Legislature(1997 - 1998)
05/04/1998 03:52 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE May 4, 1998 3:52 p.m. MEMBERS PRESENT Representative Joe Green, Chairman Representative Con Bunde, Vice Chairman Representative Brian Porter Representative Norman Rokeberg Representative Jeannette James Representative Eric Croft Representative Ethan Berkowitz MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 416 "An Act relating to competition in the provision of local exchange telephone service; and providing for an effective date." - HEARD AND HELD; ASSIGNED TO SUBCOMMITTEE HOUSE BILL NO. 434 "An Act requiring drug testing for applicants for and recipients of assistance under the Alaska temporary assistance program; and providing for an effective date." - PASSED CSHB 434(JUD) OUT OF COMMITTEE CS FOR SENATE BILL NO. 158(L&C) "An Act relating to motor vehicle liability insurance covering a person who has had the person's driver's license revoked for possession or consumption of alcohol while under 21 years of age." - SCHEDULED BUT NOT HEARD CS FOR SENATE BILL NO. 114(JUD) "An Act relating to contributions from employee compensation for political purposes; and prohibiting certain kinds of discrimination against employees for political purposes." - SCHEDULED BUT NOT HEARD (* First public hearing) PREVIOUS ACTION BILL: HB 416 SHORT TITLE: LOCAL EXCHANGE TELEPHONE SERVICE SPONSOR(S): REPRESENTATIVES(S) KELLY, Therriault, Mulder Jrn-Date Jrn-Page Action 2/16/98 2332 (H) READ THE FIRST TIME - REFERRAL(S) 2/16/98 2332 (H) STATE AFFAIRS, FINANCE 2/18/98 2367 (H) COSPONSOR(S): THERRIAULT 3/11/98 2604 (H) JUD REFERRAL ADDED 3/12/98 (H) STA AT 8:00 AM CAPITOL 102 3/12/98 (H) MINUTE(STA) 3/26/98 (H) STA AT 8:00 AM CAPITOL 102 3/26/98 (H) MINUTE(STA) 3/26/98 2747 (H) STA RPT CS(STA) 1DNP 4NR 3/26/98 2747 (H) DNP: IVAN; NR: JAMES, HODGINS, RYAN, 3/26/98 2747 (H) ELTON 3/26/98 2747 (H) FISCAL NOTE (DCED) 3/26/98 2747 (H) REFERRED TO JUDICIARY 3/26/98 2761 (H) COSPONSOR(S): MULDER 5/04/98 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 434 SHORT TITLE: DRUG TESTING OF WELFARE RECIPIENTS SPONSOR(S): REPRESENTATIVES(S) ROKEBERG Jrn-Date Jrn-Page Action 2/18/98 2354 (H) READ THE FIRST TIME - REFERRAL(S) 2/18/98 2354 (H) HES, JUDICIARY 4/23/98 (H) HES AT 3:00 PM CAPITOL 106 4/23/98 (H) MINUTE(HES) 4/28/98 (H) HES AT 3:00 PM CAPITOL 106 4/28/98 (H) MINUTE(HES) 4/29/98 (H) JUD AT 1:00 PM CAPITOL 120 4/29/98 (H) MINUTE(JUD) 4/30/98 (H) MINUTE(HES) 5/01/98 (H) JUD AT 1:00 PM CAPITOL 120 5/01/98 (H) MINUTE(JUD) 5/01/98 3394 (H) HES RPT CS(HES) NT 1DP 4NR 1AM 5/01/98 3394 (H) DP: DYSON; NR: GREEN, BUNDE, PORTER, 5/01/98 3394 (H) BRICE; AM: KEMPLEN 5/02/98 3484 (H) 2 FISCAL NOTES (DHSS) 5/04/98 (H) JUD AT 1:00 PM CAPITOL 120 WITNESS REGISTER REPRESENTATIVE PETE KELLY Alaska State Legislature Capitol Building, Room 411 Juneau, Alaska 99801-1182 Telephone: (907) 465-2327 POSITION STATEMENT: Testified as sponsor of HB 416. JIMMY JACKSON, Attorney General Communications, Inc. 2550 Denali Street Anchorage, Alaska 99503 Telephone: (907) 265-5545 POSITION STATEMENT: Testified on HB 416. JACK RHYNER, President and General Manager TelAlaska, Inc. 2121 Abbott Road Anchorage, Alaska 99507 Telephone: (907) 349-2400 POSITION STATEMENT: Testified on HB 416. GREG BERBERICH, Vice President of Corporate Services Matanuska Telephone Association 1740 South Chugach Palmer, Alaska 99645 Telephone: (907) 745-9466 POSITION STATEMENT: Testified on HB 416. JIM ROWE, Executive Director Alaska Telephone Association 201 East 56th Avenue Anchorage, Alaska 9950 Telephone: (907) 563-4000 POSITION STATEMENT: Testified on HB 416. ACTION NARRATIVE TAPE 98-81, SIDE A Number 0001 CHAIRMAN JOE GREEN called the House Judiciary Standing Committee meeting to order at 3:52 p.m. Members present at the call to order were Representatives Green, Porter and James. He noted there wasn't a quorum, but the committee would take testimony. Representatives Rokeberg and Croft arrived at 3:54 p.m. and Representatives Berkowitz and Bunde arrived at 3:59 p.m. and 4:01 p.m., respectively. HB 416 - LOCAL EXCHANGE TELEPHONE SERVICE Number 0051 CHAIRMAN GREEN announced the first order of business was HB 416, "An Act relating to competition in the provision of local exchange telephone service; and providing for an effective date." He asked Representative Kelly to come before the committee to introduce HB 416. Number 0066 REPRESENTATIVE PETE KELLY, Alaska State Legislature, said House Bill 416 addresses the telecommunication needs of the state; more specifically, rural areas that do not have the advantage of local phone competition. He said there has been some concern with this legislation and he would quickly address each of those concerns in an attempt to put them to rest and explain how the bill has been changed throughout the process. He said there had been some questions about whether this bill would solve the cherry picking issue. In fact, it will not. There is a provision in HB 416 that any provider that comes into an incumbent area must provide service to the entire area. He stated, "There were also some concerns early on that some municipally owned utilities would be affected by this bill and that they would lose their power to regulate them on them on the local basis. That was also addressed in the bill as were the proviso that we must address and (indisc.) universal services." All those things are addressed in HB 434." REPRESENTATIVE KELLY said HB 416 asks the Alaska Public Utilities Commission (APUC) to make the calls they are best suited to make. The commission is a regulatory body and under this legislation will still have plenty of regulatory authority; however, he feels the APUC under the current telecommunications arrangement has been forced into making some policy calls. The policy call specifically that he is speaking about is whether or not competition is a good or a bad thing. That is within the legislature's purview and it is his opinion the legislature is equipped to make those types of decisions, not the regulator body. He explained that after the legislature makes that call that competition is a good thing, the APUC will still have plenty of regulatory decisions make. For example, they will still have to determine whether a provider is fit, willing and able; to determine whether it is technologically feasible for the incumbent provider to take on their services if there's a technological gap between the two providers; and determine if it's economically feasible. By economically feasible, he doesn't mean they will determine who are the winners and losers in competition; it is simply a case of matching technologies - whether it would cost too much to match up those technologies. REPRESENTATIVE KELLY concluded that if HB 416 were to pass, the APUC would still make the regulations concerning universal services; however, it would be done more promptly inasmuch as this legislation calls for a date certain to come up with the regulations. Also, the APUC will still be able to create a price structure; still determine fit, willing and able providers; still determine whether it's technologically feasible and still determine whether it's an economic burden on the incumbent carrier. Representative Kelly said those were the concerns raised in previous committee hearings which have been addressed in the bill. He said, "I have heard over and over and over again that the reason people don't like this bill is that it will cause cherry picking. That seems to be the worst of it. Because if people think this will allow (indisc.) use the incumbent carrier's lines, take off their best customers and then when they have done that, it will cause the incumbent carrier to raise their rates or we'll have this upward spiral that will cause higher and higher prices in the local area by this bill. And that again as I say is the major problem with the bill as being the major fear of it." He asked the committee to give serious consideration to HB 416. Number 0434 CHAIRMAN GREEN said it's his understanding that APUC has decided to take this into some sort of a study period. In other words, they're in sort of a limbo period. REPRESENTATIVE KELLY replied, "Actually Mr. Chairman, they have been working on the regulations for this, but what we found through the long distance battle that went on years ago -- what we found is that this particular decision on determining whether competition is good or bad is the one that sticks them the most. It is as I said, difficult for them to make those