VOLUME 11, NUMBER 5               February 4 , 2005

To: Members

From: David Crothers, Executive Vice President

The Association this week submitted testimony on Senate Bill 2379. The legislation allows telecommunications companies to separate taxable from nontaxable services when selling "bundled" services. Under the current North Dakota Tax Department interpretation all of the services would be taxable transactions.

SB 2379 provides that if a telco can designate taxable and nontaxable services "behind the bill", only the appropriate services are taxable. The legislation does not change the taxable status of any telecommunications service.

Dave Dunning, manager of Polar Telecommunications in Park River, and David Crothers from the Association traveled to Washington, D.C. this week with a group of South Dakota independent telephone company managers and their association to meet with members of the Federal Communications Commission and both State's Congressional delegations.

The group met with Commissioner Jonathan Adelstein, Commissioner Kevin Martin and the staff of Commissioner Michael Copps. They also had meetings with Senators' Dorgan, Thune and Johnson, as well as Congresswoman Herseth. A previously scheduled meeting with Senator Conrad fell through when the Senator accompanied President Bush to Fargo. We did meet with the Senator's Legislative Director and Telecom Legislative Assistant, however.

The telco group attempted to impress upon members of the FCC the necessity of approaching all issues affecting rural telecommunications companies in a comprehensive manner. We expressed our concern that VoIP, intercarrier compensation and universal service would be handled in piecemeal fashion.

With members of Congress, the delegation reiterated our strong belief that Voice Over Internet Protocol (VoIP) communications cannot remain exempt from universal service and other obligations to support the local networks that those providers use to complete their calls. We emphasized that VoIP was simply another technology and that their cost advantages are because they don't share other carriers' obligations to support the network. If we are forced to continue to carry those calls without compensation our locally-owned telecom companies will soon find themselves in the position of not being able to invest in our own networks.

The Senate this week did respond to Mick Grosz's testimony on the Public Service Commission's Lifeline and Link-Up proposal (Senate Bill 2290) to expand their jurisdiction. Following Mr. Grosz's testimony the Senate Industry, Business and Labor Committee recommended Do Not Pass 6-1. The full Senate responded by defeating the bill by a 42-4 margin.

Finally, the House has scheduled a hearing on House Bill 1485, legislation requiring public entities to stop discriminating in their offering of video programming. Representative Headland introduced the bill in response to Ralph Englestad Arena's refusal to offer video of University of North Dakota hockey to all broadcasters. The hearing is scheduled for 9:00 a.m. on Tuesday morning at the Capitol.

Please contact me or any of the members of the Association's Legislative Committee if you have any questions or comments regarding any of the legislation that was introduced this week or hearings scheduled for next week. Members of the Legislative Committee can be found on the Association's homepage at www.ndatc.com.

HB 1008- The two-year appropriation for the North Dakota Public Service Commission (PSC). The Commission is asking for $11.1 million and anticipates income of almost $6 million. The requested appropriation is approximately the same as for the last biennium, but for $900,000 additionally for a complaint against rail rates.

HB 1105- Legislation giving the Public Service Commission the authority to bar competitive local exchange carriers (CLEC's) from "slamming" or "cramming" services on their customers' bills. Although CLEC's are subject to PSC jurisdiction in a number of areas, including cross- subsidization, discrimination, dialing parity, quality of service, refunds and others, they have not been previously been part of the slamming and cramming statute. The Association is supportive of the legislation.

HB 1106- A bill to modify the Public Service Commission's "Performance Assurance Fund" to ensure that it continually has a balance of $100,000, rather than funding it once to that level. The Performance Assurance Fund is a special fund within the North Dakota treasury that is part of Qwest's section 271 agreement with the Public Service Commission. It is related to the Commission's approval of Qwest's petition to offer long distance telecommunications service within the State.

HB 1156- Legislation that will require telecommunications companies that are not incumbent telcos to register under a new system developed by the State's Public Service Commission. Those telephone companies that are not incumbents will have to register with the State prior to offering service to North Dakota residents.

HB 1207- A bill that would reduce the amount that counties can assess from $1.00 to 75 cents to fund emergency communications systems, which are more commonly referred to as Public Service Answering Points (PSAPs). The assessment is collected by telecommunications companies and remitted to individual counties. It applies equally to wireline and wireless telecommunications companies. There is a provision within the draft legislation that exempts 911 surcharges that were adopted prior to August 1st, 2005 if the assessment does not exceed the 75 cent threshold. The intent of the legislation is to roll-back the amount that most counties in the State are assessing.

