ORDER NO. 95-386

ENTERED 4/19/95

(THIS IS AN ELECTRONIC COPY)

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UT 113

DISPOSITION: IMPLEMENTATION OF DATA DISTRIBUTION CENTER POSTPONED

Procedural History

The initial phase of this docket consisted of an investigation into the GTE Northwest, Inc. (GTE) Primary Toll Carrier (PTC) application and a related general rate case for the company, at the conclusion of which the Commission entered Order No. 94-336. That order set rates for GTE and granted the PTC application, making GTE the second primary toll carrier in the state. As part of the order, the Commission adopted a number of stipulations, including Stipulation No. 4, which addressed PTC Issue No. 11.a: Identification of PTC Access Minutes.

The issue arose because of the inability of local exchange carriers (LECs) to distinguish intraLATA terminating minutes from different primary toll carriers (PTCs). The stipulation proposed a two-phase approach. Phase I would conduct "point-to-point" toll traffic studies and develop statistically derived terminating minute ratios so that non-PTC LECs could bill access charges to the appropriate PTC. The two PTCs, U S WEST Communications, Inc. (USWC) and GTE, would bill each other terminating access on actual access minutes processed from monthly toll records. Phase I was implemented on May 1, 1994, and currently continues in operation.

Phase II consists of a proposal for a data distribution center (DDC) to process monthly intraLATA toll records so that the non-PTC LECs could bill the PTCs for access service based on actual minutes. The Commission ordered the Oregon Exchange Carrier Association (OECA) to submit a report updating the feasibility and cost of a DDC, and including recommendations regarding cost recovery and whether or not to proceed with Phase II. The DDC was to be implemented only upon further order of the Commission.

On July 1, 1994, the OECA filed its report (the "initial report") with the Commission documenting the results of its investigation into the feasibility and cost of DDC implementation. The report also contained recommendations from LECs as to whether or not to proceed with DDC systems development. The recommendations were mixed.

On July 15, 1994, the Commission staff (staff) requested a prehearing conference because of the continuing controversy and the need for additional information. A prehearing conference was held on September 1, 1994, at which the parties agreed that the OECA would file a supplemental report (the "supplemental report"). The supplemental report was to address the effect of the implementation of a DDC in Washington state. OECA’s supplemental report was filed on November 21, 1994. The recommendations of the LECs and OECA remained unchanged.

On December 13, 1994, a settlement conference was held. The parties’ positions did not change. Opening comments on the report were filed on January 17, 1995, and reply comments on January 31. No party has requested a hearing.

Based upon the record in this proceeding, the Commission makes the following:

FINDINGS OF FACT

OECA Initial Report

OECA was directed to address the following points in its report on Phase II: (1) Updated identification of the one-time and on-going costs of the DDC; (2) Accounting treatment and recovery of costs; (3) technical and administrative feasibility, and (4) an analysis and recommendation on implementation. The report was a coordinated effort by the OECA, GTE, and USWC through OECA Docket 92-01. OECA also worked with the Washington Exchange Carrier Association (WECA).

The DDC, as proposed in the report, would replace factored and allocated intrastate intraLATA access minutes with the exchange of actual terminating access minutes. The DDC would perform the following functions under a set of specifications jointly developed by OECA, WECA, and the PTCs:

The DDC would receive and process originating access records from each LEC, except those records wholly within a PTC and not transiting another LEC’s facilities.

 

The DDC would create and maintain an Access Routing Guide (ARG) for the purpose of identifying the PTC responsible for payment of access charges and distribution of transiting/terminating records to each LEC.

 

The DDC would create and distribute transiting/terminating access record from the original access record.

 

The DDC would ensure integrity, security, and accuracy of all data that is received and transmitted.

The OECA would be responsible for:

Monitoring input/output through reports generated by the DDC.

 

Allocating the DDC costs to each PTC.

 

Billing the PTC(s) for DDC costs.

