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F I S C A L I M P A C T R E P O R T

SPONSOR Lundstrum

DATE TYPED 3/07/05

HB HJM 57

SHORT TITLE Local Telecommuincation Company Funding

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with HB 776, SB 218

SOURCES OF INFORMATION

LFC Files

Responses Received From

Economic Development Department (EDD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of Bill

House Joint Memorial 57 makes a number of findings related to telecommunications accessibil-

ity and development for Navajo households and requests the PRC to consider the use of state ru-

ral universal service funds to support the first year of a successor telecommunications company

that is established to serve high-cost tribal communities as an incumbent provider of basic local

exchange services.

Significant Issues

According to the findings establishes in the resolution, in excess of 60% of Navajo households

do not have access to the most basic telecommunications service due to the high cost of copper

and fiber optic systems in remote areas as well as difficulties acquiring right-of-way permits. A

New Mexico-based telecommunications company, Sacred Wind Communications, is negotiating

acquisition of other telecommunications companies’ facilities and customers on the Navajo Na-

House Joint Memorial 57 -- Page 2

tion reservation and federal bureau of Indian Affairs allotment lands. This company has de-

signed fixed wireless local loop radio systems to reach hundreds more Navajo homes.

The federal communications commission (FCC) makes universal service funding available for

rural telecommunications companies by requires that the a recipient company be operational for

one year before being eligible for funding. The New Mexico successor company that will serve

the Navajo people will not have the resources to operate at a loss for a year.

The resolution’s findings continue that the PRC manages a state rural universal service fund, the

purpose of which is to “maintain and support at affordable rates those public telecommunications

services as are determined by the commission.” The fund as not been used by any rural tele-

communications carrier for over 12 years and holds a balance of over $2 million. The resolution

finds that the rural universal service fund can be used to cover in part the high operational costs

of the Sacred Wind Communications until it received FCC support after its first year.

The PRC raises some concern regarding this resolution, writing:

“Sacred Wind Communications has not yet applied for a certificate of public convenience

and necessity as an incumbent provider of basic local exchange services. During that pro-

ceeding, Sacred Wind must prove that it is technically and financially competent to provide

telecommunications services. This may be a problem because one of the whereas in this

Memorial states that Sacred Wind “will not have the resources to operate at a loss and pay

salaries for one year when its costs of service far exceed its income for low-income families.”

After Sacred Wind has been certificated, and to the extent that it is Qwest territory on Navajo

land that is being transferred to Sacred Wind, Qwest and Sacred Wind must file a joint appli-

cation to the Commission to approve that transfer, at which time the Commission may im-

pose conditions on that transfer. Only then is it possible for the Commission to consider Sa-

cred Wind an incumbent telecommunications carrier and a “successor” telecommunications

company for purposes of transferring money to them.

“Pursuant to the statutory mandate in the Rural Telecommunications Act to manage the state

rural universal service fund to “maintain and support at affordable rates those public tele-

communications services as are determined by the commission”, the Commission issued

rules and had a proceeding to determine which services and companies should be supported

by the fund. Neither the current rules (Case No. 3111) nor the record in the past proceeding

(Case No. 3223) would allow the use of the fund as proposed in this memorial.

“Qwest is the ILEC that is responsible for providing telecommunications service on this por-

tion of the Navajo territory. Qwest has 330 “held orders” for primary service, most of them

held pending the time-consuming and difficult process of acquiring right-of-way permits on

tribal and federal Bureau of Indian Affairs lands. It is our understanding that Sacred Wind

would provide telecommunications service through a fixed wireless technology. This tech-

nology could avoid some of the right-of-way problems that Qwest experiences in trying to

provide wireline service. However, there is nothing that precludes Qwest from currently

providing the service through a fixed wireless technology and the use of Rural Extension

Funds.

“The State Universal Service Fund existed long before the Rural Telecommunications Act

was enacted. It was created in 1987 and was imposed through a surcharge on all of the tele-

House Joint Memorial 57 -- Page 3

communications customers in the state in order to prevent unreasonable increases in local ex-

change rates of rural carriers as they moved closer to charging cost-based rates. Although the

fund has not been utilized recently, it was available for Commission disbursement under the

Rural Telecommunications Act – the Commission found that rural carriers had not demon-

strated sufficient need. However, there are two bills in this current session (HB 776 and

SB218a) that propose to utilize this $2 million in the Fund to lower intrastate access rates.

“Smith Bagley received an ETC designation by this Commission for all of Qwest’s Navajo

territory to offer mobile wireless service. It may be inappropriate for the Commission to take

money raised from all of the ratepayers in the state (SRUSF) to finance one particular com-

pany such as Sacred Wind, to the disadvantage of other competitors such as Smith Bagley.”

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 776 and Senate Bill 218 would amend the current State Universal Service Fund stat-

ute for the purpose of reducing “intrastate switched access charges to interstate switched access

charge levels in a revenue-neutral manner.”

POSSIBLE QUESTIONS

Does this resolution propose to favor one private company over its potential competitors.

EF/lg