kinds of calls." Number 0492 REPRESENTATIVE ERIC CROFT inquired, "So we make the determination that competition is appropriate in which areas? All areas? Fairbanks and Juneau, now?" REPRESENTATIVE KELLY directed the committee's attention to page 2, line 15, and said the areas where there are 6,000 lines or more. REPRESENTATIVE CROFT said, "Normally, the APUC would make that determination they're making now - we just say in areas of that size, competition is appropriate and then you go ahead and look at individual applications." REPRESENTATIVE KELLY said that was correct and what's being determined are the three things he mentioned earlier: fit, willing and able to provide service; if it is technologically feasible for the incumbent provider; and economically feasible. He explained that not all the areas the APUC is able to do are listed; they are nonetheless the regulatory purview of the APUC. Number 0604 REPRESENTATIVE CROFT asked why Representative Kelly chose 6,000. REPRESENTATIVE KELLY said one of the intents of HB 416 was to not get into the "mom and pop" telephone systems where there are just a few lines. The original number of 1,500 excluded most of the small "mom and pop" systems, but it was modified because it was feared that number was just too small. He said it was determined that it was alright for Anchorage to have competition. Now, Fairbanks and Juneau are the most logical steps to take. If the argument can be made that Fairbanks and Juneau are large enough to handle competition, which he thinks they are, then arguments don't have to be heard about Nome, Barrow, and various other places if that number is used. Number 0681 REPRESENTATIVE CROFT said, "It's Fairbanks and Juneau?" Mat-Su and Kenai - are they considered communities or ...." REPRESENTATIVE KELLY replied Mat-Su, yes. REPRESENTATIVE CROFT surmised it was done by the exchange, not by the municipal area. REPRESENTATIVE NORM ROKEBERG referred to the chart showing the number of lines for the various phone companies and assumed the 111,620 lines indicated for PTI was not the local exchange, but rather for the various different locations throughout the state. REPRESENTATIVE KELLY replied the ATU Telecommunications, Anchorage, for instance is the Anchorage, Alaska exchange. REPRESENTATIVE ROKEBERG reiterated his inquiry about PTI. REPRESENTATIVE KELLY deferred that question to Mr. Jim Jackson of General Communications, Inc. who was standing by to testify via teleconference. Number 0819 JIMMY JACKSON, Attorney, General Communications, Inc., testified via teleconference from Anchorage and said, "In part, I heard a question regarding PTI and its access lines. The number that he had is a little bit different from the number that I've got in front of me and admittedly my numbers came out of a booklet from the Alaska Telephone Association which was about a year old. The numbers that I have show 28,000 lines for one portion of PTI which is called Telephone Utilities of Alaska and that would be mostly Juneau and Fort Wainwright and then it shows about 56,000 access lines for the portion of PTI which is called Telephone Utilities of the Northland and that would include quite a number of different locations around the state." REPRESENTATIVE CROFT inquired what communities, other than Fairbanks and Juneau would be included in the 6,000. REPRESENTATIVE JEANNETTE JAMES directed Representative Croft's attention to the list in committee member packets. REPRESENTATIVE ROKEBERG asked Mr. Jackson to explain the definition in the utilities chapters, if any, of a local area exchange carrier (LAEC), how the different geographic areas fit into the definition of a LAEC, and the 6,000 number. MR. JACKSON replied, "One of the complications that you have is that at the Federal Communications Commission and in the Federal Telecommunications Act(aka Telecom Act), most of the rules are written in terms of the phone company study area - that's a term of art called a study area - and for most of the phone companies in the state, the entire phone company is their study area. And so just to use an example, the Arctic Slope Company which serves, I think, it's seven different communities outside of Barrow - all of those communities make up one study area for Arctic Slope and the decisions about whether -- the decisions under federal law about whether or not there would be competition are generally made for that entire study area. When you look at PTI, it becomes a good bit more complicated because PTI within the state has both Telephone Utilities of Alaska, it has Telephone Utilities of the Northland, and it now has PTIC which is the old Fairbanks. Within Telephone Utilities of Alaska, there are two separate study areas for federal purposes. Within Telephone Utilities of the Northland, there are two separate study areas for federal purposes. And again, the decisions under the federal law are made on the study area basis. Within Alaska, the local exchange carrier would be Telephone Utilities of Alaska or Telephone Utilities of the Northland and therefore, when it talks about local exchange carrier, my interpretation of that, it would be the entire company, but in PTI's case, it's separated by Telephone Utilities of Alaska, Telephone Utilities of the Northland and PTIC which is Fairbanks." Number 1118 REPRESENTATIVE ROKEBERG asked if it was Mr. Jackson's testimony that Angoon which has a separate prefix and only 229 subscribers, operating under PTI Telephone Utilities of the Northland, would be a LAEC and for purposes of this legislation, that LAEC has a subscriber base of 52,000 so they would be covered. MR. JACKSON said Angoon would be an exchange which is part of Telephone Utilities of the Northland, and Telephone Utilities of the Northland would be covered because of the fact that that's the way the federal legislation is written. REPRESENTATIVE ROKEBERG assumed that based on Mr. Jackson's comments, Angoon with its smaller population would be part of that whole LAEC and therefore competition would be allowed in that area. MR. JACKSON said that is correct. Number 1177 REPRESENTATIVE BRIAN PORTER said that doesn't exactly square with the wording on line 14 of the proposed committee substitute. Number 1193 REPRESENTATIVE CON BUNDE made a motion to adopt the proposed committee substitute, Version K as the working document. CHAIRMAN GREEN asked if there was objection. There being none, Version K was before the committee for discussion. REPRESENTATIVE PORTER referred to the language beginning on page 2, line 11, and said it would be his understanding that Angoon would be one service area based on that language. Number 1235 REPRESENTATIVE ROKEBERG pointed out there is a definition, but it's a United States Code definition of an incumbent and local exchange carrier. REPRESENTATIVE PORTER suggested there needed to be a definition of a service area in the bill. REPRESENTATIVE CROFT said he was trying to reconcile the service areas of local exchange carriers and the phone company study area that was referred to in an attempt to figure out which study areas or service areas would fall under this. In other words, where are the lines drawn to get the 6,000 and secondly, what was the criteria for setting it at 6,000. CHAIRMAN GREEN suggested the committee take additional public testimony at this time which may answer some of these questions. He asked if Mr. Jackson had additional comments. Number 1298 MR. JACKSON said that Representative Kelly had done a good job of explaining most of the bill and what it's about. He noted the legislation was prompted in large part by a decision of the Alaska Public Utilities Commission that the local phone company in Fairbanks and Juneau should be exempted from requirements of the Federal Telecommunications Act which were designed to promote local phone competition. In its decision just this past January, the primary reason the APUC gave for exempting PTI was that the APUC, itself had not adopted regulations on universal services and access charges which are necessary for competitive markets. And it said it would not revisit the issue until those regulations had been adopted. He said that decision by the APUC came two years after the Telecommunications Act of 1996 had been passed and signed into law by the President making competition the policy of the nation. The APUC had already had two years to put in place the regulations which it found lacking when it maintained the exemption of PTI in Fairbanks and Juneau. MR. JACKSON further stated this