Discussion
This order grants AT&T's petition in part and initiates a rulemaking on topics relating to the level of intrastate access charges. We grant the petition in recognition that circumstances have changed since 1994, when we last comprehensively examined access charges for Verizon and SBC. First and foremost, since our 1994 decision, ILECs and IECs have become direct competitors for interLATA traffic. Verizon has been permitted to offer interLATA service since 1996 and SBC began offering interLATA service in January 2003. AT&T alleges that IXCs suffer a price squeeze by virtue of the fact that they must pay access charges to their ILEC competitors, but the ILECs need only make paper transfers of money to their affiliates. According to AT&T, to the extent access charges are unduly high, the margin between access charges and the ILECs' retail long distance rates does not permit fair competition in long distance markets. In this order opening this docket, we make no finding one way or the other regarding the validity of AT&T's argument. We anticipate that this docket will address the validity of the price squeeze argument.
Second, we note that significant aspects of the current intrastate access charge rate structure were established by a settlement adopted in D.95-12-020. In that decision, the Commission instituted the network interconnection charge (NIC) element of access charges.4 D.95-12-020 described the NIC as an item that is not cost-based and not associated with the costs of any specific transport function. 62 CPUC 2d at 664, 668. In noting this statement from D.95-12-020, we do not intend to preclude parties in this docket from contending that the NIC recovers costs of providing switched access. We believe it is time to review whether the NIC and TIC elements should remain at current levels, should be reduced, or should be eliminated.
In order to narrow the scope of a proceeding that has the potential to be resource-intensive and lengthy,5 we will limit the scope of this proceeding to only the NIC and TIC portions of access charge tariffs. According to AT&T, the NIC comprises about half of total access charges for SBC and about a quarter of Verizon's. By limiting the scope of this docket to a rate element that has been identified as not cost-based, we hope to avoid the need for new cost studies and the attendant controversies regarding the appropriate cost standard that we should apply.6
In addition, we note that the FCC is now considering significant changes to the structure and levels of interstate charges in the context of other forms of inter-carrier compensation.7 We are hesitant to launch a lengthy docket to comprehensively re-examine all aspects of intrastate access charges, when such a proceeding would probably be better timed to follow whatever decision the FCC reaches. While intrastate access charges need not be identical in form or amount to those set by the FCC, this Commission will make a more informed decision once it knows what the FCC has decided.
A threshold issue in this proceeding is whether reducing access charges would require increases to other LEC rates. As previously noted, AT&T argues that there is no need to make any rate changes revenue neutral, while SBC and Verizon contend that revenue neutrality is indeed required. We wish to resolve this controversy immediately in order to know whether and how changes in access charges may affect customers of other LEC services. If we decide that any access charge reductions need not be offset by equivalent rate increases, our task will simply be to decide whether and by how much to reduce (or eliminate) the NIC and TIC portions of access charges. On the other hand, if we decide that access charge reductions must be revenue neutral, proposals for access charge rate decreases will need to identify which rates are being increased and by how much.8 We therefore will begin the proceeding with an examination and determination of this threshold issue and defer consideration of whether and how to change access charges to a second phase of the proceeding.
A related issue that we will explore early in the proceeding is whether the scope of this rulemaking should include a review of the access charges of CLECs. All local exchange companies, i.e., CLECs and ILECs, have exclusive control of both originating and terminating access to their customers. Thus, the local exchange carriers' control of access equally provides an opportunity to charge rates in excess of TELRIC, or any direct cost standard that could be applied. A review of some CLEC access tariffs indicates access rates in excess of the ILEC access rates. Therefore, some may argue that the logic of regulating the access charges for SBC and Verizon applies equally to CLECs.
We will conduct this proceeding in two phases. The first will focus on those issues relating to LEC rate design that would arise if the Commission were to change access charges and on whether the Commission should consider reviewing access charges for carriers other than Verizon and SBC. Questions we will address in Phase 1 will include:
1. If the Commission reduced or eliminated the NIC and TIC portion of access charges, should it offset decreases in LEC access charge revenues with increases in other rates?
2. If the Commission were to change the NIC and TIC portion of access charges, what is the possible range of revenue that would be affected?
3. Should the Commission consider revising the access charges for mid-size and small LECs? If so, should the Commission do so in this docket or should it open a separate proceeding on this issue? If in this docket, at what point in this docket?
4. Should the Commission consider regulating access charges for CLECs? If so, should the Commission do so in this docket or should it open a separate proceeding on this issue? If in this docket, at what point in this docket?
5. In lieu of the Commission establishing access network costs for individual mid-size LECs, small LECs, and CLECs, should the Commission consider utilizing SBC's and Verizon's access rates as a proxy to establish ceiling rates applicable to the mid-size LECs, small LECs and CLECs.
In Phase II, we will examine the following issues:
1. Should the Commission reduce or eliminate the NIC and TIC portion of access charges?
2. If the Commission reduces access charges, and the Commission has found in Phase 1 that offsetting LEC rate increases are required, how should the Commission redesign LEC rates?9 What rates should be increased and by how much? In achieving a revenue neutral rate design, should the Commission take into account the stimulation and repression effects of decreasing and increasing rates? If so, what estimates should the Commission use in accounting for stimulated and repressed usage?
3. If the Commission reduces access charges, should the Commission require the IECs to pass through those cost reductions to their customers? If so, how should that be accomplished?
The Assigned Commissioner and Administrative Law Judge (ALJ) may clarify or expand on these issues in order to accomplish the objective of our inquiry.
4 For Verizon, the comparable rate element is called the transport interconnection charge (TIC). 5 As an indicator of the potential complexity and controversy, we note that the phase of the proceeding that culminated in D.94-09-065, in which the Commission last significantly reduced access charges, took more than three years to conclude. We are aware that our 1994 decision addressed many more issues than this docket and was subject to some unique procedural circumstances that delayed the decision. In addition, in that decision, the Commission had decided that all rate changes must be revenue neutral, a determination that we reserve for an interim decision in this docket. 6 As noted by TURN and ORA, without further comments from the parties, it is not clear whether the Commission should apply a total element long run incremental cost (TELRIC) standard or a total service long run incremental cost (TSLRIC) standard.7 In the Matter of Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, rel. April 27, 2001.
8 Considerations of stimulated usage from reduced prices and repressed usage from higher prices may complicate the revenue estimates that are necessary when making revenue neutral rate changes. 9 Our use of the term "rates" is not intended to exclude the use of SBC's Rule 33 and Verizon's Schedule A-38 surcharge/surcredit mechanisms.
