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September 15, 2003 Room 302, Capitol Building
Cheyenne, Wyoming
Subcommittee Members
Senator Curt Meier, Cochairman
Representative Tony Ross, Cochairman
Senator Cale Case
Representatives Lorna Johnson and Ed Prosser
David Gruver
Please refer to Appendix 1.
All meeting materials and handouts provided to the Subcommittee by the Legislative Service Office (LSO), public officials, lobbyists, and the public are referenced in the Meeting Materials Index, attached to the minutes. These materials are on file at the LSO and are part of the official record of the meeting.
Cochairman Ross called the meeting to order. The agenda for the meeting is attached as appendix 2. The first issue addressed was the state universal service fund.
Public Service Commission (PSC) Chairman Steve Ellenbecker addressed the Subcommittee and noted the current annual funding requirement for the USF is $6 million. With a balance of $5 million, the annual assessment has been lowered for the year. Currently, with nearly all companies having priced at TSLRIC the USF is a stable fund. Ongoing, it appears the fund will likely require an approximate 2% assessment, it has been as high as 6%. The stability of the fund may be viewed as a blessing or the Subcommittee's greatest challenge, in that while rates are stable, they are high. Commissioner Ellenbecker offered the PSC's help to provide information the Subcommittee would like.
Commissioner Ellenbecker noted there was little if any consensus among industry on any of the issues before the Subcommittee. Overall, there is increased telecommunications competition based upon greater entry of wireless into the market. That competition is not likely at this time in his view to lower rates, however. The Commission does plan on bringing the USF administration in-house in the upcoming year.
Subcommittee questions addressed whether there can be increased competition at the current price levels. Commissioner Ellenbecker suggested that competition would more likely come in the form of newer and improved services rather than decreased prices. As to the effect of the USF on competition, Commissioner Ellenbecker noted that access to the fund might be necessary for a new entrant to compete, but at the same time pricing at the level necessary to receive state USF funds keeps price competition away. At the same time, the ramifications of conversion to a cost based fund (versus the current rate base fund) are unknown. The industry and the commission would need to work together on that issue and the Legislature would have to direct the industry to do so, if the Subcommittee wished to know the ramifications of switching to a cost based fund, according to Commissioner Ellenbecker.
Cochairman Meier questioned how there could be as much pricing difference for what seemed to be very like situations. Commissioner Ellenbecker noted there are some explanations for the different prices, though some of the discrepancies could be attributable to the Commission learning more in the application of TSLRIC pricing approvals and refinement of the models as the 1995 Act has been implemented. Revisiting the cost models might achieve a more uniform result, but that would be time consuming and expensive and the results cannot be promised to achieve a more uniform application of the pricing models.
Senator Case stated that the different approaches of the companies have resulted in some of the differences; noting the aggregation or segregation of lines can achieve differences. He questioned how to achieve more uniformity of the application of TSLRIC methodology and suggested that the Commission could open a general docket and review the application of the TSLRIC methodology.
Commissioner Ellenbecker agreed with Senator Case's assessment of the issue. He further noted that the USF has impeded the entry of the wireless service into the market. With the USF as currently structured, the customer is not left with an improved service nor an improved price. PSC Commissioner Kristen Lee suggested that if the intent of the fund is to ensure affordability, there could instead be an income test.
Bryce Freeman, Office of the Consumer Advocate, stated that Commissioner Lee's point is the most important in his view in that the USF was intended to make telephone service affordable for the high cost customer. The money should be targeted to individual customers and shown on the customer's bill. If that is done, companies would not be driven to seek additional USF funds; the receipt of funds would be revenue neutral to the companies. In response to Subcommittee questions, Mr. Freeman stated that the average customer from a total bill basis under the 95 Act has not suffered as much as some might perceive; they generally are paying more in fixed costs and less in usage based fees.
