VII. Comments on the Draft Decision

The Draft Decision of Administrative Law Judge Thomas R. Pulsifer in this matter was mailed to the parties in accordance with Section 311(g)(1) of the Pub. Util. Code and Rule 77.7 of the Rules of Practice and Procedure. Comments were filed on January 29, 2004, and reply comments were filed on February 6, 2004.

Only SBC filed opening comments on the Draft Decision. Various parties filed reply comments in opposition to SBC. We have reviewed parties' comments and find in them no basis to change the substantive outcomes reached in the Draft Decision. In the interests of clarity, however, we review some of the arguments presented in the comments and explain why we are not persuaded thereby to substantively modify the Draft Decision. In its comments, SBC argues that the Draft Decision's reliance on TELRIC as a pricing standard is contrary to federal law and is preempted. SBC argues that Section 251(b)(3) of the Act does not permit application of TELRIC pricing because such pricing only applies to UNEs, as determined by the FCC. Since DALIS is not a UNE, SBC argues that TELRIC pricing is not permitted. Nonetheless, we find that the principles of TELRIC pricing remain a relevant consideration in the pricing of DALIS, independently of UNE pricing.

Notwithstanding SBC's claims, no federal law prohibits this Commission from setting DALIS prices on a cost basis, to the extent that it achieves nondiscriminatory pricing. Even if DALIS is not a UNE, its pricing remains subject to strict nondiscrimination requirements under the Act and FCC orders. As the FCC recognized in its DAL Provisioning Order,²¹ this nondiscriminatory access requirement extends to pricing. In its order, the FCC recognized that ILECs continue to charge competing DA providers discriminatory and unreasonable rates for DAL. Although the FCC declined to support a specific pricing structure for DAL, it encouraged states to set their own rates consistent with the nondiscrimination and reasonable pricing requirements of Section 251(b)(3). We conclude that TELRIC-based pricing provides the best proxy of the cost the SBC actually incurs to use DA listings to provide its own services, and as such, appropriately satisfies the nondiscriminatory pricing standard.

On this basis, there is no FCC prohibition against a finding that the most reasonable cost proxy for such nondiscriminatory pricing of DALIS is forward-looking economic costs represented in TELRIC. In this regard, the FCC has stated:

"[O]ur decision not to impose a specific pricing structure on directory assistance notwithstanding our [FCC] jurisdiction over DA does not preclude a state commission from doing so. In such cases, the Commission would adopt the state rate as its own, subject to the Title II requirements of reasonableness and nondiscrimination as set forth in this [FCC] order."²²

Moreover, nothing in the DAL Provisioning Order precludes adoption of TELRIC-based price for DALIS. The DAL Provisioning Order was issued more than a year after the FCC's 1999 UNE Remand Order that did not expand the list of UNEs to include DAL. Thus, there is no basis to conclude that the UNE Remand Order prohibits this Commission from adopting a pricing structure based on TELRIC under the Title II requirements of reasonableness and nondiscrimination. Likewise, nothing in the FCC Triennial Review Order (TRO) preempted the Commission with respect to exercising discretion in determining the pricing structure for DALIS, even though it is not defined as a UNE. The states have the discretion to adopt TELRIC to achieve nondiscriminatory pricing, apart from whether DALIS is a UNE. TELRIC achieves nondiscriminatory pricing by providing the best approximation of the cost that SBC actually incurs to use those listings to provide its own DA services.

SBC also claims that it is inconsistent to apply a TELRIC standard that assumes that SBC will maintain its current market position and attain its current listings for free. SBC argues that TELRIC should be adjusted to reflect the risks of the competitive market that TELRIC assumes. We find nothing inconsistent in our application of TELRIC in assuming that SBC continues to attain current DA listings from competitors for free. The resulting prices produce no inconsistencies in assumptions, but merely enable final consumers of such listings to obtain the information from other competitors while still being able to benefit from SBC's economies of scale and scope in obtaining such listings.

SBC also takes issue with various other cost adjustments incorporated in the draft decision. SBC's criticisms regarding adopted cost estimates essentially amount to disagreement as to how the evidence in the record was weighed and applied. We find nothing in SBC's comments, however, that warrant a change in the DALIS cost estimates that are adopted in the Draft Decision.

SBC takes issue with the requirement set forth in the Draft Decision for SBC to true up any provisional rates in effect for wholesale DA listing service since the passage of the Telecommunications Act of 1996 (Act). SBC argues that it is retroactive ratemaking to order refunds applicable to the period prior to January 1998 when D.98-01-022 was issued. Contrary to SBC's claims, the true up requirement covering the period since the passage of the Act does not constitute retroactive ratemaking. On February 7, 2002, we issued D.02-02-025 which stated that once the Commission establishes permanent DALIS rates in this proceeding, SBC would be required to implement applicable refunds to DALIS customers to true up the provisional rates back to the effective date of the Act. D.02-02-025 has already addressed the issue of the appropriate effective date for the true up. The provisional DALIS rates were never approved by the Commission, and there is no retroactive ratemaking involved merely in implementing a true up that has already been ordered in prior decisions.

Findings of Fact

1. SBC submitted an initial revised DALIS cost study on April 17, 2003, and an update to its revised DALIS cost study on June 6, 2003.

2. SBC's proposed DALIS prices incorporate a floor set at its estimated TSLRIC with actual prices based on SBC's estimation of market value of the DALIS service.

3. The DALIS prices proposed by SBC are equivalent to the prices for similar services approved by the FCC in the X2A Agreements in SBC's 271 applications in the states of Missouri, Oklahoma, Kansas, Arkansas, and Texas.

4. Although SBC characterizes its proposed DALIS prices as "market-based," SBC has not presented a comparison of what prices competing marketers charge for DA service within California, nor a comparison of the quality, timeliness, or comprehensiveness of DA service offered by California DA competitors.

5. Given the dominant position that SBC continues to enjoy through its legacy as a former monopoly provider of local exchange service and absent affirmative evidence of a fully competitive market, there is no basis to conclude that the market for DA services within California is fully competitive.

6. Given the lack of a fully competitive market for DA services within California, SBC's proposal to rely on prices charged by SBC affiliates in other jurisdictions would not lead to a competitive or nondiscriminatory price.

7. A pricing methodology based on forward-looking economic costs, as reflected in the "Total Element Long-Hour-Run Incremental Cost" methodology, reasonably represents the conditions of a competitive market, and reduces the ability of an incumbent LEC to price in an anticompetitive manner.

8. SBC's cost study is based upon the activities and related resource times identified for the tasks presumed to be required to provide DALIS, and applies related unit costs to derive recurring and nonrecurring costs.

9. In deriving DALIS prices on a TELRIC basis, SBC applies a "wholesale-only" standard that assumes its entire retail operation and all related outputs do not exist.

10. By creating a hypothetical construct of costs based on an assumption that SBC retail operations did not exist, SBC ignores economies of scale and scope between its retail and wholesale DALIS operations.

11. TELRIC pricing applicable to DALIS includes a provision for return on SBC's economic costs, as reflected in the 21% shared-and-common-cost markup currently set by the Commission as adopted in D.02-09-004.

12. DALIS pricing proposed by SBC does not distinguish the cost of listings acquired from other incumbents versus those that SBC obtains from its own subscribers.

13. SBC's "data acquisition" costs are based on a "weighted average" cost per record for initial load and for additional listings multiplied by the total listings for both SBC and non-SBC ILECs.

14. SBC's "data storage" costs are predicated on the cost of mid-range computers which would not be the least-cost choice for a company that uses computers for tasks other than processing DALIS data.

15. SBC assumption that two dozen full-time employees would be required to manage a wholesale-only DALIS product significantly exceeds SBC's actual California DALIS workforce.

16. SBC's assumed cost of computer processing time valued at $500 per hour is based on outdated information from an "AT&T Bill Collection" study completed in the late 1980s.

17. While SBC provides about 514,000 DALIS records per month to each DALIS customer based on its currently configured system, SBC assumes that about 1.3 million updated records would be required to keep the DALIS product current assuming wholesale-only operations.

18. SBC includes the cost of manually processing physical tapes for each DALIS customer, even though such customers can also obtain the data electronically.

Conclusions of Law

1. The FCC UNE Remand Order determined that the obligation of all LECs to provide nondiscriminatory access to DALIS already existed in Section 251(b)(3) of the 1996 Act, and declined to include DALIS in the definition of a UNE.

2. Even though DALIS is not defined as a UNE, TELRIC is still an appropriate standard to use for DALIS pricing.

3. Adopting a pricing methodology for DALIS based on forward-looking economic TELRIC replicates, to the extent possible, the conditions of a competitive market.

4. SBC has failed to show that its proposed DALIS prices satisfy the "nondiscriminary pricing" standard required by the FCC or that they reflect prices that would prevail in a fully competitive California market for DALIS.

5. SBC may not use its market power to set DALIS at a price that would unfairly discriminate against competitors in comparison to SBC's own affiliates.

6. SBC'S pricing standard underlying its proposed DALIS prices results in charges that exceed the reasonable costs required to provide DALIS and violates the nondiscrimination requirements of the Act and the FCC's orders.

7. SBC should be required to implement DALIS pricing consistent with the TELRIC-based components as set forth in the order below.

8. The prices proposed by the joint parties provide a reasonable estimate of TELRIC-based elements forming a basis for adoption of DALIS prices to be charged by SBC as set forth below.

9. The TELRIC-based prices, as set forth below, should be adopted for SBC DALIS pricing purposes.

ORDER

IT IS ORDERED that:

1. Pacific Bell Telephone Company, doing business as SBC California (SBC) is hereby directed to file amended tariffs for Directory Assistance Listing Information Service (DALIS) in accordance with General Order 96-A within 20 business days to reflect the adopted pricing elements set forth as follows:

Rate Element	Units	Cost	Price
Recurring (Update Listing Files)	Per Listing	$0.00072	$0.00087
Optional Tape Delivery	Per Tape	$13.32	$16.12
Non-Recurring (Base File)	Per Order	$2,954.37	$3,574.79

2. SBC is directed to perform the necessary calculations to determine the appropriate true up of DALIS customer billings for past periods in accordance with Decision 98-01-022, based on the billing amounts adopted herein. SBC shall incorporate appropriate measures in its filed tariff versions to implement any necessary billing adjustments as a result of the true up.

This order is effective today.

Dated _____________________, at San Francisco, California.