ORDER NO.

ENTERED

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

ARB 1

DISPOSITION: ARBITRATOR’S DECISION ADOPTED AS AMENDED

PROCEDURAL HISTORY

On June 24, 1996, MFS Communications Company, Inc. (MFS) filed a petition with the Public Utility Commission of Oregon (Commission) to arbitrate a contract for network interconnection with U S West Communications, Inc. (USWC) pursuant to 47 U.S.C. §§251 and 252 of the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (Act). On July 19, 1996, USWC filed a response. An arbitration hearing was held on September 24 and 25, 1996, before Thomas G. Barkin, an Administrative Law Judge for the Commission.

Standards for Arbitration

This proceeding was conducted under 47 U.S.C. § 252(b). The standards for arbitration are set forth in 47 U.S.C. § 252(c):

In resolving by arbitration under subsection (b) any open issues and imposing conditions upon the parties to the agreement, a State commission shall--

(1) ensure that such resolution and conditions meet the requirements of section 251, including the regulations prescribed by the Commission pursuant to section 251;

(2) establish any rates for interconnection, services, or network elements according to subsection (d); and

(3) provide a schedule for implementation of the terms and conditions by the parties to the agreement.

 

 

Commission Approval

Section 252 (e)(1) of the Act requires that any interconnection agreement adopted by negotiation or arbitration shall be submitted for approval to the State commission. Section 252 (e) (2) (B) provides that the State commission may reject an agreement (or any portion thereof) adopted by arbitration only, "if it finds that the agreement does not meet the requirements of section 251, including the regulations prescribed by the Commission pursuant to section 251, or the standards set forth in subsection (d) of this section." Section 252 (e)(3) provides as follows:

Notwithstanding paragraph (2), but subject to section 252, nothing in this section shall prohibit a State commission from establishing or enforcing other requirements of State law in its review of an agreement, including requiring compliance with intrastate telecommunications service quality standards or requirements.

 

On August 8, 1996, the Federal Communications Commission (FCC) issued rules on interconnection pursuant to §§ 251 and 252 of the Act. (47 C.F.R. § 51.100 et seq. FCC Order 96-325). On October 15, 1996, the U. S. Court of Appeals, Eighth Circuit, stayed the operation of the portions of those rules that relate to pricing and the "pick and choose" provisions. Iowa Utilities Board v. Federal Communications Commission et al., Case Nos. 96-3321 et seq. (8th Cir., October 15, 1996) (Order Granting Stay Pending Judicial Review).

Commission Conclusion

The Commission has reviewed the Arbitrator’s decision and the exceptions and comments under the standards set out above. Except with respect to Reciprocal Compensation, we conclude that the Arbitrator’s decision comports with the requirements of the Act, FCC rules where applicable, and relevant state law and regulations, and should be approved. We have explained below our reasons for changing the decision relating to Reciprocal Compensation. With respect to four other issues, we have provided clarification or additional explanation of the decision while approving the decision.

Modifications of the Arbitrator’s Decision

1. Loop Deaveraging (Page 5 of the Arbitrator’s Decision). To clarify the basis for the decision not to implement geographic deaveraging at this time, the "Arbitrator’s Decision" section is modified to read as follows:

Arbitrator’s Decision. Geographic deaveraging should not be implemented at this time.

 

Geographic deaveraging is an appropriate mechanism for matching the cost to provide unbundled elements with the price for those elements. However, in this case, we do not have sufficient information in the record to require deaveraging as MFS proposes. We also note that USWC is correct in its assertion that deaveraging unbundled elements before deaveraging retail rates would place it at a competitive disadvantage.

2. Price to Install Loops (Page 7 of the Arbitrator’s Decision). The first sentence of the third full paragraph on Page 7 is clarified to read as follows:

The MFS proposal for a reduced price to install additional loops at a particular wire center on the same service order for work in the same central office is adopted.

 

3. Construction Costs (Pages 6 and 7 of the Arbitrator’s Decision). For clarification, the following material is added after the final paragraph of the "Arbitrator’s Decision":

Requiring the customer to pay for construction as an up-front charge has two problems. First, it would require the competitor to pay for the service twice: once in the advance charge and again in the recurring charge. In addition, charging the first competitor for the construction imposes all the costs on that entity. Subsequent competitors would be able to request service using the facilities paid for by the first competitor. USWC has not proposed any mechanism that avoids these concerns.

 

It is clear that USWC is entitled to recover its costs of construction. In situations where recovery through recurring charges is uncertain, USWC may take reasonable steps to insure cost recovery. For example, in situations involving temporary facilities or facilities to be constructed in advance of use, USWC may take reasonable steps to insure cost recovery. Those steps include, but are not limited to: term contracts, bonds or other security, or advance payment of construction charges.

 

Our decision on this issue is consistent with the FCC Rules and Order relating to General Rate Structure, which set out principles for analyzing rate structure questions and developing methods of recovery of costs. (See § 51.507; ¶ ¶ 743-754).

