MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-second Session

March 27, 2003

 

 

The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:07 a.m., on Thursday, March 27, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

 

COMMITTEE MEMBERS PRESENT:

 

Senator Randolph J. Townsend, Chairman

Senator Warren B. Hardy II, Vice Chairman

Senator Ann O'Connell

Senator Raymond C. Shaffer

Senator Joseph Neal

Senator Michael Schneider

Senator Maggie Carlton

 

STAFF MEMBERS PRESENT:

 

Scott Young, Committee Policy Analyst

Courtney Wise, Committee Policy Analyst

Kevin Powers, Committee Counsel

Johanna Downey, Committee Secretary

Laura Adler, Committee Secretary

 

OTHERS PRESENT:

 

Lou E. Emmert, Vice President and General Manager, Sprint of Nevada

Silvia Samano, President, External Affairs, SBC Nevada

Lora Watts, President, External Affairs, SBC West

Dan R. Reaser, Lobbyist, Nevada Bell Telephone Company

Ann C. Pongracz, General Counsel, Sprint of Nevada

Richard Pfeifer, Sprint of Nevada

Dan Jacobsen, SBC Nevada

Elizbeth Sorenson, Lobbyist, Communications Workers of America

Danny Thompson, Lobbyist, Nevada State AFL-CIO

James T. Endres, Lobbyist, AT&T Communications of Nevada, Incorporated

Kathleen M. Marshall, Lobbyist, AT&T Communications of Nevada, Incorporated, Covad Communications Company, and Mpower Communications Company

William H. Weber, Vice President, External Affairs, Covad Communications Company

Robert C. Johnston, Lobbyist, Eschelon Telecom, Incorporated

Scott Sarem, Vice President, Strategic Relations, Mpower Communications

Don Soderberg, Chairman, Public Utilities Commission of Nevada

Charles Bolle, Senior Advisor, Public Utilities Commission of Nevada

Steve G. Shore, Vice President, Public and Government Affairs, Cox Communications Company

Gardner F. Gillespie, Lobbyist, Cox Communications Company

Richard B. Severy, Director, Public Policy, Western Public Policy Group, WorldCom

Steve Tackes, Lobbyist, WorldCom

Sue Ashdown, Executive Director, American Internet Service Providers Association

Larry L. Spitler, Lobbyist, American Association of Retired Persons

Coralette M. Hannon, Senior Legislative Representative, Department of State Affairs, American Association of Retired Persons

Christine A. Milburn, Lobbyist, Consumers’ Voice

Timothy Hay, Chief Attorney General, Consumer Advocate, Bureau of Consumer Protection, Office of the Attorney General

 

Chairman Townsend opened the meeting on Senate Bill (S.B.) 400.

 

SENATE BILL 400:  Makes various changes relating to telecommunication service, high-speed Internet access service and broadband service. (BDR 58-261)

 

Lou E. Emmert, Vice President and General Manager, Sprint of Nevada, read her testimony (Exhibit C) in support of the bill.

 

Silvia Samano, President, External Affairs, SBC Nevada, stated, “I am here today representing approximately 800 employees. Out of those 800 employees, I am proud to say that 80 percent are represented by the Communications Workers of America, Local No. 9413.” Ms. Samano read her testimony (Exhibit D) in support of the bill.

Lora Watts, President, External Affairs, SBC West, read her testimony (Exhibit E) in support of the bill.

 

Senator Neal said, “My question would be directed to all three of you. Why is this bill necessary? Why are you here before the Legislature rather than the PUC?”

 

Ms. Emmert answered:

 

While the PUC may be able to do some of these things for us, traditionally it takes a long time to go through the commission environment, the regulatory environment. Also the commissions change, as you know. The commission today may not be the commission tomorrow or a year from now. We feel this needs to be in the State statute so they have the authority to do what they need to do; and need to do it quickly. We’re losing market share every day because of our inability to do these things.

 

Senator Neal said, “Why I asked the question is they seem to be the experts in this particular area. I’m here every other year, and this is not my forte. I don’t deal with these issues outside of whether or not we have a bill before us.”

 

Ms. Emmert said:

 

It might be appropriate now to bring Dan Reaser and Ann Pongracz to the table. They work daily with the commission, and they might be able to add additional insight or help with some of the questions if it gets into great detail.

 

Dan R. Reaser, Lobbyist, Nevada Bell Telephone Company, stated:

 

In response to the last asked question, this bill is about the Legislature setting Statewide public policy. The Senator is correct that the Public Utilities Commission of Nevada is an expert agency that deals with these issues at a level of granularity that the Legislature does not usually. But it is incumbent, and this committee has, and this Legislature has set for years public policy in the public utilities area where regulation is appropriate and where regulation is not appropriate. This bill is about setting that Statewide public policy to create and enhance an environment that achieves three purposes for consumers.

 

Mr. Reaser stated:

 

First, to give them choices among competitors that are equal choices. Second, to foster the lowering of prices to those customers, and third to give them product options. All of which will be done while safeguarding basic residential rates. Because this bill doesn’t do anything to change the existing regulatory scheme, basic residential rates cannot go up without commission oversight and approval.

 

As Ms. Emmert indicated, the bill is the next step in a progression that has existed before the Legislature since AT&T was deregulated. The divestiture of AT&T occurred in 1984. Since that time the Legislature, through the statutes in NRS 704, has instructed the commission to set up what are called plans of alternative regulation, PAR. The purpose of those statutes are pretty fundamental. You told the commission that you wanted to allow competitive companies to come in the State and operate with minimum regulation. You wanted to encourage the local incumbent telephone companies to cap their basic residential rates in exchange for some freedom to compete. And that is the scheme you have today.

 

This bill has four basic policy directions that you are making. The first is that you want to extend the flexibility rules that you adopted in Senate Bill 440 in 1999. There you instructed the commission to allow local telephone companies like Sprint and Nevada Bell to provide customers packages of services, provide them promotional offerings, and introduce new services, on an expedited basis that allowed those products and services to get to market quickly without the 6-month or longer delay that might occur through rule makings, and advice letter processes where tariffs are changed. This bill allows the local companies to provide three new types of flexibility that are just like the kinds of flexibility that you granted in 1999 under S.B. 440. Senate Bill 400 will allow local companies to provide customers volume discounts, term discounts, and individually tailored contracts. These are freedoms that the competitors have today, that the competitors use on a daily basis. But the incumbents do not have the flexibility to do that on the immediate and rapid basis that the competitors do.

 

Mr. Reaser stated:

 

The second major policy direction that you’re giving to the commission in this bill is to tell them to set up a streamlined objective and easily administered standard to reclassify products and services that should be treated as a competitive service today, because there are competitive alternatives. Both of these companies have a large number of products that are highly tariffed. The competitive services that are comparable to those are not tariffed, and these two companies should be able to ¼

 

Senator Neal asked, “Give me an example of that, please? Highly tariffed services.

 

Ann C. Pongracz, General Counsel, Sprint of Nevada, responded:

 

Currently, for example, all of our products that we would offer to, for example, major banks in this State are tariffed with the exception of the equipment we might sell to them. Each of those services is classified by the commission as a certain type of service: basic, other essential, discretionary, competitive, or deregulated. There are different sets of rules that apply to different sets of services; to the services in each category. This problem happens when, for example, customers may well want us to provide them with some services from category A, some from category B, some from category C, some category D, some from category E. They, understandably would like us to give them a single package of services with a single discount applied to them all, so they can understand. For example, they’re getting an 8 percent discount on all of the phone lines, the custom calling features, the long distance services, and the other types of services they need to run their business. Unfortunately, under the current regulatory framework, we can’t do that. The interesting things is that in some situations the commission staff has told us they would like us to be able to do that, but they don’t feel that they have that authority under the current statute. So they have come back to us and said: “We have no trouble with what you are trying to offer this customer on a ¼ , we have no substantive problem here, but we don’t think we have the authority today under the current statute to let you do that. Then, the commission staff has to propose to the commission that the commission conduct a proceeding to review it, and they kick it upstairs, in effect, because they’re just not sure that the statute lets them do, lets them allow us to do what they think we should be allowed to do today. Is that enough of a response?

 

Senator Neal responded, “Yes, yes.”

 

Mr. Reaser stated:

 

As Ms. Pongracz’s example also shows, ¼ the existing scheme before the commission allows competitors an opportunity to delay how those products will come to market by engaging in litigation in those various proceedings over 6-month periods. This legislation in section 25 will streamline that process and create objective standards that are less subject to litigation, and less subject to the delays incumbent in that. In section 26, we are extending the pricing flexibility to new areas that you have already agreed should be done in S.B. 440 a couple of years ago. In section 25, we’re creating this more streamlined way to bring competitive services to the market. In section 10, the legislation provides the right environment, as Ms. Samano indicated, to encourage the local telephone companies to invest in broadband and Internet/network services.

 

Today the incumbents across the country only have about a 30 percent market share in broadband and Internet services. The cable companies and the competitors are the dominant companies there. But unlike the cable companies and the other dominate ¼ and the other competitors through the dominant providers of those services, the local telephone company is the only company that could be subject to regulation of its providing the broadband services. So in section 10, while preserving all federal protections in this area, while preserving the ability of the commission to tax the revenues from broadband services, to consider consumer complaints, and to consider those revenues in rate making to support basic capped residential services. It says that the Nevada commission should not regulate the providing of broadband and Internet services by the local incumbent telephone companies. They should be at parity on the same footing as every other competitor who is providing those services. In section 23 ¼

 

Senator Neal said:

 

Before you leave section 10. As I read that section, it says: “The commission shall not impose any regulation upon a provider of high-speed Internet access services or broadband service in its providing of the services.” Is that a deregulation of those two elements in this bill; high-speed Internet access and broadband services?

 

Mr. Reaser answered, “It is a declaration of State policy that the commission should not regulate in that area. Today the commission ¼”

 

Senator Neal said: “Is that the deregulation?”

 

Mr. Reaser said:

 

No. I think today the commission is not regulating those services. This is saying, in the future you should not regulate these services beyond that regulation that already exists, and which the FCC and the federal government impose. Just make sure that the Nevada law will not be any more aggressive than what the federal law is.

 

Senator Neal asked, “Then with that clarification that the PUC has not now entered that field, why is it you want to keep them out?”

Mr. Reaser responded:

 

Because to companies like Sprint and SBC, it is critical when you are making the kinds of investments in plant and equipment that are involved in broadband and Internet services to be treated the same way that other companies are.

 

Senator, I know that the committee understands the one way for competitors to delay or encumber a competitor who is regulated is to use the regulatory process to slow them down, or to create impediments to them. This is an area where the local telephone companies should not be treated differently should not be subject to regulation when all of their competitors are not.

 

Ms. Pongracz stated:

 

I just wanted to add that it’s important in understanding section 10, to also take a look at section 10, 2, (b), because that is where we see what the commission will be able to regulate it on a go forward basis regarding the high-speed access and broadband. It is very important to understand that, for example, all of the revenues from those services will continue to be subject to regulatory scrutiny and inclusion in the rate base that’s used for determining whether any basic local rate increases will be justified in the future. In addition, the commission, under that section, will continue to hear complaints. If there is any problem with the type of service being provided to consumers, the commission retains its jurisdiction to hear that complaint. Thirdly, all the revenues from those services will be drawn upon to support the mill assessment. So in terms of the money involved in those services, all of that money will continue to be subject to commission scrutiny for both rate making purposes and purposes of the mill assessment.

 

Senator Neal said, “That particular section seems to be saying that you pay the commission not to regulate.” Ms. Pongracz commented, “Senator, I don’t think the commission would see it that way.”

 

Mr. Reaser said:

 

The fourth major policy direction that S.B. 400 contains is that it strengthens, in our view, the commission’s flexibility and power to conduct periodic reviews of basic rates to guarantee that they’re just and reasonable. It preserves the requirement that the commission has to approve any increases in those rates, in section 23. As I’ve said before, and as Ms. Pongracz just indicated, the legislation does all of this while preserving the commission’s power to preserve basic rates, resolve consumer complaints, and maintain a stable source of tax revenue to support the agency and the BCP.

 

Now the bill also clarifies and reorganizes some of the existing statutes, and I’m not going to go through those provisions of the bill like section 8 and 12, because they’re really not changing existing law, they are just clarifying and reorganizing pursuant to the LCB’s usual rules of how the legislative act should be laid out.

 

What I do want to focus on with Ms. Pongracz though, here at the end, is what we think you may hear today about what this bill does, to tell you our view of what is does not do. You may hear today that the bill is unnecessary, or it is premature because the FCC is going to issue an order that addresses some or all of these issues. As I said at the introduction, this bill is not about federal law and policy. It is about State policy. It is about the Nevada Legislature telling the commission how you want them to go about opening markets, keeping them open, and the timing of when you want them to allow competition to exist. The legislation is setting State telecommunications policy is doing that while preserving all federal protections for the competitors, and it is not undermining any Nevada law that allows the Nevada commission to entertain complaints among competitors that arise under the laws of the State of Nevada. You may also hear that the legislation is not needed because the commission has the authority to adopt rules to achieve some or all of these purposes.

 

Mr. Reaser said:

 

While, as Ms. Emmert indicated, that is true. It is as I have said before and will say again, a statute intended to set the State policy. As you know commissions come and commissions go, the size of the commission changes over time, its composition and its mission change. This is a bill intended to create an environment where local telephone companies are not subject to the variations over time, and the changes in the commission. It sets clear policy. It clarifies and codifies what has developed as the law in areas where there hasn’t been statutes adopted for a number of years,  thereby, creates the environment where you will bring in the types of investment, and maintain the types of investment that was indicated as necessary by Ms. Watts.

 

Ms. Pongracz stated:

 

Senator, let me add just one thing ¼ You asked at the very beginning of our commentary why this is needed, and why this can’t be done by the PUC today? I would like to add just one thought, which is that the role of the commission evolves over time. ¼ At each point in its history of its regulatory practice, it’s very important that the commission have the right tools to do its job for each industry that it regulates. This is a bill which was developed with a lot of input from the commission. There are a lot of items that were left on the cutting room floor that initially the companies had sought to obtain through the bill. We got input from the commission that what we were asking for was too aggressive at this point in time, and that what we need to do was really narrow our focus to what folks at the commission thought was appropriate. The commission has a very tough job to do and they have limited resources to do it. Right now the commission has to really do everything it can, for example, to make sure that the dockets it has in telecommunications can be handled properly so that, for example, we are charging the right types and levels of prices to the competitors that use our infrastructure through the UNE. What this bill will do is provide the commission with a statement from the Legislature that the job that the commission needs to… the commission needs to spend its resources on the jobs that need to be done in 2003. The commission no longer needs to spend its resources on the jobs that it needed to be doing in 1993. And that will make it a more effective agency, and that will enable all of us to work together better on a going-forward basis.

 

Mr. Reaser stated:

 

You may also hear that S.B. 400 will injure competitors. And I think as I stated earlier, that this committee understands from its experience that in the regulated fields, it is one way for a competitor to keep you out of a market or slow you down.

 

Senator Neal said:

 

Since you brought up the word competitor, let me just ask this particular question. In introduction I heard that Sprint and SBC, you know, came to the table here, they are together on this particular issue. Are they not competitors? What is it about this here that brings those two together?

 

Ms. Emmert responded:

 

You are exactly right.  We are competitors. But you can see the need of this bill for two competitors coming together to support this bill. We have the same problems and the same issues because we’re regulated the same way. Sprint has been a long-time proponent of competition, so we’re very use to working with our competitors on a day-to-day basis.

 

Ms. Pongracz commented:

 

Senator, it is an ironic situation. Right now, SBC has just received the authority that it needs to come and compete as a local company down in our service territory. A couple of years ago, we got authority to compete as a local service provider in their service territory.

Senator Neal asked, “Let me go back to section 10 and ask a question, if I may. Would Sprint be involved in the broadband services?” Ms. Pongracz responded, “Yes. In fact, we’re involved in that today.”

 

Senator Neal inquired, “And high-speed Internet access services also?” Ms. Pongracz replied, “Yes, Senator. For example, Sprint today offers a DSL service.”

 

Senator Neal asked, “Would SBC be involved in those same things?” Ms. Watts answered, “Yes.”