bill actually does two things, as Representative Kelly explained. It expresses the state legislature's policy favoring competition and it gives the APUC a deadline to adopt regulations to make that happen. The reason this is important is that the economy is now entering the information age and telecommunications is the driving force in that economy. If the APUC had decided differently, GCI would be investing tens of millions of dollars in Fairbanks and Juneau this summer to construct a new, very modern, telecommunications network. That is the type of investment which is required in Alaska, if Alaska is to be part of the new economy in the information age. Investment and the competition - which the competition will drive the investment - which will improve services to customers and cause rates to go down. He said history has demonstrated over and over that competition in telecommunications will be delayed by incumbents who fear competition and by regulators whose fear is encouraged by the incumbents. But history also shows that once competition finally happens, it brings better services and better rates. This legislation will shorten the delay and accelerate the benefits to Alaska, its economy and its citizens. For that reason, GCI urges the committee to pass HB 416. Number 1484 REPRESENTATIVE JAMES asked if Mr. Jackson had any knowledge of the Federal Communications Commission (FCC) perhaps redefining universal services. MR. JACKSON replied the FCC is in a more or less continuing process of re-examining both the definition of universal service and the means to support it. In terms of defining what a universal service is, the FCC adopted something on that within approximately the last year and it will be re-evaluated in the future, but it isn't real active now. In terms of the programs used to support universal service, that is under continuing review. REPRESENTATIVE JAMES remarked the universal services has always been somewhat cloudy to her because she understands it is a subsidy to provide the universal services for everyone. She also understands those universal services funds are not available in areas that are not considered rural, so Anchorage, for example didn't have any restrictions about competition because they don't have universal services. However, all the other areas of the state do have universal services; therefore, that's why each situation is supposedly to be considered on a case-by-case basis by the utilities commission. She asked if her understanding was correct. MR. JACKSON responded that is partially correct. Anchorage did not have universal service funding and the rest of the state does - that's not entirely equated to where there is the possibility of this exemption, although it does largely overlap. In terms of this case-by-case exemption, it calls for an examination by the commission of whether something is technically feasible and whether actually complying with the request is unduly burdensome. He said the APUC does not even begin to address those questions in the Fairbanks case which we had and we fully agree that should the APUC decide that something is actually technically infeasible or that the cost of complying with a particular request, they have every reason to continue to grant the exemption. But the decision was based on the lack of regulations in the much more bigger policy question, which he believes is an appropriate question to be addressed by the legislature. He said Representative Kelly also drew a very appropriate distinction in terms of the economically burdensome criteria that is not meant to be the question of who will succeed once a competitive market develops. It is meant to be the question of whether or not complying with particular requirement is economically burdensome and the APUC in their decision, got that quite backward. Number 1661 REPRESENTATIVE ETHAN BERKOWITZ asked Mr. Jackson to comment on the change from 1,500 lines in the earlier version to 6,000 lines in the proposed Version K. MR. JACKSON thought that was largely a legislative compromise. He added that it started at 1,500 lines, then it went to 5,000 lines and then to 6,000 lines based on just the feeling regarding particular companies and whether or not the number was too low in the original version. REPRESENTATIVE BERKOWITZ asked Mr. Jackson to comment, from his perspective, what the practical consequence is of making that distinction. Aside from the communities that are served, is there a reason why that distinction is being made. MR. JACKSON said as was pointed out earlier, there is, he thought unavoidable problems in selecting a number in that the federal law really almost requires that the decisions be made on a study area basis and some of the utilities in Alaska have a large location in the same study area as other small locations and that admittedly, makes the line drawing difficult. He said in the immediate future, the competition if allowed any further, will naturally proceed in Fairbanks and Juneau and then probably in the Mat-Su Valley and Kenai, before it starts getting to the very small areas and the smaller area are several years away at best, even if competition is allowed to proceed in the natural market forces. So in the short term, he thought there was not a great deal of significance to the number being 6,000; however, in the longer run, it may begin to matter. Number 1775 REPRESENTATIVE BERKOWITZ asked if there were economies of scale that associate with those numbers in terms of delivering service. MR. JACKSON said GCI has not tried to identify any particular economy of scale at this time. He added that GCI's ultimate position is that the market place should make that determination. There may be some economy of scale at a particular (indisc.) today which in a few years from now with a different technology will be irrelevant. He added that GCI is smart enough to know that if a given location is too small to be served by two carriers and it's being served by one, then we probably will not go there. That's a market decision which really need not be imposed by the legislation. Number 1822 REPRESENTATIVE CROFT asked which communities would be under this competitive mandate as it stands at 6,000. MR. JACKSON said he does not have a list because it would have to be by company and so he doesn't have a list of communities. He added, "This gets back to the cherry picking argument that Representative Kelly mentioned - if you did it based on community size, that might for instance allow us to go to Dutch Harbor, which has a fairly large population, but would prohibit us from going to the other -- I don't have the exact number -- five or six exchanges which are covered by the same utility. So, in essence it would then mandate us to cherry pick Dutch Harbor and ignore the other locations. By writing it in terms of the company what it says is, 'GCI, if you want to go serve Dutch Harbor, you've got to serve the other four or five or six locations that company serves, too.'" REPRESENTATIVE CROFT asked, "When the APUC, if they'd been acting as speedily as you guys would have liked, when they look at whether competition is warranted in a particular area, I guess, though maybe -- yeah, service area or phone company study area or whatever area -- do they solely look at the number of access lines or are there other criteria that they consider before they determine whether competition is warranted." MR. JACKSON said it's technically a little more complicated than that. He added, "We requested from PTI, which includes Fairbanks and Juneau and some of their smaller portions also, we requested certain specialized arrangements which are allowed under the Telecom Act. For instance, one's called co-location which allows us to put our equipment in the same location where they have their equipment if there's room for it. And under the federal law, once we file that request, the APUC was required to determine whether or not that request was unduly economically burdensome, whether or not it was technically feasible and whether it was consistent with some other portions of the federal law having to do with universal service. So, it didn't directly have anything to do with the number of access lines at all; it just had to do with economically burdensome and technically feasible and consistent with some universal service provisions. In ruling upon our request, essentially the only thing the APUC said was 'We haven't yet adopted the new regulations which are necessary for universal service and access