A hold on local phone competition

Court action allows ACS to fend off GCI's entry

Posted: Sunday, February 04, 2001

Competition for local telephone service in Juneau, scheduled to begin this summer, has been put on hold indefinitely.

The U.S. Supreme Court, by declining on Jan. 22 to review a lower court case involving an Iowa utility, has let stand a new interpretation of federal regulations for phone competition.

As the incumbent provider, Alaska Communications Systems, which operates in Juneau as PTI Communications, had been under the burden of trying to prove that GCI's proposed method of entry into its markets would imperil universal, affordable access. ACS failed to do that in a state regulatory review.

Now, though, the burden of proof has shifted, and would-be competitor General Communication Inc. must demonstrate that it wouldn't jeopardize universal service if allowed to lease parts of ACS' existing system.

GCI was unable to convince state regulators of that when it initially sought to break into markets in Juneau, Fairbanks and North Pole in 1997, although a judge reversed the burden of proof in 1999. That happened before federal regulations dictated that the burden should be placed on the incumbent. Those regulations were reversed by the Eighth Circuit Court of Appeals in the Iowa case in July, while the ACS/GCI matter was pending in Alaska.

This week, ACS moved to press its new advantage, filing a motion in Anchorage Superior Court to freeze an interconnection order issued by the Regulatory Commission of Alaska in October.

The stay would buy ACS some time to make the argument that the judge should reinstate the rural exemption from "unbundled" competition that the company used to enjoy. Such a ruling would force GCI to start from scratch.

GCI launched the first public relations salvo, though, portraying the incumbent as an anti-competition monopoly.

By immediately halting work on interconnections, without even waiting for the judge to rule, ACS is "taking the law in their own hands," said Dana Tindall, senior vice president of legal and regulatory affairs for GCI in Anchorage.

In correspondence between the companies, ACS contends that it has an "extremely high probability of success in securing" the court stay, making any continued work on interconnections "wasted effort and expense."

Tom Jensen, director of public affairs for ACS in Anchorage, said focusing on PTI's monopoly in Juneau is misleading.

"It's not about competition," he said. "What's at stake in Juneau is whether the largest customers would benefit at the expense of the smaller customers."

GCI can enter the local market anytime it wants, if it's willing to build its own infrastructure, Jensen noted. "If they want to compete and provide dial tone, they can do that." GCI also could buy services from PTI.

The dispute is about what a fair price would be for leasing some of ACS' equipment. It's also about whether GCI would siphon off the most lucrative part of the market - such as large businesses with multiple lines - while leaving the incumbent with the duty of providing service to a residence at, say, the end of Lena Point Road, Jensen said.

It's a double-whammny, he said: Not having to serve everybody means that GCI could offer discounts and siphon off additional business from PTI. At the same time, GCI, a long-distance carrier that must pay access charges to local providers, would reduce that stream of income for PTI by taking over more local service.

And PTI still would have the responsibility of maintaining the equipment GCI is leasing, Jensen added.

But while ACS says that GCI wants a lease rate that amounts to a confiscation of property, GCI counters that ACS is seeking to recoup excessive expenditures on an inefficiently built system that isn't up to standards. GCI says it should pay rates that reflect the cost of building a new system.

With the services of an arbitrator, the RCA set lease rates based on a national economic model set up by the Federal Communications Commission. Even before the formal interconnection order, ACS filed suit alleging those rates are unconstitutional.

The companies have been in competition in Anchorage since GCI's entry into that market in 1997. ACS' urban operation there had no exemption under the pro-competition U.S. Telecommunications Act of 1996.

Jensen said neither company made money there in 1999, the last year for which figures are available. He said it's unknown whether the Anchorage market ultimately can accommodate two providers of local phone service.

But Tindall said ratepayers there have saved millions of dollars. GCI has about 30 percent of the Anchorage market for local phone service.

No one is saying how much money is at stake in Juneau and Fairbanks. Ultimately, it depends on which parts of the existing system GCI uses, what it builds on its own and how many customers switch over.

Tindall said GCI will file a response in Superior Court Tuesday on ACS' motion for a stay of the interconnection order. She said she expects a ruling in about two weeks.

It's unclear whether recent developments might spur new legislation in Alaska.

Sen. Pete Kelly, a Fairbanks Republican who has sponsored bills to encourage competition, said he doesn't have enough information to know how to react.

"It's obviously a bit of a setback," Kelly said. "I don't know if the answer is legislative or if we continue to work through the RCA."

Bill McAllister can be reached at billm@juneauempire.com.

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