HB 1219- Language has been drafted to modify the reverse E 911 statute to allow Public Safety Coordinators to include unpublished telephone numbers in the calls that the PSAP makes. Under the current statute only the identity and location of the individual with an unpublished telephone number may be used. If this legislation is approved the E 911 coordinator or Public Safety Answering Point may contact the unpublished number directly and notify them of an emergency.

HB 1257- Legislation that will extend the E 911 tax adopted by a county to prepaid wireless telephones. There are a number of options for the location in which the tax will be paid, including the location of the purchase or the customer's billing address or the location associated with the mobile telephone number.

HB 1275- A bill that obligates certain government entities to report to the Information Technology Advisory Committee whenever their information technology projects that exceed $100,000 are over budget by 20 percent or those projects are delayed by more than six months. The law would apply to the executive branch, judicial branch and institutions under control of the State Board of Higher Education. The report must specify the corrective actions being taken.

HB 1323- Legislation that would give customers of wireless telephone companies credit when they complain to the wireless carrier about the quality of service of a particular call within sixty days of the billing date. If the Public Service Commission finds that provisions of this language have been violated by a wireless company and it receives universal service funds, then the Commission shall remove eligible telecommunications carrier status of the company.

HB 1384- Legislation that greatly expands the obligation of utilities to describe the location, width and change of course of the easement. Specifically, HB 1384 mandates that including in the recorded description of the easement the specific legal reference points as to the location of the easement in relation to the corners of the specific property involved at the points the easement enters and departs from the property, the width of the easement, and each change of courses as the easement crosses the property. The bill mandates a "definite and specific description". Furthermore, the proposal includes language that provides, "This section applies to every easement over private property acquired by a public utility regardless of when the easement was acquired or created." Managers of the State's independent telephone industry met with the Association this week to review this bill and expressed grave concern over whether the initiative's mandate was even possible, regardless of the extremely high cost of complying. In many, many instances utilities have extremely old easements that have never been recorded. The Association testified the bill was unneeded because it would not solve the problem of very general easements of the past. Nor was it needed because today's easements are very specific. Larry Bontjes, construction supervisor/engineer at Red River Telephone, and Dean Anagnost from Kadrmas, Lee & Jackson both testified against the bill and aided the Association in preparation of our testimony.

HB 1485- A bill that would allow all cable television providers to offer commercial broadcasts from "public institutions" at the same terms and conditions without discrimination. Representative Craig Headland introduced the legislation to halt the practice of public institutions such as the Ralph Englestad Arena from signing exclusive agreements with cable television companies at the expense of other video providers in the same market. The practice is becoming widespread in North Dakota despite taxpayer support for those "public institutions", such as the University of North Dakota and their hockey team. Independent telephone companies offering video in Hillsboro, Mayville, Portland and Jamestown are being denied access to the programming and the problem promises to grow as more communities are served by alternative cable companies. Representative Headland's legislation would require that those "public entities" be required to "offer the commercial broadcast agreement on the same terms and conditions to each commercial broadcaster or cable television system in this State."

SB 2021- The appropriation bill for the Information Technology Department. ITD is requesting a spending authorization of $109,640,934 and anticipates income of $98,830,575. A majority of their income is received from other State agencies entities that ITD provides service to throughout the State. There is also language in the bill extending the amount of time the agency can finance the acquisition of equipment or software from three years to five years.

SB 2037- This legislation is the Information Technology Department's revisions to their policies and operating procedures. It is a substantial piece of legislation that makes both large and small changes to the way the agency operates. Included within the 12 page bill is language that gives the State board of higher education the right to manage and regulate information technology planning and services for institutions under its control. It is a significant policy change from ITD's central planning for all of those who receive its services. The bill language also significantly modifies the content that ITD must provide in their annual report. Additionally, agency also seeks to exempt "any policy, standard and guideline" they adopt from North Dakota's Administrative Agencies Practice Act.

SB 2038- A bill to establish a statewide information technology improvements revolving fund and to appropriate $1 million. The fund is to be used by a State agency or agencies working together to improve efficiency. The agency will submit a proposal to ITD's chief information officer for review and recommendation. For worthy projects the CIO will recommend to the Legislative Council's Budget Section that they fund the initiative. Only the Budget Section will have the authority to fund a project. Funds dispersed under the program will have to be repaid into the revolving fund by the agency receiving the money.