charges in a competitive market and therefore, the competition which results if we grant this request may be economically burdensome to PTI.'" Number 1977 REPRESENTATIVE CROFT queried, "So when this says on page 2, lines 11 and following, you've got to adopt regulations for universal service, it's doing that by access lines -- doesn't the federal law make a rural distinction?" MR. JACKSON said he understood the point Representative Croft was getting at and added the federal law classifies all the utilities in Alaska, except for Anchorage, as rural. The part that classifies them as rural says those utilities are exempt from co- location which he had just mentioned, until the APUC makes the determination which he just described relating to unduly economically burdensome, technical feasibility. He further explained, "So the way the federal law is set up is if you took the companies in Alaska, except for ATU, are exempted from the special arrangements such as co-location, but they're only exempted until we file a specific request for them at which time the APUC must make the determination regarding the request being economically burdensome, technically feasible. And that was the determination that the APUC was (indisc.) in the decision that came out in January." Number 2049 REPRESENTATIVE JAMES said in looking at the Telephone utilities of the Northland with 64 communities for example, the language in the proposed committee substitute says the commission may require the applicant to offer service throughout the study area of the existing local exchange telephone utilities, which is what Representative Kelly had said doesn't allow cherry picking. She noted that Mr. Jackson had mentioned just Fairbanks and Juneau, but in reviewing the list of communities served by Telephone Utilities of the Northland, there are some fairly good sized communities; e.g., Homer, Delta Junction, Kodiak. She asked if GCI were to compete with the Telephone Utilities of the Northland, would it be required to offer service throughout the study area? MR. JACKSON said that was correct, but amended it slightly in that Telephone Utilities of the Northland is technically two different study areas, so the APUC could make that determination separately for the two study areas. He explained, "Just to give you a general idea, one of the study areas is the Kenai Peninsula, North Pole and a few other places, Nenana, Kodiak, Homer, Delta Junction and Fort Greely and then the other half is Sitka and all the little places - the real little places - and so the APUC might make that decision by those two separate study areas, or it might make it for the entire (indisc.) and when they make that determination, both under federal law and under this legislation, they have the right to require us to serve all of the areas and we fully expect that that's what they would do." Number 2144 REPRESENTATIVE BERKOWITZ remarked that if he understood Mr. Jackson correctly, the APUC should have predicated its decision based on a determination of whether the change was economically burdensome, technologically feasible and consistent with federal law. He asked if that was correct? MR. JACKSON said yes, consistent with some universal service provisions of federal law. REPRESENTATIVE BERKOWITZ inquired if this committee shouldn't be contemplating those three criterion, as well. MR. JACKSON replied, "The question of, for instance, technical feasibility and whether or not complying with particular requests would be economically burdensome are questions which we think, of necessity, have to be answered by the APUC on a case-by-case basis." He said this legislation leaves that to the APUC to decide in a particular case. He added, "The more general question of whether or not the APUC should rely on its own failure to adopt regulations as a reason that it can't have competition, as it were a general policy question on competition, are the questions which to us seem to be very appropriate for the legislature to address." REPRESENTATIVE CROFT said if that's the case, it appeared to him the only really salient feature of this bill is the portion on page 2, lines 11-14, directing the APUC to adopt regulations ensuring universal service. The rest of it really isn't needed. He added, "When we start putting numbers in like 1,500 or 6,000 or 5,000 or whatever legislative compromise we come up with, we're essentially standing in the stead of the APUC and we're standing in the stead of the APUC without having done the three-part homework that they're supposed to do." MR. JACKSON agreed that subsection (b) is the heart of the bill; however, he pointed out the portion in subsection (c) which reaffirms the right for the APUC to require any competitor to offer service throughout the service area was inserted as a protection against cherry picking or cream scamming. So, many people would consider that portion to be very important, but he agreed the meat of the bill is in subsection (b). Number 2254 REPRESENTATIVE BERKOWITZ reiterated that it's not even within the entirety of subsection (b). He said "Line 15 is particularly troublesome to me. When we make a determination of 6,000 or whatever number we hit on, we're in essence predetermining the number the APUC should reach and we're doing that without having studied whether that's economically burdensome, technologically feasible and consistent with federal law. And to me that's somewhat problematic." MR. JACKSON replied that he didn't view this legislation as taking the technical feasible decision away from the APUC, even for LAECs that are greater than whatever the number is. In other words, even for LAECs that are greater than 6,000 or whatever number is decided, the APUC will still have the technical, feasible questions to address. REPRESENTATIVE BERKOWITZ remarked that if they were to determine a higher number or a lower number brought in economically burdensome or consistency with federal law, this bill would impede the APUC's ability to implement a decision that arrived at a different number. Number 2327 MR. JACKSON commented if that's the question, he didn't believe GCI would have a problem placing a period [.] after the parenthetical Telecommunications Act of 1996 in subsection (b)(2). CHAIRMAN GREEN noted that Mr. Jackson was working from a different version. He asked Mr. Jackson to stay on line while the committee heard testimony from the other three witnesses. He asked Jack Rhyner to come forward to present his comments at this time. Number 2390 JACK RHYNER, President and General Manager, TelAlaska, Inc., testified that TelAlaska, Inc., operates two local telephone companies in the state of Alaska - Interior Telephone and Mukluk Telephone which serve in 21 communities across the state. He said Mr. Jackson had explained that all areas outside Anchorage are considered rural areas. The Chairman of the Federal Communication Commission in a speech last week said, "If it ain't broke, don't fix it." The balance of his speech went on to say the FCC has identified the difficulties in addressing access charge reform in the universal service portions of the Telecom Act and have discovered there are a lot of problems with the big companies. However, the solutions arrived at for the big companies are not translating well for small companies and basically the Chairman has indicated they're not going to go any further with implementation of the Telecom Act for rural communities until some of the problems have been shaken out. TAPE 98-81, SIDE B Number 0001 MR. RHYNER continued .... basically there's about three different definitions; it starts with areas under 50,000 access lines and finishes off with a company that's serving less than 2 percent of the access lines nationwide. MR. RHYNER said, "Throughout this process, in their support of this legislation, GCI has claimed that competition in local service will reduce rates. Well, I live in Anchorage and we've had local competition for 19 months and my local service bill hasn't been reduced by one penny. What's worse is that over the next 12 to 18 months, I fully expect the rates in Anchorage to go up. As is happening across the country, every place that's served by these larger companies who've already gone through the process of access charge reform, they're already experiencing local rate increases. There's a charge on your bill that's called subscriber line charge. You pay that every month - that's a federal charge that's on your local service bill. To a customer it's part of your