MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-Second Session
May 7, 2003
The Committee on Commerce and Laborwas called to order at 12:39 p.m., on Wednesday, May 7, 2003. Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, Nevada, and, via simultaneous videoconference, in Room 4401 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
Note: These minutes are compiled in the modified verbatim style. Bracketed material indicates language used to clarify and further describe testimony. Actions of the Committee are presented in the traditional legislative style.
COMMITTEE MEMBERS PRESENT:
Mr. David Goldwater, Chairman
Ms. Barbara Buckley, Vice Chairwoman
Mr. Morse Arberry Jr.
Mr. Bob Beers
Mr. David Brown
Mrs. Dawn Gibbons
Ms. Chris Giunchigliani
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. Ron Knecht
Ms. Sheila Leslie
Mr. John Oceguera
Mr. David Parks
Mr. Richard Perkins
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Diane Thornton, Senior Research Analyst
Wil Keane, Committee Counsel
Sharee Gebhardt, Committee Secretary
OTHERS PRESENT:
Don Soderberg, Chairman, Public Utilities Commission of Nevada
David Noble, Assistant General Counsel, Public Utilities Commission of Nevada
Charlie Bolle, Senior Advisor, Public Utilities Commission of Nevada
Ann Pongracz, General Counsel, Sprint of Nevada
Dan Reaser, Legislative Advocate, Nevada Bell Telephone Company
John Frankovich, Legislative Advocate, AT&T Communications of Nevada, Inc.
Steve Tackes, Legislative Advocate, Eschelon Telecom, and MCI/WorldCom
Karen Potkul, Representative, XO Communications
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection
Larry Spitler, Associate State Director, American Association of Retired Persons
Coralette Hannon, Senior Legislative Representative, State Affairs, American Association of Retired Persons, Washington, D.C.
Danny Thompson, Executive Secretary/Treasurer, Nevada AFL-CIO
Liz Sorenson, Executive Vice President, Communication Workers of America, Local #9413, AFL-CIO
Jim Anzinger, Business Manager/Financial Secretary, International Brotherhood of Electrical Workers 396, Las Vegas
Sylvia Samano, President, SBC Nevada
William Weber, Vice President, External Affairs, COVAD, Atlanta, Georgia
Robert Ostrovsky, Legislative Advocate, Cox Communications Company
I’ll bring the Commerce and Labor Committee to order. All the members are here. We’ll start as a subcommittee. We’ll open the hearing on Senate Bill 400. We welcome you all here today and apologize for the late start. It is that time of the session where members are [testifying] everyplace.
Senate Bill 400 (1st Reprint): Makes various changes relating to telecommunication service and broadband service. (BDR 58-261)
For the purposes of this hearing, we wanted to give the members a background on telecommunication regulations. We do not deal with this issue very much at the state level, particularly at the Assembly level. [Because] we have such limited time and it is such an important subject, we want to get as much background as we can before we hear the opposing sides’ views on how public policy should go. For that reason, I’ve asked Chairman Soderberg [Public Utilities Commission] to give us a primer on terms and history of telecommunication regulation, how the state regulatory authority fits in, and how the state’s elected officials and policymakers fit in.
Upon conclusion of that, I’d like to have the parties who are interested in this bill engage in a little more informal presentation in sort of a Lincoln/Douglas style discussion of the policies in this bill. Hopefully, we’ll understand the terms and the positions and the parties who are interested can conduct themselves in such a way so as to expedite the learning process. We will have hearings in the future, if we need them, or future discussions. We may post an evening meeting so we can learn a little more if that becomes necessary. Additionally, we have a number of different bills. There’s a study regarding telecommunication regulation, which I think has been referred to this committee, as well.
For the purposes of the record and for disclosure, I should note that my wife works as a Direct Sales Manager for Sprint PCS, which is a separate division of Sprint. I don’t know if she does anything on this issue, but I’ll check with LCB (Legislative Counsel Bureau), and I will conduct the meeting regardless.
Assemblyman Knecht:
For the purposes of the record and full disclosure, I have worked until this session as an economist at the PUC (Public Utilities Commission). I will be returning to that position after the session. This legislation does not affect me any differently than any other public employee there. I’ve had a small amount of work with telecommunications. I expect in the future a small amount of it will be dealing with telecommunications, but I have “no horse in this race” professionally or politically, and so I will, likewise, be participating fully in voting on this.
Chairman Goldwater:
With that, Chairman Soderberg, we look forward to your presentation.
Don Soderberg, Chairman, Public Utilities Commission of Nevada:
[Introduced himself.] To my left is Charlie Bolle. He is the PUC’s Chief Telecommunications Policy Advisor. He is also a member of the Federal/State Universal Service Joint Board, and a member of the NARUC (National Association of Regulatory Utility Commissioners) Staff Subcommittee on Telecommunications. In those roles and in his other activities, he is truly a national figure on telecommunication regulation and we are very happy to have him here in Nevada. To my right is David Noble, our Assistant General Counsel. He has prepared the primer that was remitted, at your request, to the Committee (Exhibit C, Exhibit D, and Exhibit E). He will handle our presentation on the background to hopefully help bring everybody up to speed on the telecommunications industry and its [current] regulation, so that you can better consider the arguments from the proponents and opponents of the bill.
David Noble, Assistant General Counsel, Public Utilities Commission of Nevada:
[Introduced himself.] The current regulatory framework governing local, local toll, and long distance services in Nevada goes back to the divestiture of AT&T in 1984. Before 1984, AT&T, also known as “Ma Bell,” basically controlled all telecommunication services in the United States, both long distance and local. As a result of an antitrust lawsuit, AT&T was allowed to hold on to its long distance services, but had to divest its local services. Those local services were divested into seven regional Bell operating companies, called RBOCs. RBOCs is the acronym for Regional Bell Operating Companies. Those Regional Bell Operating Companies were allowed to provide local service within what’s called LATAs (local access and transport areas). The map that was included in your packet shows two dominant LATAs in Nevada, one governing northern Nevada, which is Nevada Bell SBC’s local service territory, and then southern Nevada’s LATA, which is Sprint’s local service area.
From 1984 to 1996, you gradually saw a detariffing of long distance and paging services and more competition on the long distance arenas. Companies like MCI and Sprint entered and there was competition with AT&T. For the most part in Nevada, the local service is still provided by what are called your Incumbent Local Exchange Carriers (ILECs). Those are the carriers that were there. They’re the primary carriers for local service for everybody in Nevada. In 1989, the Legislature passed S.B. 294 of the 65th Session, which was called the Plan of Alternative Regulation (PAR).
Chairman Goldwater:
I’m going to stop you. Please, Committee members, as questions arise, let me know and, with your indulgence, we’ll interrupt you frequently.
David Noble:
[Clarified “ILEC.”] This Plan of Alternative Regulation is basically a price cap regulation. It allows the incumbent local exchange carrier some flexibility in the pricing of its services. After 1989, the Commission adopted that Plan of Alternative Regulation. Nevada Bell decided in 1991 to enter into that PAR. In 1994 there were some revisions to the PAR, and, subsequently, Sprint entered into a similar price cap regulation.
Assemblyman Brown:
That was something they could do voluntarily? You said that Nevada Bell entered into it.
David Noble:
It’s something they could opt into; they didn’t have to. It’s just another option beyond the regular rate regulation that we do for other utilities like gas and electric. This gives them some flexibility.
Assemblyman Brown:
In 1989, you had the S.B. 294 of the 65th Session enacted. Was anyone under that at that time?
David Noble:
Before 1989?
Assemblyman Brown:
It was enacted in 1989. But, I think you mentioned that in 1991 – you had the PUC adopting the regulations. Then I thought you said Nevada Bell entered into the PAR regulation in 1991?
David Noble:
That’s correct.
Assemblyman Brown:
So, was that because the regulations weren’t promulgated and adopted until 1991?
David Noble:
Right. S.B. 294 [mandated the] Commission adopt regulations for a Plan of Alternative Regulation. It took the Commission approximately 1 to 1 ½ years to get those regulations in place.
Assemblyman Brown:
Was Nevada Bell’s opt-in immediate then?
David Noble:
I do not know, but I can find out, and I will let you know.
Assemblyman Brown:
I just want to know if there was a period of time where you had regulations, but no one . . .
David Noble:
If there was, it was a matter of months and not years.
In 1996 Congress passed the Telecommunications Act of 1996. Before that time, the FCC (Federal Communications Commission) regulated intrastate telecommunications; that’s communications, long distance service. States, through state commissions, were in charge of regulating instate telecommunications. As a result of the Telecommunications Act of 1996, the FCC was put in charge of promulgating rules and policies dictating competition on the local level. Also, they provided an avenue for these Regional Bell Operating Companies to enter into the long distance market. They have been prohibited from entering into the long distance market as a result of the 1984 divestiture. By 1996, there were a lot of people thinking that we needed more competition both on the long distance and the local level and this was a way to get these RBOCs to open up their markets to local competition.
With regards to the local market, these incumbent local exchange carriers must sell their services to their competitors. There are also these ILECs that are required to interconnect with their competitors. The way it was done was after 1996 the Commission instigated an investigation basically to look at the pricing of the network. We adopted a pricing model. This looks at all the different elements of the local network, breaks them down into finite pieces, and basically determines what price they should be. The competitors, through interconnection agreements, can decide to purchase those unbundled network elements, also called UNEs, to provide service to their customers. The whole investigation dealing with the model platform took several years. It’s extremely complicated; there are thousands upon thousands of different elements, [and] different pricing methodology. Several different pricing methodologies were proposed. The Commission finally adopted a pricing model and once they did that, we went ahead and instigated cost studies for both the networks of Sprint and Nevada Bell. The cost studies were filed in 1998 and the Commission filed its determination of those cost studies in 1999. While that was going on and since then, the Commission has been approving interconnection agreements and resale agreements. There are over 300 interconnection agreements in the state of Nevada. There are also over 400 certificated carriers of telecommunication service in Nevada. Following the cost study investigations, the Commission opened up a performance standards investigation, basically to determine performance criteria. This is a performance standard applicable to the ILECs and how they provide their services to the competitors’ customers. That was a long, drawn out process. The manual covering these performance standards is over 100-pages long. It deals with how the ILEC responds to the requests of their competitors. Then in 1999, the Legislature passed S.B 440 of the 70th Session that was the next step in this Plan of Alternative Regulation. It provided additional flexibility through the statutes for the incumbent carriers, as far as pricing discretionary and competitive services. Nevada Bell, at this point, is the only carrier that has entered into that next generation of the PAR.
With regards to the long-distance market, for the last three years the Commission has been investigating what is called a Section 271 application that is pursuant to the Telecommunications Act of 1996. It is [cited at] 47 USC (United States Code), Section 271. Nevada Bell, being the RBOC in Nevada, filed a request to have the Commission sign off that they have competition in the local market and they should be allowed to provide long distance services. The Commission, through its review in December 2002, granted that request. That review was then forwarded on to the FCC, who did its own investigation, and on April 25 of this year, Nevada Bell, now SBC, was granted authority to provide long distance service as well as local service.
Chairman Goldwater:
That was twenty years after?
David Noble:
Actually the Regional Bell Operating Companies were prohibited from providing long distance service from 1984 to 1996. It’s only been since 1996. We’re looking at seven years, but it’s only been in the last two or three years that any of the RBOCs have been granted authority to provide long distance service. There were several years of working out how the criteria were going to be analyzed. There’s a 14- to 17-step process to [consider] whether or not they’ve opened up their markets to allow competition.
Assemblyman Brown:
What was the level of competition that was found? Did they have to have one competitor or multiple competitors, and who are they? What’s their status?
David Noble:
Charlie Bolle is probably better able to answer that, but it’s more whether they have opened the market so that competition could come in. With residential service in northern Nevada, the market penetration has not been that great, but that’s not because there haven’t been opportunities. We felt that the carriers that were out there made a business decision not to enter, at least, into the residential market. There was greater penetration into the business market.
Charlie Bolle, Senior Advisor, Public Utilities Commission of Nevada:
[Introduced himself.] The actual take of competition with residential customers in the northern part of Nevada is pretty sparse. Most of those customers were provided competition through a wholesale/resale process rather than entering into the UNE. The wholesale/resale is that Nevada Bell is required to sell a service to the competitive ILEC at a discount. Then the competitive ILEC resells that product with their trademark on it. That’s basically how competition exists in the northern part of Nevada today. The business customers generally went to the UNEs because of the margins involved there. Business customers are higher volume customers, and the profit margin on those is higher than residential.
By design of the Act, you find competitive ILECs entering the local residential market through the wholesale/resale and entering the local market for the business customers through the UNE because of the profits. The key to Nevada Bell SBC opening up its network was especially looked at by the pricing of its unbundled network elements. The CLECs (Competitive Local Exchange Carriers) were basically buying unbundled network elements because the cost of those elements was less than what they could put the infrastructure in themselves. I think that was probably a big key in the FCC deciding that the incumbent LEC, SBC, did everything under its power to open up the local network.
Assemblyman Brown:
So there were sufficient CLECs out there to allow SBC and Nevada Bell?
Charlie Bolle:
There weren’t a lot of CLECs providing that service. AT&T was the largest one in the Reno area where most of the competition exists today. There is not an abundance of CLECs providing that service.
David Noble:
Then, just to wrap up, in February 2003, the Federal Communications Commission held its triennial review. Every three years it looks at the telecommunications industry and decides whether anything needs to be done to move competition along, or addresses other issues that have been a problem with the telecommunications industry. It is our understanding that the FCC has adopted new rules for network unbundling of the incumbent local exchange carriers, and these rules are supposed to provide greater incentives for broadband build out and greater granularity in determining unbundled network elements. However, that was in February of this year, and we have yet to see the order. They’re still working on it. Until we actually see it in writing, it’s basically discussions between the Commissioners on the record and also press releases from the FCC. We don’t have much more than that.
