ENTERED NOV 1 1996

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UM 351

On July 19, 1996, the Public Utility Commission (Commission) issued Order No. 96-188 in this docket, unbundling the telecommunications services offered by U S WEST Communications, Inc. (USWC) and GTE Northwest Incorporated (GTE) into building block elements and establishing cost-based prices for those elements.

On August 8, 1996, the Federal Communications Commission (FCC) issued Order No. 96-325 promulgating regulations to implement the interconnection and pricing provisions of §§251 and 252 of the Telecommunications Act of 1996. (the Act). Taken together, the FCC Order and implementing regulations are approximately seven hundred pages in length.

On September 3, 1996, the Commission issued Order No. 96-228, reopening this proceeding. We requested that the parties file comments indicating any revisions that must be made to Order No. 96-188 in order to comply with the FCC regulations. We also invited parties to file applications for reconsideration on other issues at the same time.

Comments and/or applications for reconsideration were filed by USWC, GTE, AT&T Communications of the Pacific Northwest, Inc. (AT&T), Electric Lightwave, Inc. (ELI), MCI Telecommunications Corporation (MCI), Frontier Telemanagement, Inc., Oregon Cable Telecommunications Association (OCTA), Telecommunications Resellers Association, United Telephone Company of the Northwest (United), AT&T Wireless Services, Inc. (AT&T Wireless) and the Commission Staff (Staff).

On October 15, 1996, the United States Court of Appeals for the Eighth Circuit issued a judicial stay of the pricing and "pick and choose" portions of the FCC rules, including §§51.501-515 (inclusive), §§51.601-51.611(inclusive), §§51.701-51.717 (inclusive), and §51.809. The Court also stayed the proxy range for line ports used in the delivery of basic residential and business exchange services established in the FCC’s Order on Reconsideration, dated September 27, 1996.

The Commission has reviewed the parties’ comments and arguments. We have given careful consideration to the FCC rules and the judicial stay imposed on certain of those regulations. This order does not comment upon all of the arguments advanced by the parties. Rather, we address only those matters that we find require additional clarification or revision.

Commission Findings and Conclusions

Unbundling--Additional Building Blocks. AT&T, MCI, ELI and Staff point out that the FCC has authorized unbundling of certain network elements not specified in Order No. 96-188. Upon review, we agree that USWC and GTE should also be required to provide nondiscriminatory access to the following network elements on an unbundled basis to any requesting telecommunications carrier:

Network Interface Device (NID). As defined in §51.319(b) of the FCC regulations, the NID is a cross-connect device used to connect loop facilities to inside wiring. An incumbent LEC shall permit a requesting telecommunications carrier to connect its own local loops to the inside wiring of premises through the incumbent LEC’s NID. The requesting telecommunications carrier shall establish this connection through an adjoining NID deployed by such telecommunications carrier.

Consistent with the approach taken by the FCC, we do not require an incumbent LEC to permit a new entrant to connect its loops directly to the incumbent LEC’s NID. The FCC notes that there is conflicting evidence regarding the technical feasibility of permitting competitors to connect their loops directly to incumbent LEC NIDs, specifically a concern over adequate overvoltage protection. See FCC Order at ¶¶392-396. Since there is no evidence in this proceeding regarding direct access to LEC NIDs, the direct connection issue must be resolved in a subsequent docket or in arbitration proceedings under the Act.

Customized Routing Functions. Under §51.319(c)(1)(i)(C)(2), an incumbent LEC must provide unbundled access to the local switching network element, including any technically feasible customized routing functions provided by the switch. As noted in ¶418 of the FCC Order, access to customized routing will enable a competitor to direct particular classes of calls to particular outgoing trunks, which permit a new entrant to self-provide, or select among other providers of, interoffice facilities, operator services, and directory assistance. The requirement to provide customized routing only applies to switches that are capable of performing that function. The incumbent LEC shall have the burden of proving that it is not technically feasible to provide customized routing in a particular switch.

Digital Conditioning. The FCC Order at ¶380 states that the local loop network element shall include "two-wire and four-wire analog voice grade loops, and two-wire and four-wire loops that are conditioned to transmit the digital signals needed to provide services such as ISDN, ADSL, HDSL, and DS1-level signals." See also FCC Order at ¶382. Order No. 96-188 already provides that USWC and GTE shall offer two-wire and four-wire analog and digital NACs. We agree with the FCC that incumbent LECs should also unbundle the digital conditioning specified above.

Operations Support Systems Functions. §51.319 of the FCC rules defines operations support systems functions as ‘pre-ordering, ordering, provisioning, maintenance and repair, and billing functions supported by an incumbent LEC’s databases and information. The rule requires incumbent LECs to unbundle and provide nondiscriminatory access to these functions as expeditiously as possible, but no later than January 1, 1997. See also FCC Order at ¶¶516-528. We also concur with this requirement.

