He assured the
committee that the RCA would be responsive to the legislature
regardless of the time period.
CHAIR McGUIRE relayed that she would prefer a one-year
extension. Then, if many of the problems are resolved by
October 15, a further extension could be considered.
MR. HARBOUR relayed that an October 15 deadline would be
expedited but doable. Whether the goals can be achieved by that
deadline will depend on the scope of the issues that the parties
want to raise and then how long it takes the RCA and those
parties to resolve those issues. He added, "Our whole decision
process for all these issues ... is based on just and reasonable
outcomes based on the record and what the parties put before
us."
REPRESENTATIVE HOLM remarked to Ms. Tindall that profits and
asset allocations drive new business. Thus, if one can't make a
profit, he/she should not be in business. He said that if
consumer protection is the only reason for doing something, then
he has a problem with requiring private enterprise to provide a
service. He said he would suggest to Ms. Tindall that it should
be alright for a business to refuse to offer a service if it
can't be done profitably; a business can't be all things to
everybody, and he has no problem telling someone to go elsewhere
for a product or service that wouldn't be profitable for him to
provide.
Number 1910
MS. TINDALL responded:
With all due respect, Representative Holm, telephone
service is deemed a necessary utility. And there's a
lot of talk in this state about requiring
improvements. And by the way, this state is [the]
second-most wired state in the country for Internet.
There is no evidence, whatsoever, ... that we are not
advanced in telecommunications services. As a matter
of fact, we're almost number one.
CHAIR McGUIRE offered her belief that GCI is three times larger
in that area than any other carrier.
MS. TINDALL replied:
That's right. We've put a lot of money into that. So
telephone utility is deemed a necessary utility, and
so it's a quasi-public [indisc. - paper shuffling].
And there may be a day, someday, where the
telecommunication market is so competitive that there
are no regulations required and somebody will be eager
to serve every market possible. But we're not at that
day, and we have to ensure that the Bush villages and
the rural communities get service, and so it is quasi-
public (indisc.).
And if I could respond to something Representative
Gara said. Please do not interpret the fact that GCI
has asked for nothing from the RCA as, if a clean RCA
bill is passed, GCI wins and ACS loses. [General
Communications Incorporated] has not asked for a thing
here; we're not asking for anything. We haven't come
forward to you with regulations we want changed. We
did at a time, and we haven't brought those forward
since. We haven't asked for the playing field to be
changed at all, so please don't interpret this as, if
a clean bill is passed, [GCI wins]. If a clean bill
is passed, the consumers win, and GCI has a fair
chance to go before the regulators and advocate our
position. We're not trying to legislate what we want.
We just want a regulatory body to decide it. Thank
you.
[HB 111 was held over.]
ADJOURNMENT
Number 2006
The House Judiciary Standing Committee was recessed at 5:34 p.m.
to a call of the chair. [The meeting never was reconvened.]
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