 

Phase II Costs

 

Costs to implement the DDC would occur in two basic areas: (1) costs incurred by LECs for submitting monthly data to the DDC, and (2) the start-up and on-going operational costs of the DDC.

The median cost of modifying LEC systems to process DDC data is estimated to average $38,000 per LEC.

DDC costs can be separated into systems development and operating. The initial report estimated DDC costs to be approximately $500,000 in the first year of operation and $120,000 in the second and subsequent years.

A table showing the cost estimate in the initial report compared with those in the supplemental report is set out below. (Table 1).

Accounting Treatment

 

There is an issue as to the treatment of DDC costs for accounting purposes. USWC proposed booking DDC costs to Account 6540 (access charge account). GTE proposed booking the costs to Account 6623 (customer account service costs). Several interexchange carriers expressed the view that whatever account is used, the costs should not be reflected in access charges.

Technical and Administrative Feasibility

 

The initial report concludes that the implementation of a DDC is technically feasible. The DDC process is not dissimilar to the Phase I process of submitting originating toll records to USWC for determining the ratio of USWC and GTE minutes. The difference is that in Phase I, an originating toll record is used, whereas, in the DDC environment, an originating access record is used to create a terminating access record. In either event, each Oregon LEC needs to submit data to a clearinghouse for processing the record. In Phase I, USWC is the clearinghouse. In Phase II, the DDC is the clearinghouse.

Phase II only addresses the provision of actual terminating access minutes. Third number billing toll records and revenue, such as calling card, collect, and billed to third number, will continue to be cleared through USWC.

OECA Supplemental Report

The OECA Supplemental Report, not including attachments, is attached to this order as Appendix A and incorporated herein by this reference. As noted above, the primary purpose of the report was to address the impact in Oregon of DDC implementation in Washington.

In November 1994, WECA agreed to proceed with a DDC proposal in Washington state. The details of the proposal are outlined in the Supplemental Report. Appendix A, p. 2. Among other features, the plan provides

DDC operation would begin in Washington in late 1995.

 

USWC will pay the cost of the DDC development. Monthly operating costs, estimated would be shared by each PTC based on a per record charge.

 

WECA would be the administrative arm.

 

The vendor for the DDC is expected to be an affiliate of USWC, U S WEST Technologies, Inc.

Cost Issues

The Supplemental Report concludes that costs for the DDC would be lower than originally estimated. The following table compares the initial and the current estimates.

Table 1:

Estimated Cost of DDC Implementation

The development cost of $150,000 shown above is the total based on Washington implementation. Oregon’s share would be a prorated portion, likely less than 50 percent. The annual operating cost will drop below $60,000 after the 1994 EAS conversions, reducing Oregon’s operating costs to approximately $42,000.

Non-PTC LECs will face additional costs of approximately $380,000 to convert their systems to bill the DDC terminating access records. Because Washington DDC implementation will occur in any event, Oregon’s prorated share of this amount is estimated to be $247,000.

Positions of the Parties

OECA

 

OECA opposes DDC implementation. There are several bases for OECA opposition.

Accuracy problems. There appears to be no practical way to avoid occurrences of incorrect, missing, or delayed submission of data. Inaccurate data would directly affect cash flow to all LECs. Data problems have occurred in Phase I which cast doubt on the prospects for Phase II. GTE has only been reporting estimates of terminating minutes, with no categorical breakdown in Phase I. United has also had recent problems in generating and reporting satisfactory toll data.

Cost/Benefit Analysis. Even at the reduced cost estimate of approximately $235,000 per year, the benefits are too speculative to warrant pursuit of an unproven mechanism.

Future Decline of OCAF Revenue. OCAF revenue is expected to decline over the next two years. As it does so, the percentage of error in the Phase I method needed to justify the DDC increases.

Entry of Competitive Access Providers (CAPs). OECA is concerned that if CAPs enter the intraLATA market, the DDC as currently proposed, may not last its economic life without major modifications. It is not clear whether CAPs would be required to participate in the DDC.

