In the Matter of 		)
				)
Federal-State Joint Board on 	)		CC Docket No. 96-45
Universal Service		)	
				)

The Alaska Public Utilities Commission (APUC) welcomes the opportunity to file comments in response to the Notice of Proposed Rulemaking and Order Establishing Joint Board (NPRM) released on March 8, 1996, in CC Docket No. 96-45. The APUC recognizes that it may be necessary to reevaluate the existing mechanisms that provide universal service support in light of the Telecom-munications Act of 1996 (the Act) and the increase in local competition throughout the nation. However, care must be taken that any new policies ensure an adequate level of support for high-cost areas and are sufficiently flexible to accommodate the unique needs and characteristics of the rural markets. The APUC is especially concerned that the definition of and the funding for universal service be adaptive to meet rural needs because over 90 percent of all Alaskan communities are high cost and rural.

Definition of Universal Service

The APUC requests that sufficient cost support be provided to ensure that the following telecommunications services become affordable and accessible in rural, insular, and high-cost areas:

(1) voice-grade local service;

(2) touch-tone service;

(3) single-party service;

(4) interexchange and local access to emergency services;

(5) access to operator services;

(6) local-dialing access to the Internet;

(7) line quality capable of local and interexchange fac-simile transmission;

(8) line quality capable of local and interexchange data transmission at 28.8 kilobytes per second (kbps) using a modem;

(9) telecommunications relay service for voice-to-text and text-to-voice translation;

(10) connectivity with all public toll, local, wireline, and wireless networks;

(11) toll blocking, 900 and 976 number blocking; and

(12) access to optional digital services such as switched 56 and Integrated Services Digital Network (ISDN).[1]

Voice-grade local service, touch-tone service, single-party service, access to operator services, and access to local emergency services should be included under the definition of "Core services" for the reasons expressed in the NPRM. Support for emergency services should include both local and toll access because many rural communities have limited local facilities to handle emergencies. When a disaster occurs in Alaska, the "fac-tors of distance, harsh climate, rugged terrain, and dependance on air travel make relief efforts at times uncertain and in all cases costly."[2] Emergency services are also limited, and many critical services are available only in urban areas of the state.[3] For example, most rural Alaskan residents live outside the ground transportation radius (and local calling area) of a hospital. Medical emergencies are often handled by air evacuation or by sending emergency care teams to the patient.[4] The logistics of providing and requesting emergency assistance under these conditions make Alaskans highly dependent upon toll communications. Affordable toll access to emergency services is therefore critical to the public in Alaska.

Local (toll free) Internet access, facsimile services, and 28.8 kbps data transmission capabilities should also be classified as Core services. These services provide access to key informational data bases and communications forums essential for economic and personal development; education, and productivity; and greater efficiencies in the workplace and at home. Need for these services is especially important in remote, isolated, rural areas of Alaska where access to information resources is often severely limited.

Eighty-eight percent[5] of all cities and villages in Alaska are in isolated, rural areas that have extremely low population (under 1000 people). These communities, by their size and remote-ness, normally do not have the local infrastructure (e.g., large libraries,[6] universities, hospitals, business centers) available in urban areas. Over 90 percent of all communities in Alaska, including the state capital, are not accessible by road. Therefore, rural residents do not have the option of driving to an urban center to do business, conduct research, and obtain information on job opportunities, health-care issues, educational materials, regional government issues, and other critical matters.

Given these circumstances, Alaskans must carefully coordinate all activities with a high reliance on telecommunications ser-vices. Communications access through the Internet, facsimile service, and data transmission offers an important substitute for the lack of local information resources in isolated, rural areas; and these services should be included in the definition of Core services. If these services are unaffordable or unavailable, then rural areas will fail to keep pace with the urban areas as society becomes increasingly reliant upon electronic communications for many of its daily activities.