Assemblywoman Buckley:
Some of the concerns that I have heard about the bill touched on this issue, saying that the Federal Communications Commission has been formulating rules to take itself out of the issue of broadband regulation and pushing it to the states to do. Then, by taking the state out of this role, we would end up with no oversight whatsoever for Nevada consumers. Can you comment on that?
Don Soderberg:
That question leads in to how I was going to summarize what you’ve heard here. What we have today is in one sense the traditional PUC role as delineated by this Legislature, that is, to regulate just and reasonable rates for consumers of utility services, taking into mind the interests of the consumers and the shareholders of the utility that’s regulated. Separate from that, and many times more time-consuming in telecommunications, is a myriad of federal court decisions, federal statutes, federal regulations through the FCC, state statutes, and regulations within the Commission, which have us, when read altogether, managing the competitive relationship between the traditional phone companies on one end and those who would like to compete against them.
The debate that has gone on nationally and is reflected somewhat in the triennial review is, “What level of management is appropriate to foster a competitive market?” Initially, upon the passage of the Telecommunications Act it was a very great deal of management. State agencies, as delegated down from the FCC, were providing a very firm command and control type regulation over the incumbent telephone companies under the theory that if they were harnessed, the competitive phone companies would be able to flourish. Probably over the last 24 months, there has been a debate raised on a national level and in the state that some people feel that it is not appropriate and maybe has, in some instances, harnessed competition and not allowed it to flourish.
The issue of broadband regulation is unique in that the two principal providers of broadband are the incumbent telephone companies, which are heavily regulated by state utility commissions and the FCC, and cable companies, which are very much unregulated. The debate now centers on, “Should we continue to have that strong command-and-control regulation? Or do we look at this as something as a cell phone, which is largely unregulated, where competition has flourished dramatically?” I don’t know whether that has been resolved. You are going to hear proponents of both ends of those arguments. One end is that we need to continue to regulate the incumbent phone companies for the benefit of the competitive phone companies because they have not been able to penetrate the market as much as Congress had hoped seven years after passage of the Telecommunications Act. The other viewpoint is that we have probably over regulated it, and we have denied consumers options that they want. We are somehow preventing one of the major offerers of those services from providing those services and competing because we want to harness that one in favor of another.
[Mr. Soderberg continued.] The triennial review dealt with the issue of broadband and it’s a very sticky issue. Since, as Mr. Noble said, we still have not seen a written order [for the triennial review], we look at the materials, the discussion of the FCC when they voted, [and] the materials they sent out. They believe that national command and control regulation of broadband services would stifle broadband and not make it flourish. They have delegated certain issues to the states for review. They have not directed the states to have a firm command and controlled grasp on this, but they want each local area to make some of the decisions on their own as to whether to back away from it and attempt to make it flourish or to do that firm regulation. That’s an issue that you are going to hear both sides of during these hearings. I can’t tell you the FCC wants us to be fully involved in this in all aspects, or the FCC does not, because I think they really have not framed the issue in those terms.
Assemblywoman Buckley:
Thank you for your perspective on that. I recall from the utility deregulation that I was forced to memorize certain key phrases. One of them was that you shouldn’t deregulate until competition is found to exist. Has the PUC made a determination that competition exists in this? Is that forestalled by this regulation? Where do that phrase and that concept work into this whole thing?
Don Soderberg:
I think the principle that you articulated is clearly what the initial telecommunication regulation was based upon. We need to regulate heavily the largest player in the market so that the smaller players in the market have an opportunity to take a toehold. I know the debate that has gone on nationally, the debate that I have had, and the discussions that I have had with my fellow commissioners in other states on the Telecommunications Committee of our national organization: “Are we actually preventing what we are trying to promote? Are we preventing competition by pricing those wholesale elements in such a manner that competitive phone companies do not have an incentive to build their own networks? Are we harming our own consumers by stopping them from having certain products and prices that they would be able to enjoy? Are we not harnessing what they believe to be their phone company, the one that they are used to?”
[Mr. Soderberg continued.] An example is what Mr. Noble referenced as the “271 filing.” The federal government told us that we needed to do a review anytime a former Bell operating company would like to enter into the long distance market. That review would indicate whether there was sufficient competition in the market. Once those reviews started going around throughout the states, we found that the FCC’s approach changed, and the questions were not whether there was actual competition, or whether competition was available. Competition may be available and customers may not want it. We recommended to the FCC that competition was available in the Nevada Bell service area. Of course, there were a number of people at our hearings who felt differently, including many companies who offer long distance and didn’t want SBC to compete with them. We found that there wasn’t a lot of actual competition in every market segment, but that it was available and people were not availing themselves of it and companies were not entering into it largely because their business plans found that people didn’t desire it. We made our recommendation to the FCC. The FCC conducted its investigation and they found the very same thing. They allowed SBC to provide long distance services in northern and many parts of their service area, which encompassed a large part of the landmass of the state. What we found is that SBC is now competing in the long distance market; they are offering prices that are competitive and sometimes better. I received a solicitation in the mail yesterday and they are offering a price that is a little less than I’m paying now. As a consumer, not as the chairman of the PUC, I’m glad this happened, because I wouldn’t have gotten that price offer had somebody not said, “Let’s let those guys compete too.” The notion that you propose that we must regulate strongly until there’s competition is one that is evolving, and I can’t give you a conclusive answer. It’s an evolving question.
Chairman Goldwater:
I think that’s a concern when you have a regulated monopoly that enters into a market. You have the potential then to price other people out of the market. That’s what monopolistic players end up doing and that would be a concern as we deal with the issue that you spoke of. Would the PUC be able to deal with those sorts of activities? Or, for example, an SBC is able to offer a long distance in that manner and they priced competition out, do you then have the ability to declare, or is that an anti-trust matter?
Don Soderberg:
The philosophy that has been set down by the federal government in that matter is that long distance is a competitive service. That means that in regard to long distance services, there is a great deal of competition. AT&T, WorldCom, TTI National, SBC, and Sprint all compete with each other very much like we do in the cell phone [industry]. Where you get the protections for anticompetitive behavior, when something is viewed to be a competitive market, is in those traditional antitrust and anticompetitive behavior types of complaints. If somebody is pricing their product so low that they’re purposely taking a loss to unfairly compete, then there is the ability to either, on the national level, bring a complaint, or in Nevada, on many items, to bring a complaint to the PUC to claim that and to cry foul, so to speak, and to seek redress. Until that would happen, in an area that’s full of competitive [companies], no state or federal agency would involve themselves. Once it’s competitive, we take the view that it really isn’t the government’s role to decide who wins the competition. The competition itself is the benefit of the consumers and not who is able to offer the best deal on a certain day.
Chairman Goldwater:
For the record, we have a full Committee now, and a quorum is present.
Assemblyman Knecht:
Mr. Soderberg, on these local service elements, where the argument is whether an element is, in fact, competitive at this point, is it correct or not particularly germane that [factors such as] technical progress, the evolution of the various technologies and business innovation, the development of new services, and the bundling are drivers in determining whether each of these elements is competitive at any given time?
Don Soderberg:
Technology is something that comes to us because competition makes people want to have innovation and it’s something that makes various products more competitive. It is certainly a driver. With respect to various services that are currently regulated, and the Commission’s decision on whether or not they will be viewed as competitive or uncompetitive, currently we do look to whether or not there’s a certain amount of market penetration based on the Commission’s regulations. We are reviewing those regulations. There are some people who feel that it’s probably not the appropriate way to go. There are others that feel that it is still the appropriate way to go. We don’t look just at the technology. We do look at what’s going on in the market place as a result of that technology.
Assemblyman Knecht:
Given that technology and business innovation are drivers there, doesn’t the competitive status of a particular service change sometimes fairly rapidly or continuously?
Don Soderberg:
Yes, that’s correct. With innovation, with just plain old good marketing, these things change very quickly. The debate that has been brought before the Commission is that maybe our rules take us too long to recognize that. The marketplace is very dynamic and so is technological advancement.
Assemblyman Knecht:
While your rules and review processes may take a little bit of time, it is, nonetheless, the case with Mr. Bolle and Mr. Noble and the rest of your staff, that you have the capability to perform a reasonable assessment of the competitiveness of any given element or market sector at a given time. Isn’t that the case?
Don Soderberg:
I think there is the technical expertise and the ability to examine most issues that would come before us.
Assemblywoman Giunchigliani:
Tell me about the definition “broadband.” Section 8 [says] “any two-way service.” Does broadband really mean your DSLs (digital subscriber lines)? Is that what we are talking about?
Charlie Bolle:
Broadband, as defined by the FCC, is bandwidth that has the capability of providing in both directions, upstream, downstream, 200 kilobytes per second [kbps] or higher. The definition, as I recall in this act, is 190 kilobytes in any one direction. Upstream is sending of data from your computer to the Internet; downstream would be the data coming from the Internet to your computer.
Assemblywoman Giunchigliani:
Could voice be on this as well?
Charlie Bolle:
Right now voice is being done over the Internet. It’s a big issue right now.
Assemblywoman Giunchigliani:
So this would expand the definition of what a broadband is by including voice?
Charlie Bolle:
The FCC is looking at broadband right now. The FCC actually regulates broadband, not the state commissions. As to determine broadband, is it a telecommunication service or an information service? Right now they are toying with the idea that possibly broadband is an information service, not telecommunications.
Assemblywoman Giunchigliani:
But they have not adopted that yet. So does this definition directly parallel what’s in the FCC 1996 Act?
Charlie Bolle:
I don’t believe the Act stated what broadband would be. It basically stated advanced services. Broadband came on after 1996.
Assemblywoman Giunchigliani:
I apologize, but I thought you said, in your initial statement, that broadband was defined by the FCC. So was it someplace else that we would look?
Charlie Bolle:
No, they have defined broadband. They have given a definition and that definition is a current definition. I believe it has taken place within the last year.
Assemblywoman Giunchigliani:
Maybe we could find out a comparison because I would be curious to see how they line up. If I go back to the beginning of Section 8, the “Commission shall not regulate any broadband service, including imposing any requirements relating to the terms, conditions, rates or availability?” Talk to me about “availability.”
Charlie Bolle:
As I said, we don’t regulate broadband. The closest we came . . .
Assemblywoman Giunchigliani:
But you could? Correct? You’re not prohibited from that?
Charlie Bolle:
We’re not prohibited. I don’t think the FCC would preempt us if we tried to regulate broadband, unless we were inconsistent with their rules. When you look at broadband, actually the largest provider of broadband services today is the cable provider. The cable providers put that cable wherever they think they can get a return on their investment. If we would regulate broadband and dictate to the incumbent LECs where they had to put that broadband, they’d have to make it available to all subscribers in the state. This may put a big damper on their investment, because, clearly, they would be investing in geographical locations where they would not get a return on their investment.
Assemblywoman Giunchigliani:
So competition would work for the wealthier parts, not the people in my downtown area?
Charlie Bolle:
You could couch it like that, yes.
Assemblywoman Giunchigliani:
Do you currently, under other areas, regulate the terms, conditions, rates or availability of other services as PUC?
Charlie Bolle:
Regulate the incumbent LECs?
Assemblywoman Giunchigliani:
Yes.
Charlie Bolle:
Yes, in those basic services we establish the rates for them. If you’re trying to bring this over to broadband, the closest we came to regulate in broadband was setting the wholesale price of a high frequency portion of the loop, or DSL as we know it. The FCC, in its news release on the triennial review, stated that DSL would no longer be an unbundled network element. That means that the state commissions would no longer be responsible for establishing a wholesale price for DSL.
Assemblywoman Giunchigliani:
Continuing in Section 8, Subsection 2, it says that the provisions do not prohibit the Commission from considering, and it goes on, “in determining the rates of the public utility under a general rate application.” How else, other than a general rate application . . . what other authority does the Commission have?
Charlie Bolle:
The general rate application is basically what we do. Even under a PAR, we take a look at the just and reasonable rates in setting that rate. But the rate proceeding is the basic means we have of setting rates.
Assemblywoman Giunchigliani:
So you could still set rates. Tell me again why this language is needed, if you can still do that.
Charlie Bolle:
The way I understand this language in Section 8, Subsection 2, [it] is just reiterating that the provisions of this subsection do not limit or modify the incumbent’s responsibilities as far as providing unbundled network elements to competitive LECs and does not prohibit the Commission from considering those revenues that the incumbent LECs generate in other services, like call forwarding. Those would all be considered in the rate proceeding. [To take] it one step further, if the high speed or the broadband, as we’re calling it, were deregulated, they’re saying that the Commission would still have the ability to consider those revenues and expenses in setting general rates.
Assemblywoman Giunchigliani:
But if I go to page 15, Section 23, it says any package of services, including basic network services, competitive [services], discretionary [services], other essential services, “and services and products that are not subjected to the jurisdiction of the Commission,” [and] they “shall not specify a maximum rate” for services for a PAR carrier. So, how does that coincide with Section 8?
Charlie Bolle:
What that is saying is that if you bundle services together, you have basic service; you have discretionary service; and you have competitive service. Those services all have to be priced above their costs.
Assemblywoman Giunchigliani:
That’s required by the FCC anyway. That was part of a negotiated deal of the 1996 Act.
Charlie Bolle:
And that is required by the Commission too. We would not set a price cap on those services. There would be a floor that they would have to establish. But there would be no price cap as to how high they could take that package of services.
Assemblywoman Giunchigliani:
Can you currently set price caps?
Charlie Bolle:
The price cap is for the basic local service under the PAR. These discretionary and competitive services do not fall under the price cap of the Commission.
Assemblywoman Giunchigliani:
So you don’t have that authority?
Charlie Bolle:
No.
Assemblywoman Giunchigliani:
And this would make it clear that you could never get that authority?
Charlie Bolle:
I don’t think it makes it clear that we could never get it if we wanted it back. But it’s that we don’t have it as we speak today.
