Legislature(2003 - 2004)

02/25/2003 01:30 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                       February 25, 2003                                                                                        
                           1:30 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Con Bunde, Chair                                                                                                        
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Gary Stevens                                                                                                            
Senator Bettye Davis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 47                                                                                                              
"An Act extending the termination date of the Board of Nursing."                                                                
     MOVED SB 47 OUT OF COMMITTEE                                                                                               
SENATE BILL NO. 48                                                                                                              
"An Act extending the termination date of the Board of Certified                                                                
Direct-Entry Midwives."                                                                                                         
     MOVED SB 48 OUT OF COMMITTEE                                                                                               
SENATE BILL NO. 72                                                                                                              
"An Act extending the termination date of the Regulatory                                                                        
Commission of Alaska; and providing for an effective date."                                                                     
     HEARD AND HELD                                                                                                             
PREVIOUS ACTION                                                                                                               
SB 47 - No previous action to consider.                                                                                         
SB 48 - No previous action to consider.                                                                                         
SB 72 - No previous action to consider.                                                                                         
WITNESS REGISTER                                                                                                              
Ms. Amy Seitz                                                                                                                   
Staff to Senator Wagoner                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 47 and SB 48 for the                                                                      
Mr. Rick Urion, Director                                                                                                        
Division of Occupational Licensing                                                                                              
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Supported SB 47 and SB 48.                                                                                
Ms. Nancy Sanders, Chair                                                                                                        
Board of Nursing                                                                                                                
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION STATEMENT: Commented on SB 47 and SB 48.                                                                             
Ms. Pat Davidson                                                                                                                
Legislative Audit Division                                                                                                      
Alaska State Legislature                                                                                                        
PO Box 113300                                                                                                                   
Juneau, Alaska 99811-3300                                                                                                       
POSITION STATEMENT: Commented on audit of SB 47, SB 48 and SB                                                                 
Ms. Kaye Kanne, Executive Director                                                                                              
Juneau Family Birth Center                                                                                                      
3225 Hospital Dr.                                                                                                               
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supported SB 48.                                                                                          
Commissioner Will Abbott                                                                                                        
Regulatory Commission of Alaska                                                                                                 
701 W 8th Ave.                                                                                                                  
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Supported SB 72.                                                                                          
Mr. Wesley E. Carson                                                                                                            
Alaska Communication Systems                                                                                                    
600 Telephone Ave.                                                                                                              
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Opposed SB 72.                                                                                            
Ms. Marie Darlin, Coordinator                                                                                                   
Capital City Task Force                                                                                                         
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supported SB 72.                                                                                          
Mr. Eric Yould, Executive Director                                                                                              
Alaska Rural Electric Cooperative Association (ARECA)                                                                           
703 West Tudor Road Number 200                                                                                                  
Anchorage, Alaska  99503                                                                                                        
POSITION STATEMENT: Commented on SB 72.                                                                                       
Ms. Dana Tindall, Sr. Vice President                                                                                            
Legal, Regulatory and Governmental Affairs                                                                                      
2550 Denali Street Suite 1000                                                                                                   
Anchorage, AK 99503                                                                                                             
POSITION STATEMENT: Supported SB 72.                                                                                          
Mr. Mike Felix, President                                                                                                       
AT&T Alascom                                                                                                                    
210 E. Bluff Drive                                                                                                              
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Commented on SB 72.                                                                                       
ACTION NARRATIVE                                                                                                              
TAPE 03-6, SIDE A                                                                                                             
                 SB  47-EXTEND BOARD OF NURSING                                                                             
                SB  48-EXTEND BOARD OF MIDWIVES                                                                             
CHAIR CON BUNDE called the Senate Labor and Commerce Standing                                                                 
Committee meeting to order at 1:30 p.m. and announced SB 47 to                                                                  
be up for consideration. All members were present.                                                                              
MS. AMY SEITZ, staff to Senator Wagoner, sponsor of SB 47, said                                                                 
the purpose of SB 47 is to extend the sunset date of the Board                                                                  
of Nursing from June 30, 2003 to June 30, 2011. She explained:                                                                  
     The  Board of  Nursing  was  established to  insure  the                                                                   
     protection of  the public's health, safety  and welfare.                                                                   
     The  Board accomplishes  this  by setting  a minimum  of                                                                   
     education and  experience an individual needs  to become                                                                   
     a licensed  professional and  also by investigating  any                                                                   
     complaints  against  these professionals.  The  Division                                                                   
     of Legislative  Audit reviewed  the board and  concluded                                                                   
     that  due  to  their  success   in  carrying  out  these                                                                   
     responsibilities,   the  termination   date  should   be                                                                   
     extended until the year 2011.                                                                                              
CHAIR  BUNDE said  the Division  of Legislative  Budget and  Audit                                                              
(LBA) made  two recommendations:  to develop procedures  to notify                                                              
the Board  of Pharmacy  of changes in  the status of  prescription                                                              
