ORDER NO. 95-099

ENTERED l/18/95

(THIS IS AN ELECTRONIC COPY)

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 704

DISPOSITION: APPLICATION GRANTED

On September 8, 1994, KBL-Portland Cablesystems, L.P., dba Paragon Cable (applicant or Paragon), filed an application for a certificate of authority to provide telecommunications service as a competitive telecommunications provider. On October 12, 1994, the Commission served notice of the application on its telecommunications mailing list. GTE Northwest, Inc.(GTE), timely filed a protest. The City of Portland Office of Cable Communications and Franchise Management filed comments by letter. On November 8, 1994, the Commission staff (staff) filed a letter request for a prehearing conference and stated that it did not oppose the application.

Notice was thereafter served on the parties that a prehearing conference would be held on December 16, 1994. However, on November 25, 1994, applicant, through counsel, filed a letter representing that protestant GTE did not request an evidentiary hearing and would not object to resolution of this application in a procedure similar to that followed in UM 672. In UM 672, the parties stipulated to facts found by the Commission in Order No. 93-1850, the Electric Lightwave application docket.

No objections to the approach proposed in the Paragon letter have been received. On December 9, 1994, the prehearing conference was canceled and the parties were advised

that the application would be processed without a hearing based upon the Paragon letter of November 25, 1994.

Based upon the application, the Commission’s records, and the parties’ agreement, the Commission makes the following:

FINDINGS OF FACT AND OPINION

Proposed Operation

Paragon seeks a certificate authorizing the provision of dedicated, non-circuit switched, private line (as defined by Order No. 93-1850) intraexchange and interexchange service. Applicant proposes to provide the service in GTE’s Gresham exchange and the Portland and Oak Grove exchanges of U S WEST Communications, Inc (USWC). Paragon would provide the service to its end-use customers in Multnomah, Clackamas, and Washington counties.

Paragon will use a digital fiber optic network and a coaxial cable network to connect end-users to end-users. It will also connect to interexchange carrier points of presence and end-users. The service will be provided over fiber optic (single mode and multi-mode) cabling, coaxial cabling, a hybrid fiber-coax cabling system and twisted pair.

Paragon does not intend to use facilities of other carriers except to gain access to points to interexchange carriers.

Paragon has an existing I-NET system with over 800 miles of coaxial and fiber optic cable serving parts of Multnomah and Clackamas counties and the City of Portland. Construction of the I-NET was required by the City of Portland, which requires marketing the service to local business and public agencies.

Services provided today by Paragon include: voice, video, and data services of 9.6 Kps, 10 Mbps Ethernet, T-1, 19.2 Kbps, full motion video and audio, and 56 Kbps. Additional services of 64 Kbps, wide area Ethernet (at up to 100 mbps), 100 mbps FDDI service, compressed video, DS-3, OC-3 to OC-48, and Sonet are contemplated.

Alternative or competitive services are also provided by U S WEST Communications, Inc., GTE, and Electric Lightwave.

Applicable Law

In this proceeding, Paragon seeks authority to provide both interexchange and intraexchange private line telecommunications services. ORS 759.020 provides, in pertinent part, that:

(1) No * * * company * * * shall provide intrastate telecommunications service on a for-hire basis without a certificate of authority issued by the commission under this section.

 

* * * *

 

(5) * * * If the commission finds that a successful applicant for a certificate has demonstrated that its customers or those proposed to become customers have reasonably available alternatives, the commission shall classify the applicant as a competitive telecommunications services provider[.]

 

ORS 759.050 provides, in pertinent part, that:

(2) (a) Notwithstanding the provisions of ORS 759.020(3), the commission may certify one or more persons, including another telecommunications utility, to provide local exchange telecommunications service within the local exchange telecommunications service area of a certificated telecommunications utility if the commission determines that such authorization would be in the public interest. For the purposes or determining whether such authorization would be in the public interest, the commission shall consider:

 

(A) The effect on rates for local exchange telecommunications service customers both within and outside the competitive zone.

 

(B) The effect on competition in the local exchange telecommunications service area.

 

(C) The effect on access by customers to high quality, innovative telecommunications service in the local exchange telecommunications service area.

