ORDER NO. 95-1168

ENTERED NOV 7 1995 

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 189(1)

DISPOSITION: NEW STANDARDS AND PROCEDURES ADOPTED

FOR INTERLATA EAS PETITIONS.

Introduction

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In Docket UM 189, the Commission investigated the provision of extended area service (EAS) in Oregon. See Orders No. 89-815 and 92-1136. As part of that investigation, the Commission adopted objective community of interest criteria and other substantive and procedural standards for use in evaluating individual EAS petitions.

In March, 1995, the Commission received two petitions for EAS across LATA boundaries. In Docket UM 751, the Scio Mutual Telephone Association requests EAS between the Scio and Albany exchanges. The Scio exchange is located in the Portland LATA and the Albany exchange is located in the Eugene LATA. In Docket UM 760, the customers of the Huntington exchange request EAS to the Vale and Ontario exchanges. The Huntington exchange is in the Portland LATA, while Vale and Ontario are in the Boise LATA.

Because the Commission’s current EAS policy does not express specific guidelines relating to the provision of EAS between LATAs, the Commission staff (staff) requested that Docket UM 189 be reopened for the limited purpose of investigating issues surrounding interLATA EAS. At its April 18, 1995, public meeting, the Commission granted staff’s request and initiated this proceeding.

Procedural History

On June 28, 1995, Michael Grant, a Hearings Officer for the Commission, held a prehearing conference in Salem, Oregon. Joseph McNaught, Assistant Attorney General, appeared on behalf of staff. Rick Bailey, attorney, and Pat Hickey, authorized representative, appeared on behalf of AT&T Communications (AT&T). Dave Overstreet, authorized representative, appeared on behalf of GTE Northwest (GTE). Ed Carter, authorized representative, appeared on behalf of the Scio Mutual Telephone Association (Scio). Penny Bewick, authorized representative, appeared on behalf of U S WEST Communications (U S WEST). Lance Tade, authorized representative, appeared on behalf of Citizens Telecom. Jim Stringer, authorized representative, appeared on behalf of GVNW. Bill Weinman, authorized representative, appeared on behalf of PTI Communications. Gary Bauer, authorized representative, appeared on behalf of Oregon Independent Telephone Association. Beth Kaye, attorney, appeared on behalf of MCI Communications

At the prehearing conference, the parties identified four primary issues:

Should the Commission grant petitions for interLATA EAS and, if so, what conditions and standards should apply?

 

What legal restrictions apply to U S WEST Communications and GTE Northwest regarding provision of interLATA EAS? What are the alternatives for addressing those restrictions?

 

Do these restrictions affect the ability to obtain toll calling data for the purpose of determining whether interLATA toll routes meet the Commission’s community of interest criteria? If so, how should the Commission deal with those restrictions to investigate community of interest?

 

Does interLATA EAS raise special problems for assignment of prefixes?

 

The parties used this issues list as a framework for direct testimony, filed July 28, 1995, and reply testimony, filed September 8, 1995. After filing both rounds of testimony, the parties agreed that a hearing in this matter was not necessary and that all prefiled testimony be stipulated into the record.

On October 13, 1995, the parties filed briefs with respect to the issues raised in this docket. The Commission has considered both the specific issue positions and the general policy concerns raised by the parties. Based on the record in this proceeding, the Commission makes the following:

FINDINGS

Issue 1: Should the Commission grant petitions for interLATA EAS and, if so, what conditions and standards should apply?

Staff’s Comments:

Staff believes that the Commission should grant interLATA EAS petitions, but only in circumstances where granting an interLATA petition is the only practical way to meet critical needs of customers in the petitioning exchange. Specifically, staff recommends that, in investigating interLATA petitions, the Commission should first determine whether there is a community of interest between the petitioning exchange and the target exchange(s) using existing community of interest standards. If a petition satisfies those standards, staff contends that the Commission should make an additional determination whether the interLATA route is necessary to meet the critical needs of the customers in the petitioning exchange because there is no adequate intraLATA alternative. Staff suggests that, in evaluating the critical needs of customers in the petitioning exchange, the Commission should consider the customers’ access to emergency, dental, medical, professional, business, education and governmental services.

Staff makes two primary arguments in favor of an additional requirement for approval of interLATA EAS. First, staff contends that the Commission should have a tougher standard to reflect the competitive nature of the interLATA toll market. Staff notes that competition within the intraLATA toll market is minimal, as two fully regulated primary toll carriers, U S WEST and GTE, carry all but a small portion of intraLATA toll. In contrast, the interLATA toll market is very competitive and largely free of rate regulation by the Commission. Numerous interexchange carriers, including AT&T, MCI, and Sprint, currently provide interLATA toll service. Because interLATA EAS conversion reduces the scope of competition in Oregon’s telecommunication market, staff argues that the Commission should have a higher standard to recognize the importance of preserving these competitive markets wherever possible.

