4. Comments on Proposed Decision
The proposed decision (PD) of Commissioner Rachelle B. Chong in this matter was mailed to the parties in accordance with § 311 of the Pub. Util. Code and comments were allowed under Rule 14.3 of the Commission's Rules of Practice and Procedure. On July 21, 2008, opening comments on the proposed decision were received from Cox California Telcom, LLC, (Cox) the Division of Ratepayer Advocates (DRA), Verizon entities consisting of Bell Atlantic Communications, Inc., MCI Communications Services, Inc., MCImetro Access Transmission Services LLC, NYNEX Long Distance Company, TTI National, Inc., Teleconnect Long Distance Services & Systems Company, Verizon California Inc. and Verizon Select Services Inc. (collectively, Verizon), U.S. Department of Defense and All Other Federal Executive Agencies (DOD), Disability Rights Advocates and The Utility Reform Network (TURN), Pacific Bell Telephone Company (AT&T), Sprint entities consisting of Nextel of California, Inc., Sprint Communications Company, L.P., Sprint Spectrum L.P. as agent for Wireless Co, L.P. (U 3062 C) and Sprint Telephony PCS, L.P. (U3064) (collectively Sprint/Nextel), Telecom of California L.P. (TimeWarner) and SureWest Telephone (SureWest).
On July 28, 2008, reply comments were received from Disability Rights Advocates, Verizon, TURN, CTIA-The Wireless Association (CTIA), DRA, AT&T, Sprint/Nextel, TimeWarner, Cox and SureWest.
The comments generally focus on the following issues:
(a) AT&T, Verizon, Cox, Sprint/Nextel, TimeWarner, CTIA and SureWest support the findings and conclusions of the proposed decision except that AT&T and Verizon dispute the decision's conclusion that no further changes in the rules regarding retail special access services are required at this time.
(b) Disability Rights Advocates, DOD, DRA and TURN dispute the proposed decision's conclusion that no further monitoring reports or additional customer disclosure rules are required at this time. They take no position on retail special access.
4.1. Monitoring Reports
With regard to the need for additional monitoring reports, DRA66 and Disability Rights Advocates and TURN67 specifically argue that the reports filed with the FCC (ARMIS and non-ARMIS) and information contained in advice letter filings, and available from other sources such as carrier web sites, is inadequate. DRA argues that the PD fails to justify the "wait and see" approach and these consumer groups therefore urge the Commission to conduct an affordability study similar to the Field Affordability Study, which they assert will enable the Commission to understand income disparities and geographic diversity and the effects of increasing prices.68 DRA asserts that the PD fails to ensure consumers that the Commission will monitor affordability of services.69
DRA continues to assert that the Commission should adopt its monitoring report proposal, comprised of six reports that would provide information on service availability; prices; revenues; and line counts.70 DOD/FEA supports DRA's monitoring proposals.71 DRA asserts that the PD fails to cite record evidence of real or burdensome costs associated with DRA's and TURN's monitoring proposals.72
DRA also asserts that the PD's reference to the Commission's jurisdiction over VoIP providers is incorrect and should be deleted.73
Finally, although DRA and TURN assert that the ARMIS Reports do not provide useful information, they also argue that, in the event that the FCC grants pending forbearance petitions filed by AT&T and Verizon for ARMIS filings, the ILECs should be required to continue to file with this Commission the California-specific information that would have appeared on those ARMIS reports (including national or regional data if there is no California-specific reporting on a particular item).74
The carriers dispute these assertions. CTIA notes that DRA's monitoring proposal would require wireless carriers to provide the Commission with detailed reports that "would require a level of detail which far exceeds the type of information which a wireless carrier might track or report or otherwise post on its website" and refutes DRA's contention that this information is on hand with the wireless carrier or necessary for compliance with the CTIA Consumer Code.75 AT&T notes that DRA has failed to acknowledge that there are already many reports that the carriers are still required to file with this Commission.76 AT&T points out that the Commission determined that sufficient competition exists to discipline rates and therefore, DRA and TURN fail to justify how their proposed monitoring reports would provide data that would be useful.77
As for the retention of ARMIS reports, Verizon argues that the benefits of continued reliance on ARMIS reports is "questionable."78 AT&T notes that the cost assignment rules are a return to rate-of-return regulation and fail to provide useful data under URF, and that the PD's approach to the ARMIS reports is well-reasoned and the Commission can consider new requirements if circumstances later warrant it.79
