X. Ceiling Rates

Verizon's tariff rates for its IWMPs have not been changed since 1989. Its currently effective tariff rates for its BRS and IWMPs were first capped as price ceilings in 1998.

A. BRS

Verizon's current and proposed ceiling rates for the individual rate elements of its business and residential customer BRS are set forth in Appendix-A. Of these rate elements, Verizon seeks to increase the first billable Weekday hour ceiling rate applicable to its business customers from $85 to $100. No other BRS ceiling rate changes are being proposed.

Verizon's business survey demonstrates that approximately 75% of the alternative business suppliers responding to the survey charge their BRS customers by either an hourly labor rate or by time and materials. While these hourly rates range from $18 to over $100, Pacific has been charging a $103 hourly rate since 1993.

We find Verizon's requested ceiling rates in the upper range of competitors. However, in our experience, self-reports of charges by competitive business suppliers deserve a measure of skepticism. This is partially because competitors tend to underreport. Verizon's requested $100 ceiling rate for the first billable Weekday hour of its Business BRS is within the range of rates being charged by alternative business suppliers within California and should therefore be approved.

B. IWMPs

Verizon seeks authority to increase the monthly ceiling rates for its IWMPs as shown in the following tabulation:

_____Ceiling Rates____

Service Current Proposed

Residence Service (Each Line) $ .95 $ 1.75 Business Service (Each Line) 1.95 2.50

CentraNet Service (Each Line) 1.95 2.50

Landlord (Each Residential Rental Unit) .95 1.75

Verizon supports its request to increase these ceiling rates, in effect since 1989, with a detailed cost study submitted under seal. The cost study utilizes the Total Service Long Run Incremental Cost (TSLRIC) principle to demonstrate that its floor rates cover directly attributable costs and provide some contribution toward covering shared and common costs.³⁶

Verizon seeks increases in these ceiling rates to bring them up to national competitive averages. Verizon explains that its requested ceiling rates are still below those currently accorded to Pacific in its adjacent territory and are also below the prices charged by other LECs offering the same services in 47
other states, states that have detariffed or deregulated inside wire maintenance and repair services.

TURN opposes any ceiling rate increases to the IWMPs on the basis
that they already serve to fully recover costs and contribute to common costs. TURN concludes that any increase in these ceiling rates would amount to price gouging because Verizon's business and residential customers cannot obtain inside wire maintenance plans from any source other than Verizon. We've concluded that TURN's position is false in regards to business customers, and that competitive options exist for consumers who wish to substitute BRS for IWMP.

ORA also opposes any ceiling rate increases to the IWMPs on the basis that Verizon's cost study demonstrates that its current ceiling rates significantly exceed the costs to provide the services and provide contribution margins in excess of 22% above the services' TSLRIC for a tariff pricing level.³⁷

TSLIRC studies are not used to establish ceiling rates. They are, however, used to establish price floor rates to ensure that a service is not priced below cost. Our analysis of Verizon's current IWMPs' rates (which are also its ceiling rates) confirm that, although Verizon's prices have remained constant since 1989, current prices enable it to recover cost plus a markup for profit. We are cognizant that other LECs may be offering the same service at substantially higher rates in 47 other states, which have detariffed or deregulated IWMP services. Verizon does compare its requested ceiling rates to Pacific's ceiling rates for comparable service. However, it neither compares nor knows the rates of other California LECs or other businesses offering a similar IWMP service in California.

Category III pricing flexibility, which we grant in this decision, permits carrier initiated rate ceiling changes by advice letter and staff review. We grant Verizon's rate ceiling increase request because Verizon has met the burden for Category III treatment, and ceiling rates for its IWMPs have not changed since 1989, and are the lowest of most other states.³⁸. However, we condition the effectiveness of Verizon's advice letter pending notice to IWMP subscribers, as required in Ordering Paragraph 4 and 9. Further, we cap Verizon's IWMP rates at the requested ceiling rates for a period of one year. One year following the effective date of this decision, this cap will be raised to $2.99, the same rate cap applicable to Pacific's inside wire maintenance plan. We cap Verizon's rate at $2.99, because we are concerned that Verizon might otherwise raise rates beyond that afforded Pacific.

³⁷ A markup for Pacific's Open Access and Network Architecture Development pricing conventions was established in D.96-08-068.