Second, staff contends that the Commission should have a tougher standard due to the unique legal problems presented by interLATA EAS requests. For reasons further explained in Issue 2, U S WEST and GTE are generally prohibited from carrying telephone calls across LATA boundaries. In order to do so, each company must obtain a waiver from Judge Greene, the federal court judge who presides over the AT&T divestiture litigation. Staff states that the processing of interLATA EAS petitions will impose additional costs on the Commission since it will be required to prepare orders and other documents to meet the requirements of the District Court. Telephone companies will also bear additional costs in preparing and submitting the waiver requests. Staff believes it is appropriate to control these costs by limiting interLATA EAS to instances where there is an unmet critical need.

Staff also asserts that a tougher standard will help increase the likelihood that Judge Greene will grant the waiver. Staff points out that, in reviewing a waiver request, Judge Greene is not bound by the findings of a state commission. Therefore, he may not adopt this Commission’s objective calling criteria as dispositive evidence on the issue whether a community exists between the affected exchanges. According to staff, additional evidence of a critical interLATA need will enhance the Commission’s ability to demonstrate that a waiver is appropriate.

Other Parties’ Comments:

U S WEST, GTE, and Scio agree with staff that the Commission should grant interLATA EAS where a demonstrated community of interest provides justification for eliminating toll service between the exchanges. They disagree, however, with staff’s proposal to also require an affirmative showing that the interLATA route is necessary to meet the critical needs of the customers in the petitioning exchange. All three parties believe that the Commission should treat all Oregon phone customers equitably and not penalize some customers because of the LATA boundary. Noting that a community of interest that traverses a LATA boundary is as valid as one that exists exclusively within a LATA, the parties recommend that the Commission should use the same community of interest standards criteria for both interLATA and intraLATA requests.

As an alternative argument, Scio requests that any new criteria adopted for interLATA petitions be applied prospectively only, and not apply to its pending petition for EAS to the Albany exchange in Docket UM 751. Scio contends that it would be unfair at this time for the Commission to adopt a more stringent standard for its request, noting that past changes to EAS procedures were not retroactively applied to pending dockets. See, e.g., Order No. 92-1136 at 8.

AT&T contends that the Commission should not grant interLATA petitions. According to AT&T, granting interLATA EAS will have an adverse impact on toll competition and impose various costs on ratepayers and the general public. If the Commission decides to allow interLATA EAS, AT&T argues that such routes be extremely limited, strictly controlled, and monitored to minimize the effects on competition. Among other things, AT&T proposes the Commission adopt more stringent objective community of interest criteria, additional rate guidelines, and conduct a survey to determine whether customers are willing to bear the cost of interLATA EAS.

2. What legal restrictions apply to U S WEST Communications and GTE Northwest

regarding provision of interLATA EAS? What are the alternatives for addressing those restrictions?

Staff’s Comments - RE: U S WEST:

Under the provisions of the Modified Final Judgment (MFJ) entered in the divestiture of the Bell telephone system, U S WEST and other regional Bell operating companies (RBOCs) are generally prohibited from providing telecommunications services across LATA boundaries. As noted above, however, RBOCs may apply for and obtain waivers or adjustments to allow new interLATA EAS routes.

Those procedures, in short, generally require an RBOC to submit a waiver request to the United States Department of Justice (USDOJ). USDOJ then reviews the request and, if it concurs, submits the proposal to Judge Greene. After allowing the opportunity for other parties to file objections or comments in the matter, Judge Greene considers the filings and makes a decision. If USDOJ opposes the request, it forwards the request to Judge Greene together with its own opposing documentation.

Staff points out that USDOJ has not articulated formal standards for evaluating petitions for interLATA EAS. Nonetheless, staff believes that USDOJ applies the following criteria:

A strong community of interest must be demonstrated.

 

The EAS must be non-optional.

 

There must not be an adverse impact upon inter-exchange competition.

 

With regard to the first criterion, staff states that it is unclear whether USDOJ will accept the Commission’s calling volume and calling distribution criteria as persuasive evidence on the issue of whether a petitioning exchange has established a community of interest with a target exchange. As noted above, staff contends that the presentation of additional demographic, economic, financial, or other evidence would increase the chances for a favorable review.

