MINUTES OF THE

SENATE Committee on Commerce and Labor

 

Seventy-second Session

April 9, 2003

 

 

The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:10 a.m., on Wednesday, April 9, 2003, in Room 2135 of the Legislative Building, Carson City, Nevada. The meeting was videoconferenced to the Grant Sawyer State Office Building, Room 4412, 555 East Washington Avenue, Las Vegas, 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

Lynn Hendricks, Committee Secretary

 

OTHERS PRESENT:

 

Ann C. Pongracz, Lobbyist, Sprint Nevada

Dan R. Reaser, Lobbyist, Nevada Bell Telephone Company

Steve G. Schorr, Lobbyist, Cox Communications Company

Don Soderberg, Chairman, Public Utilities Commission

John Frankovich, Attorney, AT&T

Samuel P. McMullen, Lobbyist, AT&T Communications of Nevada, Incorporated

Richard B. Severy, Director of Public Policy, WorldCom, Incorporated

Robert K. Johnson, Lobbyist, Consumer’s Voice

Larry L. Spitler, Lobbyist, AARP

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection (Consumer’s Advocate)

Gail J. Anderson, Administrator, Real Estate Division, Department of Business and Industry

Pat Coward, Lobbyist, Nevada Association of Realtors/Reno

Tami DeVries, Acting Deputy Administrator, Real Estate Division, Department of Business and Industry

Susan Clark, Program Officer, Real Estate Division, Department of Business and Industry

Melody Luetkehans, General Counsel, Nevada Association of Realtors

Robert Gastonguay, Lobbyist, Nevada State Cable Telecommunications Association

Bill J. Slentz, President, Oasis Online

Mark H. Fiorentino, Lobbyist, CC Communications

William “Buzz” Harris, Lobbyist, Charter Communications

Andrew Barbano

Gardner F. Gillespie, Lobbyist, Cox Communications Company

 

Chairman Townsend:

We will open the work session 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)

 

Chairman Townsend:

In your work document, committee, at tab A there should be a copy of the amendment to S.B. 400 and a multicolored mock-up of the bill (Exhibit C. Original is on file in the Research Library.). It’s probably best that we work from that. …

 

Ann C. Pongracz, Lobbyist, Sprint Nevada:

We’re happy to report to you that after extensive negotiations, we have come to an agreement with Cox regarding proposed amendments to S.B. 400, which I understand are before you in your packets this morning (Exhibit D). We understand that this committee has a lot of obligations, both in this context and in other committees this week, and so we will keep our description of the amendments quite brief. However, of course, if you’re interested in discussing any of these issues at greater length, we’d be more than pleased to do so.

 

The major changes included in the proposed amendments fall into two categories. The first is refinements to the pricing flexibility allowed to Sprint and SBC under S.B. 400, and the other is simplifying the language governing broadband services. The changes in the broadband section have been made to remove any concerns that the language of S.B. 400 might unintentionally impact basic telephone services.

 

Let me first of all talk about the refinements to the pricing flexibility sections. These changes include the following. Sprint and SBC have agreed to eliminate the competitive reclassification rules, which we had proposed in section 25 of S.B. 400. We had proposed to streamline the Public Utility Commission (PUC) process for detariffing services which face competition. However, as members of the committee may recall, a number of the witnesses at the March 27 hearing objected to the statutory reclassification criteria. Therefore, Sprint and SBC have agreed with the representative from Cox to eliminate most of the provisions of section 25. Instead, Sprint and SBC will work towards making these changes in the context of the PUC’s docket 027001. The only amendment to existing law which is retained from section 25 is that once the PUC has resolved by regulation the new criteria to be applied for competitive reclassification, they’ll need to complete their docket on competitive reclassification applications in 120 days.

 

Secondly, we have agreed with Cox to eliminate certain aspects of the pricing flexibility we had sought to achieve through use of customer contracts. We’ve agreed to utilize the new tariff procedure to provide term and volume discounts when dealing with all or a class of business customers. This provisions will be added to section 12 of S.B. 400. It provides for the commission to conduct an expedited 60-day review for this type of tariff filing.

 

Third, Sprint and SBC have agreed with Cox to revise S.B. 400 as to situations in which we can offer term and volume discounts by using contracts. As amended, S.B. 400 provides for the use of contracts in situations where we’re offering term and volume discounts to individuals customers. These changes are reflected in the amendment we have proposed to section 26.

 

The fourth change that Sprint and SBC have agreed to is that we have agreed to increase the regulatory requirements applied to such contracts by including a requirement that the commission post the notices of the contracts we file. This change also is included in the amendment to section 26.

 

Fifth, we have agreed to give 10 days notice of our contract filings rather than 1 day as we had proposed in S.B. 400.

 

Finally, while it’s not included in the language of S.B. 400, we wanted to inform the committee that Sprint and SBC have agreed to file and to support a request to the PUC in docket 027001 for an amendment to existing regulations governing the content of annual reports to PAR carriers. This regulation amendment would require each PAR carrier to include in our annual report information regarding the pricing flexibility we have exercised under section 12, and the number and types of contracts we have utilized under section 26 of S.B. 400. The commission would review this information to determine our compliance with the requirements of those provisions and even before the commission adopts these regulations, we have agreed on a voluntary basis to submit such information in our annual reports.

 

The second major area that we have made changes in is broadband parity. Sprint and SBC have agreed to simplify the language on broadband services that we had originally proposed in S.B. 400. During the committee’s first hearing on S.B. 400, a number of witnesses expressed concern that Sprint and SBC intended to somehow utilize the definition of high-speed Internet access or broadband service contained in section 10 to deregulate virtually all of our services. Specifically, at the last hearing before this committee, opponents of S.B. 400 alleged that the definition of broadband service was flawed by its reference to underlying facilities. We disagreed with this interpretation of the opponents of S.B. 400. However, in order to eliminate this attack on the broadband services provisions of the bill, Sprint and SBC have agreed to an amendment to section 10 that removes the reference to underlying facilities and sets forth a simpler definition of broadband service.

 

You may hear later today allegations that this bill somehow eliminates the obligations of Sprint and SBC to provide our services on a wholesale basis to the CLECs (competitive local exchange carriers). That is not true. We have retained the provisions of S.B. 400 and left unchanged provisions of existing law which govern the provision of wholesale services by Sprint and SBC to the CLECs. I call your attention to what is now in your packets in section 8, subsection 2, paragraph (a). Specifically, this language says that the bill does not, and I quote, “limit or modify the duties of an incumbent local exchange carrier … to provide unbundled access to network elements to the extent required under United States Code (U.S.C.) sections 251 and 252, and 47 Code of Federal Regulations (C.F.R.) section 51.319.” So it’s very clear if you look at section 8, subsection 2, paragraph (a) that our obligation to make our network available to lease our networks for CLEC use, and to resell our services at a substantial discount to the CLECs in compliance with the Telecommunications Act and the FCC’s regulation. Those obligations are unchanged by this legislation.

 

In conclusion, I’ll just say that we believe and hope that with these recommended changes, the committee may vote today with confidence in support of passing the amended version of S.B. 400 and forwarding the bill for consideration by the full Senate. We’d be happy to respond to any questions, and Mr. Reaser is prepared to do a section by section presentation if that would be helpful to the committee.

 

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

“I don’t intend to do a section by section unless there’s specific questions. …”

 

Ms. Pongracz:

We should note that counsel for Cox has identified a typographical error in the materials … at the bottom of page 11. It was originally marked as section 18, subsection 3, in the stricken-out section. In brackets and over a dotted line, it says, “or a nonregulated service.” I think that’s just a failure of the strikethrough of the entire section, and it should be stricken through. Finally, I’d like to add we very much appreciate the assistance of the Legislative Counsel Bureau and their rapid turnaround of the amendments to this legislation after we reached agreement with Cox late yesterday. We have no idea how they managed to produce such excellent work in such a short period of time, and we very much appreciate their efforts.

 

Chairman Townsend:

Thank you. Committee, questions of these folks? All right. Mr. Schorr, I don’t know if you want to make a comment on the record about the proposed amendment, or Mr. Gillespie or anyone from Cox. If you don’t, that’s fine. I just offer you the opportunity.

 

Steve G. Schorr, Lobbyist, Cox Communications Company:

As Ms. Pongracz clearly identified to this committee, it was negotiations between the parties of Cox Communications, SBC, and Sprint that brought us here today. With the direction of this committee, it was clear to us that you had sought from us the ability for us to sit down and speak with them and to hopefully come forward with something. Many, many hours were spent on this, and I’m here to say that because of that and the amendments that were presented to you today, Cox Communications will not oppose this amended S.B. 400.

Chairman Townsend:

Any questions of these folks? All right, thank you both very much. We have the chairman of the PUC with us at this time. Chairman Soderberg, although you and I briefly chatted in the hallway, do you have a copy of this proposed language? I guess the most important thing for this committee would be to ask, number one, for your general feelings; number two, if this adds any regulatory burden. …

 

Don Soderberg, Chairman, Public Utilities Commission:

In response to your question, the negotiating parties visited us twice yesterday, walked us through their concepts, and asked us how this was going to affect the agency and how we’d be able to administer the changes. We believe this does not create any additional burdens upon the agency. As Ms. Pongracz said, we have an ongoing docket to look at our criteria for judging a service becoming from fully regulated to competitive, so we were well on that road. We will kick-start that proceeding actually this spring in order to accomplish it hopefully in early summer and allow that much-needed change to occur.

