MINUTES OF THE meeting
of the
ASSEMBLY Committee on Commerce and Labor
Seventy-Second Session
May 17, 2003
The Committee on Commerce and Laborwas called to order at 11:59 a.m. on Saturday, May 17, 2003. Chairman David Goldwater presided in Room 4100 of the Legislative Building, Carson City, 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
Mr. Josh Griffin
Mr. Lynn Hettrick
Mr. Ron Knecht
Ms. Sheila Leslie
Mr. David Parks
Mr. Richard Perkins
COMMITTEE MEMBERS ABSENT:
Mrs. Dawn Gibbons (excused)
Ms. Chris Giunchigliani (excused)
Mr. John Oceguera (excused)
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Vance Hughey, Committee Policy Analyst
Wil Keane, Committee Counsel
Diane Thornton, Senior Research Analyst
Corey Fox, Committee Secretary
OTHERS PRESENT:
John Frankovich, Legislative Advocate, AT&T Communications, Nevada
Dan Jacobsen, SBC
Steve Tackes, Legislative Advocate, MCI/WorldCom, Eschelon
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection
Karen Potkul, Representative, XO Communications
Bill Weber, Vice President, External Affairs, COVAD, Atlanta, Georgia
Ann Pongracz, General Counsel, Sprint of Nevada
Don Soderburg, Chairman, Public Utilities Commission, Nevada
Charlie Bolle, Senior Advisor, Nevada Public Utilities Commission
Kate Marshall, AT&T and Empower Communications
Senate Bill 400 (1st Reprint): Makes various changes relating to telecommunication service and broadband service. (BDR 58-261)
Chairman Goldwater:
We’ll bring the hearing to order. Mr. Oceguera, Ms. Giunchigliani, and Mrs. Gibbons are excused. I will note for the record when a quorum is present. First, was there anybody who wanted to testify last time who didn’t get to and has something significant to add for the record?
You had some policy questions and I think we can bring the representatives up and have them discuss any differences that arose out of your responses to those policy questions. If I could ask Tim [Hay] to come up, a representative from SBC Nevada Bell, [someone] from Sprint, Karen [Potkul] from XO, AT&T, Mr. Frankovich, and [Steve] Tackes. I think you all received a copy of these questions. Dave Noble, I have your copy from the PUC [Public Utilities Commission] and I appreciate your responses.
The first question on here was what we all want to know and want to be able to guarantee our constituents. What assurances do we have that the basic rates will not go up as a result of this legislation? The PUC’s response was, “All of the components used today to develop basic local rates are still available under S.B. 400.” Is that a contention that you folks, Steve [Tackes], Mr. Frankovich, and Bill Weber, can live with?
John Frankovich, Legislative Advocate, AT&T Communications, Nevada:
I think it’s an accurate statement. I don’t know that it addresses the issue this Committee raised in the question. The basic R1 rate will not go up as a result of this. We think most other rates are very likely to go up, and the total consumer package that each of your constituents gets each month may very well go up if this bill passes in its current form.
Dan Jacobsen, SBC:
It seems very unlikely to us that this is going to result in upward pressure on rates. This bill allows Sprint and SBC to offer discounts on business services through either term or volume discounts or contractual pricing. That is going to be downward pricing and as you heard them admit, this is not going to raise the basic residential rate. If anything, this is going to make the business market more competitive without increasing basic residential rates.
Chairman Goldwater:
I asked all of you to engage in negotiations to see if you could resolve any issue or come to a compromise that might be worthwhile to our constituents. Can I ask if those have borne any fruit?
Dan Jacobsen:
We did meet with a group representing most of the CLEC’s (competitive local exchange carrier). We had several meetings. I would say they were very good, intense, long discussions. We considered almost every aspect of the bill, but unfortunately, we were not able to reach resolution.
Chairman Goldwater:
What would you identify as two or three key sticking points or were there a number?
Dan Jacobsen:
I think there are a number of areas where we are just not able to get close together. We considered as confidential the discussions and the ideas that were put out.
Steve Tackes, Legislative Advocate, MCI/WorldCom, Eschelon:
Mr. Jacobsen is correct. We did treat those discussions as confidential, however the issues that we argued about are the same ones that we had presented at the last hearing in front of this Committee. We have very difficult problems with the way “broadband” is defined. It’s too broad to be broadband. It’s broader than what everyone else understands broadband to be. We have problems with price flexibility in areas where consumers don’t have a choice.
Chairman Goldwater:
If broadband is expanding, bandwidth is expanding. If it’s too broad now, will is cease to be too broad in the future?
Steve Tackes:
No, the problem is that the definition being proposed for broadband includes many services that are not typically thought of as high frequency bandwidth services. The problems are the T1s, the basic services that we purchase on a wholesale basis from the incumbent because they’ve had a hundred years to build their network. It’s been built on the backs of all of us and we’re coming into the marketplace. We can’t afford to duplicate that service nor would I think you would want to see a spider web of multiple alliances.
Chairman Goldwater:
I want to hear Mr. Hay’s response to the first question. What assurances do we have that basic rates will not go up as a result of this legislation?
Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection:
We’ve looked at that issue and I think there are two components that we need to consider. One is the time frame. In our initial discussions with some of the incumbent carriers, we suggested that if a bill like this were to go forward, they should agree to a rate cap that was actually fixed in statute on basic services. That idea was rejected, which implies to us, at least, the potential in the future that basic rates could go up. The concern that we have is the long-term structural issues of the market that this bill may unintentionally engender that would effectively reduce both our ability and the PUC’s ability to make sure the basic rates did not increase in the future.
