ORDER NO. 97-021

ENTERED JAN 13 1997

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

ARB 5

DISPOSITION: ARBITRATOR’S DECISION ADOPTED AS AMENDED

On August 11, 1996, AT&T Communications of the Pacific Northwest, Inc. (AT&T) filed a petition with the Public Utility Commission of Oregon (Commission) to arbitrate a contract for network interconnection with GTE Northwest Incorporated (GTE), 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 September 10, 1996, GTE filed a response. An arbitration hearing was held on October 29 and 30, 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:

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.

Commission Conclusion

The Commission has reviewed the Arbitrator’s decision and the exceptions and comments under the standards set out above. Except for the decision on true-up of wholesale rates in Issue 1J and tandem-to-tandem switching in Issue 43, we conclude that the Arbitrator's Decision comports with the requirements of the Act, the FCC rules where applicable, and relevant state law and regulations, and should be approved. We explain our reasons for changing the decision on true-up of wholesale rates and tandem-to-tandem switching below. We also explain our understanding of a number of the Arbitrator’s decisions.

Comments on the Arbitrator’s Decision

General comment: Avoided vs. avoidable costs.

GTE takes issue with the Arbitrator’s decision to use avoidable rather than avoided costs. We support the Arbitrator’s choice and mention the issue only to refute an allegation of GTE. GTE asserts that the Arbitrator erred in assuming that GTE’s wholesale discount calculation includes an opportunity cost factor. We note that GTE described the opportunity cost factor as an adjustment to its avoided cost discount calculation. In fact, GTE headed its discussion of the opportunity cost factor as follows: "The Avoided Cost Discount Must Reflect the Full Basic Service Package Provided by GTE." GTE Brief at 37. The Arbitrator correctly characterized GTE’s wholesale pricing proposal.

On page 8 of Appendix A, the Arbitrator's Decision, the Arbitrator addressed the legal basis underlying GTE’s claim that it should not be required to sell below-cost services. We addressed the merits of the claim in Order No. 97-003 (Appendix A at 9-10).

Issue 1J—Is a volume discount appropriate in a resale environment, and if so, what should the discount be? (Pages 5-8 of the Arbitrator’s Decision)

The Arbitrator determined that discount rates for sale of services at wholesale were interim and subject to true-up. We have reviewed the other arbitration decisions that this Commission has processed. No other decision makes the discount rates for sale of services at wholesale subject to true-up. We conclude that a true-up in this case would be discriminatory against competing telecommunications carriers and would place an additional burden on competitive entry. Therefore, we revise the last paragraph of the Arbitrator’s Decision, p. 5, to eliminate the sentence: "The interim rates are subject to true-up." That paragraph now reads:

These discount rates are interim, pending Commission determination of the appropriate discount rate. Order No. 96-283 at 14. The conclusions regarding specific accounts and the calculation for the avoided cost is set forth in Appendix B.

We also eliminate the final paragraph in the section titled "Calculation of the Avoided Cost Discount," p. 7, which also states that the discount rates should be subject to true-up.

Issues 2, 3—Pricing Unbundled Elements. (Pages 10-13 of the Arbitrator's Decision)

GTE alleges that the Arbitrator erred in using the UM 351 rates for unbundled network elements, because those rates are based only on USWC costs. GTE has raised this specious argument before, in other dockets. We will not repeat here what we have said at length in Order No. 96-283, docket UM 351 reopened, at 8-9.

Issue 3—How should the cost of interconnection and unbundled network elements be calculated, and what prices should be established? (Pages 10-13 of the Arbitrator’s Decision)

We adopt the Arbitrator's Decision on p. 10 with the understanding that geographic deaveraging will be considered if GTE petitions the Commission for pricing flexibility under ORS 759.050(5) and Order No. 96-021. If GTE submits such a request, AT&T may reassert its claim that geographic deaveraging is necessary to ensure fair competition.

We replace the last paragraph of the discussion of deaveraging on page 13 of the Arbitrator's Decision with the following :

One additional topic is addressed in this section. AT&T proposes rates that include geographic deaveraging. Geographic deaveraging is an appropriate mechanism for matching the cost to provide unbundled elements with the price for those elements. It is clear that the cost of providing unbundled loops varies with length and density. However, we do not have sufficient information in the record to require deaveraging as AT&T proposes. Cf. Arb 1, Order No. 96-324 at 3.

Issue 4—Rates for Transport and Termination of Local Traffic. (Page 13 of the Arbitrator’s Decision)

We adopt the Arbitrator's Decision with the understanding that the rates for transport and termination set forth in Order No. 96-283, Appendix C, shall apply on an interim basis if the Commission eliminates bill and keep as a result of the industry work group efforts undertaken pursuant to Order No. 96-021 at 52.

