HCS HB 1363 -- TELECOMMUNICATIONS

CO-SPONSORS:  Mays (50)

COMMITTEE ACTION:  Voted "do pass" by the Committee on Consumer
Protection by a vote of 12 to 3.

This substitute revises the law on telecommunications.

COMPETITION

Under current law, local exchange telecommunication companies
have been allowed to operate under regulation without
competition from other telecommunication companies within their
protected service areas.  This substitute will allow incremental
competition of local service from telecommunication companies
into formerly protected service areas with protective provisions
for small local exchange companies.

UNIVERSAL SERVICE

The substitute contains provisions that allow for universal
coverage to all market areas of the state and to provide service
to certain low income and high service-cost customers of the
local exchange companies.  The universal service fund would be
created to allow local incumbent carriers to draw on the funds
to subsidize costs related to servicing low income or high
service-cost customers, to subsidize certain investment costs of
the carriers, and to ensure availability of basic local
telecommunications service at reasonable and affordable rates.
The substitute requires the Public Service Commission to develop
a competitively neutral way to raise funds from all
telecommunications companies and entities operating in Missouri
for the universal service fund.

PRICING

The substitute changes the concept of price regulation by the
Public Service Commission for telecommunication services from a
price structure that considers earnings or rate of return by the
companies to a structure based upon market considerations and
objective indices of reasonableness, such as changes in the
prices of consumer goods.  In addition, the bill redefines the
type of services that are considered basic and non-basic and
allows changes in the limitation of price rates that can be
charged for these services.  Local exchange companies are
allowed flexibility to price their basic and non-basic services
on an individual case basis, as long as the price is above
incremental cost.  Prices for non-basic service can be increased
or decreased as long as the aggregate increase is not more than
6% in any 12 month period.  Any new service offered by a company
will be considered non-basic.

INVESTMENT

The substitute requires all local exchange companies and all
alternative local exchange companies seeking certification to
submit a plan to the Public Service Commission outlining that,
for 3 years, 1% of anticipated revenues be used to fund
telecommunications projects designed to foster education, health
care, and economic development.  The plan must be approved by
the commission, must receive input from the Office of Public
Counsel and the Director of the Office of Telecommunications
Policy, and must ensure that investments provide benefits in
exchanges where competition does or does not exist.

COMPETITIVE SAFEGUARDS

The substitute requires the Public Service Commission to adopt
rules necessary to facilitate full and fair competition for
local exchange services. The rules must consider interconnection
and access to telecommunications companies' networks, uniform
technical standards, unbundling of companies' networks,
assignment of local telephone numbers and dialing patterns,
price assignment considerations, removal of resale prohibitions
of any service, prohibition against use of a competitor's
subscriber and customer lists for purposes of marketing
services, disincentives for alternative local exchange companies
to service only the most profitable customers and other
provisions relating to safeguarding.  The rules must also
consider to what extent they apply to small local exchange
companies.

FISCAL NOTE:  Estimated Net Cost to Public Service Commission
Fund of $232,261 in FY 97, $259,594 in FY 98, and $266,309 in FY
99.  The net effect on the Public Service Commission Fund could
be $0 if the PSC increases the assessment and appropriation is
made.

PROPONENTS:  Supporters say that the bill will allow the
introduction of competition into the state's local telephone
service market by telecommunication entities in a way that will
protect the service of customers who are expensive to serve,
will promote infrastructure investment by the companies, and
will allow all current and potential service providers equal
access to the markets.

Testifying for the bill were Representatives Mays and Burton;
GTE Midwest, Inc.; Communications Workers of America;
Southwestern Bell; Small Telephone Companies Group; Dorothy
Lonberger; and the Economic Development Corporation of Jefferson
County.

OPPONENTS:  Those who oppose the bill say that the bill protects
the interests of the telecommunications companies instead of the
consumer and further benefits existing local telephone companies
over potential competitive companies.  Also, provisions in the
bill are in direct conflict with the recently passed Federal
Telecommunications Act.

Testifying against the bill were Kansas City FiberNet;
Sprint/United; MCI; American Association of Retired Persons; the
Public Service Commission; Office of Public Counsel; AT&T; and
the Missouri Press Association.

Bill Tucker, Research Analyst

HB 1363 -- Telecommunications

Co-Sponsors:  Mays, Burton

This bill makes various changes relating to regulation of the
telecommunications industry.

COMPETITION

Under current law, local exchange telecommunication companies
have been allowed to operate under regulation without
competition from other telecommunication companies within their
protected service areas.  This bill will allow incremental
competition from non-local exchange telecommunication companies
into formerly protected service areas.

UNIVERSAL SERVICE

The bill contains provisions that allow for universal coverage
to all market areas of the state and that provide service to
certain low income customers upon the deregulation of the local
exchange companies.  A universal service fund will be created to
allow local incumbent carriers to draw on the funds to subsidize
costs related to servicing low income or high service cost
customers and to subsidize certain investment costs of the
carriers.  The Public Service Commission will develop a
competitively neutral funding mechanism for the universal
service fund from all telecommunications companies and entities
operating in Missouri.

PRICING

The bill changes the concept of price regulation by the Public
Service Commission for telecommunication services from a price
structure that considers earnings or rate of return by the
companies to a structure based upon market considerations and
objective indices of reasonableness, such as changes in the
prices of consumer goods.  In addition, the bill redefines the
type of services that are considered basic and non-basic and
allows changes in the limitation of price rates that can be
charged for these services.  Local exchange companies are
allowed flexibility to price their basic and non-basic services
on an individual case basis, as long as the price is above
incremental cost.  Prices for non-basic service can be increased
or decreased as long as the aggregate increase is not more than
6% in any 12 month period.  Any new service offered by a company
will be considered non-basic.

INVESTMENT

The bill requires each local exchange company and local exchange
company seeking certification to submit a plan to the Public
Service Commission outlining an average annual investment over 4
years throughout its service area of 25% of its anticipated
annual intrastate revenues over the next 4 years.  The
Commission may require the plan to include investment in network
modernization, constructing fiber optic interoffice facilities,
and providing public schools, not-for-profit hospitals, and
public libraries with requested access to advanced
telecommunications services.  In addition, the plan must
include, for 3 years, an additional 1% of anticipated revenues
to be used to fund telecommunications projects designed to
foster education, health care, and economic development.

COMPETITIVE SAFEGUARDS

The bill requires the Public Service Commission by January 1,
1998, to adopt rules necessary to facilitate full and fair
competition for local exchange services. The rules must consider
interconnection and access to telecommunications companies'
networks, uniform technical standards, unbundling of companies'
networks, assignment of local telephone numbers and dialing
patterns, price assignment considerations, removal of resale
prohibitions of any service, prohibition against use of a
competitor's subscriber and customer lists for purposes of
marketing services, disincentives for alternative local exchange
companies to service only the most profitable customers, and
other provisions relating to safeguarding.  The rules must also
consider to what extent they apply to small local exchange
companies.