monthly bill. Those charges have gone up across the nation - you now pay $3.50 for your primary line - you will pay $5.00 for a secondary residential line - and business lines, the subscriber line charge or "SLC" (ph) as it's known is going from $6.00 to $9.00 per line. Those are increases which are in effect today. They went into effect January 1." MR. RHYNER asked the question of who really benefits from local competition? It's the long distance companies like GCI because they'll get reduced rates for their use of the local networks, but unfortunately the local customer will make up the difference. MR. RHYNER said one of the things that keeps coming up is how well competition worked in the long distance industry and that it reduced rates. He said that's right - it did. The reason for that was that the price for long distance service was 200 percent to 300 percent above the cost of producing the service. So competition had every opportunity to reduce that price to the consumer. He directed the committee's attention to a chart which shows a cost for small rural companies which unfortunately does not include Juneau, Fairbanks or the Matanuska Valley. However, the chart indicates the cost structure for these areas very much resemble the OTZ numbers on the chart. He pointed out the actual cost on a per access line basis, ranges from $101 to well over $200 a month. The cost of recovery from local rates - those are the percentages that the local customer actually pays for the total cost of local service on a monthly basis - ranges from 16 percent to 22 percent of the actual total cost and competition is not going to reduce those rates. He said what's in question here when you bring competition into the local loop are all of those revenues that are indicated by the gray shaded area on the chart and if those revenues go away, obviously rates are going to go up, not down. The telephone companies in place have already gone to the expense of building the infrastructure and have to recover those costs, so costs don't go away. MR. RHYNER further stated competition doesn't reduce the costs of the companies that are competing. General Communications, Inc. lost $4.3 million in 1997 in their local operation in Anchorage and the Anchorage Telephone Utility has become so unprofitable that the people of Anchorage have decided to sell the utility. He asked if that sounds like a situation where the company is going to be able to continue to give 80 percent to 90 percent discounts on local service rates? MR. RHYNER noted that Mr. Jackson had said GCI was prepared to invest millions and millions of dollars in Fairbanks and Juneau to improve services. He pointed out that GCI could do that today - there is absolutely no restriction that would prevent GCI from coming in and actually competing on a level playing field. He said what GCI is searching for is the ability to do unbundled loops and co-location which means basically using the existing company's facilities, buildings and property at something less than what the costs are. MR. RHYNER through the use of slides explained the process of a local network starting at the telephone through the local switch through the toll facilities and then assumably on the other side the process is reversed. The next slide showed the unbundled elements which breaks that portion down. He said GCI or any other competitor wants to come in and isolate the local loop - the section from the switch to the customer - which is the part that's so expensive to build. By doing that, the competitor installs their switch, runs it to their facilities which pretty much takes all the revenue out of it for the local company who has installed the switch and built the facilities. The next slide depicted the break down on a cost basis, assuming different loop lengths in the plant. It's a complicated process and one that the APUC will have to go through. He said the numbers are arbitrary, but assume that an incumbent LEAC's cost numbers break down for an average cost of $18 per month per loop. A competitive company comes in and installs their own switch and constructs the short loops near the switch because it's not that expensive; however, the more expensive longer loops are leased from the local company which gives the competitive company an average cost of about $12 per loop. That's how unbundling works. The next slide shows those customers who have gone to the competitive company and the remaining customers stay with the incumbent carrier and indicates the costs have gone up even with 100 percent variable costs for the LAEC. The reason for that is the more expensive longer loops are being subsidized by the shorter loops within that same service area. Number 0358 CHAIRMAN GREEN asked "You mentioned earlier in your discussion that long distance operators had 200 to 300 percent margin that therefore allowed them to come down. Would that have come down if it hadn't been for competition?" MR. RHYNER replied that it was already coming down - technology was bringing it down. MR. RHYNER, continuing his testimony, said, "As I've shown you, the exact opposite will happen for local service because what you're currently paying is considerably less than what the real cost is. The other thing that gets touted all the time is the fact that the toll rates have come down and the continued decreases in toll rates are all associated with calling plans. You have to sign up with a toll carrier for a calling plan to get the lower toll rates. Calling plans by the long distance companies are a concerted effort by them to thwart competition in the long distance industry. The calling plans are nothing but a strategy so that the long distance companies can sell retail services below the wholesale rates which they charge their competitors for the same services. Another barb that's come up in the statewide advertising promoting this piece of legislation is a constant harangue that the only thing that the local telephone companies are concerned with is maintaining their monopoly. If competition means that my company gets to operate like GCI with no cost justification for our rates, no responsibility to serve anybody who wants service in our service area, with no restriction on cross-subsidizing different businesses, and with a reduction in hundreds of thousands of dollars that I pay for regulatory costs every year, I say bring on the competition. But that's not what this is all about. And I don't believe that the public can afford to pay the bill. The truth is that what you're currently paying for local service is the best deal you're ever going to get. Universal service and competition are diametrically opposed concepts. Universal service is the policy which has provided affordable rates for over 60 years. Competition in the telecommunications industry is the policy which will provide you with a choice of who sends you your bill with a higher rate." He thanked the committee for the opportunity to testify and offered to answer questions at this time. Number 0485 REPRESENTATIVE ROKEBERG asked, "Would it be fair to draw an analogy between GCI, AT&T and the other long distance carriers up here in the (indisc.) box of the regional Bell operating companies in terms of the Telecom Act of 1996?" And if not, why not? MR. RHYNER replied no, because all of the Bell companies are local exchange companies - they're trying to get back into the long distance business. Number 0511 REPRESENTATIVE ROKEBERG observed the Telecommunications Act of 1996 was to break down the barriers between long distance and local exchanges; however, this legislation doesn't appear to follow the tenure of the Telecommunications Act of 1996 in terms of implementing that. MR. RHYNER replied that when Congress passed the Telecommunications Act of 1996, it believed the long distance industry was fully competitive. So there isn't a lot of reference in the Telecommunications Act of 1996 to long distance services. REPRESENTATIVE ROKEBERG asked if he was correct that every phone subscriber in the country pays an amount to a universal service fund. MR. RHYNER replied yes, in a number of different ways. Number 0559 REPRESENTATIVE ROKEBERG referred to Mr. Rhyner's statement that the costs could be as much as $229 and only 12 percent is recovered in local charges and inquired about the difference. MR. RHYNER referred to the chart and said, "That's the portions that are in the shaded area - interstate universal service funding. That's the portion that's paid by the universal service