authority to  various nursing  licensees; and  to develop  a self-                                                              
evaluation monitoring  check list  for organizations  that utilize                                                              
certified  nursing  aide  training  programs. He  asked  if  those                                                              
recommendations had been addressed.                                                                                             
MS. SEITZ replied that the Board is working on them now.                                                                        
SENATOR FRENCH  asked if  those two  recommendations would  be the                                                              
subject of later legislation.                                                                                                   
MS. SEITZ replied that she thought so.                                                                                          
MR.  RICK URION,  Director,  Division of  Occupational  Licensing,                                                              
said he supported  both SB 47  extending the Board of  Nursing and                                                              
SB 48, which extends the Board of Midwives.                                                                                     
CHAIR  BUNDE asked  if the Board  was making  progress on  meeting                                                              
the recommendations of LB&A.                                                                                                    
MS.  NANCY  SANDERS,  Chair,  Board of  Nursing,  said  that  both                                                              
recommendations  were  administrative  procedures and  were  being                                                              
addressed by the board.                                                                                                         
SENATOR SEEKINS  asked if these  are relatively minor  things that                                                              
could be taken care of administratively.                                                                                        
MS. SANDERS replied, "Absolutely."                                                                                              
SENATOR  SEEKINS said  that it  shouldn't  take a  meeting of  the                                                              
Board of Nursing to accomplish.                                                                                                 
MS.  SANDERS  agreed that  it  could  be  taken care  of  in-house                                                              
fairly quickly.                                                                                                                 
MS.  PAT DAVIDSON,  Director  of  LBA,  agreed that  no  statutory                                                              
fixes  are necessary.  The eight-year  extension of  the Board  of                                                              
Nursing takes into account the minor operational deficiencies.                                                                  
CHAIR  BUNDE said  there has  been  an increase  in applicant  for                                                              
licensure. He  asked if that increase  would begin to  address the                                                              
nursing shortage.                                                                                                               
MS. SANDERS replied that they hope so.                                                                                          
SENATOR  SEEKINS   moved  to  pass  SB  47  from   committee  with                                                              
individual recommendations  and its  zero fiscal note.  There were                                                              
no objections  and the  roll was  called. SENATORS DAVIS,  FRENCH,                                                              
STEVENS,  SEEKINS and  BUNDE voted  in favor  therefore SB  47 was                                                              
passed from committee.                                                                                                          
CHAIR BUNDE announced SB 48 to be up for consideration.                                                                         
MS. SEITZ, Staff  to Senator Wagoner, sponsor of  SB 48, explained                                                              
that it  extends the  sunset date for  the certified  direct entry                                                              
midwives to 2007. They have done a good job according to LB&A.                                                                  
MS. KAYE  KANNE, Executive Director,  Juneau Family  Birth Center,                                                              
said  she  is  a  Juneau  midwife  and  served  on  the  Board  of                                                              
Certified  Direct Entry Midwives  for eight  years. She  testified                                                              
that the  board had done  a good job  of writing and  implementing                                                              
regulations and continues  to keep them up to  national standards.                                                              
She  pointed  out  that Alaska  certified  direct  entry  midwives                                                              
delivered  almost 10  percent  of Alaska  babies  last year.  That                                                              
number  has grown  considerably  since  the board's  inception  in                                                              
1992. In the  Mat-Su Borough midwives delivered 25  percent of the                                                              
babies, in  Fairbanks 12 percent  of the  babies and in  Juneau 15                                                              
percent of the  babies. Nationwide, midwives attend  the births of                                                              
5  percent or  less.  She said  the  midwives  have delivered  the                                                              
babies with really good outcomes.                                                                                               
SENATOR  SEEKINS   moved  to  pass  SB  48  from   committee  with                                                              
individual  recommendations  and its  zero  fiscal note.  SENATORS                                                              
DAVIS,  FRENCH,  STEVENS,  SEEKINS   and  BUNDE  voted  in  favor,                                                              
therefore SB 48 passed from committee.                                                                                          
         SB  72-EXTEND REGULATORY COMMISSION OF ALASKA                                                                      
CHAIR BUNDE  announced SB 72 to  be up for consideration  but that                                                              
he did  not intend  to pass  the bill  from committee during  this                                                              
MR.  WILL ABBOTT,  Commissioner, Regulatory  Commission of  Alaska                                                              
(RCA), said the RCA's mission statement is:                                                                                     
     To   protect   the  consumer   interests   by   insuring                                                                   
     affordable, reliable  utility and pipeline  services and                                                                   
     insuring  that the utility  and pipeline  infrastructure                                                                   
     is adequate to support the community needs.                                                                                
He was pleased that the Administration had put forward a four-                                                                  
year extension for the RCA and said an extension is in the best                                                                 
interests of the state.                                                                                                         
MR. WESLEY E. CARSON, Alaska Communication Systems, told                                                                        
     I  am  here   today  to  emphasize  the   importance  of                                                                   
     deferring any  action to reauthorize  the RCA  until the                                                                   
     state    has     articulated    a    clear     set    of                                                                   
     telecommunications  policies  to guide  the  commission.                                                                   
     Although  we've long  advocated for  the development  of                                                                   
     such policies  to guide the  RCA, this issue is  of even                                                                   
     more  critical importance  today.  On  February 20,  the                                                                   
     Federal  Communications   Commission  issued   its  long                                                                   
     awaited rules  to revise network unbundling  obligations                                                                   
     for  competition  in  the  local  telephone  market.  In                                                                   
     making  this decision  the  FCC took  the  unprecedented                                                                   
     step   of   delegating  to   state   commissions   broad                                                                   
     regulatory discretion  that had previously  been thought                                                                   
     to  be   only  exercised  by  federal   authority.  This                                                                   
     delegation  will  allow  the  RCA  to  now  unilaterally                                                                   
     determine  whether incumbent  local telephone  companies                                                                   
     like  ACS must  continue to  provide  elements of  their                                                                   
     networks to  competitive carriers at below-cost  prices.                                                                   
     As the FCC  has failed to provide specific  instructions                                                                   
