ORDER NO. 97-126

ENTERED APR 07 1997

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

ARB 1

DISPOSITION: APPLICATION FOR RECONSIDERATION GRANTED IN PART

On February 7, 1997, U S WEST Communications, Inc., (USWC) and MFS Communications Company, Inc., (MFS) filed separate petitions for reconsideration of Commission Order No. 96-324. Between them, the parties request reconsideration of most, if not all of the decisions set forth in our previous order. We have considered the requests and reject the proposed modifications, except as set forth below.

Discount on Centrex Services

MFS requests clarification of our decision requiring USWC to make centrex service available for resale at a discount. Noting that centrex service apparently is sold at a basic rate plus a surcharge, MFS asks that the order be supplemented to make clear that the discount rate is applicable to both the basic rate and the surcharge.

MFS is correct that USWC’s current tariffs include a $5.40 surcharge on the resale of all Centrex Plus lines. We approved the surcharge as part of a settlement agreement between USWC, Staff, and two centrex resellers. See Order No. 94-1055. The surcharge was designed to avoid rate arbitrage by producing substantially the same revenues that USWC would receive if centrex resale were prohibited.

We are not certain as to the continued validity of the surcharge given the passage of the federal Telecommunications Act of 1996 (Act). Nonetheless, as long as the surcharge remains part of USWC’s Centrex Plus tariff, we agree that the discount rate is applicable to the combined rate.

We also agree with MFS that the discount rate for Centrex should be 18.80 percent. If Centrex is sold at a volume discount, the volume rate discount of 9.40 percent should apply.

Loop Conditioning

MFS also requests that we supplement our order with regard to loop conditioning. MFS contends that USWC should not be allowed to assess conditioning charges until it demonstrates that such conditioning would be required by an efficient provider using forward-looking technology. MFS acknowledges that loop prices should reflect conditioning costs when such conditioning is necessary to enhance transmission characteristics of a clean loop. It contends, however, that the charges may be inappropriate if the conditioning is required to restore an existing loop to its original capabilities, such as the removal of bridge taps and load coils.

MFS’s argument is, in essence, a collateral attack to the UM 351 proceedings. In that docket, we determined that loop conditioning should be offered as a separate unbundled network element. See Order Nos. 96-188, 96-283 and 97-071. In a compliance filing to that case, USWC has established nonrecurring conditioning charges for the removal of load coils, bridge taps, and other activities necessary to "deload" a loop. See Advice No. 1661, Section 6.2(A)(2)(a)(1). MFS’s argument that such charges are inappropriate should be addressed in proceedings related to that filing, not in its request for reconsideration here.

Sham Unbundling

USWC challenges our conclusion that the federal Telecommunications Act of 1996 (Act) requires incumbent carriers to offer unbundled elements without limitation. USWC offers a new legal argument to support its position that MFS should not be permitted to request a combination of network elements that would enable it to replicate any service USWC offers for resale.

In Order No. 96-324, we concluded that new entrants should be able to purchase unbundled elements, individually or in common, regardless of whether they provide their own facilities or purchase elements in such a way that they would comprise a service comparable to resold services under 47 U.S.C. § 251(c)(4). That conclusion is consistent with the federal Act, FCC rules, and our prior holdings. See 47 U.S.C. § 251(c)(3), FCC Order ¶¶ 293-296, 47 C.F.R. §§ 51.309(a) and 51.315(c), and Order No. 96-188 at 93. We add that this issue is currently on appeal to the Eighth Circuit of the United States Court of Appeals. See Iowa Utilities Board v. Federal Communications Commission et al., Case Nos. 96-3321 et seq. We decline to revisit our conclusion until the Court has had an opportunity to consider this matter.

Resale of Residential Service

USWC next challenges our holding that it must make residential service available for resale. USWC believes that residential service is currently priced below cost and contends that it should not be required to provide the service at even lower costs.

USWC argument appears to be a modification of its prior position. We remind USWC that its last best offer and the last best offer from MFS provided for the resale of residential service at a zero discount rate. We adopted that position. We find no reason to allow USWC to now renege on its offer.

Collocation

USWC requests clarification of our decision to adopt its interstate tariffs for both virtual and physical collocation. USWC points out that the company does not currently have an interstate tariff for physical collocation.

For purposes of physical collocation, we adopt the unbundled network element prices set forth in UM 351, Order Nos. 96-188, 96-283 and 97-071. If UM 351 does not designate all necessary elements, the parties should rely on the provisions of USWC’s earlier effective interstate tariff, Tariff F.C.C No. 5, Section 21, Expanded Interconnection Collocation (EIC) Service.

Costs of Constructing Network Elements

USWC asks for additional clarification on the issue of recovery of construction charges. We supplement our prior discussion on this matter with the following language:

As a general matter, the costs of providing a network element or service are included in the TELRIC-based price of that element or service. However, where an ILEC incurs additional costs to build or modify facilities for the benefit of a requesting carrier, and those costs are not included in existing rates, the ILEC is entitled to recover such additional costs. The ILEC has the burden of showing that any claimed additional costs are not already recovered through its existing rates.

If an ILEC demonstrates that it is entitled to recover additional costs to provide facilities on behalf of a requesting carrier, it may propose to recover those costs through nonrecurring charges. However, because large up-front charges tend to discourage competition, the Commission will attempt to spread cost recovery over a reasonable period of time and allocate such costs among all requesting carriers. This approach is consistent with that approved by the FCC in 47 C.F.R. §51.507(e). See also Order No. 96-283 at 13-14 and Order No. 96-325, Appendix A at 11; FCC Order at ¶¶682, 743-752.

ORDER

IT IS ORDERED that the applications for reconsideration, filed by U S WEST Communications, Inc., and MFS Communications Company, Inc., are granted in part as set forth above.

Made, entered, and effective ____________________________.

A party may appeal this order pursuant to applicable law.