fund. The other charges that are involved here are the inter- and intrastate access charges. Those are the charges that the local company charges the long distance company to use the local network. Part of what's in this legislation also is access charge reform which is aimed at reducing those charges to the long distance company. And those revenues will again have to be made up from the local customer." REPRESENTATIVE ROKEBERG asked if Fairbanks or Juneau are a positive or negative in terms of impact - are they subsidized in terms of the universal service fund? MR. RHYNER replied yes they are, but Anchorage is not. Number 0631 REPRESENTATIVE CROFT asked, "Is it a fundamental problem with unbundling or is it an accounting formulae problem; that is - on the slide that is behind that one - can you change the -- the before and after competition one -- can you change the structure - the formula so that they are paying a fair amount for the set equipment costs?" MR. RHYNER said those are the issues the APUC and the FCC are having to grapple with. Currently, everything is calculated based on averages, even the universal service funding is based on averages, so everything has to be thrown into the mix. That's one of the problems that goes back to the difference with study areas and service areas. He explained that some of the companies involved all of their exchanges are certified as one service area. Some of the companies are certified on an exchange-by-exchange area. So there's not only the different definition of study area which is the entire area within a single state that a telephone company operates out of as opposed to the service area that the APUC certifies, but there's also a difference in how those companies are certified within the state. In response to the question about how to do the formula, he said a calculation would have to be done based on the individual loop lengths to be able to get a commensurate rate for the actual cost of having to build that. Otherwise, you end up with a situation where the competitor that comes in and gets the average rate is going to get an unfair and unbeatable competitive advantage. REPRESENTATIVE BERKOWITZ said assuming the sole criteria the committee is confronting today dealing with the federal Telecommunications Act and other federal laws, does this bill raise questions of consistency with federal law in Mr. Rhyner's mind. MR. RHYNER said it does in his mind. REPRESENTATIVE BERKOWITZ asked Mr. Rhyner to expand on what those questions might be. MR. RHYNER explained, "What the Telecom Act says is that the [Alaska] Public Utilities Commission -- the federal law part that you're talking about that must be in compliance -- is compliance with Section 254 of the federal act which is the universal service section of the act. And what goes into this is the case-by-case determination is whether or not competition is in the public interest in these locations. That's what this bill is trying to do away with. It isn't a matter of just a technical end economically feasible; it is whether or not it is in the public interest to do this in those rural areas. That's what the exemption is." REPRESENTATIVE BERKOWITZ inquired, "So, if we assign any number that would possibly raise a problem with the necessity for competition in the federal law, putting us in violation with federal law, we're basically stripping this bill of any utility whatsoever." MR. RHYNER responded he's not an attorney, but in his opinion, it most certainly does. CHAIRMAN GREEN thanked Mr. Rhyner for his testimony and called Greg Berberich to come before the committee. Number 0920 GREG BERBERICH, Vice President of Corporate Services, Matanuska Telephone Association (MTA), read the following statement: MTA is a member-owned co-operative that provides local exchange service to approximately 28,000 member owners from Eagle River to Clear/Anderson. MTA service area encompasses over 10,000 square miles. I'm speaking in opposition to HB 416. I believe this legislation is a self-serving attempt by some to circumvent the mandates adopted by Congress in the 1996 Telecommunications Act. Congress made it clear that in rural areas, state commissions will determine on a case-by-case basis whether to lift a rural company's exemption to provide unbundled inter-connection to competitors. MR. BERBERICH offered some background for the committee on the Telecom Act. He said, "The Telecom Act allowed competitors to enter the market in four ways: 1) the competitor can build their own facilities, similar to what Mr. Jackson referred to earlier and what Jack backed up - if GCI wanted to go into Fairbanks or Juneau today, they can go in there and build those facilities with no restrictions; 2) they can resell the services of the local exchange company purchased at retail rates; 3) they can resell the services of a local exchange company purchased at wholesale rates; and 4) they can compete through co-location in the purchase of unbundled network elements. And it's important to understand and remember as you listen to the testimony today, competitors can use methods 1 and 2 today - no restrictions, no approvals required, other than a certification - fit, willing and able certification. We also believe that method 3 is available to them through the combination of Telecom Act and existing state laws. However, Congress did recognize that it may not be appropriate to require the fourth method and that was co-location in the purchase of unbundled networks in the rural high cost areas. That's why they set out in the law, a rural exemption and mandated that state commissions review and make a determination on a case-by-case basis, the competition through the purchase of unbundled networks, as we heard earlier, is technically feasible, is not economically burdensome and is consistent with the universal service provisions of the act. And as Representative Berkowitz noted, technical and economically burdensome - get over those two - it's really the universal service issue that we're talking about. Mr. Rhyner's testimony about if you drive these prices to cost, they're going to go up because that's what we have." MR. BERBERICH continued, "GCI's mounted a campaign (indisc.) argument the Alaska Public Utilities Commission has stopped competition. This is just not true. Rural companies are not exempted from competition. What is true and what Congress did recognize was that in rural high cost areas, one form of competition - unbundled network elements - may not be consistent with the universal service provisions of the act. Remember the Telecommunications Act had two objections: one to open all the local exchange markets to competition; and two to maintain universal service - that is affordable telephone service throughout the country. As Jack mentioned, those are on opposite ends of the spectrum here. This legislation is in response to a recent ruling by the APUC to not require PTI to provide unbundled network elements. I'd just like to note that they did not -- PTI had the exemption going in and what GCI petitioned was for them to lift that and what the commission did, because there's significant issues regarding universal service and access reform which are still not resolved at the federal level, decided to wait. They didn't say we're not going to lift that exemption - they said there's still a number of rule makings that need to be done. And they decided to hold off. The FCC is still in the rule making process. Rural telephone companies in Alaska receive over $50 million in universal service and access charge support. The FCC's current proposal that's on the table today, would shift 75 percent of that support to the states. I'd like to know where that support is going to come from. As you all know, that's going to have to come from the citizens that pay those local phone bills." MR. BERBERICH further stated, "What impact will these changes have on our rural companies who invested hundreds of millions of dollars in Alaska's telecommunications infrastructure? MTA has over $200 million invested in infrastructure to serve our area - over 10,000 square miles. We made that with a social compact. You go out and serve everybody - we'll make sure that you remain whole. The Telecommunications Act changed that compact and now what we're saying is, 'Okay folks, we're going to change the rules - let's make sure that I don't get harmed here or at least I'm on a fair level playing field.' These and many of the other issues are why Congress mandated state