     to   the   states,   it's  now   imperative   that   the                                                                   
     legislature      act     to     develop      appropriate                                                                   
     telecommunications  policies  to guide  the  RCA in  its                                                                   
     decision-making responsibilities going forward.                                                                            
     There  are many  telecommunications  policy issues  that                                                                   
     require  your  attention.   The  report  to  the  Senate                                                                   
     appointees to  the Task Force  on operations of  the RCA                                                                   
     submitted on  January 30 by Darby Associates  makes some                                                                   
     very  relevant  points  including  that  the  regulators                                                                   
     need   to   fashion   rules    designed   to   encourage                                                                   
     investment,  that the  RCA  should review  the  adequacy                                                                   
     need and  rationale for legacy  regulations based  on an                                                                   
     assumption  of incumbent  market  power and  that it  is                                                                   
     time  to explore  a wide  range of  the less  regulatory                                                                   
     options and  find ways to  substitute market  forces for                                                                   
     The  RCA has  currently  demonstrated  a propensity  for                                                                   
     more regulation  as the  means of promoting  competition                                                                   
     rather  than  allowing  market  forces  to  govern.  The                                                                   
     Darby    Report   quite    correctly   concludes    that                                                                   
     'application  of old regulatory  models based on  market                                                                   
     conditions   that  no  longer   prevail  does   a  gross                                                                   
     disservice to the people of Alaska.'                                                                                       
     As  you may  know, Anchorage  holds  the distinction  of                                                                   
     being  the most  competitive local  telephone market  in                                                                   
     the  country. Although  open to competition  for a  much                                                                   
     shorter  period  of  time,   Fairbanks  and  Juneau  are                                                                   
     rapidly moving  in a similar direction. In  all three of                                                                   
     these markets,  the RCA has  unfairly mandated  that the                                                                   
     competitor be  allowed to use the ACS networks  at rates                                                                   
     that  are below  our cost.  The  RCA has  also taken  an                                                                   
     activist role  in terminating the rural  exemptions that                                                                   
     Congress   authorized  to   insure  that  the   nation's                                                                   
     smaller  markets  remain viable,  even  terminating  the                                                                   
     rural  exemption in  locations  as small  and costly  to                                                                   
     serve as  Nenana and Seldovia.  The net result  of these                                                                   
     regulatory   actions   has   been  to   compromise   the                                                                   
     company's  ability to attract  and commit capital.  This                                                                   
     is clearly  not just an ACS  opinion, but rather  a fact                                                                   
     that's becoming  broadly understood.  As you are  aware,                                                                   
     the  State  of  Alaska  contracted  with  Bering  Point,                                                                   
     formerly    KPMG    Consulting,     to    produce    the                                                                   
     Telecommunications  Policy Study and Assessment  for the                                                                   
     State of Alaska,  which was submitted to  the Department                                                                   
     of   Administration  in   November   2002.  The   report                                                                   
     concluded  that the local  telephone competition,  which                                                                   
     forces  incumbent  local telephone  companies  to  lease                                                                   
     their network  to competitors  at the low cost  pricing,                                                                   
     'potentially  imposes a financial  burden on  incumbents                                                                   
     and  may artificially  support competitors  at the  same                                                                   
     The  RCA,  by  means of  the  interconnection  terms  it                                                                   
     imposed on  ACS, has done  exactly that. A  recent press                                                                   
     release by  Standard and  Poors addresses the  downgrade                                                                   
     of ACS's  corporate  credit rating as  being, 'based  on                                                                   
     competitive  pressures  that  have  materially  weakened                                                                   
     ACS's business  profile, impaired operating  performance                                                                   
     and resulted in credit measures.'                                                                                          
     The press release  further explains, 'The rating  on ACS                                                                   
     reflects  the company's  position as  the leading  local                                                                   
     exchange carrier  in Alaska offset by  heavy competition                                                                   
     in  the local  retail access  line business  due to  low                                                                   
     regulatory,  mandated, local  resale loop  rates to  the                                                                   
     company's  local network  a  narrow growth  market  with                                                                   
     limited  growth   opportunities  and  high   acquisition                                                                   
     capital spending related debt levels.'                                                                                     
     Clearly, we're  not alone in  our judgment that  the RCA                                                                   
     has impaired  ACS's ability to raise capital.  The state                                                                   
     must assure  that the RCA does not destroy  the economic                                                                   
     viability  of Alaska's largest  local telephone  company                                                                   
     providing  the  last mile  connection  to three  out  of                                                                   
     four of  Alaska's consumers.  ACS urges the  Legislature                                                                   
     to  move cautiously  in your  deliberations  on the  RCA                                                                   
     extension  and to properly  sequence your decisions.  In                                                                   
     addition to  a general review of the RCA  structures and                                                                   
     procedures,  Alaska's   policy  makers   must  carefully                                                                   
     review   the   commission's    ongoing   role   in   the                                                                   
     administration  of the Telecommunications  Act of  1996.                                                                   
     This  was an  important consideration  at the  beginning                                                                   
     of  this   legislative  session.  It's   been  magnified                                                                   
     considerably by  the FCC's decision to  delegate further                                                                   
     authority  to the  states  on February  20.  As the  RCA                                                                   
     goes forward  to accept the broad new delegation  it has                                                                   
     received  from the FCC,  it should  have the benefit  of                                                                   
     clear  policy  guidance  that's  lacking  in  the  FCC's                                                                   
     Then once  the legislature  has provided that  guidance,                                                                   
     the second  matter of  reauthorizing the commission  can                                                                   
     be   decided.  On   behalf   of  Alaska   Communications                                                                   
     Systems,   Mr.   Chairman,   I  thank   you   for   this                                                                   
     opportunity to comment.                                                                                                    
CHAIR BUNDE thanked him for joining the committee.                                                                              