Local-dial access to the Internet should be listed as a Core service because of the cost to remote users to obtain inter-exchange access to the Internet. When end-users must pay for long distance access on top of the charges for Internet service, uni-versal service support should be provided. In addition, where commercial internet services are not available on a local-dial basis, the FCC should encourage the use of government networks to facilitate this access.

Support should be available to allow affordable access to high-quality switched data services (e.g., ISDN) as the absence of these services severely limits the capability of the public to access information efficiently and speedily.

Telecommunications relay service should be classified as a Core service to ensure that the hearing- or speech-impaired community has reasonable and affordable access to services.

All toll blocking, including 900 and 976 numbers, are critical services that provide residential and business customers with the ability to control the use of their phones in order to avoid high toll and other fees that might compromise their ability to afford communications services. Toll-blocking services should also be classified as Core services.

The FCC should expand the definition of Core services to include both local and toll calling in rural areas. Because of the remoteness, isolation, and lack of roads between villages and cities, Alaskans rely on interexchange communications to provide access to critical services that are not locally available. More than half of all Alaskan communities can only reach about 100 access lines through local calling.[7] The APUC believes that the goal of universal service is not served when customers have extremely limited but affordable local calling, yet lack access to affordable interexchange services. If the FCC broadens the definition of universal service to include toll calling, suf-ficient funds should be made available to meet the need. Funds should not be arbitrarily capped.

Universal Service Support for Adequate Infrastructure and Access

The FCC should ensure that universal service support covers the cost of adequate infrastructure and access for the provision of advanced telecommunications and information services (including interexchange services) to rural, high-cost, and insular areas. The concept of universal service must address both affordability of services and availability of services. If there are no facilities capable of providing a Core service, then the issue of affordability is moot. Universal service support should be provided to aid in upgrading facilities, including interexchange facilities, when upgrading is necessary to supply Core and specialized services[8] and when the cost of upgrading is sufficiently high to warrant support.

A. Alaska is dependent on costly satellite technology.

While most of the United States benefits from low-cost fiber-optic transmission, most of Alaska depends on satellite transmission for interexchange service. Extending fiber-optic cable to Alaska's many remote communities would be prohibitively expensive because of Alaska's vast distances, low population, terrain, and numerous remote communities. Rural Alaska is, therefore, unable to benefit from the low, per-unit cost of fiber-optic technology that is generally available elsewhere.[9]

B. The current telecommunications infrastructure in rural Alaska is substandard, and generally inadequate and expensive when used for data transmission.

Many rural Alaskan communities are still using first generation (bush) earth stations installed in the mid- to late 1970's. These communities are at a disadvantage for two technological reasons: (1) bush earth stations use antiquated analog transmission which reduces signal quality; and (2) calls are "double hopped"[10] which introduces a delay of a half second or more. The combined effect of these two factors makes voice communication difficult and reliable data transmission at reasonable speeds virtually impossible.[11]

Data services that use enhanced protocols, such as X.25 and frame relay protocols,[12] are generally not available in Alaska's most rural communities. Therefore, data users in these areas must transmit data over voice grade circuits (at regular MTS rates) and are also plagued by very slow transmission speeds that are not adequate for Internet use. Even where X.25 service is available, the $4-per-hour transmission charge can easily triple the monthly cost of an Internet account for a low-volume user, making it prohibitively expensive.[13]

Excessive costs and antiquated analog transmission systems limit the availability of decent quality access to E-mail or other Internet services to rural Alaska schools, libraries, and health-care providers. Schools cannot employ two-way video instruction; and public health clinics cannot make use of narrowband telemedicine technologies. Advanced telecommunications and information services would dramatically improve the ability of rural Alaskan communities (which are without access to the state highway system and are often hundreds of miles from regional public and social service agencies) to gain access to necessary services.

C. Plans exist to upgrade Alaska's satellite telecom-munications infrastructure, but modernization is slow in coming. When the upgrades occur, they will still not completely eliminate Alaska's technological and cost disadvantages compared to the rest of the United States.

