III. Background

Telecommunication services are classified into three distinct categories: Category I, Category II, and Category III. Services deemed to be basic monopoly services are classified as Category I. Services deemed to be discretionary or partially competitive services for which the Local Exchange Carriers (LECs) retain significant, though perhaps a declining, market power are classified as Category II. Services deemed to be fully competitive are classified as Category III, with upward and downward price flexibility.

The rates and charges for services classified as Category I and II can only be set or changed upon Commission approval. Category III provides Pacific Bell with upward and downward price flexibility provided that it meets certain notice requirements. These notice requirements are addressed in our price flexibility discussion.