Phone rates,
competition at issue
in PUC hearing

Three weeks of hearings
will set the ground rules for
isle telecom markets

By Rob Perez
Star-Bulletin

The jargon is enough to baffle all but the most attuned industry executives and observers.

Topics like "current digital loop carriers" and "total service long-run incremental costs" dominate the talk.

Occasionally, listeners are treated to intriguing analogies to dead cows, egg yolks and other subjects.

But as esoteric as the language is, the hearings that started yesterday at the East-West Center will go a long way to determine the shape of Hawaii's telecommunications market in the future.

What residents and businesses pay for phone service will partly be determined by what the Public Utilities Commission decides based on testimony heard over the next three weeks.

The hearings are being held to determine the ground rules for competition in Hawaii's telecom markets, some of which already have been opened under temporary rules.

One key issue to be decided involves local phone rates.

GTE Hawaiian Tel, the statewide provider of local phone service, is arguing that its rates should be rebalanced to more accurately reflect the cost of providing service.

Under past public policy, the monopoly carrier's local phone rates have been subsidized by artificially high rates for such things as interisland toll service, GTE argues.

The idea is that local phone service should be affordable for everyone, even if that means raising the cost of other services.

But as competitors enter the market, GTE says it needs to rebalance the rates to level the playing field for everyone.

"The whole purpose is to try to get the rates cost-based," Joel Matsunaga, who is in charge of regulatory planning and management for GTE locally, said during a break in yesterday's hearing.

The utility is proposing raising residential rates by nearly 40 percent on Oahu and as much as 100 percent on Lanai.

The basic business rate would drop 28 percent on Oahu but as much as double on the other islands.

The commission, however, must first determine that local rates are being subsidized and, if so, by how much.

Not everyone agrees that a subsidy exists, other than in cases where remote rural customers are served.

"The subsidy is a myth perpetuated by GTE Hawaiian Tel," said Chuck Totto, the state's consumer advocate. Totto said there may be a small need to rebalance rates, but not significantly. On Oahu, for instance, the basic residential rate should be increased only 3 percent, he said.

Why the two parties have such contrasting positions rests largely with who they believe should pay for the cost of installing and maintaining the "local loop."

The loop is the portion of the phone system extending from GTE's central offices -- the brains of its network -- to the residential or business customer. Central offices are located throughout the state and contain the switches that route calls.

GTE and other industry players say the customer should pay for the loop costs through basic residential and business rates.

But Totto said those costs should be spread among all users of the loop, which would be reflected not only in basic rates but interisland and other services as well.

"Don't just saddle basic services," he said.

Among other issues the commission is wrestling with in the hearings is how to keep basic residential service affordable for low-income households.

The commission hasn't indicated how long it will take to issue an order once the hearings conclude. But a decision is not likely to come until next year.

If the commission decides GTE needs to rebalance its rates, another set of public hearings will be held on the company's specific rate proposals.