ISSUED: December 30, 1996

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

ARB 8

BACKGROUND

On September 6, 1996, Western Wireless Corporation, dba VoiceStream (WW) filed a petition for arbitration with GTE Northwest, Incorporated (GTE). The petition was filed pursuant to §§ 251 and 252 of the Communications Act of 1934, 47 U.S.C. 151 et seq., as amended by the Telecommunications Act of 1996 (Act). On October 1, 1996, GTE filed its response to the petition.

In its response to the petition, GTE included a motion to dismiss the petition. WW responded to the motion on October 10, and on October 11 GTE withdrew its motion. On October 30, WW filed a motion to limit issues and to strike, and on November 12 I denied the motion. On October 3, GTE filed a motion for a protective order, and on October 11 I issued Order No. 96-272 protecting confidential information.

On October 1, I presided over a procedural conference. On October 21, the parties filed a joint position statement setting out the issues in dispute. On November 19, 1996, I presided over an arbitration hearing in this matter in Salem, Oregon. The following appearances were entered:

For WW:

Beth Kaye, David Wilson, and Gene DeJordy, Attorneys at Law

For GTE:

Andrew Shore and Timothy J. O’Connell, Attorneys at Law

This arbitration is being conducted under 47 U.S.C. Sec. 252(b) of the Act. Section 252(c) of the Act sets out a state Commission’s task in arbitrating an interconnection agreement as follows:

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 [Federal Communications] 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.

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 September 27, 1996, the U. S. Court of Appeals, Eighth Circuit, temporarily stayed the effective date of the FCC’s rules. On October 15, 1996, the Court 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). In an order on reconsideration, dated November 1, 1996, the court lifted the stay on §§ 51.701, 51.703, and 51.717. I have read and considered the stayed FCC pricing rules, but do not consider them to be binding on this arbitration.

WW is classified as a Commercial Mobile Radio Service (CMRS) provider by the FCC. Through its subsidiaries, WW holds radio licenses from the FCC to provide wireless cellular radio telephone service (cellular), personal communications service (PCS), specialized mobile radio (SMR) service, and paging and radiotelephone service (PARS) to consumers in 19 western states. In Oregon, WW provides PCS.

GTE is a telecommunications carrier providing local and intraLATA telephone service in Oregon and other states. It meets the definition of a local exchange carrier (LEC) under the Act.

The parties are not requesting that the Commission arbitrate a complete interconnection agreement between them. Rather, they are requesting that the Commission resolve the disputed issues, and then the parties will amend the current agreement between them to comply with the decisions made by the Commission and the matters they resolved during negotiations.

ISSUES IN DISPUTE

1. What Rate Should GTE Charge WW for Terminating Local Calls Originating on WW's Network?

Telecommunications Act. Section 251(b)(5) imposes a duty on local exchange carriers (LECs) to establish reciprocal compensation arrangements for the transport and termination of telecommunications. Section 252(d)(2) tells state commissions not to consider reciprocal compensation terms to be just and reasonable unless they provide for the mutual and reciprocal recovery by each carrier of costs associated with the transport and termination on each carrier’s network facilities of calls that originate on the network facilities of the other carrier. In addition, the costs must be based on a reasonable approximation of the additional costs of terminating the calls.

FCC Rules. Section 51.305(a)(5) requires incumbent local exchange carriers (ILECs) to provide interconnection of facilities and equipment that is just, reasonable, and nondiscriminatory.

Parties' Positions. WW argues that the Act requires prices to be designed to recover the additional costs of terminating calls. The word additional suggests that only incremental costs be recovered, not embedded or historical costs. WW requests that a local switching rate of $0.38228 per minute of usage be adopted. That rate is based on GTE's total service long run incremental cost (TSLRIC). WW and GTE stipulate that GTE's TSLRIC is $0.3822 per minute.

GTE takes the position that its tariffed interstate switched access rate (currently set at 1.2632 cents per minute) should apply to the local switching function. That rate has been established by the FCC, and covers GTE's direct costs, a contribution to joint and common costs, and a reasonable profit. It is GTE's wholesale rate offered to interexchange carriers (IXEs). GTE wants to have one rate it offers to all types of wholesale customers, whether they are IXEs or wireless carriers.

Resolution

The Act requires the local switching rate GTE charges WW to be a reasonable approximation of the additional costs of terminating local calls originating on WW's network. Additional costs are incremental costs resulting from adding new demand for service to an existing facility. Tariffed interstate access rates are not based on incremental or additional costs, but are based on embedded costs. Rates based on embedded costs are inconsistent with the requirement that rates are to be based on additional costs. GTE's interstate access rate is not the appropriate rate to charge WW for switching local calls originating on WW's network, and must be rejected.

The question then arises as to what rate is appropriate. WW argues for a rate equal to GTE's TSLRIC, a rate GTE claims would constitute an unlawful taking in violation of the U. S. Constitution.

The rates adopted by the Commission in Order No. 96-283 (reopened UM 351) are the most reliable prices for transport and termination available to the Arbitrator and the Commission. Those prices were established through a formal, open investigation in which telecommunications industry groups and consumers participated. The Commission sought and received comments, testimony, briefs, and expert advice from the participants. The Commission thoroughly examined the positions of the parties and came to a reasoned resolution of the contested issues. The rates established in Order No. 96-283 were not developed for CMRS providers. However, the industry is moving toward technology-neutral, nondiscriminatory pricing regimes, and the rates established in Order No. 96-283 are appropriate for use in this proceeding.

