Brief⁽¹⁾

House Sub. for S.B. 212 would amend the Kansas Telecommunications Act of 1996 (Kansas Act) to: reduce the size of the Kansas Universal Service Fund (KUSF); expand the purpose for which the KUSF could be used; reduce KUSF assessments for contributions by wireless providers; clarify the Kansas Corporation Commission's (KCC) authority to implement the Kansas Act; and establish a special legislative committee on telecommunications which would report recommendations to the 1999 Legislature.

Size of KUSF. The bill would curb the size of the KUSF as follows:

• Deployment of integrated services digital network (ISDN) and broadband facilities, or their technological equivalents, would be conditioned upon a firm order within six months after receipt of the order and the KCC would be authorized to grant or deny a petition by a local telephone company to extend or deny deployment of those facilities. In the Kansas Act, ISDN or its technological equivalent and broadband facilities, upon request, would have to be deployed by July 1, 2001. Moreover, ISDN deployment is not predicated in the Kansas Act upon customer demand. ISDN is defined in the Kansas Act as the network and associated technology that provides simultaneous voice and data communications over a single communications channel.



• The requirement in the Kansas Act for local telephone companies to provide dial-up Internet access on and after July 1, 1999 to support 28.8 kilobit per second service would be modified in the bill to 19.2 kilobit per second service capability by that date. The KCC would be required to increase the 19.2 kilobit per second requirement when the KCC determines that more advanced technology is both available and feasible.



• Prior to January 1, 2000, no telecommunications company may collect from customers an amount in excess of 8.8 percent of its intrastate retail revenues. Contributions collected in excess of distributions in a given year must be applied to offset the estimated contribution determined for the following year.

Expanded Use of KUSF. The bill would authorize eligible companies to request supplemental funding from the KUSF for infrastructure and enhanced universal service investments in urban blighted areas and slum areas. The KCC would be authorized to rely on state and federal data to confirm the presence of an urban blighted area.

Wireless Providers. The bill would reduce the assessment for KUSF contributions by wireless telecommunications service providers to no more than 50 percent of the assessment for contributions by wireline providers. In the first year of implementation, all intrastate telecommunications providers, including wireless providers, were assessed 9.0 percent of total intrastate retail revenues.

Clarification of KCC Authority. The bill would:

• explicitly authorize the KCC to require audits of local telephone companies' records to verify the accuracy of cost studies and to determine the actual costs of providing universal service and enhanced universal service; and



• require the KCC to monitor the adequacy of connectivity to Internet service and provide the KCC staff with grounds for removing Internet service providers from the Internet service provider registry.

Special Committee on Telecommunications. The bill would require the Legislative Coordinating Council to appoint a special committee on telecommunications to study and make recommendations regarding telecommunications. The special committee would have to report its findings and recommendations to the 1999 Legislature.

This bill would take effect upon publication in the Kansas Register.

Background

The Kansas Act required the KCC to establish the KUSF on or before January 1, 1997. The amount initially estimated to fund the KUSF was $111 million. Intrastate toll and access rates for long distance were to be reduced by that amount over a three-year period with the objective of equalizing interstate and intrastate rates. During the first year of implementation, the KUSF built up a reserve of $15.5 million excluding outstanding payments. The KCC staff is proposing to the Commissioners that this reserve be used in the second year of KUSF implementation to reduce the 1998 assessment percentage applied to contributors. The KCC staff also recalculated the size of the KUSF, reducing the funding requirement from $111 million to $108 million. The KCC authorized an increase in payphone rates and eliminated the free directory assistance call in its order on competition (December 27, 1996). The increased revenues resulting from this change in rates were included in the KUSF and applied in the first year of implementation to Southwestern Bell's and Sprint's recovery from the KUSF. If the Commissioners agree with staff's recommendation, the size of the KUSF could be reduced in the second year by an additional $8 million to allow Southwestern Bell and Sprint to retain that amount as partial replacement of revenues lost through access reduction. According to KCC staff, the combined recalculation of the original estimate of the Fund and the $8 million reduction resulting from rebalancing the increase in payphone charges and elimination of free directory assistance would establish the size of the KUSF at $100 million and reduce the assessment percent in the second year of implementation from 9 percent to 6.8 percent.

Disbursements from the KUSF in the first year were applied predominantly to replacing local telephone companies' revenues which were lost through intrastate access reductions. Legislative concerns about the size of the KUSF stem from future, in part indeterminate, costs associated with the other purposes for which KUSF disbursements are statutorily authorized. These purposes include:

• revenue shortfalls resulting from changes in federal rules related to access revenue requirements; a percentage increase in access lines over the 12-month period prior to request;



• infrastructure expenditures necessary to serve additional customers within a company's service area;



• infrastructure investments responding to facility or service requirements of the Legislature (such as Internet access at specified transmission speeds); and



• additional investments required to provide universal service and enhanced universal service.

"Enhanced universal service" is statutorily defined as SS7 capability; basic and primary rate ISDN capability (or the technological equivalent); full-fiber interconnectivity (or the technological equivalent) between central offices; and broadband facilities to all schools, hospitals, public libraries, and state and local government facilities requesting such services. In information provided by KCC staff to the House Committee on Utilities, it was estimated that an additional $78.6 million would be needed to fund the KUSF to support enhanced universal service and 28.8 Internet access requirements in accordance with the Kansas Act.

The House Utilities Committee's amendment to reduce the wireless providers' KUSF assessment by no more than 50 percent of the assessment for contributions by wireline providers is based on the argument that only half of each wireless call uses the landline network.

The House Utilities Committee's amendment to condition the deployment of ISDN to a firm order is intended to curb the size of the KUSF by making deployment more demand driven. Another amendment to reduce the required Internet speed from 28.8 to 19.2 kilobits per second is intended to avoid costly upgrades to the local telephone companies' respective networks. In some cases, such upgrades could be necessary to support a 28.8 per kilobit digital signal.

The House Utilities Committee adopted KCC staff's proposed language concerning clarification of the responsibilities of local telephone companies and the KCC with respect to Internet service providers.

The House Utilities Committee recognized that certain issues, due to their complexity, warranted more extensive consideration. Consequently, the Committee endorsed the creation of a KUSF working committee to address and resolve those issues. Specifically, the KUSF working committee would be established by the KCC on or before June 1, 1998. This working committee would include representation from: various contributors to the KUSF, the Citizens' Utility Ratepayer Board, and the KCC. In addition, four legislators (two House members, one from each party; two Senate members, one from each party) would be members of the working committee. The working committee would be required to discuss, identify, and develop recommendations regarding technology issues, KUSF funding regulatory procedures, modifications to universal and enhanced universal service, and other issues identified by the KCC, including, but not limited to, certain issues specified in the bill. The working committee would be required to report its recommendations to the Legislature at the beginning of the session in the year 2000.

The House Committee of the Whole amended the bill to change the ceiling on the KUSF from $90 million per year in 1998 and 1999 to a surcharge on customers in an amount not to exceed 8.8 percent of a telecommunications company's intrastate retail revenues. That 8.8 percent ceiling would be in effect until January 1, 2000.

Finally, the House Committee of the Whole amended the bill to make the definition of "enhanced universal service" correspond to other amendments in the bill. The technological equivalent of broadband capable facilities also was included in that definition, along with corresponding changes to the Kansas Act.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.