With regard to the second criterion, staff adds that there is a risk that USDOJ may not approve Oregon’s measured service option on the ground that it is equivalent to the prohibited optional EAS. Judge Greene has described "optional EAS’ as follows:

These arrangements give customers the option of paying an additional flat fee to obtain an extended local calling area, thus enabling those who opt for this service to make what otherwise would be toll calls without incurring an additional charge. Unlike non-optional EAS, optional EAS is provided primarily over toll switching routes instead of direct end office trunks. Thus, because these services are provided though the use of essentially interexchange facilities, interexchange carriers are in as good a position efficiently to carry these calls as are Operating Companies. United States v. Western Elec. Co. Inc., 569 F Supp 990, 1002 (D.D.C. 1983)

 

Staff explains that, while an argument can be made that Oregon’s EAS is mandatory local service, the measured EAS service option may be viewed as allowing a customer to opt out of the flat rate service and use toll calling. If USDOJ were to conclude that Oregon’s measured EAS option is "optional EAS," staff states that the Commission may be required to make an exception to its measured EAS policy by requiring a flat rate increment for all customer lines in the petitioning and target exchanges.

Finally, staff states that USDOJ reviews interLATA EAS requests from a practical standpoint in determining whether the proposed route would have an adverse impact on interexchange competition. Staff notes that all EAS reduces interexchange toll calling. However, if a new EAS route realistically would have extremely little or no adverse impact on interexchange competition in a particular area, staff believes that USDOJ would favorably review the waiver request.

Staff Comments - RE: GTE:

With regard to GTE, staff states that GTE operating companies are similarly prohibited from providing interLATA services as part of a separate consent degree between USDOJ and GTE. As with U S WEST, however, procedures exist for GTE to obtain a waiver to allow for new interLATA EAS routes. Staff explains that the procedures are similar, except that GTE generally seeks a waiver directly from Judge Greene, without seeking USDOJ review in advance. USDOJ and others can object to the motion. According to staff, Judge Greene has only approved non-optional interLATA EAS routes and, to staff’s knowledge, GTE has not sought approval of a mandatory interLATA EAS route that included a measured service option.

Other Parties’ Comments:

U S WEST, GTE, and AT&T agree with staff that U S WEST and GTE will need a waiver before either company can provide interLATA EAS service. Scio generally acknowledges the restriction, but suggests that U S WEST might not need a waiver to provide interLATA services between Albany and Scio. It points out that Scio currently owns facilities across the LATA boundary to a meet-point with U S WEST in Crabtree, which is located in the Eugene LATA. Because traffic across the LATA boundary between Scio’s service territory and U S WEST’s Albany exchange is, from a physical standpoint, already being carried by Scio and not U S WEST, Scio contends that the restrictions on interLATA transport may not apply.

3. Do these restrictions affect the ability to obtain toll calling data for the purpose of determining whether interLATA toll routes meet the Commission’s community of interest criteria? If so, how should the Commission deal with those restrictions to investigate community of interest?

Staff’s Comments:

To determine the existence of a community of interest, the Commission currently evaluates data on customer calling patterns. This data is provided by the local telephone exchange companies, which have access to records of toll calls placed between the exchanges. Staff states, however, that the Commission may be unable to obtain similar telephone usage information for interLATA EAS requests. Staff indicates that, because U S WEST and GTE do not provide interLATA services, neither company can provide route-specific toll data for interLATA routes involving their own exchanges. Staff further indicates that the Commission may also be unable to obtain toll traffic information from interexchange carriers. In response to data requests, AT&T and other interexchange carriers have stated that route-specific call volume and call distribution information for interLATA routes is not readily available.

Other Parties’ Comments:

U S WEST, GTE, and AT&T agree with staff that the Commission, in investigating interLATA EAS petitions, may be unable to obtain the standard call volume and call distribution information that it routinely receives in intraLATA dockets. Scio points out, however, that it was able to provide this information with regard to the proposed Scio/Albany interLATA route, and contends that the Commission should be able to obtain such toll calling data if one of the exchanges involved in the petition is served by a small independent company. Scio explains that most small independent local exchange companies use service bureaus to bill its end-users and to generate its carrier access billings for interexchange carriers. Scio contends that any independent carrier using a service bureau can develop the necessary calling data for use in determining a community of interest.