 

Ms. Pongracz commented, “Today, Senator, Sprint’s DSL service provides high‑speed Internet access to about 25 percent of the market in southern Nevada.”

 

Senator Neal said, “Let me ask another question, if I may. Are you the only two companies that would be involved in these two services that we found mentioned in section 10?”

 

Ms. Pongracz answered:

 

No. Actually you’ve hit on a key fact of our whole dialogue for today. The major service provider for high-speed Internet access in southern Nevada is not Sprint; it is Cox Cable. They have a cable modem service that’s a very fine service that many, many customers subscribe to today. About 85,000 customers in Clark County subscribe to Cox Cable high-speed Internet access service. Sprint has a competing high-speed Internet access service that we call our DSL service, and we provide that service to approximately, I believe the number is approximately 20,000 customers today in contrast to Cox’s approximate 85,000 customers today. When I say that I’m not saying anything negative about Cox. They have launched a fine product, we’re attempting to compete with it, but the important fact of the matter is they’ve got 85,000 customers today; we’ve got about 25 percent of that.

 

Senator Carlton said, “And Ann, to finish up on that, you have guidelines you have to follow and you are regulated, but yet Cox, who is the competition down south, doesn’t have to follow the same guidelines or rules that you have to follow. Correct?”

 

Ms. Pongracz responded, “Yes, that is correct. Now Cox is regulated under its cable franchise for its cable services. However, its not subject to the same type of regulation of its high-speed Internet access service that Sprint is subject to.”

 

Senator Carlton said, “That is what I’ve been trying to figure out, and that is the most confusing part of this. They are regulated, but not in this particular area where you are.” Ms. Pongracz stated, “That’s right.”

 

Richard Pfeifer, Sprint of Nevada, stated:

 

Senator, could I add something here? I wanted to bring up a current example of why this legislation is. We just recently filed a tariff called, Gigabit Ethernet. It’s a very high-speed and functional data product that customers in southern Nevada have been telling us that is very much in demand. It will allow a lot of productivity with high-end business customers, and we recently filed the tariff. The tariff included a cost study, it included a market study, and it included all the details of a tariff. It was a very extensive filing. That filing currently sits with the public service commission. The staff, they will review it. We will receive data requests from them as to the concepts or the accuracy of the studies; not only the cost study, but the market study. Hopefully, 180 days from now, we’ll have that service up and running in southern Nevada. If you look at the book (Exhibit F. Original is on file in the Research Library.) that we handed out to you, you’ll see a lot of the data products that Cox Communication provides today; one of those is Gigabit Ethernet. They didn’t have to file a tariff, they didn’t have to file a cost study, they didn’t have to file a market study; at least to the best of my knowledge I have never seen one. I think that is a very good example of why this legislation is needed.

 

Senator Hardy said:

 

I just want to make sure I understand what you are saying. As I understand your testimony, what we have here is an emerging technology that you guys have decided you would like to engage in, and have the ability to do so through infrastructure that you traditionally use. And somehow that’s got pulled into the regulatory scheme on the other side of your business. Is that correct? So we have in effect, a reverse effect where the competitors hold the primary market share because of what was contemplated as a different set of competitive rules or regulatory rules.

 

Dan Jacobsen, SBC Nevada, responded:

 

You’re absolutely right. But I think an important point is we’re using part of our infrastructure, but we have to spend considerable investment to make our telephone lines be able to support high‑speed Internet services. The key point here is, there are people in this room who you’ll hear from later today who would like to have us required to sell that high-speed broadband service to them on a wholesale basis at prices below cost. If we have to sell on a wholesale basis, if we have to invest a lot to be able to provide broadband, and then sell it to our competitor at a price that is below cost, it won’t make any sense for us to invest. If we don’t invest, customers will not have alternatives. They won’t have options for who they buy broadband from. There’ll be just one option, which is cable.

 

Senator Hardy asked, “So even though you essentially are telling me that you are, in this case, the competitors, you’re still being held subject to the rules that you’re under as a local provider?” Mr. Jacobsen responded, “You are absolutely right.”

 

Senator Hardy said:

 

You said earlier, I believe, that what section 10 does is really codify what is existing practice. Did I misunderstand you? You said, in answer to one of Senator Neal’s questions ¼ there is not regulation, other than what is existing here currently. Did I misunderstand you? If I didn’t misunderstand you ¼ help me get a feel for what the competitive market and what the regulatory market looks like today as it relates to both you and Cox?”

Mr. Reaser answered:

 

My colloquy with Senator Neal, if I misled you, I apologize, is that today the Public Utilities Commission of Nevada has the authority to exercise some control over the providing of broadband Internet services by Sprint and Nevada Bell, but no authority, nor does any other state agency have the authority to regulate any of these competitors who have 70 percent of the market. What section 10, subsection 1, makes clear is that the commission, this Legislature is saying, should not ever and will not exercise that authority to create an unlevel playing field in the future, except for in the three areas where we talked about, which was you can still tax, you can still consider those revenues to support lower basic rates, and you can consider consumer complaints.

 

Senator Hardy asked, “So they currently have the authority, but they are not exercising that authority, currently?”

 

Mr. Reaser responded:

 

That’s correct. From a national policy standpoint, certainly Sprint and SBC are very concerned because Sprint ¼ do business in 18 jurisdictions, and SBC in 14 jurisdictions. To keep there from being vulcanization, different laws in each one of those different states that would apply to them rolling out those kinds of investments that Mr. Jacobsen talked about.

 

Senator Hardy said, “As the practice exists right now, you’re not in a competitive disadvantage because of the situation we just described, but you could be? I understand that. That’s why I was asking the question.”

 

Mr. Jacobsen answered:

 

There is pressure and you’ll hear from people later today, there is pressure on the commission to force pricing, wholesale pricing for broadband service that would create a real barrier for us to invest any more, or to deploy any more broadband in this State.

 

Senator Hardy said, “I understand that. I’m just trying to get a feel for what’s occurring today. You keep saying the potential would have. What is causing the problem today in this area that section 10 addresses?”

 

Ms. Pongracz responded:

 

Senator Hardy, I think it would be helpful if we distinguish between the retail side of the business and the wholesale side of the business. Mr. Jacobsen is thinking primarily about the wholesale side of the business right now where the incumbent local phone companies need to wholesale their infrastructure. It’s on the retail side today where we see the biggest handicapping going on, the biggest disparity because it’s in Sprint’s retail offering of its DSL service is regulated and subject to a number of conditions; whereas Cox’s retail offering of its DSL service is not.

 

Mr. Reaser stated:

 

The other arguments that you may hear against S.B. 400 today and its adverse impact on competition are that the competitors will somehow be unable to meet SBC and Sprint’s abilities in the market. Senate Bill 400 retains the commission’s oversight with the local telephone companies. It preserves the competitors freedom to act, but it allows the local telephone company to effectively respond to competition. I want to give a couple of examples. Both Sprint and SBC have frequently been asked to respond to requests for proposal from businesses and from local and state governments. And in responding to those RFPs, the local incumbent telephone companies are constrained by tariffs. Therefore, when they put together the bid response, they have to price the components of what is being asked for. For instance, from a school district’s telephone services, by what the tariff is. But the competitors don’t have tariffs so they can price below. Not only do they not have tariffs that are enforceable, but they know what our tariff is so they know how to price the request for proposal. In those cases it effectively means that the local incumbent company cannot be an effective competitor in response to those requests for proposals. What does that mean? It means that consumers pay higher prices. It means that local governments when they are the requestor for those services pay higher prices, and taxpayers have to pay those higher prices through taxes.

 

Mr. Reaser said:

 

By allowing local incumbents to do individual case-based contracts, RFP responses, you allow them to come back into the marketplace and compete on a price-competitive basis. That is good for competition. It may mean that competitors will face a stiffer competitor, but is not the purpose of either this committee, the Legislature, or the commission to favor one competitor over another. It is to make a competitive environment where consumers are the winners. You may also hear the basic rates will increase. There is nothing in this legislation to increase basic rates. This legislation, as I said, preserves and strengthens the commission’s authority to regulate basic rates, to make sure consumers pay just and reasonable prices.

 

Senator Neal asked, “Just for clarification, what do you mean by basic rates?” Mr. Reaser answered, “What you and I pay for dial tone at our house.” Senator Neal commented, “We just want to make sure the public can understand, because they’re listening to us.”  Mr. Reaser said, “I agree.”

 

Mr. Reaser continued:

 

Finally, you may hear that this legislation is a deregulation bill. Nothing in S.B. 400 eliminates the authority of the Nevada public utilities commission to regulate the local telephone companies, and providing those basic telephone services at fair prices to consumers in compliance with federal and State laws. The bill provides ¼ some new standards it obviously provides the four policy directions that I indicated to you early from the Legislature to the commission. We believe those policy directions will create three important things for Nevada consumers: choice, lower prices, and it will encourage investment in new products. In summary, we believe that this is the time, this is the legislation, and there is nothing about this legislation that is inconsistent with the process that this committee and Legislature has undertaken since 1984 to bring competition to the telecommunications market. I’ll be happy to answer any other questions.

 

Chairman Townsend asked:

 

Committee any questions of the group in front of us? Thank you. To understand the mechanism, we are going ahead with the proponents or supporters of this bill, then we will go to those who have a complete objection to the bill or sections of the bill, and then our regulatory representatives here from the BCP, and the commission to provide their insight.

 

Elizbeth Sorenson, Lobbyist, Communications Workers of America, said:

 

I represent the SBC employees throughout Nevada. Our area of jurisdiction includes Reno, Carson City, and most of the outlying areas of Nevada, and I am here today in support of Senate Bill 400. The employees we represent are dedicated, hardworking, and take great pride in providing our customers in Nevada with not only the best customer service, but the services our customers want. Today, because of regulatory obstacles we cannot always offer those services. Senate Bill 400 will eliminate the regulatory obstacles, which currently restrict SBC from offering different service packages, and different types of term and volume discounts, which customers want and need. We work in an industry, which depends on technology to provide a product to our customers. As that technology changes, our company must be able to change with new advances that are being made every day. Our customers demand these new services, and yet because of the regulatory system we work within, we cannot always provide those services. Unless the Legislature changes the law and allows SBC to operate on a level playing field with our competitors, our jobs will eventually be lost to an unfair competitive market; and in the end the consumer will be the loser as well.

 

Danny Thompson, Lobbyist, Nevada State AFL-CIO, stated:

 

I represent all of the workers that have been represented here today to you all in this industry. I actually served in the Legislature with some of you in the ‘80s, and I recall a conversation one night at dinner, telling me after the breakup of “Ma Bell.” They needed to make some changes in the law because some day you will actually see the name and number of the person on your telephone when they call you. At that time that was really pie-in-the-sky stuff. Today the technology is changing so rapidly, and it’s changing the job environment. In some ways it’s good, in some ways it’s bad. You know, if you’re losing your job it’s a bad thing; and if you’re obtaining a job because of it, it’s a good thing. But, nonetheless, a lot of people’s lives are changed because of emerging technologies, and this technology, I think that Senator Neal hit it right on the head when you said, “The public is watching.” The public is watching, and the public is watching when that broadband that we’re talking about over the Internet. These companies truly are operating at a disadvantage. Unless that playing field is leveled, I can tell you they won’t be able to compete, and they will eventually lose their market share, and these jobs will go away. We think that this bill levels the playing field for them. In the end, it will level the playing field for the customers that are asking for this service that are watching us all today on the Internet. We support this bill, and we would urge you all to do the same.

 

Chairman Townsend said, “Those who have less than supportive comments.”

 

James T. Endres, Lobbyist, AT&T Communications of Nevada, Incorporated, said:

 

For the record, let me state that AT&T does not support this legislation this morning. Many of us have been around this building talking about communications issues and policies for a good number of years, and I have to say I’ve been one of those. Over a decade ago this Legislature, this committee, some of the members on this committee had vision, had a telecommunications vision in this State. What they did with that vision is they vested in the public service commission the full authority to regulate to the extent the commission deemed reasonable telecommunications for the State of Nevada.

I have to say over the past 25 years of my career in this State, and a brief tour outside the State, I have to look back at the State of Nevada and think that that vision has, in fact, served the State of Nevada very well. That vision that has produced and vested in the public service commission a broad ranging of authority in terms of being able to manage the telecommunications, and the changes that are occurring in technology, and the competitive pressures that arise in an industry brought about a number of regulatory changes.

 

Mr. Endres said:

 

First of all, it brought about the changes that changed how the long distance industry was regulated immediately following divestiture. Subsequently, it brought about a more sweeping change in the telecommunications industry, one that brought the entire industry together. I think some of you may recall, it’s called the Omnibus‑Telecommunications Regulation. At that time that concept took over a year to put together, to bring the industry together, worked out the issues and details of that piece of regulation. But that regulation is very sweeping. I think you heard a little bit about that this morning from Mr. Reaser.

 

After that, of course, we had another change in the regulatory constructs of Nevada, and that was called the Plan of Alternative Regulation. It took the regulation of the incumbent local phone companies to another level. All of these changes that I’m speaking about right now, all were as a consequence of the changes that were happening in the market, all as a consequence of changes happening in technology, and all that was a consequence of changes happening at the federal level, and to be consistent with what is going on in other states. So the public service commission, over the years since you initially adopted that vision, that that agency should be the agency, and is the appropriate for telecommunications management for managing the orderly change and transition of this very complex technology-oriented industry. That is the location where these sorts of debates should continue. They should not actually be aired in just an hour, hour and a half or 2 hours of time ¼ trying to decide what is happening, how it’s happening, what technology is being deployed, what technology competitors are trying to compete with one another against, how do they interface with legacies, networks, and systems, and services as opposed to what is being rolled out in terms of new technologies.

 

Mr. Endres continued:

 

Again, that vision that you had back in a decade, over a decade ago was the correct vision. In 1999, the Legislature departed from that vision. It created a set of regulatory constructs that we all worked out after agreeing on the part of those discussions, and we worked quite, it was a difficult piece of legislation, a sweeping piece of legislation, and you heard a little bit about that this morning. But those regulatory constructs are now set out in the statutes of the State of Nevada. Should changes need to occur as a result of many of the things that you heard already this morning, changes in technology, changes in the competitive marketplace. It is this legislative body that has to come back together again, understand the issue within the constraints of a legislative hearing cycle, within the constraints of a legislative 120 days, and determine what is the best course of action in terms of how do you move and make sure that competitors are equally treated and assure that the orderly transition of a competitive marketplace with telecommunications, continues in a way that benefits all of Nevada.

 

This, again, is not the job of this Legislature. The Legislature, when they decided that the role of the public service commission should do that ¼ was the appropriate role. The commission has been doing a good job at that. Most recently, I understand, I just arrived back in Nevada this last summer, but I do understand, ¼ talking with some of my colleagues in the industry that the public service commission offered and did, in fact, open another proceeding to once again examine its rules and regulations governing the industry this last summer. That was 6, 7, 8 months ago we heard some comments and criticism about the regulatory process just a moment ago that it delays things; it doesn’t allow the industry to react or at least the incumbents to react.

 

Mr. Endres stated:

 

Well I have to tell you had they done that work, had they gone forward and decided to work aggressively on those sorts of activities in terms of defining what’s happening, how’s it affecting the industry, how’s affecting Nevada, how’s it affecting technology providers. I think much of that work would have been done. And the only thing that you would have had to do as a legislative body would be to address anything that was related to enabling legislation. Should the commission lack some authority where they could not act, the information could have been brought to you in timely way, because the commission had started way upstream, and that information could have been in front of you now to be evaluated. That is not what happened this last summer. The docket, as I understand, was closed and the issues that would have been raised, should have been raised in that proceeding are not in front of you in S.B. 400.

 

Chairman Townsend asked, “Mr. Endres, is this yours (Exhibit G)?”

 

Mr. Endres answered:

 

Yes, it is. Let me point out, I did hand out a bullet point, a one sheet bullet point of the issues that we have at AT&T does have with the bill. Next to each bullet point is section identification if you want to cross reference.

 

Chairman Townsend said, “Let’s go down these: Unfairly require the Legislature to decide complex technologically dependent regulatory decisions. You don’t think we’re capable of doing that?”