Remaining Need for Terminating/Originating (T/O) Ratios. The DDC only eliminates the need for T/O ratios for intrastate intraLATA purposes. T/O ratios will still be required for non-conforming (non-equal access) offices for intrastate interLATA terminating access.

For the foregoing reasons, OECA proposes that the Commission withhold final determination on DDC implementation until six months after proposed DDC operations in Washington have been implemented. This would enable Oregon to observe their usefulness and related costs. OECA estimates the DDC in Washington will be implemented in October 1995 and the Oregon Commission could render a decision in spring 1996.

GTE

GTE filed comments in response to the initial OECA report. No additional comments were filed after the Supplemental Report but the report states that GTE did not change its position.

GTE agrees with the OECA’s recommendation that the DDC not be implemented and that the current procedure be continued in effect. GTE also noted that the current procedure for exchange of toll records among the local exchange companies needs to be continued so that the GTE/USWC compensation procedures may be maintained.

GTE recommends that the docket be closed, arguing that the parties can continue to maintain satisfactory compensation procedures and resolve issues among themselves.

USWC

USWC supports implementation of the DDC, citing a number of benefits that would accompany the mechanism. These benefits include: (1) elimination of terminating-to-originating ratios and PTC allocation percentages; (2) the ability to rapidly and accurately reflect changing market conditions (such as the introduction of new Extended Area Service routes); the ability to accommodate entry of the other PTCs; and (4) response to some LECs’ concerns about the use of confidential toll data.

USWC sees the reduced costs listed in the Supplemental Report as making the DDC even more feasible, and believes the benefits exceed the costs.

USWC believes that DDC implementation should not be delayed pending the conclusion of the OECA docket investigating intraLATA presubscription, or for any related Commission activity.

USWC concedes that there are some problems getting toll record information from a few LECs under Phase I procedures, but argues that there are guidelines in the Phase II proposal to help avoid this problem.

Staff

 

Staff has changed its position on DDC implementation. In its comments on the initial report, staff opposed the DDC concept for the following reasons:

Toll traffic interchanged between GTE and USWC is already identified on an actual basis. This traffic, plus intra-PTC traffic, accounts for about 62 percent of total intraLATA toll minutes. Since the costs of implementation only apply to 38 percent of the traffic, cost may exceed benefit.

 

The concerns expressed by the non-PTC LECs about confidentiality of data appear to be secondary to cost concerns.

 

Incremental improvements can be made over time to USWC’s current toll record processes that could improve the timeliness and accuracy of the terminating minute ratios used by the non-PTC LECs.

 

Staff further recommended that, in the event the DDC is adopted, that the cost be allocated between the two PTCs based on relative toll records processed by the DDC.

Following the issuance of the supplemental report, however, staff filed comments supporting implementation of the DDC. Staff based its change of position in large measure on the significant reduction in estimated costs.

With regard to OECA’s concern about errors or delays in data submission, and the revenue impacts thereof, staff argues that the current Phase I process has provided an opportunity to work out problems in data gathering. Staff concedes that "glitches" have occurred, but believes they have been corrected and that the process is running satisfactorily at the present time.

In summary, staff believes that the reduced cost, the benefits of accurate PTC toll record identification and the flexibility of accommodating other PTCs justify the implementation of the DDC.

United

United supports the DDC proposal on the grounds that it would easily accommodate new PTC entrants, base billing on actual minutes, satisfy most parties’ interests, and because it will be implemented in Washington in any event.

Non-PTC LECs

The non-PTC companies are concerned that the cost of the DDC proposal may outweigh the benefits of increased accuracy, that interruption of data submission by one LEC could affect the cash flow of all the other LECs, that entry of CAPs has not been considered, and that there will still be a need for T/O ratios for other purposes.

MCI

MCI’s position is that the total service long run incremental costs of operating the DDC should be borne by GTE, not by the interexchange carriers.

Table 2:

Summary of Parties’ Positions on DDC Implementation

OPINION

The basic issue presented to the Commission here is a practical choice between two alternatives for reaching the same goal ---- identification of intraLATA terminating minutes from different primary toll carriers.

The Phase I approach, using toll traffic studies and statistically derived T/O ratios, has been in effect since May 1, 1994. Access between the two PTCs is billed on an actual minute basis. No party disputes that the Phase I approach provides a workable mechanism for properly allocating access between PTCs. To the extent allocations are based on statistics rather than actual billings, however, there is the potential that one PTC may be billed for another’s access, to the extent that the statistical ratios are inaccurate. The Phase II DDC approach is offered as an improvement to address this problem.

Essentially the benefits to be gained are that of greater accuracy in identification of minutes, and hence, greater accuracy in payment of access to the PTCs. The primary advantages of DDC implementation are more rapid and accurate response to changes in toll traffic, more accurate billing, and easier accommodation of future PTCs.

A number of disadvantages have also been cited, however. The first is cost. Total first year costs of the DDC are estimated at as much as $234,000, although the cost would likely be reduced by proration of some costs to Washington. In addition, non-PTC LECs would each face conversion costs of approximately $38,000. After the first year, annual DDC operating costs are estimated at $42,000. There is not agreement on how these costs should be recovered.

In addition to cost, a failure or delay by one LEC in submitting data would affect the terminating minutes and access revenues of all other LECs. The system is, thus, more dependent on strict controls and more susceptible to disruption.

There are other practical concerns. The need for T/O ratios will not be eliminated by the DDC. They will still need to be generated for calling card, collect, and billed-to-third-number calls, which will continue to be cleared through USWC. The entry of CAPs into the intraLATA market poses a further complication, since it may require modification of the DDC in the relatively near term.

Support for DDC implementation is lukewarm. The two current PTCs are split on the issue. The LEC organization, OECA, is opposed to immediate implementation of the DDC, as are the non-PTC LECs, with the exception of United. The Commission staff first opposed and now supports the DDC proposal.

While, in theory, the proposal to improve the identification of access minutes and the accuracy of LEC payments to PTCs is unobjectionable, the parties have identified some legitimate concerns about the practical impact of adopting the DDC. It is significant that the companies are split on DDC. At bottom, the purpose of this study and report was to determine whether a better mechanism could be found. Presumably a better mechanism would benefit all parties. GTE, for example, as a PTC, might be expected to support the DDC concept as a means to ensure it receives all the revenue to which it is entitled. The company, nonetheless, opposes implementation.

The fact that a significant portion of the industry is content to remain with the status quo, at least for the time being, is a relevant consideration. The record contains little, if any, detailed information about the costs, problems, or inaccuracies under the current system. Apparently, it is functioning satisfactorily. No party has argued that the current system is fatally flawed, only that it could be improved.

As noted above, the DDC issue is essentially a practical one. No party, including staff, has cited major public interest or public policy implications for this decision. That being the case, the Commission is reluctant to impose the DDC on Oregon carriers at this time when there is currently little agreement on its value, and in the face of the cost questions and other potential problems identified. The Commission concludes that the OECA recommendation should be adopted and that the DDC should not be implemented at the present time. The Commission should withhold a decision until six months after implementation of the DDC in Washington. Thereafter, any party, including Commission staff, may request the Commission to reopen this matter for further consideration.

ORDER

IT IS ORDERED that:

The Commission acknowledges receipt of the Report and Supplemental Report of the Oregon Exchange Carrier Association as required by Order No. 94-336, Stipulation No. 4.

 

The Commission declines to order implementation of the Data Distribution Center proposal contained in the OECA Report. Phase I procedures under Stipulation No. 4 will continue in effect until further order of the Commission.

 

Six months following implementation of the DDC in Washington State, any party may request that the Commission reopen this docket for further consideration of DDC implementation in Oregon.

 

 

Made, entered, and effective ________________________.

A party may request rehearing or reconsideration of this order pursuant 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). A party may appeal this order to a court pursuant to ORS 756.580.