X. Tariffing of Services and Contracts; Price Floors; and Price Ceilings
To ensure that the prices charged for telecommunications services are "just and reasonable,"650 the Commission has developed over the years a large body of rules for both the tariffing of services and the establishment of price floors and price ceilings, which may include the review of contracts and the publication of contract terms. We now turn to such regulatory policies that apply to changes in the pricing of residential and business retail telecommunication services currently available in California. These services generally are available through tariffs or contracts, which are also known as individual case bases tariffs.
A. Positions of Parties
AT&T proposes "full pricing flexibility for all residential and business services."651 AT&T states that this proposal "means eliminating all pricing restrictions and limitations, including service categories, price floors (including imputation rules), price ceilings, requirements to provide cost data, and any other limitations on pricing."652 For all services excluding basic residential services, "[a]dvice letter filings for tariff changes [w]ould be effective one day after the filing."653
AT&T's justification for this pricing policy reform flows from its market analysis. AT&T argues that "[e]liminating burdensome filing and cost requirements is not only consistent with a market-oriented approach to regulation, it will further regulatory symmetry among telecommunications market competitors."654 In particular, for price floors, AT&T asserts that "explicit price floors may have made sense in an environment where competition was limited and service components provided by ILECs were actually required for competitors to enter the market. That environment, however, does not exist today."655
Likewise, AT&T maintains its proposal for contracts would "further the Commission's goal of treating all telecommunications competitors in a neutral manner and accelerate the delivery of contract benefits to customers."656 Specific reforms proposed are as follows:
[T]he Commission should eliminate pricing restrictions for contracts and associated cost data requirements. The Commission should also streamline the filing process for contracts by allowing them to become effective upon execution by the parties, with the contract to be filed at the Commission within 15 days.657
AT&T argues that without these reforms the Commission will continue to restrict its ability to "meet[] the needs of customers through contracts."658 AT&T explains that it "is required to prepare and file supporting cost data with its contracts, and customers must wait as long as 40 days (assuming no protests are filed) for the contract to take effect."659
Verizon similarly supports pricing reforms. Concerning tariffing, Verizon makes the following proposal:
Full pricing flexibility would be immediately accorded for all non-"basic" intrastate retail services, including usage; Key, PBX, multi-line, and additional residential lines; ZUM; and inside wire maintenance. Price increases would be effective on 25-day prior customer notice and Advice Letter ("AL") filing. Price decreases would be effective on 1-day AL filing.660
In addition, Verizon urges elimination of price floors for all intrastate, retail services.661 The ILEC argues that this elimination of price floors would not only promote "the OIR's goal of affordability of service," but it also would advance "a fundamental objective of competition itself, i.e., that firms not be discouraged from offering price decreases."662 Furthermore, given the level of intermodal competition, Verizon argues that, "even if price floors were necessary . . . it would not be practical for the Commission to determine what an appropriate price floor would be."663 It explains that there is no consistent cost basis among intermodal carriers to determine an appropriate floor, since intermodal competitors do not use incumbent wireline networks to provide service.664 Finally, regarding contracts, Verizon proposes that Individual Case Basis (ICB) contracts be made effective on their own terms and be filed with the Commission within thirty days of execution.665 No cost support would be required.666
SureWest and Frontier support a streamlined advice letter process in which tariffs would go into effect in one day, but any tariff that increases prices would require a twenty-five-day notice to customers.667 The mid-size ILECs also recommend the elimination of all price floors.668 SureWest argues that price floors prevent customers "from receiving the full benefits that downward pricing flexibility might provide."669
Concerning contracts, SureWest and Frontier see no merit to requiring the filing of contracts with the Commission.670 SureWest argues that their "contracts should be treated like other commercial contracts in any market. They are legally binding and enforceable in the courts, but of no regulatory importance unless they violate other laws."671 SureWest reasons that if "ILECS are not required to submit cost support for contracts . . . the requirement to file contracts will lose much significance."672 Continued imposition of this requirement, according to SureWest, "wastes carrier and Commission resources with little of no countervailing benefit."673
DRA submits a more complex proposal. It suggests reforming regulation of tarrifed services in the following manner:
[P]rice increases (where permitted) would be effective on 30-day advice letter filing and 25-day prior customer notice. Price decreases would be effective on 1-day advice letter filing. Contracts would become effective based on their own terms and conditions; the incumbents would be required to file contracts with the Commission within 15 days of their execution. Any required advice letter filings could be protested only for improper noticing or filing procedures, and no cost support would be required.674
DRA further urges elimination of Commission-established price floors for telecommunications services, a measure that would enable unlimited downward flexibility for all services.675 If competitors in the future have a complaint about ILECs' retail pricing, DRA states that they would go "directly to the courts and be allowed to make their case free from any pretense that the Commission has pre-determined economically meaningful price floors."676
DRA nevertheless states that some price regulation should continue to apply to certain services:
[P]rice caps should apply to both recurring and non-recurring charges. Price caps also would apply to measured local usage, ZUM, and EAS whenever those services are used in conjunction with a primary line service, but not otherwise. Finally, to avoid de facto price increases for residential primary line services, DRA proposes to retain the current price caps for residential inside wire maintenance plans.
The record concerning competition for business services supports retention of price caps for basic single-line business services and the usage associated with those services. Regulating the price of access lines without regulating the price of associated usage would enable the incumbents to avoid any meaningful price constraints on basic exchange services. DRA also recommends retaining price caps for PBX trunks, an essential input for the use of PBX systems as an alternative to the incumbents' Centrex/CentraNet offerings.
Finally, given the ILECs' dominance over basic access lines, DRA also recommends retaining price caps for special access (which the OIR indicated would be addressed in Phase 2 of this proceeding) and for E911 services.677
DRA explains that price caps will ensure services will remain affordable.678
TURN proposes that the Commission adopt a price cap that would apply to "residential and business primary lines, local usage, ZUM, EAS, recurring and non recurring charges, and additional lines for business and PBX trunks"679 as well as "Caller ID, call trace, 976 service, 900/976 call blocking, non-published and unlisted telephone numbers, white pages listings and busy line verification and interrupt services."680 This recommendation is consistent with its analysis that ILECs retain substantial market power.
TURN also supports a number of other price controls. It would impose controls on "services which are essential for persons with disabilities"681 and "inside wire maintenance."682 TURN adds that we should continue price floors. Under TURN's proposal the Commission should require "all carriers to price services higher than the lesser of long run incremental costs or the tariffed price on the date that the market is deregulated,"683 but only as long as these regulations are "combined with a monitoring program and the three year review."684
TURN recommends establishing uniform rules for tariffing and contracting by extending regulation to all competitors. With respect to tariffing specifically, TURN would establish uniform rules by extending regulation to all competitors. TURN supports "an advice letter process with a 1-day filing requirement for a price decrease, a 30-day filing requirement for a price increase, and a 25-day customer notice for a price increase."685 For contracting, TURN states that "contracts should become effective on their own terms, with a 15 day filing requirement. Given the concerns expressed above with respect to price floors and bundles/packages, on a transitional basis (until sufficient competition develops) tariffed service rates should be imputed in contracts."686
Similarly, DisabRA would continue price controls on a wide group of essential services.687 It too contends that there is little competition in the telecommunications marketplace.688
DOD/FEA provides broad support for flexible tariffing and simple contracting procedures. It states that "[p]rice decreases should be implemented on 1-day notice and price increases on 30-day notice without burdensome and unnecessary cost support."689 With respect to contracts, DOD/FEA contends that ICB "contracts should be effective upon execution by the parties. Cost support should not be required, but the contracts should be filed with the Commission within 15 days of execution."690
Cox argues that non-basic services should have no price regulation and that tariffing and customer procedures should be "standardized at the current requirements of competitors."691 Regarding contracts, Cox states that "contracts should be effective on execution and that the Commission should not require that they be filed."692
Time Warner focuses on price floor issues. It asks that the Commission establish a price floor using "either the prices already adopted for wholesale inputs or UNEs or the current tariffed prices and then simply use the latest `Total of the Floors' imputation approach adopted in D.04-11-022."693 Time Warner argues that "[u]nder this approach, any regulated offering of telephone service must be sold above its long run incremental cost . . . and requires that the ILECs' prices be equal to or greater than the wholesale prices charged competitors."694 Time Warner asserts that this approach is needed to protect against potential anticompetitive actions by ILECs.
B. Discussion: Statutes and Market Conditions Support Streamlined Tariffing and Contracting Procedures
We find two of the statutory policies we reviewed in Section III to be particularly relevant to this section. First, California statutes direct us to use technologically and competitively neutral policies to encourage wide choice in telecommunications services. Second, statutes instruct us to support competition in the telecommunications marketplace whenever possible. Both of these statutory policies conflict with our current tariffing and contracting regime.
Furthermore, our previous discussion of the state of telecommunications market in California established that the pricing power of ILECs is sufficiently checked by a number of competitive forces. These forces include the realistic threat of entry carriers in any market using UNE-L and the widespread competition offered by wireless, cable, and VoIP providers. These market conditions lead us to conclude that we should rely on market forces - rather than time consuming and burdensome regulatory proceedings concerning tariffing and contracting - to promote the public interest. Continued tariffing and contracting procedures may even disadvantage consumers by unnecessarily driving up costs and delaying price decreases.
In a fast-moving technology space like telecommunications, there is no public interest in maintaining an outmoded tariffing procedure that requires the regulatory review of cost data and delays the provision of services to customers. This system only made sense in a world where there was a single dominant ILEC, and active regulatory intervention was required. Thus, it is reasonable that all advice letters for tariffed services should go into effect on a one-day filing, but any tariffs that impose price increases or service changes require a twenty-five-day advance notice to all affected customers. Customers should have some notice of price increases in order to decide whether to keep the service or switch to a competitor.
We, however, do not find that we need to maintain general price floors and the submission of cost data. Time Warner, a carrier that obtains critical wholesale services from ILECs, argues that price floors will protect against anticompetitive actions, such a price squeeze in which an ILEC charges itself less for a wholesale input that it charges a competitor. Yet such a pricing policy is already illegal. Moreover, the price floor proposal recommended by Time Warner is cumbersome and more difficult to implement than it acknowledges. Establishing a price floor at the "total of the floors" is no simple matter, particularly since there are services for which no Long-Run Incremental Cost will be available.
If an ILEC engages in illegal pricing behavior, the existence of UNE-L prices should, for any ILEC service using a loop, simplify the identification and determination of a "price squeeze": Those services provided on one loop should have a price above UNE-L for that loop. So rather than adopt a "price floor" that would require us to institute a regulatory review program, we instead caution ILECs that any bundle of telecommunications service using a local loop that is priced below UNE-L is creating a de facto price squeeze. We invite any company harmed by such an action to file a complaint with this Commission.
Concerning contracting, telecommunications markets are ready to adopt the practices commonly used in competitive markets. Contracts will be effective upon execution. We will, however, require that contracts be filed with the Commission within fifteen days after execution. This filing requirement will enable the Commission and interested parties to ensure that telecommunications carriers do not violate the anti-discrimination requirements embedded in state law.695
650 Cal. Pub. Util. Code § 451.
651 Pacific Bell Opening Brief at 58.
652 Id. (footnotes omitted).
653 Id. at 59.
654 Id. at 58.
655 Id. at 82.
656 Id. at 59-60 (citations omitted).
657 Id. (citations omitted).
658 Id. at 56.
659 Id. at 56-57 (citation omitted).
660 Verizon Opening Brief at 3.
661 Id.
662 Id. at 26.
663 Id. at 28 (citation omitted).
664 Id. at 28 (citation omitted).
665 Id. at 3.
666 Id.
667 SureWest Opening Brief at 30; Citizens Opening Brief at 26.
668 SureWest Opening Brief at 20; Citizens Opening Brief at 17.
669 SureWest Opening Brief at 20.
670 SureWest Opening Brief at 30; Citizens Opening Brief at 26.
671 SureWest Opening Brief at 30.
672 Id.
673 Id.
674 DRA Opening Brief at 7.
675 Id.
676 Id.
677 Id. at 6.
678 Id.
679 TURN Opening Brief at 34.
680 Id. at 34-35.
681 Id. at 35.
682 Id.
683 Id.
684 Id.
685 Id. at 38.
686 Id. at 39.
687 DisabRA Opening Brief at 22-23.
688 Id. at 11-12.
689 DOD/FEA Opening Brief at 8.
690 Id. at 9.
691 Cox Opening Brief at 24.
692 Id.
693 Time Warner Opening Brief at 7.
694 Id.
695 See Cal. Pub. Util. Code § 558.