Call-Related Databases. §51.319(e)(2) defines call-related databases as databases, other than operations support systems, that are used in signaling networks for billing and collection or the transmission, routing, or other provision of telecommunications service. For purposes of switch query and database response through a signaling network, an incumbent LEC is required to provide access to its call-related databases, including, but not limited to, Line Information database, Toll Free Calling database, Downstream Number Portability databases, and Advanced Intelligent Network databases, by means of physical access at the signaling transfer point to the unbundled database. See also FCC Order at ¶484. Although Order No. 96-188 requires incumbent LECs to unbundle SS7 network systems into links and ports, it does not specifically require the LECs to unbundle or provide access to their unbundled databases. We agree that the LECs should unbundle consistent with the FCC mandate.

Service Management Systems. §51.319(e)(3) defines service management systems (SMS) as a computer database or system not part of the public switched network that, among other things: (1) interconnects to the service control point and sends to that service control point the information and call processing instructions needed for a network switch to process and complete a telephone call; and (2) provides telecommunications carriers with the capability of entering and storing data regarding the processing and completing of a telephone call. The FCC requires that incumbent LECs provide unbundled access to SMS which allows competitors to create, modify, or update information in call-related databases. The FCC found that such access was necessary for competitors to use call-related databases, but also recognized that appropriate mediation mechanisms may be required to accommodate access by requesting carriers. If parties are unable to agree on such mechanisms, the matter must be considered during the arbitration process. See FCC Order at ¶¶493-500.

The Commission has not had the opportunity to determine the costs of the unbundled elements listed above. The costs for these elements should be calculated pursuant to the revised cost assumptions adopted in docket UM 773. Rates should then be established in a subsequent proceeding. Rates for some or all of these unbundled elements may also be established in arbitration proceedings under the Act.

Unbundling--Tandem Switching. USWC contends that it is not technically feasible to unbundle tandem switching from interoffice tandem transmission facilities, as required in Order No. 96-188. We disagree. The FCC has also determined that it is technically feasible to unbundle tandem switching from interoffice transmission facilities. We also concur with the FCC’s finding that the availability of unbundled tandem switching will ensure that competitors can deploy their own interoffice facilities and connect them to incumbent LECs tandem switches where it is efficient to do so. We also agree that the tandem switching element includes the facilities connecting the trunk distribution frames to the switch, and all functions of the switch itself, including those facilities that establish a temporary transmission path between two other switches. The definition of the tandem switching element also includes the functions that are centralized in calls to operator services, and signaling conversion functions. See FCC Order at ¶¶425-426.

Unbundling--Local Office Switching. USWC argues that it is not technically feasible to unbundle switching for local office services as required by Order No. 96-188, because USWC’s end office switches do not have the capability to bill terminating minutes of use within an EAS area. USWC states that developing this capability would "require an enormous investment on the part of the LECs without any discernable benefit to customers."

USWC’s argument is a complete reversal of the position it advanced in the recently completed CP1/CP14/CP15 proceeding. In that case, USWC represented that it was in the process of developing a new system for measuring end office minutes of use. USWC also claimed that its system would be relatively inexpensive and would be ready for use by the end of calendar year 1995. Apparently, circumstances have changed for USWC during the past several months.

Fortunately, the Commission did not adopt USWC’s measurement proposal, but instead opted to implement an interim "bill and keep" approach for the termination of local and EAS telecommunications traffic. Under this method, no monetary compensation is exchanged between interconnecting carriers for local and EAS traffic. Compensation for interexchange (toll) traffic will continue to be assessed based on the PIU method, whereby carriers report the percent interstate usage for terminating access minutes. A similar method could also be used to compensate carriers for terminating local and EAS minutes of use. That method has been referred to as PLU, or percent local usage. The absence of a measurement system such as that recommended by USWC does not make it technically infeasible to unbundle local switching.

Furthermore all incumbent LECs are required to unbundle local switching under §251(c)(2) of the Act and §51.319(c) of the FCC rules. Contrary to USWC’s assertion, the FCC also found that it is technically feasible for LECs to provide access to an unbundled switching element, and that failure to provide such access would substantially impair the ability of many competing carriers to provide switched telecommunications services. See FCC Order at ¶¶410-424.

Unbundling--Service Switching Point (SSP) and Service Control Point (SCP). Order No. 96-188 and the FCC rules require unbundling of the SS7 network. See §51.319(e)(1) and FCC Order at ¶¶479-483. USWC and GTE request that this Commission reconsider the decision to require unbundling of the SCP and SSP, in light of the FCC finding that it is not technically feasible to unbundle the SCP from its associated signal transfer point (STP). See FCC Order at ¶485. Based on this finding, §51.319(e)(1)(iv) provides that incumbent LECs are not required to unbundle those signaling links that connect SCPs to switching transfer points or to permit a requesting telecommunications carrier to link its own STPs directly to the incumbent LEC’s switch or call-related databases. The record before the FCC regarding SS7 unbundling is far more extensive than that presented in this case. See FCC Order at ¶¶452-503. In view of this fact, we believe that the most reasonable course of action is to defer to the FCC on this question. Accordingly, USWC and GTE shall not be required to unbundle SCPs or SSPs.