The other concern is that a fairly small component of your constituents actually buy only the basic service. Many of the add-ons, particularly for consumers who are concerned with telemarketing and other issues such as caller ID, which we would consider an optional service, are becoming more necessary. That’s one of the issues, particularly if there’s not price transparency in the bundles that the incumbents put together if they’re going to bundle caller ID, call waiting, for instance, with basic service. Those prices are not transparent. It’s possible that there are implicit increases that we would not be able to do anything with. It’s our belief that the state of competition on both the residential and small commercial customers really needs to be more thoroughly [investigated] before taking a leap into a further deregulation of the incumbents.
[Chairman Goldwater indicated a quorum was present].
Dan Jacobsen:
Our rates, both SBC and Sprint, for basic residential service are capped today. They will, under this bill, remain capped at least until 2005 and perhaps longer. So, there should be no concern about basic residential rates remaining capped.
Chairman Goldwater:
What are you referring to Tim, a statutory cap?
Tim Hay:
That was our suggestion for a period of time longer than until 2005.
Dan Jacobsen:
It should be clear that the rates are capped today. Carriers have agreed to enter into a form of regulation where those prices are capped. The second point concerns the notion of “implicit increases.” We are one of the few industries where every service we offer is available á la carte, meaning that if you just want to buy caller ID, or you just want to buy call waiting, it’s available á la carte. We also think that customers will benefit if we can package them in meaningful ways. The existence of á la carte offerings, means that customers are not going to be forced into buying a package. We think customers are smart enough to know if a package were designed to actually raise prices. So, we just don’t see a concern there.
Karen Potkul, Representative, XO Communications:
[Introduced herself] The one response I have to that is that S.B. 400 would allow further bundling and further offering of packages by SBC and Sprint. Basic Network Services could be included in those components. The prices, terms, and conditions for those bundled offerings would not be regulated by the Nevada Commission, so you really wouldn’t know. They have also proposed a provision that wouldn’t require them to list out the individual component prices for each of the piece parts that make up the bundled package. Therefore, you really wouldn’t know whether the rates had gone up or not, nor would consumers. Yes, there may be some consumers out there who are very savvy and would be able to detect whether the rates had gone up, but there may be others that wouldn’t because it’s a bundled offering and the individual components are not individually priced in their bills.
Assemblyman Griffin:
If I sound a little frustrated, I apologize. In your pleasant, confidential, and fruitless negotiations, was there anything that you did agree on that could help get us closer to…?
Dan Jacobsen:
I don’t think we made enough progress to get us to a resolution, unfortunately.
Assemblyman Griffin:
Maybe not a resolution, but something that got it closer. I guess if we can take this in bite-size pieces, at some level, we’ll [the Committee] finish off the negotiation. I’m just trying to see if there’s any way that it got closer.
Dan Jacobsen:
From my point of view, there are fundamental differences. We want pricing flexibility to respond; they don’t want us to respond. We want parity and more certainty for investing in broadband; they want us to continue to be required to, perhaps, provide broadband below cost.
Bill Weber, Vice President, External Affairs, COVAD, Atlanta, Georgia:
Assemblyman Griffin, if I could respond to that very briefly. We don’t want them to have to provide anything to us below cost. In fact, the current regulations require the PUC to set prices that are cost plus a reasonable profit. So, that’s not the sticking point. The sticking point is that we feel competition cannot be fostered without PUC oversight of wholesale markets. We’re not talking about retail markets. We are willing to go head to head with any company at any time on retail pricing, but if wholesale regulation goes away, which is what this bill would accomplish on the broadband side, then competition withers here.
Assemblyman Griffin:
But do you see why that’s frustrating, why this is a frustrating exchange? I thought the hearing that we had last week was a great hearing. It’s become legend in the hallways as something that was just fun and exciting. You’re all smart people and you’re saying the opposite thing. It’s very frustrating. You’re saying that the negotiations broke down because of “X.” You’re saying it wasn’t because of “X,” it was because of “Y.” I’m just very frustrated by this.
Bill Weber:
Assemblyman Griffin, the difficulty for us on this side is that if the bill passes as written, we are going to be on a path toward being put out of business in Nevada. Our ability to provide the benefits that we’re providing currently to your constituents are going to be put at a grave risk. We can’t agree to modifications to the bill that keep that situation intact. That’s the [problem] that none of us have been able to get over.
Assemblyman Griffin:
I understand. I know we have to make the final decision, but I bet there’s somebody on this panel that’s going to disagree with that statement.
Chairman Goldwater:
If you are simply saying, “we don’t want this bill,” then tell us. Don’t say we can negotiate, or we can figure it out. Is there an ability to do a good faith negotiation and figure out some common points? I think we’ve unearthed, through these hearings, a very good idea that the sticking points are different.
Assemblyman Knecht:
I understand that news reports the last few days suggest that the triennial review decision may be taking a turn from where we thought it was going. Nobody’s seen a draft, of course, but the word coming out of the FCC is that Commissioner Martin’s decision may not look like what it was originally advertised as. Does that have any effect on your positions and the negotiation?
Ann Pongracz, General Counsel, Sprint of Nevada:
No, I really don’t think that’s what is driving the issue here. What’s driving the issue is two factors. We have made clear in the hearing last week, for example, that both Sprint and SBC, as well as the Commission Chairman, all agree that the effect of S.B. 400 is to maintain the Commission’s current jurisdiction to require Sprint and SBC to continue to provide unbundled services, unbundled elements, and resold services to the CLECs at prices the Commission regulates. It’s clearly true; to the extent that there is any disagreement about that, I respectfully submit that is a smoke screen.