 

Mr. Endres responded:

 

No, I think all the members of the committee are capable of doing many things. I think you’re capable of understanding those technology changes and those issues. However, the time constraints to deliver and devote to the appropriate debate and discussion of all of those matters, hearing from everyone, usually takes quite a bit more time at most levels of government.

 

Chairman Townsend said, “You make reference to section 8 with that. I don’t get the connection between our inability to deal with that and section 8.”

 

Mr. Endres responded, “Section 8, if I recall, Senator, deals with enabling the public service commission to adopt regulations.”

 

Chairman Townsend said:

 

I’m sure you can get a copy of the bill. Section 8, says, “the commission may exempt¼” not must; “¼ an incumbent ¼ from any or all of the provisions of this chapter, upon a determination after a hearing ¼” an “incumbent local exchange carrier should be subject to ¼” PAR. So they may have a hearing; they may have 2, they may have 20. If any of the things I say are incorrect, please feel free to correct me.

 

Mr. Endres said, “No, you’re correct, Senator. I agree with you.” Chairman Townsend asked, “What part of the basic local telephone service is being deregulated under 8? That is your contention in bullet point 2 and in 10, and in 25.”

 

Mr. Endres responded: “Senator, if I will, appearing also with me this morning is going to be Kate Marshall who will be representing AT&T, and if she could join us. She has handed out a multi-page document (Exhibit H. Original is on file in the Research Library.) side-by-side analysis of this bill.”

 

Chairman Townsend said, “I’m reading from yours, and you’re the one making the contention. Now we’re going to have a person who has a second set of contentions?”

 

Mr. Endres answered, “No, it’s the same set of contentions. Ms. Marshall and I worked this side-by-side.”

 

Chairman Townsend asked, “How close side-by-side did you work?” Mr. Endres replied, “It’s coming your way right now (Exhibit H).”

 

Chairman Townsend said:

 

I mean you’re objecting philosophically or to the philosophy, which is fine, and I respect that, but you’ve handed out a contention about deregulation about basic telephone service, which Senator Neal appropriately asked about, so I want to get to that.

 

Kathleen M. Marshall, Lobbyist, AT&T Communications of Nevada, Incorporated, Covad Communications Company, and Mpower Communications Company, stated:

 

It’s the testimony that has two columns, S.B. 400. The left column is basically citing the actual sections; it’s just a copy of the actual sections of the proposed legislation. The right column is what I’m testifying on. You were asking about section 8, Senator. Would you like me to respond to that?

 

Chairman Townsend responded, “Sure, since Mr. Endres isn’t going to defend his position, maybe you’ll defend ¼. Who do you represent in this?” Ms. Marshall answered, “I represent AT&T Communications of Nevada, Covad Communications, Mpower Communications.” Chairman Townsend said, “So you represent three different groups?” Ms. Marshall said, “Yes.”

 

Ms. Marshall testified:

 

Section 8, basically, provides the commission with instructions on how it shall regulate or deregulate the local telephone companies. Today, without this legislation, under NRS 704.040 the commission may adopt regulations to the extent it deems reasonable. That is very, very broad legislation and allows the commission to regulate or not to regulate as it sees fit.

 

Chairman Townsend commented:

 

The contention is they don’t believe they have the authority to deal with the broadband issues in this. Yes, it’s broad, but if they interpret it to be narrow, then that, I believe, is the contention of the other party.

 

Ms. Marshall said:

 

I understood, and I don’t want to speak for the other parties, but I understood Mr. Reaser to say that the commission has not, currently, regulated them.

 

Under today’s law, either Sprint or SBC could petition the commission and ask for these adjustments that they are asking for here in section 8. They could make a petition and say, “We ask the commission to adopt regulations to allow us to adjust our rates during the period in which we are under PAR.” They could petition the commission and seek that, and the commission would hold a hearing, and take evidence, and analyze, and issue an order on that matter. So there is no need for this section 8, because they can go to the commission today, and ask the commission to do any of the things that are in section 8. The commission has quite broad authority under 704.040. In fact, and Mr. Endres brought it up, in November 2002, the commission did just that. They opened a docket and said, “We would like to overhaul these regulations, what do you think is important? What do you think we should overhaul? What should we let go of? What should we keep?” Sprint and Nevada Bell, in November 2002, said they did not want to pursue that docket: they wanted to come here before you instead.

 

Senator O’Connell said:

 

I was looking at my notes, and the information that was given to us, I believe by the gentleman representing Lionel and Sawyer. He said that in section 8 and 12, it was simply clarifying; so that is their feeling for the need for section 8. They felt that needed to be clarified.

 

Ms. Marshall responded:

 

Yes, if I were them, I would put it that way. But being me, I suggest to you that it is a way of telling the commission to tailor that broad authority that they have under NRS 704.040 to specifically make these adjustments, which they could petition the commission to make now. Now they are having you tell the commission to make those adjustments, instead of them petitioning the commission and asking for them.

 

Chairman Townsend asked:

 

May I go back? I’m still stuck on bullet point 2, which is sections 8, 10, and 25, which are going to deregulate basic local telephone services. Since Mr. Endres has handed this off to you, could you be specific about where that happens, and how that happens?

 

Ms. Marshall answered:

 

In section 8, which is on page 3, at line 14, it says, “the commission shall specify the provisions of this chapter.” That is 704, and chapter 707 that do not apply. You are going to tell the commission that they shall define what sections of chapter 704 [of NRS], which is like yea ¼, and chapter 707, which deal with police enforcement, 911, and these things that do not apply. In section 10, page 4, line 4, “the Commission shall not impose any regulation ¼ .” In section 25, subsection 4, page 17¼

 

Chairman Townsend asked, “Where in section 10 do you think we are deregulating the basic service; or to be specific, taking away control of the PUC over basic rates?”

 

Ms. Marshall replied, “I would like to quote for you from Sprint’s testimony in Missouri.”

 

Chairman Townsend said:

 

I’ll let you do that, but I’m trying to be very kind today, which is a real step out of my character for me. If we could just look into section 10, and wink to the part that says, “The PUC loses control over basic rates.” That’s the part I would like to know about.

 

Ms. Marshall responded:

 

In section 10, it says that it defines high-speed Internet access service. That’s on page 4, and I’m at line 40. It says, ¼ it is “any services and underlying facilities that are capable of transmitting information, at a rate that exceeds 150 kilobits per second in at least one direction, regardless of the technology or medium used, including, but not limited to,” all different kinds of technologies.

 

In Sprint’s testimony in Missouri, Sprint stated that their network was a packaged switch network, which provided all services at these speeds, and therefore, under this provision, all services of Sprint’s network would be deregulated. In Missouri, Sprint is a local phone company like they are here. They are not a competitor; they are a local phone company. It was their testimony that their network would be deregulated under this provision. So I am quoting them when I say deregulation.

 

Chairman Townsend said:

 

We will have the PUC give me an answer since I can’t seem to get one. They’re the authority. They can tell me whether they perceive sections 8, 10, and 25 to be quote, “deregulated,” close quote, for them to lose control of the basic local telephone service.

 

Ms. Marshall said:

 

Yes, Mr. Chairman, if your local phone service to your home, if that copper wire is capable of transmitting at speeds of 150 kilobits or more, it would be deregulated under this section. Sprint testified in Missouri that your local copper wire to your home in Vegas, their network, was capable of doing that; therefore, it would be deregulated.

Chairman Townsend asked:

 

Then let me ask you this? If we’re going on parallel tracks but in different directions about the term deregulation, where does the PUC, since I’ll wear my consumer hat, picks up the phone, makes a call, and they get a bill for it. Where does the PUC lose control over that charge, that actual charge for the monthly basic rate?

 

Ms. Marshall replied:

 

On page 4, line 4, when it says, “the Commission shall not impose any regulation ¼” That denies the commission the authority to enforce or impose their rules and regulations for that particular product. They will no longer have jurisdiction over that particular product. In other words, if the commission were to seek to open a docket, they could no longer do so.

 

Chairman Townsend said, “Let me ask you this. You keep quoting sub 3, of 10, on page 4.” Ms. Marshall said, “Yes. I thought we were focusing on section 10.”

 

Chairman Townsend said, “That is what I’m talking about, page 4, section 10, ‘high-speed Internet access service or broadband service.’ Does that define what a basic phone line into your house is?”

 

Ms. Marshall replied, “It does under this section. They have defined the term so broadly that it would include the basic line to your home.”

 

Chairman Townsend said, “That is your interpretation of that definition?” Ms. Marshall answered, “Yes, Sir.” Chairman Townsend said, “So your contention is ¼”

 

Ms. Marshall said:

 

Mr. Chairman, it is not the same definition, for example, that is used by the FCC. It is a much broader definition. The FCC definition is 200 kilobits in both directions to a subscriber, and does not include underlying facilities. It is not the same definition, it is much, much broader.

 

Chairman Townsend said, “Then let me ask you this. If your contention is correct, and we get to a section of the bill that leaves control for the basic rate with the PUC, do you have a problem with that?”

 

Ms. Marshall stated, “I believe those two sections are in conflict, Mr. Chairman. I believe that Sprint and Nevada Bell would argue that this section was controlling.” Chairman Townsend said, “Okay, that’s fair.”

 

Ms. Marshall continued:

 

There are a number of places, Senator, where rules and regulations are set up, for example, in section 26, and section 28. Rules and regulations are set up for competitive services. However, under section 25, subsection 4, competitive services are no longer subject to chapter 704, therefore they would not be subject to sections 26 and 28.

 

Chairman Townsend said, “Going back to my original contention. Do you have any problem with the commission not spending time on competitive services if they maintain control of the basic rate?”

 

Ms. Marshall responded, “I do not believe that is happening in this bill.”

 

Chairman Townsend said, “That is not what I asked. What I asked was, and I will repeat it again. Do you have any problem if the PUC does not spend any time on competitive services and maintains control of the basic rate?”

 

Ms. Marshall said:

 

I believe that the commission should monitor competitive services to make sure they remain competitive. For example, should those services become noncompetitive; that is to say should competition leave the State, and the services no longer be competitive, I believe this commission should have the ability to go back and say¼

 

Chairman Townsend said, “Without question.” Ms. Marshall continued, “I do not believe that under this bill that it would no longer have that ability.”

 

Chairman Townsend stated:

 

I will go back for a third time and then I will move to someone else about my question. Do you believe that the commission should spend any time on competitive services if they maintain control of the basic rate?

 

Ms. Marshall answered, “Yes, I do.” Chairman Townsend inquired, “Do you have a problem with that?” Ms. Marshall replied, “I believe they should spend time on competitive services. Yes, I do.”

 

Chairman Townsend asked, “Why do you want a regulatory agency looking over an area that’s competitive?”

 

Ms. Marshall said, “In the last session we came here, the Celix came. It was the only time they came, and ¼ the competitors came. They asked for a process to enable the commission to review commercial disputes between competitors.”

 

Chairman Townsend commented, “Yes, I remember it distinctly.”

 

Ms. Marshall continued:

 

There is a case now, for example, in front of the commission where there are claims and counterclaims about there being unfair competition. I believe the commission should have the ability to have jurisdiction and to resolve those complaints between competitors.

 

Chairman Townsend stated:

 

Again, I don’t say that they shouldn’t have that authority, but should they spend a great deal of time on competitive services, as long as they control the basic rate. I mean, how do you use the term, competition, in a regulatory agency in the same sentence?

 

Ms. Marshall commented, “Yes, we are indeed in a transition period.”

 

Chairman Townsend said:

 

That is the whole point of this bill is to transition you. You know we keep worrying about you guys. I’m worried about the customer. If the customer at AT&T tells you they want X, and it doesn’t harm other customers, you should have the ability to get X to them as quickly as possible. Am I misstating what the competitive world is?

 

Ms. Marshall, replied, “No, Sir.”

 

Chairman Townsend said:

 

Well, that’s the way I see it. I’m concerned about basic rate. I’m concerned about the customer who has a basic need get that, because they can’t go out and compete for themselves. Business should be allowed to compete. You should be allowed to compete for business to come up with product services, bundles, new ideas none of us have ever thought of, and to have regulation involved in competitive market, I don’t get. I don’t disagree with you with regard if competition stops because someone leaves the marketplace, that the PUC has a role. I don’t disagree with that at all.

 

Ms. Marshall said:

 

I think one of my main concerns about this bill, Senator, is that it would allow under the auspices of competition of reclassifying services as competitive to basically remove basic telephone service from the regulation of the commission.

 

Chairman Townsend said: “I don’t see it that way; but, I’m just a part-time, humble public servant, so we’ll leave it at that.”

 

Senator Hardy asked, “When we are talking about services, what are we talking about? Are we talking about basic services for example, call forwarding, ¼ those kinds of things? Is that what we’re talking about?”

 

Ms. Marshall replied, “I believe we are talking about all services in this bill. Would you like me to give you some examples?”

 

Senator Hardy said, “No, just in the context of the discussion that just occurred.”

 

Ms. Marshall said, “I understood that we were talking about plain old telephone service.” Senator Hardy said, “Dial tone?” Ms. Marshall answered, “Yes.”

 

William H. Weber, Vice President, External Affairs, Covad Communications:

 

Senator Hardy, if I could take a crack at that answer. The telecommunications network in Nevada exists because of regulation. It exists because there was a legal monopoly for many years, and the captive ratepayers paid rates that allowed this very well-maintained telecommunications network to be built out. Likewise, competition on that network exists in Nevada today solely because of regulation that flowed from the federal government has been implemented very ably by the public utilities commission.

 

When you talk about deregulation of the telecommunications network, what in effect you are talking about is a return to monopoly. I think that is the concern. In other words the competitors are here today, and when I actually do the majority of my testimony (Exhibit I, Exhibit J, and Exhibit K), I’ll address this. But we’re here today to ask that the status quo be maintained. Yes, the status quo does include regulation to maintain a level playing field on this communications network that Nevada citizens paid for. But, I think it is important to understand that historically we’ve always regulated monopolies, because historically when monopolies are unregulated, they tend to abuse their power. Don’t mistake me; I’m not saying that SBC is doing that, and I’m not saying that Sprint is doing that. They’re very valued partners in my company and, in fact, SBC is our primary wholesaler of the lines we use to provide our services. But that’s the area in which we think regulation needs to remain, and the PUC needs to retain oversight. Because they are, in fact, at this point in time doing a very good job of fostering competition by maintaining a level playing field through regulation.

 

Senator Hardy said:

 

I understand the need for regulation with regard to monopolies, and I also understand the need for regulation when you are trying to come out of a monopoly situation and make the market competitive. But the reason we have these ongoing discussions as I see it, is the market changes. The industry becomes more competitive for example, and that’s the goal of that kind of regulation. If you’re talking about maintaining a level playing field, I think that’s important. But at some point those lines are going cross. At some point those lines are going to cross where the monopoly now comes to a competitive disadvantage, because of the regulation that was designed to hold them back so other people could compete.

 

Mr. Weber said:

 

If I may, Senator Hardy? I don’t accept the premise that underlies the statement that you just made there, and I will explain to you why. The regulations as they currently exist require the public utilities commission to set rates that give a fair rate of return, including a reasonable profit to SBC and to Sprint. They have done that; they’ve done a very good job doing that. When we talk about competitors providing services, using primarily the last mile of Sprint and SBC’s network, that last little bit of copper that gets to your house. It is important to remember that SBC and Sprint retain 100 percent of the market of lines going into the home. Their market share remains 100 percent. The only ¼ changes is that on parts of that line that they are leasing to competitors, they are making a smaller rate of return than they would on a monopoly circumstance.

 

Senator Hardy said:

 

I understand that, and you’ll get no argument from me that there needs to be maintained regulation with regard to that issue. But the question I have is, won’t we get to a point where regulation for purposes of leveling the playing field will no longer be necessary? Not for regulating the lines that you have to use to provide your service, that’s not my question. My question is when we get to the point where we no longer need regulation for purposes of leveling the playing field or inspiring competition, then at some point the market can take it, because that’s a threshold issue for me on this. Understand why we have regulation, why we had regulation, why it’s needed. But, hopefully, at some point we’re going to get to the point where we don’t need regulations for purposes of inspiring competition.