4. Does interLATA EAS raise special problems for assignment of prefixes?

Staff’s Comments:

In Order No. 95-438, the Commission approved a new area code for Oregon, effective November 5, 1995. All exchanges in the Eugene LATA will receive a new 541 area code, while most exchanges in the west portion of the Portland LATA will retain the 503 area code. Staff advises that granting interLATA routes between these area codes will have an impact on prefix assignments and may make it necessary to introduce ten-digit dialing for EAS calls in at least some parts of the state. Current Commission policy requires seven-digit dialing for EAS calls. Staff contends that, in order to properly route seven-digit-dialed EAS calls between area codes, it will be necessary to restrict assignment of cross-boundary prefixes in each of the state’s area codes. Staff adds that fewer interLATA EAS routes will mean greater flexibility for prefix assignments.

Other Parties’ Comments:

U S WEST agrees that interLATA EAS may pose problems with the assignment of prefixes, as interLATA routes may involve two area codes. It concludes, however, that any problems could be resolved by modifying the Commission’s policies to allow 10 digit EAS dialing to accommodate different area codes being accessed within the same EAS calling area.

Additional Issues

U S WEST raises as an additional issue, the possibility of EAS resale. U S WEST defines a reseller as one who takes advantage of the EAS routes to bypass the normal toll network and provide, in effect, discount long-distance service by completing the indirect connection over the EAS network. For example, if the Scio exchange obtains EAS to both Salem and Albany, an EAS reseller could place a forwarding switch in the Scio exchange and provide discount toll calling between Salem and Albany. To prevent this type of activity, U S WEST contends that, in the event that Scio establishes a community of interest with both exchanges, the Commission should require the Scio customers to choose either the Salem or Albany exchange for their EAS, but not both.

CONCLUSIONS

After a review of the record in the reopened phase of this investigation, the Commission concludes that staff’s proposals are reasonable and should be adopted. Requests for interLATA EAS pose different problems than intraLATA requests. The interLATA toll market is much more competitive than the intraLATA toll market. New interLATA EAS routes will eliminate a toll service provided by numerous, unregulated carriers and transfer responsibility to regulated local telephone companies operating as local exchange carriers. In contrast, intraLATA EAS conversion has relatively little impact on competition since both intraLATA toll and EAS services are provided by local exchange carriers.

New interLATA EAS routes also must be approved by Judge Greene, thus raising other distinct issues. The Commission will need to prepare orders and other documents to meet the requirements of the District Court, while U S WEST or GTE will have to prepare and submit waiver requests to USDOJ and Judge Greene. This will impose costs not normally incurred with respect to intraLATA requests. Moreover, in reviewing a waiver request, Judge Greene is not bound by the findings of this Commission and may not approve Oregon’s measured service option on the ground that it is equivalent to the prohibited optional EAS.

Due to these reasons, the Commission agrees with staff that interLATA EAS petitions should meet a higher standard than currently required for intraLATA EAS requests. In addition to meeting the community of interest criteria, a petitioning exchange also should be required to demonstrate that the interLATA EAS route is necessary to meet the customers’ critical needs because there is no adequate intraLATA alternative.

This tougher standard for interLATA routes reflects the competitive nature of the interLATA toll market and the Commission’s desire to preserve competitive markets whenever possible. This additional requirement will also help control costs associated with processing these petitions by limiting the number of interLATA EAS waiver requests submitted to District Court, and increase the likelihood that Judge Greene will find a strong community of interest and grant a waiver.

The Commission is not persuaded by other parties’ arguments that interLATA requests should be granted in the same manner as intraLATA petitions and that petitioning exchanges should not be treated differently just because of the existence of an arbitrary, federally created boundary. As indicated above, interLATA EAS conversions have distinctive characteristics that justify different treatment. Furthermore, while telephone customers may view the LATA boundaries as arbitrary barriers, the LATAs were designed, in part, to encourage competition. This further supports the Commission’s conclusion that interLATA EAS requests should be subject to more stringent standards. Moreover, customers who live within telephone exchanges that border a LATA boundary are already treated differently than residents in other parts of the state. Because calls placed across a LATA boundary to neighboring exchanges are interLATA calls, those customers may obtain those services from a wide selection of unregulated interexchange carriers.

The Commission also does not accept AT&T’s position that interLATA petitions should be granted only in extremely limited circumstances under modified procedures. As noted by staff, the Commission has already considered arguments AT&T is now raising with regard to high volume callers, customer surveys, pricing, EAS bridging, and cost recovery. See Order No. 89-815. The Commission will not reconsider those issues in this reopened phase of the EAS investigation.