The second piece of it, and in responding to what Assemblyman Griffin was trying to understand a little earlier, he asked a very good question about where the dispute is, the dispute here has to do with not whether the Commission will continue to do what it has done since the Telecommunications Act was adopted in 1996, but whether the Commission would take on additional regulatory jurisdiction to require Sprint and SBC to provide different types of facilities than we’ve been required to provide to our competitors - the broadband facilities. And, so far, we have not been required to unbundle that full set of services. We are not required to unbundle the DSL service, which is our residential broadband service. The sticking point in these negotiations is, should the Legislature hold this bill hostage because of the fact that it does not expand the Commission’s jurisdiction beyond what it is today? We respectfully submit the answer to that is no. It’s time to give us the pricing flexibility we need. The safeguards are there. The chairman of the Commission, who should know better than anybody else in the room whether he’s got the jurisdiction to continue to do his job, says he does.
Bill Weber:
Mr. Chairman, if Ms. Pongracz is willing to agree to an amendment to Section 8 that would do what she just suggested, keep the authority of the Nevada PUC exactly as it is today, that is a point on which we could agree.
Ann Pongracz:
We believe firmly that the bill today does what I just testified to. There’s significant legislative history to hold our feet to the fire and, frankly, we’re very concerned about the possibility of entertaining amendments at this point, of this Committee entertaining amendments, when including amendments to this bill may be the death knell for the bill [due to] the legislative processing time.
Chairman Goldwater:
Quite the opposite, I think. What motivates you to say that?
Ann Pongracz:
We are concerned that if the Committee needs to go through a process where amendments are finalized, where it needs to go through the process in this house and then needs to go back to the other house, there simply may not be enough time to get that all taken care of. In addition, our basic position here is that it’s not needed.
Chairman Goldwater:
Don’t worry, Ann. We’re very capable people, we have very capable staff, and we have a very capable process. I wouldn’t have scheduled this hearing. I wouldn’t have made this bill exempt if I didn’t think it was able to be processed with the will of this Committee, which, in fact, is going to be best for our constituents and the people of this state. We are not going to sacrifice their interests or our interests or our autonomy because of some fear of process. Let me ask Mr. Hay something. What do you think about the discussion that’s just ensued? Does the Commission maintain the jurisdiction over the necessary elements, including regulation of the wholesale process?
Tim Hay:
I think the question, as well as the answers you’ve heard, reflect some basic philosophical questions. I believe there are ambiguities in the language of the bill, which make it unclear whether or not the Commission would retain those authorities. If there’s an ambiguity, I think it needs to be cleared up, assuming the bill is to be processed. Our suggestion was going to be to delete the broadband section of the bill entirely. I do think that when the triennial review order comes out, regardless of how it comes out, it, in and of itself, is going to create further ambiguities about what responsibilities or discretionary actions the state Commission can take.
[Mr. Hay, continued] I would be very surprised if the final order would not be challenged in court by a number of parties and may not well be resolved until you are returning or at least preparing for the 2005 Session, which is another reason why studying these issues is an appropriate and prudent course of action for the Legislature, our office, the PUC, and other interested parties to take. I have yet to be persuaded that there is a compelling reason that we need to do an extensive piece of legislation in this bill.
I think many of the issues that have been raised by the CLECs can, and I think the chairman of the Commission has testified to this as well, be dealt with in ongoing dockets. I know that in the PAR (plan of alternative regulation) revision dockets, some of the elements of the bill are already being commented on by the parties in the regulatory forum. It seems that’s just a better way of approaching these issues. Due to the fact of the uncertainty of the triennial review order and other things, I think we’ll be looking at many of these again in the next session, regardless of what you do in this session. I don’t see a compelling downside or adverse impact that is going to occur over the next 24 months or less, that cannot be dealt with in the regulatory context.
Chairman Goldwater:
Mr. Weber, have you suggested language to Ms. Pongracz that might accomplish what she has said and you have agreed that she has agreed to?
Bill Weber:
Without going in to any detail, Section 8 has been part of the discussion between us and we have not been able to reach agreement.
John Frankovich:
I want to express, also, a share of the Committee frustration because we had a very similar exchange in the Senate Committee. It appeared that we were agreeing that wholesale rates shouldn’t be deregulated, that we should not expand or limit the PUC’s current jurisdiction. When we agree and the other side appears to agree, and we say let’s make it clear, then it falls apart. That is a frustration that everybody in the room is sharing.
Chairman Goldwater:
I’ll agree with what somebody said in the last meeting, which was: lawyers don’t agree in a legislative committee, it’s only going to mean more work for lawyers outside of the legislative committee.
Dan Jacobsen:
I think we’re overcomplicating this. It is true; there is going to be litigation around this order that’s coming from the FCC. This bill is an opportunity for Nevada to adopt policies that provide the certainty that companies who are willing to invest in broadband need in order to do more investment. Passage of this bill will allow us to move forward with that investment. Deferring this bill and saying we’re going to wait until things get cleared out means that there will be less investment over the next couple of years. So, we’re saying, allow us to move forward and invest more in this state. We think it’s pretty simple.
