In the Matter of ) ) Federal-State Joint Board on ) CC Docket No. 96-45 Universal Service )
Comments of the
Alaska Public Utilities Commission
Date: August 1, 1996
Don Schröer, Chairman
Alaska Public Utilities Commission
1016 West Sixth Avenue, Suite 300
Anchorage, Alaska 99501
The Alaska Public Utilities Commission (APUC) appreciates the opportunity to file comments in response to the July 3, 1996, Public Notice (DA 96-1078) on universal service in CC Docket 96-45. Consistent with the Public Notice, the APUC has summarized longer replies.
12. Should discounts [for schools, libraries, and health care providers] be directed to states in the form of block grants?
State control and oversight of block grant disbursement to schools, libraries, and health care providers (SLHs) should only occur on a voluntary basis. If block grants are allotted on a state by state basis, the block grants should a) be sufficient to meet the universal service requirements contemplated under the Telecommunications Act of 1996 (the Act) and b) allow states to file applications for review under a streamlined process to obtain additional funding in the event that the system is inadequate to meet the needs of the SLHs. The amount should be adequate to also cover state administrative expense.
21. Should the Commission use a sliding scale approach (i.e., along a continuum of need) or a step approach (e.g., the Lifeline assistance program or the national school lunch program) to allocate any additional consideration given to schools and libraries located in rural, insular, high cost, and economically disadvantaged areas?
SUMMARY: Whichever method that is adopted should include a price ceiling to ensure that rates remain affordable in those cases where the normal discount provided to SLHs may not be sufficient.
The APUC proposes that a safety mechanism be embedded in the system to create a cap on the maximum amount paid by a SLH for services eligible for support. There is little data on the record to indicate the range of costs that SLHs experience on a national level. In Alaska, given in part to the dependence on satellite technology to provide service to rural areas, SLHs have found it difficult to obtain access to key services throughout the state. When services are available, prices tend to be high, though little data is available to suggest what price range will ultimately be experienced by all SLHs.[1] Given this lack of information on the price extremes, the Joint Board cannot guarantee that any discount alone will lead to affordable rates to all SLHs in all instances. As a result, the APUC proposes that the Joint Board recommend that any discount plan include a price ceiling for the rate faced by the SLH. The price in excess of the ceiling would be paid through universal service support.
31. If a bifurcated plan that would allow the use of book costs (instead of proxy costs) were used for rural companies, how should rural companies be defined?
SUMMARY: A bifurcated plan should be adopted to allow small rural companies to obtain universal service support based on their actual costs instead of proxy model costs. "Ruralness" should be determined by the state as part of the eligibility process, through applying the definition under the Act at 47 U.S.C. 153(a)(37).
All rural companies should be able to obtain support based on actual book costs instead of proxy costs if a proxy system is implemented. First, all of the proxy models to date are based to a significant degree on the cost characteristics of large local exchange companies with extensive operations in urban areas. As a result, it cannot be concluded that any of the models truly represents the costs for an efficient small rural company. For example, none of the proxy models adequately take into consideration that small rural companies may have extremely low economies of scale or may not be able to negotiate the cost discounts available to the larger, urban-based local carriers. Furthermore, no correlation has ever been shown to exist between the outputs of any of the proxy models and actual construction costs of existing companies. The APUC therefore supports the concept that small rural companies should remain under some form of the existing high cost support system until pilot projects can be run of any new system and it can be quantitatively demonstrated that the new system will lead to reasonable results when applied to small rural companies. As a matter of convenience and consistency, the definition of "rural" should be that specified under the Act.
As all companies seeking universal service support must apply for eligibility to the state public utilities commissions, it would be efficient and reasonable for the state to also determine at that time whether the company met the definition of "rural" under the Act and should therefore be able to employ actual costs in place of proxy costs.
32. If such a bifurcated approach is used, should those carriers initially allowed to use book costs eventually transition to a proxy system or a system of competitive bidding? If these companies are transitioned from book costs, how long should the transition be? What would be the basis for high-cost assistance to competitors under a bifurcated approach, both initially and during a transition period?
Rural carriers should begin to transition off of a bifurcated approach, if at all, only after a) it can be quantitatively demonstrated that the new system reasonably reflects the cost characteristics of the small companies involved, and b) streamlined procedures are in place to accommodate requests for waiver to use alternative methods (e.g., alternate proxy)or a cost based system.
41. How should support be calculated for those areas (e.g., insular areas and Alaska) that are not included under the proxy model?
SUMMARY: The filed proxy and competitive bidding models are inappropriate for Alaska. Alaskan companies should remain on some form of the actual cost based system and not be moved to any of the currently proposed proxy systems at this time until it can be quantitatively documented that application of the proxy model to Alaska would lead to no harm and does not produce unwarranted reductions in high cost support. The updated version of the Benchmark Cost Model (BCM2)[2] when applied to Alaska would yield erroneous results with drastic consequences.
As has been documented in the APUC's Comments filed on October 9, 1995, in CC Docket No. 80-286 (See Attachment A), Alaska's high costs are the result of several conditions including:
a) Terrain, slope, and surface characteristics such as mountains, glaciers, rivers, permafrost, ice effects, avalanche susceptibility, and the physical placement of the plant to accommodate these factors;
b) Harsh climate;
c) Lack of a road system to most of the state's locations and heavy reliance on airplanes and sea barge to transport equipment and access the majority of rural communities in Alaska;
d) Limitations placed on surface transportation and the construction season due to Arctic conditions;
e) Limited economies of scale (e.g., service to exchanges of under 200 lines); and
f) High labor costs.