 

4. Reciprocal Compensation (pages 11-12 of the Arbitrator’s Decision). The sections entitled "Parties’ Positions" and "Arbitrator’s Decision" are replaced by the language below. We change the Arbitrator’s decision on this issue because we conclude that the Arbitrator’s decision does not comport with § 252 (d) (2) of the Act. Specifically, we conclude that the Arbitrator’s conclusion that the MFS switch qualifies for tandem rate treatment is incorrect and would not provide for mutual and reciprocal recovery of costs and would not lead to just and reasonable terms and conditions for reciprocal compensation. Notwithstanding Paragraph 1090 of FCC Order 96-325, we conclude that the Act requires that the classification of a switch be determined by functionality, not mere geographic scope of service. We must therefore determine the rates to be applied. The Arbitrator concluded earlier in his Decision that USWC’s cost studies, which are the basis for the rates it proposes, should not be considered. We agree with that decision. MFS’s proposed rates are significantly higher than USWC’s proposed rates. We conclude that these proposed rates are not supported by sufficient evidence in the record and should not be adopted. We therefore conclude that UM 351 rates should be applied, in accord with the Arbitrator’s general position stated earlier in his Decision.

We therefore modify the Arbitrator’s decision as follows:

Parties’ Positions. The parties stated that this dispute is over the rate element to apply.

 

MFS asserts that, until a Commission-supervised cost study has been performed, this Commission must apply the FCC’s default proxy rates set forth in 47 U.S.C. §51.707. The proxy rate is the tandem rate.

 

MFS argues that the FCC does not require comparable switch functionality or cost structure, only a comparable geographic area. The MFS switch will serve customers served by the USWC Portland and Vancouver tandems and the GTE Beaverton tandem. It can serve customers in any wire center in the LATA through the purchase of unbundled transport and loops. As a result, MFS has additional costs that USWC does not face, such as very long loops, fiber rings and distributed processing. MFS believes that call termination rates should be symmetrical and based on USWC's tandem rate. If tandem rate treatment is not received for traffic terminated to MFS, the reciprocal, per minute rates should be $0.004 for end office termination and $0.006 for tandem termination, in reflection of the additional costs incurred by MFS. This recognizes MFS's higher costs.

 

USWC argues that MFS’s switch is not comparable to USWC’s tandem switch and therefore MFS is not entitled to symmetrical mutual compensation rates. The functions of the MFS switch are not similar to the USWC tandem switch, the costs are not symmetrical, and the geographic area served by the MFS switch is not comparable to the area served by the USWC switch. The MFS switch provides dial tone and end office switching, while a tandem switch connects trunk groups. The MFS switch will not fully serve all the customers within the geographic area. MFS confuses circumference with area. Further, MFS will not allow USWC to avoid the tandem charge by directly connecting to an MFS end office. USWC asserted the proper rates to apply were $0.002880 for end office termination and $0.005161 for tandem switch termination.

 

Arbitrator’s Decision. The USWC language designating the MFS switch as an end office switch for purposes of call termination is adopted.. Joint Position Statement, at 12. MFS’s switch has the functionality of an end office switch and should be treated as such. Rates should be designed to create an incentive for both parties to try to reduce their cost of terminating calls on the other party’s network. This is done by moving from tandem switched traffic and common transport to direct end office connection via leased dedicated trunks or owned facilities.

 

Notwithstanding the parties’ assertions, it is apparent that there is no agreement on the price of transport and termination. MFS’s proposed rates are significantly higher than the USWC proposal. USWC proposed rates are based on its cost studies. As is noted elsewhere in this order, those studies will not be considered. As a result, the Commission will require that the UM 351, Phase II, rates for transport and termination be applied to this contract. The rates are $0.005000 for end office and $0.008881 for tandem termination. These rates will remain in effect pending Commission approval of rates for unbundled elements in compliance with the revised cost methodology adopted in UM 773. Order No. 96-284.

 

5. Interconnection (page 14 of the Arbitrator’s Decision). For purposes of clarification, the following paragraph is added to the "Arbitrator’s Decision" to follow the first paragraph of that section:

USWC expressed concern that MFS could require USWC to use its transport and tandem facilities for local calling outside the local calling area in which the MFS switch is located. USWC believes that it would be compensated as though the call were a local call, when, in fact, it is more like a toll call. The Commission understands that the approved rate in Appendix A for traffic terminated at the tandem is based on an assumed transport mileage of 10 miles. Appendix A Note 1. The note further provides that if the average tandem transmission mileage experienced by the parties exceeds 10 miles, the parties will adjust the tandem call termination rate based on the tandem transmission rates set forth in the Appendix. That provision should address USWC’s concern. To avoid any misunderstanding, the contract should include a statement that MFS may not employ its single point of interconnection to avoid paying USWC for the use of its transport and tandem facilities.

Order

 

IT IS ORDERED that the Arbitrator’s decision in this case, attached to and made part of this order as Appendix A, is adopted as modified in this order.

Made, entered, and effective ________________________. 

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be filed with the Commission within 60 days of the date of service of this order. The request must comply with the requirements in OAR 860-014-0095. A copy of any such request must also be served on each party to the proceeding as provided by OAR 860-013-0070(2). A party may appeal this order pursuant to applicable law.