InterLATA EAS Procedures

Because of the unique characteristics addressed above, interLATA EAS petitions require special procedures not currently used in processing intraLATA requests. The Commission may be unable to obtain toll calling data for the purposes of determining whether the interLATA routes meet the objective community of interest criteria. The Commission and phone companies will need to prepare orders and documents to meet the needs of USDOJ and Judge Green. Accordingly, based on staff’s recommendations, the Commission adopts the following guidelines for the investigation of interLATA requests:

Petitions and Docketing

In processing interLATA EAS petitions, the Commission will utilize the same petition and docketing procedures adopted for intraLATA petitions.

Phase I

Soon after a petition is docketed, staff will send a data request to the applicable local exchange companies to determine whether calling data is available. If so, staff will then determine whether the petitioners meet the existing objective community of interest criteria:

Geographic Proximity - The exchanges must be contiguous;

 

Minimum Calling Volume - An average of four toll calls per access line per month between the contiguous exchanges;

 

Minimum Calling Distribution - More than fifty percent of customers in the petitioning exchange must make at least two toll calls per month to the target exchange(s).

 

If those criteria are met, the petitioners must further demonstrate that the interLATA route is necessary to met the critical needs not met by an intraLATA alternative. In evaluating the critical needs of customers in the petitioning exchange, the Commission shall consider the customers’ access to emergency, dental, medical, professional, business, educational and governmental services.

If the objective calling criteria are not met, or if the calling data is not available, the petitioners should be given an opportunity to make an alternative showing of a community of interest through economic, demographic, or other information. In the same presentation, petitioners also must demonstrate that the interLATA route is necessary to met the critical needs not met by an intraLATA alternative.

Community of Interest and Critical Need Determination

If the Commission concludes that there is a community of interest and that the interLATA route is necessary to met the critical needs not met through an intraLATA alternative, the Commission will issue an order directing U S WEST or GTE to pursue a waiver from Judge Greene. In the order, the Commission will articulate the rationale underlying the measured-service policy and the reasons why the Commission’s EAS actually is "non-optional EAS" as Judge Greene has used that term. The order will also present the Commission’s assessment of the impact of the proposed EAS conversion on competition.

If the Commission concludes that there is no community of interest, or that the petitioner’s critical needs are met by an intraLATA alternative, the Commission will issue an order dismissing the petition.

Phase II

If a petition successfully completes the Phase I procedures identified above, the Commission will consolidate it with other EAS petitions for processing under existing Phase II procedures. However, an interLATA petition should not proceed to Phase II until Judge Greene has granted a waiver for the new route. This will ensure the smooth processing of Phase II investigations, as there should be as little uncertainty as possible regarding implementation of all the proposed new EAS routes. If an interLATA petition were to be included in Phase II before Judge Greene grants a waiver, there is a risk that the waiver request will be denied or that the court will not issue a decision before the Commission issues an order. Given the risk of denial or delay by the District Court, inclusion of an interLATA EAS petition would greatly complicate an already complex and time consuming Phase II process.

Applicability of interLATA Procedures

The Commission will apply these procedures to all pending interLATA EAS petitions. The Commission acknowledges that Dockets UM 751 and UM 760 were pending prior to the reopening of this investigation to consider issues surrounding interLATA EAS. Those petitions, however, were filed under procedures adopted for the Commission’s consideration of intraLATA requests. While the Commission understands the parties’ desire for the speedy implementation of proposed EAS routes, the interLATA EAS petitions present too many unique issues to be resolved under existing standards.

Other Issues:

The implementation of interLATA EAS will raise other issues that may require additional Commission action. Staff and U S WEST have indicated that interLATA EAS may pose problems with the assignment of prefixes, as interLATA routes may involve two area codes. The Commission directs staff to monitor this situation and, if necessary, to investigate the possibility of further modifying the Commission’s policies to allow 10 digit EAS dialing to resolve any potential problems that develop.

U S WEST has also raised concerns relating to EAS resale. The Commission addressed this issue in its discussion of EAS Regions in Order No. 89-815. The Commission rejects U S WEST’s proposed solution here with regard to its concerns with EAS resale between Salem and Albany. The Commission is already considering resale as an issue in Docket UM 351. Because that issue will be resolved generically in that docket, the Commission will not address it here.

ORDER

IT IS ORDERED that:

The Commission adopts new standards for the processing of interLATA EAS petitions. The Commission will grant interLATA petitions where a petitioning exchange establishes: (1) a community of interest exists between the petitioning exchange and the target exchange(s); and (2) that the interLATA EAS route is necessary to meet the customers’ critical needs because there is no adequate intraLATA alternative.

 

The Commission will process interLATA EAS requests pursuant to procedures outlined in this order.

 

These new standards and procedures shall apply to all pending petitions requesting interLATA EAS.

 

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 this order. The request must comply with the requirements of 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.