Issues 30, 40, 34, and 33—Extent of unbundling. (Pages 15-16 of the Arbitrator's Decision)

GTE alleges that the Arbitrator errs in applying the Commission’s UM 351 orders and erroneous FCC rules to determine the extent of unbundling he mandates for GTE. GTE takes the position that the Arbitrator may mandate only "network elements" as defined by the Act §§251(c)(3), (d)(2), and 3(45), (48), and (51). Although we do not detail each objection GTE or AT&T has made to the Arbitrator’s Decision, we mention this one because it touches on the standard of review for Arbitrators’ Decisions. Under §252(e)(2)(B), we may reject a portion of an arbitration agreement only if we find "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, however, that notwithstanding paragraph (2), we may still establish or enforce other requirements of state law in reviewing arbitration agreements. That is, we may use the UM 351 unbundling requirements in this arbitration under the Act.

GTE also argues that as to Issue 34, the unbundled switch element, the only local switching element whose unbundling may be mandated under the Act is the port. The Arbitrator relied on Order No. 96-283 at 4-5 (UM 351 reopened) and 47 C.F.R. § 51.319(c) for the switch capabilities that must be unbundled. As noted above, we may apply the UM 351 unbundling requirements in this proceeding. The FCC section at issue has not been stayed. We find the Arbitrator’s Decision correct in its mandate to unbundle the features, functions, and capabilities of the local switch element.

Issues 30 and 40—Unbundled Elements to be Provided. (Page15 of the Arbitrator's Decision)

We adopt the Arbitrator's Decision on these issues with the understanding that the costs of standard conditioning are included in unbundled element prices. See Order No. 96-188 at 18-19 and 38-39 (adoption of Staff’s unbundling proposal).

Issues 17, 18, and 19—Operator services, directory assistance routing issues. (Page 18 of the Arbitrator's Decision)

For purposes of clarification, the text of the Arbitrator’s Decision on these issues is replaced by the following text:

Issue 17—Should GTE be required to route operator services and directory assistance calls to AT&T’s platforms where AT&T purchases resold services under §251(c) of the Act or state law?

Issue 18—Should GTE be required to route operator services and directory assistance calls to AT&T’s platforms where AT&T purchases unbundled network elements under §251(c) of the Act or state law?

GTE must route OS/DA calls to AT&T's platforms where AT&T purchases either resold services or unbundled network elements. AT&T's proposed contract language is adopted. Unless GTE demonstrates that customized routing of directory assistance is not technically feasible in a particular switch, it must provide the service on an unbundled basis. GTE's proposed procedure is adopted, as modified below:

AT&T shall submit reasonable requests and identify those geographic areas where it wants customized routing;

Within 14 days of receiving AT&T's notification, GTE will identify its switches serving in the designated area, specify any claim of technical infeasibility, including an inadequate number of Line Class Codes, and provide a quote for the cost to provide the customized routing;

Absent a showing by GTE, by clear and convincing evidence, that customized routing is not technically feasible, GTE must provide customized routing within 56 days of AT&T's subsequent notification that it will accept the terms of the offer;

AT&T and other CLECs must pay the costs associated with providing customized routing on a competitively neutral basis; and

The parties shall work to establish a long-term industry solution.

GTE claims that it is not required to unbundle portions of OS/DA that are not sold separately at retail. GTE offers to provide those aspects of OS/DA that it currently offers at retail along with local service at just and reasonable rates for its avoided cost. GTE has agreed to unbundle GTE-provided OS/DA. However, it claims that switch routing capability is not an unbundled element and that current switch limitations would require adding new capacity and conditioning existing switches. Finally, it asserts that a long-term industry standard must be established. GTE states that it is willing to provide customized routing on an individual case basis.

AT&T states that GTE must unbundle the functionalities of OS/DA in connection with resold services, to the extent technically feasible. GTE must prove to the Commission that customized routing at a particular switch is not technically feasible.

We adopt AT&T's position and contract language. The FCC has required GTE to unbundle customized routing functions provided by the switch, as has the Commission. 47 C.F.R. § 51.319(c)(i)(C)(2); Order No. 96-283 at 2. GTE's concerns are focused on the requirement to add capacity and condition its switches. These are issues of cost, not technical feasibility.

GTE has the burden of demonstrating to the Commission that customized routing in a particular switch is not technically feasible. GTE’s proposed procedure, as set forth in its brief, is reasonable, except that the burden should be on GTE to demonstrate that a specific request by AT&T is not technically feasible. We have modified GTE's procedure to provide firmer time lines and to impose the burden of demonstrating technical infeasibility on GTE. Disputes over the cost to provide customized routing and the cost recovery mechanism shall be resolved as described above.