 

(D) Any other facts the commission considers relevant.

 

(b) Upon certification of a telecommunications provider under paragraph (a) of this subsection, the commission shall establish a competitive zone defined by the services to be provided by the telecommunications provider. * * *

 

ORS 759.050(5)(a) further provides that incumbent utilities are granted pricing flexibility within the competitive zone for the services offered by the competitor, unless the Commission finds that granting pricing flexibility is not in the public interest.

Effect on rates for local exchange telecommunications service customers within and outside the competitive zones.

Paragon’s entrance into the market should produce downward pressure on the rates for dedicated transmission service within the competitive zones. Local exchange carriers (LECs) will have pricing flexibility to reduce prices in response to competitive entry. Prices should also decline as competitors develop more efficient and less costly methods of supplying services.

While competitive entry into the market may divert revenues from the LECs to Paragon, it is not likely to have a significant impact on LEC rates for other services. Dedicated private line services currently account for a very small percentage of total LEC revenue. Moreover, dedicated transmission of high-speed data is a fast growing segment of the overall telecommunications market. Thus, even if LECs lose market share, they may still be able to maintain or increase revenues because of an increasing market.

For the immediate future, Paragon’s operations should have little impact on rates paid by LEC customers outside the competitive zones. While it is conceivable that competition within the zones might cause LECs to seek to increase rates for customers outside the zones, Commission approval would be necessary before such increases could be implemented.

Effect on competition in the local exchange service area

If this application is granted, Paragon will become another competitor in the dedicated transmission marketplace. Paragon’s presence will create pressure on LECs and other providers to lower prices and maximize efficiency for comparable services. The competition will also stimulate innovation, providing customers with more choices, new technologies and more creative approaches to configuring service offerings.

Competition within the zones may also stimulate greater demand for private line and special access services outside the zones. This will benefit not only the service providers, but all telecommunications users because of greater access to more efficient and innovative technology.

Effect on access by customers to high quality, innovative telecommunications service in the local exchange telecommunications area

Having Paragon as a competitor within the competitive zones will encourage the incumbent utilities to deploy existing technology, such as optical fiber, more rapidly. It will encourage their investment in new technology. As competitors work to stay abreast of each other, all will have access to roughly the same technology. Therefore, competition will also encourage investment in research, because any sustainable competitive advantage will come through innovation.

Outside the zones, Paragon’s proposed service could have the same positive effect on customer access to high-quality service as within the zones. That would be true, however, only where it is profitable to offer these services.

Resolution

The Commission concludes that it is in the public interest to grant the application. Paragon’s proposed customers have reasonably available alternatives to its proposed services. Paragon’s entrance to the market will help meet the growing demand for dedicated transmission services and have a beneficial impact on competition both within and outside the competitive zones. Moreover, because dedicated private line service represents a very small share of the LECs’ revenues, the Commission concludes that granting the application will not likely affect LECs’ rates for other services. If there should be pressure to increase rates to offset revenue lost to Paragon, the Commission can revisit this issue and impose appropriate conditions on Paragon under the provisions of ORS 759.050.

The Commission further finds that it is in the public interest to allow GTE and

U S WEST pricing flexibility within the competitive zones for the proposed services offered by Paragon. Accordingly, the local telephone exchanges subject to this order are designated as competitive zones, pursuant to ORS 759.050(2)(b).

ORDER

IT IS ORDERED that:

The application of KBL-Portland Cablesystems, L.P., dba Paragon Cable, to provide telecommunications services as a competitive telecommunications provider is granted.

 

KBL-Portland Cablesystems, L.P., dba Paragon Cable, may provide dedicated transmission services between and within the following competitive zones: the GTE Northwest, Inc., Gresham local exchange; and the Portland and Oak Grove local exchanges of U S WEST Communications, Inc.

 

 

GTE Northwest, Inc., and U S WEST Communications, Inc., shall have pricing flexibility for dedicated transmission services within the competitive zones listed in ordering paragraph 2.

 

Made, entered, and effective ________________________. 

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements in OAR 860-14-095. A copy of any such request must also be served on each party to the proceeding as provided by OAR

860-13-070(2). A party may appeal this order to a court pursuant to ORS 756.580.