None of the proxy models filed to date reflect any of the above factors. As a results, the APUC does not believe that any of the existing proxy models are appropriate to Alaska.
In addition, given that local competition does not exist in rural Alaska at this time, it would seem premature to adopt a competitive bidding based model for rural Alaska. The APUC therefore proposes that Alaskan local exchange carriers should be allowed to remain on some form of the existing cost-based system at this time, until it can be quantitatively documented that the new proxy model, when applied to Alaska, leads to no harm and does not produce unwarranted reductions in high cost support.
Alaska is highly reliant on universal service support to maintain rates at reasonable levels. Without support, local rates in Alaska could increase by $20 to $80 per month in some locations. As support to Alaska currently represents only 4% of the existing Universal Service Fund and weighted Dial Equipment Minutes support systems, the APUC believes that maintaining Alaska on an actual cost system will not be unduly burdensome. The existing proxy models should not be applied to Alaska as they fail to adequately represent Alaska costs. For example, several of the models currently under consideration are based on the Benchmark Cost Model (BCM). The APUC has reviewed the updated version of the BCM (BCM2) and concluded that there is a serious flaw in the results for Alaska and possibly for other states. The APUC performed a correlation test between existing high cost support provided under the Universal Service Fund (USF) as reported under the May 1996, Monitoring Report in CC Docket No. 87-339 and the support that would be provided to each state under BCM2 given a $20, $50, and $80 revenue benchmark. This correlation indicated that under BCM2, Alaska will receive an unusually low (in fact the lowest) amount of support, relative to existing levels of high cost support, compared to all other states.[3]
To illustrate this point, local exchange companies in the state of Nevada have on average the lowest unseparated non-traffic-sensitive NTS revenue requirements per loop in the country ($186/loop) and obtain about $3 million in USF support. Under BCM2, these carriers would receive $84 million in support, 28 times the existing USF, at the $20 benchmark level. Alaska, with one of the highest historical per loop costs ($381.62) would receive only 1.8 times its existing USF support ($31 million compared to $58 million). At the $50 benchmark, Alaska is the only state that would receive less under BCM2 (68%) than under the existing USF, with many other states receiving over 10 times their existing levels of support. At the $80 benchmark, Alaska would receive 34% of its existing USF while carriers in states with low average loop cost such as Nevada and Pennsylvania would obtain 481% and 829%, respectively, of their existing levels of support. At the $80 benchmark, Alaskans in rural areas could see, on average, local phone rates increase by over $100 per year.[4] See Attachment B. Furthermore, under the existing system Alaska receives the fifth highest amount of USF support while under BCM2 at the $20 benchmark level, Alaska would receive the sixth lowest amount of support.
These figures demonstrate that there is something seriously wrong with BCM2 and likely any model reliant on the BCM foundation. As a result, application of a BCM based model should not be required in Alaska.
As a last point, the APUC notes that under BCM2 many areas of Alaska where local exchanges exist are not included in the cost analysis (see Attachment C). For example, Deadhorse/Prudhoe Bay does not appear to be incorporated in the cost model.
43. Should there be recourse for companies whose book costs are substantially above the costs projected for them under a proxy model? If so, under what conditions (for example, at what cost levels above the proxy amount) should carriers be granted a waiver allowing alternative treatment? What standards should be used when considering such requests?
SUMMARY: A streamlined, well documented, waiver process must be included in any proxy mechanism to accommodate those companies with legitimate high costs that are not contemplated under the model. Applications for waiver should be accepted whenever use of the proxy model would lead to a set amount of increase (e.g., $2) in the monthly local phone bill.
The proxy models filed in this proceeding consider only a limited number of factors that may lead to high costs. There will be instances where a company will experience high costs due to conditions not adequately represented under the model. Some companies may also have a one time occurrence of high costs (e.g., damage due to earthquake, flood, or storm) that cannot be predicted by any proxy model. In both of these circumstances, the company involved should have an opportunity to apply for and receive waiver to allow alternative treatment. Any such waiver process should be streamlined and clearly described such that companies are aware of what documentation need be provided and under what conditions waiver may be granted. Applications for waiver should be accepted whenever use of the proxy model would lead to an increase in the monthly local rate that is greater than a set amount (e.g., $2). Setting a limit of this kind may prevent rate shock and reduce subscriber losses.
45. Is it appropriate for a proxy model adopted by the Commission in this proceeding to be subject to proprietary restrictions, or must such a model be a public document?
No. The model should be a public document.
Conclusion
The APUC requests that any changes to the existing high cost support system be carefully considered and quantitatively reviewed prior to applying the system to small rural companies. Many of the existing proxy and competitive bidding proposals offered to date in this proceeding are clearly inadequate to address high cost issues in rural areas of the nation.
RESPECTFULLY SUBMITTED this 1st day of August, 1996.
BY DIRECTION OF THE COMMISSION
Sincerely,
ALASKA PUBLIC UTILITIES COMMISSION
____________________________________
By: Commissioner Don Schröer
Chairman of the Alaska Public
Utilities Commission
1016 West Sixth Avenue, Suite 300
Anchorage, Alaska 99501
1-907-276-6222
cc: William F. Caton
Acting Secretary
Federal Communications Commission
Attached List