At this point, there are no approved prices for customized routing of OS/DA. Costs and rates are to be developed in a future proceeding. See Order No. 96-283 at 4.

Issue 19—Should GTE be required to provide access to its directory assistance database so that AT&T may provide its customers with AT&T-branded directory assistance?

When an electronic gateway is established, GTE must provide AT&T access to its directory assistance database so that AT&T can provide its customers with AT&T-branded directory assistance. GTE may mediate AT&T’s entry of data into its DA database to prevent unauthorized use. GTE's proposal to provide directory assistance information on magnetic tape, updated each business day is adopted. AT&T must pay the cost of providing and transporting the tape at rates based on the methodology described above.

The Commission and the FCC have required ILECs to unbundle access to their directory assistance databases. Order No. 96-283. FCC Order ¶ 536. This access must include the entry of a requesting carrier’s customer information into, and the ability to read ILEC customer information from, the database. Entry of the CLEC's customer information into the ILEC’s directory assistance database can be mediated by the ILEC to prevent unauthorized use. FCC Order ¶ 538.

GTE has agreed to give AT&T access to GTE's listing information once an electronic gateway is developed. Until the gateway is developed, GTE agrees to provide AT&T with directory assistance information on magnetic tape, with updates provided every business day. GTE asks for a set uniform standard pricing rate that is consistent and equal for all telecommunications providers within the state.

The price for providing and transporting the magnetic tapes should be based on the cost methodology set forth above. If the parties are unable to resolve the issue, they may request dispute resolution by the Commission.

Issues 31, 32—Combining Network Elements. (Page 19 of the Arbitrator's Decision)

GTE argues that the Arbitrator has ignored the problem that competitors could combine network elements in such a way as to avoid payment of access charges. We recognize that avoidance of access charges is a possibility. It is not, however, consistent with the intent of the arbitration agreement. A carrier that combined network elements in order to avoid access charges would be in violation of the interconnection agreement approved in this arbitration proceeding, and the agreement would be voidable. We addressed this issue in Order No. 96-283, at 45:

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.

Issue 43—Tandem to Tandem Switching. (Page 22 of the Arbitrator’s Decision)

The Arbitrator instructed GTE to provide tandem to tandem switching on GTE’s network for terminating local and intraLATA toll traffic, and required the parties to negotiate a compensation rate for that functionality. We find that bill and keep should apply for termination of local traffic. To determine compensation for termination of intraLATA toll traffic, AT&T shall participate in GTE’s ITAC. The entire section is replaced by the text below.

Issue 43—Should GTE be required to provide tandem-to-tandem switching for the purpose of terminating AT&T local and intraLATA toll traffic?

GTE shall provide tandem-to-tandem switching on GTE’s network for terminating local and intraLATA toll traffic. For local tandem-to-tandem switching, bill and keep applies. For intraLATA switching, AT&T shall participate in GTE’s ITAC.

GTE’s reluctance to provide tandem-to-tandem switching for intraLATA toll traffic relates to the recording and billing of access compensation. Using the current toll recording process, GTE cannot identify intraLATA toll traffic which traverses two tandem switches to complete the call. (In the Portland area this would involve a GTE and a USWC tandem.) GTE states that it must use its IntraLATA Terminating Access Compensation (ITAC) system to identify these calls for proper billing of the intertandem transport charges. If AT&T’s toll records are not included in the ITAC study, all of the intertandem transport charges (both GTE’s and AT&T’s) will be billed to GTE by USWC. Use of the ITAC study will identify the amount of tandem-to-tandem toll traffic attributable to both GTE and AT&T.

AT&T shall participate in GTE’s ITAC studies to determine the amount of AT&T intraLATA toll involved in tandem-to-tandem switching and the proper charging of the intertandem transport. This arrangement will continue until such time as a traffic measurement system using SS7 is developed which will measure the tandem-to-tandem toll traffic.

Issue 47—Should AT&T have access to GTE’s OSS processes through electronic interfaces for unbundled elements? (Pages 23-24 of the Arbitrator's Decision)

We adopt the Arbitrator's Decision on this issue with the understanding that pending adoption of a cost recovery mechanism for access to operational support services, the parties should absorb the costs of establishing their own electronic gateways. This is a competitively neutral means of allocating cost responsibility. Further, access to operational support systems may not be denied pending investigation of GTE’s proposed cost recovery mechanism.

Issue 48—What methods of interim number portability should GTE be required to provide?

Issue 6—Prices for Interim Number Portability. (Pages 25-26 of the Arbitrator's Decision)

GTE does not contest the Arbitrator’s Decision on Issue 48 but asks for clarification as to whether it should offer the interim number portability solutions it currently offers under tariff in Oregon. GTE takes exception to the Arbitrator’s Decision on Issue 6, that bill and keep should apply to interim number portability charges. GTE argues that its interim number portability tariff survives the FCC’s Number Portability Order (Order No. 96-286). GTE reasons that the FCC order disallows incremental cost recovery rates that put a new entrant "at an appreciable cost disadvantage" (FCC Order No. 96-286, ¶ 132) and argues that its tariffed rates would not appreciably disadvantage a corporation the size of AT&T.

GTE misreads ¶ 132. The "appreciable cost disadvantage" mentioned by the FCC is a disadvantage relative to any other carrier that could serve a given customer, not relative to the overall size of the carrier. The Arbitrator’s discussion at Issue 6 below addresses this argument in detail. We merely clarify here that GTE’s interim number portability tariff for Oregon does not meet the competitive neutrality criterion of the FCC order (¶¶ 134-136) and the Act (Sec. 251(e)(2)). The cost recovery mechanism for interim number portability shall be bill and keep, not GTE’s Oregon interim number portability tariff.

GTE also alleges that the Arbitrator errs in mandating bill and keep because part of the concern with the pricing of interim number portability is the division of access charge revenue resulting from such traffic. GTE notes that the Arbitrator did not deal with that issue. We conclude that access charges should be divided as we decided in ARB 1, Order No. 96-324, Appendix A at 11. For all intraLATA and interLATA minutes delivered over interim number portability, GTE will pay, in lieu of reciprocal compensation, all terminating switched access elements otherwise due the terminating office provider; including, end office switching, interconnection charge, CCLC, and appropriate portion of tandem switched transport.

Issue 56—Does the term "rights-of-way" in §224 of the Act include all possible pathways for communicating with the end user? (Pages 26-27 of the Arbitrator's Decision)

GTE asks for clarification of the term "pathway." In response, we interpret the term pathway in its everyday meaning. That is, rights of way does not mean all possible pathways, but it does include distribution network facilities.

Issue 26—Dialing Parity. (Page 28 of the Arbitrator's Decision)

GTE maintains that the Arbitrator’s Decision, which adopts AT&T’s contract language, merely reiterates the Telecommunications Act and ignores the Commission’s currently pending docket, UT 132, which was opened in response to GTE’s dialing parity tariff filing. GTE wishes to defer dialing parity issues to that docket.

We adopt the Arbitrator's Decision on this issue with the understanding that any tariff changes resulting from docket UT 132 will be incorporated into this decision.

Issue 64—Should GTE be required to accept financial responsibility for uncollectable and/or unbillable revenues resulting from GTE work errors, software alternations, or unauthorized attachments to local loop facilities?

For purposes of clarification, the term "gross negligence" in the Arbitrator's Decision should be replaced with "willful misconduct." The Arbitrator's Decision on this issue now reads:

Section 10 of the IUB preliminary contract should be modified. GTE should not be required to accept financial responsibility for uncollectable or unbillable revenue resulting from GTE’s work errors, software alterations, or unauthorized attachments to local loop facilities, unless the losses were the result of GTE’s willful misconduct. AT&T is entitled to service credits pursuant to GTE’s tariffs.

Issue 66—Should the contract impose material and reciprocal obligations upon both parties with respect to matters other than reciprocal compensation arrangements for transport and termination? (Pages 33-34 of the Arbitrator's Decision)

We make the following comments to explain the Arbitrator’s Decision on reciprocal obligations for access to rights of way. The Arbitrator concluded that the parties should provide reciprocal access to poles, ducts, conduits, and rights of way. This decision is contrary to the position taken by the FCC. See FCC Order at 1231. AT&T maintains that the Arbitrator’s decision violates §252(e)(2)(B) of the Act, which requires that a State Commission comply with regulations prescribed by the FCC.

Although the Arbitrator’s Decision on this issue differs from the position taken by the FCC, the Commission is persuaded that §251(b)(4) of the Act mandates reciprocal access for all LECs, not merely incumbent LECs. Section 224(f)(2) contains a limited exception to access requirements, but it is applicable only to electric utilities. See H.R. Rep. No. 458, 104th Cong., 2d Sess., reprinted in 142 Cong. Recommendation. H. 1108 (daily ed. January 31, 1996) (Joint Explanatory Statement of the Committee of Conference at 8).

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 to a court pursuant to ORS 756.580.

Appendix A to this order is found in 96 orders as the ARB 5 decision.