Both of the facilities-based interexchange carriers (IXCs) that will serve rural Alaska, AT&T Alascom, Inc. (AT&T Alascom),[14] and General Communications, Inc. (GCI),[15] plan to upgrade bush telecommunications infrastructure using Demand Assigned Multiple Access (DAMA) technology. GCI's project is a demonstration of DAMA in approximately 50 rural communities. AT&T Alascom plans to upgrade all its remaining bush satellite earth stations to DAMA; however, modernization will not be complete until the end of 2001.[16]

DAMA, as proposed in Alaska to date, has its limitations. Data speeds using a modem or fax over voice-grade lines will be limited to 9600 baud. Users needing higher speeds for 14.4 kbps and 28.8 kbps modems or switched 56 and ISDN service will be forced to pay premiums above basic MTS rates. This is in marked contrast to interexchange service in the lower 48 states where IXCs commonly provide bandwidth up to 64 kbps on voice grade lines.

D. Necessary infrastructure upgrades should begin imme-diately and should be funded where necessary through universal service support mechanisms.

To achieve the goal of providing advanced telecommunications services to all Americans, the FCC should do more than simply require that telecommunications carriers provide currently avail-able services to schools, libraries, and health care providers at a discount. The FCC must also require that a modern telecom-munications infrastructure is available to provide these services.

The FCC should not wait for the conclusion of the proceeding mandated by Section 706 of the Act to encourage local exchange carriers (LECs) and IXCs to make necessary infrastructure upgrades. This process should begin immediately. For example, when the FCC knows that the capital plans of eligible carriers and otherwise essential IXCs are inadequate to timely meet the service standards intended by Congress, those carriers should be required to revise their plans and make any necessary service or infra-structure upgrades. Clear, firm deadlines should be established and enforced. To the extent that carriers can show that this requirement would be unduly economically burdensome, the FCC should make universal service funds available for this purpose.

Payment of USF

A. Past Proposals for High-Cost Support

In addition to defining universal service, the FCC must also determine how it will provide high-cost support. The APUC filed comments on several of the support mechanisms proposed in CC Docket 80-286.[17] Some of the key points of concern identified by the APUC in those comments are:

(1) Due to Alaska's small population (550,000 people, 338,000 loops) and high costs of providing telecommunications services, any shift in costs from the interstate to the state jurisdiction could significantly affect in-state rates. Loss of USF/DEM[18] revenues could lead to local rate increases of between $20 and $136 per month per line for many rural Alaskan customers.[19] The APUC urges that levels of support be continued as long as there is a need for assistance. If funding is reduced, the available funds should be allocated to maintain support to those companies providing services in areas with the highest costs and the greatest need for support.

(2) Any system to replace DEM weighting should take into account the needs of small, high-cost companies.[20]

(3) Any support mechanism based on high-cost credits must address resale of network services and treatment of resellers to ensure a level playing field, to prevent barriers to entry, and to understand the effects on existing intrastate rate design policies.

(4) If high-cost credits are adopted, they should not be provided on a customer-by-customer basis depending only on indi-vidual subscriber characteristics and need.[21] The Act intends that all customers, not just those who meet a means test, should be provided service at affordable rates.

(5) Census Block Groups (CBGs) are not the best standard "service block" for determining high costs in all areas of the nation as each CBG has no planned relationship to the actual physical telecommunications network and the associated costs. Cost characteristics within a CBG can vary greatly which will create difficulties if CBGs are used for cost-modeling purposes.[22] The APUC recommends that if a "service block" standard must be set, it should be set by the state commissions based on local conditions.

(6) Mechanisms that would provide support based on a "one-size-fits-all" approach using a simple model to estimate cost may not work well when applied to Alaska or any other state with characteristics different from the model. If a cost-estimating model (such as a proxy system) is adopted, it should consider all relevant cost parameters, including subscriber density, average distance from the nearest wire center, terrain, slope, surface characteristics, climate, road accessibility, scale economies, regional labor costs, network topography, and possibly other factors.[23]

(7) Legally separate entities under a common parent should not be required to merge study areas.