The rates established in Order No. 96-283 are adopted in this arbitration. That order establishes the tandem switching rate at $0.003330 per minute, and the end office terminating switching rate at $0.005000 per minute. The Commission adopted revised costing standards in Docket No. UM 773. The rates adopted in this proceeding are subject to revised rate schedules approved by the Commission in compliance with the methodology adopted in UM 773.

2. What Rate Should WW Charge GTE for Terminating Local Calls Originating on GTE's Network?

Telecommunications Act. Section 251(b)(5) imposes a duty on local exchange carriers (LECs) to establish reciprocal compensation arrangements for the transport and termination of telecommunications. Section 252(d)(2) tells state commissions not to consider reciprocal compensation terms to be just and reasonable unless they provide for the mutual and reciprocal recovery by each carrier of costs associated with the transport and termination on each carrier’s network facilities of calls that originate on the network facilities of the other carrier. In addition, the costs must be based on a reasonable approximation of the additional costs of terminating the calls.

FCC Rules. Section 51.711 provides that, in general, rates for transport and termination of local traffic shall be symmetrical. The goal is to have each party charge the same rate that it pays the other party. This rule has been stayed by the Eighth Circuit Court of Appeals.

Parties' Positions. WW argues that its transport and termination services are functionally equivalent to those of GTE. WW alleges that its own costs for termination exceed $0.004 per minute, far higher than the termination costs of GTE. However, out of a sense of fairness and balance, WW is willing to charge GTE the same compensation for terminating traffic as GTE charges WW.

GTE argues that the Act requires each carrier’s compensation to be based on that company’s costs, and points out that the FCC rule mandating symmetrical compensation has been stayed by the Eighth Circuit Court of Appeals. GTE contends that WW has failed to prove its own costs, arguing that WW’s cost study is insufficiently detailed to provide meaningful information, is biased to produce high numbers, and includes network components not associated with the local switching function. GTE recommends that the Arbitrator either set WW's rate at $0.0 or direct WW to provide a meaningful TSLRIC study, after which the parties would negotiate an appropriate termination rate.

Resolution.

WW's evidence in support of the claimed $0.04 per minute cost of termination is not persuasive. The supporting study is cursory and lacks sufficient information on which to base compensation rates. GTE's suggestion to not allow WW to charge anything for terminating calls originating on GTE's network is also unacceptable. WW incurs costs in terminating those calls and is entitled to reasonable compensation to recover those costs.

During this time of transition without solid cost data, reciprocal and symmetrical compensation is fair and reasonable. GTE should pay WW the same rates for WW's termination of traffic originating on GTE's network as GTE charges WW. The rates are those established in reopened Docket No. UM 351, Order No. 96-283.

3. Date for Reciprocal Compensation.

Telecommunications Act. Section 251(b)(5) imposes a duty on LECs to establish reciprocal compensation arrangements for the transport and termination of telecommunications. The Act does not specify when reciprocal compensation arrangements must begin. Section 252(b)(4)(A) limits a state commission's consideration in an arbitration proceeding to issues raised in the petition and response to the petition.

FCC Rules. Section 51.717(a) provides that a CMRS provider that has an existing agreement with an ILEC which provides for non-reciprocal compensation is entitled to re-negotiate the agreement without penalties. Section 51.717(b) provides that from the date a CMRS provider makes a request to re-negotiate until a new agreement has been approved by a state commission, the CMRS provider is entitled to assess the ILEC the same rates as the ILEC has been charging the CMRS provider pursuant to the existing agreement.

Parties' Positions. WW contends that GTE’s obligation to pay WW for calls terminated on WW’s network originated when it requested negotiation for an interconnection agreement with GTE, which was on March 29, 1996. However, WW did not begin providing service in Oregon until July 1, 1996, so it requests that GTE be ordered to compensate WW for calls WW has been terminating for GTE since July 1 at the same rate GTE has been charging WW. That interim rate would be replaced by the new rate established in this proceeding. WW concedes that it did not allege an effective date for reciprocal compensation in its petition for arbitration, but requests that the issue be resolved in this arbitration because the Eighth Circuit’s lifting of the partial stay made Section 51.717 of the FCC's rules effective.

GTE points out that neither the petition for arbitration nor the response to the petition raised the issue of compensation for the time period from July 1 until the new rates are established in this proceeding. GTE argues that the issue was not properly raised and should not be considered. GTE contends that WW never asked to re-negotiate the existing contract between the parties under Section 51.717 of the FCC's rules, so the issue never was part of the negotiations between the parties. GTE argues that the entitlement granted to WW by Section 51.717 of the FCC's rules "neither expressly nor impliedly provides that from the date that a CMRS properly asserts it (sic) entitlement, it has a right to go backwards in time, to any date, and collect charges it would have been entitled to if it had asserted its entitlement earlier." (Emphasis in original). GTE also argues that to now order the payment of compensation as of July 1 would constitute impermissible retroactive ratemaking.

Resolution.

This issue was not raised in the petition for arbitration or in the answer to the petition. Therefore, it is not an issue that the Arbitrator and Commission can consider. The Act specifically limits the consideration of issues to those raised in the petition and response to the petition.

IT IS ORDERED that:

The rates for interconnection and transport and termination of traffic to be paid after the Commission issues its final decision in this proceeding shall be the rates established by the Commission in Order No. 96-283 in Docket No. UM 351, subject to the establishment of revised rates by the Commission pursuant to the cost methodology established in Order No. 96-284 in Docket No. UM 773;

This order is effective when signed by the Commission.

Dated at Salem, Oregon, this 30th day of December, 1996.

____________________________

Lowell Bergen/Arbitrator