Building Block Prices--LEC Revenue Loss Projections. USWC and GTE argue that unbundling and pricing of building blocks should not take place until retail rates are rebalanced in order to ensure that LECs revenues are not jeopardized. USWC and GTE allege that the building block prices approved in Order No. 96-188 will lead to substantial revenue erosion and impair the LECs ability to provide adequate utility service. Specifically, USWC claims that it will lose $9M in access revenue, $44M in toll revenue and $3.5M in private line revenue.

There is an indequate foundation to support these claims. In particular, USWC did not provide sufficient information to enable us to determine how the company developed its revenue loss projections. Nor are we able to substantiate those projections, particularly when the revised building block rates authorized in this order are taken into account.

As we have previously stated, the revenue loss scenarios advanced by the LECs incorporate numerous assumptions regarding the timing and rate of competitive entry, the number and type of product offerings, customer willingness to change carriers, and changes in the overall market demand for telecommunications services. We do not think it is productive to engage in such speculation, especially when competition for many services has not even begun. In the event of a significant impact on revenues, a LEC may seek immediate revenue relief in the form of an interim rate increase.

Indeed, the only reasonable forum in which to examine LEC revenues is a rate proceeding where all LEC revenues and expenses may be thoroughly reviewed. USWC currently has such a proceeding underway in docket UT 125. We note that, despite USWC’s claims that unbundling will produce a massive revenue shortfall, the Staff testimony in UT 125 indicates that the company may be overearning by as much as $122M. While Staff must prove its case, the extreme dichotomy in positions underscores the need for a comprehensive evaluation of LEC earnings before retail rate rebalancing takes place.

Order No. 96-188 also requires GTE to file a rate case by January 1997, so that we may address any significant earnings issues. GTE insists that the Commission cannot require such a filing, all the while maintaining that it will suffer massive revenue losses because of unbundling. GTE cannot have it both ways. If it believes that rate rebalancing is necessary to address unbundling concerns, it will make the recommended rate filing. If it does not, we will assume that GTE is not concerned with its existing retail rate levels.

As emphasized in Order No. 96-188, the decisions made in this case only pertain to building blocks, and do not change existing LEC retail rates. At the same time, we recognize that it is not possible to reconcile entirely building block rates based on forward looking economic costs with existing LEC retail rates based on historical, value of service pricing concepts. As a consequence, we understand that pricing issues will require careful attention and will have to be monitored on a continuing basis.

Building Block Prices--Cost Study Update. USWC also argues that the building block prices approved in Order No. 96-188 should not be implemented because the UM 351 cost study must be revised to include updated estimates concerning economic depreciation lives and cost of money assumptions. We disagree. The UM 351 cost estimates were developed with the objective of using forward looking depreciation and cost of capital assumptions. The UM 351 costs are the most recent data that can reliably be used to set building block prices. While we have approved certain changes to the cost methodology in Order No. 96-284 in docket UM 773, USWC still must develop cost estimates based on that method. Once submitted, the UM 773 cost estimates must then be audited by the Commission. At this point, we do not know just how long it will take to develop revised building block prices. Until that time, the UM 351 data is the best information available.

Building Block Prices--Markup. USWC and GTE argue that the NAC prices set forth in Appendix C of Order No. 96-188 do not include sufficient markup over TSLRIC and will produce confiscatory results. USWC states:

A 5% markup in the NAC, which by the Commission’s own admission, will be the most consumed building block, leaving other building blocks and finished services to incur larger, above average mark-up, leaves the recovery of revenue to the Company’s finished services and prevents the company from proposing prices "that respond to competition and other market objectives."

 

GTE further opines that the amount of contribution included in the unbundled loop price is "miniscule"and alleges error because the Order does not explain how the building block contribution levels were determined.

The Commission did not disclose the contribution levels in Order No. 96-188, because that information would have enabled anyone to determine the underlying cost of a given building block. Those costs were designated confidential by the LECs. To illustrate how building block prices were developed, we supplied copies of the workpapers to any party that signed the protective order and requested information regarding how the prices were calculated. The Commission concludes that those workpapers should now be incorporated in this order as confidential Attachment 1.