1:52 p.m.                                                                                                                       
SENATOR SEEKINS asked if the Darby Report is available to the                                                                   
MR. CARSON replied that it is and that he had copies for                                                                        
committee members.                                                                                                              
SENATOR    SEEKINS   said    he   also    wanted   to   see    the                                                              
Telecommunications  Policy Study and the  FCC report. He  asked if                                                              
ACS put  a new line  in his  house in Anchorage  and it  cost $10,                                                              
whether [ACS]  would be required  to lease it to  their competitor                                                              
for less than that.                                                                                                             
MR. CARSON replied  yes and explained that in  Fairbanks they have                                                              
imbedded  costs, which  is  an historical  cost  based on  audited                                                              
records. For  2001, the cost  was $33.51  per month per  line. The                                                              
Telecommunications Act  suggests that ACS look forward  at what it                                                              
would cost  to build that same  line today (rather than  taking an                                                              
historical look).  Some of the FCC  rules have suggested  that the                                                              
commissioners  look at  an  efficient hypothetical  network.  That                                                              
rate would  be in the  area of  $36. The forward-looking  economic                                                              
rate that  was established  for Fairbanks by  the RCA  was $19.19.                                                              
So,  on average,  when a  new subdivision  goes in,  it costs  ACS                                                              
around $30 plus  to actually build and maintain that  on a monthly                                                              
basis whereas  must lease  it to the  competitor under  mandate by                                                              
the RCA  at $19,  which gives a  cost of  goods sold advantage  to                                                              
the competitor.                                                                                                                 
SENATOR SEEKINS  asked how  they could go  to the capital  markets                                                              
and borrow money on that model.                                                                                                 
MR. CARSON said  that is the problem they are wrestling  with. The                                                              
Darby  Report  strongly  recommends   that  incentives  to  invest                                                              
should be a  key policy of the  State of Alaska. If  you take away                                                              
the return  on investment,  there is no  incentive to  continue to                                                              
CHAIR  BUNDE asked  if he  thought the  Telecommunications Act  is                                                              
the problem and that the RCA is simply applying the law.                                                                        
MR.  CARSON  replied   that  broad  guidelines  had   been  issued                                                              
relative to  forward looking economic  cost pricing  (TELRIC), but                                                              
not  specific to  any one  state.  The states  have discretion  to                                                              
determine how  the elements  should be priced,  such as  the local                                                              
loop or  telephone that  connects a person's  home or  business to                                                              
the central office.                                                                                                             
He believes that  the intent of Telecommunications Act  was to use                                                              
some mechanisms  to open  markets to  competition initially.  Once                                                              
it is opened,  as in Anchorage where  they have barely  50% of the                                                              
market, those  kinds of considerations  have to be changed  and it                                                              
has to be a policy driven change.                                                                                               
SENATOR SEEKINS asked  if ACS had presented that case  to the RCA,                                                              
but still felt compelled to persist with that regulation.                                                                       
MR. CARSON  replied yes and elaborated  that ACS is involved  in a                                                              
proceeding to try to get new rates established for Anchorage.                                                                   
SENATOR FRENCH asked how many employees ACS has.                                                                                
MR. CARSON replied 1,150.                                                                                                       
2:02 p.m.                                                                                                                       
MS. PAT DAVIDSON  said Legislative Budget and Audit  recommended a                                                              
two-year extension  given the  significant statutory  changes that                                                              
were  put into  place  last year.  Most  of LBA's  recommendations                                                              
were the  same as in prior  years and were operational  in nature.                                                              
A twelve-month time  frame didn't give enough time  for the agency                                                              
to take  actions that  were required  to fix  them. She  suggested                                                              
that  the  RCA   come  to  the  legislature  if   they  need  some                                                              
MS.  MARIE  DARLIN, AARP,  stated  support  for  SB 72.  She  said                                                              
people in  this state  need to  have an  RCA to  go to with  their                                                              
utility  problems.   She  didn't  see   how  the  RCA   could  get                                                              
everything done  by June 30.  She concluded, "Doing  nothing would                                                              
not be a good way to go."                                                                                                       
MR.  ERIC YOULD,  Executive  Director,  ARECA,  said he  was  also                                                              
speaking   for   Golden  Valley,   Chugach   Electric,   Anchorage                                                              
Municipal Light  and Power,  Homer and  Seward. He explained  that                                                              
his members  decide what issues are  important to them  so that he                                                              
can  articulate  those  issues   to  the  legislature.  ARECA  has                                                              
different  problems than  the telephone  utilities -  more in  the                                                              
area of getting  the job on time  and cost to the  general public.                                                              
Recently,  the Chugach  rate  case  took more  than  two years  to                                                              
complete  and cost  the  utilities $5  million.  "That's much  too                                                              
much process, too much regulation, too much time."                                                                              
MR. YOULD said as  a result of the special session  last year, his                                                              
utilities were  looking to  the task force  that was  appointed to                                                              
address some  of the problems, but  that task force was  never put                                                              
in place.  His group tried  to come up  with some statute  changes                                                              
they could eventually  give to the task force that  would make the                                                              
agency   more  efficient   and  passed   Resolution  3-17,   which                                                              
basically calls  for a  one-year sunset  extension. It  also calls                                                              
for  a  white  paper  that  further   articulates  some  of  their                                                              
concerns with  the RCA and contains  a one-page summary  of things                                                              
they would like  to see. The Governor saw the list  and dealt with                                                              
some  of the  issues  administratively. The  bottom  line is  that                                                              
LB&A  recognizes  the  need  for  a  two-year  extension  and  the                                                              
governor  is asking for  four. He  said ARECA  is willing  to work                                                              
for  a  four-year  extension  if  there is  a  sincere  effort  to                                                              
recognize the problems  of the electric utility and  adopt some of                                                              
the changes  it feels are necessary.  They do not want  the RCA to                                                              
go away.                                                                                                                        
MS. DANA TINDALL,  GCI, said she supports extending  the RCA for a                                                              
