ORDER NO. 98-018

ENTERED JAN 07 1998

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

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

UX 18

DISPOSITION: GRANTED WITH CONDITIONS

On September 15, 1997, U S WEST Communications, Inc. (USWC or Company) filed a petition for an order exempting its Voice Messaging Services from regulation pursuant to ORS 759.030 and OAR 860-032-0025. On October 27, 1997, USWC requested that the statutory 60 day period for Commission action be extended to December 26, 1997. The request was granted.

At its public meeting on December 16, 1997, the Commission adopted Staff’s recommendation to grant the petition subject to conditions set out below. Staff’s memorandum is attached to this order as Appendix A.

Based on the petition and Staff’s report, the Commission makes the following:

FINDINGS OF FACT

Voice messaging services

USWC was granted authority to provide voice messaging services on a regulated basis in Order No. 92-1482 in docket UT 103/UT 110/UT 212, dated October 26, 1992. The services and prices are contained in Section 10.12 of USWC’s Exchange and Network Tariff.

USWC currently provides voice messaging services to both residential and business customers in twenty-four exchanges in Oregon. The exchanges are located primarily in and around Portland, Salem, and Eugene/Springfield, as well as in Bend, Redmond, Albany, Corvallis, Medford, and Ashland. Both the residential and business versions of voice messaging service provide a variety of services, including greetings to callers and the recording, storing, and retrieval of audio messages. Various additional options are available.

Long-Run Incremental Costs

The long-run incremental cost and pricing information developed in UM 773 and the information provided by USWC in this case establish that the Company will price the voice messaging services above the long-run incremental cost of providing the services. Moreover, the large number of voice messaging services suppliers (see below) establish that USWC does not have a dominant position in the relevant market for voice messaging and retrieval services and that the risk that the Company could engage in predatory pricing is minimal.

Price and Service Competition

Many suppliers within USWC’s Oregon service territory provide voice messaging types of services, such as answering machines and message answering services. Answering machines are available at several retailers at prices ranging from about $20 to about $100. Voice messaging services are provided by, among others, Advantage Communications in Portland; Business Communications in Salem; Telecom Services Inc., in Eugene; and Central Telemessaging in Bend. The prices of these services are similar to those charged by USWC for its voice messaging services.

Economic or Regulatory Barriers to Entry

No regulatory or economic barriers to entry into voice messaging services in the relevant market have been identified. The only economic hurdle to entry is the initial startup cost. Central office features, such as Call Forwarding-Busy Line/Don’t Answer and Message Waiting Indication will remain available from the Company at tariffed rates.

OPINION

Applicable Law

ORS 759.030 requires the Commission to exempt a telecommunications service from regulation if price and service competition exist. Prior to making these findings, the Commission shall consider:

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

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

c) Existing economic or regulatory barriers to entry.

Any other factors deemed relevant by the Commission.

OAR 860-032-0025 requires that the Commission, prior to exempting a service from regulation, determine that the proposed rate for the service is, at a minimum, equal to its full long-run incremental cost. Furthermore, the Commission shall consider the following:

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

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

c) Existing economic or regulatory barriers to entry;

Any other factors deemed relevant by the Commission.

The record establishes that the proposed prices for USWC’s voice messaging

services exceed the long-run incremental cost of providing the services. Moreover, alternative providers are available to furnish voice messaging type services in varying forms within the relevant market. The available voice messaging services are substitutable for USWC’s voice messaging services at comparable rates. The record also establishes that no significant economic or regulatory barriers to entry exist.

OAR 860-027-0052 governs the allocation of costs between regulated and nonregulated utility operations. The following requirements are applicable to USWC’s request that its voice messaging services be exempted from regulation:

a) When services or supplies are sold by a regulated activity to a nonregulated activity, the sales shall be recorded in the regulated revenue accounts at the tariffed or price listed rates;

b) When services or supplies are sold to a regulated activity by a nonregulated activity, sales shall be recorded in the regulated accounts at the nonregulated activity’s cost or the market rate, whichever is lower;

When a telecommunications public utility provides both regulated and nonregulated intrastate service, the utility shall maintain a current intrastate cost allocation manual on file with the Commission.

A local exchange company such as USWC has certain inherent advantages in the marketing of voice messaging services, including the opportunity for first contact with potential customers and the opportunity to utilize current facilities and employees in its marketing and provision of the service. Our rules, including OAR 860-027-0052, 860-035-0080, 860-035-0090, and 860-035-0100, which address affiliated transactions, and OAR 860-035-0090 and 860-035-0100, which address the permitted use of customer proprietary network information, are designed to prevent abuses of this position. The conditions set out below will ensure that USWC meets these requirements. We note that ORS 756.568 allows the Commission, after notice and opportunity to be heard, to amend or revoke any order resulting from this investigation. If USWC were to engage in predatory pricing, directly or indirectly subsidize their nonregulated operations through their regulated operations, or if any circumstances changes significantly from those existing at the time of this investigation, the Commission could exercise this authority.

CONCLUSIONS

USWC’s petition meets the requirements of ORS 759.030 and OAR 860-032-0025 and 860-027-0052.

The petition should be granted, subject to conditions.

ORDER

IT IS ORDERED THAT:

1. U S WEST Communications, Inc.’s petition for exemption from regulation for its voice messaging services is granted, subject to the following conditions:

a. USWC will charge its tariffed billing and collection rates to its unregulated voice messaging services operation for billing and collection services rendered.

b. USWC will record all purchases by the Company’s regulated operations in the accounting books at the lower of cost or market price.

2. USWC shall comply with OAR 860-027-0052(9) regarding its intrastate cost allocation manual within 90 days of entry of this order.

3. USWC will not provide to its unregulated voice messaging services operations any customer lists or information which are not available to the general market, and will charge the unregulated voice messaging services operations the Commission approved tariff rate for any customer information provided.

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.