SENATE BILL NO. 52 "An Act relating to competition in the provision of local exchange telephone service; and providing for an effective date." CS FOR SENATE BILL NO. 52(L&C) "An Act relating to competition in the provision of local exchange telephone service; and providing for an effective date." Senator P. Kelly explained that SB 52 would require the Alaska Public Utilities Commission (APUC) to adopt regulations permitting the local telephone competition in areas having 5,000 or more lines by July 1, 1999. History has proven competition gives consumers lower costs, increased technology and more choices. He continued, in 1996, Congress passed the Telecommunications Act allowing and promoting local telephone competition nationwide. The APUC exempted Fairbanks and Juneau from full local competition because of fears that competition might harm the existing phone monopoly (PTI). PTI was purchased in 1997 by Century Telephone which has its headquarters in Louisiana. The purchased of PTI made Century the 10th largest phone company in the United States. Century has since sold its local telephone services to Alaska Communication Systems and affiliated companies (pending regulatory approval). Senator Kelly continued, the fears that promoted the APUC to delay full competition in Fairbanks and Juneau are the same fears that cause the APUC to delay long distance competition in Alaska for many years. As we have all seen, those fears were unfounded and long distance competition produced better quality, new services and lower prices for consumers throughout the State. Co-Chair Torgerson questioned the use of "should" on Page 2, Line #6. He recommended it be changed to "shall". Senator P. Kelly replied that concern had been addressed in the intent language. Co-Chair Torgerson inquired if study areas would be established. Senator P. Kelly noted that Mr. Jackson from GCI was available on teleconference to answer those questions. Senator Adams stated that even without the present legislation, APUC would still be able to provide full focus on this matter. He questioned the need for the legislation. Senator P. Kelly explained that APUC had not been able to make regulatory decisions and receive compensation until legislation had been passed in 1990. Senator Adams reiterated that the proposed legislation was not essential. Senator Wilken referenced Page 2, Lines 13 through 16, questioning which portions of the State would be affected. Senator Kelly replied Juneau, Fairbanks, Mat-Su and a portion of Kenai. JUDY WARWICK, Regional Manager for External Affairs, GCI, Anchorage, testified via teleconference. She noted that Senator Steve Frank introduced the original legislation. The State Regulatory Commission was assigned the responsibility to promote instate competition. GCI applied every year and in 1991, long distance in State became a reality. Because of the success with in-State long distance, GCI assumed that there would be no "hurdles" with local competition. With the exception of Anchorage, all local exchange carriers are designated rural exchange carriers. The rural designation automatically exempts the incumbent carriers. Congress and the FDC did find and established the criteria for terminating the rural exemption. Ms. Warwick stated that on September 10, 1997, GCI requested that APUC terminate the exemption for the local exchange carriers serving Fairbanks and Juneau. On October 23, 1997, APUC denied the request of termination. They denied the request even though they did not find that the request was technically unfeasible or that it would result in economic injury beyond that associated with competitive entry. TAPE SFC-99 #80, SIDE B Ms. Warwick continued. She noted that the Telecommunications Act was implemented to promote competition. Only major markets have been available for competition in the State of Alaska. Ms. Warwick stressed that the bill does not mandate competition. She emphasized that the consumer will choose what is in their best interest. Ms. Warwick stated that Jimmy Jackson, Corporate Council, GCI, was available in Anchorage via teleconference to answer any questions of the Committee. Senator Adams referenced Page 2, Lines 29 and 30, and asked why GCI would want to change the timeline. Ms. Warwick stated that nothing has occurred since the Telecommunications Act was passed. She recommended that the Committee speak with Mr. Jackson to better explain this concern. Co-Chair Torgerson noted that question would be held until Mr. Jackson could testify. TOM MEADE, Vice President of Regulatory Affaires, TEL ALASKA, Anchorage, testified via teleconference from Anchorage. Mr. Meade testified in opposition to SB 52. He noted that his company provides local exchange telephone service in rural locations across the State. He commented that Mr. Jackson, the attorney from GCI, would probably disagree as to the legality of the bill. Mr. Meade stated that the bill goes contrary to the Telecommunications Act, in that it ignores the process that is required by the Act for rural exemption. He suggested that the legislation had been offered under false premises. He emphasized that the propaganda has suggested that service would be improved and