D0608030 Appendix A (URF)
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COM/CRC/cvm Mailed 8/30/2006

Decision 06-08-030 August 24, 2006


Order Instituting Rulemaking on the Commission's Own Motion to Assess and Revise the Regulation of Telecommunications Utilities.

Rulemaking 05-04-005

(Filed April 7, 2005)


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Table of Contents

Table of Contents

Table of Contents

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Findings of Fact 260260

Conclusions of Law 272272

ORDER 280280

Appendix A Comparison of URF Proposals

I. Summary

This decision evaluates both statutory guidance and market conditions in determining whether we may rely more heavily on competitive forces to produce "just and reasonable" rates for California's telephone consumers. Due to our statutory and market analysis, we grant carriers broad pricing freedoms concerning almost all telecommunications services, new telecommunications products, bundles of services, promotion, and contracts. We make contracts effective when executed, and thereby end the necessity of post-signing reviews by this Commission. With few restrictions, we permit carriers to add services to "bundles" and target services to specific geographic markets.

Yet we find that continued pricing regulation is warranted in a few specific circumstances relating to public policy programs. Some restrictions are appropriate when a service receives a social program subsidy, such as California LifeLine program (LifeLine) residential service and basic residential service in areas receiving California High Cost Fund-B (CHCF-B) subsidies.1 Thus, we cap the price of basic residential service until January 1, 2009 in order to address the statutorily-mandated link between the LifeLine rate and basic residential service rates. This decision also freezes rates of basic residential services receiving a CHCF-B subsidy at a level equal to the current rate, which shall be reevaluated in the upcoming CHCF-B review in Rulemaking (R.) 06-06-028.

We reduce and eliminate many of the vestiges of rate-of-return regulation, such as "accounting adjustments" and other rules that cause regulatory accounts to diverge from financial accounts. These regulatory adjustments no longer serve a ratemaking purpose. We instead, therefore, base our requirements on Generally Accepted Accounting Principles (GAAP) accounting standards and FCC accounting rules, and consequently streamline our audit practices. We eliminate the price cap index, price cap filings, earnings "sharing," and gain-on-sale distributions, all of which are no longer appropriate in the competitive voice communications market.

Although we require all carriers to provide a thirty-day notice to customers of any price increase or more restrictive term and condition, we simplify all tariff procedures and make tariffs effective after one day. We order a separate briefing cycle to consider whether we should altogether detariff telecommunications services other than basic residential service.

We eliminate all monitoring reports tied to the now outdated New Regulatory Framework (NRF) governing the incumbent local exchange carriers affected herein. Instead, we standardize our reporting requirements so that they are consistent with comprehensive reports provided by all carriers to the Federal Communications Commission (FCC). We set Phase II as the proceeding for determining what reports are needed and permit parties to recommend reporting requirements that reflect the new rules that we adopt today.

This review of our telecommunications regulatory framework is long overdue. Our last such review, which established NRF, occurred eighteen years ago. The NRF regime was premised upon the view that Commission control of prices was critical to ensuring that rates were just and reasonable, because only one local telephone carrier provided telecommunications services. Given that customers could not take their business elsewhere, delays in the change of a price or the introduction of a service had few market consequences.

Over the last eighteen years, however, dramatic changes have occurred in the voice communications market. The market is far more competitive. It now includes multiple wireless carriers; competitive local exchange carriers (CLECs);2 cable television companies that have added Voice over Internet Protocol (VoIP) telecommunications products to yield a "triple play" of voice, video and data offerings; and pure-play VoIP providers, such as Vonage3 or Packet8,4 that will add a voice communications service to any broadband connection.

The statutory framework setting telecommunications policy in the nation and in California has evolved dramatically too. Congress made a national decision to rely on competition whenever possible "in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies."5 California statutes now endorse a reliance on open and competitive voice communications market unless the elimination of regulation would result in rates being set above "just and reasonable" levels.6 Other California statutes further instruct us to use technologically and competitively neutral measures in order to encourage the development of new technologies.

National and state agencies now follow a path of relaxed regulation. Neither the FCC nor this Commission regulates the prices of telecommunications services in the competitive long-distance wireline and wireless markets. Furthermore, many of the reforms we consider today already have been adopted in other states.7 Thus, the regulatory road that we travel in this decision is consistent with direction provided by state and federal statutes, follows the same route traveled in competitive long-distance and wireless markets, and tracks paths taken in the local telephone market by other forward-looking states.

1 We note that some carriers, such as Frontier, also receive federal high cost fund subsidies and other subsidies. These subsidies are subject to the oversight of the FCC. References to subsidies in this document pertain to state subsidies unless otherwise noted.

2 The CLECs often provide service on Unbundled Network Element-Loops (UNE-L) leased from the ILEC and their own telecommunications switching infrastructure.

3 Vonage Holdings Corporation.

4 Service provided by 8x8, Inc.

5 47 U.S.C. pmbl.

6 Cal. Pub. Util. Code § 451 ("All charges demanded or received by any public utility, or by any two or more public utilities, for any product or commodity furnished or to be furnished or any service rendered or to be rendered shall be just and reasonable. Every unjust or unreasonable charge demanded or received for such product or commodity or service.").

7 En Banc Tr. at 167 (testimony of Dr. Ed Rosenberg) (indicating twenty-one states already have engaged in telecommunications deregulation).

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