Industry representatives were asked to address the USF issues. Mike Ceballos, Qwest, testified that consensus was difficult to achieve in the industry on certain issues, but that a working session can be a useful tool for the Subcommittee in that industry can explain their positions. They would need time over the interim to address issues as directed by the Committee. Mr. Ceballos testified that the USF was not intended to address competition, but to help high cost customers. He provided an explanation of the Wyoming and Federal universal service funds and Qwest's application of those funds to Wyoming customers. (Appendix 3). Qwest only deaveraged costs by distance, not by density because to deaverage under both would have caused a great increase in certain customer's rates. If done by density also, the larger cities' customers would have lower rates, smaller densities would have higher rates. The USF should not be used to tip the scale in the favor of companies that can price below another company's required floor rates (set at TSLRIC).
The Subcommittee discussed the differences in imbedded costs versus TSLRIC pricing requirements. Questions also addressed the usefulness in opening a general docket to make TSLRIC more uniformly applicable in the future. Mr. Ceballos noted that many small companies now receive more in federal USF than they make from their customers. Discussion also addressed the purchase of unbundled services and resale of those services to customers by competitors in the industry.
Liz Zerga, Western Wireless, addressed the USF. Western Wireless believes there are problems with the USF but they cannot be fixed in the upcoming session. She advocated study of the issue over the next interim. Ms. Zerga had previously provided written materials to the Subcommittee which addressed the perceived problems with the USF. (Appendix 4) In her view the USF encourages higher pricing and hiding of excessive costs by companies. The rate based fund inhibits competition by requiring the new competitor to charge prices at least 130% of the statewide average if they wish to receive funds from the state USF. If they do not do so, the new competitor must have a price differential which exceeds the USF support. Ms. Zerga suggested items the subcommittee should consider in making changes to the state USF.
The Subcommittee next heard from Bruce Asay, representing a number of telecommunications companies. He previously provided written materials to the subcommittee. (Appendix 5). He noted that there has not been a consensus within the industry regarding the issues presented at the last full committee meeting. Mr. Asay testified that the effects of the 95 Act were different for different persons.
Mr. Asay's first suggested change was to move from a benchmark of 130% of the statewide average to a dollar benchmark of $32.00. This would allow customers to know what their rates will be based upon a legislative determination, rather than fluctuating calculations driven by industry and regulator decisions and calculations. Mike Ceballos, noted that a set dollar rate on the USF would help customers in not having their rates changed with the floating statewide average.
An additional proposal for the USF (see page 8 of appendix 5); is intended to make sure that companies which appear before the commission in making application for state USF, are subject to the same regulation. Currently some competitors would not be subject to the same regulatory scrutiny by the commission.
Senator Case asked for the status of a proposed project by Mr. Asay's client to run fiber optics to Fremont County. Mr. Asay gave an explanation of the right of way requirements being secured by his clients to lay fiber optics to Riverton in response.
Cochairman Ross asked Mr. Asay's response to a cost based versus rate based USF. At this time, his clients have not made a determination as to which of the two would be preferable. Representative Johnson asked for information as to Nebraska's rates and why they are lower . Fred Frantz with Sprint, explained that Nebraska ordered rates to be moved to certain levels and established a state USF with a set assessment. The rates are not cost based rates but were set Legislatively as revenue benchmarks.
In response to Subcommittee questions, Mike Korber, PSC, addressed the Subcommittee regarding portability of telephone numbers. November 24, 2003 is the deadline for number portability. Charles Simino, Sprint, noted that there is still some uncertainty regarding whether that portability will be wireline to wireless.
Fred Frantz noted that Sprint treats the federal USF as a credit on customers bills, thus the receipt of federal USF does not affect the statewide average rates.
Ron McCue, Silver Star Communications, testified that a number of persons felt the 95 Act was premature and there was uncertainty as to the effect of the Act. He suggested that the Commission be directed to study the issue of costs, so that the same uncertainties do not occur again. The USF was intended to address consumer affordability and he suggested that the Legislature should refocus the debate on the USF back to that concept.