commissions be involved as we introduce competition. It's the role of the APUC to develop a competitive marketplace while ensuring we maintain affordable telephone service throughout Alaska. The commission has opened the rule making dockets on the universal service and access charges and have set an aggressive schedule to complete these rule makings by the end of the year. GCI will argue the process is too slow; that the commission will not promote competition; that without this bill we will not see competition. The fact is, they can compete now. What they really want is an unfair advantage. As a rural high cost company, MTA is very concerned that competition truly bring real choices while maintaining affordable prices to all consumers. This legislation is GCI's attempt to structure the playing field so they gain the advantage. Allowing the APUC to maintain their role, as Congress intended, is the right thing to do. They are the appropriate body, charged with and responsible for the welfare of the consumers. They should be allowed the opportunity to do their job. This is not an issue about whether GCI can or will be allowed to compete. As I said, they can compete today if they want using methods 1 or 2. The issue is about ensuring that we don't substitute one competitor for another, but rather develop a market place that assesses the impact of competition in rural areas, is fair to all competitors but most of all continues to bring affordable telecommunication services throughout the state." He urged committee members to vote no on HB 416. Number 1280 REPRESENTATIVE ROKEBERG noted that Mr. Berberich had testified that GCI could compete now if they wanted to establish their own distribution, switching and other infrastructure in a local area. MR. BERBERICH said that was correct. REPRESENTATIVE ROKEBERG inquired about case law in the state of Alaska (indisc.-mumbling). MR. BERBERICH replied not that he was aware of. He thought it was just the opposite and added that MTA just placed some fiber between Anchorage and the Mat-Su Valley and one of the conditions was that MTA do it along with GCI. REPRESENTATIVE BERKOWITZ commented he didn't know about the specificity of the case law, but one of the underlying theories of why we have the utilities commission is to prevent duplication of services for capital projects (indisc.) expense because then you wind up with excess capacity .... REPRESENTATIVE ROKEBERG interjected that was pre-deregulation theory. Number 1390 REPRESENTATIVE CROFT asked why is unbundling unfair in rural Alaska, but worked okay in the urban area. MR. BERBERICH said he thought the obvious answer is just the economies of scale that the larger companies had. REPRESENTATIVE CROFT referred to the chart and commented there are a lot of long lines and very few short lines and the short line problem doesn't hit as hard in urban areas. MR. BERBERICH said that was correct. For example, the city of Palmer has a general populous of 3,000, but the actual switch has probably close to 9,000. It goes all the way up Sheep Mountain, all the way out to the Butte, across the rivers, so there's a lot of long loops out there. Number 1486 REPRESENTATIVE ROKEBERG asked if MTA receives federal funding as part of the universal service charge to subsidize their services? MR. BERBERICH said MTA receives almost $10 million in universal service support to maintain their rates. The local rate generates about $6 million or $8 million. Number 1559 REPRESENTATIVE BERKOWITZ asked if he had heard correctly that unbundling might not support universal service. MR. BERBERICH replied that's the one thing Congress said that may not be appropriate in rural areas - to require small companies to unbundle the network element. He reiterated that it gets down to some of the layers which he spoke about earlier in terms of the price that has to be charged for these unbundled network elements. Number 1630 CHAIRMAN GREEN thanked Mr. Berberich for his comments and asked Mr. Rowe to come forward to present his comments. Number 1647 JIM ROWE, Executive Director, Alaska Telephone Association, thanked the committee for the opportunity to testify in opposition to HB 416. He said the Alaska Telephone Association has 22 members incumbent local exchange carriers throughout the state of Alaska. He said, "I'm going to take just a little bit of time and I think it will perhaps address a couple of the questions that have been asked so far. I'm going to read you a couple short passages out of the 1996 Telecommunications Act and this is under development of competitive markets. This is Section 251(c)(3) additional applications of incumbent local exchange carriers (indisc.) talking about unbundled access. The duty to provide to any requesting telecommunications carrier for the provision of a telecommunication service nondiscriminatory access to the network elements on an unbundled basis. MR. ROWE continued reading from subsection (f), exemptions, suspensions and modifications. Subsection 1. Exemption for certain rural telephone companies. Exemption - subsection (c) of this section shall not apply to a rural telephone company until the party making a bonafide request of a rural telephone company for inter-connection services or network elements shall submit a notice of its request to the state commission. The state commission shall conduct an inquiry for the purpose of determining whether to terminate the exemption. MR. ROWE explained that's what happened last winter here in the state of Alaska - GCI asked to go in and serve in PTI territories. They asked for unbundled access and co-location as one of the methods they wished to compete with. The APUC heard it and made a determination that until they had more information, they would not remove the exemption that PTI already had as a rural provider to allow unbundled elements and co-location in that area. He referred to section (b) of HB 416 and said it absolutely prevents the [Alaska] Public Utility Commission from determining that a rural exemption cannot be maintained. It's not a matter of time frame - it's not a matter of having to do it in 90 days or by the end of 1998 - it's irrelevant. It's a matter that they cannot make the determination that some entity coming in to compete will not be allowed to have unbundled access co-location. MR. ROWE referred to an earlier question from Representative Berkowitz about whether or not the number was critical and said the number is irrelevant. The opportunity for the [Alaska] Public Utilities Commission to decide that we shouldn't have unbundled competition in an area is what's pertinent. And the federal legislation very specifically spells out what a rural area is. It's not simple - it's federalese, but it is there and there are three or four different opportunities to fit in the rural categories. All of the state, except for Anchorage, does so. In Chairman Kennard's speech that Mr. Rhyner referred to, he talked enthusiastically about recently having seen a rural telecommunications operation - he was in Roanoke, Virginia. The perception while sitting in Juneau isn't very rural, but to people in Washington D.C. who worked on this legislation and other bills that didn't make it, it's a complex piece of legislation. He said, "I assure you that there was a lot looked at here - that they have concern - that there can be an adverse impact in rural areas and I don't think that we want to say we need to make that threshold lower." MR. ROWE concluded that if the Alaska Public Utilities Commission determines that competition is going to serve the public well in Angoon for example - that's wonderful - let them make that determination. But that determination should be made before there's competition in Angoon. He stated, "But I think to write in legislation that they shouldn't make that consideration in individual cases is inappropriate and lacks foresight and can seriously disadvantage the people in Alaska." Number 2070 REPRESENTATIVE ROKEBERG expressed concern with Mr. Berberich's comments regarding the FCC's current proposal to shift about 75 percent of the support on universal service and access charges to the states. That means the state would have to pick up about $35 million out of the state service areas to redistribute to the state universal requirements. MR. ROWE responded there has been a lot of activity on this because of the concern of a potential increase of $9 or $10 on each telephone customer in the state on local rates. That's not taking into account any