that rates would be reduced. He stressed that it is misleading information to believe that toll rates will decrease. Mr. Meade questioned how large would the market need to be to support competition. The year before GCI went into local competition in Anchorage, it had a net income of $7.5 million dollars. During local competition for two years, the current financial statement indicates that it lost $6.8 million dollars. He acknowledged that after GCI came into the market, toll rates did drop because most costs were shifted to the local exchanges. He stated that if the bill does pass, it would be subject to court challenges, which would not be in the public's best interest. Mr. Meade urged Committee members not to pass the legislation. Senator P. Kelly commented to the time frame, noting that most of the regulations were in place before the act was implemented. He emphasized that there have been many delays on the bill. Senator Adams stated that APUC does not have a time line even with the functions of the bill. He pointed out that APUC does not acknowledge that the bill is necessary. JIMMY JACKSON, Regulatory Attorney, GCI, testified via teleconference from Anchorage. He stated the study area is well defined by the Federal Communication Commission (FCC), and that it is a construct of that Commission. In most cases, the study area is the same as the local utility service area. However, there are a few companies in Alaska that have their service areas divided into more than one study area. Mr. Jackson noted that the proposed bill would not change the procedures under Federal law. In terms of what the bill does, the Attorney General testified before the Commission that there would not be a conflict. The bill would bring in competition in order to keep prices down. In those areas where there is only one carrier, that carrier would continue to be subject to the regulations of the APUC. Senator Adams questioned if all telephone companies in Alaska receive Federal subsidy to help with upgrading and buying new equipment. Mr. Jackson explained that all local phone companies in Alaska outside of Anchorage, receive universal service funds, which are paid based on their investment after the fact. Senator Adams noted that he was familiar with the telephone universal fund. He asked if GCI received a Federal subsidy to help with competition. Mr. Jackson responded that GCI did not get a subsidy from the Federal government. There is a slight exception in the Life Line Program, where when GCI provides service in Anchorage to a welfare recipient, that request receives a monthly reduction to their phone bill. He emphasized that is a very small program and that GCI gets no other federal subsidies. GREG BERBERICH, Vice President of Corporate Services, Matanuska Telephone Association (MTA), Mat-Su, testified via teleconference from Mat-Su. He said MTA was a member owned cooperative serving over 32,000 customers. He spoke in opposition to SB 52. Mr. Berberich stated that the legislation was targeted at specific companies and communities and is not in compliance with the spirit or intent of the Telecommunications Act. The legislation would apply to MTA even though they are classified as rural. He concluded that all Alaskans should have access to affordable telephone service which this bill would circumvent. [Testimony on File]. He urged a no vote on passage of the legislation. JIM ROW, Director, Alaska Telephone Association (ATA), Anchorage, spoke in opposition to the legislation. He stated that the term "rural exemption" makes it sound like any area conceived as rural is exempted from the opportunity of telecommunications competition. Every area in the United States has the opportunity for competition under that Act. That competition should bring benefit to the public. Mr. Row noted that the concern is how competition works in rural areas. He asked, would people in rural areas be able to have affordable access to telecommunications. He explained the rural exemption language. He warned that it is important to be careful in making this decision. Precautionary language should be added to make sure that the public is going to benefit. Mr. Row stressed that the intent is that individuals have access to affordable rates. Mr. Row urged Committee members to vote against passage of the proposed legislation. Senator Wilken inquired why this bill would negatively affect those living in rural Alaska. Mr. Row replied that if an artificial number is added to the Federal Act, those below that number will receive the benefits of competition. If the APUC procedure is in place, the rates would still be affordable. He spoke to the conflict within the Federal Act. Senator P. Kelly commented that if the bill should pass, the APCU would continue to be involved. That Commission would determine regulations and whether they work. They will no longer be responsible for making a policy call. The competition would be either "good" or "bad". Senator P. Kelly reminded members that the bulk of the regulations are already adopted and that the people of Alaska will benefit from the competition. Co-Chair Torgerson stated that SB 52 would be HELD in Committee for further consideration.