Assemblywoman Giunchigliani:
I would just say, though, because if we were to pass this law, then you’d have to come back and actually change it. I’m just trying to find out if you have the jurisdiction, [and] you’re not prohibited from regulating this, why would we give it to the FCC?
Charlie Bolle:
We’re not communicating here. We’re not giving anything to the FCC under this. We react to the FCC’s rules and the only change right now that we’re looking at from the FCC is the broadband and the pricing of the broadband services under the pricing methodology.
Assemblywoman Giunchigliani:
But it seems to me that this bill anticipates that you will not forever, unless you change the law, regulate broadband. Therefore, our constituencies would have to deal with FCC. They would not have access to a state agency for problems, concerns, or anything else regarding this area. And yet you have the authority currently to regulate broadband.
Chairman Goldwater:
These gentlemen aren’t here for or against. They’re just trying to give us a little background.
Don Soderberg:
If I may interject, I think I might be able to clear up some of the discourse between Mr. Bolle and Assemblywoman Giunchigliani. I think Section 23 is not a giving away of authority. It’s a clarification section. The incumbents came to us and they believe that current law does not allow them to offer a package of services that includes some things that are truly competitive and have no rate regulation, and some that are. Their desire was to come up with a statute that would allow them to offer their customers those packages. They came to us and said, “We want to be able to do this.” We told them that it’s debatable right now. I can’t say conclusively that they can’t do this today without this legislation. They asked us to review what they had come up with. We offered them some changes. Section 23 is an attempt by the incumbent carriers to clarify that they can offer that package that would include those basic services, for which we do regulate the maximum rate, and other services, which we don’t. It’s not a way for us to cede regulation; it’s a way for them to offer their customers something more than they believe they can offer them now by bundling these things together. We told them our concern was not how competitive or non-competitive they were. We want to make sure that they were not selling any regular, fully regulated service somehow below cost in order for them to get an advantage over their competitors. That’s what this language reflects: the ability to make sure they don’t undercut their competition by using the bundle to get around a tariff or a set rate, and at the same time, allow them the flexibility to add their competitive services to that.
Assemblywoman Giunchigliani:
[Regarding] bundling, FCC controls and says they can’t go below that for basic service only then?
Charlie Bolle:
No. All of their services have to be priced above their cost.
Assemblywoman Giunchigliani:
So how could they be in danger of undercutting somebody if they are prohibited from doing that?
Charlie Bolle:
That’s what we are putting in there. They cannot do that.
Assemblywoman Giunchigliani:
But apparently they can’t, based on the FCC law.
Charlie Bolle:
They can’t anyhow. It’s predatory pricing. It’s anti-competitive.
Assemblywoman Giunchigliani:
So they can’t do it now, but we need a law to tell us that they can’t do it.
Assemblyman Brown:
There was a reference some time ago to the proliferation of cell phone competition and I wondered if that was a good analogy. The reason I ask that is because I look at overhead and infrastructure. I have a client who leases a 10 X 10 space for a cell tower and gets $1,000 a month. The infrastructure on that is so much less than what you have for burying cable underground. I think the laying of cable et cetera, for the broadband services, if that’s the technology that’s used, has to be an enormous obstacle for anybody who wants to jump in and compete.
Don Soderberg:
That is a very good observation. There are two schools of thought to that. One school of thought is, “Yes, cell is different,” because when we started competition, nobody owned any infrastructure, so everybody was able to come up with facilities. It was probably a lesser cost than doing the full boat telephone company from an asset point of view. The other point of view is, “Well, it flourished,” because we made many options available to customers. Many companies are flourishing in that, including subsidiaries of almost every company that will come talk to you today. Customers wanted it, so companies built the facilities. The argument then gets back to that same argument that’s going on at a national level. Should we force the incumbent companies to lease at wholesale their facilities to their competitors so that their competitors can get in the market? Some people feel we still need to do that. Others believe that, because we’ve done that, they have not invested in their own facilities like the cell phone companies went ahead and did.
Chairman Goldwater:
I think a theme of the questions here, given the background and outline, is why do we need this legislation? Do not you and your commission have the expertise here to do all of the things that S.B. 400 purports to do?
Don Soderberg:
That is the debate. There are some items in this bill where there is a good faith disagreement as to what current law does. One of them was the bundling of services, as we discussed with Assemblywoman Giunchigliani. There is another that references what last session’s legislation, S.B 440 of the 70th Session, does as far as allowing a company to keep its PAR rates in perpetuity. Or should there be some review of that? There are a couple clarifications in this bill. There are other items in this bill that the PUC clearly has the authority and the expertise to decide, and I think the proponents of the bill would like to urge you, as a policy matter, to direct us how you want us to regulate telecommunications. It’s a policy matter, not a regulatory matter. Others will urge you two other ways. One, they will say, “No, this is all bad stuff, and as a matter of policy, you don’t want to do it.” And secondly, they will argue to you that, “Okay, if you’re thinking about doing it, you should refer that to the regulators because they’re the experts.”
Chairman Goldwater:
Do we know the level of competition now? We’re trying to decide in S.B. 400 what level of competition exists and that somehow there’s adequate competition to bundle and to change the regulatory scheme. We would need to know that the competition exists. Do we have the expertise to know that? Will we be provided information enough to know that? Or do you know that? And can you know that? Or should we study it?
Don Soderberg:
My response to your question is that I don’t think that’s the question being presented to you by the proponents or the opponents of this bill. I think what you are going to be hearing is that we need to evolve to a better way of looking at competition, or no, we should not. I have not heard anything involved in the testimony before the Senate, or in other conversations that this is an issue of whether there’s enough competition. It’s an issue of whether or not the current laws match up with the state of the industry, and whether that state of the industry is harnessing competition or not promoting it enough.
Chairman Goldwater:
I appreciate that. That is excellent. I really learned a lot.
Don Soderberg:
In our review of the legislation, we felt we were comfortable with it and that the proponents of the legislation had done everything that we had asked [regarding] any concerns we had, separate from the policy issues that you need to deal with, and we wouldn’t presuppose to make that decision for you. However, in conversations with the FCC, one of the tenets that we had, made an assumption on an FCC review. As it turns out, they had changed their policy, so we have a small amendment that we will bring forward at the appropriate time. That’s something that has just developed today. I wanted to mention it while we’re up here. I understand that those types of issues you want to deal with later. We’ll bring it forward at the appropriate time.
Chairman Goldwater:
Thank you very much. That was very helpful. Now to [procedures] a little bit nontraditional. [Invited proponents and opponents to come forward.] We’ll give this a try and see how this works. Ms. Pongracz, why don’t you start since you’re the main proponent and give us about five minutes of why it’s so important to pass S.B. 400. We’ll let your opponents tell us why it isn’t. Then we can engage in a little give and take to hopefully expedite our learning and do it in a reasonable fashion.
Ann Pongracz, General Counsel, Sprint of Nevada:
[Introduced herself.] I would like to start out by responding a little more fully to the questions asked by Assemblywoman Giunchigliani in clarifying the relationship between Section 15 and Section 8, because I think they really do get to the basics of the bill. Section 15 affects what we can do in the retail market. That gives us the opportunity to offer service bundles to residential and business retail customers and to offer term and volume discounts and contracts to business retail customers. As Section 23, Subsection 3, says, we can’t price it below cost and, as you are probably aware, all of our products that are provided today on the “stand alone basis” will continue to be provided on a stand alone basis after the bill is passed. For example, a customer who just wants to buy an R1 as it’s currently priced will be able to do so in the future. The R1 is the basic residential rate for a customer who just wants to have the line to their home.
Section 8 is a different kind of section. It addresses retail broadband, which is our DSL offering. You’ve heard from the Chairman and his people, who are primarily our DSL service, which competes with the cable TV companies and cable modem service. Today it’s tariffed with and regulated by the FCC, not the PUC. What Section 8, Subsection 1, says is that it should stay that way. Today, there is a possibility that the FCC could consider wholesale broadband as a possible UNE. What you’ve heard from the Chairman and Mr. Bolle is that their FCC press releases said the FCC should not be considered an unbundled element. [The FCC] is the source of policy on this issue along with the Telecommunications Act, which is the source of the Commission’s authority. Hopefully, that is helpful.
In terms of why we think S.B. 400 should be adopted, Dan Reaser and I figured out and provided an outline (Exhibit F). We’ve tried to really focus ourselves on looking at the consumer benefits.
The first consumer benefit is that today there are restrictions under the law which limit our flexibility to offer discounts and other benefits for service packages for both residential and business customers. Section 23, Subsection 1(b), gives us the authority to get over those restrictions so that we can roll out those types of packages and offer customers what they want. Just as people like buying all kinds of services in bundles today, just as we like to be able to buy a combination package at McDonald’s and super-size it, customers want to be able to buy for a single price a group of services and we want to be able to do it. [Section] 23 (1)(b) permits that.
The second change that S.B. 400 would do is make it easier for us to roll out new telecommunications price and service offerings. That’s very important because it can take us up to 180 days to get our services out into the market place. That’s the amount of time, under statute, that the PUC has to review it. We’re not complaining about the Commission’s handling of things. In many cases, they do it more promptly than that. For example, we have a matter pending before the Commission right now that is a little different, a little innovative. We’re trying to provide services to a bank, which includes the basic B1, the basic line. It includes a group of custom calling features that are classified differently than the basic service. It includes some fancy switching features that this bank wants [in order] to be able to download the data among its various locations. Right now, it doesn’t seem that it fits into the traditional regulatory categories. So Section 23 (1)(c) would give the Commission the ability to approve that promptly.
[Ms. Pongracz continued.] The other thing that this bill has that helps us roll out offerings to business customers is Section 12 (1), which gives us the opportunity to utilize an expedited tariff review process if we want to make a new offering to business customers with term and volume discounts. You may hear from our opposition that in some ways that is not fair. I think it’s really the only thing that is fair. Today our hands are tied. Today it can take us up to 180 days to have an offering to an individual customer or group of customers approved. In six months, a lot can change in the telecommunications business; a lot can change in what a customer wants; and a lot can change in a customer’s own budget and how they control their telecommunications costs. If we don’t have the ability to get in and market our services and get an offering out there promptly, we’re going to lose out on the business and that’s not fair.
The third benefit of S.B. 400 to Nevada customers is that it would specifically authorize us to offer term and volume discounts, as well as new service packages to business customers. That’s under [Section] 23 (1)(c). Business customers benefit when every telecommunications company in the market place has the same opportunity to offer a bundle and to offer a customer term and volume discount or to reward a customer for buying more or for making a term commitment. Customers will benefit if we can make those same offerings.
[Section] 23 (1)(c) also helps us to respond in competitive bid situations where we are facing an RFP [request for proposal] and where an individual customer may want something a little different from what we have tariffed. The traditional tariff requirements break up our services in very traditional pieces. Sometimes that doesn’t fit a current customer’s business plan. Our competitors have the opportunity to tailor their offerings to meet the needs of these customers. What we want is the opportunity to do that too, so that we can do better in responding to RFPs.
I think those are the primary benefits of S.B. 400 for Nevada consumers. There are also some big benefits in terms of investing in the local economy, which I think Mr. Reaser would like to address.
Dan Reaser, Legislative Advocate, Nevada Bell Telephone Company:
[Introduced himself.] Ms. Pongracz has outlined for you the benefits to consumers, but there are also significant benefits in S.B. 400 to building the infrastructure of Nevada. First, local telephone companies, by receiving the pricing and marketing flexibility that Ms. Pongracz has outlined for you, will create better competitors in the local telephone companies. They need the ability to play on a more level playing field than the playing field that has been outlined for you today by the Chairman of the Commission and his staff. By allowing the local telephone companies to compete to pursue the more profitable customers, the business segment of the market, you enhance the ability of the local telephone company, the long-standing incumbent, to continue to generate revenues to subsidize the low residential rates that exist in Nevada.
Nevada has some of the lowest residential rates in the United States. Sprint’s [rate is] $10.40 a month, and SBC’s is $10.75. Both of the companies have agreed to freeze those local residential rates, Sprint until 2005 and SBC until 2008. Under existing law, Sprint and SBC have to file general rate cases before they can ever make changes in those rates. S.B. 400 does not change that part of Nevada law. In fact, in Section 20, the PUC will periodically review basic residential rates charged by providers to insure that they are just and reasonable.
As long as plain old telephone service is a basic telephone service under Section 15, it will not matter how that service is provided. Whether it’s over the same line as broadband or over a different line, the Commission will have regulation of what the rate for that service will be. It’s important to recognize that the ability of Sprint and SBC to use these marketing flexibilities that Ms. Pongracz has outlined are subject to explicit supervision by the Public Utilities Commission. That is set forth in subsection 2 through 5 of Section 23, which requires notice to the public and to competitors of the existence of the cost study that proves that they are not pricing these services below cost, [and which allows] the competitors to inspect those cost studies, and the Commission to examine the entire offering.
Second of all, Section 8 (1) on broadband is highly important to investment in Nevada and for its business future. It creates equity among all of the telephone companies, among cable companies, and satellite firms, as to how high speed Internet access will be provided.
Assemblywoman Buckley:
I have a question on page 2, line 42, in terms of what your intent is. I appreciate what you said you thought the issues were. I read some language somewhere else in some other bill. Instead of this, the language was that you could not impute the costs to another. Can you tell me what the intent of this was and why? That other language seemed stronger and maybe it’s not. Could you discuss that issue and what your intent was on this?
Ann Pongracz:
The intention of the language in Section 8 (2)(b)(1) is to do the following. When any local company, like Sprint or SBC or any of the other incumbents in the state, come to the Commission and file a rate case, there are two major components. The first component to the rate case is the revenue requirement, and the second component is the rate design. In the revenue requirement, the Commission figures the size of the rate base and the size of the pie of cost and expenses that needs to be recovered. The rates are then designed in the later rate design phase of the case. The intention of this section is to allow the Commission to consider and to include and to require us to include the costs, expenses, and revenues from broadband services in the revenue requirement phase of a rate case. The Commission then will have a larger potential source of revenue requirement that it can utilize to support the low basic residential rate, the R1 rate.