change in access; that's just the universal service. Number 2157 REPRESENTATIVE PORTER asked if the $9 or $10 increase was per month? MR. ROWE responded affirmatively. REPRESENTATIVE PORTER asked if Mr. Rowe had any idea of what the timing might be on that decision. MR. ROWE said it is his hope the timing on that decision will be that it never happens. He doesn't have any feeling on the timing, but added the FCC Chairman Kennard, may be in Alaska this summer and he hopes to have an opportunity to explain their concern personally. Number 2217 REPRESENTATIVE JAMES asked if there was any chance the FCC in its wisdom, may redefine universal services. She noted that currently what must be provided is very basic, but she's concerned that more may be required. MR. ROWE said, "I think that is in the federal act, yes. And let me say it's one that can be continually changing as what is the national standard (indisc.) universal service, which - and I'm talking about the products that come with the package of universal service - there's universal service in the sense everybody gets it, there's also what is it we get with universal service. Is it only voice (indisc.) access, is it fax, is it bandwidth? REPRESENTATIVE JAMES reiterated her concern that more intense services are going to be required to have everyone equal. REPRESENTATIVE ROKEBERG asked, "Back on the point - access versus universal service of this $50 million amount. Do you have any understanding of what -- would the access charges also be affected or is it just the universal service portion that's in play right now ...." MR. ROWE said he didn't mean to mislead the committee by saying access. He had been talking about the universal service fund money being about $50 million per year to this state; he's wasn't talking about access reform at all. Number 2407 REPRESENTATIVE BERKOWITZ said it appears the FCC has a fairly wide net definition of rural and asked exactly what the definition of rural is that's used by the FCC. MR. ROWE said he could read it for the committee and added that's it's federal law, not FCC determination. TAPE 98-82, SIDE A Number 0001 MR. ROWE offered to have copies made for committee members for their perusal. CHAIRMAN GREEN asked if there were any other questions of Mr. Rowe. Hearing none, he confirmed that Mr. Jackson was still available on- line. Number 0088 REPRESENTATIVE CROFT said it seems to him that one of the key elements is not so much the number of lines as the density of the lines. He added what worries him about setting the number at 6,000 is if it's just that number and depending on how the area is defined, there could be a huge area that qualifies for 6,000 with a very low density. He asked if a counter-argument can be made that it's the absolute number, not the density that matters. MR. JACKSON said he believed it's probably both. He agreed that density is a factor and one of the ironic things about Alaska actually is that many of the smaller locations have fairly dense and fairly short loop lines in the rural areas. REPRESENTATIVE CROFT noted that HB 416, as drafted, sets the number not the density as a criteria. MR. JACKSON agreed that HB 416 just sets a number. He added, "One of the things which we had played with which doesn't totally get to your concern, but was to define it in terms of the number of lines in a particular exchange of a utility." Number 0238 REPRESENTATIVE ROKEBERG asked, "Why does a profit making company, investor-owned like GCI want to go into an area that's fundamentally subsidized by the government? Does the APUC allow a rate of return if you will, profit on your investment or activities in those areas over and above the subsidized amount? Is that how that works in a utility regulated formula or what is your objective in doing it?" MR. JACKSON responded there is no set formula. The intent would be to make it profit, clearly. The GCI believes the universal service fund and competition can actually be structured to work together in order to reduce the cost of universal service, which is essentially a tax on every consumer's phone bill. Some of those universal service charges are going to start to be passed on and this year, GCI is paying something like $5 million to support universal service. The universal service can be structured with competition in various ways to drive down the cost of universal service. In part, that would be accomplished by the fact that a new carrier, such as GCI, may be eligible in part for universal service; not based on its cost, but based on providing services to customers. Number 0372 REPRESENTATIVE ROKEBERG referenced the Supreme Court case regarding electric utility lines and asked if that had any impact in the telephone area. MR. JACKSON said he was somewhat familiar with that case which was between Chugach and [Anchorage] Municipal Light &Power. He believed the posture in that case was that the APUC had decided the duplicate facility should be eliminated and the Supreme Court upheld the APUC's decision that the duplicate facilities ought to be eliminated in that instance. It's not a general bar for all new facilities. He added, "We are to some extent able to build our own facilities and with the unbundled network elements to sort of round that out. I think a portion of what was left out from the earlier comments is that we, in fact, have to pay the cost of the unbundled network elements. So, when we use a loop from the local exchange company, so far ATU, we pay the cost of that loop. The federal legislation was actually quite wise in recognizing that that piece of the network could not be very readily duplicated and it would tear up everybody's backyard if we did. And so rather than having that extra loop put into every house, they allowed someone like us to use it if we paid the existing company to use it. And that is the structure of the act." Number 0516 CHAIRMAN GREEN said there have been arguments made which have given the committee second thoughts about moving too far, too fast. Therefore, HB 416 would be placed in a subcommittee to be reviewed over the interim. Representative Porter and Representative Croft would serve on the subcommittee to be chaired by Chairman Green. HB 434 - DRUG TESTING OF WELFARE RECIPIENTS Number 0601 CHAIRMAN GREEN announced the next order of business was HB 434, "An Act requiring drug testing for applicants for and recipients of assistance under the Alaska temporary assistance program; and providing for an effective date." He asked bill sponsor, Representative Rokeberg, to address HB 434. Number 0613 REPRESENTATIVE ROKEBERG explained the House Health, Education and Social Services Committee had removed the wording "elimination of benefits" which he considered to be the heart of the bill and requested the Judiciary Committee to reinsert that wording by adopting the proposed amendment P.1, Lauterbach, 5/4/98. Number 0672 REPRESENTATIVE JAMES made a motion to adopt amendment P.1, dated 5/4/98. REPRESENTATIVE BERKOWITZ objected for purposes of discussion. Number 0696 REPRESENTATIVE ROKEBERG explained that lines 16-17 of the amendment adds language to existing law and reinserts language in the title. It brings the language back to the original draft. REPRESENTATIVE CROFT remarked, "There was reductions alone before, then it was changed to elimination, and now you're doing reduction or elimination?" REPRESENTATIVE ROKEBERG said he believed that was the last form of the bill. That was a committee substitute presented to the House HESS committee. REPRESENTATIVE CROFT inquired if that was the only substantive change of the amendment. REPRESENTATIVE ROKEBERG confirmed that and added it inserts language bringing it back to the language in the original draft. He said, "The reason for that is that there was testimony from the department that they could do that, but my objection was to make sure that they do it because they have what's called sanctions now. But this provision here would require that the person who was signing a family self-sufficiency plan would (indisc.-mumbling)." Number 0839 REPRESENTATIVE BERKOWITZ withdrew his objection. CHAIRMAN GREEN asked if there was further objection? Hearing none, Amendment 1 was adopted. Number 0850 REPRESENTATIVE JAMES made a motion to move CSHB 434(HES) as amended with individual recommendations. There being no objection, CSHB 434(JUD) was moved from the House Judiciary Standing Committee. ADJOURNMENT Number 0890 CHAIRMAN GREEN adjourned the House Judiciary Standing Committee at 5:40 p.m.