 

We have included in these amendments a very short trigger for tariff filing, having to do with tariff changes for those term and volume discounts. It is typically much shorter than we would like, and it would be much shorter than we could ever testify to you would be good public policy if you had had to do with a broad rate case that involved a majority of your constituents, whether it be electric rates or basic telephone rates. In this narrow instance, we believe it’s something that we can do. We believe that very quickly, over time, it will be something that will be actually relatively routine, and we won’t see things that would not be able to get regulatory muster. That’s how things have gone in the telecommunications area for us in the past.

 

We’re very comfortable with what has been negotiated and developed, and we do thank the negotiating parties for spending a little time with us to make sure that their concepts are actually workable.

 

Chairman Townsend:

Don, I would like to have you come back to the table later to give us a little better understanding of the affects of S.B. 102.

 

SENATE BILL 102: Revises provisions relating to the Public Utilities Commission of Nevada. (BDR 58-968)

 

Senator Hardy:

Mr. Soderberg, do you concur with Sprint’s comment that the bill, as amended, completely preserves your ability to regulate at the wholesale level, as they spoke to section 8 of the bill, or the amendment?

 

Mr. Soderberg:

Yes, I do. There are three large things going on in telecommunications regulation that has to do with competition. This is but one of those three. The one that impacts more is actually a regulation of those wholesale prices that is going on at the federal level with the triennial review. I think what we have in here preserves our ability to comply with federal law in that area.

 

Chairman Townsend:

Anyone else like to comment at this time? It’s a work session. Mr. Frankovich … I would like to commend you as a senior partner and all your partners for stepping to the plate financially to save the Easter Egg Hunt in Washoe County. You received appropriate kudos in the paper today, and I want you to know it had come to my attention. … On behalf of all of us who know how important those things are to children and their parents, we very much appreciate you being there for them.

 

John Frankovich, Attorney, Representing American Telephone and Telegraph (AT&T):

Thank you. I would point out that that was the direct responsibility of my senior partner, Mr. Robert McDonald, who saw it in the paper and said he wasn’t going to let the Easter Egg Hunt get canceled in Washoe County. …

 

Since I haven’t testified before this committee, I’d like to give a little brief background of my involvement in the telecommunications industry. I have represented AT&T in the State of Nevada since 1976. That’s when there really was only one telephone company nationally and locally. I participated in the ‘80s in all of the proceedings on behalf of AT&T when divestiture was going on, which led to the competitive long-distance market as we know it today, and I have participated in most of the proceedings since 1996 under the Telecommunications Act of 1996, which was intended to open up the local markets for competition. I have appeared in excess of a hundred times on telecommunications matters before the Nevada Public Service Commission. I’ve sat across the table many, many times from Ms. Pongracz and Mr. Reaser on these issues.

 

I give that as a brief background to suggest that I do have some familiarity with the telecommunications industry, and I looked with interest at S.B. 400 when it came out. I read it, and I read it several times. It’s difficult to understand; it’s a very complex bill. I’m not sure I understand it at this point in time fully. It made my client nervous, since it was sponsored by SBC and Sprint, who are historic monopoly providers in this State, and it was difficult for the competitors to believe that this bill was intended to help the competitors. I would say that they raised a number of issues before and through the negotiations with Cox and Sprint and SBC. They have provided amendments which frankly address many of the concerns that we raised. The amendments are still very, very complex. The competitors, including AT&T and I believe everybody else at the table, were not party to those negotiations and were not able to address concerns that they had. As I indicated, I think it goes a long ways, but I’m kind of reminded of the story of the man who was drowning in a lake 100 feet off shore, and his friend from shore threw him a 70-foot rope, and at the funeral explained to the widow, “Well, I went more than halfway.” Well, if we don’t go all the way here, we’re going to have some issues that impact competition in the State of Nevada.

 

We have submitted, and we submitted again today, and we submitted at the hearings last time, some proposed amendments (Exhibit E). Our amendments address the original draft of S.B. 400, although we’re prepared to talk about them in connection with the mock-up today. The thrust of that, and I want to get right to it, is that under the proposed amendments, we believe that it will deregulate monopoly services, and specifically wholesale services, and that the commission in Nevada should retain jurisdiction over wholesale issues.

 

Now I know both Ms. Pongracz and Chairman Soderberg made a comment about that. I would like to address their comments immediately, and if that is the case, then maybe a clarification is all we’ll need. Ms. Pongracz said that new section 8, subsection 2, paragraph (a), which was formerly section 10, subsection 2, paragraph (a), clearly provides for continuing regulation of wholesale services. I hope you all understand wholesale services; those are services that competitors like AT&T have to obtain from Nevada Bell or Sprint in order to provide services to consumers. We have to go to them; they’re the only source of those, and those are clearly competitive services. But what this section does, the one that Ms. Pongracz referred to, is to provide that they will comply with federal law. Well, I don’t think this Legislature can make them not comply with federal law. What this means is that if we want to have any action taken with respect to wholesale rates, we’ve got to go to the Federal Communications Commission (FCC). Because under the definition of “utility services,” as amended in this bill, the PUC in Nevada will not have jurisdiction. That doesn’t mean there won’t be regulation of them at the FCC level, but at the Nevada level, where there should be concern about competition in Nevada at the PUC, they will not have that jurisdiction, at least in my opinion. And if my opinion is wrong, it can be clarified very easily.

 

The principle basis of the concern is in the new definition of telecommunication service that S.B. 400 obtains. That was in original section 7, and in the mock-up it’s in section 6 now. It says that telecommunication services means services provided directly to the public or access to interexchange carriers. Well, “directly to the public” means it’s not services provided to competitors, such as AT&T and other competitors, so it will not include those services other than access services, and access services are a significant portion, but they’re certainly not all the wholesale services. The existing definition in the statutes and regulations today provides that a telecommunication service should be any telecommunication service provided to any person, and that is the suggested change that we think should be made to this, rather than to “the public,” because if it was to “any person,”  that would include a competitor. By eliminating wholesale services, or the definition “to any person,” under the definition of telecommunication service, then the PUC has no jurisdiction over this type of service because it is no longer a telecommunication service. Now if that was not the intent of this bill and if my interpretation is incorrect based upon what Ms. Pongracz or Chairman Soderberg said, it would be very easy to clarify that just by making that amendment to say that it does apply and the PUC does retain jurisdiction over telecommunication services provided to any person as opposed to just the public. “The public” means retail, “any person” would mean retail and wholesale services.

 

The other proposed amendment that we had submitted and would like to see incorporated into the bill would have to do with the definition of broadband. That was originally in section 7 and is now, I believe, in section 8 of the mock-up, which is on page 4. It now says broadband services means any two-way service. That could include wholesale or retail services. We think it should be limited to retail. So as we’ve indicated in our outline, it should be “two-way retail services,” not just any services.

 

Chairman Townsend:

“Mr. Frankovich, could you slow down a little, please? … What section of the mock-up are you on?”

 

Mr. Frankovich:

“We’re in section 8, subsection 3, paragraph (b), of the mock-up, which is on page 4. … There’s a lot of strike-through text, then it starts ‘Broadband services’ in green.”

Samuel P. McMullen, Lobbyist, AT&T Communications of Nevada, Incorporated:

“To make things easier … I distributed to you earlier a marked-up, two-page, stapled revision of the mock-up pages. (Exhibit F).”

 

Mr. Frankovich:

“In reviewing that, I would suggest that Mr. McMullen’s proposed changes are exactly what I was referring to.”

 

Mr. McMullen:

And then in addition, we also passed out a single sheet which was passed out to the committee on April 4, and it still contains language in the middle amendment under subsection 2, paragraph (a), that John will speak to relating to commercial complaint dispute resolution.

 

Senator O'Connell:

Kevin, is your interpretation the same that’s just been related to us as far as the reference to the public? … The concern that’s been raised is that when you say “any telecommunication directly to the public,” the interpretation is that “to the public” does not include any competitor. And so they have added, or wish to delete “to the public or” and put in “to any person or.” Then it would include the competition. That’s also a change that’s made on the second page on lines 31 and 33.

 

Kevin Powers, Committee Counsel:

I would have to agree. If the interpretation is that “to the public” may be interpreted to limit it to sales to the retail consumers, then I would agree with that interpretation, that the phrase “to the public” could be interpreted to be limited only to sales to retail consumers and not sales to competitors at a wholesale level. I don’t think the language is clear one way or the other, so with that ambiguity in the existing, there is a possibility for a limiting interpretation.

 

Senator O'Connell:

“Ann, what was the intent of the language?”

Ms. Pongracz:

The intent of the language was to track the language in the federal statute. I hope the committee will not be misled by this argument. If we go back to section 10, subsection 2, paragraph (a), and if we understand what the obligations are under federal law, under federal law we have an obligation to unbundle our network to allow the CLECs to use our network, number one. And number two, the resale requirement specifically requires us to resell to the CLECs the services that we supply to retail customers, the telecommunications services we provide to retail customers. So regardless of the interpretation of the definition of telecommunication services, which as I said does track the definition under federal law, 47 U.S.C., this is really a red herring that you’re being presented with here. Our wholesale obligations derive from federal law, and they are clear, and we are reinforcing that in section 10, subsection 2, paragraph (a), which is now section 8, subsection 2, paragraph (a).

 

The second thing to understand is that under federal law, it’s the federal law that gives the PUC the responsibility to set our rates. So when Mr. Frankovich said that in some way, this bill would change whether the PUC had jurisdiction to consider the prices we charge for the services we’re required to provide in terms of unbundled elements and resold services, that’s simply incorrect. The commission’s jurisdiction to review those rates derives from federal law, and it’s the federal law in 47 U.S.C., 251 and 252, that gives the commission in this State, the PUC chaired by Don Soderberg, the jurisdiction to consider the prices for  unbundled elements  and resold services here.

 

Mr. Reaser:

I wanted to concur with Ms. Pongracz. The federal law extending the definition of telecommunications services to the public is the foundation of the Telecommunications Act here, and we’re trying to bring that into Nevada law. Once that sale is made by the local company to the public, then it triggers the federal obligations to unbundle those network elements to competitors or sell it at resale. The attempt to extend this to all persons is to broaden that law greater than federal standards, and we do not believe that is appropriate. Frankly, if AT&T had concerns about unbundled prices, then they should not have withdrawn from the proceedings before the Nevada Commission where those issues are being decided, but they have decided not to participate in those proceedings.

 

Senator O'Connell:

“Would there be any value to adding that language, the 47 U.S.C.?”

 

Ms. Pongracz:

“That language is already present in section 10, subsection 2, paragraph (a), the citations to 47 U.S.C. Let me allow Mr. Reaser to correct my citation here.”

 

Mr. Reaser:

“It’s on page 3 of the mock-up, line 28 through 36, in renumbered section 8, subsection 2, paragraph (a).”

 

Chairman Townsend:

Let me quote: “The provisions of subsection 1 do not: (a) Limit or modify the duties of an incumbent local exchange carrier or an affiliate of an incumbent local exchange carrier to provide unbundled access to network elements to the extent required under 47 U.S.C. sections 251 and 252, and 47 C.F.R. section 51.319 or any successor regulations issued by the Federal Communications Commission, at rates determined in accordance with the standards established by the Federal Communications Commission pursuant to 47 C.F.R. sections 51.503 to 51.513, inclusive, or any successor regulations; or (b) Prohibit the Commission from: (1) Considering any revenues, costs and expenses that a public utility derives from providing a high-speed Internet access service or broadband service, if the Commission is determining the rates of the public utility under a general rate application that is filed pursuant to subsection 3 of NRS 704.110; (2) Acting on a consumer complaint pursuant to NRS 703.310, if the consumer complaint relates to a high-speed Internet access service or broadband service that is provided by a public utility; or (3) Including any appropriate gross operating revenue that a public utility derives from providing a high-speed Internet access service or broadband service when the Commission calculates the gross operating revenue of the public utility for the purposes of levying and collecting the annual assessment in accordance with the provisions of NRS 704.033.”

 

Mr. Frankovich:

Since there does not seem to be any dispute with respect to the PUC and its continuing jurisdiction over wholesale services, and in light of Mr. Powers’s comment that it is ambiguous and my interpretation that it is ambiguous, I still think that it ought to be clarified to make it sure or make it clear that the PUC in Nevada will continue to have jurisdiction over wholesale services. It doesn’t seem to be a dispute among the parties, and I don’t want it to be a dispute later on when maybe these parties aren’t present.

 

Mr. McMullen:

The other thing that accentuates that for us is … in what is now subsection 2, paragraph (b), subparagraph (1) in the language that you read, when they use the phrase “public utility,” that has also been redefined in the current section 9 on page 4 of the mock-up, and it has likewise the same language, which we believe is restrictive, in that it says “to the public” as opposed to “any person.” And the other thing that I would emphasize to accentuate this is that in paragraph (b), subparagraph (2), it only allows for the resolution of consumer complaints. As this committee will remember, we fought very hard for the ability to have an expedited dispute resolution process on commercial complaints, where the company is a vendor and the company is a purchaser of services, a wholesale provider buying those from the incumbent local exchange carrier (ILEC). If there was an issue with respect to those disputes, there was an expedited process. And the very fact that they’ve taken that out sort of accentuates that these things need to be fixed so that those verities are back in so we understand that we have those abilities.

 

The whole theory of this bill was that there was adequate competition. The wholesale market has to still be competitive. You can’t allow in this bill something that could conceivably defuse and neutralize that very competition. In a sense, you’re saying to the vendor, the ILEC in this case, that they basically in many ways have not only a monopoly unregulated, but they have the ability to control pricing, control bundling, control all of those issues. And that could in fact neutralize the very competition which is the heart and the foundation of the request for that bill. All we’re saying is maintain that, give us those transition elements, and make sure that actually develops and stays that way in terms of full competition. And that is really, truly the protection for consumers in this State.

 

Chairman Townsend:

Your point is well taken. Senator Hardy asked the chairman of the PUC that exact question. He didn’t seem to have that problem, so is there a disconnect here? He didn’t see that he had lost any control over the wholesale market. I don’t know how you want to respond.

 

Mr. Frankovich:

I listened with interest to Mr. Soderberg’s comment and took heart in it, frankly. What he said is their obligations would remain consistent with the federal act. The problem with that is Nevada law can remove that jurisdiction, at least to be resolved at the local level or at the Nevada level, and it may well result in all of us having to participate in proceedings at the FCC, including the Nevada PUC. So it’s just an issue, and I hope that the comments by Chairman Soderberg are correct, but I just think it’s something we can clarify so we don’t have this issue later on.

 

Mr. McMullen:

Maybe the way to resolve that is to ask Chairman Soderberg if in fact he’d have any problems with these amendments, to clarify that aspect.

 

Ms. Pongracz:

I do know that Sprint and SBC would have problems with making that change. That extends the definition of telecommunications company that’s a public utility far beyond what’s contemplated in the statute or that has been in the statute. At the risk of boring the committee, let me just point out that the public utility laws are descendent of laws regarding common carriage. That’s where the terminology about holding out to the public comes from. It’s been a part of public utility law since public utility law began in the 1890s. What defines a public utility is whether you hold out your services to the public. That’s why that’s part of the definition, and it should stay there, especially given the fact that we have specific provisions in here that address the requirements on the commission under federal law to regulate our prices in the services that we provide to wholesale customers.

 

Mr. Frankovich:

I do want to respectfully disagree with Ms. Pongracz. All that AT&T’s position is in this is that the existing definition of public utilities as set forth in NRS 704.020 and the existing definition of telecommunication services as set forth in the Nevada regulations of the PUC remain. They want to change it for some reason, and I got more nervous when they wouldn’t agree to a clarification as to what the motive for the change is.

 

Chairman Townsend:

We have two other gentlemen who haven’t said anything, so if we could hear from them?

 

Richard B. Severy, Director of Public Policy, WorldCom, Incorporated:

I want to address two points to the committee. One is the wholesale issue, and the other is the definition of broadband. With respect to the wholesale issue, there are several provisions in this bill, as Mr. Frankovich just noted, which are changes to existing law. The definition of public utility, which is in fact the entities that the PUC regulates, and that would be limited to companies that provide service to the public, is a change from existing law. The definition of telecommunication service in a separate provision of the bill also would be a changed to limit those services which would be subject to regulation only to those services provided to the public. And those two provisions are, I would argue, in conflict with the provision in section 8 which refers to federal requirements. My first question is why, in Nevada State law, are we talking about what is or is not required under federal law, and why is it necessary to have references to federal law? It seems to me that in a minimum that’s inappropriate in a state law.

 

More important, if you read the language of that section, which is new section 8, subsection 2, paragraph (a), on page 3, lines 28 through 36, if you read them carefully in the context of what’s going on at the federal level, this language is very troublesome, and in my mind deceptive. This language talks about not limiting the duties of a telephone company to provide access to the extent required under federal law and regulations issued by the FCC. What does that mean in practice? The FCC recently adopted new rules dealing with the obligations of local phone companies to unbundle and provide network elements to competitors who need those facilities to serve end users. The FCC’s order isn’t out, but what we do know, based on the FCC’s pronouncements in news releases, is that the FCC isn’t issuing new regulations. What they are doing is deferring to states, deferring to state PUCs, to make the specific determinations based on local market conditions. Rather than the FCC making decisions about the extent of unbundling that’s required or what network elements need to be provided to competitors, those decisions are being delegated to state commissions, including the Nevada commission. My fear is that this language, at a time when the states are being asked to take on that important responsibility, this bill, if enacted, would rob the state commission of the ability to make those determinations for Nevada, which is totally inappropriate. We were told earlier in the hearings that this bill was about setting State policy and State rights. This would abdicate the right of Nevada to make the determinations about how the competitive market will unfold in Nevada.

 

So you have three provisions of the law which are in conflict. You have two sections which clearly limit the definition of public utility and definition of telecommunication service arguably, and I think clearly, even based on the history of common carriage law and public utility law, that could limit the ability of the commission to set laws, to set regulations affecting the provision of service by incumbent local phone companies to wholesale providers. These are the companies that are leasing facilities in order to serve end users. In my company’s case, MCI just started providing local service in this market last month. How do we do it? We lease facilities from Nevada Bell in part to provide services to residential and small-business customers. If this bill was enacted, the concern is that the PUC would no longer have the authority, would no longer have the ability, to regulate the facilities we obtain and the manner of the terms and conditions under which we obtain them. That would drastically affect our ability to continue to provide local service in the State.

 

Chairman Townsend:

I want to respond. Regarding the term “evolving market” or “evolving competition,” we’re 15 to 18 years into this deal. How much longer are we going to evolve? The new Iraqi government will have a more competitive service in a quicker time than we are at the rate we’re going. Also, I want to make sure everyone, particularly those that are listening on the Internet or southern Nevada or whatever, understands that this debate that has occurred, and one I respect, this to me is why I’m here, has nothing to do with the average customer. Let’s don’t kid ourselves. No one is fighting over the basic landline here. Anybody that comes up and says that is completely disingenuous. You’re only here because of the high-end retail customer that’s a residential customer or the business customer. That’s all this is about. If you were all in here trying to say if it’s $15 in southern Nevada and we’re going to go and get that customer for $12, or do a lifeline, this debate would be substantially different. I’m not against what you guys are doing. I’m thrilled for those high-end customers. I’m thrilled for the business customers. But let’s don’t kid anybody here. Let’s don’t anybody on any side wrap yourselves in the flag that anybody is doing anything for the base-rate customer. The whole reason we’re here is because all of the other services are subsidizing that, and it’s killing local exchange carriers, particularly the incumbents. So let’s don’t get too far afield on this. Let’s stay focused. I respect what you’re trying to do. You’re big companies, and I love it when the biggest and best fight to provide services at a better rate for people, but I don’t want the committee to be confused that any of this has to do with Mr. Jones in southern Nevada picking up the phone and getting a dial tone for one basic line, because it doesn’t. …

 

Mr. Severy:

“With all due respect, MCI is providing local service in some states, and in some markets we’re providing lifeline service.”

 

Chairman Townsend:

“And what other services?”

 

Mr. Severy:

“We’re providing local exchange service in now 50 states, more extensively in some states than others. As I said, we just entered Nevada recently.”

 

Chairman Townsend:

“And do you provide any other services along with lifeline and base rate?”

 

Mr. Severy:

“We provide a variety of services. We provide voice mail, we provide custom‑calling features, we provide directory assistance, we provide operator assistance.”

 

Chairman Townsend:

“And you couldn’t afford to do any of those if all you were doing was base rate.”

 

Mr. Severy:

“We’re providing lifeline service, which is below …”

 

Chairman Townsend:

“I understand. And you couldn’t afford to do that if you didn’t have money coming from somewhere else. Right?”

 

Mr. Severy:

“I’m not sure that I understand your point.”

 

Chairman Townsend:

“Okay. We’ll move on. I just like to keep focused on what we’re all fighting about here. It’s not the people we represent on a regular basis.”

 

Mr. Severy:

One other point about local phone service. That debate hasn’t been raging for 16 or 17 years. It’s been illegal in most states until 12 years ago, and so what we’ve been striving to accomplish is to set the terms and conditions so that companies could enter the market and provide local phone service to residential and small‑business customers, and we’re still just at the beginning stages of that transition.

 

The one other point that I wanted to address was the revised definition of broadband service, and I need to point out that WorldCom was not party to the discussions, the negotiations. We were excluded from that process. We just received this language last night, so we haven’t had an opportunity to fully consider it. But the new definition of broadband service on page 4, lines 17 through 19, has been modified, but it’s still of some concern. This may be a fine definition if we’re talking about 1990’s technology. But this bill is, I would think, is prospective, looking at where the industry’s going, where the market is going. If you look at what’s happening today, the telephone companies are aggressively deploying digital subscriber lines (DSL). In the fourth quarter of 2002, SBC announced it had increased the number of its DSL line by over 65 percent. It is the largest DSL provider in the country. Verizon announced 2 weeks ago that it was accelerating its deployment of broadband. It will add ten million new lines this year, primarily in suburban and rural areas, and will be serving 80 percent of its network with DSL service by the end of this year. The networks are moving towards packet switching, high-speed switching networks. Project Pronto is SBC’s effort to expand the technology into the local market. We’ve heard about voice‑over‑Internet protocol, sometimes referred to as VOIP, where people can provide voice communications using the Internet. All of these technologies are moving forward; they’re being deployed, they will be deployed, over the next couple of years. And the concern is that this definition of broadband service will encompass many of these new technologies which are being deployed today and will be in the near future, and that caught up in that will be your basic voice services provided over these new technologies, these high-speed technologies over the Internet. And if that’s the case, this definition would, in this new world that we’re entering into, effectively deregulate voice service because voice service will be provided over these facilities.

 

So I think it’s something to consider, to think about long and hard, what this definition means, how it will be applied, and what the ramifications will be going forward, that this could in fact reach a number of voice services which by definition, the way the bill is structured, deregulate them, remove them from the regulation of the PUC. And also think about universal service. How is universal service funded today? Primarily through the providers of voice service, subject to regulation. So this could impact some universal service funding in the foreseeable future. So it’s a significant question to me whether you want to set in stone as State policy language that could have those far-reaching effects now and in the future.

 

Senator Hardy:

This has been an interesting education to me. I hadn’t given two seconds thought to this until I got on this committee … From what I’ve learned, when we get to the point that voice services start going over DSL lines, we got a lot bigger issues than the definition. That totally spins things. With regard to your testimony earlier, I think I’ve gotten documentation and heard everything on this, but that’s the first time I’ve heard this federal order reference that speaks to getting more power over regulation to the local regulatory. Do you have a copy of that? Can I get a copy of that from you? I’m just interested. I think that’s a good move in the right direction, but I’d like to see it.

 

Mr. Severy:

The FCC order hasn’t been officially released yet. It will be released within weeks. It was adopted in February. The FCC did issue a press release where it lays out conceptually what the process is, and I would be happy to provide you with that, because in there it does indicate the delegation of responsibility in the area of setting unbundling requirements to state commissions.

 

Senator Hardy:

“And is that going to be immediate once it’s released?”

 

Mr. Severy:

The process generally is that the FCC order will be released say for the sake of argument on May 1. It then has to be published in the Federal Register; that sometimes takes a few weeks. And then generally the rules become effective 30 days later. So you’re looking at July 1.

 

Senator Hardy:

“So all we’ve seen so far is the conceptual portion of it, we haven’t seen the order itself.”

 

Mr. Severy:

Correct. At that point, the State commissions have 9 months in which to complete these proceedings based on what the FCC refers to as a granular analysis, looking at state-specific conditions. And if the State doesn’t act in that time, then presumably the matter gets punted back to the FCC, so federal regulators would be making decisions as to what the requirements are in Nevada.

 

Robert K. Johnson, Lobbyist, Consumer’s Voice:

Consumer’s Voice is an advocacy group that advocates for residential and small business consumers. Previously our Nevada coordinator, Christine Milburn, has spoken before this committee.

 

I won’t belabor points that have been made previously, but it’s important to understand that in the Telecommunications Act of 1996, Congress intended to deregulate the local phone market and passed a lot of authority down to the states in terms of how that was to be accomplished. That is significant because we see large portions of S.B. 400, particularly portions dealing with wholesale services, as attempting to abrogate that State authority, leaving the State in a very unfortunate position in attempting to continue to encourage competition in the State. I became more disturbed the more protestations there were from the supporters of the bill about how this was a non-issue. Clearly it is an issue, and clearly if this language stays, there is the distinct possibility that this State will have abdicated its authority to police the wholesale market. If that is not the State’s intent, then clearly an amendment can be offered to clarify that.

 

Secondly, I have grave concerns about the latter point Mr. Severy just raised about the definition of broadband service. I would go beyond what Mr. Severy said. I think the definition as drafted deregulates voice service in this State, if not today, then in the very near future. With the advent of packet switching, clearly data is going to be transmitted at more than 190 kilobits per second. Bytes are bytes in the computer world; whether it’s data or voice, it’s going to be exempt from regulation under this bill. We would suggest an amendment that would make it clear that voice was excepted from that definition under any circumstances. And clearly, if that’s not the object of the supporters of the bill, then they should have no problem with that amendment.

 

The role of the State here as in other jurisdictions is to be a surrogate for competition. When competition takes hold, this committee can step back, the Legislature can step back, and the commission can step back from any kind of regulation and allow that regulation to play out. I think there’s a significant question here where only 4 percent of the residential market is provided service by new providers and new entrants in the market as to whether that market is competitive.

 

Further, I would suggest that if the market truly was competitive, you would be able to tell because you would see Sprint competing in Reno, you would see SBC competing in Las Vegas. Clearly the environment isn’t correct, isn’t right for that to happen at this point. Competition is just in its nascent stages and hasn’t taken hold. Premature deregulation such as this bill anticipates in large part is unwise for consumers. What the result will be is that consumers will never see the benefits of competition. We want competition to filter down, not just to large business customers, but to residential and small business customers. That will happen if the marketplace is allowed to emerge, just as it did in the long‑distance market. Certainly, when MCI started its long-distance service, it went after the big volume long-distance customers. Of course it did. You go after big business; that’s how you start. But within 10 years, 50 percent of MCI’s revenue was coming from residential and small business customers. That same phenomenon will take place in the local market, but it has to be given an opportunity to emerge.

 

Therefore, we believe that S.B. 400 is premature in total, but we specifically believe the provisions dealing with the regulation of wholesale service and with the definition of broadband service as previously testified by the other witnesses are problematic. If left in their current form, they will result in the deregulation of voice‑grade service and the inability of competitors to compete here in Nevada.

 

Senator Carlton:

Now that we’re starting to discuss this 190 kilobits, I just want to be sure I understand exactly how this works. Voice goes so fast, and high speed goes much faster. In trying to understand this, I contacted someone, and this is how they put it in layman’s terms for me. You have the Autobahn. You have the chairman’s Lexus, and you have my Ford Ranger. My Ranger is only going to go so fast on this Autobahn. So by putting 190 kilobits in there, we’re stipulating that voice only goes this fast, it is not high speed. Now am I incorrect?

 

Mr. Johnson:

“I think you are correct, but I think there could be other ways that voice is transmitted, through packet switching, which is the way SBC is used. …”

Senator Carlton:

“But it’s only going to go so fast.”

 

Mr. Johnson:

“No, no, no, no. Voice will go over 190 kilobits on a packet-switched network. It becomes data, and data is data, whether it’s voice or bits of information. It’s still going to go at the same rate of speed.”

 

Senator Carlton:

“So you’re telling me if I take my Ford Ranger to a certain garage, they can turn it into a Lexus and it can go really quick?”

 

Mr. Johnson:

“I’m telling you they’re going to put jet fuel in it and it’s going to go really quick. Absolutely.”

 

Senator Carlton:

“I’m still confused on this.”

 

Mr. Johnson:

I believe your definition is one definition that is correct, but that is not the way that SBC intends to deploy its network, as least as I have been told by SBC witnesses under cross-examination in other states. They intend for this to be a packet-switched network that will carry voice and data and won’t even need to distinguish between those in the transport phase at higher speeds.

 

Ms. Pongracz:

Perhaps I could give a further explanation, using your metaphor. … If we’re comparing the Autobahn to the underlying network, the piece of the puzzle that you haven’t been presented with yet is that the regulation of the service itself is totally unchanged by the bill regardless of what road it travels. So residential services, basic services, the commission’s jurisdiction to regulate those services, is unchanged regardless of how the traffic is carried. There’s a difference here. If we’re going to continue the transportation analogy, the commission is a parallel to the State police, regulating how people utilize the roadways. The commission’s policing functions of how we provide our services to customers is totally unchanged by the bill. Whether we’re traveling on a bumpy rocky road or we’re traveling on the Autobahn, it doesn’t matter in terms of the commission’s jurisdiction to regulate the basic services that this committee is most concerned about. That is totally unchanged. The commission’s obligations under statute to ensure that we charge just and reasonable rates for our services and maintain a proper service quality is totally unchanged by this bill.

 

Mr. Reaser:

I concur with Ms. Pongracz’s response to Senator Carlton. Additionally, I want to point out to you that for whatever reason, the opponents are misleading you about this issue of whether it is service to the public. I direct you to page 4, line 33, where you will see unchanged the existing language in Nevada Statute, where it says “service to the public.” We are not changing that portion of Nevada law that has existed since at least 1909. As Ms. Pongracz indicated to you, service to the public has always been the linchpin. … We are unchanging the existing language. I, like Mr. Frankovich, get a little nervous when somebody asks me to change the law that has been the law of this State since 1909.

 

Second, this debate about the triennial review … Nothing in this bill, as we told you at the first hearing, changes the role of the Nevada commission as to whatever tasks are assigned it by the FCC under the triennial review. The law is the law, and that is that the commission will handle whatever assignments. Those assignments will be handled consistent with federal law, not State law. We won’t balkanize the law state by state.

 

Finally, there was a comment about there must not be competition because SBC is not in Las Vegas. As each of the members of this committee know, SBC has been chomping to be in Las Vegas for years. It will be there soon because the FCC will act favorably, we believe, in a very short time on our long-distance application, and we will be able to provide customers in Las Vegas the same services that Sprint does, and then you will see us there.

 

Mr. McMullen:

Mr. Reaser and Ms. Pongracz are correct that the existing law, contained on page 4 of the mock-up, in its definition of “public utility” uses the phrase “to the public,” and if they want to keep the existing law and remove the amendment that would be fine with us. However, when they talk about the laws of common carriage going back to the start of the century, there used to be only monopolies, and they only had two customers, John Q. and Joan Q. Public. So that never made any difference. As the world has changed, there are multiple customers, and they’re not all just the direct public customers or consumers. Consequently, the law has had to change as well. The regulation that is being transported into the law here as section 6 of the mock-up, and the regulation that has been in place for a long time relating to the definition of telecommunication service, covered that by including the language “to any person.” So the existing law in the statute may say “to the public,” but it’s been clarified by the regulation, since that regulation has used the words “any person.” So read together, the law and the implementing regulations clarify that it wasn’t just to John Q. or Joan Q. Public; it was to every consumer, which includes business consumers who are trying to bring lower prices on all telephone services to everyone. Consequently, if they want to clarify it and want to keep existing law, let’s keep “to any person” in this. I think that’s how simple it is.

 

Larry L. Spitler, Lobbyist, AARP:

We want to thank Sprint, SBC, and Cox for providing the amendment to us yesterday afternoon. I also want to thank them very much for addressing the issues on local basic service. While I’m not an attorney … we think they have addressed that quite adequately in this bill. I still haven’t met with our attorneys in Washington, D.C.; however, we still want to make sure that we promote open access. From the arguments that I hear, one side says it has and one side says it hasn’t. My comment just simply is that we want to thank the parties for addressing local basic service, and we will continue to stress the need for open access so that the public in the long term does benefit from competition that should ensue.

 

Senator O'Connell:

Larry, let me just make sure that I understand what you said. You are in accordance with the new mock-up that you were sent yesterday afternoon. Your major concern was, if I remember correctly, section 10. You no longer have any problem with section 10 because you feel that the basic services are still going to be regulated and remain the same. Is that a correct interpretation of what you just shared with the committee?

 

Mr. Spitler:

As I read the amendments to the bill, local basic service stays the same as it is and does not have the potential of deregulation without anything that wouldn’t be done in the PUC. The area that probably is the most confusing, and all of you up there have certainly heard it this morning, is the other issue that is extremely important to AARP, and that is open access. As you know, in the cable arena in Nevada, that is closed access. They don’t have to offer that service to anyone other than themselves. About the only option that anyone has for open access in southern Nevada, for example, would be Sprint. Sprint indicates that they’ve addressed that, and all the other attorneys say they haven’t. I haven’t had the benefit of actually talking with our Washington, D.C., attorneys. All this has been faxed to them, and I will be doing that. But our concern would be that there is open access available to competitors. Otherwise, if it’s closed access with Cox, which it is today, and then it becomes closed access with Sprint or SBC, I don’t know how the smaller CLECs … provide any sort of competitive service. They won’t be able to get that service.

 

Senator O'Connell:

“So you do still have reservations over public and person.”

 

Mr. Spitler:

“Over the access.”

 

Timothy Hay, Chief Deputy Attorney General, Bureau of Consumer Protection (Consumer’s Advocate):

We were not party to the negotiation on the amendment, although they did brief us yesterday on the outline of the amendment. Although the bill is substantially less objectionable from our standpoint with the proposed amendment, I would concur with several of the comments that have been made by Mr. Frankovich and others that there is still semantic problems in the bill. Certainly the “any person” suggestion is an appropriate one, and the definition of broadband that appears on page 4 of the mock-up should be clarified as limiting data services to and from the Internet and to retail customers.

 

We have handed out a one-page summary of some statistics (Exhibit G). I notice in your working document some statistics have been provided as of the end of calendar year 2000. Our analysis, taken from PUC data, covers July 2000 through March 2003. If you take a look at that, it will show you that the penetration of CLECs in the marketplace or the competitors in the marketplace has actually declined from 6.5 percent to 3.4 percent. It’s clear that competition at this point in Nevada is not robust and may in fact be declining. We do think that competition is important for both the residential and small business customers, as well as for the larger customers that you noted. We will be more than happy to work with the parties to the bill in the other house when that time comes.

 

Chairman Townsend:

As we wrestle through these issues, which are very important, I think there’s some clarity that perhaps can be brought here. I haven’t disagreed with a great deal of what’s been said today, but in the end, I think it was Senator Neal who described it best on the Floor of the Senate about 15 years ago when it was banks fighting with insurance companies. He said there was nothing he enjoyed more than watching billion-dollar companies fight it out. His concern was the people in his district, and was there going to be a benefit? I’m paraphrasing, but I think he was making sure that there was no one being harmed in his district while these big guys fought it out. As I look through this, the term “CLEC” has a certain connotation in law; but in reality, wearing Mr. and Mrs. Nevada’s hat, there is a certain amount of focus that needs to be brought to bear. These statistics are important, Tim, and I’m glad you brought them. The CLEC is perhaps declining because the cost to be in that business, as I explained to this gentleman, is very, very high and not as profitable as other areas. I look at SBC, I look at Sprint, I look at Verizon, I look at AT&T, Cingular, all the other companies. People aren’t getting into the cell phone business because they’re not profitable; they’re getting into it because it is.

 

As we measure this, committee, we have to remember that Mr. Hay’s office represents a lot more of our constituents than anybody else that’s been in front of this committee, whether it be the average residential customer with baseline, a lifeline customer, or a small-business customer. While the nuances of the bill and the argument over language are purported to be on both sides about competition, the fact is there isn’t anyone knocking Mrs. Jones’s door down to say, “We want to run a baseline in here and do it for a lifeline rate.” They may want to do that so they can provide other services along with it, but I think in the end, Mr. Hay and his two predecessors over time have reminded me and this committee about keeping an eye on that ball. This is tough, it’s confusing, it’s complex, and it means millions and millions and millions of dollars to these companies. I think the goal would be to make sure that the basic service that everybody needs is obtainable at a reasonable rate. Mr. Hay intervened on a number of accounts on that issue, on lifeline rates, subsidized rates for residential customers, and those actual costs. Those are substantial debates, and I think they’re worthy of that continued debate. What worries me is we’re confusing all of that, all of what we’re hearing today, with that base issue.

 

Mr. McMullen:

I think it should be said that we do commend the parties that got the chance to sit in a room and negotiate for as far as they came. All we’re saying is there are some other clarifying aspects that we would like to have amended in here, and that would make the bill totally acceptable to us. That’s all we’re saying, that they went so far. We’ve got a couple other fixes that we think would make it a complete bill for us, and we’d like to have that. I’d just like to reemphasize that the commercial complaint process that we’ve spoken to in this second amendment, the middle amendment on this one single sheet (Exhibit E), is extremely important too. That gives any of these issues between competitors who are offering services to each other and purchasing them from each other a very quick way to resolve disputes, and we thought that was an excellent way in the last couple of years to make sure that competitors had a chance to deal with each other in a way that didn’t influence somebody’s ability to completely move through and provide competitive services. And again, the senator is absolutely right; what we are talking about is we are trying to make sure big companies come in here and offer better prices to regular people. That’s what it’s all about, open access.

 

Senator Hardy:

“Do you want to speak to that amendment regarding the commercial dispute process? Do you have any concerns with that?”

 

Mr. Reaser:

As we testified on March 27, we do not view this bill as affecting in any way the existing jurisdiction of the PUC to entertain commercial complaints between carriers. That statute was passed with the support of SBC in 1999. We participated and then supported the regulations that were passed in that docket. Those proceedings exist today. This bill does nothing to change that. That statute says that if you have a claim arising out of chapter 703 or 704 of the NRS, the commission can entertain those complaints. There is no change in the law.

 

Senator Hardy:

“Do you have any problem with the clarification?”

 

Mr. Reaser:

“I was never provided a copy of that. I don’t think any change is necessary because this bill does not change the law.”

 

Mr. McMullen:

This is the same document that was provided to the committee on April 4 to everyone. I’m happy to hand him a copy. I think the confusion comes from the language that’s in there now that says the commission must not regulate broadband service, including imposing any requirements relating to terms, conditions, rates, or availability of broadband service. That scares people that those commercial complaints, if they go to any of those things and the resolution of those would require some regulation or some adjustment of practices between a transitional monopoly and its competitors, we just want that clarified. That’s all we’re saying. There is some concern. It doesn’t sound like there’s an issue, that it’s certainly not meant to affect that, so we’d just like that clarified.

 

Ms. Pongracz:

The obligations of ILECs such as Sprint and SBC to provide broadband services, including complaints regarding those types of services, will be addressed under what Mr. Severy talked about in terms of the triennial review and regulations that are issued pursuant to the FCC’s triennial review. We believe it would be premature to make the change Mr. McMullen is talking about. To reiterate Mr. Reaser’s point, the commission does not have jurisdiction to hear complaints about broadband today. We are merely suggesting that that status quo be retained. We included in the bill a provision for consumer complaints regarding broadband because we thought this committee might believe there was a public interest in allowing consumers of these services to come before the PUC. However, to extend it further than that we think is not warranted before the FCC has issued its regulations.

 

Mr. McMullen:

“Again, the reason we needed dispute resolution language at the State level was that it is not provided adequately for in any other environment, including the federal environment.”

Chairman Townsend:

Thank you, ladies and gentlemen. We appreciate your input. Committee, we have in front of us S.B. 400 in its original proposal. We have a mock-up amendment that was provided by SBC and Sprint and testified to by Cox that, given this language, they would no longer object. Then we have the amendments provided by the various other parties.

 

Senator Hardy:

I think both sides have been very open, very honest, in providing information. … I absolutely hate regulation, but I understand there are times regulations are needed, and those times are when we are in a monopoly situation, or when we’re emerging from a monopoly situation. All the information that I’ve got leads me to conclude that we need to continue to regulate at the wholesale level. I’m satisfied that the bill as amended by the mock-up preserves that. My questions to Mr. Soderberg were specifically addressed to that. Both sides of the issue have told me that we’ve got to place some confidence in the PUC to make some of these decisions, make some of these determinations, and I agree with that. That’s what I’m going to do today in terms of my motion is place some confidence in the PUC that they still have the ability they need to regulate the wholesale market. So I move that we amend and do pass S.B. 400 with the mock-up amendment.

 

SENATOR HARDY MOVED TO AMEND AND DO PASS AS AMENDED S.B. 400.

 

SENATOR CARLTON SECONDED THE MOTION.

 

THE MOTION CARRIED UNANIMOUSLY.

 

*****

 

Chairman Townsend:

We will open the hearing on S.B. 428.

 

SENATE BILL 428: Makes various changes regarding certain state agencies that regulate real estate practices and professions. (BDR 54-471)

 

Chairman Townsend:

We will discuss the proposed amendment of sections 5 and 11 (Exhibit H) before we consider the remainder of this omnibus technical bill.

 

I want to disclose up front my wife is a broker as well as a property manager, and I need to have that on the record. As long as she doesn’t get treated any differently than any other licensee, I guess that’s all right.

 

Senator O'Connell:

“I need to disclose also my husband is a broker.”

 

Senator Hardy:

“I need to disclose as well … that my uncle is the State Ombudsman [for Owners in Common-Interest Communities] for the Real Estate Division.”

 

Gail J. Anderson, Administrator, Real Estate Division, Department of Business and Industry:

We will withdraw section 11 in its entirety.

 

Chairman Townsend:

So the friendly amendment now only covers section 5?

 

Pat Coward, Lobbyist, Nevada Association of Realtors:

Yes.

 

Chairman Townsend:

This bill raises fees across the board. Why are we doing this?

 

Ms. Anderson:

We have been working on this bill for more than 2 years. The Real Estate Commission, the Commission of Appraisers, the Nevada Association of Realtors, the American Resort Development Association, the Nevada Association of Certified Real Estate Inspectors, and the Southern Nevada Association of Professional Property Inspectors have all been involved in this effort.

 

The fees were raised to make the amounts more consistent with the actual cost of processing the licenses, certificates, and so on. This is why some fees were raised more than others. The fee increases will bring in $286,265 into the General Fund over the next 2 years.

 

Senator Neal:

What is the total amount raised by these fees?

 

Ms. Anderson:

Under the current fee schedule, we project $1.7 million will go to the General Fund in 2003.

 

Chairman Townsend:

How do you intend to use these new funds?

 

Ms. Anderson:

We want to support the implementation of the integrated licensing system, which would require increasing our staff by 2.5 positions and upgrading our computer system.

 

Mr. Coward:

We feel the mechanization of the Real Estate Division is very important. Senator Schneider and I toured the division some years ago. Their records are kept in row upon row of file cabinets. It can take weeks to process the paperwork to get a license renewed. The Nevada Association of Realtors supports the fee increases as they would support this mechanization of the division’s records.

 

Senator Schneider:

When a real estate office changes any aspect of its name, all its agents must be issued a new license. All the paperwork at the Real Estate Division is done by hand, and changing a license like this can take days. It bogs down the entire real estate industry because agents cannot sell houses until they have this license. The integrated licensing system will bring them up to date and speed up this process.

 

Tami DeVries, Acting Deputy Administrator, Real Estate Division, Department of Business and Industry:

I have met with the various industry groups over the past 2 years on the fee increases. We have full support from the industry. We would not have drafted the bill without it.

 

Ms. Anderson:

I will now go over the provisions of the bill. Sections 2 and 3 define the “designated property manager.” Section 4 deals with aspects of e-commerce having an impact on real estate issues, including electronic signatures. Section 5 is the friendly amendment discussed earlier. Section 6 deals with remedies and penalties. It also allows the Real Estate Division to remove or withhold a license if the licensee has failed to pay any fees owed to the division.

 

Chairman Townsend:

If someone owes the division money, do they continue to use their license while you go through a hearing?

 

Ms. DeVries:

The license is immediately suspended by the division until the money is paid.

 

Chairman Townsend:

Does this mean if they sell property during that time they will not receive the commission?

 

Ms. DeVries:

It means they may not sell property during that time.

 

Ms. Anderson:

Section 7 allows a civil penalty for unlicensed activity. Section 8 sets criminal liability for false claims or complaints against agents or the division.

 

Chairman Townsend:

How many new licenses do you issue every year?Are we flooding the market?

Ms. Anderson:

We issued 2387 new licenses to sell real estate in 2001 and 3021 licenses in 2002. The industry has a large turnover rate. About 25 percent of the licensees fail to renew their licenses at the end of the first 2 years.

 

Mr. Coward:

Many people leave the field when the market fluctuates. I will get you statistics on this.

 

Ms. Anderson:

Sections 9 and 10 are technical language changes reflecting the addition of the designated property manager. Section 11 has been withdrawn. Section 12 adds e-commerce language to enable the integrated licensing system. It provides for background checks of license applicants via fingerprints. Fingerprints are to be taken by a law enforcement agency or other authorized entity chosen by the division. Subsection 4 allows the Real Estate Commission to adopt alternative methods of conducting background checks.

 

Senator Hardy:

We have seen this language in other bills. Perhaps it ought to be included in Senator Townsend’s omnibus bill.

 

Senator Neal:

What do you mean by alternative methods?

 

Ms. Anderson:

We wanted to allow the commission to take advantage of new technology in this area as it arises, such as palm prints.

 

Ms. DeVries:

We also wanted to be able to use digital processing of fingerprints. Other agencies process fingerprints electronically to the FBI with a response time of 2 days instead of 60 days.

 

Senator Carlton:

The language seems to indicate that you might choose to have these background checks conducted by a private agency. Will you tell licensee applicants where their information is going?

Ms. DeVries:

It would be appropriate. The commission can work this out in the regulation process.

 

Senator Hardy:

The language confines this to “law enforcement agencies” only. They cannot use a private investigation agency.

 

Senator Carlton:

That was my concern. There are private companies that do this work. I would have concern about fingerprints being sent to these companies, particularly if the applicants did not know where they were going.

 

Ms. DeVries:

I agree. We will add clarifying language either in the statute or through the regulatory process with the commission.

 

Mr. Powers:

I don’t want to muddle the issue, but essentially what’s going on in the bill is two different things. Subsections 2 and 3 of section 12 work together and deal with the current process of submitting a set of fingerprints to the Real Estate Division, who then would have the authority to send those fingerprints to the Central Repository, which forwards them to the Federal Bureau of Investigation (FBI). And as you mentioned, subsection 3 also authorizes the division to send those fingerprints to such other law enforcement agencies as the division deems necessary. However, subsection 4 creates a new set of authority for the division, and that’s through the regulations adopted by the commission. It says the commission may adopt regulations to establish alternative methods for the division to conduct an investigation of the applicant’s background. The division may use such alternative methods in addition to or in lieu of the fingerprint provision in subsections 2 and 3. That does give the commission the authority to adopt regulations if it chose to proceed with a background investigation using a private company. They’re not required to; it just gives them the authority to adopt regulations if that were the direction they were to go in.

Senator Hardy:

That is sweeping authority. Can we tighten the language up at all? They just testified it was not their intention to have that broad of an authority.

 

Mr. Powers:

You have two options. You can make it clear to them now that you would be displeased if the Real Estate Commission adopted those types of regulations, or you can specifically put something in the statute making it clear that an alternative method does not include the use of [private companies]. Well, I guess the question here is what don’t we want them to do? We have to clearly define what we don’t want the Real Estate Commission to do.

 

Senator Hardy:

Your intent was to do background checks through law enforcement and keep up with technology, rather than to contract with the private sector, correct?

 

Ms Anderson:

That is correct. We are finding, however, that some law enforcement jurisdictions no longer process fingerprints.

 

Senator Carlton:

My concern is that there is a risk of identity theft if fingerprints go elsewhere than to a law enforcement agency.

 

Senator Neal:

Fingerprints on a card do not pose a risk for identity theft. They cannot be forged, since the actual prints exist only on the skin of the person. Prints cannot be planted without the person they belong to being present. My concern is that private agencies do not have the same resources as the FBI to check backgrounds.

 

Susan Clark, Program Officer, Real Estate Division, Department of Business and Industry:

The intent of subsection 4 is the gathering of information. Once we have obtained the fingerprints by whatever method, we have always and will always send them to the FBI via the repository. My research shows that the Real  Estate Division is the only remaining division that uses only law enforcement agencies to gather fingerprints. All other agencies use private entities to obtain fingerprint cards. The Nevada Gaming Commission takes fingerprints and processes them for itself.

 

Ms. Anderson:

I believe subsection 2 of section 12 allows the Real Estate Division to gather prints. We will strike subsection 4.

 

Mr. Powers:

Subsection 2 does not give enough authority. We have been talking about two separate activities. The first activity is obtaining the fingerprints; the second activity is what the Real Estate Division does after the applicant submits those fingerprints to the Real Estate Division. So subsection 2, paragraph (a), clearly authorizes someone who applies for a license to have their fingerprints obtained from a law enforcement agency or another authorized entity. Then subsection 3 talks about what the division does with those fingerprints. Subsection 4 would just provide them additional authority with regard to what they do with those fingerprints. But if you take out subsection 4, it won’t affect the ability of the applicant to get the fingerprints from another entity.

 

Ms. Anderson:

I would amend to strike subsection 4.

 

Mr. Powers:

“And that amendment would carry through the other parallel sections of the bill.”

 

Ms. Anderson:

Section 13 is additional language needed specific to NRS 645 changing the initial licensing period to 1 year. Section 14 enables the commission to adopt standards for continuing education. During the first licensing period of 1 year, 30 hours of education is required. Also, when a real estate broker or broker‑salesman has been inactive for a year or more, we will be able to require them to complete a course in broker management.

 

Senator Neal:

Why are you requiring continuing education so soon after the person acquires a license? I should think their training to acquire the license would be sufficient.

 

Mr. Coward:

A bill was passed in the last session increasing the amount of continuing education for licensees in the initial licensing period. Many licensees drop out of the field in the first year. We wanted to give them more education during the first year to answer questions that only arise after they have been in the field.

 

Melody Luetkehans, General Counsel, Nevada Association of Realtors:

It is our experience that the training for the licensing test only applies to the test. Once you get in the field, more specific, practical training is needed.

 

Senator Neal:

It sounds as if we are licensing unqualified people.

 

Chairman Townsend:

This is an important point. We need to have qualified people in this field. Real estate is a very complex area of law and commercial transactions, which can no longer be completed by unqualified laypeople.

 

Ms. Anderson:

Section 15 adds enabling language for property management permits. Section 16 is technical cleanup language for the designated property manager. Section 17 sets the fee for the background check for qualified intermediaries. We will strike subsection 6. Section 18 is cleanup language changing the original licensing period to 1 year.

 

Senator Neal:

Why are you changing the license period?

 

Ms. Anderson:

Senate Bill No. 218 of the 71st Session changed the initial term to 1 year. This section of the NRS was missed in the bill. This is cleanup.

 

Chairman Townsend:

How many people fail to renew their license at the end of the first year?

Ms. Anderson:

Since the new license period has only been in effect for 1 year, we do not have those figures yet. I will send you the data as soon as we have it.

 

Chairman Townsend:

Have you considered making the license fee as high as $1000 to make sure licensees are really committed to the profession?

 

Ms. Luetkehans:

There is a substantial fee required to join my organization. Not all licensees do join; of the current 15,000 active licensees, 11,000 are members.

 

Chairman Townsend:

That is not a small enough number to make membership exclusive.

 

Mr. Coward:

Three years ago, a task force looking at education standards for real estate agents considered making the initial training period longer. Requirements vary from state to state.

 

Chairman Townsend:

I would like for you to find out the most stringent standards in the country, including the price of the first license, and the highest priced license nationally.

 

Ms. Anderson:

Section 19 sets fees for different licenses under NRS 645. Section 20 says that the interest earned by the Real Estate Education, Research and Recovery Fund must be returned to the fund.

 

The rest of the bill is enabling, cleanup, and mirroring language. I will provide you with a copy of my detailed notes.

 

Senator Neal:

Why does section 41 prohibit the commission or the division from conducting investigation or disciplinary proceedings?

Ms. Anderson:

The language actually says that expiration of a license does not prohibit the commission or division from conducting these proceedings.

 

Ms. Luetkehans:

We would like clarification of sections 40 and 41. It is my understanding that holders of a Community Association Manager certificate will be disciplined by the new Homeowners Association Commission rather than the Real Estate Commission, correct?

 

Mr. Powers:

Although in S.B. 100 there is the creation of the Commission for Common-Interest Communities and the authority to regulate the property manager for common-interest communities was transferred to the commission, that bill isn’t enrolled law. Until that bill is actually enacted and signed by the Governor, we must treat every bill based on the existing law. So this bill is amending the existing law as it exists. If each of these bills was to pass, that would be reconciled before the end of the session.

 

Senator Neal:

In section 46, why did you change the definition of administrator?

 

Mr. Powers:

That was done in bill drafting. This is trying to make the definition of “administrator” consistent throughout NRS. In each of the chapters the Real Estate Division has authority over, the definition of administrator is done differently. The intent here is just to make it consistent throughout all NRS.

 

Senator Neal:

Does section 60 give the administrator new authority?

 

Mr. Powers:

The introductory clause, “in addition to any other remedy or penalty,” is there to indicate that the remedy provided in section 60 is not the only remedy available to the Real Estate Division. However, they can’t continuously impose penalties and remedies if the person pays the money they owe. It’s just indicating that this is one of the potential remedies or penalties that they have. But they’re not authorized to repeatedly penalize someone after the  person’s complied with the requirements of the statute. That also applies to section 61. The idea is that this is not creating an exclusive remedy. It’s one of the options available to the administrator.

 

Chairman Townsend:

What changes are still needed to this bill before we process it?

 

Ms. Anderson:

We must insert the friendly amendment and delete the sections we have stricken.

 

Mr. Powers:

Just for the record, section 11 is being removed. In the fingerprinting section, only one subsection is being removed.

 

Senator Neal:

Why did you take out the repealed section on page 36 of the bill?

 

Mr. Powers:

What the bill does is repeal NRS 645.849 because it only applies to a specific group of sections in chapter 645 of NRS. What the Real Estate Division wanted is found in section 8 of the bill, and what section 8 does is take the language from the repealed section but makes that apply to the entire chapter of 645.

 

SENATOR O’CONNELL MOVED TO AMEND AND DO PASS AS AMENDED S.B. 428.

 

SENATOR SCHNEIDER SECONDED THE MOTION.

 

THE MOTION CARRIED. (SENATORS HARDY AND CARLTON WERE ABSENT FOR THE VOTE.)

 

*****

Chairman Townsend:

We will open the work session on S.B. 429.

 

SENATE BILL 429: Makes various changes relating to high-speed Internet access service, broadband service, video programming service and community antenna television systems. (BDR 58-1072)

 

Chairman Townsend:

An amendment has been proposed to delete the bill as a whole and substitute other language (Exhibit I). This is an updated amendment from the one included in the workbook.

 

Robert Gastonguay, Lobbyist, Nevada State Cable Telecommunications Association:

I am here on behalf of Charter Communications. This is a mutually agreed upon amendment. When this issue came up before the interim committee, we were instructed to “work it out,” and we have done so. The amended bill resolves the issues revolving around the provision of cable telecommunications and cable television in Churchill County and beyond with regard to Churchill County Communications (CCC) and Charter Communications.

 

Senator O'Connell:

I would like to hear from the other parties who testified at that earlier hearing.

 

Bill J. Slentz, President, Oasis Online:

We are a privately-owned Internet service provider in Fallon. We are CCC’s largest competitor in dial-up Internet access, and we are also one of their largest customers. The issue may have been resolved for Charter Communications and CCC. However, we are still competing with a government-owned organization in dial-up and high-speed Internet access. The monopolistic practices of CCC are detailed in my written testimony (Exhibit J).

 

Senator O'Connell:

How does this agreement affect a business like Oasis Online?

 

Mr. Gastonguay:

It has no impact on their end of the business. This was strictly a video-programming agreement between CCC and Charter Communications that we were directed to resolve. We had no interest in what the gentleman has to say.

 

Chairman Townsend:

You are saying the bill does not cover his situation, and you are not interested in changing it to do so.

 

Mr. Gastonguay:

No.

 

Mark H. Fiorentino, Lobbyist, CCCommunications (CCC):

We appreciate the chance to work this out.

 

Senator Neal:

Could you explain the proposed amendment?

 

Mr. Fiorentino:

The amendment does what you asked us to do. It allows CCC to stay in business and provide revenues to the General Fund and services to citizens. It also prevents CCC from unfairly competing. For example, it prohibits them from providing services at less than cost, using money from the General Fund, or using any powers they have as a governmental entity to discriminate against private companies. It also establishes an audit procedure to ensure compliance with these restrictions. If they go into a new jurisdiction like Fallon, they must either enter into a franchise agreement or an equivalent local agreement on the same terms as a private company. This creates a level playing field in those circumstances.

 

Senator Neal:

Are we talking about telephone services?

 

Mr. Fiorentino:

We are talking only about cable. This bill does not address telephone services and has no impact on them.

 

Senator Neal:

Is this something new coming into Fallon in which government and private enterprise are starting out together?

William “Buzz” Harris, Lobbyist, Charter Communications:

Both CCC and Charter Communications have been in the business of cable prior to this bill.

 

Mr. Fiorentino:

CCC has been in business as a phone company for over 100 years and as a cable company since 1999.

 

Mr. Gastonguay:

Charter Communications has been in the cable business for 20 years and in Churchill County since 1981, as a progression of purchasing other companies such as TelePrompter and Group W.

 

Mr. Slentz:

While CCC claims not to be affecting phone service with this bill, when they bundle it with phone services, it does have an affect.

 

Senator Neal:

Did the government of Churchill County agree to this?

 

Mr. Fiorentino:

Yes.

 

Andrew Barbano:

I am opposed to this bill. I am in favor of S.B. 278, which would remove the caps on provision of cable service by public entities largely as a response to Charter Communications’ serious ongoing financial problems. I see a serious hole in this amendment. The language of section 4 of the amendment seems to make cable illegal in Nevada.

 

Mr. Fiorentino:

That was clearly not the intent. If you deem it appropriate, we could add a provision to say the term “exercise control” does not include “through a franchise agreement.”

 

Gardner F. Gillespie, Lobbyist, Cox Communications Company:

This provision would have an impact on some of the communities in which we operate. The language is typically used to describe subsidiary organizations and is intended to include agencies the government might try to delegate authority to in order to avoid the strictures of the bill. I do not think the language needs to be changed, but the phrase “government entity” could be added if desired.

 

Senator Neal:

How did Cox Communications get involved in a bill dealing with Douglas County and CCC?

 

Mr. Gastonguay:

We were at an impasse and asked Cox Communications to mediate between the parties.

 

Chairman Townsend:

Is it fair to say that the agreement does not allow Mr. Slentz’s company to have the same opportunities we are affording Charter Communications vis-à-vis Churchill County?

 

Mr. Fiorentino:

The scope of the bill is cable. Mr. Slentz is not talking about a cable service.

 

Chairman Townsend:

You did what we asked. Senator O'Connell’s point is the broader issue of government competing with free enterprise in the private sector.

 

Senator Carlton:

Mr. Barbano, if you have documents substantiating your assessment of Charter Communications’s financial situation, I would like to see them.

 

Mr. Barbano:

I will.

 

Senator O'Connell:

I may have a bill coming up in the near future that will cover Mr. Slentz’s situation. I will keep you informed.

 

Senator Neal:

I will make sure the public understands what is contained in this bill. You are squeezing them out and telling them they cannot do anything through their local government unless they go through private enterprise. I find that appalling, especially for those communities that are under 25,000 and 50,000 people.

 

Senator Carlton:

I move to amend and do pass S.B. 429 with the amendment presented.

 

Senator Neal:

Do I understand, Senator Carlton, that you are doing this with the understanding of the statement Mr. Barbano made, that certain people are being cut out, that you would not be able to get cable in certain areas? Do I understand you are making this motion with that understanding?

 

Senator Carlton:

It was stated. I understand what was stated. I may not agree with what was stated, but my motion stands.

 

Senator Neal:

I will have an amendment of section 4 to offer on the Senate Floor.

 

SENATOR CARLTON MOVED TO AMEND AND DO PASS AS AMENDED S.B. 429.

 

SENATOR O’CONNELL SECONDED THE MOTION.

 

THE MOTION CARRIED. (SENATOR NEAL VOTED NO.)

 

*****

 

Chairman Townsend:

There being no further business, the meeting is adjourned at 11:02 a.m.

 

RESPECTFULLY SUBMITTED:

 

 

 

                                                           

Lynn Hendricks,

Committee Secretary

 

 

APPROVED BY:

 

 

 

                                                                                         

Senator Randolph  J. Townsend, Chairman

 

 

DATE: