ORDER NO. 98-545

ENTERED DEC 30 1998

This is an electronic copy. Appendices and footnotes may not appear.

OF OREGON

CP 523

DISPOSITION: APPLICATION GRANTED

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

The Application

On September 2, 1998, City of Ashland, Oregon (applicant or City), filed with the Commission an application for certification to provide telecommunications service in Oregon as a competitive provider. The application also listed the name Ashland Fiber Network. However, the applicant states that is the name given to the applicant’s fiber network project, but it is not a legal entity. The City of Ashland (City) is a municipality in Oregon. The applicant also indicated that it was applying for state funding from a special public works fund in the Oregon Department of Economic Development.

Applicant seeks authority to provide local exchange (intraexchange) telecommunications service in areas coextensive with two local exchanges of U S WEST Communications, Inc. (USWC). Applicant also seeks authority to provide interexchange telecommunications service between those two exchanges. The two local exchanges of USWC encompassed by the application, Ashland and Phoenix/Talent, are also listed in Appendix A to this order.

Applicant proposes to provide intraexchange (local exchange) nonswitched private line service (dedicated transmission service). Applicant will not provide local switched (dial tone) service. Applicant also proposes to provide interexchange nonswitched private line service (dedicated transmission service). Applicant will operate as a reseller and as a facilities based provider of telecommunications service, and applicant may purchase building blocks (unbundled network elements) from USWC.

Operator services are not part of dedicated transmission service. A statement of compliance with Commission rules and with state law, including ORS 759.690 and OAR 860-032-0005 (regarding operator services), was included in the application.

The Commission served notice of the application on the Commission’s telecommunications mailing list on September 14, 1998. The Commission received a timely protest, captioned "Comments of U S WEST Communications, Inc.," from USWC. USWC will be considered a party to this proceeding.

On October 30, 1998, an Administrative Law Judge (ALJ) with the Commission held a prehearing conference for this docket in order to identify parties, establish a service list, identify issues, and establish a procedural schedule. The parties agreed to address issues raised by USWC by a procedure where the Commission staff (staff) issued a proposed order, all parties could file exceptions to the order, and all parties could reply to the exceptions. The procedure was set forth in the ALJ’s Conference Report dated November 2, 1998.

On November 6, 1998, the staff distributed a proposed order for review by the parties. On November 23, 1998, USWC filed exceptions to the proposed order. On December 8, 1998, applicant and staff filed replies to USWC’s exceptions.

Parties’ Contentions

In its original comments, USWC asserted that the Commission should deny the City’s application unless adequate safeguards are implemented to:

• Prevent the City from unfairly discriminating against competitors in regulations generally.

• Ensure that the City’s services are not subsidized by taxpayer monies.

• Ensure that competitors, such as U S WEST, are not subject to discriminatory taxation.

• Ensure that the City’s entry into telecommunications services is in the public interest.

After Staff issued its proposed order, USWC filed two exceptions: Exception A concerning nondiscrimination, and Exception B concerning taxpayer funding of the City’s telecommunication system business.

USWC’s first exception, Exception A, concerns nondiscrimination. The City is a municipality and has authority to regulate and tax telecommunications providers within the city limits, including USWC. USWC expressed concern that the City, which intends to enter the telecommunications business, has the ability to use its regulatory power to favor its own telecommunications business and restrict that of its competitors.

In its second exception, Exception B, USWC states that the City, as a municipality, has the ability to use public funds for its telecommunications business. That is correct. On its application for a certificate of authority the City noted it was applying for state funding through a special public works economic development fund. That fund is administered by the Oregon Economic Development Department. The City will be able to use state funds and its own municipal tax revenue to support its telecommunications business.

USWC argues that use of public funds to enter a competitive telecommunications market is not in the public interest for two reasons. First, USWC states, it is unfair to force telecommunications providers to compete with a provider that has an unlimited supply of funds available. USWC’s second reason under Exception B is that taxpayer funding would allow the City to subsidize its telecommunications system without regard to market forces. USWC points out that Ashland has certain regulatory authority over USWC, including the imposition of privilege or franchise fees. USWC requests the Commission to adopt a condition prohibiting the City from using taxpayer monies to fund its telecommunications system.

The City of Ashland points out that ORS Chapter 225 expressly authorizes cities to provide telecommunications service both within and without their boundaries. It argues that the proposed conditions requested by USWC are anti-competitive and may be illegal. The City contends that USWC has not shown that there is a problem to be remedied by conditions, but merely speculates about potential problems. The City notes that if a problem develops, the Commission has authority to rescind, suspend, or amend a certificate of authority. Concerning USWC's comments about cities having access to unlimited amounts of money, the City argues that cities have many restrictions on their access to funds, and that their ability to impose fees on utilities has statutory limits. The City contends that "instead of attempting to make all applicants or service providers equal, the Commission should simply treat all applicants and service providers equally." Ashland points out that the legislature has not established a separate classification for municipal competitive telecommunications providers in contrast to other telecommunications providers, and argues that USWC's proposed conditions would in effect create such a different classification. Going further, the City contends that USWC's proposed conditions would constitute an illegal barrier to entry into the telecommunications industry, in violation of the Telecommunications Act of 1996. Lastly, the City objects to USWC's proposed conditions because they would require the Commission to oversee activities the City is expressly granted authority to perform.

Staff also opposes the conditions proposed by USWC. Staff finds USWC's concerns to be premature and speculative, and agrees with the City that the Commission can remedy problems if they develop. Staff disagrees with USWC's assertion that municipalities have an unlimited supply of funds.

Resolution

We agree with the arguments presented by the City and our Staff in opposition to the conditions proposed by USWC. Municipalities have the right to provide utility services and should not have to contend with potentially onerous conditions because of their status as cities. It is not our duty to instruct Ashland in how to operate a telecommunications service absent any showing of discriminatory or unreasonable conduct in the way utility service is operated. Nor do we want to attempt to restrict the source of funds Ashland may use to operate a telecommunications system. We are particularly uninterested in granting certificates of authority or imposing restrictive conditions based on allegations about the amount of resources available to an applicant. Our goal is to treat all those we regulate fairly and to treat similarly situated groups equally.

We understand USWC's concern that it will be in the position of competing with an entity that has authority to impose franchise fees on USWC. However, Ashland has statutory authority to operate a telecommunications system, and we assume it will do so in a reasonable and legal manner. We have authority to address problems if they develop. For the reasons stated by Ashland, our Staff, and in our summary comments above, we decline to impose the conditions requested by USWC.

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

Applicable Law

Applications to provide telecommunications service and for classification as a competitive telecommunications services provider are filed pursuant to ORS 759.020. ORS 759.020 provides that:

(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 * * * 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.

Applications to provide local exchange (intraexchange) telecommunications service are reviewed pursuant to ORS 759.050, the "competitive zone law." Under ORS 759.050(2)(a), 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 certified telecommunications utility, if the commission determines that such authorization would be in the public interest. For the purpose 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 the local exchange telecommunications service area.

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

(D) Any other facts the commission considers relevant.

Under ORS 759.050(2)(b), the Commission shall:

Upon certification of a telecommunications provider under paragraph (a) of this subsection, establish a competitive zone defined by the services to be provided by the telecommunications provider and the geographic area to be served by the telecommunications provider.

Under ORS 759.050(2)(c), the Commission may:

Impose reasonable conditions upon the authority of [the applicant] to provide competitive zone service within the competitive zone * * * at the time of certification of a telecommunications provider, or thereafter.

Subsection (5)(a) of ORS 759.050 provides that:

Unless the commission determines that it is not in the public interest at the time a competitive zone is created, upon designation of a competitive zone, price changes, service variations, and modifications of competitive zone services offered by a telecommunications utility in the zone shall not be subject to ORS 759.180 to ORS 759.190 [notice, hearing and tariff suspension procedures], and at the telecommunications utility’s discretion, such changes may be made effective upon filing with the commission.

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

Applicant has met the requirements for classification as a competitive telecommunications service provider. Applicant’s customers or those proposed to become customers have reasonably available alternatives. The incumbent telecommunications utility, USWC, provides the same or similar local exchange service in the local service area requested by applicant. AT&T, MCI, USWC and other carriers provide the same or similar interexchange service throughout Oregon. Subscribers to applicant’s services can buy comparable services at comparable rates from other vendors. Economic and regulatory barriers to entry are relatively low.

Conditions of the Certificate

As part of the application, the applicant agreed to, or acknowledged, several conditions listed in the application. Those conditions are adopted and made conditions of this certificate of authority. In addition:

1. Applicant shall comply with the Oregon Exchange Carrier Association’s (OECA) informational and operational needs as specified by the Oregon Customer Access Plan (OCAP) or any successor plan approved by the Commission.

2. Applicant shall not take any action that impairs the ability of other certified telecommunications service providers to meet service standards specified by the Commission.

3. At the request of the Commission, applicant shall conduct and submit to the Commission traffic studies regarding traffic exchanged with telecommunications service providers and other entities designated by the Commission.

4.   Applicant shall comply with universal service requirements as determined by the Commission.

5.   If applicant provides services to a subscriber who, in turn, resells the services, including operator services, then applicant and the subscriber must comply with ORS 759.690 and OAR 860-032-0005.

Public Interest

In docket UM 381, Order No. 93-1850, the Commission considered the public interest aspects of local exchange competition for dedicated transmission service similar to that described in the application before us now. In dockets CP 1, CP 14, and CP 15, Order No. 96-021, the Commission made several public interest findings regarding local exchange competition in general.

The Commission’s Findings of Fact and Opinion in docket UM 381, Order No. 93-1850, at pages 4 - 6, and the Commission’s Findings and Decisions in dockets CP 1, CP 14, and CP 15, Order No. 96-021, at pages 6 - 21, entered pursuant to ORS 759.050(2)(a)(A) - (C), are adopted. The Commission takes official notice of the record in dockets UM 381, CP 1, CP 14, and CP 15. Based on review of those findings, as well as information contained in the application, the Commission concludes it is in the public interest to grant the application of City of Ashland to provide intraexchange dedicated transmission service as a competitive telecommunications provider in the exchanges listed in Appendix A. Further, it is in the public interest to grant the application to provide interexchange dedicated transmission service between those same exchanges.

The exchanges listed in Appendix A to this order are designated competitive zones pursuant to ORS 759.050(2)(b), for dedicated transmission service.

Pricing Flexibility

In Order No. 93-1850, docket UM 381, the Commission granted pricing flexibility for dedicated transmission service at the time the Commission granted the certificate of authority. Applicant seeks authority to provide dedicated transmission service. Accordingly, USWC is granted pricing flexibility in the exchanges listed in Appendix A for dedicated transmission service.

 ORDER

IT IS ORDERED that:

5. Pursuant to ORS 759.050(2)(c), applicant shall comply with Commission imposed universal service requirements as a condition of authority to provide local exchange service.

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 of 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. A party may appeal this order to a court pursuant to ORS 756.580. 

APPENDIX A

APPENDIX A

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