We reject GTE’s claim that the building block prices in Order No. 96-188 are unjustified and based on "reverse imputation" and "improper back solving." The approach used by the Commission to set building block prices is described at pp. 78-83 of the order. We readily acknowledge that the method used to determine the appropriate level of contribution for each building block is based upon our judgment rather than upon any specific formula or calculation. Indeed, GTE and the other LECs argued against a formulaic method of pricing unbundled elements. We are satisfied that the approach we have taken is consistent with the Act and the pricing authority vested in the Commisson under law.

At page 79 of Order No. 96-188, we emphasized that building block rates have been designed to minimize pricing distortions and significant adverse impacts on LECs and their customers. We requested that the parties bring any resulting pricing anomolies or other unforeseen consequences to our attention. In response to a showing made by USWC, the prices for a number of unbundled elements have been adjusted. We have also adjusted the basic NAC building block price on our own motion. Those price adjustments are discussed below.

Building Block Prices--GTE Cost Data. GTE alleges error because the building block prices approved in Order No. 96-188 are based on USWC cost information rather than GTE data. GTE maintains that its costs are materially different than those of USWC.

GTE’s claim is without merit. In August 1993, the Commission issued Order No. 93-1118, approving the Telecommunications Cost Study Report submitted by

participants in the UM 351 workshop, including GTE. Among the recommendations adopted by the Commission was a proposal to apply the cost results developed for USWC to other regulated utilities unless alternative estimates are developed using the adopted cost principles. The specific recommendation was as follows:

The third recommended Commission action is adoption of the policy of applying the USWC cost results to the other regulated local exchange utilities unless alternative estimates using the cost principles are developed. The proposed final language appears on pages 3 and 4 of the cost report. This policy proposal has been previously presented to the Commission, with supporting discussion which is essentially repeated below, on July 7, 1992. Staff initially suggested this policy to the workshop participants and the Commission to achieve a key objective of the UM 351 investigation. The key objective is to adopt principles and findings that apply to all regulated local exchange companies (LECs). There are two ways of accomplishing this objective. One way is to have each of the LECs conduct cost studies using the adopted cost principles. Another option is to have one LEC conduct the cost study and apply the results to the other LECs unless they provide alternative estimates. This latter option allowed the workshops to complete a review of the major functionalities for a major utility, USWC. Without the decision to focus on one utility, staff and other parties’ resources would have been stretched too thin to succcessfully complete review of any single telecommunication [company’s] functionalities within a reasonable time frame. In addition it is very costly for a LEC to develop building block cost estimates. To avoid this expense, the non-USWC LECs (GTE, United, and Pacific Telecom), have the option of using the USWC results or developing their own estimates for those functionalities they feel necessary. This agreement among the parties resolved the issue as to whether or not, during the UM 351 cost investigation, other non-USWC LECs were required to develop cost estimates. Order No. 93-1118, Staff Report, Special Public Meeting, July 15, 1993, at 3. (Emphasis supplied.)

 

The same approach was adopted by the Commission in Order No. 94-1056, in July 1994. In that order, we approved revised cost estimates to supercede those adopted in Order No. 93-1118, as well as cost estimates for additional network building blocks which had not previously been calculated using approved cost principles.

The Commission is dismayed by GTE’s assertion that the approach adopted in Order Nos. 93-1118 and 94-1056, is improper. As noted above, GTE was an active participant in the cost study workshops and agreed that incremental cost results for USWC could be used as a basis for the building block prices established in this case. See e.g., GTE Opening Brief at 11. At no point did GTE contend that this approach was unreasonable.

GTE’s claim that the price matrix data that it submitted in this proceeding complies with the cost study requirements established by the Commission is also incorrect. GTE never requested that the Commission review the price matrix data for consistency with the UM 351 cost principles or asked the Commission to use this data in lieu of USWC incremental cost estimates. Furthermore, GTE has not submitted the documentation necessary to demonstrate that the price matrix information was developed using the cost principles adopted in UM 351. The price matrix information supplied by GTE consists primarily of cost summary results. The Commission cannot accept such information at face value; rather, we must be able to examine the underlying models, input data and other assumptions to ascertain that the cost results were calculated in accordance with the incremental cost method approved in Phase 1 of this proceeding.

During the hearing in this matter, Staff witness Jon Wolf emphasized that GTE costs were not used to develop building block prices because those costs had not been approved and no adequate opportunity had been afforded to review GTE cost information.

Under the policy adopted in Order No. 93-1118, GTE has had over four years to prepare and submit properly documented studies that reflect company-specific costs. GTE has not prepared such studies, but has instead chosen to rely on cost information prepared by USWC. GTE’s election is consistent with the approach that GTE itself recommended as a participant in the UM 351 Phase 1 cost study workshops. For GTE to now allege that it has been harmed by this process is disingenuous. GTE has always had, and still has, the option of submitting the information necessary to demonstrate that its costs differ from those adopted by the Commission here.

Building Block Prices--Basic NAC Price. As noted above, the contribution to joint and common costs included in the basic NAC price was set at five percent. Our decision to limit the markup on the NAC was based in part on the testimony of Staff witness Wolf. Mr. Wolf explained that NAC are by far the most costly element of local service, and that high contribution levels would lead to high bundled prices. He further testified:

There are a number of interrelated reasons for constraining the percentage contribution for the NAC. First, limiting the NAC’s contribution will have the effect of lowering the price that a customer would pay for a stand alone NAC. For competitors this will provide an incentive to utilize LEC NACs thereby achieving the public policy objective of fostering competition. For other customers, limiting the level of contribution of the NAC will lead to lower bundled prices. Staff/Exhibit 5, Wolf/35.

 

As noted above, the Commission elected to markup the basic NAC price by only five percent in Order No. 96-188. Since that time, however, we have issued Order No. 96-284, in docket UM 773. That decision approves certain revisions to the cost methodology approved in Phase 1 of this proceeding, including assumptions regarding the cost of capital, economic depreciation lives and the cost of placing LEC facilities. Based on the evidence presented in UM 773, we anticipate that the cost study changes will significantly increase the cost of the basic NAC building block. Although the magnitude of the change in NAC cost will not be known until USWC prepares cost estimates and an audit is conducted, we believe that prudence requires that the basic NAC should be adjusted to include substantially more contribution than the price set forth in Order No. 96-188.

Furthermore, as discussed below, Order No. 96-188 contemplated that USWC and GTE would seek a waiver from the FCC that would allow LECs to charge the interstate subscriber line charge (SLC) to carriers purchasing unbundled loops. The FCC has since indicated that it does not favor including non-cost based charges such as the SLC in the unbundled loop price. Had we known the FCC’s position on this matter at the time we issued Order No. 96-188, we would most likely have specified a basic NAC price that included additional contribution to offset the potential for LEC revenue erosion.

In view of the foregoing, the Commission finds that the basic NAC price should be increased from $11.95 to $16.00. The revised price incorporates a 40 percent contribution to joint and common costs over and above the UM 351 cost of providing that element. The $16 basic NAC price will remain in effect until revised prices are developed based on the UM 773 cost study assumptions. As emphasized above, it will take time to implement new building block prices because USWC must produce new cost estimates and that information must then be audited. In the meantime, we are satisfied that the higher NAC price will adequately compensate USWC for this element without discouraging competitive entry.

We have chosen not to adjust any other building block prices at this time as a result of our decisions in docket UM 773. In our opinion, the basic NAC price requires special attention because: (a) we deliberately constrained the markup in Order No. 96-188; (b) NAC cost study assumptions have changed significantly in UM 773, and; (c) the NAC is the most significant cost component in supplying telecommunications service. In addition, most of the remaining building blocks are already priced substantially above the UM 351 incremental cost estimates.

As a final matter, we note that our decision to adopt a basic NAC price that includes a 40 percent contribution above the UM 351 cost, does not mean that NAC prices based on UM 773 costs will include the same level of contribution to joint and common costs. The level of contribution included in the NAC price is designed to minimize the potential for LEC revenue erosion until new building block costs and prices can be developed.

Building Block Prices--Local Switching. The building block price for unbundled local switching adopted in Order No. 96-188 is designed to recover the intrastate Carrier Common Line Charge (CCLC). The CCLC is a non-cost based rate element paid by interexchange carriers for each originating and terminating access minute of use.

Based on the comments filed by AT&T, ELI, MCI, and Staff, we find that non-cost based charges should not be included in building block prices. Including such charges impedes competitive entry by sending incorrect price signals and producing inefficient market decisions. Consequently, we have reduced the price of the local switching building block to eliminate the CCLC increment. The CCLC will continue to be charged to telecommunications carriers for all intrastate originating and terminating toll/access minutes of use. The revised building block rates for local switching are set forth in revised Appendix C. The prices include a contribution to joint and common costs.

Building Block Prices--USWC Confidential Exhibit 2. In its Comments/Application for Reconsideration, USWC submitted confidential Exhibit 2 to demonstrate that the prices for certain building blocks in Appendix C of Order No. 96-188 are below cost. After reviewing the information, the Commission makes the following findings:

Jumper NACs. The cost information used to develop the building block rates for jumper NACs was based on incorrect cost data included in USWC’s price matrix filing. The costs listed for jumper NACs in USWC’s price matrix are actually the costs for USWC’s bundled EICT offering. As a result, the costs listed for jumper NACs in the confidential workpapers (and carried over to USWC’s Exhibit 2) are several hundred percent above incremental cost. The actual costs of the Jumper NAC building blocks have been computed and are set forth in confidential Attachment 1. The revised prices for these building blocks are listed in revised Appendix C.

Transport Facilities Common. The cost basis used to calculate the building block prices for these elements in Order No. 96-188 is incorrect. The costs listed in the confidential workpapers underlying Appendix C of Order No. 96-188 (and carried over to USWC confidential Exhibit 2) should be calculated on a per minute/per mile basis rather than a per minute basis. The revised building block costs are set forth in confidential Attachment 1. The revised building block prices are set forth in revised Appendix C.

Transport Facilities Dedicated. Our review discloses that the building block prices adopted in Order No. 96-188 are below cost for these elements. The revised prices are set forth in revised Appendix C.

Switching Features. The costs listed in the Appendix C workpapers (and carried over to USWC Exhibit 2) for the Continuous Redial, Last Call Return, Priority Calling and Selective Call Forwarding switch features were based on costs shown in USWC’s Table 1 price matrix filing. USWC’s subsequent Table 2 and Table 3 price matrix filings disclose lower costs for these features. The Commission has used the most recent USWC cost data to compute the revised building block costs. The costs are listed in confidential Attachment 1. The building block prices are listed in revised Appendix C.

Channel Performance Functions. The building block prices for the channel performance functions identified by USWC in Exhibit 2 are the current tariff prices in effect for USWC. Our review discloses that these prices are indeed below cost and should be revised upward. We have also revised the markup for other channel performance elements. The amount of markup is shown on confidential Attachment 1. The revised building block prices are listed in revised Appendix C.

Interstate Subscriber Line Charge. The SLC is an interstate rate charged to all end users that subscribe to local telephone service. It is designed to recover a portion of non-traffic sensitive loop costs associated with the interstate jurisdiction. Revenues from the SLC are submitted to the CCL pool administered by the National Exchange Carrier Association (NECA), and are used to reduce the local rates of customers served by high cost LECs.

In Order No. 96-188 at 83, we agreed that USWC and GTE should be permitted to seek a waiver from the FCC to enable them to charge an AEC the amount of the SLC whenever an AEC purchased the unbundled equivalent of a subscriber line (i.e., an unbundled loop and NACC). We determined that this approach would eliminate the competitive imbalance that would result if customers of the incumbent LECs were required to pay the SLC, but customers of new entrants were not. In addition, we were concerned that, unless the SLC were recovered from AEC customers, those customers would not contribute to the NECA pool, resulting in a reduced level of funding for high cost LECs.

As several commentators have noted, however, the FCC Order specifically denies the recovery of federal access charges and embedded costs through prices for unbundled loops. In ¶364 of the order, the FCC concluded that "when a carrier purchases a local loop for the purpose of providing interexchange services or exchange access services, incumbent LECs may not recover the subscriber line charge now paid by end users." The FCC further found that the unbundled loop charges paid by new entrants already recover the unseparated cost of the loop, including the interstate component now recovered through the SLC.

Although the pricing decisions in the FCC Order have been stayed, this Commission has no control over federal charges. Absent FCC approval, we cannot permit the LECs to recover the SLC from purchasers of unbundled loops. We presume the incumbent LECs will petition the FCC to resolve this issue.

Nonrecurring Charges. USWC points out that Order No. 96-188 does not address recovery of nonrecurring costs. It suggests that nonrecurring charges should be determined as part of the tariff compliance process. USWC further maintains that LECs should be compensated in advance for costs incurred to provision unbundled elements. ELI, on the other hand, argues that the nondiscrimination provisions in §251(c)(3) of the Act require that nonrecurring charges imposed on carriers purchasing unbundled elements should be no greater than the nonrecurring charges imposed on end user customers purchasing bundled telecommunications service.

The Commission generally agrees with the approach taken by the FCC in §51.507(e). That rule contemplates that LECs should be permitted to recover nonrecurring costs through recurring charges over a reasonable period of time. It also provides that nonrecurring charges should be allocated efficiently among requesting telecommunications carriers and should be limited to the forward looking economic cost of providing the network elements. We agree with USWC that nonrecurring charges for provisioning building blocks should be addressed in the compliance filings required by this order. It is possible that nonrecurring charges may also be addressed in the arbitration proceedings under the Act.

Wholesale Discounts. In Order No. 96-188 at 95, we found that there was insufficient evidence in the record to enable us to adopt wholesale rates as prescribed in §251(c)(4) of the Act. We stated that we would consider opening a docket to determine LEC avoided costs and the appropriate wholesale discount rate once the FCC regulations were promulgated. Given the stay of the FCC pricing regulations and proxy wholesale rates, we agree with Staff that it is appropriate to open an investigation to determine a method for computing LEC avoided costs and a reasonable wholesale discount level. In the interim, these issues will continue to be addressed in the arbitration proceedings being conducted pursuant to §252(b) of the Act.

Deaveraging. Order No. 96-188 recognizes the need for geographic NAC deaveraging, but defers action on that issue to a subsequent proceeding. The order also requires USWC and GTE to submit deaveraging proposals in their next general rate filings. Order No. 96-188 at 62. The FCC Order at ¶¶764-765, requires that the states adopt deaveraged rates for interconnection and unbundled rate elements applicable to at least three geographic zones.

Given the stay of the FCC pricing regulations, our decision in Order No. 96-188 remains unchanged. USWC should present proposals for geographic deaveraging and related implementation issues in the rate design phase of docket UT 125. GTE should submit similar proposals in its next general rate filing. We believe this approach will allow for a more comprehensive examination of the issues. In the interim, geographic deaveraging proposals may be considered in the arbitration proceedings held under §252(b) of the Act.

LEC Reporting Requirements. ELI recommends that the Commission develop reporting requirements to ensure compliance with §251(c)(3) of the Act, which requires incumbent LECs to provide "nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms and conditions that are just, reasonable and nondiscriminatory." The FCC Order at ¶311, encourages states to adopt such reporting requirements.

The Commission agrees that reporting requirements may be necessary to ensure that nondiscriminatory access is provided to telecommunications carriers. The process of developing those requirements, however, is beyond the scope of this proceeding and should be considered in a separate docket. In the interim, carriers may seek redress for alleged discrimination through the complaint process.

Preexisting Agreements. ELI requests that incumbent LECs be required to file all contracts with other carriers. §51.303 of the FCC rules establishes requirements for filing interconnection agreements. Subsection (a) requires all interconnection agreements between an incumbent LEC and a telecommunications carrier, including those negotiated before enactment of the Act, shall be submitted to the appropriate state commission for approval pursuant to §252(e) of the Act. Subsection (b) further requires all interconnection agreements between Class A carriers negotiated before enactment of the Act to be filed with the appropriate state commission no later than June 30, 1997, or such earlier date as the state commission may require. Finally, subsection (c) contemplates that the state commission will review preexisting agreements to determine if they are consistent with the public interest, and may approve or reject such agreements.

The Commission has not decided whether to accelerate the date for filing preexisting interconnection agreements between Class A carriers. In the event we decide such agreements must be filed before June 30, 1997, we will notify all interested parties. Any interconnection agreements executed after enactment of the Act that have not been filed with the Commission, should be submitted immediately. Any interconnection agreements entered after the date of this order should be filed with the Commission within 14 days of the date the agreement is executed.

GTE Appendix A. As part of its Comments/Application for Reconsideration, GTE submitted an appendix listing certain "technical and operational concerns" with Order No. 96-188. GTE suggests that its concerns "can be largely resolved by a workshop with the Commission staff and other interested parties."

The majority of the issues raised by GTE appear to deal with administrative matters or areas where greater definition or clarification is requested. Rather than convene a formal workshop for this process, GTE should seek to resolve its concerns through discussions with the Commission staff as part of the tariff compliance process. Other parties to this proceeding may participate in these discussions.

GTE Appendix A; Question 1. GTE notes that Order No. 96-188 does not contain complete definitions for many authorized building blocks. As emphasized, we believe that the technical parameters of each unbundled element should be determined by the parties through informal discussions. Issues that cannot be resolved in this manner may be directed to the Commission for resolution.

GTE Appendix A; Question 2. GTE asks whether all of the building blocks authorized in Order No. 96-188 must be made available for separate purchase by a telecommunications carrier. The answer is yes. GTE is free to create service offerings by packaging certain building blocks, but it must also make each building block available for separate purchase. Telecommunications carriers should have the option of deciding whether to purchase a single building block or a combination of building blocks.

GTE Appendix A; Question 3. GTE observes that certain building blocks such as "warm line" are offered only by USWC at the present time. It raises a number of questions regarding the timing and availability of these building blocks. Once again, we believe that the details of implementing the unbundling mandate are best resolved in the tariff compliance process. If GTE is unable to provide building blocks that USWC can make available within the time prescribed by the Commission, it may request a waiver in conjunction with its compliance filing.

If circumstances warrant, a LEC may also seek additional time to implement certain building blocks or ask permission to provide the same functionality in another manner. The Commission does not require that each LEC must provision everything in exactly the same way. Such a requirement would interfere with network efficiencies, innovation and the development of new services. Provided that the unbundled elements are made available on a timely basis, we will consider alternative methods of compliance.

GTE Appendix A; Question 4 GTE raises concerns about unbundling the SS7 network, particularly direct connection at the SCP. This issue is addressed elsewhere in this order.

GTE Appendix A: Questions 5-19. These questions are largely requests for clarification and additional information that should be resolved during the course of the tariff compliance process rather than in this order. Given the many variables involved, the Commission is loathe to specify the precise technical parameters for each of the unbundled elements at this time. We prefer to let the parties work out these details, and will not intervene unless there is an impasse that cannot be resolved in a timely manner.

Wireless Carriers. AT&T Wireless requests that the Commission clarify that

(a) Commercial Mobile Radio Service (CMRS) providers are entitled to reciprocal compensation arrangements for LEC-CMRS interconnection, and; (b) pending renegotiation of current LEC-CMRS interconnection arrangements (which do not provide for reciprocal compensation), CMRS providers may assess transport and termination charges on the incumbent LECs at the existing LEC-CMRS interconnection rates.

In Order No. 96-188, we observed that CMRS providers (referred to as RCCs) are included within the statutory definition of "telecommunications carrier" set forth in the Act. The FCC affirmed that interpretation, and has concluded that CMRS providers are entitled to request interconnection and obtain access to unbundled elements at any technically feasible point in an incumbent LEC’s network. See FCC Order at ¶¶993, 999-1015.

The FCC also concluded that incumbent LECs are obligated to enter into reciprocal compensation arrangements for the transport and termination of local traffic. See §51.701; FCC Order at ¶¶1008, 1041-1042. In addition, the FCC held that:

CMRS providers that are party to pre-existing agreements with incumbent LECs that provide for non-mutual compensation have the option to renegotiate these agreements with no termination liabilities or other contract penalties. Pending the successful completion of negotiations or arbitrations, symmetrical reciprocal compensation provisions shall apply, with the transport and termination rate that the incumbent LEC charges the CMRS provider from the pre-existing agreement applying to both carriers, as of the effective date of the rules we adopt pursuant to this order. FCC Order at ¶1094; see also, §51.717(b).

 

While the Commission agrees with the compensation approach stated above, CMRS rates remain under the jursidiction of the FCC. LEC-CMRS compensation issues must therefore be addressed at the federal level or in the arbitration proceedings conducted under the Act.

ORDER

IT IS ORDERED that:

1. Order No. 96-188 is amended to include the determinations set forth herein.

2. U S WEST Communications, Inc. and GTE Northwest Incorporated shall unbundle their existing telecommunications services into the building blocks listed in revised Appendix C of this order.

 

3. U S WEST Communications, Inc. and GTE Northwest Incorporated shall file tariffs specifying prices for each of the building blocks listed in revised Appendix C of this order. The tariffs shall be filed within 45 days of the date of this order. The building block prices shall be effective 45 days after the tariffs are filed.

 

Made, entered, and effective ________________________. 

A party may appeal this order pursuant to ORS 756.580.

h:\um351\96-283

REVISED APPENDIX C TO ORDER 96-188

COMMISSION APPROVED BUILDING BLOCKS AND

BUILDING BLOCK RATES

MONTHLY

RATES

NETWORK ACCESS CHANNEL (NAC)

* BASIC NAC (2-wire) $16.00

* ISDN NAC $16.00

* BASIC NAC (4-wire) $32.00

DS1 AND PRIMARY ISDN NAC $56.05

DS3 NAC $308.66

DARK FIBER #

DIGITAL NAC (FOUR WIRE) #

NETWORK ACCESS CHANNEL CONNECTION

* JUMPER NAC DS0 (2-wire) $0.47

* JUMPER NAC DS1 (4- wire) $0.47

* JUMPER NAC DS3 Electrical $5.25

* JUMPER NAC DS3 Optical (Fiber) $5.25

NACC DS-O SWITCHED LINESIDE $1.20

NACC DS-O SWITCHED TRUNKSIDE $1.20

NACC DSO-DEDICATED $0.21

NACC DS-1 SWITCHED LINESIDE $44.28

NACC DS-1 SWITCHED TRUNKSIDE $44.28

NACC DS1-DEDICATED $0.21

NACC DS-3 DEDICATED $0.84

NACC ISDN $1.20

NACC FRAME RELAY $0.25

NACC SMDS $0.85

NACC ISDN EXT (> 18K') $22.91

INTERCONNECTION BUILDING BLOCKS

DISTRIBUTING FRAME TERM 2-WIRE $0.20

DISTRIBUTING FRAME TERM 4-WIRE $0.40

FIBER OPTIC TERMINATION #

CROSS CONNECTION DS-0 $0.21

CROSS CONNECTION DS-1 $0.21

CROSS CONNECTION DS-3 $0.84

CROSS CONNECTION OC-N #

@ NETWORK INTERFACE DEVICE #

MULTIPLEXING DS-1 TO DS-0 $152.89

MULTIPLEXING DS-3 TO DS-1 $188.69

DATA CHANNEL TERMINATING EQUIPMENT $0.56

TESTING ACCESS #

INTRA-PREMISE RISER CABLE FACILITIES #

LOOP CONCENTRATION #

RSD INTERCONNECTION #

IDLC INTERCONNECTION #

INTERIM NUMBER PORTABILITY #