NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

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(Parenthesis ( ) Indicate Expenditure Decreases)

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HB394, SB372, SB374; Relates to SB569, SB680, HB470, HB588, HB872

SOURCES OF INFORMATION

Public Regulation Commission (PRC)

General Services Department (GSD)

Economic Development Department (EDD)

Commission on Higher Education (CHE)

LFC Files

SUMMARY

Synopsis of HJC Amendments

The House Judiciary Committee amendments to SB408, as amended, provide for the following:

• •remove the $34.00 five-year cap for business dial tone access line service by a carrier serving more than 250,000 access lines that was added by SJC;
• •place a ten-year cap on residential dial tone prices based on the January 1, 1998 price;
• •place a five-year cap on business dial tone prices at $34.00 beginning on July 1, 1999;
• •allow for decreasing the above-listed capped prices;
• •change the date for allowable price increases from July 1, 2004 to 2009;
• •remove non-telecommunications offerings from packages.

Synopsis of Senate Floor Amendments

The Senate Floor amendments to SB408, as amended, provide for the following:

• •prohibit charging more for Internet access line use;

• •limit price increases from 3% to 2%;

• •specify that a carrier serving more than 250,000 must enter into an agreement on July 1, 1999 to invest $40 million in infrastructure in addition to deploying fiber to Farmington, to be completed by December 31, 2001;
• •specify the carrier that enters into the above agreement must report quarterly to a newly created legislative "telecommunications investment and economic development committee";
• •provide for arbitration of disagreements.

Synopsis of SJC Amendments

The Senate Judiciary Committee amendments provide for the following:

• •reverse the SCORC amendments which specified that a telecommunications carrier serving over 250,000 access lines in New Mexico must lower its business dial tone access line service price to comply with the $39.00 price cap;
• •specify the PRC has authority to impose administrative fines on telecommunications carriers;
• •clarify that nothing in the Act impairs federal authority granted to the PRC regarding wholesale services;
• •remove rate of return regulation and investigation based on price increases after 2004;
• •remove a telecommunications carrier obligation to make price reductions ordered by the PRC or the courts after July 1, 1999;
• •stipulate that prices for 911 service shall be set by law and are not subject to change by a telecommunications carrier when it changes prices;
• •fix for five years the price for residence and business telephone services at the rate in effect on January 1, 1998, except for price changes prescribed by the PRC when requested to review the prices by a telecommunications carrier serving less than 250,000 access lines in the state;
• •cap business dial tone access line service prices at $34.00 for five years;
• •specify if the five-year fixed access charge price (e.g., at the January 1, 1998 rate) is reduced due to provisions of the Act or as an offset for a distribution from the New Mexico universal service fund, the price would be capped at the reduced rate; however, the PRC may increase the price cap for switched access charges upon a showing of good cause after notice and an opportunity for a hearing;
• •remove certain stipulations wherein the PRC may reject a price increase; and
• •remove the PRC's authority to review the switched access charges of a telecommunications carrier upon adjudication of a complaint filed pursuant to the Act.

Synopsis of SCORC Amendments

The Senate Corporations and Transportation Committee amendments to SB408 specify that a telecommunications carrier serving over 250,000 access lines in New Mexico must its business dial tone access line service price to comply with the $39.00 price cap.

Synopsis of Bill

Senate Bill 408 amends current law to deregulate the telecommunication industry in New Mexico and would enact the Telecommunications Investment and Economic Development Act. The bill provides for the following:

• •define and limit the authority of the PRC to regulate telecommunications carriers;
• •regulate switched access charges for carriers providing long distance service;
• •deregulate telecommunication services including data, long distance and any new service deployed in New Mexico;
• •require certain carriers to develop a plan that details investments it will make in telecommunications infrastructure in the state over a specified period of time;
• •protect telecommunications carriers from rate of return regulation or investigation of its earnings by the PRC;
• •restrict the PRC from considering the earnings of a telecommunications carrier with respect to the prices for telecommunications services provided by the carrier;
• •cap the prices for residence and business dial tone access line services for 5 years from July 1, 1999 at the approved prices that were in effect on January 1, 1998, while allowing for a maximum 3% increase for each year thereafter with any increase over 3% requiring PRC approval; and
• •require the secretary of the Economic Development Department report annually to the Legislature detailing the investment commitments made by telecommunications carriers and their impact on economic development within New Mexico.