full four years.                                                                                                                
     Since last  year there have  been two new  appointments,                                                                   
     the  legislature reaffirmed  the RCA  for one year  with                                                                   
     timelines for  the proceedings that had yet  to play out                                                                   
     to  see   how  well  they've   worked.  Many   of  those                                                                   
     timelines,  by the  way, were  requested  by ARECA.  GCI                                                                   
     believes that  it is now time  to trust the RCA  to deal                                                                   
     with the  very complex issues  before it and let  it get                                                                   
     on with business.                                                                                                          
     Telecom has  very complicated issues. To get  an idea of                                                                   
     how complicated  they are, all  you have to do  is watch                                                                   
     Wall Street and  watch them try to predict  what the FCC                                                                   
     was going  to do  last week.  Folks' stocks were  rising                                                                   
     and falling  on the  predictions and  most of them  were                                                                   
     wrong. The  FCC did  make a decision;  they did  not put                                                                   
     out an order. I will get to that in a minute.                                                                              
     At any  time the RCA has  a large number  of proceedings                                                                   
     before it.  In our industry  there are specific  federal                                                                   
     rules  and  regulations  that  the RCA  is  required  to                                                                   
     follow  for   the  pricing  of  network   elements  that                                                                   
     competitors  lease.  There are  also  specific rules  on                                                                   
     the  availability of  those network  elements. That  has                                                                   
     not changed under the new FCC ruling.                                                                                      
     What  the FCC  did is they  divided up  the market.  For                                                                   
     the  very large, high  capacity broad  band lines  (DSL)                                                                   
     there  is  a nationwide  presumption  that  those  lines                                                                   
     will not  have to  be made available  any longer  by the                                                                   
     incumbent local  telephone company to a  competitor. The                                                                   
     state commissions  have 90  days to rebut this  national                                                                   
     presumption. This  is not an issue as far as  I know for                                                                   
     our  state commission  because  GCI does  not lease  any                                                                   
     high  capacity lines  from ACS,  nor do  we plan on  it.                                                                   
     For  the  most  part,  we have  built  all  of  our  own                                                                   
     network  except  for the  last  line  to the  home,  the                                                                   
     copper residential  and small business line  and soon we                                                                   
     will  be off  that  and  we will  be  on our  own  cable                                                                   
     network.  For those copper  residential lines there  has                                                                   
     been no  change and the FCC  did not take up  pricing of                                                                   
     those lines.                                                                                                               
     For  the switching  element,  the residential  switching                                                                   
     element,  the  FCC  has  said   there  is  a  nationwide                                                                   
     presumption  that the incumbent  telephone company  must                                                                   
     continue  to  make  those  available.    These  are  the                                                                   
     guidelines Mr.  Carson said are needed. They  are there.                                                                   
     The FCC  has said there is  a presumption there  and the                                                                   
     state   commissions  have   nine  months  to   determine                                                                   
     whether or  not that  national presumption, that  burden                                                                   
     of  proof, if  you will,  is consistent  with what  they                                                                   
     are  experiencing in  their  own state.  It sounds  very                                                                   
     GCI doesn't  lease the switching element from  ACS. It's                                                                   
     not  a  big   issue.  I'm  sure  the  RCA   will  run  a                                                                   
     proceeding.  They're required to  run a proceeding,  but                                                                   
     it   won't  change   anything   about  the   competitive                                                                   
     landscape  in Alaska. GCI  leases the  last loop  to the                                                                   
     home  for the  next two to  three years.  After that  we                                                                   
     will  be  on  our  own  network.  We  are  investing  in                                                                   
     telecommunications     in     Alaska,     in     network                                                                   
     Mr.  Carson talked  about the  pricing  of those  lines.                                                                   
     The FCC  hasn't taken that  up in this proceeding.  They                                                                   
     are scheduled  to take it up  next year. There  are very                                                                   
     specific rules  and regulations for how those  lines are                                                                   
     to  be  priced.  It's  called  total  element  long  run                                                                   
     incremental  cost  (TELRIC).  Economists know  that  the                                                                   
     long run is  a hypothetical network, the  most efficient                                                                   
     and least cost  network and that's what those  lines are                                                                   
     required  to be  priced at  by  the FCC.  There are  all                                                                   
     kinds of  national models and  all kinds of  consultants                                                                   
     getting  rich   building  models  to  do   this  pricing                                                                   
     structure.  The RCA  is required to  run an  arbitration                                                                   
     to  determine the  inputs for  those  models and  that's                                                                   
     all.  Other than  that, they  are required  to price  at                                                                   
     TELRIC. It's  all very  complicated; it's a  complicated                                                                   
     industry.  It  would  be difficult,  I  think,  for  the                                                                   
     legislature  to try  to stand  in the place  of the  RCA                                                                   
     and  try to  make  those decisions  itself.  We have  to                                                                   
     have  a state  commission to  make  those decisions  and                                                                   
     for the stability of the industry.                                                                                         
     As far  as where ACS's loop  costs have resulted  in the                                                                   
     pricing of those...                                                                                                        
TAPE 03-6, SIDE B                                                                                                             
MS. TINDALL continued:                                                                                                          
     The  ACS  is  required  to charge  us,  GCI,  for  those                                                                   
     loops,  are  high  from a  nationwide  perspective.  So,                                                                   
     although, Mr.  Carson was able  to cite one  bond rating                                                                   
     report,  if you  look state  by state  at the  different                                                                   
     loop  rates, ACS  prices are  actually  quite high.  I'm                                                                   
     happy  to answer  any  questions  you have....  For  the                                                                   
     stability of  the industry, because these issues  are so                                                                   
     complex,  because  a  state   regulatory  commission  is                                                                   
     necessary   to  protect   consumers,  GCI   respectfully                                                                   
     requests the legislature to extend it four more years.                                                                     
CHAIR BUNDE asked her to explain what switching elements are.                                                                   
MS. TINDALL explained:                                                                                                          
     The  local telephone  network is  much more  complicated                                                                   
     than  simply  the copper  line  to  the home.  When  Mr.                                                                   
     Carson  gives  you  numbers  about what  ACS  costs  are                                                                   
     versus  GCI's cost,  they are figuring  out their  total                                                                   
     cost  for  the  network  on a  per  customer  basis  and                                                                   
     they're  simply allocating  the  cost of  the loop  that                                                                   
     GCI pays to them as GCI's cost. That's incorrect.                                                                          
     In order to  carry a telephone call, there  is a switch;                                                                   
     there  is feeder  cable  throughout  the community  that                                                                   
     branches out  into the networks  to nodes and  then from                                                                   
     there,  there's loops  that  go into  the home.  There's                                                                   
     also  all kinds  of overhead  and  signing customers  up                                                                   
     and customers  used to pay every time they  called their                                                                   
     monopoly telephone  company - a $5 service  charge every                                                                   
     time they  called them. We pay  those now to ACS  in the                                                                   
     form  of  recurring  charges.  There are  all  kinds  of                                                                   
     costs involved.  The switching element was  an important                                                                   
     cost for the  FCC and what the FCC was  concerned about,                                                                   
     because  that turns  out  to be  a  big national  issue.                                                                   
     It's not an  issue in Alaska because GCI  does not lease                                                                   
     that element.  We have  all of our  own switches  and we                                                                   
     have  all of our  own feeder  cable. It's  fiber and  we                                                                   
     have everything,  all of our  own nodes, except  for the                                                                   
     last loop to  the home. So, the FCC decision  was pretty                                                                   
     much about that switching element.                                                                                         
     I  don't think  AT&T  leases  the switching  element.  I                                                                   
     believe they are  on resale, but they can  speak to that                                                                   
     when it's their turn.                                                                                                      
SENATOR SEEKINS asked if she was talking about the two new                                                                      
members to the commission when she mentioned two new                                                                            
MS. TINDALL replied  yes, but they supported the RCA  last year so                                                              
the  two new  appointments are  not  the reason  they support  the                                                              
commission  this year. She  added, "GCI  supports the  RCA because                                                              
we believe it's doing a good job."                                                                                              
SENATOR SEEKINS asked who the two appointments are.                                                                             
MS. TINDALL replied Dave Harbour and Mark Johnson. There are                                                                    
five commissioners altogether.                                                                                                  
SENATOR FRENCH asked how many employees GCI has.                                                                                
MS. TINDALL replied that they have about 1,200.                                                                                 
MR. MIKE FELIX, President, AT&T Alascom, told members:                                                                          
     As  you  know,  AT&T  Alascom  has  a  long  history  of                                                                   
     providing  telecommunications services  to the state  of                                                                   
     Alaska,   in   fact,   the  longest   history   of   any                                                                   
     interexchange  carrier in  the state  today. It is  from                                                                   
     those  very   roots  and  having  witnessed   the  broad                                                                   
     changes in  technology and  market shift over  the years                                                                   
     that  we  would  like  to   offer  our  perspective  and                                                                   
     respectfully make  some requests for the  legislature to                                                                   
     It seems to  me that both telecom service  providers and                                                                   
     policy-makers  alike have a  two-fold obligation  to the                                                                   
     constituents  of this  state.  Those  are ensuring  that                                                                   
     basic  telecom services  remain  affordable to  everyone                                                                   
     in  the state  and  providing a  regulatory  environment                                                                   
     that fosters  continued investment in the  state telecom                                                                   
     infrastructure,    thereby   ensuring   that    advanced                                                                   
     services will reach to all parts of the state.                                                                             
     In the  early days, Alascom  was the only long  distance                                                                   
     carrier in  Alaska and as  such the regulated  monopoly.                                                                   
     Regulations  were put  in place to  ensure that  Alascom                                                                   
     did  not  misuse  its  monopoly  power  in  pricing  its                                                                   
     services  to consumers.  In 1991,  when intrastate  long                                                                   
     distance    competition   was   initiated,    additional                                                                   
     regulations  were developed to  ensure that Alascom  did                                                                   
     not  misuse its  monopoly power  to subvert  competition                                                                   
     as  well. At  the same  time  new entrants  to the  long                                                                   
     distance  market  were  granted  broad  and  significant                                                                   
     freedoms   and  even  though   the  market  was   highly                                                                   
     competitive  in 1995 when AT&T  bought Alascom,  for the                                                                   
     most part,  it bought a  company regulated as  though it                                                                   
     were  a  monopoly.  As  we  all  know,  the  regulations                                                                   
     governing utilities  with a  legal monopoly work  in two                                                                   
     directions.    They    protect   the    consumer    from                                                                   
     unreasonable  prices on  one  side of  the equation  and                                                                   
     they  ensure  a  reasonable  return  for  the  regulated                                                                   
     entity on the  other side. Without a  reasonable return,                                                                   
     companies  do not  invest  and services,  therefore,  do                                                                   
     not advance.                                                                                                               
     Many  of the  regulations, which  restrict AT&T  Alascom                                                                   
     today, are  vestiges of that monopolistic  environment I                                                                   
     spoke  of previously  only  in this  highly  competitive                                                                   
     marketplace  they  do  not  serve as  an  incentive  for                                                                   
     investment.  They only  serve  to add  cost and  thereby                                                                   
     provide  a  disincentive  for   investment.  As  far  as                                                                   
     protection  of the consumer  on prices,  we have  almost                                                                   
     20  years of  empirical evidence  in  the long  distance                                                                   
     market in the  U.S. to show that competition  serves the                                                                   
     consumer well.  In 1984, when AT&T was first  broken up,                                                                   
     the  average  discounted  corporate  minute  was  around                                                                   
     $.45.  Today, the  average  discounted corporate  minute                                                                   
     is  under  $.045.  That's a  whole  order  of  magnitude                                                                   
     swing  and yet, during  that same  time period the  long                                                                   
     distance  industry  went from  approximately  $9 to  $10                                                                   
     billion  to about  $90 to  $110 billion  in revenue.  It                                                                   
     was deregulation  of the industry and the  management of                                                                   
     competition  that spurred  investment and  in 1995  when                                                                   
     AT&T fell  below 60  percent market  share in the  Lower                                                                   
     48,  the FCC  ceased  regulating  AT&T as  the  dominant                                                                   
     carrier  and  deemed the  market  for long  distance  as                                                                   
     And yet,  here in Alaska where  AT&T Alascom now  has 42                                                                   
     percent  of the  long  distance business  and  shrinking                                                                   
     and our  largest competitor, GCI,  has 46 to  48 percent                                                                   
     of  the   long  distance  business  and   growing,  AT&T                                                                   
     Alascom  is   still  considered  the   dominant  carrier                                                                   
     despite  a four-year  attempt  to get  relief from  this                                                                   
     regulation   at   the   RCA.    This   regulation   adds                                                                   
     substantially  to  our  cost   structure  for  tracking,                                                                   
     journalization  and reporting.  It also adds  regulatory                                                                   
     process that  our competitors  don't have that  keeps us                                                                   
     from  being competitive  in the  marketplace. The  whole                                                                   
     situation  really  begs  a   definition  for  dominance.                                                                   
     Additionally,  with the  increased  costs and  inability                                                                   
     to    compete    effectively   because    of    outdated                                                                   
     regulations, our  ability to attract capital  and invest                                                                   
     in the network is severely hamstrung.                                                                                      
     I  believe that  over the  next  12 to  18 months,  this                                                                   
     state  must  wrestle  with   some  difficult  issues  of                                                                   
     telecom  regulation. At  stake is the  very survival  of                                                                   
     an  infrastructure  that's struggling  to  keep up  with                                                                   
     the rest  of the country. In  a true free  market, there                                                                   
     is  less  regulation,  not more,  and  competition,  not                                                                   
     regulation,  becomes the  force to  shape the market.  I                                                                   
     would  ask you  to carefully  and thoughtfully  consider                                                                   
     the market dynamics  at work here and the  definition of                                                                   
     broader   market   issues    such   as   dominance   and                                                                   
     competition.   I  would  also   ask  you  to   carefully                                                                   
     consider  your role  in  mandating an  environment  that                                                                   
     has less  regulation, not more,  in order to  create and                                                                   
     maintain   incentives   to    invest   in   the   modern                                                                   
     telecommunications  infrastructure   that  all  Alaskans                                                                   
     As  you consider  SB 72  reauthorizing  the RCA,  please                                                                   
     know  that  AT&T  Alascom   could  support  legislation,                                                                   
     which  would  extend  the RCA  for  another  2-4  years,                                                                   
     however,  as we  stated last  fall, only  if the RCA  is                                                                   
     truly  committed to  bringing  about regulatory  reform.                                                                   
     Status quo  is not an  option, if  you intend to  have a                                                                   
     healthy, competitive  telecom market and  infrastructure                                                                   
     in   Alaska.  We  are   in  the   process  of   drafting                                                                   
     appropriate  language  to   assist  the  legislature  in                                                                   
     defining dominance  and will  be submitting it  for your                                                                   
     consideration shortly.                                                                                                     
SENATOR   FRENCH  asked   if  there   are   other  long   distance                                                              
competitors in the state besides GCI and AT&T Alascom.                                                                          
MR.  FELIX   replied  yes  and   that  there  are   other  smaller                                                              
interexchange carrier competitors in rural Alaska and ACS.                                                                      
SENATOR SEEKINS said  it sounded like he didn't think  the RCA did                                                              
a wonderful job and didn't deserve a four-year extension.                                                                       
MR. FELIX  said that was right.  He thought the RCA  needed market                                                              
definitions as guidelines to enact policy.                                                                                      
SENATOR  FRENCH asked  if it  is  true that  the FCC  is going  to                                                              
defer to the states  on more issues and that dominance  was one of                                                              
MR. FELIX  replied that dominance  was addressed in the  1990s and                                                              
he thought the process they used should be revisited.                                                                           
SENATOR STEVENS  asked what  the implications  were for  Alaska if                                                              
the disincentive for investment continued.                                                                                      
MR.  FELIX replied  that the  capital budget  within AT&T  5 to  6                                                              
years ago  was $12 billion  per year and  that has been cut  to $3                                                              
billion. Separate  subsidiaries within AT&T now contend  with each                                                              
other for those  capital dollars. If  he can't show how  to earn a                                                              
return on the  dollars, they go elsewhere within  the AT&T network                                                              
where they can own sufficient return.                                                                                           
SENATOR  STEVENS  asked  him  to  explain  what  was  included  in                                                              
capital investment.                                                                                                             
MR. FELIX elaborated  that when AT&T bought this  network in 1995,                                                              
it was  not young.  A new  satellite was  built in  2000 for  $160                                                              
million  and  that  did  not  include   an  aging  ground  station                                                              
network, which  will require  substantial capital investment  over                                                              
the next few years to upgrade and to reach rural Alaska.                                                                        
CHAIR  BUNDE   asked  Mr.  Abbott   to  address  the   concern  of                                                              
MR. ABBOTT responded  that had been a problem in  the past and the                                                              
RCA has  made considerable effort  to speed up the  whole process.                                                              
At the  same time,  the RCA is  trying to  beat down its  infamous                                                              
backlog.  When  the current  commission  began,  it had  over  800                                                              
dockets waiting  for them.  They are  now down  to 203  and that's                                                              
probably  as low  as they  are going  to  get. The  case that  Mr.                                                              
Yould brought  up is not  as simple as  some people would  like to                                                              
make  it. A  lot  of parties  wanted  to take  longer,  but he  is                                                              
sensitive to  providing due  process to all  the parties  that are                                                              
interested. The  RCA deals with many  things on a much  more rapid                                                              
basis,  but  they  need to  work  on  how  to do  the  process  of                                                              
discovery now that they are caught up.                                                                                          
CHAIR  BUNDE said he  understood  and asked if  there is  anything                                                              
the legislature could  do to help expedite the  process and reduce                                                              
the backlog.                                                                                                                    
MR. ABBOTT  replied  that he  would like  to wait  to see how  the                                                              
rules they implemented last year work.                                                                                          
CHAIR  BUNDE  asked  what  the RCA  does  to  deal  with  outdated                                                              
MR.  ABBOTT replied  that the  RCA has  two ways  of dealing  with                                                              
them. First,  if a commissioner  sees things that need  to change,                                                              
the  commission can  start  a process.  Second,  someone from  the                                                              
public can ask  for changes to the commission's  regulations. It's                                                              
a public  process and the RCA  could probably work  faster without                                                              
it,  like the  legislature,  but the  RCA  wants adequate  comment                                                              
from everybody who is concerned.                                                                                                
CHAIR BUNDE said  it appears that the RCA is  applying current FCC                                                              
regulations,   which   pleases   some  telephone   utilities   and                                                              
displeases others.  He asked how  much flexibility the RCA  has in                                                              
applying  the regulations  and when  the new  regulations will  be                                                              
put in place.                                                                                                                   
MR.  ABBOTT replied  that  the recent  vote  by the  FCC was  very                                                              
contentious  and he  thought it  would take them  three months  to                                                              
actually get the  regulation out so the RCA could  see how much it                                                              
impacts  Alaska. He  thought  the TELRIC  would  have the  biggest                                                              
impact.  The telecommunications  industry  is constantly  changing                                                              
and the  RCA just  regulates the  copper wire  portion of  it, not                                                              
cable or wireless.                                                                                                              
CHAIR BUNDE  asked again how much  flexibility the RCA  has now in                                                              
applying FCC regulations.                                                                                                       
MR. ABBOTT  replied  it has flexibility,  but  he couldn't  give a                                                              
clear explanation of it.                                                                                                        
CHAIR  BUNDE said  some people  feel that  the RCA  has chosen  to                                                              
require ACS  to sell its  service at less  than cost and  he asked                                                              
him to respond to that.                                                                                                         
MR.   ABBOTT  replied   that  the   RCA  does   not  do   anything                                                              
arbitrarily. There  is an arbitrator  and the RCA reviews  what he                                                              
says and then the decision goes to the court.                                                                                   
CHAIR BUNDE asked  what the RCA's rate of success  has been in the                                                              
MR. ABBOTT  replied that it had  one decision returned,  which was                                                              
a procedural question  on whether or not the RCA  needed to hold a                                                              
hearing. The  RCA didn't think it  had the authority to  step into                                                              
a  contract between  two willing  parties  and the  court said  it                                                              
CHAIR BUNDE  asked if the [RCA  rulings on] rate issues  have been                                                              
upheld by the courts in general.                                                                                                
MR. ABBOTT replied yes.                                                                                                         
SENATOR DAVIS  asked if the dominant  carrier issue is  before him                                                              
and how long it would take to address.                                                                                          
MR. ABBOTT  replied that issue is  not in front of  the commission                                                              
now, although it was in the past.                                                                                               
SENATOR DAVIS said  Mr. Felix's testimony made it  sound like AT&T                                                              
is waiting  for the  RCA to  rule on  that issue  and he even  had                                                              
language to suggest.                                                                                                            
MR. ABBOTT replied that he hadn't seen any suggested language.                                                                  
SENATOR DAVIS asked  if that issue was before them,  would it take                                                              
a long time to address since the RCA's backlog is so low now.                                                                   
MR. ABBOTT  replied that  it would  go right  out for comment  and                                                              
take 3 to 8 months.                                                                                                             
SENATOR SEEKINS asked what baseball arbitration is.                                                                             
MR.  ABBOTT explained  that  if  both parties  can't  agree on  an                                                              
issue, they sit  down and simply give it their last  best pitch so                                                              
to speak  and the  arbitrator will  pick the  one that  best meets                                                              
the regulation or guidelines.                                                                                                   
SENATOR  SEEKINS asked  if  it's correct  that  they have  changed                                                              
that process.                                                                                                                   
MR. ABBOTT replied  that they aren't using it right  now, but it's                                                              
generally a lot more expeditious to use it.                                                                                     
SENATOR  SEEKINS asked  if there  would be any  difference  in the                                                              
functioning of the  RCA if the Senate granted it a  two or a four-                                                              
year extension.                                                                                                                 
MR. ABBOTT  replied that it wouldn't  impact the way the  RCA does                                                              
business, but  he thought  for the  stability of the  organization                                                              
the four-year extension would be better.                                                                                        
SENATOR SEEKINS asked  if he thought the legislature  should adopt                                                              
a wait  and see attitude  before it goes  for the long  term, like                                                              
they are with some of their issues.                                                                                             
MR. ABBOTT replied  the legislature needs to keep  pressure on the                                                              
SENATOR FRENCH  asked how  the RCA's workload  is compared  to the                                                              
workload of other  public utility commissions in  comparably sized                                                              
MR.  ABBOTT replied  that  he couldn't  give  a  good estimate  on                                                              
that, but he offered to do some research.                                                                                       
SENATOR  FRENCH  replied that  he  would  appreciate a  base  line                                                              
CHAIR BUNDE  thanked everyone  who joined  them and adjourned  the                                                              
meeting at 3:00 p.m.                                                                                                            

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