Assemblywoman Buckley:
How come you didn’t use the “nothing prohibits the Commission from imputing revenue from broadband” to other rate cases such as local rates?
Dan Reaser:
The other part of the answer to the question is to look over, for instance, to page 7, in Section 12, around lines 28-36. The language that you see in Section 8 is tracking existing law as to how the legislature has always described what it is that is accounted for in a rate making case. For instance, look at line 30 on page 7. It says the “results of revenues, expenses, investments and costs.” So the intent here was to track existing, long-standing Nevada public utilities law when we’re talking about what things will be considered in a rate case. We used the language the legislature has always used to describe what will be considered in a rate case.
Ann Pongracz:
Let me just add that we have parallel language in Section 23 that makes clear that the Commission can also include the revenues, expenses and costs from services that are provided in bundles or pursuant to contracts in a rate case. So those stay within the Commission’s purview.
Assemblywoman Buckley:
What about that other language that I referenced that was in another bill? Are you familiar with that?
Ann Pongracz:
I am not familiar with that. I don’t believe there’s necessarily anything sacred about this formulation. It’s just that we felt it was more straightforward to say, “Okay, even though these services would be de-tariffed, the Commission could still consider them in a rate case context.”
Assemblyman Knecht:
Mr. Reaser, I thought I heard you say something, which, throughout graduate school, law school, consulting and being an expert witness, was just brand new to me. I thought you said a moment ago that this legislation – and I’m not taking a position on this legislation by asking you the question – would allow you to essentially “milk” competitive markets to subsidize regulated markets. That would be a new one to me. The traditional criticism of allowing utilities to participate in competitive and noncompetitive markets is that they will, in fact, do it the other way around. Are you claiming that, in fact, this bill will allow you to make an above-market profit on a sustained basis in competitive markets and that’s how it would benefit captive consumers of SBC?
Dan Reaser:
That is not the argument I’m making, but I’ll be happy to answer in a little more detail. It is a longstanding tenet. I’m certain if you ask Chairman Soderberg or other utility regulators that they would concur with the following statement: Local incumbent telephone companies’ basic service rates for residential customers are frequently, if not always, below the cost of providing that service. It is a matter of public policy. You may go in with a rate case where you show the cost is $25, but at the end of the case, it’s a matter of public policy [how] they’re set. For instance, Nevada Bell is set at $10.75.
I’ll give you a very specific example. Chairman Soderberg and his staff were explaining to you the process where they priced what an unbundled loop would cost for a competitor to lease from Nevada Bell. The cost of just the wires was found by the Nevada Commission to be $11.77. Nevada Bell sells that whole package of service, the wire, the switching, all of the transport, for only $10.75. So, basic residential has always been underwater. The public policy has been that for business rates, even though that same copper line may cost $11.77 to Nevada Bell, you may charge $22 in Nevada Bell’s territory for a basic business line. The money that you make above your cost there goes to your profit and to help subsidize, as a matter of public policy, the basic rates that are below the actual cost. The point that I was trying to make is that if you do not allow the incumbents to compete on the same level playing field with the competitors with business customers – most of what we’re asking for here is flexibility to price to business customers – then the incumbents are going to lose more of that margin they make from business customers, and they’re going to be less capable of subsidizing that local rate that you want. They’re going to become unhealthy companies. You have to let them compete.
Chairman Goldwater:
That was a very thorough explanation and an excellent question. I think I understand that. Mr. Frankovich or Mr. Tackes, why is this the end of the world? Why do you want to create unhealthy companies so that they can’t subsidize residential rates anymore?
John Frankovich, Legislative Advocate, AT&T Communications of Nevada, Inc.:
[Introduced himself.] I have a couple of general comments and then I would like to address some of the specifics. Also I would like Mr. Tackes to have an opportunity. I have represented AT&T in the state of Nevada since 1976, simpler days with one telephone company. I lived through and participated in the entire process that Mr. Noble laid out to you, which was divestiture in the early 1980s and subsequently the Telecommunications Act of 1996. I appeared before the PUC in excess of a hundred times on telecommunication matters. I have specific comments about SBC that are a concern to AT&T as I have read it. I have discussed it with the proponents, Mr. Reaser, Ms. Pongracz, and I have discussed it with the opposition in rooms of 8 to 10 lawyers, and it’s very complicated. It’s difficult to understand. Frankly, the lawyers and participants have a dispute as to what it means. If this Committee or members of it are confused as to the meaning [of the bill], I assure you, you’re not alone. That is a concern to competitors and consumers, and it should concern this Committee.
Under any circumstances, it is a significant piece of telecommunication legislation. It will substantially further deregulate both SBC and Sprint. Some of the questions that were asked earlier are very germane. Do we know whether we’re ready to do that or not? If we are, what will be the effect on competition and effect on consumers in the state of Nevada? Everybody gives you numbers as to market penetration. Everybody wraps himself in the cloak of consumer protection and it’s the consumer who benefits. Both sides do that. But the question is, is this Committee in the position to resolve those factual disputes and do we have enough information to make an informed decision?
I respectfully request that this is not the best forum for resolving these serious questions. It requires a more adversary type proceeding or at least hearings, like the PUC conduct, to investigate the evidence, and decide whether there is 30 percent market penetration or 5 percent market penetration; whether there is effective competition; whether it’s available; and if it’s available and not being used, as suggested by Chairman Soderberg, why?
Chairman Goldwater:
Why aren’t we doing that?
Dan Reaser:
As Chairman Soderberg indicated to you, certain of these provisions have to be done by legislation. They cannot be done by the Commission.
Chairman Goldwater:
Is that true, Mr. Frankovich?
John Frankovich:
I agree that certain things in this legislation cannot be done by the Commission now. But the question is do we want to do them now without knowing what the impacts may be? We have had in the state of Nevada a PAR for a substantial period of time, and we had in 1999 S.B 440 of the 70th Session that Nevada Bell has since been acting under.
Chairman Goldwater:
Do we want to do them now? If so, why?
Ann Pongracz:
I think Sprint wants to do them right now because, in the business market, we have lost over 30 percent market share. I think it’s very clear why Mr. Frankovich is arguing on behalf of AT&T that it’s premature. It’s because AT&T and our competitors benefit from keeping our hands tied by continuously entangling us in complex and lengthy regulatory processes. If it’s going to take us 180 days to get a contract approved so that we can offer it to an individual contract, and if our competitors have no obligation even to file their contracts, much less wait six months before they can turn it over to a customer, it’s pretty clear who benefits.
Chairman Goldwater:
That makes sense to me.
Assemblywoman Buckley:
If you go through that 180 day proceeding, which is burdensome and a pain, but you do that, and then you get the right to bundle and get a price on the broadband and different products to offer and different configurations, then you got it though, right?
Ann Pongracz:
I have to disagree with you on that. Assuming everything goes right and everything goes well, what we get at the end of the process is an approval for what we asked for six months ago. By the time we get it, the customer may no longer want it. The customer may want something faster, with more functionality, at a slightly lower discount, and packaged up differently.
The way the system works today, we would then have to go in and start a whole new six-month process in order to get that new package approved, and, again, we would lose out on the contract. It’s not that we’re being critical of the Commission here. We’re not. It’s just that the existing law says that you have 180 days to make sure that whatever you’re offering meets the traditional tariffed categories of service, so they have to go through and exercise. It’s almost like a checklist kind of process. If your customer wants a package that includes 12 different services that fit into different regulatory categories, the Commission may well feel that, if basic services are included, they have to go through this whole long complicated exercise that can take that amount of time.
Dan Reaser:
I’d like to give one specific example on this point that both SBC and Sprint have experienced in the last few years. Without enacting [Section] 23 (1)(c), as we’ve asked, these companies are handicapped in responding to requests for proposals from government agencies. Both of these companies have not been able to competitively respond to RFPs from local school districts. So you have taken out one of the biggest competitors in bidding effectively on an individual based contract, and you leave others to be the only ones who can bid. Taxpayers lose when one of your home-based companies can’t bid on contracts.
Assemblywoman Giunchigliani:
You’re asking in Section 12 (11) and (12) to have an expedited regulation. Is that called the alternative regulation?
Ann Pongracz:
No. Section 12 (11) says if a company like Sprint or SBC that has already gone through the hurdles of entering into a Plan of Alternative Regulation or PAR, and has gone through the general rate case that one had to go through in order to get into a PAR plan, and has gone through the process that requires them to cap their rates through the PAR process, then a carrier that is a PAR carrier may qualify to utilize [Section] 12 (11), which is an expedited tariff review process. Both Sprint and SBC have entered into a PAR, but the other local telephone companies in the state have not. This tariff review process was something that was developed during our negotiations with Cox Communications. They felt very strongly that if we were going to make a special term and/or volume discount offering to a class of business customers or all business customers, that we should not be allowed to do it under the process set out in Section 23, which is basically sign a contract, file it with the Commission, and have a cost study ready. Instead, we should be required to go through a tariff review. What they were willing to do, in the spirit of cooperation, is to say, “Okay, you need to go through a tariff review process, a more in-depth review process, if you are going to offer your term and volume discounts to a larger group of business customers, but you don’t have to wait 180 days.”
Assemblywoman Giunchigliani:
Is the issue the timeline [requiring] you to wait in order to put in a competitive package?
Ann Pongracz:
From Sprint’s perspective, that is one of the most critical [issues]. The timing element is very important.
Assemblywoman Giunchigliani:
Why is it then that this bill continues with the 180 days? It, in fact, picks it up in several other areas. Is that the barrier?
Ann Pongracz:
Because we are willing to take gradual steps. We would like to get rid of the 180 days entirely. We would like to have a lot more freedom to price in the market place than this bill allows. But that’s not realistic in today’s environment. As you have noticed, there’s quite a bit of opposition even to what we’ve requested in this bill. What we’re saying is, since it’s generally acknowledged that where we are facing the most competition is in the business arena, the business arena is where we are looking for the regulatory and pricing flexibility and the expedited processes. We’ve targeted the business area.
Assemblywoman Giunchigliani:
At some point, not for the hearing, could you get me a definition of “non-regulated,” “deregulated” and “detariffed”?
John Frankovich:
I would like to respond to the question that you had posed to me and then I will defer to Mr. Tackes. The issue that was raised by Ms. Pongracz and Mr. Reaser was that they couldn’t bundle these services and then respond to the competitive market place. First, that only applies when part of the bundle is a monopoly service. By definition, they’re providing something that’s a monopoly too. If they’re in a PAR plan now, they do have pricing flexibility to move within a range. The lower end of that range has been established by appropriate costing mechanisms to ensure that they don’t go below the floor or the established floor, which is one of the concerns of the competitors. Broadband is a good example, where you break it to the wholesale. In order for AT&T to sell Internet, they have to buy a wholesale piece from Nevada Bell or Sprint.
Chairman Goldwater:
Or they could build their own.
John Frankovich:
Or they could build their own. That is always an option. This bill would deregulate that wholesale piece.
Chairman Goldwater:
I think Chairman Soderberg was pointing out that perhaps we have discouraged competition and build out by this sort of onerous regulation, and that’s the question we’re dealing with.
John Frankovich:
I think that is one of the questions, but if you can’t get competition by selling the service, which they argue is below cost, and I would suggest that that’s not the case, how are you ever going to get anybody to invest in it in the first place, if it costs twice as much? I don’t think that argument makes sense from the standpoint of what’s deterring competition. The problem is, and I think it’s widely recognized particularly in northern Nevada, that the competition just hasn’t emerged, particularly in the residential segment. Another point [regarding] broadband is that AT&T has to buy wholesale from Nevada Bell. It’s not regulated. Nevada Bell sets it at whatever they want. Now AT&T can’t compete for that customer.
Steve Tackes, Legislative Advocate, Eschelon Telecom, and MCI/WorldCom:
[Introduced himself. Provided Exhibit G.] I am very concerned to hear that you are being told that it takes 180 days for Sprint or Nevada Bell to get changes made to their tariffs. I took the time to look through the records and in the last few years, Sprint has filed 13 requests to have services reclassified. Each of those appeared to have been concluded in about a two month or less process. Of those 13, one was withdrawn and one was still pending. I don’t have the information on the pending one. But I would be happy to provide a copy of this to Ms. Pongracz.
Chairman Goldwater:
We’re doing something a little untraditional here, so Ms. Pongracz, is that true?
Ann Pongracz:
I would have to take a look at it. There have been some reclassification applications that have been approved quickly, but there have also been some reclassification applications that have taken quite a long time. I would have to go through Mr. Tackes’ data. I really can’t give you an answer off the top of my head. I will tell you though that contract pricing is different from reclassification applications. You can’t confuse the two. We are not being critical of the Commission; we believe the Commission is doing a good job with the rules that they’re given. We have a contract with a bank pending right now before the Commission that will take the full 180 days to get out. We are very concerned, not to mention our bank customer is very concerned that it’s taking 180 days to get what they considered to be a pretty simple offering.
Steve Tackes:
It should concern you when the large telephone company says, “We could actually price something cheaper for this one customer, but we don’t want to do it for all of our customers.” That’s what they’re saying. They want to go in on a contract basis and give a lower price to a particular customer. If they could provide a lower price to that particular customer, and still make money – not do it under predatory pricing, do it under cost just to run competitors out of the market place – shouldn’t they be doing that for all of your constituents?
Ann Pongracz:
What Mr. Tackes is saying misses the point in that we all know that there’s a range of margin that each of us has on every business customer. Right now, Sprint and SBC are in a position where we are being required to get the full tariffed margin on an ever-decreasing number of customers. The ratio is shifting. In the past when we used to have 100 percent of the market, it would make sense to say, “Okay, charge the full tariffed price to 100 percent of your business customers,” because there was no risk. There would be no suppression of your market share if you continued to price far in excess of your cost to those customers.
