ORDER NO. 97-298

ENTERED AUG 06 1997

This is an electronic copy.

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

CP 277

DISPOSITION: APPLICATION GRANTED IN PART

Note: By issuing this certificate, the Commission makes no endorsement or certification regarding the certificate holder’s rates or service.

The Application

On January 30, 1997, Beaver Creek Cooperative Telephone Company, (BCT or applicant) filed with the Commission an application for certification to provide telecommunications service in Oregon. Applicant seeks authority to provide intrastate, interexchange toll services in its serving area through the resale of the services of other Oregon interexchange carriers. Applicant also plans to use its own or leased facilities. Applicant proposes to serve customers located in the Beaver Creek and Oregon City telephone exchanges, with expansion statewide in the future. We consider the application as a request by BCT for authority to provide toll services to customers within its serving area, the Beaver Creek and Oregon City exchanges.

Applicant will contract with other certified providers rather than directly provide operator services. A statement of compliance with Order No. 90-096 and ORS 759.690 was included in the application.

Applicant is a cooperative corporation. Pursuant to ORS 759.025(2), it currently has authority in the Beaver Creek telephone exchange to provide local exchange service, interexchange carrier access, and extended area services. See Order No. 88-261. Applicant also has authority to provide local exchange services in the Oregon City telephone exchange as a competitive provider. See Order No. 96-248.

Procedural History

The Commission served notice of the application on the Commission’s telecommunications mailing list on February 12, 1997. The Commission did not receive any protests to the application.

On April 30, 1997, an Administrative Law Judge (ALJ) with the Commission issued a ruling that adopted procedures for the processing of this docket. The ALJ set forth a procedural schedule. On June 4, 1997, the ALJ issued a subsequent ruling that modified the procedural schedule.

On June 9, 1997, the Commission Staff (Staff) distributed a proposed order for review by the parties. On June 13, 1997, applicant filed exceptions to the proposed order, to which Staff filed a reply on July 9, 1997.

Exceptions

In its exceptions, BCT opposes Staff’s recommendation that the Commission not approve its application as a competitive provider in the Beaver Creek exchange. Applicant does not believe that it should be required to file toll tariffs in that exchange since "consumers have alternatives available and a dialing parity plan has been approved by the Commission." It recommends that the toll tariff condition be replaced by a requirement that the company obtain Commission approval of its intraLATA dialing parity plan.

Staff disagrees with BCT’s exception. It contends that dialing parity is not, by itself, sufficient to demonstrate that the statutory criteria in ORS 759.020(b) have been meet for certification as a competitive provider. To help ensure that the proposed toll services offered in the Beaver Creek exchange are fully subject to competition, it recommends that the Commission regulate applicant’s toll rates pursuant to ORS 759.220 and ORS 759.225.

In determining whether to classify applicant as a competitive provider of toll services to customers located in the Beaver Creek exchange, the Commission must consider the three criteria set forth in ORS 759.020(b). As further discussed below, the later two criteria require applicant to demonstrate that its proposed toll services are functionally equivalent or substitutable at comparable rates, terms, and conditions, and that there are low economic or regulatory barriers to entry. After review, the Commission agrees with Staff that dialing parity does not, by itself, satisfy those criteria. As the incumbent and sole provider of local exchange services in the Beaver Creek exchange, applicant is in a unique position to favor itself over other providers of interexchange toll, even if there is dialing parity. Accordingly, the Commission believes it is prudent to proceed cautiously in determining whether applicant, or any other local exchange carrier, should be permitted to provide toll services in its own local exchange on an unregulated basis.

In making this decision, the Commission clarifies that this does not preclude an incumbent local exchange carrier (LEC) from becoming a competitive provider of toll services within its own local exchange(s). To do so, an incumbent carrier must demonstrate that, despite its position, there are no barriers to entry and that competing toll providers will be able to attract customers and provide services on an equal basis. As Staff points out, an incumbent carrier could more easily make that demonstration if it faced significant local service competition within its own exchange(s). However, the Commission does not believe that applicant currently faces any competition for local exchange services within the Beaver Creek exchange.

The Commission has reviewed the proposed order, the comments, and the record in this matter. Based on a preponderance of the evidence, the Commission makes the following:

FINDINGS AND CONCLUSIONS

Applicable Law

As a cooperative corporation providing intrastate telecommunications service, applicant is subject to Commission regulation under ORS 759.220 as provided in ORS 759.225. ORS 759.220 grants the Commission authority to establish joint rates for through services between telecommunications utilities and cooperative corporations. Toll service is a type of through service.

Applications to provide telecommunications service and for classification as a competitive telecommunications services provider are filed pursuant to ORS 759.020, which provides, in relevant part:

(1) No person [or] corporation * * * shall provide intrastate telecommunications service on a for-hire basis without a certificate of authority issued by the commission under this section.

* * * * *

(5) The commission may classify a successful applicant for a certificate as a telecommunications utility or as a competitive telecommunications services provider. If the commission finds that a successful applicant for a certificate has demonstrated 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[.] For purposes of this section, in determining whether there are reasonably available alternatives, the commission shall consider:

(a) The extent to which services are available from alternative providers in the relevant market.

(b) The extent to which services of alternative providers are functionally equivalent or substitutable at comparable rates, terms, and conditions.

(c) Existing economic or regulatory barriers to entry.

(d) Any other factors deemed relevant by the commission.

ORS 759.690 and OAR 860-032-0005 establish certain requirements that providers of operator services must meet. Included are the following conditions:

The certificate holder involved in the provision of operator services shall:

1. Notify all callers at the beginning of the call of the telecommunications provider's name and allow a sufficient delay period to permit a caller to terminate the call or advise the operator to transfer the call to the customer's preferred carrier.

2. Disclose rate and service information to the caller when requested.

3. Not transfer a call to another operator service provider without the caller's notification and consent.

4. Not screen calls and prevent or "block" the completion of calls which would allow the caller to reach an operator service company different from the certificate holder. In addition, the certificate holder shall, through contract provisions with its reseller clients, prohibit the reseller from blocking a caller's access to his or her operator service company of choice.

5. When entering into operator service contracts or arrangements with clients who in turn resell or provide telephone service to the general public include in that contract provisions for public notification. A sticker or name plate identifying the name of the certificate holder shall be attached to, or in close proximity to, each telephone that has public access.

OAR 860-032-0015(1) authorizes the Commission to suspend or cancel the certificate if the Commission finds that (a) the holder made misrepresentations when it filed the application, or (b) the applicant fails to comply with the terms and conditions of the certificate.

Designation as a Competitive Provider

The Commission concludes that applicant has met the requirements for classification as a competitive telecommunications services provider in the Oregon City exchange. As noted above, applicant is currently certified as a competitive provider of local exchange services in the Oregon City exchange. Its customers or those proposed to become customers in that exchange have reasonably available alternatives for both local exchange and interexchange toll services. Applicant will face competition from a variety of carriers including U S WEST, AT&T, MCI, and Sprint. Subscribers to applicant’s services can buy comparable services at comparable rates from other vendors. Economic and regulatory barriers to entry are relatively low.

The Commission further concludes, however, that BCT has not met the requirements for classification as a competitive provider in the Beaver Creek exchange. In that exchange, applicant is certified as a cooperative corporation subject to certain provisions which are applicable to telecommunications utilities. ORS 759.020(5) requires an applicant to demonstrate that services it offers are subject to competition or that its customers or those proposed to become customers have reasonably available alternatives. When evaluating the adequacy of an applicant’s showing, the Commission must consider, at a minimum, the criteria set forth in ORS 759.020(5)(a) through (c).

BCT comes reasonably close to satisfying the first criterion, ORS 759.020(5)(a), relating to the existence of alternative carriers. As noted in its application, toll competition exists throughout the state from numerous providers, including AT&T, MCI, Citizens, and Sprint. However, applicant does not address the other two criteria, ORS 759.020(5)(b) and (c), which relate to the functional equivalency of alternative providers and existing barriers to entry. Within the Beaver Creek exchange, applicant is in a position unlike that of any other provider of interexchange toll services as it is the incumbent and sole provider of local exchange services. For example, an incumbent LEC like BCT would have the opportunity to subsidize its toll services from local operations, and put competitors in a price squeeze by charging low toll rates that fail to cover access rates. Incumbent LECs also could use their existing relationship with local exchange customers to gain a marketing advantage.

In order to be classified as a competitive provider of interexchange toll in the Beaver Creek exchange, applicant must demonstrate that, compared to its own proposed toll services, alternative interexchange toll providers are functionally equivalent or substitutable at comparable rates, terms and conditions, despite BCT’s unique position. In addition, applicant needs to demonstrate that its competitors would not face economic or regulatory barriers to entry within the Beaver Creek exchange. BCT has failed to make that demonstration.

Certification as a Cooperative Corporation

Because applicant has failed to satisfy the requirements for classification as a competitive provider in the Beaver Creek exchange, the Commission concludes that applicant should be authorized to provide toll services in that exchange as a cooperative corporation subject to ORS 759.220. Pursuant to our authority to regulate through services under ORS 759.220, the Commission further concludes that the following conditions be placed on applicant for interexchange toll services provided in the Beaver Creek exchange:

1. Applicant shall not discriminate between, or provide preferential treatment for, its own interexchange toll services over other interexchange carriers.

2. Applicant shall file tariffs for interexchange toll service pursuant to ORS 759.220 and ORS 759.225. Applicant shall design and develop intrastate toll rates in compliance with Commission rules and orders.

These conditions will allow the Commission to readily detect and resolve any competitive issues that may arise with applicant’s provision of interexchange toll services in its Beaver Creek exchange.

ORDER

IT IS ORDERED that:

1. The application of Beaver Creek Cooperative Telephone Company to provide interexchange telecommunications services described in the application is granted in part, with conditions, as described in this order.

2. Applicant shall provide interexchange toll service in the Beaver Creek exchange in compliance with the terms, conditions, and rates of tariffs approved by this Commission.

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.