B. Joint Sponsors Benchmark Costing Model (BCM)

A new model called BCM was proposed to replace the existing USF/DEM system. The APUC believes that the BCM will fail to provide appropriate support if applied to Alaska in the model's current form, leading to erosion of universal service.

(1) The BCM is not designed to work in all areas of Alaska.[24]

(2) The minimum outside plant and switch assumptions under the BCM are much larger than actual plant sizes found in the vast majority of communities in Alaska and possibly in other states.[25]

(3) It is not evident that the annual cost factors under the model will be appropriate for small rural local exchanges.[26]

(4) The BCM does not take into account key parameters that increase cost such as climate, lack of roads, regional labor rates, and other factors.

(5) The BCM model employs a CBG standard which may not be appropriate for all areas of the country.

Given the above, the BCM will require significant modification before it should be applied in Alaska.

C. Implementation Concerns

Any newly adopted system must ensure that consumer rates remain affordable by providing adequate support. Because almost all the proposed changes to the existing support mechanisms are untried, there is no certainty that any of the new systems will actually work as contemplated. The APUC, therefore, suggests that any changes to the cost-support system be implemented first on a trial basis by the larger companies that operate in a competitive environment. This will provide an opportunity for the FCC to observe any new system in operation and to refine it as needed prior to applying it to the smaller companies. A phased-in implementation is important because the smaller companies, with their limited resources, are less to absorb losses if the new system does not work as expected.

If necessary the existing USF system could be revised, as a transitional step, to allow support funding for Core and specialized[27] services in the smaller exchanges until a comprehensive long-term support system is developed.

D. Eligibility for Support

High-cost support should be provided only to carriers willing to make commitments to (a) provide dependable, high-quality service to the public and (b) provide evidence that the support is being used for the purpose intended and not merely to increase stockholder dividends or to cross-subsidize other operations.

Without quality-of-service standards, the "service" provided to a customer could be so poor as to have no value, leading to a waste of scarce support funds. In addition, support should be provided only to a carrier willing to demonstrate how it used the subsidy funds. If necessary, carriers should be required to follow minimal standard accounting procedures and be subject to audit, either by the FCC or by the state commissions to ensure that funds are properly used.

E. Division of Funding Responsibility between State and Federal Jurisdictions

The APUC requests that there be no change in the existing division of responsibility for payment of high-cost support between state and federal sources. Similarly, the APUC requests that the FCC not assess high-cost support fees based on in-state revenues as this would shift the funding obligation to the state jurisdiction.

Alaska's limited population cannot support a material portion of the present interstate funding levels given the high costs of providing basic service. Consequently, shifts in payment responsibility from the federal to the state jurisdiction could lead to in-state rate shock and to a serious threat to universal service.[28]

Maintaining the obligation for high-cost support at the federal level also has several advantages. First, any federal fund will be much larger than the individual state funds and, thus, will be more stable and less sensitive to the individual variations in each utility's support requirements. Any big increases to costs that might lead to rate shock at the state level could instead be spread over the entire federal support "pool", thereby reducing the impact and risks to the fund. Second, each state has a different high-cost pattern and a different ability to support universal service. Shifting the obligation to fund universal service in whole or in part to the states could lead to a disproportionate burden on different states, with rural and low-population states being the most disadvantaged by the process. Third, having a national fund reduces the likelihood that a carrier will resort to arbitrage to avoid contributing to a state's high-cost USF.

Finally, the current division of responsibilities has worked well, and it is premature to consider shifting obligations to the states when it is unknown how much funding will be required to support the new, evolving, and expanded definition of universal service. Required levels of funding may rise above current levels depending on how universal service is defined and the number of carriers eligible for support. It would be more appropriate for the costs of universal service to be spread evenly across the nation rather than recovered under a system that selectively disadvantages some of the states.