Significant Issues

The GSD indicates SB408 could result in the following:

• •possible establishment of a monopoly in New Mexico by the largest telecommunications service provider;
• •limit the PRC from rate of return regulation and investigation of telecommunications carriers earnings;
• •possible economic impact to independent providers currently providing service in New Mexico by allowing competition within already established boundaries; and
• •deregulation of data services, long distance services and new public telecommunications services that would not be subject to PRC regulation.

FISCAL IMPLICATIONS

Currently, telecommunication carriers pay a utility and carrier inspection fee which equals a maximum of three-eighths of one percent of its gross receipts from business transacted in New Mexico for the preceding calendar year. The fees are tracked as corporate special taxes and deposited into the general fund to support the cost of regulatory activities.

Under the provisions of the bill, a carrier's services would be deregulated, thus, arguably exempting the corporation from remitting the inspection fee. The PRC estimates the potential general fund loss could range from $1.0 million to $1.8 million if 50% of the largest telecommunication companies' annual revenues are determined to no longer be subject to the utility and carrier inspection fee. In FY98, the corporate special tax raised $3,529.7 for deposit into the general fund. The estimates for fee generation for FY99 and FY2000 are $3.7 million and $3.9 million respectively.

The EDD indicates it would need an additional new FTE to implement the reporting requirements contained in the bill at a recurring cost of approximately $75.0 funded by the general fund.

The Senate floor amendments propose to create a 6 member legislative "telecommunications investment and economic development committee" which would need to meet at least quarterly and thus incur per diem and mileage costs of approximately $5.0 in general fund.

ADMINISTRATIVE IMPLICATIONS

The EDD indicates it would need an additional new FTE to implement the reporting requirements contained in the bill.

CONFLICT/DUPLICATION/COMPANIONSHIP/RELATIONSHIP

SB408, which prohibits rate of return regulation and earnings investigations, conflicts with HB394 and SB372 which propose to investigate the potential over-earnings of US West.

TECHNICAL ISSUES

The GSD suggests the following technical changes to the bill:

• •specific detailed regulatory language in Section 8,A,B, & C should be rewritten to allow for PRC approval before proceeding without regulations for telecommunications services in the state;
• •list the specific amount of investment to communications infrastructure in Section 9 (e.g., $20 million);
• •amend Section 5 to make telecommunications carriers subject to rate of return regulation and investigations of their earnings by the PRC as this would allow a percentage of earnings to be established by the communications carrier to contribute to the investment plan;
• •amend Section 8, A, B & C to allow PRC approval for data services, long distance services and new public telecommunications services; and
• •amend Section 9 to financially obligate a percentage of telecommunications earnings to be contributed to the communications infrastructure investment plan.

OTHER SUBSTANTIVE ISSUES

The PRC indicates that in 1996, the State Corporation Commission (SCC) ordered US West to deploy high speed data service in New Mexico. US West refused the order and the case was removed to the State Supreme Court, where it upheld the SCC's order with which US West has not yet complied.

Sb408 would prevent the PRC from ordering US West to comply with the court order, possibly resulting in fewer telecommunication services being available in New Mexico, as well as consumers not receiving the $22 million rate decrease ordered by the SCC.

The PRC indicates SB408 will make it virtually impossible for the PRC to promulgate and enforce quality of service standards to protect consumers because any rules promulgated under the proposed Act would apply equally between incumbent telecommunication carriers and competitive carriers. Under the provisions of the bill, the PRC would lose its ability to order incumbent phone companies to extend lines and provide service, while it would not be feasible to require start up competitive carriers to extend lines and provide service. Therefore, the PRC and GSD indicate implementation of SB408 would result in decreased competition in New Mexico, and possibly result in a deregulated monopoly.

RAE/gm