Arguments that new monitoring reports are necessary to monitor rates are unfounded. These assertions fail to recognize that the Commission obtains information about basic service rates through tariff filings and will continue to do so, even after the rate caps for basic service are lifted. Therefore, nothing has changed in terms of the Commission's ability to monitor basic service rates. Moreover, as stated above, URF Carriers that detariff services will be required to provide information about rates, terms, and conditions on their websites, and a toll-free number for consumers to call to obtain a copy of rates, terms, and conditions. Therefore, this information will be available and, if anything, more easily accessible to consumers than they are currently - given that most consumers are likely unaware of even the existence of tariffs or how to read them. Moreover, URF Carriers are still required (even under detariffing) to provide notice to consumers as to increases in rates or imposition of more restrictive terms and conditions. We encourage URF Carriers to provide notice to our staff in Consumer Affairs Bureau and Communications Division of such rate increases or more restrictive terms and conditions so that they are informed of these changes and may respond to consumer inquiries more adequately.
Moreover, we stated in D.06-08-030 that we would consider whether the benefits of the proposed monitoring reports exceed their costs. DRA's and TURN's proposed monitoring reports would require detailed information on a zip code basis regarding, among other things, the various types of local voice services that a provider offers to residential and/or business customers and by what technology (e.g., wireline, cable, non-cable VoIP, wireless); price lists for all recurring and non-recurring rates for stand-alone services and associated fees; and quarterly reports of total revenues by product type, service volumes, and average revenue by customer type. Currently, competitive, cable, and wireless carriers are not required to track any detailed information along these lines. These proposals would therefore require all carriers to incur significant costs to establish reporting systems and impose significant burdens on competitors. DRA and TURN failed to identify the specific benefits that would result from this information that the Commission cannot already obtain from existing tariffs, advice letter filings, carrier notices and website postings. Further, the FCC publishes reports that provide information on telephone subscribership, and telephone penetration by income by state; these reports provide state-specific data on affordability and provide information about trends in pricing.80 The Commission can always obtain additional data from providers as it deems necessary if it becomes concerned with affordability of rates.81
As for concerns that the Commission should monitor competition in the marketplace, the Commission has the ability and authority to obtain information as it believes necessary on an ongoing basis. In addition, the FCC's reports on wireline and wireless competition as well as the Form 477 reports that all providers are required to file provide substantial data on the level of competition in the wireline, wireless, and broadband markets. The fundamental conclusion of Phase 1 of this proceeding is that the market for telecommunications services in the service territories of the state's four large incumbent local exchange carriers is competitive. In a competitive market, as we remarked in the Phase 1 decision, "the rates of the market participants are disciplined by each other's offerings."82 DRA appears to believe that any increase in the price of any service offering is evidence of "market failure."83 This comment fundamentally misunderstands the operation of markets. Market failure is present only if a seller can unilaterally raise its prices without losing customers. In the competitive market that now exists in California, price increases by the state's ILECs have been accompanied by dramatic losses in access lines.84 Customers are migrating in large numbers from wireline to wireless phones or VoIP-based telephony to take advantage of the convenience, enhanced features, and/or lower prices offered by the non-wireline service providers.
As for the question of whether the ILECs should continue to file ARMIS Reports even if the FCC grants pending or future forbearance petitions, we will revise the Proposed Decision to require the ILECs to file the California-specific information from the ARMIS reports with this Commission, until we determine in a new phase of this proceeding that the ARMIS report information is necessary on a going-forward basis for this Commission to achieve its statutory objectives under Pub. Util. Code § 709(a) for assuring the continued affordability and widespread availability of high-quality telecommunications services to all Californians, under our uniform regulatory framework.
4.2. URF Special Access
The ILECs object to the PD's finding that there is insufficient information in the record to determine whether to grant full pricing flexibility for retail special access services and assert that, if the Commission believes that there is an insufficient record, it should specify what additional information is necessary for determining the issues.85 AT&T also requests that the Commission clarify what it means by "retail special access;"86 in particular, whether the PD's determinations as to "retail special access" apply only to ILEC retail special access and not to offerings by CLECs and IXCs.87 Verizon argues that, because CLECs and IXCs have had pricing flexibility for their special access services, the Commission's determination to "carve out" special access services from the detariffing authority in D.07-09-018 should apply only to ILEC-provisioned special access services and not to CLECs and IXCs.88
The competitive carriers, including Sprint-Nextel, TimeWarner, and Cox, support the PD's conclusion that the Commission should not revise the pricing rules governing retail special access at this time. Sprint-Nextel and TimeWarner further assert that all URF Carriers, including CLECs and IXCs are prohibited from detariffing retail special access at this time, as the URF Phase II Decision D.07-09-018 carved out consideration of retail special access from detariffing.89 Accordingly, they assert that the Commission should reject the ILECs' arguments that their CLEC/IXC affiliates should be allowed to detariff retail special access. Sprint Nextel and Time Warner express concerns that, if the ILECs' CLEC and IXC affiliates were able to offer special access on a detariffed basis, the ILECs would be able to enter into "special pricing deals for favored customers to their CLEC affiliates, for service on a discriminatory basis."90
We clarify that the PD's reference to "special access" in this proceeding is a reference to the ILECs' offering of non-switched lines dedicated to a customer's use between two points.91 The Commission initially opened the URF proceeding to examine the regulatory framework for the URF ILECs; in our subsequent decision D.07-09-018 on detariffing and advice letters, we defined "URF Carriers" to encompass the four largest ILECs, as well as CLECs and IXCs, for purposes of developing uniform detariffing and advice letter rules that would govern those carriers. However, our consideration of special access was limited to the ILECs' offering of special access.92 Because we are maintaining our pre-existing treatment of special access services, ILECs shall continue to comply with the pricing floors or ceilings that were established previously for each carrier. CLECs and IXCs have had full pricing flexibility for their services, and they shall continue to have such pricing flexibility.
We reject arguments that the record does not support our determination not to revise our pricing rules for retail special access at this time.93 As noted by Sprint-Nextel and Time Warner (Joint Commenters) in the proceeding, we should seek additional consideration regarding the geographic market for full pricing flexibility of special access services.94 The existence of competitors throughout the state may not establish statewide competition for special access services. We also wish to explore the claim that predatory pricing may result from the grant of pricing flexibility for ILECs' special access services to business enterprise customers even though competitors may obtain access to UNEs.95 In URF Phase I, we made our determination to grant pricing flexibility for ILECs' services based on the existence of competition, including competition by carriers using UNEs and special access services. Before granting pricing flexibility, we would like to explore further if changing existing pricing rules for ILECs' special access services could affect this level of competition. We find, therefore, that there is not enough evidence to reconsider pricing rules for ILEC special access at this time but we may reconsider this issue in the future.
4.2.2. Detariffing of Special Access Offered by CLECs or IXCs
As for detariffing of special access services, we clarify that because this decision applies only to ILECs' special access services, nothing prohibits a CLEC or an IXC from seeking to detariffing their special access services. We intended to carve out special access and resale services from detariffing in D.07-09-018:
We agree with Sprint Nextel that nothing in this decision applies to wholesale or resale tariffs. Wholesale/resale rates are to remain tariffed by URF carriers. We will address requests for reform of retail and resale special access in the next decision in this phase.
D.07-09-018 at p.60. However, as discussed above, our reference to "reform of retail and resale special access" was intended to focus on ILECs' special access services - not CLECs or IXCs.96 Therefore, a CLEC or IXC may detariff their special access offerings.
Sprint Nextel and Time Warner argue that, because the Commission did not grant full pricing flexibility for special access in URF Phase I, D.06-08-030,97 CLECs and IXCs are also barred from detariffing their special access services. We clarify that our reference to services that were "not granted full pricing flexibility in D.6-08-030" was intended to restrict carriers from detariffing services that are subject to pricing restrictions. Because CLECs and IXCs have already had full pricing flexibility for their services, they may currently detariff their special access services. We further note, however, that the CLECs and IXCs should not impose use or user restrictions on their service offerings, as such practice would be inconsistent with Pub. Util. Code § 453.
The deadline for URF Carriers to detariff their existing tariffed services was initially set at 18 months from the effective date of our detariffing decision D.07-09-018. Because of some of the uncertainty regarding detariffing of services, such as special access, and in light of our clarifications above, we are extending the implementation period for detariffing of eligible services to September 12, 2009 (24 months from the effective date of D.07-09-018); to the extent that they seek to detariff existing services, URF Carriers must file to detariff by that date.
4.3. Consumer Disclosure Requirements
With regard to additional customer disclosures, both DRA and TURN appear to believe that customers are unable to make informed choices among providers unless the Commission mandates a host of new disclosures and sets the mechanism by which those disclosures should be made. Both parties reference our recent decision to require AT&T to make certain disclosures regarding stand-alone basic service on its web site.98 We imposed this requirement on AT&T as a corrective action to past abusive behavior. There is no evidence in the record of this proceeding that any other carrier required this type of remedial sanction. And as we noted in that decision, we will not hesitate to impose similar sanctions on similar conduct by other carriers.
In response to TURN`s comment that the proposed decision "could reasonably be interpreted to suggest that the Commission would eliminate existing consumer protection and disclosure rules beyond those contained in G[eneral] O[rder] 168,"99 we clarify that this decision is not intended to reduce or replace any existing customer disclosure rules. We decline to adopt additional rules but we do not alter the framework of rules currently in place.
TURN argues that "[i]t is factually incorrect to cite to '23 initiatives' generated from D.06-03-013 as sufficient to protect consumer interests."100 To the same effect, DRA argues that "[t]he PD fails to provide a rational basis for concluding that the comprehensive consumer protection regime in D.06-03-013 is sufficient."101 On the contrary, D.06-03-013 was based on an extensive record, compiled over a period of years, and carefully reviewed in the decision, including more than 50 pre-existing statutes, decisions and rules mandating various consumer disclosures, all of which remain in place following adoption of that decision.102 Both TURN and DRA also recognize that significant consumer protection initiatives undertaken following the adoption of D.06-03-013 are still in the process of implementation, rendering any judgment of insufficiency premature.
With the exceptions of the revisions discussed above, we decline to change the decision.
66 Comments of the Division of Ratepayer Advocates on Proposed Decision Regarding Monitoring Reports, Retails Special Access Pricing and Customer Disclosure Rules July 21 2008 (DRA Opening Comments on PD) pp. 5-9.
67 Comments of The Utility Reform Network and Disability Rights Advocates on Proposed Decision Regarding Monitoring Reports, Retail Special Access Pricing and Customer Disclosure Rules July 21, 2008 (TURN/Disability Opening Comments on PD) pp. 2-8.
68 TURN and Disability Opening Comments on PD at pp. 3-4; DRA Reply Comments on PD at p.4.
69 Comments of the Division of Ratepayer Advocates on Proposed Decision Regarding Monitoring Reports, Retails Special Access Pricing and Customer Disclosure Rules July 28, 2008 (DRA Reply Comments on PD) at p. 1.
70 DRA Opening Comments on PD at p. 9.
71 Comments of the United States Department of Defense and All other Federal Executive Agencies on Proposed Decision Regarding Monitoring Reports, Retail Special Access, and Pricing and Customer Disclosure Rules, July 21, 2008 (DOD/FEA Opening Comments on PD) at p. 4.
72 DRA Opening Comments on PD at p. 9.
73 DRA Opening Comments on PD at pp. 12-13.
74 DRA Opening Comments on PD at p. 6; TURN Reply Comments on PD at p. 3.
75 CTIA Reply Comments on PD at pp. 2-3. CTIA asserts that the CTIA Consumer Code does not require tracking or disclosing the type of detailed and potentially proprietary information suggested by DRA and TURN.
76 Reply Comments of Pacific Bell Telephone Company D/B/A AT&T California (U 1001 C) on Proposed Decision Regarding Monitoring Reports, Retail Special Access Pricing and Customer Disclosure Rules July 28, 2008 (AT&T Reply Comments on PD) at p. 1 (stating that the "PD correctly recognizes that (1) URF carriers are already subject to existing Commission reporting requirements, which will continue; (2) other existing sources provide sufficient information to monitor the industry; and (3) there is no valid justification for adopting new reporting requirements such as those proposed by DRA and TURN.").
77 AT&T Reply Comments on PD at p. 4.
78 Reply Comments of Verizon California Inc. (U 1002 C) on the Proposed Decision of Commissioner Chong Dated July 1, 2008 (July 28, 2008) (Verizon Reply Comments) at p. 4.
79 AT&T Reply Comments on PD at p. 2.
80 See, e.g., Telephone Penetration by Income by State, FCC Industry Analysis and Technology Division Report (Mar. 2008); Reference Book of Rates, Price Indices, and Household Expenditures for Telephone Service, FCC Industry Analysis and Technology Division (2007).
81 We note that we are addressing the issue of affordability of basic service rates in R.06-06-028. To the extent that the parties assert that an affordability study must be done of basic service rates, the appropriate forum for determining that issue is in that proceeding.
82 D.07-09-018, p. 28.
83 DRA Opening Comments on PD, p. 3.
84 See Residential Telephone Subscribership and Universal Telephone Service Report to the Legislature, California Public Utilities Commission (June 2008) (noting that since 2001, California's largest ILECs have lost 25% of their embedded wireline customer base as a result of migration to broadband DSL and cable, as well as substitution of VoIP and wireless for wireline voice services). This report finds that there are "now more wireless than wireline subscribers in California, a number that has increased over three-fold since 1999." See id. at p. 8.
85 Opening Comments of Verizon California Inc. on Proposed Decision of Commissioner Chong Dated July 1, 2008 (July 28, 2008) (Verizon Opening Comments on PD) at pp. 2-3; Comments of Pacific Bell Telephone Company D/B/A AT&T California (U 1001 C) on Proposed Decision Regarding Monitoring Reports, Retail Special Access Pricing and Customer Disclosure Rules July 21, 2008 (AT&T Opening Comments on PD) at pp. 4-5.
86 AT&T Opening Comments on PD at p. 2.
87 Verizon Opening Comments on PD at pp. 4-5; AT&T Opening Comments on PD at p. 2.
88 Verizon Opening Comments on PD at p. 5.
89 Sprint Nextel and TimeWarner Opening Comments on PD at pp. 3-4.
90 Id. at p. 4.
91 See, e.g., Verizon Opening Comments (Mar. 2, 2007) at p. 3 and Tanimura Phase 2 Opening Declaration at para. 15.
92 The ILECs are the only carriers that have pricing restrictions on special access services and therefore, are subject to some Commission oversight over their prices for special access. Therefore, our consideration of whether to grant full pricing flexibility for special access could only apply to ILECs.
93 AT&T seeks confirmation that our reference to "retail" special access means those services that are sold to business enterprise customers - and not other carriers. See AT&T Opening Comments on PD at p. 3. We clarify that "retail" special access refers to special access services that are sold to end-user customers. However, we also note that regardless of whether special access services are sold to end-users or other carriers, there should not be use or user restrictions placed on the offering of the service.
94 Joint Reply Comments of Sprint-Nextel and Time Warner (Mar. 30, 2007) at p. 7.
95 See Joint Reply Comments of Sprint Nextel and Time Warner (Mar. 30, 2007), at pp. 2-12.
96 CLECs and IXCs have already had full pricing flexibility for these services.
97 We established in D.07-09-018 that detariffing was available for all URF Carriers' retail services, except for certain categories, including services that were not granted full pricing flexibility in D.06-08-030.
98 D.08-04-057.
99 TURN/Disability Opening Comments on PD, p. 9.
100 TURN/Disability Opening Comments on PD, p. 10.
101 DRA Opening Comments on PD, p. 14.
102 D.06-03-013, Appendix D.