Subscriber Line Charges (SLC)/ Carrier Common Line (CCL) Rate

Several years ago the FCC implemented an SLC and a CCL charge to recover the portion of the loop costs associated with the provision of interstate long distance services.

The APUC opposes any increases to the SLC. Before the FCC makes any further changes to the SLC, it should comprehensively address the rationale for the SLC, particularly within the changing local and nonlocal market structures. The APUC recom-mends that any such analysis include, among other possible issues: the competitive effects of the SLC and CCL charges on incumbents and competitors (including facilities-based versus nonfacilities based competitors); the equity and efficiency effects on various classes of end-users including large toll customers receiving sizeable discounts; and the growth in nontoll access customers such as Internet providers and wireless services.

Finally, and perhaps most importantly, the FCC should evaluate the degree to which an increase in the SLC will be counter-productive to the goals of preserving and advancing universal service.

RESPECTFULLY SUBMITTED this 11th day of April, 1996.

BY DIRECTION OF THE COMMISSION

By: Commissioner Don Schröer
Chairman, Alaska Public Utilities Commission

cc: William F. Caton
Acting Secretary
Federal Communications Commission

Attached list

[2]Alaska Emergency Operations Plan, Division of Emergency Services of the Alaska Department of Military and Veterans Affairs, 1994, at 4.

[3]"[Alaska's] 16 boroughs should not be viewed in the emergency context as being the equivalent of county governments. Only in the three unified home rule municipalities will one find municipally run emergency services similar to county style agencies. In the other 13 boroughs, area wide powers focus on education, land use planning, and tax assessment/collection. Emergency services, if any, are highly decentralized and provided by scattered, independent service areas." (Alaska Emergency Operations Plan, 1994, at 1.)

[4]Pharmacy in Alaska: A History, Tom Reale, 1992, at 15.

[5]1990, Census of Population and Housing, Summary Social, Economic, & Housing Characteristics, Alaska, Table 11.

[6]Only Anchorage, Fairbanks, and Juneau public libraries have over 100,000 books and serials available for viewing. (Statistics of Alaska Public Libraries, FY 1992 and FY 1993, Table 2.)

[7]See Comments of the APUC, CC Docket 80-286, at Appendix F, October 9, 1995.

[8]Section 254(h) of the Act provides for use of universal service funds (USF) to support advanced telecommunications services to schools, libraries, and health-care providers at rates that are reasonably comparable to those charged for similar services in urban areas.

[9]Appendix B to these Comments compares the cost of satellite, microwave, and fiber at various output levels in Alaska. From these charts, one can see that the minimum cost per channel of satellite and microwave transmission is much higher than fiber at optimum output levels.

[10]A double-hopped call is one in which the call from one community is up linked to the satellite, down linked to a switching hub, up linked back to the satellite, and down linked to the earth station in another community.

[11]"Calls between Alaskan villages are ridden [sic] with hiss and excessive delays from multiple satellite hops. Modem connections between villages disconnect spontaneously and operate as much as 24 times slower than modem connections within Anchorage." (Distance Delivery Consortium, Position Statement Public Telecom-munications Infrastructure and Policy in Rural Alaska, January 11, 1995.)

[12]These services are frequently used by information providers and telecommunications carriers to reduce the cost of transmitting data. X.25, for example, can combine the traffic of multiple data users onto a single circuit and thereby allow a remote computer user to connect to a distant computer network for a fraction of the cost of a regular message telephone service (MTS) call.

[13]For example, Internet access in Anchorage runs about $30 per month for an unlimited number of hours. Accessing an Internet provider using X.25 at $4 per hour would result in a total monthly cost of $90 [$30 + ($4 x 15 hours)].