SB 2090- Legislation introduced at the request of the Public Service Commission to expand the agency's jurisdiction to implement Lifeline and Link-Up programs. The Commission is seeking the increased authority following the Federal Communications Commission's revision of existing Lifeline and Link-Up rules. The independent telecommunications industry in North Dakota has been working with the PSC to implement the new Federal rules. There has been discussion that telcos within the State may wish to advocate for some parameters around the Commission's jurisdiction in this legislation. Mick Grosz, general manager of West River Telecom testified against the measure and told committee members that passage of the bill would require North Dakota telcos to abide by the rules of two agencies without any additional benefit to participants in either program.

SB 2091- A bill relaxing the requirement that telecommunications companies file price schedules with the Public Service Commission. Under existing rules a telco must file schedules showing all prices with the Commission. The legislation, however, would modify the standard by requiring only schedules for "essential" services be filed. The Association does not believe that this section applies to cooperatives or telecommunications companies with fewer than 8,000 access lines.

SB 2134- Legislation to expand the Public Service Commission's jurisdiction to be able to order refunds when a utility has charged an "unreasonable" rate. There is no definition of the word "unreasonable" in the statute. The Association is very concerned about this bill and will be working with members of the legislative committee to ensure that independent telecommunications companies are not harmed by a capricious application of the rule.

SB 2209- A bill that amends the North Dakota One Call statute by including the State's Department of Transportation as an "operator" for their underground facilities in rights-of-way. An "operator" under North Dakota law is the owner of underground facilities. Currently, the Department of Transportation is specifically exempted from being considered an "operator" under the law. There was no opposition to the legislation during the appropriations committee hearing this week.

SB 2216- Legislation that is introduced at the request of Qwest. The bill is a 12 page document that is both substantive and housekeeping in its nature. Specifically, Qwest proposes to eliminate both second lines and business lines from Public Service Commission jurisdiction. Primary lines would remain an essential service. The legislation also removes all of the "examples" of nonessential services, but retains the "nonessential" section of the code. The legislation also proposes to "clean-up" some of the telecommunications sections of NDCC 49-21 by repealing 9 separate sections. The Association agrees with a number of these proposals, but is concerned about the proposed repeal of NDCC 49-21-24, which includes some of the rural protections for interconnection. The Association strongly recommends that independent telcos in the State review this legislation for any negative impact it may have on their ability to provide service in their territory. The Association testified at the hearing that repealing a section requiring eligible telecommunications carrier to offer all federally supported services was not in the State's best interests. Our amendment was adopted by the committee and the offending language is no longer in the bill.

SB 2309- Legislation that imposes stringent and untenable new rules on rural electric cooperatives' capital credits. The initiative would require rural electric boards' of directors to "pay interest at the rate of three percent per annum compounded annually" on any unpaid capital credits until they are paid. Furthermore, there is language also mandates the cooperative pay off any capital credits in full upon the death of a member. The Association of Rural Electric Cooperatives have asked the Association for our assistance on this matter and we are pleased to submit testimony on the REC's behalf. Members of the Association believe the legislation is an unwarranted intrusion on the discretion of rural electric board members, as well as potentially endangering the individual REC loan agreements with the Rural Utilities Service and other lenders.

SB 2327- A bill to raise the gross receipts tax that telecommunications companies in North Dakota pay from 2.5 percent to 5.7 percent. The portion of the legislation is part of a massive 108 page bill that also includes the elimination of the State's corporate and individual income taxes. The Association will be discussing the legislation's viability to determine the level of opposition to this measure is appropriate.

SB 2331- Legislation that prohibits automobile drivers with either a "temporary operator's permit" or having a "restricted license" from using wireless phones while operating a motor vehicle. There is actually an exemption for wireless devices that are voice-activated, but, specifically, bars use of "a portable wireless telecommunications device" if the driver must "remove a digit" (finger) from the steering wheel for use of the device. The penalty for violating the new statute is reckless driving and/or a fine.

SB 2379- Legislation that allows telecommunications companies that sell bundled services to apportion or separate in their accounting those services that are taxable and nontaxable. If the telecommunications company is unable to identify those services that are taxable and nontaxable they will be obligated to remit taxes on the entire amount. In North Dakota there is a "general rule" that all bundled products are taxable if any single item is taxable. Currently, the rule is interpreted to require that a company must separately list taxable and nontaxable items. Senate Bill 2329 gives the telco permission to dilineate those services "behind the invoice."

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