A more competitive market place drives the prices closer to costs. When we are forced by the regulatory framework to charge customers the full tariffed price that’s far in excess, over time, we actually end up with a smaller amount of revenue from business customers that can be drawn upon to support basic local rates. There are significant benefits for competitors if we are required to keep that price ceiling for business customers high. For example, if our tariff price is $100 for Service A, then our competitors know that they can go in and succeed in taking a customer away from us. If they charge $95, that customer recognizes a $5 benefit. But, if the cost of providing service is only $60, there is still $35 worth of margin that the end user customer is not getting the benefit of. [Also] the customer is hurt by us being forced to stay at the full tariffed rate, and the incumbent is being hurt because we are going to lose customers. If we lose enough customers – and we think Sprint now has over a 30 percent market loss in southern Nevada – that’s going to jeopardize our ability to use our business services to support the subsidized basic local rate.
Steve Tackes:
I don’t buy that. I still don’t see why the rest of your constituents shouldn’t get the benefit of the lower price. Also, when they talk about price flexibility, they are implying to you that means they want to reduce their prices. They only want to reduce their prices in various select instances where somebody else has brought a newer and cheaper product or a newer way of delivering it at a lower price to them. When you read the bill, price flexibility means you can’t set any maximum prices. The Commission can’t set any maximum prices. What happens when you do price flexibility?
The state of Texas looked at this. They did a study over the last three years. What happened when we gave price flexibility to the incumbent phone companies in Texas? If you look in their report, the price went up. You look up custom calling features, for example. Have you ever heard of a custom calling feature going down? I never have. The custom calling features have gone up 138 percent, 100 percent, 150 percent, and 27 percent. There are select services that go down very small amounts, but, overwhelmingly, rates go up on price flexibility. When you’re told that they need price flexibility, and you’re also told that a certain percentage of the market doesn’t have competition, what’s going to happen to those people who don’t have competition? Their price is going up. That’s what’s going to happen to your constituents.
Chairman Goldwater:
What I think I heard you say in “TeleCom for Dummies” is that you need the ability to price in order to increase your market share on the business side so that you’re able to continue subsidizing areas where our constituents are getting a good deal.
Ann Pongracz:
I would agree with that with one slight change. What we’re most concerned about is being able to retain our current market share rather than continue to lose, which is what we have been doing under the current framework.
Dan Reaser:
Not all local companies think the same. I have a different kind of answer than Ms. Pongracz gave. In response to Mr. Tackes, what we are looking for is the ability to give term and volume discounts and specially arranged terms and conditions that meet a specific customer’s need on a ten-day notice with a filing with the Commission that lets us be as competitive as the competitor. Mr. Tackes is just plain wrong, because if some other customer similarly situated is willing to buy that same service under that contract for the same term, take the same volume, the same terms and conditions, SBC will sell it to the customer in a heartbeat, because we made that offer to one customer, and it’s important to understand – and I don’t know what Sprint’s position is on that, but our position is nobody is going to get treated differently. If they want to take the same contract, they get that contract.
[Mr. Reaser continued.] Another point is critical to understand. Contrary to what Mr. Frankovich said, you need to look at Sections 7, 8 (2), and 28. Those sections preserve the Nevada Commission’s power to control the local telephone companies to make sure that they treat fairly the competitors to whom they are providing wholesale services or leasing parts of our network. Nothing in this bill changes that. The competitors are being treated fairly, and SBC will be treating every customer similarly situated the same. They have to. NRS 704.120 prohibits us from discriminating between customers.
Ann Pongracz:
If we do offer a discounted package to a retail customer, we are required by both the PUC and the Telecommunications Act to make that total contract offering available to a CLEC that wishes to provide [it for resale]. If they want to resell our service, they can do that by coming to us and saying, “I want to take the package you’re selling to that bank, and I want you to turn over the billing to me, and, oh, by the way, if you’re Sprint, you have to give it to us at a 21 percent discount. If you’re SBC, you have to give it to us at an 18 percent discount.” We have a legal obligation, not only to not discriminate, and I totally agree that Sprint has to make the same services or the same contracts available to a similarly situated customers, but we also need to let our CLEC customers resell those contracts to whomever they want, and all they need to do is change over the billing records, and they get the 20 percent discount.
Chairman Goldwater:
That sounds unfair.
Karen Potkul, Representative, XO Communications:
[Introduced herself.] First of all, XO Communications competes directly with Sprint in southern Nevada. We are a facilities-based provider relying heavily, though, on bundled loops that we purchase for special access services from Sprint. Sprint has been successful, contrary to the comments of Ms. Pongracz, in winning customers back from XO. That is something that occurs all the time. They do, obviously, have sufficient pricing flexibility in order to lure customers back. It’s not just a case of them continuing to lose customers.
[Ms. Potkul continued.] I’d also like to go back to a statement made earlier by the counsel for SBC that they would use broadband revenues in order to subsidize tariff services that they provide. He specifically pointed to residential services, but that’s one of the specific concerns that XO has. That is exactly what this bill will allow them to do. We are dependent on the last-mile facilities, the loops that we purchase from Sprint. They will be able to take the revenues from the broadband services, or revenues from competitive and discretionary services when they increase those rates, in order to under price and undercut us, and, in fact, possibly even go lower than what they know our costs are, to the extent we have to buy last-mile facilities out of the tariff from them.
Chairman Goldwater:
I think one of the compelling arguments that the [PUC] Chairman made and a policy matter for us to consider is whether or not that is good, whether or not building the last-mile infrastructure is something that will probably create competition, and the current regulatory scheme is not fostering that.
Karen Potkul:
Thank you very much for asking that question, because that is something that I wanted to address. If XO could build a network that completely replicated Sprint’s and we did not have to rely on them for the last-mile facilities into the customer’s premise, we would do that. But in terms of the amount of money that it takes to do that, the amount of time that it takes – first of all, there hasn’t been sufficient time to replicate that network and to build loops into every customer premise in southern Nevada where we compete with Sprint. There isn’t sufficient money. Even when the capital markets were friendly to competitive carriers, there wasn’t sufficient money for us to replicate their network.
Chairman Goldwater:
So we’ll never get that kind of investment.
Karen Potkul:
The markets are not quite friendly to competitive carriers right now, so we’re certainly not going to see it in the near term. To have to rely on your largest competitor in order to be able to serve your customers is really not the situation that you want. Unfortunately, if you want to compete, that is the situation.
John Frankovich:
Mr. Reaser explained how they would offer the exact same terms on a volume discount through any other customer who had exactly the same number of lines and everything else, which doesn’t happen in real life. There’s nothing, by the way, under this act that requires that. It gives them twice the flexibility on a customer-by-customer basis. They can make any deal, and if there’s one line different, they can make any deal. That may be SBC’s internal policy, but it’s not required by the Act.
Second, with respect to the continuing regulation of broadband at the wholesale level, Mr. Reaser referred to Section 8 (2)(a). I think that’s an appropriate one for everybody to focus on because that’s a serious policy question. It says it does not modify the duties of SBC, an incumbent local exchange company, under the Telecommunications Act. There’s nothing we can do to modify that here anyway, but what it does is say the Commission may not have jurisdiction. So now we have to go to the FCC to get regulation of wholesale on the broadband, and that is difficult. Maybe more importantly, even if the Nevada Commission could still apply the FCC rules, that means the FCC rules would have to prevail in Nevada, and line sharing is a very good example.
Line sharing is where I have a wire coming into my house and I may have Nevada Bell providing me local service and somebody else providing me Internet service, and it comes in on the same line. There are a lot of good reasons to do that. It saves money; you get competition. The FCC appears to have said that that’s not required under the Act. That’s arguable, but that’s their position. In Nevada, when that issue was presented to the Commission some years ago, they decided that was good policy. They ought to have line sharing. Now, what you are going to have in Nevada is the FCC establishing policy.
Chairman Goldwater:
Well, we hate that, don’t we, Ms. Pongracz?
Ann Pongracz
Not necessarily.
Assemblyman Brown:
One question. There was a mention of the last-mile loop. Just for clarification, is that from under the curb into the home, or is that from somewhere outside the development to the home? Can you tell me what the last-mile loop is?
Karen Potkul:
The “last mile” is a term that’s used in telecommunications. It simply refers to the piece of the network that runs from the central office where the switching equipment is held. The switches are actually what provide the dial tone. It’s that piece that runs from each of Sprint’s central offices into every business and residential customer that they serve in their territory.
Assemblyman Brown:
So XO has some last-mile lines?
Karen Potkul:
That’s correct to the extent that we have the capital dollars to put buildings or facilities on that. We did build some loop facilities. When we are able to serve customers using our own facilities, oftentimes it’s less expensive because our costs may be cheaper than what we can purchase the services from Sprint. Our provisioning processes oftentimes are easier because when we have to use Sprint’s last-mile facilities or the loop facilities, we have to send an order over to Sprint. We get a confirmation back from them that they received the order. Then we get a due date. So they are integral in the provisioning process in serving our customers. We’d prefer that that not be the case, that we control our own destiny, and that we control serving our customers, that’s not realistic at this juncture that we can build loops into every business in southern Nevada.
Assemblyman Brown:
I have about 2,000 people moving into my legislative district every month. That area includes Anthem, or all that annexation of Henderson, which is exploding in development. I imagine as that develops out, in a world where we had unlimited capital for people like XO, would we have four or five people laying lines underground? It seems ludicrous when we’re talking about building out, to put so much into the infrastructure when it’s going to cost so much. It seems a little unreasonable when one line, or sufficient lines, go into a development to carry the load to mandate then that anybody, who wants to compete, needs to dig up our streets to lay their own lines. It sounds like line-sharing is not a bad thing. Right now, SBC and Sprint have profit-taking on the line-sharing. [Is that] correct?
Ann Pongracz:
Actually, our feeling is that we lose even more money on line-sharing than we do on provision of unbundled loops. The very phenomena that you are talking about, that it’s difficult to justify multiple facilities in the ground, is one of the reasons that Congress decided in the Telecommunications Act of 1996 as part of their encouragement of local competition to require incumbent phone companies like Sprint and SBC to unbundle the loops to the home and let the competitors basically ride their facilities. There’s a difference between providing unbundled loops and line-sharing, and Sprint is very supportive of continuing to provide unbundled loops. It’s the line-sharing component that we have difficulty with. Let me also mention that you probably heard Ms. Potkul say that they can’t build out to every business. Note that XO’s whole business plan is focused on businesses, not on serving the residential customer. There’s nothing wrong with that, but let’s recognize who we are and what kind of business we’re in.
[Ms. Pongracz continued.] When we’re talking about who’s building and who’s buying undergoing facilities like unbundled loops we have data to show that the competitors, the CLECs, are serving approximately 200,000 customers in the state of Nevada today. Out of that, Sprint and SBC are selling the unbundled loops to about half of those, so about half of the customers being served by CLECs today, are being served utilizing our unbundled loop facilities.
Chairman Goldwater:
Why don’t you tell us what an unbundled loop is.
Ann Pongracz:
The unbundled loop is the last leg. I believe Ms. Potkul did a good job explaining it. The telephone company can be us or XO or Empower, whoever has a switch. In each of the company’s offices there’s a computer and big structures called frames. There’s actually a wire on the frame that goes from the telephone company’s central office out through the connecting network, the feeder and distribution network, to a point, for example at the entrance to a subdivision. Then from the entrance to the subdivision, there’s another piece of electronic equipment that takes the signal from the entrance to the subdivision into your home. The loop is a wire that goes from the central office all the way through the streets and to your home.
Chairman Goldwater:
And what’s the difference between bundled and unbundled?
Ann Pongracz:
The unbundling term refers to taking apart the components of the incumbent local telephone company’s network. Basically Congress said to us in 1996, that we have to wholesale our infrastructure to our competitors. You have to divvy it up into its components. It might be helpful, if people have kids, to think of it as basically being like blue and red and yellow Duplos. You can think of it that way. Then you separate them out and then you price them out and you provide the facilities to your CLEC. The bundling is something very different. The bundling is just a synonym for packaging. It’s how you group together services as you are providing them to retail customers.
Assemblyman Brown:
But in this instance, it’s really the hardware, right? When I think of services I think of call forwarding and things like that. That’s a different bundling concept. Now we’re talking about just . . .
Ann Pongracz:
Unbundling the components, separating out the components. It can be hardware, or it can be software, because some of our competitors don’t have switches, in which case, they may utilize our switching capacity or Empower’s or XO’s switching capacity to give some intelligence to their services.
Karen Potkul:
Ms. Pongracz just made a statement at the beginning of her comments that they’re losing more money on line-sharing than they are on unbundled loops, but they are not trying to discontinue providing unbundled loops to competitors. I would submit that that’s exactly what they’re trying to do in this legislation. Why are we deregulating broadband services that are not currently regulated? That’s a fundamental question. The reason is, if you step through this bill . . .
Chairman Goldwater:
But pose that question to the Committee again. Why are we deregulating something that’s not regulated?
Karen Potkul:
Namely, broadband services.
Ann Pongracz:
Which makes a very good point, which is that the state doesn’t . . .
Chairman Goldwater:
It’s already deregulated.
Ann Pongracz:
The state doesn’t regulate broadband today and what Section 8 is saying is that the state will not take on new regulation of broadband tomorrow.
Steve Tackes:
There’s a big difference in what people are calling broadband. A little while ago we were talking about your cable modem to Internet access in your DSL line. That’s the kind of broadband that this state generally doesn’t regulate. The way they have defined it in here, 190 kilobytes or higher, is a whole slew of services that aren’t used for getting to the Internet or aren’t used for those purposes.