[14]"Today, many of the rural communities in Alaska utilize AT&T Alascom telecommunications services supported by analog technology. [DAMA] is a satellite based digital technology that will supplant AT&T Alascom's rural, analog infrastructure. AT&T Alascom plans to upgrade all analog earth stations using digital technology, DAMA, that will improve telephone services by eliminating the double satellite hop that often adversely effects [sic] the quality of telephone calls in Alaska today. In addition, digitizing the earth stations will provide a mechanism for rural Alaska to obtain access to higher grades of service including digital private line and switch 56 services. AT&T Alascom will have all of Alaska upgraded to DAMA technology by end of the year 2001." (AT&T Alascom Connectivity Projects, prepared by Patrick Griffin, edited and submitted to Library Hi Tech Magazine by Susan Elliott.)

[15]"The basic design of the DAMA system allows for the provision of circuit switched 'data-on-demand service.' Data-on-demand allows data calls to be placed at rates necessary to support advanced applications. Applications such as Distance Learning, Telemedicine, and Video Conferencing require data rates of typically 64 kbps to 384 kbps, depending on the quality desired. The channel units that will be installed can support data rates of up to 128 kbps; above that either multiple channels can be utilized in parallel or a higher speed modem can be installed which is controlled by the DAMA processor." (GCI's DAMA Project in Rural Alaska, prepared by Jimmy Jackson, edited and submitted to Library Hi Tech Magazine by Susan Elliott.)

[16]AT&T Alascom's current capital plan is being reviewed in APUC Docket U-95-26.

[17]APUC Comments, Docket 80-286, at 12.

[18]DEM means weighted dial equipment minutes.

[19]See Appendix A.

[20]Data suggests that smaller companies have lower economies of scale and therefore a higher switching cost per line than larger companies. (APUC Comments, CC Docket No. 80-286, at 15.)

[21]Distributing funds based solely on need misses the point that the carrier's network must be built to serve all customers, not just those that pass a means test. Without sufficient support, a utility may find that it has fewer resources to maintain its infrastructure and service quality, leading to reduc-tions in both service availability and the carrier's ability to compete. Limiting support to low-income residential customers alone could also increase incentives for businesses to avoid high-cost areas of the country.

[22]In Alaska, CBGs can span large areas that include a wide variety of household densities, slope, soil characteristics, and terrain, and may contain multiple, isolated exchanges.

[23]See APUC Comments, CC Docket 80-286, at 26 -- 31.

[24]The BCM's flowcharts and programs assume that only one central office serves a CBG. That is not always the case. There are many instances in Alaska where a CBG is so large that the CBG contains more than one isolated central office. See APUC Com-ments, CC Docket 80-286, at Appendix D. As a result, some of the key data parameters under the BCM (e.g., distance between the CBG and the central office) become undeterminable, and the model would require revision in order to work as intended.

[25]For example, the model assumes four feeder routes leave each central office, with each route having minimum size feeder cables of 100 pair for copper and 12 strands for fiber. This minimum configuration size would appear to be "overkill" in Alaska because about 75 percent of all communities in Alaska have less than 250 access lines. In addition, the BCM assumes a Northern Telecom DMS 100 technology as the standard switch deployed. The DMS 100 is far too large a switch for most areas of Alaska. Only about 5 percent of all switches in Alaska are DMS 100s, and only 6 per-cent of all communities in Alaska are of sufficient size that a DMS 100 or its equivalent would likely be considered. Given the above, the BCM is not designed to accurately reflect cost conditions in most parts of Alaska.

[26]The Annual Cost Factor #1 under the model is based solely on records for Tier 1 LECs. Tier 1 LECs, because of their size, are likely to have greater economies of scale than the small rural LECs found in Alaska.

[27]See n. 8.

[28]In several locations in Alaska over 50 percent of the population lives below the poverty line. (See 1990 Census of Population & Housing, Summary Social, Economic, and Housing Characteristics. Alaska, Table 10.)