 

Mr. Endres said:

 

That’s a very good observation. I would like to share with you, and you probably already realize this that you know in 1984, when the Bell system did divest itself of its long distance industry, it took quite a number of years, not a number, but at least half a dozen years, within which AT&T had to lose significant amount of its market share, and then the long distance industry was no longer regulated, or AT&T was no longer regulated under the current, under the FCC constructs where it was held back, and had the different forms of regulation imposed upon than did its competitors. You’re absolutely right, the crossroad point does happen, and it will happen in this industry, and it continues to move in that direction. I think these are really quite exciting times, and challenging times, and that is why we’re having these debates.

 

I think what we are seeing since the passage of the Telecom Act  is we’re all experiencing some other challenges in the industry, not just competitors competing to use as a representative from Covad has indicated, you know, sharing the infrastructure of existing legacy companies. But what we’re also seeing is this intermodal, emergence of intermodal competition where one form of technology competes with another form of technology. So we’re going to see competition. Those crossover points are going to happen. What this debate is about today, and where we seem to be disagreeing and sometimes agree, and that is why we have these debates, is where is the crossover point? When does it happen? How should we observe it? How do we manage once we observe it, and how do we manage the process?

 

Mr. Endres said:

 

I think what we’re saying here this morning is that Senator Townsend’s comments about competition, and your observation of where the crossover points are, where is the place for that management to occur? We are not disagreeing that there should be less in regulation as the transitions occur. What we’re saying is, the place where we feel comfortable in carrying out this debate, and critically examining, and bringing the technology experts, the network experts, is probably an environment that has been used for a number of years, and in this State that is the public service commission. They’re so well equipped with their specialists and their analysts to deal with this, and we would welcome an opportunity even in this discussion to try to identify, specifically, what are the areas that each of the incumbents would like to explore at the public service commission. We would add to that list of things we think competitors would like to explore before the public service commission. More or less, what I’m saying is when the commission opened the proceeding last year, they should have had some more dialogue in that. They should have continued down that path to open up and flesh out at that level what are the issues, how do you manage it, how do you define competition.

 

Senator Townsend, we were talking a moment ago about sections 8, 10, and 25. In section 25, in particular, if you wouldn’t mind looking at that with me for a moment? Section 25 has a standard of defining competitive services, and for a number of years the commission has in its regulations standards of how to define competitive services when does that crossover point actually occur. Section 25 of this bill redefines the crossover points for all of the services, for all services of the local exchange company. What we’re seeing here is the continuation of the debate, where is that crossover point? Where does the bright line appear? When is it really competitive? We’re not disagreeing that crossover points occur. What we’re talking about this morning is where should we examine that, and how can we move forward and assure that when the crossover point occurs, that there is no further any need for regulation. That is what this debate is. I think we all agree in principle. I think, about competition, the need for competition, but I think we’re also, I think, we also agree on the need for an orderly transition of a competitive market place. We aren’t in a lot of disagreement; it’s just that I think we’re at different points on this plane: on when it should occur, how it should occur, and where is the place for that debate to occur.

 

Chairman Townsend said:

 

Mr. Endres, I appreciate your remarks. First of all the transition, the orderly transition, which you refer to, is always going to be in debate, because the one person’s orderly is another person’s problem. I don’t think this bill goes remotely far enough, and I’ll tell you why. ¼ You and I have been friends a long time, and intellectually, you’re far superior than I am, but I don’t think the debate belongs at the PUC. I think the debate belongs in the marketplace, to unleash your companies to meet that demand. That to me is where this debate should occur. When I look at what is going on, and I’ll pick southern Nevada because I’d kill over one of those newspapers just for the ad revenue based on competition in Clark County. When you see what is going in Clark County in terms of just cell phones, I’m overwhelmed. I think that is where this debate belongs. You know, businesses are sophisticated and have resources. I’m not worried about whether they can take care of themselves in the marketplace. They’re going to live or they’re going to die. They’ll succeed or not. I don’t think any of these services that are either competitive or discretionary should have anything to do with the commission. If call-waiting is $5 from one company, and it’s $10 from somebody else, there’s a price point the public is going to tell them no, I don’t need it. And that seems to work. But the more there is delay in implementing technology to meet demand, the more disadvantaged the public becomes. This is the “Gunfight at the OK Corral,” and we want you in there with all your guns blazing, having a field day so the guy on the outside, the consumer, the viewer, can get a benefit.

 

Mr. Endres responded:

 

Senator, if I might. I think we can agree with you on that point. We really would like to have a Gunfight at the OK Corral, and really fight this thing out in the competitive marketplace. I have to share with you we have some disagreement; however, in respect to how much flexibility the incumbents really do have in the State of Nevada. I would like to share with you that I believe that under the current regulatory structure in the State of Nevada the incumbents have significant regulatory flexibility. In deed, more flexibility can be granted them if you review it at the public service commission. Just by way of a quick ¼

 

Chairman Townsend stated, “Which takes forever. Nothing against the PUC, that’s their job.”

 

Mr. Endres continued, “It is their job, and that’s the debate because it creates a forum, it creates a venue to evaluate things ¼”

 

Chairman Townsend asked, “Is AT&T regulated in any way in the State of Nevada relative to long distance?”

 

Mr. Endres answered, “We have regulations that govern our long distance services. Like our competitors, we don’t file tariffs in this State.”

 

Chairman Townsend said: “So tomorrow if you want to get up and say it’s a penny a minute, you could put an ad in the paper in Las Vegas, or the two papers, and sell it.” Mr. Endres replied, “We certainly can.”

 

Chairman Townsend asked, “And there are other providers of long distance service in the State of Nevada?” Mr. Endres said, “Yes, there certainly are.”

 

Chairman Townsend asked, “Then why do we worry about it?” Mr. Endres said, “We don’t worry about long distance, and that is just the point, because ¼”

 

Chairman Townsend said, “Okay, go on down the list. What are you worried about?” Mr. Endres responded, “Let’s take a look at section 25.”

 

Chairman Townsend said, “I don’t think it goes far enough, but I understand what it says.”

 

Mr. Endres continued, “Section 25, in regulations of the commission, defines where the competitive bright line is.”

 

Chairman Townsend said:

 

Let’s talk about product. Senator Neal made a good point; people listen to this on the Internet. They want to know what we’re talking about. We just eliminated long distance, go down the product line and tell me where the problem is for the bright line?

 

Mr. Endres stated, “Lack of competitors, Senator.” Chairman Townsend asked, “In what?” Mr. Endres said, “If you were to ¼” Chairman Townsend asked, “What product?”

 

Mr. Endres answered:

 

Any of those products. If you were to get on the telephone or have your wife try to call up any one in Las Vegas to get alternative local phone service for your home in Las Vegas, I would challenge you that you would not find another provider of dial tone service for your home in Las Vegas.

 

Chairman Townsend said, “Let’s see. I could call your company, I could call a number of companies and get cellular service.”

 

Mr. Endres said, “You could get wireless service. I’m talking about wire line service.”

 

Chairman Townsend said, “I’m talking about the ability to communicate between point A and point B. Nobody needs a local exchange carrier anymore. Hate to break it to you. We’re in a new world here, Jim.”

 

Mr. Endres said, “We are in a new world. We’re in a changing world, and we’re in a challenging world. And as the representative from Covad indicated, we may have intermodal competition, but we don’t have intermodal competition to extent that wireless can clearly replace wire line services. It’s getting close.”

 

Chairman Townsend said:

 

And guess who handles that monopoly problem, the PUC for a basic rate. Now let’s go down these services again. We’ve eliminated long distance. You can go into the paper tomorrow and spend a penny a minute, and advertise for that. You don’t need to file a tariff; you don’t need to do anything. What’s the next service?

 

Mr. Endres continued, “We’ve eliminated wireless. The commission does the forebears for regulating wireless service prices.”

 

Chairman Townsend said, “Okay, so now we see a ton of those ads. Now what’s the next product?”

 

Mr. Endres said, “The reason we see a ton of those ads, Senator, is because there are a number of wireless competitors.”

 

Chairman Townsend said, “What’s the next product?” Mr. Endres answered, “Wire lines products.”

 

Chairman Townsend said, “Wire line products. Give me those specifics?”

 

Mr. Endres replied, “Dial tone service that you would purchase from Sprint or SBC.”

 

Chairman Townsend said, “That’s regulated by the PUC. Go to the next product.”

 

Mr. Endres said:

 

If I might, I would like to stay there for a moment. The reason we’ve move beyond the long distance, moved beyond wireless, because there are sufficient competitors offering you a competitive service for the same product in a wire line ¼ product. As I said a moment ago, you would have an impossible task trying to change your wire line service provider at your home in Las Vegas.

 

Chairman Townsend said, “I know. I’m agreeing with you. The PUC[N] regulates that.”

 

Mr. Endres said:

 

So that would be the purpose of regulating those services until competitors can come in, and that’s what we were speaking about a moment ago when Senator Hardy was asking, “Where does this crossover point occur where the commission can forebear?”

 

Chairman Townsend said, “I’m trying to go product-by-product. You’re asking for a bright line. I’m trying to give it to you. We’re going to regulate a landline. What’s the other product you say is not ¼?”

 

Mr. Endres replied, “That’s a good point. My colleague from Covad just indicated after this bill they would not be able to regulate that wire line product.”

 

Chairman Townsend said, “I disagree, but that’s okay. Keep going. What other products? I just want to know, I’m wearing my consumer hat. My responsibility is the people up here, it’s the entire State of Nevada, and let’s look at the consumer. What should be regulated?”

 

Mr. Weber said, “There is also broadband services provided over wire line.”

 

Chairman Townsend said, “And why should that be regulated?”

 

Mr. Weber replied:

 

Mr. Chairman, it’s interesting, because we are having a Shootout at the OK Corral, and the broadband wire line service in Reno. It is illegal for the Nevada PUC to regulate rates for retail services for broadband. They can’t regulate SBC in that way; they can’t regulate cable in that way. SBC and Sprint are totally unconstrained in their ability to compete on price in the broadband services arena. My company, Covad Communications, has taken advantage of that. We’re a nationwide DSL service provider. I cite in my testimony several articles from Reuters, from USA Today, that detailed the fact that SBC has lowered its broadband prices nationwide by more than $10 a month over the past year because of our presence in the marketplace.

 

Chairman Townsend asked, “Do they have to file that with the PUC, SBC?”

 

Mr. Weber answered, “No. They do not have to tariff the retail pricing of their broadband products. It’s a shootout. We lower it, they respond. In some cases they lower it.”

 

Chairman Townsend asked, “Does Sprint have to do that in Las Vegas?”

 

Mr. Weber replied:

 

No. The retail pricing of broadband services is not regulated. What is regulated, and there is a dichotomy here, is the wholesale portions of the monopoly network, and at what prices those have to be leased under federal law to Covad and other competitors like Covad. So there’s a retail-wholesale distinction here. In the retail, a shootout benefits competitors. Covad, if you look at the 30,000 DSL customers, 30,000 plus, in Nevada today, Covad’s presence in this market, and it’s a very small presence today in the Las Vegas area. Covad’s very small presence in this market is saving Nevada consumers whom we don’t serve, those 30,000, $300,000 a month. That’s $3.6 million a year, because we’re in the marketplace that is spent in other parts of the Nevada economy.

Chairman Townsend said, “Let me ask you this with regard to your contention, and I appreciate the advertisement. In northern Nevada, broadband by SBC is approximately what percent of the marketplace?”

 

Mr. Weber said, “Mr. Chairman, I don’t have the answer to that question. I’m sure that someone from SBC could. We are not in northern Nevada at this period.”

 

Chairman Townsend said, “But you have some how influenced the market although you are not here?”

 

Mr. Weber replied, “That’s correct, Mr. Chairman. That’s one of the great things about competition, is that even customers who can’t get our services benefit from our presence in the marketplace.”

 

Chairman Townsend asked, “But you’re in the south. Is that right?”

 

Mr. Weber answered, “Yes, Mr. Chairman.”

 

Chairman Townsend asked, “What percent of broadband do you have in the south?”

 

Mr. Weber said:

 

I believe, and Sprint can correct me if I’m wrong, I believe that it was a 70 percent cable, 30 percent DSL split. In other words, in terms of broadband services to consumers, cable in the south has 70 percent of the market, and Sprint and other DSL competitors have 30 percent of the market. I believe that is what they said.

 

Chairman Townsend asked, “What percent of the 30 percent do you have?”

 

Mr. Weber replied, “A miniscule percentage today, Mr. Chairman. We have 500 customers currently in Las Vegas.”

 

Chairman Townsend asked, “What part of this bill would disadvantage you relative to staying competitive?”

 

Mr. Weber answered:

 

We are new to Las Vegas. We spent over $1 million building out our infrastructure. Section 10 of this bill would prevent the PUC from continuing to set prices that they’re supposed to set under federal law for broadband services. I’ll answer your question exactly: I’m sorry, wholesale prices. When that happens under the federal structure, the way it’s set up. If Nevada refuses to act in that area and if this bill passes, that is what Nevada would be doing refusing to allow the public utilities commission to regulate under the federal law. The FCC in Washington, has to step in and do that regulation. Now instead of going to the public utilities commission here in Nevada, its closest to Nevadans, we would have to go to have Nevada’s rates set for wholesale prices to the FCC in Washington. That harms us and harms Nevadans in two ways. First, it’s much more expensive for us to run a case at the FCC. Secondly, it’s much less efficient because the FCC puts at the very bottom of its priority list tasks that it has assigned to the states to do.

 

Mr. Weber said:

 

We’re going to have a much more difficult time competing here, because as all of you are aware, any company has to balance the cost of doing business somewhere is how much money it expects doing business there. If this bill passes, that cost-of-doing business segment skyrockets for us. The benefits for doing business remain the same. Now I’m not going to tell you that we will withdraw from the market if this bill passes, because I don’t know what the ultimate result of the bill will be. I can tell you that in Oklahoma where a bill similar to this did pass, they have less competition than any other similar state in the nation, because it makes it very difficult to do business there.

 

Robert U. Johnston, Lobbyist, Eschelon Telecom, Incorporated, said:

 

Eschelon is an integrated communications provider of voice, data, and Internet services, and business telephone systems and equipment. Eschelon currently serves more than 36,000 customers in 12 markets in 7 different states: Minnesota, Arizona, Colorado, Oregon, Utah, Washington, and Nevada. In Nevada, Eschelon offers service in the Reno-Sparks-Carson City area. Eschelon markets its services exclusively to small businesses. On average they subscribe to four or five access lines. They often have two or three business locations. They typically do not have telecommunications communications specialists on their staff, and typically it is the type of business that has not gotten a lot of attention from the local monopoly provider, or formerly monopoly provider. Eschelon sales engineers advise these customers on cost‑effective telecommunications solutions. In six of the seven states in which it operates, Eschelon is a facilities-based provider, meaning that it is installed to some switches as 101 physical colocations. It provides some voice and data services. Eschelon has invested $75 million in building out its network in the seven states in which it operates. However, in Nevada, alone, Eschelon does not have its own switch, but provides service by purchasing service from Nevada Bell at wholesale rates, and reselling those services to its customers.

 

Mr. Johnston stated:

 

Eschelon has long-standing plans to become a facilities-based provider in Nevada as well in the sole remaining state where we are not. But to date, we have not done so because of capital constraints. As you are all probably well aware, in the telecommunications industry, the capital markets have declared an end to the philosophy of “build it and they will come.” You need a minimum number of customers to economically justify a facilities build out.

 

We are opposed to S.B. 400. Our primary opposition to this bill is that it has been presented as the logical next step to allow flexibility in the offering of competitive services by the incumbent providers, Sprint and SBC. We believe, and we would represent to this committee, that existing statutory flexibility is already in place to allow that to happen. The concerns that have been expressed to the committee by Nevada Bell and Sprint really go to regulations that they have concern with, which the Nevada public utilities commission has full ability to change as necessary to respond to developments in the marketplace. The statutes, in our opinion, are sufficient to allow the commission to back off regulation, and let competition take the place of regulation where there is sufficient competition to ensure that regulation is no longer needed. Eschelon would concur up front with Senator Townsend’s concern or position stated here today, and I don’t think anyone would argue with that. Regulation is a substitute for competition and a very imperfect one at that, and where you have sufficient competition, the commission should not be wasting its time regulating the terms of competition. Let the marketplace decide who is the winner and who is the loser.

 

Mr. Johnston continued:

 

I would like to, however, getting back to Chairman Townsend’s question about, is this or is this not a deregulation bill, so long as it preserves the power of the public utilities commission to regulate basic services. I would like to give a real-life example here, and one of the reasons that we are very concerned about this legislation. Eschelon, as I’ve stated, in Nevada operates as a reseller. One of the services we resell is Nevada Bell’s Centrex service. Centrex service is basically a business line, which is a basic service, plus several custom-calling features: call-waiting, call-forwarding, caller ID can be included. All those little whistles and bells that we’ve been accustomed to having.

 

Last year, Nevada Bell offered a promotion in the Reno area, in association with the Builders Association of Northern Nevada. This goes to the volume- and term-discount issue just to show you how the complexity is involved in these things. Centrex, by the way, is a de‑tariffed service. Nevada Bell has pricing flexibility with respect to that service. They decide what those prices are so long as it is above, you can’t price it below their cost, and it has been de‑tariffed for a long time. Nevada Bell has a pricing matrix, and the more lines you purchase for Centrex, the lower the price. The more lines you purchase the longer your term commitment, the lower the price. For a small business customer that price is $29‑plus per line, per month. If you buy 500 lines, and commit to a 7-year term, that price plummets $13 per line, per month. So you’re paying $16.50 approximately per line, per month for Centrex service. What Nevada Bell did is they said; “Okay, if you’re a member of the Builders Association of Northern Nevada and you are a small business, instead of paying that $29 per month, we’ll offer it to you at $16 a month.” So you could have two businesses side-by-side, same exact service characteristics taking four lines apiece. One is paying $29 a month per line; the other is paying $16. We complained to the Nevada public utilities commission. We said that on several grounds ¼ one, that we thought this was below cost; and two, we thought it was anticompetitive in effect because we believe it was targeted at customers who had left Nevada Bell for our service or a competitor’s service.

 

Mr. Johnston continued:

 

In responding to our complaint Nevada Bell claimed, and in one of our complaints was how can you offer this 500-line, 7-year term price break to a customer that’s not required to make any term commitment, and has no volume. Their answer was; “Well, we’re considering all these members of this association to be a single customer, and they thereby get the volume-term price discount that would apply if you had, for example, the Bank of America or some other large customer buying a 500-line block of Centrex lines.” There was a stipulated settlement to our complaint that essentially froze the parties in place. That complaint has been pending before the commission; then there was a subsequent investigation started by the commission to investigate this issue. I can say it has now been pending for some 11 months. It turns out that Nevada Bell, as I said, Nevada Bell’s claim, the reason they claim they can do this, was that there was sharing of the Centrex service. I can tell you that we contested that point. The public utilities’ staff said there was no sharing of the service, and simply a subterfuge to offer a price discount. The consumer advocate looked at the issue and concluded that there was no sharing of the service. It has not yet been decided by the commission, but we expect it will be shortly.

 

Mr. Johnston continued:

 

That’s an example of where the incumbent provider has tremendous power to compete in manners that we believe are anticompetitive and unfair. In this instance we have the support of the public utilities commission staff and consumer advocate came to the same conclusion. We have a deregulated service, Centrex service, but they claim they can offer in this manner pursuant to a joint-user tariff. So they linked a competitive service with a tariff. In our opinion, misapplied the tariff to offer a discount of $13 per line, per month. Had we not been able to complain to the Nevada commission concerning this promotional offering, I might not be sitting hear today. Eschelon might well have pulled out of the market, because there was no way we could compete with that price of $16 per line, per month.

 

We’re very concerned that this legislation, and if you look at section 25, there is a provision in there that says, once a service has been classified as competitive, the competitive service is not subject to provisions of this chapter for any purpose, that being chapter 704. There is one exception provided for consumer complaints, but we’re not a consumer, we’re a competitor. This was an instance where it was essential for Eschelon to have that avenue to complain to the public utilities commission, and get relief from what we felt was clearly an anticompetitive business practice that would be targeted to customers that were subject to competition, but not offered generally to business customers in the State of Nevada. As the representative from Covad has stated, sure we could go complain to the FCC, but I can tell you I would concur in his opinion that is a very low priority for the FCC. The FCC has indicated strong preferences that this type of complaint be handled at the state level. It is also very much more expensive to complain to the FCC than it is to complain locally, to the local state regulatory commission.

 

Mr. Johnston stated:

 

Eschelon, with respect to the distinction that’s being drawn to, I should also point out another aspect of this real-life complaint that I just briefly detailed for you. This bill purports to maintain commission oversight of basic services. Business service is a basic service. This promotion that I was talking about that Nevada Bell contended was available to members of associations, members of bona fide associations, in effect ended up offering the $16 rate per line, per rate month for Centrex service, which is business line plus. Business line plus is all these custom-calling features, that’s a de‑tariffed service. If you made that generally available to members, to the business community, or any business customer who is a member of any association, and I would suspect that is 95 percent of all businesses are members of some association, you would in effect deregulate business service for better or worse. Because it would either an ill-informed or unintelligent business customer who would not choose a Centrex line over a basic business line, which cost, I believe with add-ons, something like $26 per month versus $16 per month for the same line, plus all the custom-calling features. There’s not a bright line distinction. You can’t say, well that’s basic service, this is nonbasic service; there’s a lot of complexity here. We would urge that this committee reject this legislation; maintain the flexibility of the public utilities commission under existing statutory authority, to look at the particular details with respect to giving services, and determine whether there is sufficient competition to supplant regulation, and regulation is no longer necessary.

 

Mr. Johnston said:

 

I would add one final. One of the primary objectives of the Telecommunications Act, and I think legislation that’s been adopted in this State is to encourage investment in the state of our facilities needed to provide the competitive telecommunications services, the state of our telecommunications services that Nevada residents are requiring. We’re not just talking about investment by SBC and Sprint. We’re talking about investment by competitors as well. Eschelon has invested in the six states in its own facilities. Eschelon has not yet invested in Nevada. Passage of this legislation, I can tell you, would discourage Eschelon from making that investment. I would respectfully submit it would discourage all competitors other than Nevada Bell and Sprint from investing in facilities in this State, because it would, in our opinion, prevent the public utilities commission from making that detailed assessment as to whether there is or is not sufficient competition to unleash the reins of regulation.

 

Senator Hardy said:

 

The last statement you just made is the threshold issue for me, and I think well articulated. I think you’ve done a good job of describing the impact this would have in terms of regulation. To mean the threshold issue is what level we’re at in terms of our goal of creating a competitive market where everybody can compete. The thing that goes back in my mind is, I have a very difficult time understanding, I know this is oversimplifying the whole issue, but I have a very difficult time understanding in today’s market where we’ve come. I’ll just ask you for some brief numbers, brief estimates. If you divide off residential service and business, or commercial service, what percentage of the commercial market do the competitors have currently?

 

Scott Sarem, Vice President, Strategic Relations, Mpower Communications, responded, “Mpower Communications in the entire State, I would say 5 percent or less.”

 

Senator Hardy said, “All people that are identified as competitors have 5 percent.” Mr. Sarem replied, “Approximately.”

 

Senator Hardy asked, “And what about the residential market?” Mr. Sarem said, “I can’t speak to it for the entire State, but in Las Vegas, Mpower Communications currently has 25,000 residential customers with a base and addressable market of about 6 or 700 ¼ ”

 

Senator Hardy said, “That’s Mpower, that’s your ¼ ”

Mr. Sarem said, “That’s just Mpower, but we are the largest Celex down in ¼ ”

 

Senator Hardy said, “I’m interested in the entire competitive frame.”

 

Mr. Sarem said, “It is hard to know ¼”

 

Ms. Marshall said:

 

Senator Hardy. It’s difficult, I think, for us to come up with numbers. We did go to the PUC to determine, because the PUC collects information on many lines are in service by various companies, including the local phone companies and the Celex; and we did in the competitors. Using their numbers, at the end of the year 2000, competitors had 6.5 percent of the lines in the State of Nevada. At the end of the year 2002, competitors had 3.4 percent of the lines. ¼ A customer can take more than one line, but it should give some sense. I can also tell that in Nevada Bell’s filing at the FCC, they have to state how much residential competition they have. We may disagree with that number, but I believe they have stated that there are 25 lines served by competitors for residential service in northern Nevada.

 

Senator Hardy said, “The thing I have difficulty getting my arms around intellectually is why beyond the wholesale level we need the regulation we need. Shouldn’t the market take it from there?”

 

Mr. Sarem said:

 

What I do, my job is, I’m not a lobbyist, I’m not a lawyer for the company, what I do is supplier management. In Nevada, Sprint is our number one supplier, but they’re also our number one competitor, and I think that addresses your point. Why does there need to be regulation, not just on the wholesale side, but on the retail side? I’ll tell you more about Mpower in just a little bit, but just to cut to the quick for your particular question. This proposed bill, if Sprint or SBC are considered to be a PAR carrier here, they would be able on a 1-day notice to change their price and be competitive. So they could go to a business customer or a large residential customer, somebody, and say, “Okay, we’ve proposed a price to you, and Mpower proposed a price to you, well, Mpower’s price is a little bit better; we’re going to come back in a couple of days and give you a lower price.” The problem with that is on its face, it seems great. You know, competition is a great thing; the customer is going to get a lower price and ultimately benefit. The perverse incentive that is created by this bill is the fact that because Sprint is my supplier, to lease that last mile from Sprint, they can subject me to all sorts of delays in order to get that customer installed. In fact, there is a performance measurement regime in place that’s regulated by the public utilities commission that took about almost 6 years to get in place. We worked largely with no performance incentives for 6 years, and now we have them. That clearly shows that Sprint doesn’t give us good provisioning intervals in line with what’s called parity the way they treat their retail customer. What this bill will do, just go to the core of this bill, it’s going to create a perverse incentive for these. Now you can call them recovering monopolist because, I guess, they’re not monopolists any more, to go ahead and, I’m not saying that they’re absolutely going to go out and intentionally screw up an installation for an Mpower customer. Although I’ll tell you, I deal with this almost on a daily basis, and it does happen quite a bit. If they’re allowed to go to these customers who have had installation difficulties and maintenance and repair difficulties with a competitor like Mpower or Covad, or anybody else, they’ll be able to go and say, “You know what? We’re the incumbent phone company. This is our network. We’re going to provide you with a superior product and ¼ ”

 

Senator Hardy asked, “So my assumption that all things are equal at the wholesale level is not an accurate assumption?” Mr. Sarem answered, “That’s correct.”

 

Senator Hardy asked, “And having to do with things other than price?”

 

Mr. Sarem answered:

 

Absolutely. In fact, if you look at section 23 of the bill. I was just reviewing this a second ago, and one of the things the FCC has dealt with, and I think other states have dealt with this issue of cross-subsidization. That’s where you have companies like Sprint and SBC; they offer a whole range of service. They have their wireless, ¼ that’s what we’ve been talking about, their wireless, their long distance, their broadband services, their local services, their features, their calling features. For instance, Sprint, that’s where they make a lot of their money if you look at their financial records. What will happen now is they can use those revenues based because now, if they’re a PAR carrier, they use those revenues to undercut the price of a broadband or local regular service.

 

Senator Hardy asked, “What is your remedy as a competitor if you believe that’s occurring?”

 

Mr. Sarem replied:

 

They should not be allowed to price below the wholesale rates, and there should be regulation based on what they can price, based on what they charge competitors, so they cannot undercut prices, so they cannot force us to compete on a lower price than what we pay for wholesale components.

 

Senator Hardy said, “What you’re saying is there’s things other than pricing that impact.” Mr. Sarem said, “Absolutely.” Senator Hardy said, “Now if that happens, if they are delaying installation of a line or causing other kinds of problems for you, what is you recourse right now?”

 

Mr. Sarem responded:

 

There’s been two recourses right now. Number one, we’ve filed an antitrust lawsuit against Sprint several years ago, and since worked out the issues. The second one is this performance penalty plan. If Sprint and SBC, and I can’t speak to SBC because in Nevada we don’t deal with them. But if Sprint respected this regime, and it was something that was enforceable at the public utilities commission, it might act as some sort of deterrent for any sort of behavior that would somehow inhibit competition. Last night one of my employees sent me a report, and I’m happy to share it with the committee at some point, if you would like to see it. For the last 8 months, and just tracking very simple measures not the whole thing, but the ones that tell us how quickly our lines are installed, how quickly our trouble is restored, what’s the instance of trouble rates, there is completely inaccurate information that Sprint self-reports and measures against parity, which is their own information.

 

Senator Hardy said, “So there is nothing in the current regulatory scheme within the public utilities commission that helps you deal with those kinds of problems?”

 

Mr. Sarem responded, “There is supposed to be the performance incentive plans, but so far those have not really helped us.”

 

Mr. Marshall said, “There is also that commercial dispute process that I raised earlier.”

 

Senator Neal asked:

 

Let me ask the opposition a question that’s been plaguing me in reference to section 10 of the bill. I know you indicated that you had some opposition to that high-speed Internet access and broadband services. It was indicated in response to a question that SBC and Sprint wanted to go head to head with Cox in the southern Nevada area that already dominated this market. I’m puzzled as to why this doesn’t pose a problem to you as competitors?

 

Mr. Weber replied:

 

Senator, if I can answer that question for Covad. We are a data provider and we are unafraid of head-to-head price competition completely unconstrained. We’re more than happy to go at Cox and to go at SBC at whatever prices they want to set. We’re confident we’re going to be able to compete on those grounds. It is disingenuous for SBC to suggest or Sprint to suggest that their lack of market share in the cable area is due to regulation, because it’s simply not true. As I said before, the PUC lacks the authority to regulate their retail rates. To the extent they charge more for their services, thereby making their services less attractive than cable chooses to do and Cox in that area, that’s a business decision that they’re making. It’s not a decision that’s mandated by some regulatory scheme. Secondly, unfortunately I don’t have the ¼

 

Senator Neal asked, “Are you also saying that Sprint, SBC has the flexibility to move as they choose now?”

 

Mr. Weber answered:

 

Absolutely, they do, Senator. In the broadband arena, now understand I’m not talking about voice services. We don’t do that. I’m not here to address it. I don’t even understand how all that works. But on the broadband front, they’re unconstrained. There was an article in The Wall Street Journal that I can provide to anyone who wants it, a couple of weeks ago, that also detailed the fact that SBC’s lack of, the fact that they have less line currently in many states than cable, is due to the fact that they delayed more than 3 years rolling that service out, giving cable a 3-year head start. The fact about the current regime, which I think is a level playing field, is that SBC is doing quite well. At the end of last year SBC was the second largest broadband provider in all of North America. The only cable company that has nationwide more broadband customers than they do is AOL Time Warner. They are burying Cox in terms of the numbers. They’ve more than 2 million broadband customers nationwide. Also nationwide, DSL right now is growing at more than twice the rate of cable. SBC can compete; we can compete. Our competition with SBC, with Sprint, is benefiting Nevada’s consumers right now. It’s a level playing field, and all we’re asking is that that playing field, that you allow that playing field to be maintained. This bill would, in effect, be the Nevada Legislature slaying David on behalf of Goliath. We need the opportunity to let competition to develop. SBC is competing effectively against us. I expect they will continue to do so. Cable’s competing effectively against us. I expect they will continue to do so. But passage of this bill is charity for SBC and Sprint; it’s not parity.

 

Senator O’Connell stated:

 

First of all, and I have no idea if this is important or not. But I do know that we lease a piece of property that allows a transmitter out in Nye County to transmit the signals that I believe have to do with cordless telephone signals. How that would impact anything or if it would, I don’t know, but I’d like it on the record. In checking on the major concerns that have been brought up here in section 8 with our counsel, I find the reading of that is exactly what has been told to us by the Sprint people; people representing Sprint, that it’s codifying what is currently in the law, not doing anything any differently than that. Under section 10, our counsel feels that maybe Ms. Marshall is unreasonably interpreting that as being much too broad. The kicker seems to be in section 25. I wonder if we could have someone from the PUC, I saw Mr. Soderberg somewhere in here. If he would tell us how he would be interpreting that section, since that seems to be the section that has the opposition on the edge here, so we would have a better understanding of how we should be looking at this language.

 

Chairman Townsend said, “Depending on what you want to do, I was going to try to hold the regulatory guys till all the oppositions had a chance, and then they can come up and clarify some of these.”

 

Senator O’Connell responded:

 

My concern is all of the information we’re hearing and getting, but I want to know what our PUC, how they’re going to interpret this. I know how these people are going to interpret it, because they don’t want the bill.

 

Chairman Townsend asked, “So you want them now?”

 

Mr. Weber said:

 

Senator O’Connell, if I could take 30 seconds before that just to point out that I understand the legal counsel’s interpretation of section 10, but I would also like to point out that Sprint itself shares our interpretation of section 10, although not here before you today. I think that’s significant. It’s not just competitors out here saying that because we don’t want the bill for the reasons that we discussed. Sprint itself has two very brief quotes. In Kansas, where section 10 was brought up effectively as a stand‑alone bill, Sprint’s Director of Government Affairs, Michael R. Murray, said, quote, “We simply don’t understand how the current rules impede the deployment of broadband services. Moving the goalpost to the advantage of SBC, and to the disadvantage of everyone else, in our view is not good public policy.” Likewise in a letter to Indiana legislators, another Sprint Director of Government Affairs, Charles R. Mercer, said that a bill containing a measure just like section 10 of this bill would be, quote, “Likely to impede competition and damage the telecommunications industry overall.” He went on to say, quote, “We firmly the bill will do more to disrupt telecommunications markets in Indiana than to improve them.” End of quote. Senator, I understand there can be different interpretations of section 10. You’ve heard ours, you know what it is. It’s also Sprints interpretation.

 

Senator O’Connell said, “I’d much rather hear that from Sprint, but I appreciate your comments, and I would like to hear from Mr. Soderberg now.”

 

Chairman Townsend said, “Mr. Chairman, I’m sorry you were out of the room. A number of contentions have been made about interpretations regarding this bill. Senator O’Connell has asked that you give your view of various things.”

 

Senator O’Connell asked:

 

Don, the very contentious parts of this bill that’s been discussed thus far, and I’m sure your being in the room, have heard it, have been section 8. Whether or not, and we’re talking about deregulation currently, and the way you would have to interpret the changes that are being made in this law. The first one deals with section 8, where there seems to be some controversy as to whether or not that is changing more than clarifying the current law. Section 10, which if you go to the bottom of page 4, and you look at, this falls under sub 2, no excuse me, sub 3, (b), where it is talking about specifically lines 39 through 42. It has been stated by testimony that this then allows the base rate to also be deregulated. ¼ Section 25, ¼ page 17, line 26, ¼ it specifically talks about competitive service. In talking to our counsel, they do not feel that ¼ what has been testified to us in section 8 or in section 10 is right on target; but, they do feel that ¼ the changes of the standards ¼ being requested in section 25 would be the key to the concern, or at least would verify the concern, that’s been laid on the table to us about you not having the ability to regulate any kind of competition.

 

Don Soderberg, Chairman, Public Utilities Commission of Nevada, said:

 

To my left is Charlie Bolle. He is our senior policy advisor for telecom, and he’s here to help us answer Senator O’Connell’s questions, and any other questions you have. Charlie is known as national expert on the issue of telecommunications regulation and competition. To my right is David Nobel, Assistant General Counsel to the agency, and he’ll be able to answer any jurisdictional questions that you have; a lot have been raised.

 

In response to Senator O’Connell’s questions, although we do not support or oppose this bill, it is our view that it has been drafted to clearly preserve the commission’s role in protecting basic rates. We view that as our primary charge, since statutory changes you made in the last session, that specifically now do not have us promoting competition as once was with State law. When the drafters of this bill came to us and asked for our input, we looked to focus on what would be the mechanisms we would protect the State’s ability to regulate the basic rate, which we believe and your constituents, and the public we serve cares about the most. We do not agree with some of the testimony that we’ve heard today that somehow these provisions would be used as a backward way to deregulate the basic rate. In fact, we spent a great deal of time with the proponents of this bill to make sure that did not happen.

 

With respect to the ability to use the broadband sections of this bill to get at that, I would like to ask Charlie Bolle to address that. There is a technical nature to it, and I see why the argument is coming to you, although we don’t agree with it, there may be some technical validity to it in theory.

 

Charles Bolle, Senior Advisor, Public Utilities Commission of Nevada said:

 

With the respect to the possibility that if we deregulate broadband high‑speed access to Internet would also encompass the basic local service. You have to look at the service and what does that service require. Basic local service, plain old pots, is service that utilizes less than 28 kilobits of bandwidth. To say that a service that is utilizing less than 28 kilobits is a broadband service, in my opinion, is pretty far-fetched.

 

Mr. Soderberg said:

 

Senator O’Connell, before I would go into the last part of your question, I would give you an analogy of what Mr. Bolle just walked you through. I take it from my former job over at the TSA. If a taxicab operator wanted to buy a fleet of Ferrari’s, yes, they are very fast cars, and operate them as taxis, they’re still taxis. Whether or not Sprint, SBC, Verizon, or any other company wants to invest in some very sophisticated technology to provide basic telephone service, it’s still basic telephone service, and still fully regulated by the State of Nevada for the protection of the customers.

 

Mr. Soderberg continued:

 

With respect to section 25, that is the area of the bill that directs the PUC to take a different approach than it currently does on how it determines whether a service is viewed as competitive and has much less regulation. This is an area that is currently within the regulatory authority of the commission. What we have is a major component of what we call PAR regulations, which you have authorized us to enact. Currently, the standards that we have in PAR for an incumbent telephone company to categorize a service as competitive and compete on an even basis with those others in the market, is clearly old. It is, I believe, unworkable. We have set out to update those regulations. It was a testimony. You’ve heard that it was the testimony of Sprint and Nevada Bell that they didn’t want the commission to move forward with that docket because they wanted to bring that to you here. That’s only partially true. It’s also the opinion of the competitive companies that showed up at our workshop, too. We ¼ actually had a proceeding where everybody said we’re not going to participate. So we did put that on hold, and we can revive that; it’s still on open docket. We can revive looking at the competitive features of the PAR regulation of anytime. What you have here in section 25 is an attempt by the proponents of the bill to essentially create a statutory standard to replace what we have in regulation. It has been suggested by those who are the detractors of the bill that this standard is so loose, it essentially will make everything competitive. That may or may not be true. We have not gone in and done the diagnostic on this section to say how many services will go from fully tariffed to competitive. That would be a rather lengthy review that we have not opened up a proceeding to do. What I will tell you is this has been drafted by the proponents of the bill specifically on my ¼ to satisfy my desire that if we are going to have a statutory standard to do this, I want it to be an objective one that is easy for the commission to use. I think a problem with our regulation now and why I had hoped to modify it. It’s not only cumbersome, it’s not objective, and it creates a great ¼ it creates a format for people to debate facts that should not be debatable. What this attempts to do is make an objective checklist for the commission. This occurs, ¼ therefore it’s competitive, and if these things have not occurred, it’s not. So we don’t have to have the 6 months proceedings with the voluminous cost studies that can be debated ad nauseum, and the voluminous market studies that can be debated ad nauseum.

 

Mr. Soderberg stated:

 

Whether these particular standards are too stringent or not stringent enough, I’m not prepared today to testify on. I believe that the proponents of the bill feel it’s just fine, and the detractors of the bill that maybe it’s too low. I would assume if the commission were to go back and to look at its own regulations in this area and update what we have now in absence of legislation, we would attempt to look at something similar to this. An objective checklist in which the consumer advocate, our staff, and the commission itself could easily determine this should be competitive. This should not and not have to go through a 6-month exhaustive litigation proceeding for each and every service.

 

Senator Shaffer said:

 

Commissioner, we come here every 2 years, and time is of the essence, I would think on these issues. Is there anything in the regulations that you see that impedes you from doing any part of what we’re trying to do today find a solution for the problem that we’re encountering today in a short period of time. Because, if we walk away from here without some settlement, we haven’t performed our job. Perhaps we would have to stay here another month and a half to satisfy everybody in this room. I’m just wondering, you mentioned you needed maybe ¼ you should have a statute rather than regulation to be able to address something like what we’re trying to do today?

 

Mr. Soderberg responded:

 

We believe that a good chunk of the provisions in this legislation are things that could do, could have done, or could do in the future by regulation. They’re currently within the regulatory purview of the commission as you’ve defined it in past legislation; and Mr. Noble can go through those. We are not a proponent of doing it by statute; and there is the argument that we would have more time and the ability to look into many of the issues that take deeper testimony than you have in a 120-day session to do that. We don’t set the policy for the State. We implement the policy as it is adopted by you, the Legislature, and signed into law by the Governor. What you have before you is essentially more of a question of is it the desire of the Legislature to set that policy and direct the agency to do something, or is it the desire of the Legislature to allow the commission to do what it feels it should do? I can tell you as one commissioner, I feel that we need to update those regulations ¼ They are cumbersome and overly restrictive, and possibly our micromanaging competition so much that we may be losing some competition. That’s my personal view. I can’t speak for my other two commissioners, and I can’t speak for commissioners that may be appointed after I’m gone.

 

Senator Shaffer said:

 

I guess if we can leave here with a statute that would assist you and direct you, we probably would be doing a good service to the people out there we’re trying to represent. If there’s some gray area now, it seems like regulation, statute, no, yes, no? Maybe we should clarify this right here while we’re working this piece of legislation.

 

Senator Hardy asked:

 

Commissioner, I wonder if you would speak to this? I asked earlier, and this is a threshold issue for me in terms of market share. On the residential side and on the commercial or business side, what percentage of business market share currently is with the incumbent providers, and what percentage is currently with the competitors, if you have those numbers generally?

 

Mr. Soderberg said, “Senator Hardy, I would like to give the floor to Charlie Bolle. He can probably dial that in a little more accurately than I can.”

Mr. Bolle said, “Senator, I’m not sure if I can answer that or not. I can give you, as I can recall, the market share. I think that the incumbent still have the vast majority of market share. By that I mean 75 percent upwards.”

 

Senator Hardy said, “I don’t know if you’re the right folks to ask for that information, but if you have anything specific on that, it’s kind of a threshold issue for me in this deliberation, so I would appreciate anything you could provide.”

 

Mr. Bolle said, “I don’t.”

 

Senator Carlton asked:

 

Mr. Commissioner, earlier Mr. Endres had made a comment about how much dialogue had gone on over this particular issue. In your opinion, can you give me some type of idea how much you really discussed this? It wasn’t glossed over I’m sure, but how deep have you discussed this?

 

Mr. Soderberg replied:

 

If you are referring to the bill you have before you, I think, I could say confidently that no regulated utility has ever spent so much time with the PUC in soliciting our input, and trying to satisfy the threshold concerns that we had. Actually, almost maybe, I’d say to the unhappiness of members of my staff. We had many, many meetings. They have attempted to satisfy the concerns that we had articulated. Essentially, if there is to be a bill, these are the things that would bother us in your bill. Fully understanding ¼ we would not support their bill, you know, come out and say that you should do this, but even with that, they bent over backwards to make sure that there was nothing in here that we went from being, say, neutral on, to having to impose it because we felt it would be a detriment to the State.

 

Chairman Townsend asked, “Mr. Chairman, ¼ we appreciate your being here today, and if you could hang in there so when the other ladies and gentlemen finish with their testimony, we might get you back up here to ask you some specific things, because I know the BCP is here, and they’ll be doing the same thing. That all right?” Mr. Soderberg answered, “That would be just fine.”

 

Steve G. Shore, Vice President, Public and Government Affairs, Cox Communications Company, said:

 

Joining me today is Mr. Gardner Gillespie of the law firm of Hogan & Hartson, Washington, D.C., representing Cox Communications. My testimony ¼ is a little bit different than I see my testimony now. A lot has been said this morning regarding the opponents  and proponents of this bill. I guess I go to the words that initially started that said this is the next logical step. I guess the position that I make is that indeed it could be the next logical step, if there was competition in the marketplace to the level that would bring about this amount of deregulation. It is the contention of my company that competition is not there, especially in the telephone industry. In the broadband industry, yes we are a competitor. There is no doubt. But there’s other things that need to be said about that competition, and I’m sure I’m going to be receiving questions, and I look forward to those questions about that.

 

Competition within the market place as far as we see it, takes investment. Cox Communications, my company, invested $134 million just in southern Nevada to provide a service which we believe was the future of the industry. The technology that we bring to the community is technology that cost money. There’s no guarantee of rate of return for the competitors. Competitors invest in the marketplace because they believe that, number one, the product will be there; number two, eventually customers will go there. The product, which has had a lot of discussion today, which is the broadband services, indeed we have the largest number of customers. But, by far, we do not have the largest number of customers entering the Internet through services.

 

A survey is done every year by the Nevada Development Authority and the Las Vegas Chamber of Commerce known as perspective. In this perspective 2002, its survey, this is research done by UNLV and its department of research. It specifically asked the question of residents who go to the Internet, how do you go to the Internet? The responding answers to that was only 12 percent utilized cable modem; 88 percent of the marketplace remains going to the Internet either by the dial-up or the DSL services that’s provided by the telephone company; 88 percent. So, yes, we do have a portion of the broadband marketplace but still, we are the minor portion of the way people get to the Internet. It is a product, we’re proud of the product, but currently our competitive product that is put forth by the telephone company is priced below the price of our product. It is not priced above our product. It is a choice, basically, by the customer.

 

Mr. Shore continued:

 

We want similar choices in the telephony marketplace. As a company that invests within the community, we have to able to look at the potential for rate of return based upon the investment. Nowadays, the marketplace, as we all know, has put a crimp on how much capital spending that has affected my industry as well as the telephone industry. The problem is that if there is not a potential for a competitive marketplace, companies like ours will not invest in the community, if they don’t see an eventual rate of return. In the telephony marketplace, it is easy ¼ millions of dollars to invest to get into that marketplace. Under this scenario which we see this legislation puts forth, what you are going to do is harm the competitive marketplace, not help the competitive marketplace. The reason why we say that is, look already what is happening in the community. I think you will hear others that will detail that more, and even the testimony that’s occurred already this morning.

 

There are fewer competitors today than there were in 1999. There are fewer competitors today than there were in the year 2000. Matter of fact, the one company that I had hoped to be here that has just come out of bankruptcy, is not here because they’re having a meeting in their home office trying to find out what they’re going to do in the future, if there is going to be a future. The competitive marketplace, yes, is emerging, but it is just that, emerging. Under this bill what would happen, we believe, and again, we believe what will happen is that the competitive marketplace will go away. If that happens, what happens to the consumer is they will face more dollars, not less dollars. Will we always be in the broadband business? Without a doubt, because that is the basis of who we are as a company. But getting into the potential businesses to compete in the marketplace takes the potential to think you can be a competitor. We are a telephone provider in a great number of marketplaces, because we believed at that time that was the right thing to do within those marketplaces. They don’t have laws like we’re seeking to do here. They have competition within this marketplace, and within their marketplace. In Orange County, in San Diego, in Phoenix, Cox Communications is the telephone provider. Under this the potential for my company to invest in the market place to become a telephone provider becomes nil. We believe it fosters too much potential of a predatory pricing in a market to deliberately force us out of that market. When you’re making millions of dollars in investments, to do that takes an opportunity and a belief that you can make money. Again, those are my feelings as an officer of my company. I think for the details I will turn to Mr. Gillespie who has more information, and I think he’s presented members of the commission, members of this board some testimony (Exhibit L and Exhibit M) which he will present.

 

Gardner F. Gillespie, Lobbyist, Cox Communications Company, testified:

 

With considerable respect, Mr. Chairman, I think that S.B. 400 is dangerous, irresponsible, and misguided. This is not the logical ¼ I just wanted you to know where I stand from the beginning. This is not minor legislation. This isn’t a minor fix. This isn’t something that this committee has considered over the last decade: legislation dealing with this telecommunications industry. The legislation that has been adopted through this committee has been negotiated, and agreed on by the entire telecommunications market, the consumer industry, and the commission. What we have here is a very extensive, very complicated bill. It is more extensive than any bill.