Let me give you an example. The most fundamental service that’s purchased by my clients, by the competitive companies, is called a T1. It’s also a very popular service that’s purchased by businesses from any phone company. Let’s say you needed six telephone lines at your location, whether it’s your home or your business. One thing you could do is run six of these local loops, six pairs of copper, all the way from the central office to the home. The other thing you could do is run one set of wires to the home, and run T1 over that set of wires. T1 is a higher-capability service. It pumps data through faster than a single copper pair ordinarily would. What you do is you put this one T1 cable there, you put a multiplex at both ends, you break it into voice channels, and Boom! Now you have up to 24 lines over this single set of wires that go to your house. T1s are called broadband service here because they go faster than 190 kilobytes per second. T1 is a bread-and-butter business service used by customers and used by competitors, but it isn’t the only one. There’s private line; there’s special access. There are a whole slew of other services that are currently provided by Sprint and SBC today under tariff that would now be deregulated along with the statement that the Commission shall not regulate. There’s the distinction between the broadbands that are being talked about, and this goes way further than the cable modem versus DSL modem issue.
Ann Pongracz:
That is absolutely correct. In talking about the cable modem and the DSL offering, we were simply trying to identify the residential broadband offering. Mr. Tackes is correct that the definition of broadband services does include the other high-speed data services that he enumerated, and it is our belief that it is time for those services to be deregulated.
Chairman Goldwater:
That’s a very key piece of policy right there.
Ann Pongracz:
Exactly. That’s why we need to bring it to you. That’s why we need the bill. That’s something the Commission can’t do on its own.
Assemblyman Knecht:
I think that is one of the key points in this bill and I guess your last comment, Ms. Pongracz, is the one that concerns me. As a freshman [legislator], I have a lot of reverence for this institution and for my colleagues, who have a great deal of experience on this. On the other hand, this is something so technical, I do wonder whether it shouldn’t remain at least for a little while, because it is so cutting edge, with the regulators for determination. In other words, I think the PUCN should look for policy guidance from the legislature and we should give it, but I think that the determination of exactly what services ought to be competitive or are competitive and that sort of thing – I might be a little bit more comfortable with them getting some policy guidance from us, and then implementing that in terms of the technical details and the facts on the ground. What I’d like to ask you and Mr. Tackes is [whether] you think that some compromise in this particular point could be crafted into this bill that would satisfy both of you along those lines?
Dan Reaser:
Section 8 is a section of the bill that the Nevada Public Utilities Commission cannot do on its own. It needs the state legislature to determine policy, as I told the Senate Committee that heard this bill. It is a very simple policy. DSL service is provided by local cable modem by the dominant carriers. I think that is important to remember. Cable companies provide 60 to 70 percent of Internet access. The remainder is provided by telephone companies. There is no monopoly power of SBC or Sprint with regards to broadband. The policy we’re asking you to adopt in Section 8 is that the Nevada Commission will not adopt regulatory policies that will ”Balkanize” the broadband part of the market. They will not regulate in a way that is different from the federal government. The FCC is setting nationwide policy on how broadband should be regulated and to what extent. It will assign certain tasks to the state. This does not undermine those wholesale tasks are given to the state. We have preserved that in subsection 2. It’s important for the Legislature to send a policy message that the Commission should allow parity and a level playing field among all the people providing that service.
Steve Tackes:
I have to say that I disagree with the characterization that this is something the Commission can’t do. Right now the Commission has a statute adopted by this Legislature in 1985 or 1989. It says that the Commission can exempt from the chapter any services or companies providing services. That chapter, NRS 704, says upon a determination after hearing that the services are competitive or discretionary and that regulation thereof is unnecessary. Certainly, if the Commission wanted to investigate this, and I think that is very sage advice from Assemblyman Knecht, take a look at it. Don’t just jump in here with a meat axe and say, “190 kilobytes,” and “Boom!” It’s all competitive. Take a look at it and find out what is competitive and what is not. Some areas may very well be competitive despite the fact that we’re not seeing it from our side. But we certainly see a bunch that are not competitive. Take a look, and then let the Commission decide and hold their hearing. Look at the evidence. Is there adequate competition to regulate it? The only thing in a kind of twisted-around, backhanded way that Section 8 does that the Commission really can’t do is – I’m not sure the Commission can prohibit itself from regulating services – this Section 8 would prohibit –
Chairman Goldwater:
Just choose not to do it.
Steve Tackes:
Yes, they could choose not to do it, but right now regulating the price on T1s – and this thing’s going to say you can’t – now in terms of a compromise, which I think is always a wise way to go, the compromise I think is to get the information and study the issue. One of the best compromises I’ve seen – and we actually don’t like anything in this bill – but a compromise position would be A.C.R. 19. It says, “Stop! Let’s take a look.” It’s very important for us to take a look, because I’m not sure we’ve taken a close look in a long time. We don’t have evidence, at least that I could find, in the Commission’s records, other than the evidence that I supplied to each of you on market share, as to what the degree of competition really is. Somebody should be looking right now, whether that’s the interim committee or the Commission itself, at what is the degree of competition. What has worked before? You’ve made several changes to NRS 704 already, [and there are] several different versions of PAR. Are they working? What parts are working? And what parts are not? Let’s get rid of the stuff that’s not working; let’s do the stuff that is.
Assemblyman Knecht:
Mr. Tackes anticipated my follow-up question. In his comments, he referred to T1 services being covered by Section 8. In his comments, Mr. Reaser seemed to say that Section 8 addresses Internet access, and it’s my understanding that Section 8 covers a number of things. I have to say that I’m not comforted by the fact that the broadband definition that is proposed in this bill in Section 8 differs from the FCC definition that Mr. Bolle talked about earlier. I would like to know if Mr. Reaser meant to say that something like T1 is not covered by Section 8. If it is covered by Section 8, are you suggesting that the policy guidance that the Legislature needs to give is to determine essentially what services are competitive and to declare them in sort of a blanket way, all competitive? Or would it be reasonable to refer that particular determination back to the Commission? I understand the market liberalization direction/intent of this bill. I certainly support that, but I’m looking at the technical details and wondering if that’s a little bit beyond our ken and maybe better suited for the regulators.
Dan Reaser:
I am not suggesting that Section 8 does not reach T1; it does, as Ms. Pongracz indicated. There are a few segments of the market. There’s the segment that we were talking about, which is the cable company versus the local telephone company providing Internet access through broadband facilities. There are also high cap, what are called high capacity, services that telephone companies [offer], whether SBC or XO or any of the unnamed competitors that Mr. Tackes is here representing. All have the ability to provide the T1. They do today. It’s a competitive service. Nobody is going to tell you that it’s not a competitive service. This bill protects any competitor who needs to buy a T1 and who doesn’t have the ability to sell that T1 today. It preserves the Commission’s jurisdiction to set the price of the T1 that SBC would lease to the competitor today so the competitor is not at a disadvantage. Where it is a competitive service, the Legislature is sending what we think is the appropriate policy of not regulating competitive industries.
Karen Potkul:
I think it’s important for you to understand that when we buy last mile facilities or loops, there are two options for us. One is the unbundled loop that Ms. Pongracz described earlier. The other is buying that out of the access or wholesale tariff, which we cannot always purchase for various reasons. Sometimes it’s the costs that the incumbents want to impose on the unbundled network element that make the special access circuit lower priced; therefore, it is a more economic decision for us to buy that instead of buying the unbundled loop. We rely very heavily on DS1s that are tariffed in order to compete with Sprint to provide local services to customers in southern Nevada. Broadband, as defined in Section 8 (3), clearly includes T1s and DS1s. Everyone has admitted that. Then, in Section 17, it says any deregulated service, which broadband services would be if this bill were passed, are discretionary services. So discretionary services are now deregulated. Then, if you go to Section 23, it says they can price discretionary services any way they want. So they could raise the price of the services that we have to purchase, the access services, and the loop that we purchase from their access tariff. They could raise those rates to a point where we couldn’t compete with them.
Chairman Goldwater:
That’s a serious concern. [Testifiers,] jump in anytime you want.
Ann Pongracz:
I have to say that the DS1s, which are the equivalent of the T1 that we talked about earlier – basically a local group over which you can provision up to 23 single voice grade lines. XO buys very few, if any, DS1s out of our intrastate tariff. They buy, and completely sensibly so, out of our interstate tariff. The product that Ms. Potkul is talking about, the interstate T1, will, of course, not be impacted in anyway by this piece of state legislation.
Chairman Goldwater:
Did you hear her argument, though, that it sort of moves through?
Ann Pongracz:
I heard her argument. I think Ms. Potkul was perhaps describing a theoretical situation where a company such as an XO might decide in the future to purchase DS1s out of the intrastate tariff, but that is not the product they’re buying from us today. It’s an intrastate T1 and it qualifies as an intrastate T1 if 10 percent of their traffic is intrastate; it moves automatically into the intrastate tariff. The FCC regulates it and that will not be changed by S.B. 400.
Dan Reaser:
[This is] really important follow-up. Section 8 (2)(a) provides clearly that the Commission is not losing its jurisdiction, which Chairman Soderberg explained to you. It sets the price of unbundled network elements. What Ms. Potkul is identifying for you are things that the FCC has told SBC and Sprint are unbundled network elements that they will sell at the price, under federal law, set by the local Commission. This is not going to do what Ms. Potkul suggested to you.
Karen Potkul:
[There are] serious problems with the representations they just made about the safeguards for competitors with the language that UNEs will still be made available to us, or unbundled networks elements will still be made available to us. We cannot always buy unbundled network elements in order to serve our customers. We are forced to go to the incumbent phone companies’ tariffs. That will be taken away from us. Right now even if I concede that we buy all of our services out of the interstate tariff, just for the sake of this argument – I am not admitting that that is the case – I don’t think that we should be stripped of our option to buy services from the Nevada intrastate tariff. Once again, Ms. Pongracz wants to advocate all authority to the FCC. I would like to have at least two options, one at the FCC and one at the state level. If this bill is passed, I will not have the opportunity to buy those services from Sprint’s Nevada access tariff.
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection:
[Introduced himself.] I want to indicate that I haven’t agreed with almost [anything that] anyone has said at the table. I think that there are a number of philosophical issues, as well as legal issues, that have been raised by various parties today. I would like to, first of all, indicate our perspective on this bill, as in all of the legislation that we’re involved in. It’s basically to look after the interests of the residential and small business customers. We believe, and I may disagree slightly with the Chairman of the PUC on this, that essentially all of these issues can be addressed by the PUC, and furthermore, if they can’t be, they are probably worthy of further study either by the PUC or by an interim committee of one type or another, such as [what] Chairman Parks [of the Taxation Committee] introduced in the last day or two. We do believe that this is not only a changing regulatory environment, but that the technologies here are changing as well.
[Mr. Hay continued.] [I will] just touch on a few issues that have come up without directly attempting to rebut everything. Obviously one of the premises of the Telecommunications Act of 1996, which I was involved in both as a regulator and earlier when I was working in the Senate, was that it was inconceivable to presume that there were going to be multiple last mile lines going into many households functionally, once it became evident that the technology was there to not only get more band out of an existing line, but to share those lines as the legislation came together. It was assumed that the entry-level competitor into a telephone market would have to buy or share a line that was existing in the ground because you’re obviously not going to have a small competitor, or should you have one, who wants to take up all your residential streets and put in a competing line. [This was] particularly evident as the advanced capabilities of fiber optics and new technologies like DSL [became available and could] actually be delivered over the copper cable that had been embedded in the ground for many years. The technology and the policy at both the federal and state levels were evolving contemporaneously.
It is our belief a threshold should be determined to figure out what the level of competition in Nevada is. You’ve heard various numbers here; we’ve developed some numbers internally. Nobody at the table will probably agree on an exact number, but it’s clear that it’s less than one percent of the residential customers in the north that have the ability to have a competitive provider for the residential service. Probably it’s close to the same for small businesses. There’s a slightly larger degree of competition in southern Nevada for both residential and business services, but that is still a threshold determination that needs to be made. Our theory is that regardless of how a legislature determines this, there is going to be a distinct possibility that you’ll have a core number of residential customers and small business customers who are never going to see any of the benefits of competition [unless] there are some incentives for the incumbents to actually build out broadband to reach [those] neighborhoods and communities that would be last in queue to get that sort of investment.
Chairman Goldwater:
I would like to hear a response to that. Why not study this and determine whether or not significant competition exists? If we just let you go, there won’t be adequate incentives to build out for the consumers.
Ann Pongracz:
I think we are talking about two very different things. I was happy and somewhat surprised to hear Mr. Hay say that he thought it was important that the incumbents should be given incentives to build out broadband to the residential customers. We feel that’s exactly what this bill does by giving us regulatory parity with the cable companies. That’s the incentive that our management needs to commit additional dollars to build out broadband. It may be that we are getting closer, in terms of our perspectives, with the consumer advocate than I had hoped.
Chairman Goldwater:
Is that true, Mr. Hay?
Timothy Hay:
No, unfortunately. Although I know that Sprint has the best intentions in the world, the business dynamics are not going to encourage build-out into less-desirable communities. Build-out may need to be done by thresholds that indicate that once you have all your central offices, or a proportion of them, that are able to deliver these services at competitive prices to the outlying neighborhoods – frankly poor older neighborhoods will be represented by some of the other consumer speakers on the panel. I don’t think we can trust the company to say, “We’re going to be able to make more money, so we are going to invest more in markets that may not be as lucrative as the markets that obviously have a concentration of high income residents.”
Chairman Goldwater:
That makes sense to me.
Ann Pongracz:
We seem to have two different philosophies about how to incentivize investment. Mr. Hay appears to believe that the way to incentivize investment is to require people to invest. That’s a very traditional approach. It has worked somewhat in the past. The other approach is to recognize that the way to incentivize investment is to attract it in the same way that you attract investment for any other service or product and to see what it is that the investors – there’s a limited amount of investment dollars. Right now, combined, Sprint and SBC have spent $200 million a year in the past three years to invest in Nevada.
Chairman Goldwater:
But he makes a good point. Right now with a guaranteed rate of return regulation, you have to drag, let’s just say T1 to Ms. Giunchigliani’s district, if they say you have to. Under a deregulated environment, and there’s no profit incentive to drag T1 to a poorer area, why would you do it?
Ann Pongracz:
First of all, in telecommunications there is no such thing as a guaranteed rate of return. From 1995 on we did not earn our cost of capital.
Chairman Goldwater:
Then why would you do it? I used the wrong term, but that was the old electrical deregulation.
Ann Pongracz:
[There are] big differences between telecommunications and electric. In terms of bringing DSL to various neighborhoods, it’s very interesting that there’s no necessary correlation between income level and how people purchase telecommunications services. For example, you may notice that in whatever kind of neighborhood you’re in, people, including kids, have cell phones. That means that those families are spending $40, $80, $120 a month on what used to be the R1 service that they used to pay $10 a month for. People make their telecommunications purchase decisions differently than you might assume. The more we look at it, the more we find that there’s no necessary correlation between income level and purchasing patterns. For example, if some districts that are relatively lower income levels have a very large number of school children in them, you will probably have a much higher take rate in those areas than in a higher income area that does not have people who value getting on the Internet.
Chairman Goldwater:
So your contention is that everyone will demand telecommunications service, therefore you will build out to everyone?
Ann Pongracz:
No. I’m saying that it’s very difficult to ascertain. It would be very difficult, for example, to implement the traditional approach that Mr. Hays is suggesting that regulators should figure out to mandate a build-out program. It’s much more appropriate to have some confidence that we are going to build out to as many customers as will buy our stuff.
Assemblyman Knecht:
I think I agree with Ms. Pongracz on her last point. That said, I want to go a slightly different direction with a question first to the ILECs and then the same question to the other parties. This bill, as it’s currently crafted, would allow the ILECs to escape certain Public Utilities Commission of Nevada regulations for certain services now by what amounts to a determination themselves that a particular service or service element is competitive to declare it so. The CLECs would then be in the position of no longer being able to get remedy and relief from the PUC, but would, in fact, have to go to the FCC to get that remedy, that relief. The problem with that being there is no practical, timely remedy or relief from the FCC. If you go there today, you go to the bottom of a two-year stack. Is that particular point true? If so, is there anything in mitigation or otherwise to be said about it?
Ann Pongracz:
There are two parts to that answer. The first one I will address; the second one Mr. Reaser will address. I think that the language that you were referring to is language that existed in an earlier version of this bill that no longer exists in the bill, that was amended out as a result of our negotiations with Cox [Communications Company]. The bill, as it was initially introduced, did provide for self-executing statutory criteria for competitive reclassification applications. It significantly reduced the amount of regulatory procedure – now, the Commission would have still made the ultimate decision – that would have been required for the reclassification because it essentially would have been more of a checklist process. If each of the signs of competition that were identified in the legislation were met, then the Commission would grant a request. Those provisions that used to be, I believe in Section 25, are now no longer present in the bill. I will defer to Mr. Reaser for the rest of the answer.
Dan Reaser:
The other part is that some of the opponents of the bill look at Section 12 (12) on page 9, beginning on line 43 and [continuing on] page 10 through line 5, and make that argument with regard to that language. We do not concur. What that language is intended to do is to put Nevada in step with the other 32 states where SBC and Sprint do business. Those things that are considered by the FCC to be a deregulated service are not part of your earnings for the purposes of determining rates. These are a very limited number of services.
Let me give you examples. You can go to Costco and buy a telephone. It used to be you could only buy that telephone from a local telephone company. You still can buy it from the local telephone company, [but] why you would, I don’t know. That’s a deregulated service. The FCC says since it’s readily available everywhere, we’re not going to regulate that service. Nevada sometimes has put those kinds of deregulated services into rate base to subsidize. The FCC has stated in the Part 64 accounting manual that those things should not be a regulated service. We’re saying, “Take them out.” The other example is like inside wire that an electrician puts in your house or buying a phone message-taking device. Those things should come out. There’s no intention to use this provision to take something that is not a regulated service under Nevada law and make it a deregulated service. It’s just to make sure that the same accounting books are used both at the federal and state levels.
Assemblyman Knecht:
I would like to follow up before the other parties have an opportunity to respond. That section concerns me. I would like to hear what the other parties have to say about that point in regard to that subsection.
Steve Tackes:
Let me first identify my clients. My clients are Eschelon Telecom, which is a reseller in the SBC region, and also MCI/WorldCom which provides service all across the state. Over the years I have represented a number of competitive phone companies and even some incumbent phone companies.
To answer the question, there is still language in this bill that defers things to the FCC. There are two sections. Section 8 (2)(a) still has this language that says that this bill will not limit or modify the duties of the ILEC to provide unbundled access to network elements to the extent required under the Telecommunications Act [of 1996] and the FCC regulations. As you heard earlier, the FCC issued its triennial review report. They all got together; they voted; it was a public decision. In that review, the press release indicates that many things are going to be shifted to the state [for review]. The FCC is going to leave it to a granular study, a closer study by state commissions. If the only things that the Commission can do are things that are required by the FCC, the FCC is not going to do those things anymore. This section certainly can be read to prohibit the Commission from doing it. That’s one issue.
The other thing is Section 12 (12), which is really an important provision in terms of letting the “cat out of the bag” and never being able to get it back in. That’s because Section 12 (12) says, “We’re going to treat whatever the incumbent phone company files as a cost allocation manual, CAM, with the FCC.” There’s a big problem there. The problem is Sprint no longer files a cost allocation manual with the FCC. Sprint has been classified as a mid-sized A carrier. Under the FCC order that was issued in October 2001, the FCC eliminated annual CAM filings from mid-sized carriers. When we checked with the FCC the last cost allocation manual filed by Sprint was in the year 2000. In that cost allocation manual they identified certain services like access to the Internet as non-regulated services. What are we going to do? Are we going to go back and ask the FCC to reopen this? To rethink their order? Get a new cost allocation manual? Or have we just automatically deregulated, with this bill, all the equipment that is used to provide Internet access and which may be used to provide all kinds of local services?
Timothy Hay:
[I wish] to clarify, that is also the section of the bill that Chairman Soderberg indicated the Commission would have a clarification amendment on. I just wanted to bring that to the Committee’s attention.
Ann Pongracz:
I need to look into the material that Mr. Tackes talked about because it would be a big shock to me that all the people who are working in Kansas City on our annual CAM filings are not filing what they’re working on. I know that work is still happening. He may have raised a good point and we will look into it. I was particularly interested in his first point about broadband because I think it’s very important and I think finally the key issue – the cat’s out of the bag now – what I think the CLECs are really looking for this Committee to do is to say that the state of Nevada should authorize the Commission to create unbundled elements to basically do an end run around the list of unbundled elements that the FCC mandates on an ongoing basis and to create an unbundled network element only in Nevada. It’s our view that that is a prescription for disaster. We have in place performance measurements that include thousands of sub items for every single network element that we have to unbundle. It has cost us thousands of dollars to put that together, and if we have to do something, just for the state of Nevada, that is not required as part of the national standards, we’ve got a big problem.
Steve Tackes:
I disagree. I’m not asking to do something special. What I’m saying is that the FCC is delivering a bunch of these issues saying, “We don’t want to do [them] on a national basis; we think they need to be done locally.” They’re diverting or delegating those issues to the state of Nevada. [It is] not an uncommon thing that comes from the federal government these days. When those things come here, you don’t have language in your law that prevents the Nevada agency from dealing with it.
John Frankovich:
I have a lot of points that I haven’t brought up, but I want to bring up one other one. It’s also under Section 8. If Nevada Bell or Sprint does all these terrible things to the competitors, there’s no remedy under Section 8 because they have eliminated our commercial complaint process that was put into place last session [using] the Commission’s adopted regulations. That was a very good procedure for competitor disputes that is gone from Section 8, the way it’s written now.
Dan Reaser:
I need to respond because it’s very important. Mr. Frankovich raised that same issue in the Senate Committee. I placed on the record there, as I place on the record here, nothing in this bill changes the Commission’s jurisdiction under NRS 704.282 to hear complaints between commercial carriers. You may take it to the bank. The motion and the second in the Senate were made contingent on that representation.
Chairman Goldwater:
I’m going to have our Committee counsel clarify that, as well, in a formal fashion.
Assemblyman Brown:
There’s an assumption that with increased competition you are going to get reduction in prices. There was correspondence from Texas – I think perhaps I’ve seen something else from Oklahoma – that went through this process and they saw increases in prices. If I can just reduce it to a very practical issue, I’d like to get the response on that. If there were increases, what is different about Nevada that would prevent those increases or are we going to see increases for our residents?
Ann Pongracz:
Both Sprint and SBC today are under price cap plans, under our Plans of Alternative Regulation, that require us to freeze our R1 rate. That is not changed by this legislation. Our end date for that plan is 2005. SBC’s end date for their plan is 2008. Those two things are in place. Number two, under this law and under existing law, we may not increase our basic local rate without filing a general rate case with the Commission as we have done throughout history. It’s up to the Commission to decide whether it’s warranted. Nothing in this bill authorizes a basic rate increase.
Dan Reaser:
I think they are talking about SBC in Texas and in Oklahoma. We’re not talking about the basic rates that Ms. Pongracz has talked about. As competition comes in, some rates go up, some rates go down. For instance, in those jurisdictions, Inter LATA [Local Access and Transport Area] toll, a long distance inside of the state, went down dramatically. The price of Centrex, business telephone systems, went down dramatically. Yes, some other service prices that were competitive services went up. That happens when you have a competitive market. The companies will start pricing differently their competitive products, but the basic service obligations on the capped rates stayed the same. They’ll stay the same here.
Karen Potkul:
What happened in Texas is not that prices went up for competitive services. In fact, that’s counter-intuitive. They claim they’re seeking price inflexibility in order to respond to competition so that they can lower rates to certain of their customers, but on the other hand, competition caused them to increase rates to some of their consumers. It was actually the services that were facing little or no competition for which prices were raised. If you look at this proposed legislation in its entirety and the statute that would result if this were passed, the Commission would not have the authority to set maximum rates for broadband services, for competitive services, for discretionary services, or for any bundled or packaged services. If, at the end of the day, you end up with a bill that predominantly says you cannot set maximum rates for all these services, then I don’t see how you can reasonably conclude that you think prices are going down.
Ann Pongracz:
Ms. Potkul, do you concede that nothing in this bill will increase the R1 rate without a general rate case? You said nothing in response to the question about whether the R1 rate is going to go up.
Steve Tackes:
Let me respond to that. The R1 rate, that single one rate, probably does not go up as a result of this bill. It is a frozen rate; there’s a rate cap on it. It’s all the other business rates that they include within the definition of broadband. It’s all the other services that they can go off tariff with under Section 23. And guess what? Those rates are not going down. They might go down for one or two or a select few, but for most of your constituents [they will go] up.
Assemblyman Brown:
It’s like you’re a little hungry and you stop at a restaurant. You had to buy the meal deal. It’s like, “Man, I want a drink and a burger. I don’t want the fries.” The critical question that I have then, if we get into bundling, is are we going to get into bundling where they are getting the fries and they really don’t want it and they have to pay additional? Can we go “a la carte” and get strictly an R1?
Ann Pongracz:
Absolutely. The products that are provided today in the tariff will continue to be provided each on a stand-alone basis under the bill.
John Frankovich:
I would like to reply to Assemblyman Brown. One, I don’t disagree that the R1 rate is not going to go up on this bill. But that is of very little help. People don’t buy R1 today; they buy the whole package of rates. You don’t get an R1; you get call forwarding; you get call waiting; you get conference call. That is the package that goes up over time, even though the R1 component, by itself, doesn’t go up. The total bill to the consumer will go up. There is a way to determine this in Nevada. We’ve had flexible pricing since 1997 and 1999 and Nevada Bell’s been in a PAR. Let’s look at what happened to the rates of the local consumers. I think we ought to look at it to see whether that has happened in Nevada. That’s what they did in Texas. We can dispute the results of that, but that’s what we’re saying should be done in Nevada.
Ann Pongracz:
Again, Mr. Frankovich is saying, “We should sit on our hands and wait for two or three or four years and study this.” We know that things are happening today. There are protections in the bill. We’re being criticized here both for the possibility that prices could go up or that prices would go down too far. What this Committee needs to focus on is, “Are the customers who need to be protected, protected under the bill? Are the customers who are buying the R1 going to be protected?” You’ve heard from all of the participants on this panel. The answer to that question is, “Yes.”
Assemblyman Knecht:
Regarding a general rate case, I would like to ask Mr. Reaser when was the last Nevada Bell general rate case? When would the next one be under this bill? I might refer you there to page 5, lines 14 and 15. And what would the length of time be between those two?
Dan Reaser:
Nevada Bell had its last general rate case when it entered into a new PAR at the end of 1996. Those rates were frozen starting January 1, 1997, at their current [rates of] $10.75 for residential and $22 for business. Nevada Bell has not had a general rate case since that time because of it being an electing carrier under S.B 440 of the 70th Session, which was passed in the 1999 legislature, where it was allowed to elect in and indefinitely freeze those rates. The Commission is a part of this bill and has asked for some language, which we have written into the bill. That language requires electing carriers, like Nevada Bell, to come in every five years. Under this bill, Nevada Bell would have to come in by 2008 and finish a general rate case. Until that time, the rates would be held static at their 1996 level.
Chairman Goldwater:
This is going to conclude this particular panel. I think this has expedited my learning process a great deal. I think we unearthed the policy questions that we need to answer. I am going to work with our staff to summarize what we have learned, the questions we have to answer, and those whom we are looking out for. I’ll decide if we need to do this again, and, if not, I really enjoyed that. It was excellent. You all are very knowledgeable and were helpful. Thank you.
Larry Spitler, Associate State Director, American Association of Retired Persons:
This has been quite a dynamic hearing. I think maybe a lot of hearings should be conducted this way. I learned a lot, and I spent over 17 years with Sprint. I was there when it was Central Telephone Company. It evolved to SynTel and then to Sprint. When I went to work there the first time, I was in my mid-thirties. This industry started going through the most phenomenal changes. There would be a day-to-day change with what regulation had occurred, what Judge Green was doing, and when you look at the employee base with all of these changes, you sort of wonder how we ever got to [this point] in light of so many people telling so few what to do and when to do it.
We have consistently opposed S.B. 400. We haven’t looked at it from the perspective that there is not a need. We had a whole panel of experts up here talking about an industry that’s in change, and how its impact is affecting its customers who use their services, and its ultimate impact on what happens to the consumer. Our perspective is primarily looking out for the consumer, but I certainly think what we heard today indicates that we need to look at these things carefully. I think everyone in this room needs to make sure that we have healthy ILECs. The health of those companies manifests usually in very good benefits to end users or customers.
When we deal with broadband, we’re looking at such new technology, I’m not sure that we know what broadband is really going to deliver in the future. I think, before we let go of pieces, that we should have a good picture of what that means for the future. As I said before, when we testified against the bill, we were testifying not that we didn’t need to look at this as an issue and make sure these [telephone] companies are healthy, but we felt that the issues were so complex that it needed more time to look at it. Perhaps this body [needs to] determine the policy to change the long waiting periods, or whatever, because obviously all of the companies need to be able to respond to competition. If competition doesn’t grow, the consumer doesn’t benefit in the end. With that, I would like to turn it over to Coralette Hannon to offer our formal testimony.
Coralette Hannon, Senior Legislative Representative, State Affairs, American Association of Retired Persons, Washington, D.C.:
[Spoke from prepared testimony (Exhibit H). Introduced herself.] Thank you for the opportunity to appear before you this afternoon on behalf of AARP Nevada to express the Association’s opposition to S.B. 400. S.B. 400 deals primarily with broadband service, an important component of modern telecommunications. However, passage of S.B. 400 would harm the development of a competitive telecommunications market in three significant ways. It would bar the Nevada PUC from regulating Sprint and SBC’s broadband services known as DSL service. It would open the door to eliminating the PUC’s regulatory authority over local telephone service. And, it would discourage those competitors who could likely serve rural areas and residential customers from entering the state broadband market. That is a problem for Nevada consumers.
[Ms. Hannon continued.] Currently, most consumers who use the Internet do so through a dial-up telephone line, a narrowband Internet access technology that delivers content at a relatively low speed. Broadband [technology] is the next step in the Internet’s evolution. Of the facilities that currently provide broadband service, two are dominant: DSL and cable modem service.
You’ve heard testimony today explaining that the local telephone companies that provide DSL service must provide high-speed access to their network and allow customers to obtain that service through the Internet service provider of their choice. Cable companies are not required to do that. What the local telephone companies do is considered “open access.” Because open access provides customers with competitive choices, we believe it is in the best interest of residential consumers. Thus, we oppose S.B. 400.
In this hearing you have heard Sprint and SBC contend that enactment of S.B. 400 is needed in order for them to compete with cable companies on a level playing field. AARP rejects this argument for the reasons I have stated. Moreover, recent events at the FCC make passage of S.B. 400 unnecessary at this time.
On February 20, 2003, the FCC adopted its triennial review. The final order in that review process should be issued in the next few weeks. Press releases that were issued indicate that the FCC is expected to give the local exchange companies the broadband deregulation they have been seeking. This would make the passage of S.B. 400 unnecessary. We simply do not know for certain how the FCC’s new rules will change the regulation of broadband service at the federal and state levels, and we should wait to see what the FCC is going to issue.
AARP also urges the Legislature to consider the potential impact of S.B. 400 on the regulation of voice service. The definition of broadband offered in S.B. 400 is extremely broad. When telephone companies provide high-speed Internet access, the facilities that provide both DSL and basic local telephone service are shared. Thus, the provision of voice service cannot be distinguished from the overall broadband network. As a result, broadband deregulation would also eliminate the key role the PUC plays in ensuring that basic local telephones are just, reasonable, and affordable, and that service is of high quality.
[Ms. Hannon concluded.] For these reasons, we urge you to reject S.B. 400. While this bill may be in the best interests of Sprint and SBC, it is certainly not in the best interest of Nevada consumers.
Danny Thompson, Executive Secretary/Treasurer, Nevada AFL-CIO:
[Introduced himself and those with him, Mr. Anzinger and Ms. Sorenson] I’m a little disheartened at some of the things that were just said, in that what we are really talking about is business services. Those two companies [SBC and Sprint] are the companies that maintain the infrastructure and those two companies are the companies that hire my members. The other companies that are the resellers of their products, choose not to invest in the infrastructure, but because of pricing or whatever, choose to use the infrastructure that those phone companies have.
The previous speaker just spoke about deregulation of broadband. It’s not regulated now. AARP was in the Senate and the issue was residential rates. We addressed [the fact] that this bill does not affect residential rates, but now it’s something else. The cable company has 65 percent of broadband. There are four ways to get broadband: 1) through a cable, 2) through DSL, which is the phone company, 3) through wireless, and 4) through satellite. The phone company is the only one that gets caught up in this mix and my members are potentially going to lose their jobs because when they try to sell a business product to somebody, and because the tariff is involved with bundling something, they have to wait up to 180 days to get a product approved. This isn’t about the Commission. The Commission isn’t the problem.
We built a new facility in Las Vegas that houses about 2,000 people. I relied on my staff to get the phones. Unfortunately they didn’t call one of the major companies. I was six months without a phone in that building because it was a reseller and not one of the carriers. I had cell phones for everybody I worked for. It cost me $1 million. I never did get the phones. I’m a little disheartened when they talk about the good service they provide. As far as AARP’s concerns about broadband, 90 percent of what’s in this bill is business services and the market share of business services. You can ask those two companies – one has lost 40 percent of that business and the other 20 percent. They’re the ones with the wires in the infrastructure. This isn’t about deregulation. This is about allowing them to untie their hands. Right now, they’re being run out of business and it is totally unfair. It has nothing to do with residential rates. If you’re interested in broadband, I can get it three other ways. The cable company is not regulating except by local government. We would urge you to pass this bill. To us, this is very important. We believe that it only levels the playing field for those companies who are doing the right thing.
Assemblywoman Gibbons:
If we did not pass this bill, potentially how many employees would be damaged [by] losing their jobs?
Danny Thompson:
I don’t have that number. I think Ms. Sorenson can speak to the number of people who work at SBC.
Liz Sorenson, Executive Vice President, Communication Workers of America, Local #9413, AFL-CIO:
[Introduced herself.] With SBC, I can speak on their behalf. It’s approximately 700.
Jim Anzinger, Business Manager/Financial Secretary, International Brotherhood of Electrical Workers 396, Las Vegas:
[Introduced himself.] I represent approximately 1,300 Sprint employees.
Danny Thompson:
There’s been a lot of talk about consumers here. I represent 165,000 consumers who want this bill and this protection passed.
Liz Sorenson:
I have some of my members here today who are in support of this bill. If we could just have them stand and acknowledge them. Would that be okay?
Chairman Goldwater:
That would be super. SBC employees who are here in support of this bill, we thank you for your attendance and your attention. We hope you learned as much as we did.
Liz Sorenson:
Thank you, Mr. Chairman. I appreciate that. CWA [Communication Workers of America] strongly supports Senate Bill 400. I think Mr. Thompson spoke on our behalf.
Assemblyman Brown:
I don’t think I quite got that [response to Ms. Gibbons’ question]. Does SBC have 700 employees? I thought the question was the number it may impact.
Liz Sorenson:
I really can’t answer that question. I’m thinking maybe some of our people from SBC may be able to answer that.
Assemblyman Brown:
If the answer is just that you feel it would adversely impact them, I understand.
Sylvia Samano, President, SBC Nevada:
[Introduced herself.] We are not holding jobs hostage to this bill. If this bill were not to pass, it’s not like our members would lose jobs. But what the bill would do is assure that we would have work for our employees. That keeps jobs in Nevada. As you in the industry all know, the industry itself is not doing that well. In the last two years we have lost a sizeable number of employees at SBC Nevada. I cannot speak for Sprint, but I feel that they have had some losses, as well. It’s bills like these – I know that Ms. Sorenson is very educated on the bill, and the members are as well – that they are very interested so that they can keep work in Nevada [and] so that they can keep their jobs.
Jim Anzinger:
I have a brief prepared statement (Exhibit I), if you don’t mind.
Chairman Goldwater:
Why don’t you submit it? We’ll read it, and can you summarize it in about 30 seconds?
Jim Anzinger:
Basically, I agree with everything Mr. Thompson said. We support the bill. Our membership couldn’t be here because of the distance. Most of them are on audio listening to the proceedings. We represent about 1,300 IBEW members at Sprint. I think the total impact of employees at Sprint is probably in the neighborhood of 2,200.
William Weber, Vice President, External Affairs, COVAD, Atlanta, Georgia:
[Introduced himself.] We are the only company here today that is exclusively a broadband service provider. We are the largest nationwide provider. We have about 420,000 lines in service nationwide. We’ve just begun to compete in Nevada. We spent several million dollars building out a network in the Las Vegas area and we are very concerned that our investment here is going to go to waste if this bill passes. I would like to very briefly respond to some of the representations that were made about preservation of wholesale PUC authority, simply so that we can get some clarification on this. If indeed, it is SBC and Sprint’s intent to preserve that authority with the PUC, some adjustments need to be made to the bill, so that’s made clear. Obviously, as a company, I have to assume that the bill is going to be read in a way that’s most damaging to us, and there’s a very damaging way to read this bill.
[Mr. Weber continued.] If you could just very briefly turn to Section 8, it says that the PUC shall not have the authority to regulate broadband services, and that includes the terms, conditions, rates, and availability. Mr. Reaser said that Section 8 (2)(a) preserved PUC authority. That is simply not true when you read the section. The section provides that SBC and Sprint will continue to have to fulfill their responsibilities under federal law. Of course they will. The Nevada Legislature lacks the authority to remove those requirements on SBC. What it doesn’t say is that the Nevada PUC will be able to enforce those rules. It just says they don’t go away. So who’s left enforcing them? The Federal Communications Commission by default, under federal law, is left.
This bill is not a deregulation bill of broadband. I’m not going to tell you that. It is a bill that moves the locus of regulation from the Nevada PUC to the bureaucrats at the FCC in Washington, D.C. Once this bill passes, your constituents will no longer be able to call the PUC if COVAD, SBC, or Sprint is giving them bad service on their broadband. They’re going to have to call the FCC. The FCC doesn’t care. This is a job that they have assigned to state public utilities commissions. It’s a job they expect those public utilities commissions to do. I would urge you to leave it there so that they can continue to protect competition in Nevada as they have done in the past.
Assemblyman Knecht:
You have voiced those concerns to me and I asked you for some amendment language. Does the amendment language that I got by e-mail from you address the concerns that you have just raised?
William Weber:
Yes, it does. I believe the language that I presented to you also comports with what Sprint and SBC have asserted today the bill will do.
Dan Reaser:
We adamantly disagree, and the sections that we have cited in Section 8 (2) are the sections that give the authority to the state commissions.
William Weber:
[There’s] just one thing I would like to point out along those lines. When you have two attorneys who have read exactly the same language and have a disagreement this violent over what that language means, that is a very good reason to send this for additional study.
Robert Ostrovsky, Legislative Advocate, Cox Communications Company:
[Introduced himself.] Cox Communications adamantly opposed this bill in its original form. [We] spent some considerable amount of time, weeks working with the parties involved at the table, to develop the language that you see before you in this revised bill. We do not oppose the bill in its current form. We did work very hard to reach this language in recognition that there’s a changing market environment for telecommunications providers at all levels. There have been a lot of questions about broadband. I am not an expert in broadband. I have the state Telecommunications Association Executive Director here with me, if there are any questions that we could try to answer.
Assemblyman Griffin:
If I can condense down what the two competing issues are here, on the one hand, the incumbents who have made substantial investment in infrastructure are, at some level, having their hands tied to be able to provide services that they are saying the CLECs can provide. On the other side, the CLECs are obviously concerned that the regulatory authority, for what it will cost them to access that infrastructure, is no longer going to be in your hands. There have been disputes as to whether or not that’s been the case. That’s the major concern here. Why to achieve the former must we do the latter? Is there anyway to accomplish what they’re trying to accomplish without – what the perception is at least – a threatening intention of the Telecommunications Act of 1996, which was to have the regulatory authorities create some fair abilities or at least keep the prices somewhat low for the CLECs to have access to the ILECs’ infrastructure. Do I understand this correctly?
Don Soderberg:
There are many facets to this bill. This bill does not attempt to address every facet of every issue that’s going on in telecommunications regulations right now. It has attempted to address a certain number of issues that were important to the proponents of the bill. There are things in here that the Commission can do on its own, without policy direction, if it were not to get any policy direction from this body. The broadband provisions are clearly not something we have the authority to do to ourselves. You either do it to us; don’t do it to us; or give us direction on how you want us to do it. I think that’s the conundrum that you have. This takes a subset of all the issues that are being looked at now and attempts to resolve the subset that was important to the proponents.
[Exhibit J, “Section-by-Section Analysis of Senate Bill 400,” prepared by the Legislative Counsel Bureau staff, was distributed to the Committee, along with the written testimony of Judy Booe, representing Nevada Alliance for Retired Americans, Exhibit K.]
Chairman Goldwater:
I learned a great deal today. I think everyone represented his case very well. I will close the hearing [on S.B. 400] and I promise you we will revisit this issue. However, let nothing that occurred here today discourage the parties from engaging in negotiations in an attempt to find some common ground in definition for what role our regulators should have, the definition of what broadband is, and whether or not it should be regulated. There are times when there are no fruits to negotiations, but let us not be afraid to at least try.
Thank you all for your attendance and attention. We’ll adjourn this meeting [at 3:47 p.m.].
RESPECTFULLY SUBMITTED:
Sharee Gebhardt
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: