ORDER NO. 97-046

ENTERED FEB 10 1997

This is an electronic copy. Appendices may not be included.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

CP 161

DISPOSITION: STIPULATION ADOPTED; APPLICATION GRANTED

On April 10, 1996, Digital Services Corporation, (Digital or applicant) filed an application for a Certificate of Authority to provide telecommunications service in Oregon as a competitive provider. On May 12, 1996, the Commission served notice of the application on its telecommunications service list. GTE Northwest, Inc., (GTE), U S WEST Communications, Inc., (USWC), the Oregon Independent Telephone Association (OITA), and six independent local exchange companies (Canby Telephone Association, Cascade Utilities, Colton Telephone Company, Clear Creek Mutual Telephone Company, Molalla Telephone Company, and Monitor Cooperative Telephone Company) filed protests to the application.

On June 6, 1996, Michael Grant, an Administrative Law Judge for the Commission, held a prehearing conference in this matter. At the conference, the Commission Staff (Staff) raised concerns about internal inconsistencies contained in the application and suggested that it be clarified through amendments. The parties also agreed to work informally to determine whether this matter could be resolved through stipulation.

On June 12, 1996, Digital filed an amendment to the application to clarify the scope and nature of authority sought in the application. Based on that amendment, OITA and the independent telephone companies withdrew their respective protests to the application.

Stipulation

On January 28, 1997, the parties submitted a stipulation in order to expedite the grant of intraexchange authority sought by Digitial. Staff and Digital executed all portions of the stipulation, as indicated by initial of counsel with respect to individual paragraphs. USWC and GTE, however, executed only specific provisions of the stipulation. The two incumbent local exchange companies (LECs) did not initial any paragraphs relating to the four public interest criteria set forth in ORS 759.050(2). USWC also did not initial Paragraph 13, which asks the Commission to adopt the stipulation in its entirety. The stipulation is attached as Appendix A and incorporated by reference.

Based on the application, the Commission’s records and the parties’ stipulation, the Commission makes the following:

FINDINGS OF FACT AND OPINION

Proposed Operation

Digital holds authority from the Federal Communications Commission (FCC) to provide digital termination services in the 18 GHz band in the Portland Primary Metropolitan Statistical Area (PMSA). Pursuant to this authorization, Digital intends to provide high-speed dedicated telecommunications services to government, business, and institutional users over its own microwave network operating in the 18 GHz frequency range. With these facilities, it plans to provide intraLATA non-switched high speed video, data, and voice communications (commonly referred to as "private line" services). Applicant will use its network to connect end-user to end-user locations, end-user to interexchange (IXC) points of presence (POP), IXC to IXC POP or IXC or local exchange carrier POPs/tandems, and from end-user to Internet service providers.

Digital seeks to provide intraexchange service in areas coextensive with the following local exchange boundaries: the GTE exchanges of Amity, Beaverton, Clatskanie, Dayton, Forest Grove, Grand Island, Gresham, Hillsboro, Hoodland, McMinnville, Newberg, Sandy, Scholls, Sherwood, Sunnyside, Tigard, and Vernonia; and the USWC exchanges of Burlington, Lake Oswego, North Plains, Oak Grove-Milwaukie, Oregon City, Portland, Rainier, and St. Helens. It also seeks to provide interexchange services throughout the Portland PMSA.

Applicable Law

The applicable provisions governing this application are ORS 759.020 and ORS 759.050. ORS 759.020 provides, in pertinent part, that:

No * * * company * * * shall provide intrastate telecommunications service on a for-hire basis without a certificate of authority issued by the Commission under this section.

* * * * *

(5) * * * If the Commission finds that a successful applicant for a certificate has demonstrated that services it offers are subject to competition or that its customers or those proposed to become customers have reasonably available alternatives, the Commission shall classify the applicant as a competitive telecommunications services provider[.]

ORS 759.050 provides, in pertinent part, that:

(2)(a) Notwithstanding the provisions of ORS 759.020(3) the Commission may certify one or more persons, including another telecommunications utility, to provide local exchange telecommunications service within the local exchange telecommunications service area of a certificated telecommunications utility if the Commission determines that such authorization would be in the public interest. For the purposes of determining whether such authorization would be in the public interest, the Commission shall consider:

(A) The effect on rates for local exchange telecommunications service customers both within and outside the competitive zone.

(B) The effect on competition in a local exchange telecommunications service area.

(C) The effect on access by customers to high-quality, innovative telecommunications service in a local exchange telecommunications service area.

(D) Any other facts the Commission considers relevant.

(2)(b) Upon certification of a telecommunications provider under paragraph (a) of this section, the Commission shall establish a competitive zone defined by the services to be provided by the telecommunications provider[.]

ORS 759.050(5)(a) further provides that incumbent utilities are granted pricing flexibility within the competitive zone for the services offered by the competitor, unless the Commission finds that granting pricing flexibility is not in the public interest.

Resolution

The stipulation submitted in this case contains detailed findings and conclusions regarding the public interest criteria set forth in ORS 759.050(2). The stipulation concludes that granting the application will enhance competition within the relevant local exchanges and will likely reduce prices for the telecommunications services. It also states that customers in the Portland metropolitan area should have increased access to both high quality and innovative new technology if the application is granted. Based on these and other findings, the stipulation recommends that the Commission grant the application.

After our review, we find the stipulation reasonable and adopt it. Based on the findings stated therein, we conclude that it is in the public interest to grant the application. Digital’s entrance into the market should produce downward pressure on the rates for intraexchange dedicated services within the competitive zones. While its entry may divert some revenues from the incumbent LECs, there is no reason to expect any significant adverse impact on GTE’s or USWC’s current level of revenues. Dedicated private line revenues account for a very small percentage of local exchange company revenues, and Digital will primarily be serving new demand and not displacing existing LEC revenue. Furthermore, LECs will have pricing flexibility to reduce prices in response to the competitive entry.

In reaching this decision, we note that we first applied ORS 759.050 in Electric Lightwave, Inc., UM 381, Order No. 93-1850. In that case, we carefully considered the public interest criteria with regard to an application similar to that at issue in this proceeding. We take official notice of the record in that proceeding. The findings and conclusions in that order also provide a basis for concluding that this application meets the statutory provisions set out above.

ORDER

IT IS ORDERED that:

1. The stipulation, attached as Appendix A and incorporated by reference, is adopted.
2. The application of Digital Services, Inc., to provide telecommunications services as a competitive telecommunications provider, is granted.
3. Digital Services, Inc., may provide dedicated transmission services within the following competitive zones: the GTE Northwest, Inc., exchanges of Amity, Beaverton, Clatskanie, Dayton, Forest Grove, Grand Island, Gresham, Hillsboro, Hoodland, McMinnville, Newberg, Sandy, Scholls, Sherwood, Sunnyside, Tigard, and Vernonia; and the U S WEST Communications, Inc., exchanges of Burlington, Lake Oswego, North Plains, Oak Grove-Milwaukie, Oregon City, Portland, Rainier, and St. Helens.
4. Digital Services, Inc., may also provide services described in the application between all exchanges located in Clackamas, Multnomah, Washington, Yamhill, and Columbia counties.
5. GTE Northwest, Inc., and U S WEST Communications, Inc., shall have pricing flexibility for dedicated transmission services within the competitive zones listed in Paragraphs 9 and 10 of the Stipulation.

Made, entered, and effective _____________________________.

A party may request rehearing or reconsideration of this order within 60 days from the date of service pursuant to ORS 756.561. A party may appeal this order pursuant to ORS 756.580.