REGULATORY REFORM REVIEW COMMISSION
The Regulatory Reform Review Commission is established by North Dakota Century Code (NDCC) Section 49-21-22.2. The commission is to review the operation and effect of North Dakota telecommunications law on an ongoing basis during the interims between the 1999 and 2003 legislative sessions. Also, the commission may review the effects of federal universal support mechanisms on telecommunications companies and consumers in this state as well as the preservation and advancement of universal service in this state.
Under NDCC Section 49-21-22.2, the commission consists of one member of the Public Service Commission who has responsibility for telecommunications regulation, two members of the Senate appointed by the President of the Senate, and two members of the House of Representatives appointed by the Speaker of the House. Commission members are Representatives Rick Berg (Chairman) and Eliot Glassheim, Senators Steven W. Tomac and Rich Wardner, and Public Service Commissioner Tony Clark.
The commission submitted this report to the Legislative Council at the biennial meeting of the Council in November 2002. The Council accepted the report for submission to the 58th Legislative Assembly.
NORTH DAKOTA TELECOMMUNICATIONS LAW
Before 1983 the Public Service Commission regulated telecommunications companies in North Dakota as traditional public utilities. In 1983 the Legislative Assembly removed cooperatives and small telephone companies from the ratemaking jurisdiction of the Public Service Commission. In 1985 the Legislative Assembly expanded this exemption to remove local service of cooperatives and small companies from the Public Service Commission's ratemaking jurisdiction. In 1985 the Legislative Assembly authorized the Public Service Commission to deregulate telecommunications services. The Public Service Commission was required to find that the service, company, or transaction was of limited scope or was subject to effective competition to be deregulated. This authority was removed in 1999 by Senate Bill No. 2420.
There have been several amendments to the telecommunications law since 1989, when major deregulation of the telecommunications industry began.
1989 Senate Bill No. 2320
The Regulatory Reform Review Commission was created in 1989 to review the deregulation of the telecommunications industry resulting from enactment of 1989 Senate Bill No. 2320. The commission originally consisted of the three Public Service Commissioners, two members of the Senate, and two members of the House of Representatives.
Senate Bill No. 2320 exempted telecommunications companies and services from rate or rate of return regulation by the Public Service Commission unless a telecommunications company notified the Public Service Commission that it wanted to be regulated in this manner. For telecommunications companies with over 50,000 end users, the election not to be exempt from rate or rate of return regulation was a one-time, irrevocable decision. Although the Legislative Assembly exempted essential telecommunications service and nonessential telecommunications service (service that is not included within the definition of essential telecommunications service) from rate or rate of return regulation by the Public Service Commission, essential telecommunications service is still subject to a price cap based upon the essential telecommunications price factor. Essential telecommunications service includes service that is necessary for switched access to interexchange telecommunications companies and necessary for two-way switched communications for both residential and business service within a local exchange area.
1989-90 Interim and 52nd Legislative Assembly
During the 1989-90 interim, the commission reviewed the Public Service Commission's determination of the essential telecommunications price factor, Minnesota's incentive regulations, and recommendations of interested parties. Even though the commission did not recommend any legislation, the 52nd Legislative Assembly enacted three bills that primarily affected NDCC Title 49 (no changes were made to the substantive provisions of 1989 Senate Bill No. 2320).
1991 House Bill No. 1095
This bill required a person who makes telephones available to the public for intrastate telephone calls on that person's premises to ensure that the telephones allow the consumer to use access code numbers ("800," "950," or "10XXX 0+") to obtain access to the provider of operator services desired by the consumer at a charge no greater than that charged for calls placed using the presubscribed provider of operator services.
1991 House Bill No. 1556
This bill required a telecommunications company and rural telephone cooperative offering telephone call identification services to allow a caller to withhold display of the caller's telephone number from the person receiving the telephone call placed by the caller.
1991 House Bill No. 1557
This bill required a mutual aid telecommunications cooperative and telecommunications cooperative association to have the approval of two-thirds of the membership of the cooperative or association to sell a physical plant if the value of the plant is more than 5 percent of the value of the cooperative or association. In addition, the enabling statute for the commission was amended to transfer responsibility for providing staff services for the commission from the Legislative Council to the Public Service Commission.
1991-92 Interim and 53rd Legislative Assembly
The study of telecommunications law by the commission during the 1991-92 interim resulted in two main recommendations incorporated into 1993 Senate Bill No. 2440. The first related to the banking of essential telecommunications price factor changes and the second related to uniform long-distance rates. These recommendations came after the commission reviewed the Public Service Commission's determination of the essential telecommunications price factor, and the commission's decision that ordered equal access (intraLATA) and unbundling for the purpose of offering service on an equal and open nondiscriminatory basis. The 53rd Legislative Assembly enacted four bills that primarily affected NDCC Title 49.
1993 Senate Bill No. 2317
This bill exempted a public utility operated as a nonprofit, cooperative, or mutual telecommunications company or a telecommunications company having fewer than 3,000 local exchange subscribers from regulation under NDCC Chapters 49-02 and 49-21. However, these public utilities were still subject to Sections 49-02-02(7), 49-21-01.2, 49-21-01.3, 49-21-01.4, 49-21-06, 49-21-07, 49-21-08, 49-21-09, and 49-21-10 regarding rates, terms, and conditions of access services or connection between facilities and transfer of telecommunications between two or more telecommunications companies.
1993 Senate Bill No. 2385
This bill, effective through July 31, 1999, provided that dialing parity on an intraLATA basis, otherwise known as 1+ intraLATA equal access, may not be required to be provided by any company providing local exchange service. This bill reversed a Public Service Commission ruling that forced U S West (now known as Qwest) to open its "short-haul" long-distance markets to other telephone companies.
1993 Senate Bill No. 2393
This bill reduced to one the number of Public Service Commissioners on the commission and required the Legislative Council to provide staff services rather than the Public Service Commission.
1993 Senate Bill No. 2440
This bill changed the definition of "essential telecommunications price factor" for purposes of telecommunications regulation from the annual change in a company's input cost index reduced by 50 percent of that company's productivity incentive adjustment to a factor determined annually which is the lower of 41.6667 percent of the percentage change of the average annual gross national product price index or the percentage change of the average annual gross national product price index minus 2.75 percentage points for group I telecommunications companies or a factor determined annually which is the lower of 52.0834 percent of the percentage change of the average annual gross national product price index or the percentage change of the average annual gross national product price index minus 2.0625 percentage points for group II telecommunications companies. Group I telecommunications companies are those companies with over 50,000 subscribers, and group II telecommunications companies are companies with 50,000 or fewer subscribers. The bill also revised the distinction between essential telecommunications services that are regulated or subject to the essential telecommunications price factor cap and nonessential services that are not subject to the essential telecommunications price factor cap. The bill also revised the definition of telecommunications services that are not subject to the telecommunications deregulation law, such as coinless or coin-operated public or semipublic telephone terminal equipment and the use of such equipment, inside wire and premise cable installation and maintenance, and directory services that are not essential, such as "yellow pages" advertising and boldface or color listings in "white pages."
1993-94 Interim and 54th Legislative Assembly
The study of telecommunications law by the commission during the 1993-94 interim resulted in the recommendation of Senate Bill Nos. 2078 and 2079. The commission made these recommendations after reviewing federal legislation and the North Dakota Supreme Court decision MCI Telecommunications Corp. v. Heitkamp, 523 N.W.2d 548 (1994). This case related to a challenge of 1993 Senate Bill No. 2385, which provided that dialing parity on an intraLATA basis may not be required to be provided by any company providing local exchange service. The statute withstood challenge on special law and unlawful delegation of legislative authority grounds. The 54th Legislative Assembly enacted five bills relating to telecommunications law.
1995 Senate Bill No. 2008
This bill deleted the requirement that the Public Service Commission consider proposed rates and proposed design in determining whether to grant a certificate of public convenience and necessity and provided that the Public Service Commission must consider the technical, financial, and managerial ability of an applicant for the certificate.
1995 Senate Bill No. 2078
This bill included pay telephones within regulation for the purpose of requiring access code numbers to the operator services desired by the consumer.
1995 Senate Bill No. 2079
This bill reestablished the commission until 1999.
1995 House Bill No. 1274
This bill required a telecommunications company to allow callers on a per line basis to withhold display of a caller's telephone number from the telephone instrument of the individual receiving the telephone call placed by the caller. The bill required a telecommunications company to provide this option without charge on a per call basis and without charge on a per line basis to residential customers and business customers with special needs.
1995 House Bill No. 1459
This bill increased the size of a telecommunications company not subject to regulation by the Public Service Commission from a company having fewer than 3,000 local exchange subscribers to a company having fewer than 8,000 local exchange subscribers. As a result of this bill, only the three largest telephone companies in this state were subject to price regulation.
1995-96 Interim and 55th Legislative Assembly
The study of telecommunications law by the commission during the 1995-96 interim resulted in the recommendation of 1997 House Bill No. 1067. The commission made this recommendation after reviewing the federal Telecommunications Act of 1996 [Pub. L. 104-104; 110 Stat. 5] and meeting with the Legislative Council's interim Taxation Committee and reviewing the effect of taxation laws on North Dakota telecommunications law. The Act was the first major change to the federal telecommunications law since 1934 (the major change provided by the Act is the opening of local exchange markets to competition). House Bill No. 1067, which failed to pass, was meant to implement the federal Telecommunications Act of 1996. A portion of the bill would have created a state universal service fund. The 55th Legislative Assembly did not enact any bill that primarily affected telecommunications law found in NDCC Title 49.
1997-98 Interim and 56th Legislative Assembly
The study of telecommunications law by the commission during the 1997-98 interim resulted in the recommendation of 1999 House Bill No. 1050, which was a request for further study. The commission was assigned one study, Senate Concurrent Resolution No. 4055, which directed a study of the potential for expansion of extended area telecommunications service. Extended area service is a service by which a subscriber of one exchange may call a subscriber in another exchange without paying a toll fee or separate charge for the call. Usually the costs of extended area service are spread over the rates paid by all the subscribers in the involved exchange. In addition, once extended area service is implemented, it is typically mandated for all subscribers within an exchange. After studying extended area service and its alternatives, the commission made no recommendation.
In its review of this state's telecommunications law, the commission reviewed the federal Telecommunications Act of 1996 and its effect on universal service, access rates, competition, and this state's price cap. The 56th Legislative Assembly enacted seven bills that affected telecommunications law found in NDCC Title 49.
1999 House Bill No. 1050
This bill extended the commission through 2002 and encouraged the study of universal service support mechanisms.
1999 House Bill No. 1169
This bill prohibited a change in telecommunications services without authorization from the customer, commonly referred to as "slamming" and "cramming." The bill stated that slamming and cramming are unlawful practices.
1999 House Bill No. 1450
This bill provided that a telecommunications company may not be an eligible telecommunications carrier unless the company offers all services supported by federal universal service mechanisms throughout the study area.
1999 House Bill No. 1451
This bill prohibited any political subdivision from imposing a fee on a telecommunications company for the use of the political subdivision's right of way other than a fee for management costs. This bill applied retroactively to January 1, 1999.
1999 Senate Bill No. 2094
This bill made technical changes in the law that requires a person who makes telephones available to the public or to transient users of that person's premises to provide operator services through access code numbers to the services desired by the consumer at a charge no greater than the charge for using the prescribed provider of operator services.
1999 Senate Bill No. 2234
This bill prohibited the Public Service Commission from setting aside any telecommunications price in effect on January 1, 1999, for intrastate switched-access service provided by any rural telephone company upon complaint by an interexchange telecommunications company that the price is unreasonably high, except a price for intrastate switched-access service in an exchange may be set aside to the extent it is unreasonably high as a consequence of recovery of costs of intrastate switched-access service in that exchange from any explicit federal or state mechanisms to preserve and advance universal service; a sale, assignment, or other transfer of ownership or control of that exchange after January 1, 1999; or reduction of prices after January 1, 1999, for any other services provided in that exchange. This bill expired July 31, 2001.
1999 Senate Bill No. 2420
This bill rebalanced rates among local, toll, and access, in a revenue-neutral manner, with access charges and toll rates to be reduced by similar percentages and in a competitively neutral manner as a result of an increase in local rates. The bill allowed a telecommunications company with more than 50,000 subscribers to increase the monthly price of residential service up to $15.50 after July 31, 1999, and up to $18 after June 30, 2000. A telecommunications company increasing prices must submit a report to the Public Service Commission reasonably demonstrating that it reduced the prices of its intrastate intraLATA message toll service and intrastate switched access by an annual amount not less than the annual revenue increase resulting from the service price increases.
The Public Service Commission has authority to investigate the increased prices and can set aside an unfair or unreasonable price increase. An unfair or unreasonable price must be above the price in effect on January 1, 1999, and the average cost for providing residential service must exceed the price resulting from the increase using embedded or forward-looking economic cost methodologies. The bill provided that a local exchange carrier can set residential exchange service prices below the maximum price cap provided it also lowers its interconnection prices at the same time.
The bill deregulated private line transport service and specifically identified those provisions of the federal Telecommunications Act of 1996 that the Public Service Commission is authorized to implement and granted the Public Service Commission authority to adopt rules regarding the Act.
The bill imposed uniform service quality standards among all providers. The bill provided that the Public Service Commission may not adopt a rule or order regarding the quality of service provided by telecommunications companies unless the rule is applicable to all telecommunications companies providing similar service in the same market area.
The bill prohibited certain acts to promote or regulate competition. The bill provided that a telecommunications company may not be required to construct facilities at the request or for the use of another telecommunications company except to the extent required by the federal Act. The bill clarified that if a telecommunications company is required to incur nonreoccurring costs in excess of the normal course of business and for the benefit of another company or a customer, the Public Service Commission generally must allow the burdened company to recover the cost in advance. The bill prohibited a telecommunications company from discriminating against another company by refusing to provide or delaying access to the company's services or essential facilities, providing access on terms that are less favorable than those the company provides to itself, or by degrading the quality of access or service provided to another company. The bill identified those sections of law which competitive local exchange carriers are required to meet and established the Public Service Commission's jurisdiction over those telecommunications companies regardless of size. The bill repealed the Public Service Commission's authority to exempt a company, transaction, or service from regulation if there is sufficient competition.
Although the bill extended the prohibition against requiring 1+ dialing parity from July 31, 1999, to January 1, 2000, this section of the bill was superseded by a Federal Communications Commission ruling that 1+ dialing parity must be offered by July 22, 1999. The Federal Communications Commission allowed suspensions of its rule, however, to rural companies to the extent that is allowed by state law, which was until January 1, 2000.
1999-2000 Interim and 57th Legislative Assembly
During the 1999-2000 interim, the commission reviewed the operation and effect of North Dakota telecommunications law with a particular focus on 1999 Senate Bill No. 2420. The commission received testimony on the creation of an aggregator exception for universities and colleges that provide telecommunications services. An aggregator exception exempts a telecommunications service provider from state and federal laws that are meant to foster competition among resellers and facilities-based carriers. The commission reviewed the federal Telecommunications Act of 1996 and focused on the provisions that related to universal service.
Universal Service
The federal Telecommunications Act of 1996 provides for a federal universal service fund. Universal service is the concept that every person should have a telephone. Under the Act, the term "universal service" is an evolving term that takes into account the access every American should have, and that term could include broadband in the future.
The Act creates a joint board that determines federal universal service support. Under the Act, only eligible telecommunications carriers may receive high-cost area federal universal service funds. An eligible telecommunications carrier is required to offer services that are supported by the federal universal service fund. In addition, the Act provides for discounts for educational providers and libraries.
Historically, the goals of universal service have been advanced through a federal universal service fund and through implicit subsidies. Under the Act, the goal of competition is aided by the replacement of implicit subsidies with explicit federal universal service funding. The Act assumes that for there to be fair competition, implicit subsidies must be replaced with explicit subsidies.
Under the Act, each state public utilities commission is required to designate a common carrier as an eligible telecommunications carrier for a service area designated by the public utilities commission. Senate Bill No. 2420 (1999) authorized the Public Service Commission to exercise this authority. The Public Service Commission may, in the case of an area served by a rural telephone company, and must, in the case of all other areas, designate more than one common carrier as an eligible telecommunications carrier for a service area. Before designating an additional eligible telecommunications carrier for an area served by a rural telephone company, the Public Service Commission is required to find that the designation is in the public interest.
If no common carrier will provide the universal services, the Public Service Commission, with respect to intrastate service, must determine which common carrier or carriers are best able to provide the services and is required to order the carrier or carriers to provide the service. The Public Service Commission is required to permit an eligible telecommunications carrier to relinquish its designation if there is more than one eligible telecommunications carrier in the service area.
Section 254(f) of the Act provides:
The Tenth Circuit Court of Appeals in Qwest Corporation v. Federal Communications Commission, 258 F.3d 1191 (July 31, 2001), stated:
Although many questions arise concerning the creation of a universal service fund, there are four basic questions relating to definitions, contributions, distributions, and administration:
- Are prices for certain services unaffordable for the average customer requiring a fund subsidy?
- Who should contribute to the fund?
- How will it be determined how much each eligible company will receive from the fund?
- How will the fund be administered?
The commission reviewed programs and services most frequently supported by state universal service funds. The commission received testimony on the principles that should be the basis for a universal service fund. The commission also received testimony on contributions and distributions from a state universal service fund.
The commission considered a bill draft that would have created a state universal service fund similar to Montana's. The bill draft created a state universal service fund for the purpose of providing funding in case of an underfunded federal universal service fund. In addition, the state universal service fund included an advanced services fund that supported access in high-cost areas to 128,000 baud at rates comparable to urban areas. Any eligible telecommunications carrier, including Qwest, could have received funding; however, nonrural companies would have received funding for high-cost areas without a competitive alternative. The advanced services fund was in addition to the statewide network under development by the Information Technology Department. The advanced services fund in the bill draft addressed the issue of providing reasonable low-cost service to private businesses, which the Information Technology Department's plan did not address, and which was intended to encourage economic development.
The commission made no recommendation regarding a North Dakota universal service fund. Although commission discussion indicated support for the philosophy in the bill draft that was considered, and some members supported the bill draft as a tool for dialogue and debate in the next legislative session, others were not satisfied with the bill draft because they believed it was too complex or unfair to urban customers. Even though the commission did not recommend any legislation, the 57th Legislative Assembly enacted three bills that primarily affected NDCC Title 49.
House Bill No. 1182
This bill created an aggregator exception for universities. The bill exempted from the provisions of NDCC Chapter 49-21 governing telecommunications, services, or facilities provided by a system or institution of higher education to institution employees or students at institution facilities or housing owned or leased by the institution; affiliated organizations, including alumni operations and research foundations, formed for the purpose of supporting the institution or leased by the institution and offering products and services intended primarily for the benefit of institution employees, students, or guests; other persons or entities located on property owned or leased by the institution and offering products and services intended primarily for the benefit of institution employees, students, or guests; casual users using the institution's facilities for conferences, seminars, and other similar special events, and broadcasters of athletic events; occupants of technology parks, or business incubators receiving secretarial or business startup supportive facilities owned or leased by the institution during a business startup phase for a term not to exceed four years or until August 1, 2005, whichever is later; and educational, governmental, and nonprofit users of system or institution interactive video conferencing site facilities and associated network services.
House Bill No. 1090
This bill provided that a telecommunications company that elects to be subject to rate and rate of return regulation is not obligated to pay any fee for filing a price schedule or tariff.
House Bill No. 1093
This bill updated the reference to federal rules on "slamming" by requiring telecommunications companies to comply with the provisions of Title 47, Code of Federal Regulations, Part 64, subpart k, in effect on January 1, 2001, regarding changes in a subscriber selection of a provider of telecommunications service.
TESTIMONY AND DISCUSSION
State Universal Service Fund
A state universal service fund can be created for a number of reasons. The commission received testimony on creating a state universal service fund for the purpose of supporting high-cost areas. The commission was informed that a high-cost fund may be necessary if federal universal service funding becomes inadequate. The commission received testimony on creating a state universal service fund to remove implicit subsidies and replace them with explicit subsidies to promote competition.
Although federal universal funds are not inadequate at this time, they could become inadequate upon decisions made by the Federal Communications Commission. The commission was informed the Federal Communications Commission will have a detailed order in the future and if state legislation is required, that order will be the template for any legislation.
The commission was informed that one reason a high-cost fund may be needed is because of a pending Federal Communications Commission decision required by a Tenth Circuit Court of Appeals decision. The court ordered the Federal Communications Commission to develop "a carrot or a stick" for states to create state universal service funds. Commission members expressed concern that the order may require states to have a state universal fund within one year, and if not, a certain amount of money will be withheld from the federal universal service fund. The commission was informed, however, that the Federal Communications Commission decision will most likely not affect this state. The order will most likely require a review of rates in rural areas to see if they are comparable with urban areas. If the rates are comparable, the state will not be required to create a state universal service fund. It appears the rates in this state are comparable.
The commission received testimony in support of a universal service fund to promote competition in rural areas. Western Wireless argued it cannot compete for basic service in rural areas without a state subsidy because it is not cost-effective. Western Wireless argued it needs universal service funding because its competitor has an unfair advantage of implicit subsidies. Implicit subsidies exist in incumbent rural telephone company rates and the main implicit subsidy is intrastate access charges. Other implicit subsidies include cross-subsidization, including raising business rates to cover the cost of residential service. Wireless companies do not have access to access charges. Nothing obligates long-distance carriers to pay wireless providers access.
Western Wireless proposed a universal service fund that would have removed implicit subsidies and replaced them with explicit subsidies. The explicit subsidies would be portable from company to company and would be based on forward-looking costs.
Western Wireless argued that a universal service fund is not a cost recovery fund and the same dollar amount of subsidy should apply to the incumbent and the competitor for the universal service fund system to be fair.
Western Wireless argued an implicit subsidy reduction fund would provide consumers a choice. Each competitor offers something different in the marketplace and Western Wireless provides mobility and a large calling area. It was argued that choice promotes better services at lower prices.
Commission members discussed whether a universal service fund is for basic services or should be used to support broadband services. It was argued that if the government supports advanced services, it would be supporting one technology over another.
The commission received testimony opposed to a universal service fund to remove implicit subsidies in rural areas. The North Dakota Association of Telephone Cooperatives argued that the Western Wireless plan would result in the government paying for competition.
Cooperatives argued that universal service recovery should be based on actual cost, not forward-looking costs; that the Federal Communications Commission and National Exchange Carrier Association have specifically rejected forward-looking cost models for rural companies; and that a subsidy based on the incumbent's costs for a competitor is nonsensical, e.g., no one would use a competitor's cost to build a highway.
The commission was informed by the cooperatives that an implicit subsidy reduction fund may jeopardize a supplementary fund because of the limited amount of funds available. The federal universal service fund continues to grow in size and the Federal Communications Commission may force states to create a state universal service fund by reducing federal amounts, and the state may not be able to afford anything beyond a supplemental fund.
The opinion was expressed that it is unfair to receive universal service funding without being regulated in the same manner. Cooperatives and wireless companies are not regulated the same. The wireless industry is not regulated by federal law and states are prohibited from regulating the industry. Cooperatives are required to give a choice of long-distance carriers; whereas, Western Wireless could limit the long-distance carrier to itself.
Commission members discussed whether a state universal fund should subsidize wireless providers in rural areas. The view was expressed that rural North Dakota can have good service at a fair price without an implicit subsidy reduction fund. An implicit subsidy reduction fund could result in the state subsidizing the replacement of one carrier with another with no increased competition.
Commission members discussed whether an implicit subsidy reduction fund will result in a market responsive to consumers' needs. It was argued that the cooperatives are responsive without competition because they are owned by their members. The responsiveness of cooperatives is illustrated by the broadband development in the rural areas in response to consumer demands.
Commission members expressed concern that service to rural areas should not be accomplished with a fund that subsidizes rural areas so that customers in rural areas pay less for telephone services than customers in urban areas.
The commission considered two bill drafts, one that would have created a supplemental high-cost universal service fund and one that would have created an implicit subsidy reduction fund. The bill drafts raised a number of issues. The first was identifying those included and those not included in the definitions so who contributes to the fund is clear. Who contributes to the fund is an important issue.
The commission was informed that contributions should be based on total end user intrastate retail revenue. Collection from interstate, intrastate, and international revenue was overturned in Oregon and is being challenged in Texas and North Carolina. If every state implemented an interstate, intrastate, and international tax to support that state's universal service fund, each call would be taxed in two states and by the federal government.
The commission was informed that a state universal service fund should be based on need. It was argued that the Public Service Commission should first determine whether companies need the money before the state creates a universal service fund. If this is not done, a state universal service fund could provide for overrecovery. The commission was informed that the implicit subsidy removal bill draft states that the cost of support is the difference between a forward-looking cost and the benchmark; however, there is no investigation of costs. The high-cost bill draft provided for incumbent recovery based on embedded costs and not need.
The commission was informed that under the federal program if a rural cooperative customer receives services from the incumbent local exchange carrier and that customer uses a cell phone, both companies receive a federal universal service fund payment. The rural cooperative would receive embedded costs and the wireless company would receive the same amount. In the high-cost fund bill draft, the new carrier would receive an amount based on its own cost. This would be a lower cost than the embedded cost of the incumbent.
The commission received testimony on whether information used for a state universal service fund should be considered trade secrets. Both bill drafts provided that all information is trade secret information, thus not available to the general public.
A state universal service fund could result in an increase in the cost of basic service rates in this state. The commission was informed there are many complaints about the federal $6 access fee for local service. The state universal service fund would produce another fee on customers' bills that may upset customers. It was suggested that a universal service fund tax would raise the cost to consumers and would create a need for a program for low-income people to cover the cost of the tax.
Performance Assurance Plan
The commission received an update on the Section 271 filing by Qwest. The Federal Communications Commission has to act on the filing by the end of December 2002. On the acceptance by the Federal Communications Commission of Qwest's application, Qwest may enter the long-distance market in its area. As a means of gaining approval, Qwest has entered an agreement called the performance assurance plan. The plan arose from previous Section 271 filings by other regional Bell operating companies. Because the other companies included the plan in their filings and their filings were approved, Qwest has done the same.
The performance assurance plan is a mechanism for ongoing overview of the wholesale marketplace. The plan is a contract between the regional Bell operating company and the competitive local exchange carriers. The plan is part of a contract and is not part of state law. The "fines" collected are contractual payments. The plan provides for payments for failure to compete which go to competitors and the state. The payments that go to the state are to discourage anticompetitive behavior and to repair the harm caused to the competitive marketplace. If the Section 271 filing is approved by December 2002, then the plan would begin and payments could come to the Public Service Commission as soon as January.
The performance assurance plan is very detailed with very particular standards with self-executing fines. Fines are stated for certain bad acts, including not complying with standards for hooking up new customers for a competitor within a certain number of days, billing, colocation within time limits, and basic parity for providing competitors services at the same level Qwest provides services to itself.
The plan does not require much discretion in its administration. The plan is self-executing and fault is generally not an issue. The plan is administered through audits. Qwest has given the Public Service Commission estimates as to the amount of penalties; however, these estimates are trade secret information. The commission was informed that fines will not come into the fund steadily and there will be some need to keep some money from biennium to biennium.
The commission considered a bill draft to provide for the expenditure of funds collected under the performance assurance plan for monitoring the plan. The bill draft created a special fund with a continuing appropriation for two years, of which $50,000 could be spent without approval by the Budget Section of the Legislative Council. After June 30, 2005, the expiration date of the bill draft, the money would automatically go into the general fund.
The commission received testimony in support of the bill draft. The major expenditure from the special fund would be for an outside auditor to review Qwest's activities in the 14-state region. Other costs would include travel and six-month reviews of the performance assurance plan. The commission was informed that the spending authority should be raised from $50,000 to $100,000 because $100,000 is a closer approximation to the amount the Public Service Commission would have to pay for monitoring the plan.
The commission amended the bill draft to increase the threshold for Budget Section approval from $50,000 to $100,000.
Continuation of the Commission
Commission members discussed whether to continue the Regulatory Reform Review Commission. The commission was created to provide overview of the deregulation of the telecommunications industry by having legislators well versed in telecommunications issues.
The commission reviewed the role of other legislative committees, especially the Information Technology Committee. The commission was informed that the Information Technology Committee meets frequently and has a full agenda.
Commission members discussed whether the commission has served its original purpose. Discussion pointed out that the Public Service Commission could assume the responsibilities of the commission and recommend legislation to the Legislative Assembly.
The commission received testimony in support of continuing the commission because future Federal Communications Commission rulings may affect universal service. Commission members noted that the commission has been extended in the past because of possible Federal Communications Commission rulings and the commission later discovered that no action was required. It was noted that the commission is no longer proactive, but is reactive to the decisions of the Federal Communications Commission. It was also noted that if a need did arise, the Public Service Commission could prepare a bill draft; the Legislative Council could assign a study to a committee, for instance, the Information Technology Committee; or an individual legislator could request the Legislative Council to prepare a bill draft.
Recommendations
The commission recommends House Bill No. 1052 to provide for expenditures of funds collected under the performance assurance plan. The bill is proposed as a means to address a situation in which the Public Service Commission does not know how much money will be collected under the plan. The bill allows the Public Service Commission the ability to spend fines under the plan but requires a review by the Legislative Assembly at the end of the two years. The bill is meant as a window to provide information for the Legislative Assembly to base budgeting decisions.
The commission also recommends House Bill No. 1053 to extend the life of the Regulatory Reform Review Commission to 2005. The reason for the extension is to provide an avenue to react to potential universal service fund issues.