Mr. Simino testified that Sprint is not advocating changes to the USF at this time; but if a hard dollar benchmark is set, then it supports that change. He also stated that a company which is allowed to draw money from the USF, must be subject to the cost study requirement, otherwise there is not fair competition. The Subcommittee and industry representatives discussed a more uniform methodology. Industry representatives noted that different deaveraging methods will affect different consumers differently and thus the consumers will have different reactions to "one" model. Mr. McCue suggested that the role of the PSC should be to develop a single model in a hearing.
The Subcommittee discussed the proposals for the USF. Senator Meier, suggested that the Commission should undertake some action without additional legislative authority. He felt that it was important to have additional information before the Legislature acted. Representative Johnson, stated that an independent consultant might be commissioned by legislation to study the issue. Representative Prosser supported the idea of a hard fixed dollar benchmark. Senator Case suggested that the fund be taken from 130% to 135% January 1 ,2005 and 140% in 2007. He further proposed to limit the number of supported lines to 1 per customer and 0 for business customers by 2005. In conjunction with doing so, the income based telephone assistance program should be reviewed to see why it has not been more widely used. He further suggested that $100,000 should be appropriated to study the change from a rate based to cost based fund and create a legislative subcommittee to review the issue. Another bill should be developed requiring the Commission to apply uniform rules for TSLRIC cost filings by Dec, 31, 2004.
Senator Meier supported pursuing the cost based study for the USF. He suggested that moving to a uniform methodology for TSLRIC should be even faster than Senator Case suggested.
Representative Ross suggested that there should be a separate bill for the uniform rules for TSLRIC methodology. The PSC should be the entity making the TSLRIC methodology more uniform. The USF should be changed, but not enough information is available in his view to immediately change to a cost based system. The PSC's role should be to inform the Legislature on the effects on the cost based USF, but it should not be the policy maker on the issue, thus there could be an appropriation to support an independent consultant for the effects of a cost based study.
Senator Meier suggested that business lines should not be eliminated but could be subject to a lower USF support. He also suggested that the assessment could be based on the access rates paid, rather than the overall bill.
Mike Korber provided additional information on the telephone assistance program. The requirement was that the recipient be Medicaid eligible when the program was created. In 2000 the Legislature expanded the eligibility requirements.
Cochairman Ross restated the proposal for the bill draft directing the PSC to establish proposed rules to require a uniform application of TSLRIC methodology and provide them to the Committee by October, 2004, with the rules being implemented after the 2005 legislative session. Mr. Jackson emphasized that the Subcommittee needed to address whether the proposal would require new rate filings which are very expensive. Commissioner Ellenbecker stated that his understanding was that the new rules would be applied to those that have filed existing TSLRIC prices. His view of the motion was to reestablish a more uniform TSLRIC for companies which have filed and then realign prices with the more uniform cost studies. The second step could be to realign the USF with TSLRIC, rather than rates being charged. Senator Case noted that the only way a company would not be covered would be if they were found to be a competitive provider.
Mr. Jackson noted that only two companies receive state USF and that the motion is working its way into a "retroactive frenzy" when the market is addressing the issue by competition.
The discussion then addressed the provisions for declarations of a competitive area; thus relieving a company of TSLRIC pricing. Mr. McCue stated that the mere existence of two ETCs in an area does not necessarily equate to competition and a level playing field. Discussion addressed the amount of competition between wireless and landline telephone. Commissioner Lee addressed the Commission's decision on an application to declare an area subject to competition. The testimony did not support a finding that wireless service then being provided was functionally equivalent of the landline services; a requirement imposed by the statute in order to make a finding that the area was subject to competition.
Senator Case moved for a bill to be drafted as restated by Cochairman Ross - the bill draft directing the PSC to establish proposed rules to require a uniform application of TSLRIC methodology. The proposed rules would be provided to the Corporations Committee by October 1, 2004, with the rules being effective and implemented after the 2005 legislative session. Cochairman Meier seconded. The Subcommittee directed LSO staff to draft the bill as indicated recognizing latitude on the specifics would be granted. The motion passed.
Senator Cased moved that a bill be drafted for the full Committee meeting as follows: the state USF benchmarks be taken from 130% to 135% as of January 1 ,2005 and to 140% as of January 1, 2007. A limit on the number of state USF supported lines at 1 per customer and 0 for business customers as of January 1, 2005. In conjunction, the telephone assistance program should be expanded to allow an additional $10 per subscriber to come from the state USF with the same eligibility criteria in current law. $100,000 should be appropriated to study the change from a rate based to cost based state USF and with the creation of a legislative subcommittee to review the issue over the next interim. Representative Johnson seconded the motion. Senator Case stated that the motion should include the determination of statewide average should be once per year. Mr. Korber noted that is done now with limited exceptions.
Senator Meier moved to amend the percentages to a flat $32 benchmark and remove the transition language. The motion was seconded by Representative Prosser. The amendment to the main motion failed.
Senator Meier moved to divide the motion. One bill draft should be the USF provisions on the percentage changes and the limitations to the line restrictions on customers and the businesses. The telephone assistance program and the legislative review of the cost based fund should be the second division. The motion to divide failed.
Representative Ross moved that the cost based study be divided into a separate bill. That motion passed. That portion of the motion dealing with the cost based study passed unanimously. The remainder of the main motion passed with Senator Meier voting no.
Cochairman Ross restated that three separate bills are to be drafted based upon the above actions. Chairman Ross, stated that the intent was to move forward with proposals for discussion at the full Committee meeting.
Senator Meier suggested that there be a study of the development of statewide zones, with a phone stamp program in which the subscriber's USF receipt is based upon their location; the proposal would be based upon the cost based system previously discussed and would occur after the cost based study. The Subcommittee discussed the proposal. No action was taken on the suggestion.
Mr. Asay addressed the Subcommittee. He provided pages 2 through 5 supplementing the materials he submitted earlier. (Appendix 6). The additional material was explained. It addresses intercarrier compensation and payment for intercarriers providing services for other carriers. Senator Case stated that the issue involves the use of being paid for calls that have information stripped off not allowing the carrier to identify where the call comes from so that the carrier can appropriately bill for transmitting the call under interconnection agreements. While entering into agreements could be a solution, if a company refuses to enter into the agreements, there is a public relations problem with terminating calls that cannot be identified. Other industry representatives addressed the proposal. Mr. McCue stated that the problem does not lie solely with Qwest. At the same time, he also noted that Qwest also sometimes strips the identifying number. Mr. Asay noted the intent is to establish a standard that industry has agreed to in other circumstances. Ms. Zerga stated that wireless carriers do use this common line and when they do, they provide the number to Qwest which does strip the identifying number. She further noted that the FCC is attempting to address the issue. Her company's position is to oppose the provisions of the bill which impose another layer of regulation on wireless carriers at the state level. If it were a matter only of the independent companies having the information available, Western Wireless could work with the independent companies. Mr. Ceballos, Qwest, stated that his company has a requirement to transfer calls from carrier to carrier, but Qwest is often the middle man in these instances between two companies. Qwest is not opposed to companies getting paid for calls they carry, but Qwest should also be paid for its efforts. He noted there is currently litigation in the State regarding the issue. Mr. Jackson stated that this is a question of billing accuracy, not lost revenues. The companies are being paid for the minutes, but by spreading it over the customer base, rather than the actual originating call.
The Subcommittee addressed Representative Luthi's proposal from last session (appendix 7); which would allow the Commission to waive the TSLRIC requirement in certain circumstances. Mr. Asay, stated that most of his clients have already transitioned to TSLRIC so they would not be affected by the proposal. He also suggested that a maximum number of lines, perhaps 500, might be established in the legislation. Mr. Jackson, suggested that they would support the bill if it were limited by lines and to cross boundary situations. His companies would not support it being used as a general principle. Senator Case suggested that the industry could get together with Representative Luthi and reach consensus on the issue. No action was taken on the proposal.
The meeting adjourned at 4:50 p.m.
Respectfully submitted,
Representative Tony Ross, Cochairman