2. The Parties' Supplemental Comments on
the Scoping Memo

On the December 18, 2009 due date, all parties filed supplemental comments in response to the Scoping Memo.⁹

In their comments, DRA and TURN both criticized the Scoping Memo for relying on FCC account descriptions to determine which types of asset transfers are non-controversial and should be considered in Phase I. TURN argued that the FCC's account descriptions are "overly broad and would improperly include assets that are used to directly offer basic service, and assets that are `necessary' to maintain service quality." (TURN Supplemental Comments at 6.) DRA argued that instead of relying on FCC account descriptions, the Commission should ensure that asset transfers implicating any of five factors should be considered in Phase II of this proceeding:

[W]e believe more assets belong in the "controversial" category than the Scoping Memo acknowledges. Assets whose removal from use will affect the "public interest" should be treated as controversial and addressed in Phase 2 of this rulemaking. Those assets are relevant to the following aspects telecommunications companies' operations: 1) competitor access to the telephone network, 2) service quality, 3) services to seniors and low income customers, 4) jobs in California and hence the California economy, and 5) safety, privacy and security . . . (DRA Supplemental Comments at 1.)

As a corollary of this position, DRA stated that it opposes treating sales or other dispositions of the following types of assets (and potentially others) as non-controversial:

· Call centers, which employ large numbers of California residents and whose transfer would put those employees out of work or hurt service quality;

· Payment centers, where seniors, disabled, low income and other customers pay their telephone bills either because they lack banking relationships or feel more comfortable paying in person;

· Headquarters buildings, because of their impacts on California jobs;

· Central offices or switching centers, which house telephone switches and competitors' facilities, giving them access to the public switched telephone network and its network elements;

· Critical infrastructure under state and federal regulation that has an impact on the safety, privacy and security of customers, customer data and the infrastructure itself . . . (Id. at 2.)

In its comments, Consumer Federation also opposed granting a § 851 exemption based on asset type. Relying on decisions such as D.01-05-041, it argued:

[T]here should be a presumption that a utility's disposal or encumbrance of property is not in the public interest, and the telecommunications companies must be required, in this proceeding, to demonstrate that the disposal of property in exempted accounts will not have an effect on "the health, safety, comfort, and convenience of its patrons, employees, and the public." (Consumer Federation Supplemental Comments at 3.)

In their supplemental comments, AT&T, Verizon, and SureWest all endorsed the approach to defining non-controversial assets taken in the Scoping Memo, but argued that its decision not to include FCC Accounts 2681 and 2682 within the scope of Phase I should be reconsidered. Verizon, for example, offered the following justification for reconsidering the decision to exclude Accounts 2681 and 2682 from Phase I:

[T]wo of the accounts that the Scoping Memo would defer to Phase 2, i.e., accounts 2681-2682 (capital leases and leasehold improvements), in fact, contain assets that are not used to directly provide telephone service, and therefore should be exempted in Phase 1 under the policy framework advanced in the Scoping Memo. Although such accounts could theoretically include leased buildings containing active or reserved collocation space, the same is true of owned buildings (account 2121). The Scoping Memo accepts Verizon's proposal for addressing this minor issue, i.e., to use internal records to differentiate between those buildings containing collocation space versus those buildings that do not. The same approach should be utilized for capital leases and leasehold improvements. Accordingly, the Commission should include accounts 2681-2682 in the list of assets exempted in Phase 1, subject to the discussed collocation exception. (Verizon Supplementary Comments at 2; footnote omitted.)¹⁰

For various reasons, all of the commenting parties except Consumer Federation were critical of the requirement in the Scoping Memo that URF carriers invoking the proposed § 851 exemption should be required to file an annual Tier 1 advice letter.¹¹ After pointing out that the Commission had not imposed such a reporting requirement in the past, AT&T said:

[T]he Scoping Memo's suggested reporting requirement would create a cloud of uncertainty over exempted transactions similar to that which exists under the current Section 851 approval process. As noted above, under the suggested reporting requirement, transactions would be subject to protest if an interested party believes that a particular transfer cannot legitimately be considered non-controversial. This means exempted transactions, like non- exempted transactions, would face the prospect of a protest that could affect the transaction. Moreover, unlike the current Section 851 approval process where any protests are known before the transaction occurs, protests under the newly suggested reporting requirement would come after the transaction has taken place. Thus, the newly suggested reporting requirement would create a level of regulatory uncertainty for URF ILECs that is worse than under the current process. The prospect, and concomitant uncertainty, that a protest may affect exempted transactions long after they have been completed would impair the ILECs' ability to effectively negotiate transactions with third parties and to efficiently manage their assets, and it would place them at a disadvantage vis-à-vis competitors that have no reporting requirement. (AT&T Supplemental Comments at 5-6; footnotes omitted, emphasis in original.)¹²

Although differing with AT&T, Verizon, and SureWest on other issues, TURN and CALTEL agreed that the requirement of an annual report in the form of a Tier 1 advice letter was unworkable. In its comments, TURN stated:

The proposal [for an annual advice letter report] also purports to provide a protest opportunity of the transactions listed in this annual report. However, in many cases, the protest would be several months after the fact and therefore almost useless. It would be extremely difficult to undo a transaction, especially those involving a third party unrelated to the carriers' telecommunications work . . . The party submitting the protest has an uphill battle to convince the Commission that any transaction would have to be reversed and further reviewed. An after-the-fact process would also be terribly unfair to the other party to the transaction who may find out perhaps a year later that their deal was void. While the [Scoping Memo's] proposal for an annual report has good intentions, and TURN agrees that there must be some type of notice to the public if exemptions are granted, this after-the-fact notice is not practical or effective. (TURN Supplemental Comments at 2; footnote omitted; CALTEL Supplemental Comments at 2-3.)¹³

⁹ Unlike the prior rounds of comments, DRA and TURN filed separate sets of supplemental comments.

¹⁰ See also AT&T Supplemental Comments at 2-4; SureWest Supplemental Comments at 1-2.

¹¹ Since Consumer Federation opposed granting a § 851 exemption based on asset type, it did not comment on the use of a Tier 1 advice letter as a vehicle for obtaining an annual report on the use of the proposed exemption.

¹² See also Verizon Supplementary Comments at 2-3; SureWest Supplemental Comments at 2.

¹³ In the Scoping Memo, the assigned Commissioner noted that any issues about the applicability of the California Environmental Quality Act (CEQA) to assets held by URF carriers are likely to be dealt with in R.06-10-006. He continued that to the extent the decision in R.06-10-006 "does not address the CEQA issues that have been raised in the comments here to the parties' satisfaction, objecting parties will be given a full opportunity in Phase II to develop their arguments that the need for CEQA review is a reason for limiting the scope of any exemption granted under § 851." (Scoping Memo at 11, n. 9.)

In the supplemental comments filed on December 18, 2009, no party took issue with the assertions in the Scoping Memo that (1) R.06-10-006 is the most appropriate vehicle for considering CEQA issues for URF carriers, and (2) to the extent the decision in R.06-10-006 does not deal with CEQA issues, the second phase of this proceeding is the appropriate venue for raising such issues insofar as they relate to an exemption from § 851. In view of the apparent consensus on these matters, we see no need to address CEQA issues here, as they are unlikely to arise in connection with the non-controversial assets being considered in Phase I.

We also note that on February 5, 2010, the Commission issued D.10-02-004, which extended until April 16, 2010 the time for resolving R.06-10-006.