Bill Weber:
Mr. Chairman, may I respond to that? The investment argument is something that you all have heard repeatedly and it is a chimera. The only thing that companies like COVAD need access to in order to provide broadband services is legacy copper. It’s been in the ground, or on poles, for years, sometimes decades. SBC and Sprint will not sit here today and tell you that were it not for the current regulations they’d be burying more copper in the ground. Nobody is doing that. We don’t get access to their fiber facilities today. We aren’t going to get access to their fiber facilities tomorrow. The FCC has made that clear. There is no disincentive for them to deploy those facilities. In fact, the faster they deploy those facilities, the more difficult they make it for us to compete, because they are using an advanced technology that we don’t have access to unless we put our own lines in the ground. Of what was just said, actually, quite the opposite is true. If we are able to continue to provide the services and the benefits that we offer to your constituents today over legacy copper, they have an incentive to deploy those advanced services faster.
Ann Pongracz:
I’m a bit concerned that Mr. Weber is creating a problem where none exists. As we state in our responses to the Committee’s excellent questions, we are committed to continuing to provide unbundled facilities to CLECs in this state. The bill does not change that. We have provided that in writing to the Committee. We have testified to that effect, both today and at other times.
Chairman Goldwater:
Can you draft some legislative language that would put that in statute?
Ann Pongracz:
We believe that we have done that in this bill. If you look at Section 8, subsection 2(a), it specifically states that “the broadband provision of Section 1 does not limit or modify the duties of the incumbent,” which is Sprint or SBC, “to provide unbundled access to network elements to the extent required under 47 U.S.C., Sections 251 and 252,” that’s the Telecommunications Act provision that requires us to unbundled and resale, “and 47 C.F.R., Sections 51.319,” which is the set of regulations that directs the state public utilities commissions to conduct proceedings to set the prices, terms, and conditions for the unbundled elements and resold services. That is right there in black and white in the bill today.
Bill Weber:
This does get to the heart of the matter. First, there was no response to the incentive argument. That, and [subsection] 2(a) [are distractions]. It’s correct; it states the current state of the law. The Nevada Legislature lacks the power to limit their obligations underneath federal law. That’s all that this section states.
What this section does not state is that the Nevada PUC will retain the authority it currently has to regulate the wholesale markets. In other words, with this section in here the Nevada PUC will still lack the power to implement the parts of federal regulation regarding the wholesale markets because they will lack the power in broadband to deal with rates, terms, and conditions for broadband. They’ll still have to provide it, but the Nevada PUC won’t be able to regulate it, and we’ll have to go to the FCC in Washington, D.C., to get that regulation.
Ann Pongracz:
Mr. Chairman, if it’s not improper, I would like to ask Mr. Weber if it would eliminate his opposition to this bill if Sprint and SBC did agree to produce language in an amendment that did exactly what he just said, that would specifically state to the Commission that this bill does not in any way limit the Commission’s jurisdiction to enforce the requirements to exercise the jurisdiction it has exercised to date regarding unbundled elements and network services.
Bill Weber:
No. Let me be very clear. What she said [at the last hearing] was to preserve the existing authority of the Nevada Commission, which is what I had said we would be willing to agree to. Now, what she would like to do is limit the authority of the Nevada Commission to federal law. It is beyond me why the Nevada Legislature would choose to use a federal law to limit its Nevada PUC when it does not have to do so. That still removes jurisdiction that they currently have, but I will say that an amendment such as that she provided would be an enormous step forward from what we have right now.
Chairman Goldwater:
I think we’re getting a little bit closer. [Determining] a way to maintain some Committee PUC jurisdiction over the basic network services, or the wholesale market, is something we’re identifying is necessary and may be important.
Assemblyman Knecht:
In trying to figure out what exactly the PUC jurisdiction would be, I come up against a problem in Section 8(2)(b)(2) and my question for Mr. Hay and Commissioner Soderburg is, 8(2)(b)(2) would allow the Commission to act on consumer complaints, but if it can’t regulate broadband, would the Commission effectively have any real power acting on consumer complaints under 8(2)(b)(2)?
Dan Jacobsen:
This is black and white language. This is, in effect, a caveat to the phrasing about the Commission not regulating broadband. It says, “Except, they are allowed to address consumer complaints.” It’s clear.
Assemblyman Knecht:
I appreciate that, but I would like to hear from the Commission chairman and from Mr. Hay that they’re sure the Commission would have sufficient authority to actually give a substantive hearing and remedy to complaints.
Chairman Goldwater:
Commissioner Soderburg, can you step up there too? Tim?
Tim Hay:
In response to Assemblyman Knecht’s question, we [must] relate the question to the definition of broadband that is included in the bill in Section 3(b), as well. We believe that’s an overly broad definition and as you know, our office is prohibited from assisting in competitive telecommunication services already. We believe that it creates a substantial question whether or not the average consumer who is intending to file a complaint would actually have a forum in front of the Nevada PUC for many of the typical complaints we would consider to be routine, since the broadband definition is broader than the customary way people tend to think of broadband, if it’s any two-way service that transmits information. The consumer that’s receiving that over a DSL line, for instance, I think would be foreclosed for many of the remedies at the state level.
Assemblyman Knecht:
Mr. Chairman, before Chairman Soderburg answers that question, just a comment because Mr. Hay brings up my other concern, the definition of broadband here is not the FCC definition as you just pointed out. Would your concern be ameliorated if we substituted the FCC definition of broadband in 8(3)(b)?
Tim Hay:
I think that might be helpful. We would have to take a look at that language as it integrates with the rest of the bill to conclusively state that. It would still be our preference to delete Section 8 in its entirety, I believe.
Chairman Goldwater:
Commissioner Soderburg?
Don Soderburg, Chairman, Public Utilities Commission, Nevada:
[Introduced himself] In response to Assemblyman Knecht’s question, you had asked if we have complaint authority, but if we don’t regulate a service, what can we do in the complaint authority? I think what’s missing from this discussion is when we regulate telecom, they are two separate areas of our activities. There are the state-delegated activities [with which] this bill deals. Then there are the federally delegated activities, which will continue to go on, maybe modified in some fashion.
However, the majority of what we do on telecom regulation, except for the basic rate, is what comes down and is delegated and actually mandated by the FCC. Those are the areas in which we would more likely receive complaints because our complaint process, with regard to telecom, has evolved into a commercial complaint process. We don’t have pure consumer complaints in telecom, so what we would envision under this provision would be something to the effect that Mr. Weber’s company is unhappy with how it is being treating by SBC vis à vis some of the things that have been dictated to us by the FCC. Therefore, we would have that forum to hear his grievance and sort that out. I don’t see anything in this bill that would preclude that. If anything, that provision makes it clear that we could hear complaints on those areas that are delegated to us by the FCC, if we have done those properly.
Assemblyman Knecht:
Would the Commission be comfortable with the jurisdiction you have as you’ve described it and the way you would exercise it if we changed the Section 8(3)(b) definition of broadband to match the FCC definition? Would that be an improvement or not?
Don Soderburg:
I don’t know that that would be an improvement or not. I would probably defer to Charlie Bolle on that, as our technical adviser. We don’t see a problem with the definition that we have here. We don’t see the problems that people have been raising as they read that language. We feel it’s pretty clear that… we regulate or not regulate the technology, not the services, so we don’t know that changing it is going to affect that. I would defer to Charlie. He’s more familiar with the FCC definition. If you would like him to expound on what I’ve said, we can bring him up.
Karen Potkul:
One thing I would point out on the consumer protection question is that there is clear language that [allows] individual consumers to complain to the Commission. Whether the Commission has the authority to act on those or not, there’s some question about that. But, it is very clear that if thousands of citizens of this state complain about the exact same problem with their broadband service, or tens of thousands complain about the exact same problem with their service, the Commission has no authority to enact an overarching consumer protection rule. Instead, every single person would have to keep going to the Commission, complaining about the same thing.
Chairman Goldwater:
But, Ms. Potkul, aren’t we saying that it’s competitive, therefore those kinds of things will be market-driven? If 10,000 people are complaining about their broadband, they’ll just go to another company.
Karen Potkul:
Well, I actually think that we don’t know whether it’s competitive or not. In terms of what’s been studied, whether broadband services are competitive or not, or whether telecommunication services in the state have been competitive.
Chairman Goldwater:
So, we’re not sure, if 10,000 people who are not happy with their service, whether they’ll have some place else to go to get it?
Karen Potkul:
We could look at market share that the competitors have captured. Hypothetically, say competitors have captured five percent of the market share for telecommunication services in the state. You also need to know [for] what percentage of those customers are the competitors relying on [using] leased facilities from SBC and Sprint to serve those customers? If you don’t understand the competitor’s reliance on the leased facilities in order to compete, then you really don’t have a good picture of what the level of competition is and, therefore, what the level of deregulation should be. Obviously, if the competitors are 95 percent reliant on SBC and Sprint in order to compete with them to serve telecommunications customers as well as broadband or high speed Internet access customers, then different regulations are required than if competitors are using their own facilities in order to compete.
Ann Pongracz:
As I’m sure the Committee understands, what’s just been presented is a series of ifs and theoretical concerns, not any factual data [reflecting] actual problems. In the event that problems do arise, I just wanted to make sure that the Committee understands, there’s a provision in NRS 704.282, [which] gives the Commission the authority to hear commercial complaints. So, to the extent that there are concerns about whether competitors have the opportunity to come to the Commission and raise issues regarding questions about how we provide unbundled elements and resold services, that provision is in the statute. It’s not changed by S.B. 400, and if you combine that with the safeguard in Section 8 regarding the Commission authority to consumer complaints, I think the bill fairly provides a wide range of protection.
Karen Potkul:
I can give you a fact. For XO, I know that we are heavily dependant on loops that we purchase from Sprint in order to compete with Sprint. Loops are both tariff services as well as unbundled network elements. Even if we reach an agreement with respect to unbundled network elements, the fact that this bill, as currently proposed, would deregulate wholesale services – that is, special access services – and loops that we purchase out of the tariff, that doesn’t satisfy us, because the large majority of loops that we currently purchase from Sprint are not UNEs (unbundled network elements). They’re not UNEs because [Sprint] blocked our access to UNEs through various discriminatory policies that they’ve adopted with respect to UNEs, so we were forced to purchase access. We have to assume that we will be in the same boat in the future and we may have to purchase access and UNEs will not be available. So, you can’t deprive us of having the ability to buy special access, because you’ve deregulated them and left us at Sprint’s and SBC’s mercy.
Chairman Goldwater:
Charlie, your thoughts on broadband?
Charlie Bolle, Senior Advisor, Nevada Public Utilities Commission:
[Introduced himself] The FCC was very reluctant to apply a definition to broadband. In prior orders, they would always refer to “advanced services.” Just recently, they came out and applied a definition, which is 200 kilobytes per second in both directions. If this state was going to adopt a definition, I would say adopt their definition for convenience. When you look at the technologies out there today, when you start talking about kilobytes, and how high you can get [with networks that can provide 10,000 megabits per second], 200 kilobytes per second in both directions, is a small bandwidth [by comparison].
Assemblyman Griffin:
Going back to something that was said about 20 minutes ago, that maybe there was a little movement there, getting a little bit closer, you said that you were comfortable, potentially, with an amendment that clarified PUC oversight, but your hesitation still comes on the PUC oversight as it currently exists. I feel like we’re five words away and I’m sure that’s not the case, but maybe we can find out what those five words are.
Bill Weber:
Let me give you a very specific example of what we’re talking about. In 1998, there was arbitration in front of the Nevada PUC between SBC and AT&T. At the conclusion of that arbitration, the Commission ordered SBC to provide an unbundled network element that they were not providing under the FCC rules. It was a new unbundled network element. The next year, the FCC created that unbundled network element anyway, but that was visionary work by the Nevada PUC. They did something that they were the first Commission in the country to do, aside from Wisconsin, which did it at about the same time. If the Nevada PUC’s authority is limited to the wholesale provisioning of unbundled network elements, as defined by the FCC, that’s much better than what we have right now in this bill, but that’s not as good as the authority the Commission currently wields. If, in the future, the opportunity arose for them to once again make a visionary decision and create something that was really good for Nevada Consumers that had not existed on the federal level, they wouldn’t have that power, under the amendment that Ms. Pongracz would be suggesting.
Under the amendment that we would like to see, they would retain the authority that they have under the FCC and also retain the authority that they currently have under Nevada law, not limited to the federal rules. That’s getting to the heart of where the sticking point is and why there’s a sticking point. We want them to be able to add additional unbundled network elements, if we were able to put on a case and convince them [and SBC and Sprint] that was the right thing to do, for obvious reasons. There’s nothing hidden here in terms of the way the businesses operate. We don’t want them to be able to do that. There’s nothing insidious about that. It’s just a business decision.
Assemblyman Griffin:
The word is currently “wield”; is that our obstacle of how that is going to be defined?
Dan Jacobsen:
What’s going on here is a discussion about if the FCC were to decide that it’s not good policy to require the incumbents to provide some service, they would like the chance to convince the state otherwise. We are saying that if federal policy is adopted, we should be consistent with that. For now, and under this bill, we continue to provide the support that the CLECs need to provide service. It seems pretty simple.
Kate Marshall, AT&T and Empower Communications:
Assemblyman Griffin, you wanted five words, I can do it for you in seven. Section 8, subsection 3(b), definition of broadband means “any two way retail,” first word “retail” service. Section 8, subsection 2(b)2, “acting on a consumer,” “and,” word number two, “commercial,” word number three, “complaint pursuant to NRS 703.3310,” and word number four, “NRS 704.282,” Ms. Pongracz mentioned that. For word number five, go back to Section 28, page 18, line 33, Section 28, “NRS 704.68984 is hereby amended to read as follows: “line 35,” the provisions of NRS 704.68904 to 704.68984, inclusive, and Sections 2 to” number 6, cross out 7, put in 8.
Six words and we solve the problem. You want it to be retail, it’s now retail. You want to make sure you have your commercial disputes, you just did it. You want to ensure that the Commission has all that it is permitted to do under the Telecommunications Act, it now has it. Six words. I did it for you and apparently we all agree that should be allowed. Please don’t forget the big picture here. We need to know whether or not we have competition. I could sit here until I’m blue in the face and give you statistics, and so could they. You don’t know what those are. You don’t know whether they’re right or wrong. You cannot know where to go, until you know where you are.
Dan Jacobsen:
These amendments are the ones that we’ve discussed for months with the CLECs. This approach, inserting these words, would create huge barriers to new investment. It’s just a fundamental problem for us. That’s all I need to say.
Chairman Goldwater:
What about the concept that those words just simply take the bill and apply it to the retail market and preserve the regulatory over the wholesale market, which you say still exists?
Dan Jacobsen:
Inserting these words [would allow] the CLECs [to] require wholesale pricing and wholesale arrangements that would create barriers to new investment. That’s what they’re attempting to do. Cox Cable, SBC, and Sprint provide the majority of the new investment in infrastructure. We spend a lot of time negotiating with Cox to get to agreement with them. If we’re going to continue to invest, and there are many more places in this state where we can deploy broadband, we cannot have wholesale pricing that serves as a barrier. That’s what this amendment would open.
Assemblyman Arberry:
I’ve missed some of the hearings so you’ll have to bear with me a second. It appears that SBC and Sprint have come up with this bill. There is another group that’s against the bill. What happens if they bring you into the bill? Is that possible so it will be a level playing field? They have this new concept, whatever they’re trying to do; I don’t know all of the ins and outs, the workings of it. Why can’t they just bring you into the bill and then all of you [will be] competing, whatever language is in this bill, at the same time. Is that a possibility?
Ann Pongracz:
Assemblyman Arberry, we would have to understand the proposal a little better. Right now, as you’re probably aware, Sprint and SBC are required to wholesale network facilities to the CLECs. The CLECs are not yet required to wholesale the network facilities to Sprint or SBC, for example, [to provide service] in areas of Las Vegas where they are the underlined provider of the facilities and we are not. We are doing the investing, and we’re subject to the unbundling resale requirement. They are not. If you’re suggesting that perhaps the bill should be extended to include that requirement on the CLECs, we could talk about that.
Assemblyman Brown:
The gentleman on the end here used the term “could,” and I’m not sure if that pushes this into a hypothetical. If you’re stating that’s an inevitable outcome, that’s the first question. Second question is relative. You mentioned “investment,” I believe, Mr. Weber, and then that would raise the investment argument relative to legacy copper. Are they on legacy copper? I believe COVAD is laying some of their own lines. What about some of the other CLECs? Are they on legacy copper? Are they limited to legacy copper? Do they have fiber optic access?
Dan Jacobsen:
COVAD does not operate in the north. They operate in the south. From my understanding, they do lease legacy copper from Sprint, and it’s an unbundled network element. This bill says, “We the incumbents continue to provide that.” Responding to your earlier [question] about the word “could,” I think I used the word could in terms of more places in the state where we could invest. Passage of this bill would be a signal to our company that Nevada wants more investment and is creating the certainty for companies like mine to invest more. If this bill passes, we will invest more.
Assemblyman Brown:
Is that investment fiber optic and is that a distinction that should be made? Maybe I’m misled. It sounded like the investment is new technology, which CLECs do not have access to.
Dan Jacobsen:
There are a number of different types of investment we’re talking about in order to bring broadband to more people. It’s investment in electronics and investment in fiber. The copper is there but, in many cases, to get broadband to people who live more than three miles from our office, we have to put fiber in. We have to put in electronics in, and we do that at high risk. Broadband on telephone is a competitive alternative to broadband on cable. That’s an alternative to wireless broadband. Someday there will be a lot of options. There’s high risk in doing that.
Bill Weber:
Assemblyman Brown, if I may respond briefly.
Assemblyman Brown:
Can I ask before, Mr. Jacobsen, your office, which box is that on the diagram?
Dan Jacobsen:
In every town, we usually have a central office, where all of the wires from people’s houses connect, from which we do the switching and powering of lines.
Assemblyman Brown:
Technologically, what’s significant about three miles?
Dan Jacobsen:
When you try to provide a high-speed signal over copper, that signal can only be sustained so far and then it starts to fall off. When you get to about three miles it falls off, whereas if you put fiber in, the signal can go a lot further and we can get out to neighborhoods that are further out.
Bill Weber:
Under current rules in Nevada today, under the FCC’s rules, and under what’s expected from the FCC, we will not have access to the customers on the other side of that fiber that SBC is talking about laying. We don’t have it now, and we won’t have it in the future. We’re using legacy copper. Legacy copper is what we need to provide our service. On the investment issue, I can provide all of the Committee members a packet of documents describing SBC’s various promises to various bodies to invest, if they give them what they want on broadband.
[Mr. Weber continued] Most recently, on February 20, 2003, the FCC made its decision, the Triennial Review, and issued tentative statements about what the rulings were. The next day SBC said, “Even though you gave us everything we wanted on broadband, we’re not going to invest anymore.” It was reported extensively in all of the press. I would just urge the Commission to be very wary of promises that SBC makes that are not memorialized within the legislation itself, because they have a history of repudiating those promises.
Assemblyman Brown:
Is the lack of access because of FCC regulatory restraints to the fiber optics?
Bill Weber:
Yes. The FCC has a series of regulations, some of which are complex and some of which aren’t, which make a specific type of unbundled network element available when a CLEC is able to prove certain elements in a case before either the FCC, or in certain circumstances, the state PUCs. In Nevada, currently, CLECs do not have access to any fiber facilities that go to a home because that case has never been tried and proven.
Karen Potkul:
I just have one quick point to make. It’s being represented by SBC and Sprint that wholesale services are not going to be affected. Yet, when we propose an amendment that would just put in the words “retail broadband services,” they reject that, because wholesale services are going to be affected by this bill. They will be deregulated and they will deprive us of access to loops and facilities that we currently lease today in order to compete with them. That’s really the bottom line. If this doesn’t affect wholesale services, then amending S.B. 400 to include the words “retail broadband services” should be acceptable.
Ann Pongracz:
The provision in Section 8 specifies that the Commission’s obligations that are obligations, which are today enforced by the Public Utilities Commission, will not change. Ms. Potkul is asking not just for the Commission to retain its existing jurisdiction. Inserting the word “retail” would create a situation where the Legislature is saying to the Commission, “take on new regulatory functions, which you are not yet exercising today and which the FCC may not think is a good idea.” The whole idea under the Telecommunications Act [of 1996] was to facilitate the development of local competition by allowing competitors to utilize the incumbents network. Certainly they have the option of building and using their own. Congress has said, “They shouldn’t have to do that because there is some infrastructure in place. Let them use what’s there today. Avoid duplicate investment.” We agree with all of that. The bill protects that. Adding the word “retail” to this section is very destructive. It would say that in Nevada we could be required to provide types of network elements to the CLECs at below-cost prices that we are not required to do today. It’s an expansion beyond the Commission’s current jurisdiction, and that’s why we don’t support it.
Chairman Goldwater:
Mr. Frankovich, before I let you respond to that I have to get Ms. Buckley for a question, please.
Assemblywoman Buckley:
It’s probably more of a statement. In every hearing on every bill this session, someone says, “I don’t think this word is clear enough,” so we make it clearer. I don’t understand what the problem is. If the issue is to make sure it doesn’t affect them and they want to add “retail,” that clarifies it. If you’re concerned that might be interpreted to mean that it would allow the Commission to begin to get into areas they normally do, we add another sentence to say, “Nothing in this section requires the Public Utilities Commission to begin exercising jurisdiction over this market practice.” I don’t see what the problem is here and I think everybody is wasting our time.
Chairman Goldwater:
I will second those remarks, Ms. Pongracz. What do you think?
Ann Pongracz:
I understand the frustration and that’s why I asked Mr. Weber the question I did, which is, “would inclusion of an amendment that clarified that the Commission’s jurisdiction to apply the requirements of the Telecommunications Act is not changed by S.B. 400,” because Assemblywoman Buckley just articulated, I was concerned that, perhaps, there was just a need for clarification here. When Mr. Weber said that would not alleviate his concerns, it led me to think that perhaps we were not just talking about a clarification. If we get over the process issues that we talked about earlier…
Chairman Goldwater:
I assure you there are no process issues. I’ll assure you of that, with the Speaker and the Majority Leader sitting right here, other than the calendar up there.
Ann Pongracz:
Well, [the calendar] was the main process concern that we had, but if we were to get an assurance from the opponents that including language in this bill that would say that the Commission’s authority to act, under the Telecommunications Act and the FCC’s regulation is not changed by this bill, and furthermore, that their ability to act on commercial complaints is not affected by this bill, we are quite willing to advance that proposal to you. The problem is that when we’ve offered that, it has been judged insufficient. Adding the word “retail” is not a clarification point. That’s a very substantive point that pushes us over the edge in terms of whether we can come to agreement.
Steve Tackes:
That’s exactly why the amendments language proposed by Ms. Marshall works. That’s what they do. They leave us with the exact same language we have today. Section 28 of the bill is the language that’s already in there today, but it simply adds that this language – stating the Commission can still apply the Telecommunications Act in federal law – will apply to these new sections of this bill, Sections 2 – 7, as it appears in the bill. It really should just say “2 – 8.” Then what we’re saying is, these new provisions of the bill, get applied the same way the Commission is applying the federal law in the state of Nevada today. This amendment does exactly that.
Dan Jacobsen:
Again, adding those few words is not clarifying. Those few words would create a huge barrier. SBC and Sprint have invested over $20 million to build broadband in Nevada over the last four years. We’re ready to invest more, but not if there are barriers. These barriers would prevent us from recovering these investments.
Chairman Goldwater:
That is a disingenuous argument because there was no guarantee that you would get this bill passed when you invested $20 million, or you would have any rate of return and you did it anyways. Now you’re telling us if we don’t pass this, you’re not doing it.
Dan Jacobsen:
Excuse me, Mr. Chairman, I’m not saying there is any guarantee that we’ll recover the investment that we’ve made in the past. I’m saying, in order for us to make any future investments, in order for it to make sense for us to make high-risk investments, we need to make sure there aren’t any artificial barriers, such as having to provide that investment to your competitor at a price that doesn’t make any sense. That’s what we’re trying avoid. I’m sorry for the confusion.
Assemblyman Hettrick:
This is a two-part question, or I can ask it in a one-part fashion. I heard Mr. Arberry ask the question and I think I heard Ms. Buckley essentially ask the same question, and I think the Chairman did as well, in a different way. I’m going to try it one more time and see if we can’t come up with some response.
If I were to make a motion right now to pass S.B. 400 as is, would you folks [the opponents of the bill] want to talk to her [Ms. Pongracz] before we took a vote? [The opponents indicated they would]. If I were to move to IP (Indefinitely Postpone) S.B. 400, would you want to talk to them [the opponents of the bill] before we took a vote? [Ann Pongracz indicated she would]. You folks have to come together and make a solution out of this with an amendment. If you both want to talk, and you don’t want it to go against you, then you better figure out a way to get this done, because one of you is going to lose here. It’s that simple. Somebody is going to make a motion, very soon, that’s going to do just exactly what one of the two parties doesn’t want done.
The technicalities of all of this are beyond our capabilities to solve. If you can’t solve it, we can’t solve it. If you can’t make the amendment language, we certainly can’t. One of the two of you is going to lose here, so I suggest that somehow you get together and come up with a solution. We think, my personal opinion is, something has to be done to do something to level the playing field. Would I go all the way to say all the way to S.B. 400? Maybe not. But I think it’s not level, and I think you are getting close to having some real winners and losers here. I’m just going to tell you that I’m getting close to making a motion, and maybe you’d like to come up with language.
Speaker Perkins:
You’ve heard from the Chairman, you’ve heard from the Majority Leader, and you’ve heard from the Minority Leader. I don’t see a whole lot of difference between them. If I were to create the closest analogy to what’s going on here, Mr. Chairman, it would be going back and reviewing what’s happened with construction defects over the last three sessions. In my estimation, it was a people problem, not a policy problem.
When we finally got the folks in the room that would not throw gasoline on the fire, and talk about what their issues were and accomplish those, we actually, I think, have a product this session. I will tell you, shame on you. You’ve abused this Legislature, you’ve abused this Committee, and you’ve abused this process. We’ve now sat through two hearings of “he said, she said.”
It’s in your very capable hands, Mr. Chairman. My suggestion would be to tell the parties to get back together, give them a date, probably sometime in the middle of next week, so that we don’t have process issues, and if they don’t come back with a product, then we’ll make the decision that nobody’s going to be happy about. I don’t know about you, Mr. Chairman, but I can’t emphasize enough how disappointed I am in both groups. As far as I’m concerned, there’s too much to do in this Legislature for me today, and for the next 18 days, and as far as I’m concerned, I’m done today.
Chairman Goldwater:
I think everyone has kind of identified some of the problems here. I think this hearing process has brought out, in my mind and everyone’s mind, what the issues are. They don’t seem like impossible issues. We’ll schedule something next week but please engage in some good faith meetings.
Given the Speaker’s sentiment and everybody else’s sentiment, I think it’s better that we close this hearing and get to work. Thank you very much. [Chairman Goldwater adjourned the meeting at 1:08 p.m.]
RESPECTFULLY SUBMITTED:
Corey Fox
Committee Secretary
APPROVED BY:
Assemblyman David Goldwater, Chairman
DATE: