Legislature(1997 - 1998)

05/04/1998 03:52 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
         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.                                                                      

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