 

First of all, it is more extensive than any legislation that exists anywhere in this country by a considerable margin. This legislation is more extensive, and more deregulatory than any legislation I’m aware of that’s being considered anywhere in the country. Section 10, which I’ll talk about in a minute, is proposed largely through SBC in a number of different legislatures now. That section alone, that section has been defeated in a number of different legislatures already this year. It was adopted by one legislature in Oklahoma, and the President pro Tempore of the Senate of Oklahoma has written letters to other legislatures saying SBC has not lived up to its end of the bargain. But in other legislatures in Kansas and Missouri, it has been defeated, and in Connecticut it has been withdrawn; and that’s only section 10. That doesn’t get to section 25 and all of the other sections of this bill. This is a very complicated bill.

 

Whereas in the past the industry has been able to come together on what is appropriate deregulation, and that is contained in the administrative code, and in the NRS. It provides a mechanism for the incumbent ILECs or the ILECs to deregulate and reclassify their services. The standards were agreed to by everyone, and they’re objective, just as Chairman Soderberg asked for they’re objective. They provide that if a service is being provided in a smaller area in a market that is 15 percent competitive, that it can be deregulated or classified as competitive; and 30 percent, excuse me, it’s 30 percent of a smaller market and 15 percent in a larger market. Those objective standards exist. Sprint has come before the commission 13 times to reclassify services. It has been successful 12 times, and the thirteenth time it withdrew it. Even if you consider the withdrawal to be a loss, that’s a batting average of over 900. SBC has come to the commission 13 times itself for reclassifications, and every one of those has been approved. This is not a mechanism which is not working. Perhaps that mechanism needs to be tweaked, and certainly, we would not argue that it shouldn’t be considered by the commission to see whether it needs to be tweaked; and if so, to what extent? But the PUC started that proceeding, and at the behest of Sprint, that proceeding was halted. Now naturally, if the proponents of a change of regulation said let’s not go forward, the others said fine. That is where this issue should be resolved, I would respectfully submit.

 

Mr. Gillespie stated:

 

I’ve spent my entire legal career in dealing with questions about administrative agency law. It deals with utility commissions, administrative agencies. The administrative agencies were formed primary so that complicated questions dealing with evolving technologies could be dealt with, and a full record could be developed. A full record that would reflect what is the competition. What does 150 kilobits really mean? What services are provided over that? What would be deregulated at 125 kilobits? How would this all work? That’s what agencies do. Those are the kinds of questions I respectfully submit that should be handled by administrative agencies in the first instance, not by a legislative committee that has very little time to consider and understand all of this. S.B. 400 is not deregulation by careful consideration built on a record. There is no record. There has been no record before you today establishing the need for this legislation. There is no record today of competition in Nevada, except for the number of about 6 percent a couple of years ago, and about 3 percent today. The question was put to the commission as to what is the status of competition. The commission doesn’t know. So there is no record of which I would submit legislation like this could be justified. I would ask every member of this committee to consider carefully whether you could answer the following questions.

 

Mr. Gillespie asked:

 

Can you be fully confident that today there exists sufficient effective competition to justify a sweeping away of virtually all regulation? Do you understand what this bill says, and exactly how it would work? Do you have a sense of what the result, what the practical result would be? What if the bill eliminates competition as we think it would, and prices rise, how would you get that genie back in the bottle?

I respectfully submit, Mr. Chairman and members of the committee, that if you cannot answer those questions, how could you possibly, in light of your great responsibility to the consumers of this State how could you possibly approve legislation like this, if you can’t answer those questions? I’ve asked the clerk to give you a memorandum (Exhibit M) that sets forth, in a very general bullet form, what I understand this legislation to do. The bill, I believe, would immediately or within 4 months of passage, deregulate all business services in this State, including basic business service. It would lead to, I believe also, the deregulation of basic residential service. I’m going to tell you how in a minute. It also would eliminate in large part the price caps that were agreed to by the incumbents, in return as part of the bargain, in return for the deregulation that they currently enjoy.

 

Let me turn quickly to section 25, and this is the section that defines competition. It redefines what would be effective competition from the standard, the objective standard that is currently contained in the NAC. In southern Nevada, there would need to be two competitors offering the service. Essentially, what it amounts to is that if there are two competitors that are offering the service and they have a switch, and that service is deemed to be by statute competitive, and unregulated. There are currently two competitive providers in southern Nevada that provide business services and have a switch; Mpower and XO each have a switch. This legislation within 4 months would deregulate every business service that those companies offer, that includes basic business service.

 

Mr. Gillespie continued:

 

We also heard that Mpower offers residential service to 25,000 people in southern Nevada. I don’t know if there’s another party that offers competition in residential services, but the minute there is, if XO were to offer residential service to one customer, they have a switch, residential service would be deregulated as competitive.

 

In northern Nevada the standard is a little bit different. Essentially, the only standard for competition in northern Nevada is that there be two companies; two companies other than the incumbent, and that those companies each resell 500 lines. The 500 lines is a miniscule portion of the number of lines that Nevada Bell has in northern Nevada. If there are two companies that offer 500 lines, then any service that they offer, the incumbent offers, is deemed to be competitive. There are two companies in northern Nevada that resell 500 lines from SBC. I believe they offer only business service at this point. Four months after this bill were passed, all business services in northern Nevada, I believe, would be treated as competitive and be deregulated, and that includes basic business service.

 

Mr. Gillespie said:

 

Now this bill, ¼ I think that’s something that this committee I would ask consider, and think about what is the practical impact of this bill. That’s the way I read it. I don’t think that my reading is in any way controversial as to what this section does. I believe that my facts are correct in terms of what competition there currently is. It is a small percentage of competition. In southern Nevada, the two competitors have switches and both just came out of bankruptcy. To me that is very significant.

 

Now this legislation, as I said, is very complicated. It does a lot. It has a kind of belts-and-suspenders deregulation, because in addition to these services being considered to be competitive, section 10 would deregulate any so-called broadband services. Well, there’s been a lot of discussion about the competition between DSL and cable modems in high-speed access. That’s not all that this section does. This section says that if there are any facilities, which are capable of providing transmission capacity of more than 150 kilobits in one way or the other, then those facilities are deregulated. I can’t tell exactly what portion of Sprint’s plan is capable of providing communications at 150 kilobits. I believe that most of their plant is. But that is something, again. I think that this committee would certainly need to understand before it could approve this legislation. It’s not simply suggesting that we don’t want the commission to get involved in regulating DSL versus cable. That’s not what this bill does. What this bill does is something that’s much greater and I spend my days dealing with language. That’s what I do for a living. I read this language, and when it says that it deregulates the facilities that are capable of providing this kind of capacity, where I get really worried. It’s much more; it does much more than has been represented to you today.

 

Mr. Gillespie said:

 

Now I understand the frustration, and I share the frustration that competition in telecommunications has been slow to develop. I believe it’s partly the result of economic conditions. Everyone knows the capital markets are shutoff now for telecommunications for some time. But, I also think that maybe a failure in the regulatory structure in terms of encouraging competition. I’m sure that those that are trying to provide competition through use of unbundled elements of the incumbents would say they think the prices are too high for those. Well, that’s something that could be looked at. The fact that the benefits of competition have been slow to develop is no reason to give up on competition. Regulation is normally thought of as substitute for competition, and I agree with the comment earlier that it’s an imperfect substitute, but it is a substitute. It is usually thought that you had to have one or the other to constrain abuses by monopolies.

 

In this bill what we have is the worst of both worlds. We have no competition and no regulation. At least that’s the way I see it. That’s something no economist would approve of. Now as I said before, I think this legislation goes further than any other legislation that I’m aware of, either that has been passed or that is being considered. It’s one thing to be ahead of the curve, Mr. Chairman, as you like to say, to be thinking out of the box, to be a leader; it’s quite another to be entirely off the map. This legislation, I respectfully submit, is absolutely off the map.

 

I would urge you to have these issues considered where a full record could be developed. What is the status of competition actually in this State? What services can be provided over 150 kilobits? What facilities are capable today of offering services over 150 kilobits? I would suggest that those matters ought to be considered by the PUC in the first instance, or at the very least, by an interim legislative committee. To pass this bill I would respectfully ¼

 

Chairman Townsend commented, “To contemplate suggesting that. I might agree ¼ ”

 

Mr. Gillespie responded:

 

Perhaps you misheard me, I said by the commission. To pass this bill, Mr. Chairman and members of the committee, would be to abandon those competitors that are trying to make a go of it here. And also to abandon, in my view, the business and residential consumers of Nevada.

 

Steve Tackes, Lobbyist, MCI/WorldCom, said, “I agree with everything Gardner just laid out. It’s my pleasure to introduce Mr. Severy who is a regional director for MCI/WorldCom.”

 

Richard B. Severy, Director, Public Policy, Western Public Policy Group, WORLDCOM said:

 

The focus of my remarks are on section 10. Before getting to that, I just wanted to follow up on one point that he had made. When you look at section 25, he talked about the level of competition that would be required to deregulate basic residential service in northern Nevada. If you do the arithmetic, the two competitors serving 500 customers in a market where Nevada Bell has somewhere between 325,000 and 350,000 customers, the competitors would need to gather about 0.25 of one percent market share leaving the incumbent with 99.75 percent market share. Under that scenario, that firm would be deemed competitive and the services would be subject to deregulation. So that’s the direct impact of section 25.

 

Mr. Severy continued:

 

I want to address section 10. However, I have a different perspective, and my perspective is informed by some of the activity that has occurred elsewhere in this country. It’s been indicated earlier that section 10 is not new. This is not just the latest stage in evolution of regulation, in regulatory law in the State of Nevada. Rather, this provision has appeared in numerous jurisdictions around the country where SBC has introduced it in state, after state, after state as part of a nationwide campaign to deregulate broadband service, and to deregulate basic voice service, and to impede competition in both markets. So we’ve seen this language, it’s been interpreted, it’s been applied, it’s been debated, and it’s been considered by legislators, your colleagues in other states. What we’ve seen is that those legislators have given it a close look and hearing and have turned down the legislation. We heard that ¼ the bill’s been defeated in Kansas, Missouri; it’s likely to suffer defeat in Indiana this week. In Connecticut, SBC actually withdrew the legislation. Why? Because they took the position that it was unnecessary in light of recent action at the federal regulatory level, that this kind of bill was no longer necessary to their objectives. The bill is also pending in Texas.

 

We’re not operating on a clean slate here. We know what the bill is. We know what it means, and we know what it would do. We know that, in effect, it would be a direct frontal attack on the consumers of Nevada, competitors, and those who would like to enter the market and provide new and innovative services, and on the commission itself.

 

I want to talk just briefly about what the bill would do, and focus on some language that hasn’t gained attention yet. In section 10, it begins by saying, “the Commission shall not impose any regulation upon a provider of ¼ broadband service.” Then beginning at line 36, it starts to define broadband service, and there are really two definitions of broadband service the way the bill is currently written. The first says that broadband service, “means any services and underlying facilities that provide access to and from, the Internet.” So, broadband service, which the commission would be precluded from regulating, is defined to include both service and underlying facilities. Underlying facilities that can be used ¼ to provide access to and from the Internet. We know that the line coming into every house in the State is capable of providing access to and from the Internet, a dial-up line. We know that line, that facility is connected to a local switch and other facilities in the local network.

 

Mr. Severy continued:

 

By definition, all of those underlying facilities are defined as broadband service, and the commission would be precluded by statute from regulating any provider of those facilities. Who would they be? SBC and Sprint. So, the bill is, in fact, very broad sweeping in its deregulation.

 

What are the implications? From the competitive, well, from the consumer perspective, it’s been suggested that the commission would still have some ability to regulate basic service. I don’t know how you get there from a statutory requirement that says the commission shall not impose any regulation upon a provider of these underlying facilities. That would preempt the commission from regulating any aspects of basic service, voice service for residential or business customers. Along with that, swept away, would be a number of other requirements that are currently imposed on providers of basic phone service.

 

For example, today there are regulations requirements providing for service to the hearing impaired, E9-1-1 service, Life Line, and wake‑up service for poor people. There are regulations providing for service to schools, libraries, hospitals, low-income persons, rural areas, and high-cost areas. Under this statute the commission would be precluded from applying or enforcing any of those regulations on any one of the providers of these services; and the list of existing regulations and requirements. There would also be a huge negative impact on competition. This bill is not about providing a level playing field. The goal here is to level competition. There’s been discussion earlier, which I won’t repeat, which ¼ indicates that competitors are impacted both by the prices that the incumbent monopolies charge, but also a number of the business practices.

 

Mr. Severy said:

 

Every competitor who has appeared before you today, in some way or another, is dependent upon the monopoly providers with whom they also compete. In order for any service provider, even if they have 1 percent, or 5 percent, or 10 percent of the customers in the market, they want their customer base to communicate with the customers of the monopolists, the one who has 90, 95, or 99 percent. The only way you do that is by connecting your networks, by interconnecting, ¼ provide access to the local loop. If the commission under this law, is precluded from governing those relationships, providing regulations, providing monitoring.

 

There were examples used earlier of performance, disparate performance to the competitors, to the incumbents own retail customers, there would be no regulatory protection at all that any of these firms could rely upon given the way this bill is currently written. ¼ To the extent that competitors have an interest in entering the market and providing new services, you’ll see that evaporate. Competitors will simply be without any protection at all. As I said earlier, ¼ we are dependent upon our principal supplier for facilities to provide services to our end users.

 

We are told this bill to set sort of a grand State policy. Is this the State policy that we want for Nevada? We’ve talked about the benefits of competition. Many of the people who have appeared before you today have provided new services, innovative services. We’ve heard that some companies have been to the market first providing innovative high-speed broadband services. Those are the kinds of innovations that competition is supposed to bring about. Those are the kinds of innovations and competitive offerings that would be sacrificed if this bill is enacted and if competition is no longer protected.

 

I also indicated that the consumers would be adversely affected because the protections, the regulations, the requirements, which currently exist to protect them, would be gone; and what protection would any of these citizen consumers have in that environment. Is that the kind of State policy that this Legislature wants to enact? For all these reasons, we urge you to vote no on this bill. We oppose the bill.

 

Mr. Tackes, said:

 

The only additional point I want to point out is the statutes today empower the commission to look at services, determine whether they are competitive, and determine whether or not regulation is necessary; 704.040 has that exact provision. The section 8 that appears in this bill is very similar to 704.040, but instead of the test being looked at the service after hearing and determine if it’s competitive, and therefore does not need to be regulated. This provision says that you look at an application. You make a determination after hearing the incumbent local exchange carrier should be subject to a plan of alternative regulation. Later in the bill it gives the ILEC the opportunity, or the right really to simply choose this alternative regulation. The bill guts that basic provision, which exists in the law today, which allows the commission to go back, hear the arguments or what services are competitive, and make the appropriate determination. Somehow, I think, when people were looking at section 8, they may not have focused closely enough on the first subsection of that provision in this bill, and compared it to the existing law. That is the only additional observation I wanted to make.

 

Senator Neal said, “Your company, Cox Cable, presently raises rates without going to anybody?” Mr. Shore replied, “No, that’s not correct.”

 

Senator Neal asked, “What is correct then?” Mr. Shore answered, “Our basic service is regulated by the local regulators, and the other rates must meet federal requirements set forth within a formula. So, yes, we are regulated.”

 

Senator Neal said, “You just raised some rates by 7.5 percent. Who do they have to go before?”

 

Mr. Shore said, “That actually went through a series of different, and we also lowered the rate to basic customers by 11.4 percent. So, if we’re going to talk about rates, let’s talk about all of the rates. Those were presented specifically to local regulators.”

 

Senator Neal asked, “To local regulators?” Mr. Shore answered, “That’s right. And also file with the federal communications commissioner.”

 

Senator Neal asked, “The county commissioners?” Mr. Shore said, “The county commissioners, City of Las Vegas, North Las Vegas, Henderson, and Boulder City.”

 

Senator Neal asked, “They all approved those rates?” Mr. Shore answered, “They are below the allowable rates. ¼ By formula they are below the allowable rates. We could be charging more than we’re now charging. Some of the marketplaces around the country, and especially in the west ¼ ”

 

Senator Neal said, “Are you suggesting then that you have within your franchise agreement a ceiling of rates, and that you can go up to that without going to the local people?”

 

Mr. Gillespie said:

 

Mr. Chairman, if I may address Senator Neal’s question. Rates for basic service are regulated ¼ by franchising authorities under a formula that is set by the Federal Communications Commission. Rates for other services are deemed to be competitive, as I’m sure everyone on the committee is aware, DBS provides substantial competition to cable. Right now, nationally, DBS has over 20 percent of the market. So those services are not strictly regulated, but they are competitive with a 20 percent marketplace competitor.

 

Chairman Townsend asked, “DBS?” Mr. Gillespie answered, “DBS, meaning direct broadcast satellite, it’s provided by two providers nationally.”

 

Senator Carlton asked, “The answer you just gave, does that apply to broadband, or was that an answer that was applying to Cox Cable, and the cable that runs into the back of the TV set?”

 

Mr. Gillespie answered:

 

That was with respect to the 7 percent rate increase that Senator Neal referred to, which had to do with video services. The rates for broadband, which is subject to varying definitions as we’ve seen, but if we are to define broadband as meaning high‑speed access to the Internet, which is provided by Cox, that is not regulated any more than is the rate that is provider for DSL service, which is directly competitive with cable’s broadband access to the Internet. DSL is provided by Sprint, and that service is not regulated, either. So, those prices are being set by the marketplace, and those services. I think, by anyone’s definition those two services are competitive. Sprint has a significant portion of the market. Some of those services can be provided over satellite, high-speed access. Cox, of course, provides those services as well.

 

Chairman Townsend said:

 

I’m curious. ¼ I don’t know the answer to this in the north, but because you are the dominate carrier for premium services; what percent of those you serve in southern Nevada have basic, and then what have, I think it’s called expanded basic, and what percent want all that stuff?”

 

Mr. Shore answered, “One hundred percent of the customers have basic service. There is about, right now about 11 percent of the customers that have basic service only. But all customers as part of what they have are provided have basic service.”

 

Chairman Townsend said, “So 11 percent have basic only. What percent have expanded basic? Do you have any idea of that?”

 

Mr. Shore replied, “My math is, not been in school for a long time, that would be roughly 89 percent.”

 

Chairman Townsend asked, “Then what percent have all the channels?” Mr. Shore answered, “All the services, less than 5 percent.”

 

Chairman Townsend asked, “Then what about the information services? Can you get information service without basic cable?” Mr. Shore said, “Yes.”

 

Chairman Townsend said, “So they can just call up and say they want Cox?” Mr. Shore replied, “Right. Our cable modem service they can just get cable modem service.”

 

Chairman Townsend asked, “Do you package that so that if somebody says, ‘I want it all.’ What would that run me? They want basic, which includes expended basic, premium channels, broadband, can you buy that as a package?”

 

Mr. Shore said, “We’re just rolling out with what might be considered packaging called secure rate. That might offer discounts similar to somebody buying telephone service over a long period of time.”

 

Chairman Townsend said, “Which is what I think the customer is asking you to do.” Mr. Shore commented, “Some customers, not all customers.”

 

Chairman Townsend said, “If you decide to roll that out, again going back to Senator Neal’s question. ¼ When you go to price that, do you have other than the basic service issue? Do you have to take that anywhere? Is there some generic federal CC thing?”

 

Mr. Shore stated:

 

Just the marketplace. I should tell you that over the years, traditionally around the country, cable television has lost market share, not gained market share, because of the competitors that are now out there. In southern Nevada, for instance, there’s more than 30 percent of the community that takes nothing. That all they do is put up rabbit ears and see television; 30 percent of the marketplace. Not everybody has cable, not everybody has satellite services. Out market share continues to dwindle. Even though the community continues to grow, our percentage of growth is not what it was because of the competition within the marketplace.

 

Chairman Townsend said:

 

I’m just curious. This has nothing to do with this bill. Because you’re here and because provide a quality service of which I’m very familiar. Your penetration of the Las Vegas market, and granted its an anomaly because it grows 5000 to 6000 people every day. In other jurisdictions, you’ve a higher penetration than you do in Las Vegas.

 

Mr. Shore responded:

 

Yes. Let me explain the reason why. The Vegas Valley is basically a bowl surrounded by mountains. Local broadcasters have their antennas on those mountains. In other marketplaces, it is primarily flat. Various buildings obstruct signals, and thus they have to be able to get through various means like cable or satellite in order to get their signal. In Las Vegas, you put up an antenna, you can now get, if I’m not mistaken, 11 channels in southern Nevada offering very similar services that we offer, from home shopping to faith‑based channels. There’s a whole litany of programs and channels now being broadcast in southern Nevada.

 

Chairman Townsend said, “It’s important we understand that so we kind of have a global perspective. I believe your company is the whole reason we’re here. Didn’t you start this in Texas in like 1982?”

 

Mr. Severy responded:

 

MCI began providing a limited long distance service between Chicago and St. Louis, you’re right, in the early ‘70s. The way we entered the market, we had a microwave route, and were pretty ambitious and wanted to provide a nationwide service. There were a lot of holes in that coverage area, and the way we entered the market and expanded was by leasing and reselling facilities from the then-dominate carrier, which was AT&T. Over time, as we gained customers, gained revenues, we were able to funnel that money back into our own investment in network facilities, and built what is now one of the world’s largest or second largest networks; and that’s how competition takes hold. The other companies that were here today talk about starting off as resellers, leasing facilities from the incumbent, as competition takes hold, companies can grow, expand, that’s where the investment comes, and that’s the transition that we’re going through now.

 

Chairman Townsend said:

 

If Judge Green were alive, it would have been interesting for him to see how his decision might have been a most interesting sociological experience for all us. There has been a number of books written on it, but I don’t know if anyone’s ever read them, but they’re really fascinating; if you look at it from the view of what happened to the country.

 

Mr. Severy said:

 

You’re right. Actually his decisions, as a wide body of decisions that provide in very great detail what’s wrong with monopoly control, and why and how monopolies can impede competition, and why regulation is important to prevent discrimination: to prevent cross-subsidization. Again, we’re going through that transition, and at some point the need for regulation lapses.

 

Sue Ashdown, Executive Director, American Internet Service Providers Association (AISPA), read her testimony (Exhibit N).

Senator Hardy said:

 

Mr. Gillespie, I appreciate your institutional knowledge on what’s gone on in other states with regard to this, especially with section 10. In other states has the language been exactly similar to this? In other words has there been some question about whether or not it’s a side effect, or was that directly their intent to deregulate basic service? We have testimony from our regulatory agency that they don’t believe that would be a side effect of this. I’m wondering if it was more direct than that in other states.

 

Mr. Gillespie responded:

 

The language that is proposed in section 10 is identical, I believe it is exactly identical. If it is not exactly identical, it is very close to being exactly identical to other bills that SBC has put forth in other legislatures. As we’ve indicated in most legislatures that has been rejected.

 

¼ I believe that one of the reasons that the other legislatures have rejected it is because of the concerns that I raised. I don’t think that there is a huge concern about regulating high-speed access to the Internet. There was a bill that was adopted recently in South Carolina that, I believe, started off as something similar to section 10, and was changed considerably to, directed to high‑speed access to the Internet, and speeds of 190 kilobits. That was accepted in that state. But the concerns that I raised, I believe, have been concerns in all the other states about exactly what does the bill do? Would it be much more extensive than simply deregulating high-speed access to the Internet?

 

Senator Hardy asked:

 

Did the regulatory bodies in those other states have the same opinion that our regulatory agency did? They didn’t read it that way, or were there more direct concerns from the regulatory agencies to the best of your recollection?

 

Mr. Gillespie answered, “I don’t know.”

 

Mr. Severy said:

 

If I may add to that? I know in some states, state regulators have participated in the legislative debates, and have opposed the legislation. I believe most recently in Indiana. I would be happy to provide you a list of where the states have participated before the legislature. But Indiana’s the most recent that comes to mind.

 

Senator Hardy said, “I would be interested to know what angle they took on it. Whether they were neutral or in opposition.” Mr. Severy replied, “In Indiana they were in opposition.”

 

Larry L. Spitler, Lobbyist, American Association of Retired Persons, said:

 

We will be very brief. We’ve prepared written comments (Exhibit O) ¼ and we will focus specifically on the two issues that have concerned us the most. ¼ I’ve brought with me my attorney from Washington, D.C., who’s really a subject matter expert on these issues. Mr. Chairman, with your permission, I’ll turn our comments over to Coralette Hannon.

 

Coralette M. Hannon, Senior Legislative Representative, Department of State Affairs, American Association of Retired Persons, read her testimony (Exhibit O) against passage of S.B. 400.

 

Chairman Townsend asked, “How did you describe her? She’s a subject matter expert?” Mr. Spitler answered, “Yes, sir.”

 

Chairman Townsend asked, “If we put aside all the debate we’ve had today, would you stipulate to the fact of behalf of your members, that local phone service for residential, is being sold north and south below cost?”

 

Ms. Hannon answered, “We believe that all services that use the local loop should make a contribution to the cost of that local loop, so we do not believe it is below cost.”

 

Chairman Townsend asked, “You don’t think they're selling below cost for a residential service?”

 

Ms. Hannon replied:

 

We do not. We believe that all services that utilize the local loop, which requires dial tone in order to exist, should contribute to the cost of the local loop. I know that is also a huge issue of debate and that’s our position on it.

 

Chairman Townsend said, “I don’t understand your answer. You’re saying that it should be sold at cost or above. My question is, would you stipulate to the fact they’re selling at below cost now, and subsidizing it through other revenue streams?”

 

Ms. Hannon responded, “¼ I would say no. No, they are not subsidizing.”

 

Chairman Townsend said:

 

What I would like AARP to do is write a position paper to this committee answering the specific question to the specific two companies that currently provide residential service. And I would also like in a subset of that, to address Life Line in both those companies, and what in fact the cost of those are to be provided.

 

Ms. Hannon asked, “Could you clarify? You want to know the cost of Life Line, is that what you said?”

 

Chairman Townsend said:

 

I know what the cost of Life Line is. I want to know if you believe that what SBC and Sprint, which are currently selling ¼ Life Line services at a fixed rate, and residential services at a fixed rate, are those at cost, below cost, or above cost?

 

¼ We have a lot of groups that come in front of this, and I’m not saying you’re one of them, but we have a lot of them that think all of this stuff comes free. Somebody else pays for it. I don’t know where they come up with that, because whether it’s our friends in the cable industry, or in the Internet industry, or the data industry, or the phone industry, somebody’s has to pay for this, somewhere, somehow. This is how much it costs plus a profit, then somebody has to contribute to that. So I am trying to get a sense of what your belief is on what is going on in the State of Nevada on behalf of your members.

 

Christine A. Milburn, Lobbyist, Consumers’ Voice, said:

 

Prior to this, Mr. Chairman, you had asked my to furnish you with a copy of a glossary of terms (Exhibit P. Original is on file in the Research Library.) in the broadband and Internet services, and I have provided those for you.

 

I thank you for the opportunity to speak today in opposition to Senate Bill 400. I’m not an expert on the technical stuff. I don’t know all the technical terms as what I furnished you and myself. But I can tell you on the consumer aspect my message to you today is: This bill will hurt consumers and small businesses here in Nevada.

 

Ms. Milburn read from prepared testimony (Exhibit Q).

 

Ms. Milburn continued:

 

Just to add a note to that. As I was listening today, just as a point of logic, ¼ If Sprint and SBC as they purport that this will help competition with S.B. 400, it is amazing to me how all the competitors are sitting up here opposing it. ¼ If this is going to help competition, why are the competitors in opposition to this bill?

 

The jargon of S.B. 400 may be complex, but the impact for the consumer is clear. Prices in Nevada in my opinion will go up, service quality will suffer, investment will decline, and consumers will not have competitive choice anytime soon. Instead of seeking a special deal from the legislature, why doesn’t Sprint SBC seek to make money by providing innovative offerings and better service at lower prices? I can just hear comedian Lily Tomlin the comedian’s response, “We’re the phone company. We don’t have to.”

 

Timothy Hay, Chief Deputy Attorney General, Consumer Advocate, Bureau of Consumer Protection, Office of the Attorney General said:

 

As the committee is aware on telecommunications matters, our enabling statute indicates that once a service or other offering has become competitive, we no longer have the ability to represent consumers in those matters before the PUC. My feeling about this piece of legislation, particularly more so now than earlier in the day, is that it leaves more questions unanswered, and raises more questions than we have time to discuss today.

 

I think several points need to be made clear for the committee’s benefit. First of all, I think it’s fairly clear that in telecommunications industry there are niche markets in Nevada where competition is emerging. We certainly do not have a competitive market for the basic service for residential or small business consumers. I’m particularly concerned with the small business consumers, because of the fact that I do think the bill would foreclose fairly quickly the PUC from being able to regulate the cost of services to small businesses. Mr. Gillespie and others have been through the legal analysis on that, which we at least preliminarily agree is accurate.

 

The second issue that I wanted to, and I do believe that it opens the door to wide scale deregulation of residential services as well, which I believe would at least open the door for residential rates to increase fairly rapidly. Once the door is opened, I doubt whether the Legislature could be persuaded to re-regulate services that are deemed or become competitive under this legislation.

 

There are a number of definitional issues in here, particularly, this question of underlying facilities. As you know, with the evolution of technology, particularly in the telecommunications industry, the ability of even a copper wire 10 years ago to serve high-speed capabilities was in question. Now it’s very common for DSL and other technologies to be able to provide high-speed access over older facilities. The provisions in the bill don’t require that the facilities actually be used for that, only that they have a capability of providing that access. That certainly opens up the doorway to wholesale deregulation of the underlying facilities themselves, which I believe is in large part why similar legislation has been rejected in, I believe, nearly every state in which it has been considered as recently as this week.

 

Mr. Hay continued:

 

There are a number of other issues that I’d like to touch up on. I know that your time is limited, but I think if the Legislature is inclined to do anything on telecommunications issues. There are really two predominate themes that we should consider. One is continued protection through the regulatory process for residential consumers and small business consumers who are, obviously, at the bottom end of the feeding chain on the telecommunications industry’s line of priorities. I think the bill puts that in jeopardy.

 

I think that we need to look at the competitive environment in the State, and not do anything that is going to either cause current market participants to leave the market or discourage new participants from investing money in the State of Nevada, and its telecommunications infrastructure. As the committee is well aware, with the exception of the incumbent local phone companies, the telecommunications industry in almost all segments of the marketplace has had a tremendous meltdown in the last couple of years; both from the standpoint of investment, and profitability. It is not good public policy, in my judgment, to further move towards deregulating a monopoly provider without some evidence that we are seeing competition increase rather than decrease. And we’re not making an incentive for competitive investment in the State of Nevada, which I think is the long-term resolution to all of these issues, to actually get robust competition going rather than discourage it.

 

Senator Neal asked, “If we reject this bill, this question is to all of you; does that not leave Cox Cable in the position to do the things that you’re opposed to in this bill? Particularly in southern Nevada?”

 

Mr. Hay responded:

 

Let me take the first stab at that Senator, and obviously we don’t get involved with cable regulation. As you know, Cox does not currently provide voice over cable in the Nevada marketplace. It’s my understand that they may be ¼

 

Senator Neal said, “But there is nothing preventing them from doing that.”

 

Mr. Hay replied:

 

No. I’m not aware that they are planning on doing that either. I think the record indicates in the cable environment you do have viable competition for your cable service. In Las Vegas, you’ve got viable competition from just broadcast television, satellite dishes at competitive prices, and cable itself. So, a person who is choosing cable service for the purpose of receiving television signals does have other competitive alternates that theoretically ¼

 

Senator Neal asked, “What about the broadband that was mentioned?”

 

Mr. Hay answered:

 

In the broadband arena the, essentially the DSL product, the phone company product, and the cable product, although the technologies are somewhat different, the end result and the product, as I understand it, is essentially equivalent as far as the speed that you can download and access the Internet through. Although there’s a smaller percentage of customers currently receiving that broadband through the phone company, there’s a vast number of customers in Las Vegas that do receive the slower dial-up Internet service through the phone service. I’m not sure that we can say there’s not viable competition there since the price is not regulated for broadband on either the cable side or the phone company side. Each of those competitors, which obviously have a big business presence in the Las Vegas market, have the ability to compete on price for broadband customers. I think that’s the sort of market dynamic that you want to encourage.

 

Chairman Townsend said, “Thank you all. We will take this up next Friday. This committee is adjourned at 11:04 a.m.”

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Laura Adler,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Randolph J. Townsend, Chairman

 

 

DATE: